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Key Banking & Financial Terms

http://www.financialmodelingguide.com/financial-modeling-tips/tips/banking-financial-te... 02/12/2012

02/12/2012 . to name a few.81% is a change of 6 basis points. • Basis Point: One hundredth of 1%. whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity. • Ask Price: The lowest price at which a dealer is willing to sell a given security. • Bear Markets: Unfavorable markets associated with falling prices and investor pessimism. • Brokerage Fee: The commission charged by a broker. • Bid-ask Spread: The difference between a dealer’s bid and ask price.75% to 5. A measure normally used in the statement of interest rate e.. banking. • Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date. public share purchase (in the case of M&A or share buy-backs). /p> • Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities. leases. and other assets. • At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument. • Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans. a financial analyst will find himself building a financial model that involves analysis or forecasting of a securities transaction such as an IPO. We’ve put together a brief glossary of the most common banking. issued by corporations and governments.com/financial-modeling-tips/tips/banking-financial-te.Page 2 of 13 Very often. financial and investing terms that a financial analyst may come across in the course of building a financial model: • Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date.. • Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity. It is clear that financial markets.financialmodelingguide. • Book Value: The amount of stockholders’ equity in a firm equals the amount of the firm’s assets minus the firm’s liabilities and preferred stock.g. • Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. investments. It is therefore important to have a sound knowledge of key banking and finance terms to ensure a common language when interfacing with investment bankers and financial markets professionals on your financial model. • Bid Price: The highest price offered by a dealer to purchase a given security. They are issued by large and well-established firms that have impeccable financial credentials. • Bond: Publicly traded long-term debt securities. • Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market. http://www.. and equity or debt issuance. • Bull Markets: Favorable markets associated with rising prices and investor optimism. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities. and financial modeling & valuation are interwoven topics. a change from 5. Accrued interest on bonds must be added to their purchase price.

It is the bond’s interest payment per dollar of par value. and all trading is done between investors in the open market. • Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.financialmodelingguide. • Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. • Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next. It is shown as: Coupon Rate divided by Price multiplied by 100%. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors. • Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. • Coupon: The feature on a bond that defines the amount of annual interest income. or who is or are in a position to control the composition of a majority of the board of directors of the issuer. • Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise. • Collateral: A specific asset pledged against possible default on a bond. allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. 02/12/2012 . • Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable.. • Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings. or in the name of the bank’s nominee. each share represents a fractional ownership interest in the firm. • Common Stock: Equity investment representing ownership in a corporation. • Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified period. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves. • Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. Collateral trusts bonds are backed by claims on other securities. • Default Risk: The possibility that a bond issuer will default ie. • Coupon Frequency: The number of coupon payments per year. or group of persons who together are. entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer. • Capital Markets: The market in which long-term securities such as stocks and bonds are bought and sold. and premature withdrawals incur interest penalties.. The share prices are determined by market prices instead of their net asset value. • Corporate Bond: Long-term debt issued by private corporations. The conversion premium is the excess of the bond’s value over the conversion price. • Closed-end (Mutual) Fund: A fund with a fixed number of shares issued. http://www. A conversion price is the specified value of the shares for which the bond may be exchanged. fail to repay principal and interest in a timely manner. • Convertible Bond: A bond with an option. Mortgage bonds are backed by claims on property.com/financial-modeling-tips/tips/banking-financial-te. plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services. • Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. Equipment obligation bonds are backed by claims on equipment. or more of the voting power at general meetings of the issuer. • Controlling Shareholder: Any person who is.Page 3 of 13 • Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original purchase price.

• Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date. • Insider Trading: The illegal use of non-public information about a company to make profitable securities transactions • Intrinsic Value: The difference of the exercise price over the market price of the underlying asset. • Income: The amount of money an individual receives in a particular time period. not the buyer. the seller will receive the dividend. The company can be referred to as an IPO for a period of time after the event. • Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to increase returns or be exposed to less risk. • Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument. • Hedge: A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk. • Equity: Ownership of the company in the form of shares of common stock.Page 4 of 13 • Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy (sell) the shares of a listed company at a specified price. Ex-dividend status is usually indicated in newspapers with an (x) next to the stock’s or unit trust’s name. such as the S&P 500. • Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or the period of time between the announcement of the dividend and the payment (usually two days before the record date). • Fundamental Analysis: Research to predict stock value that focuses on such determinants as earnings and dividends prospects. • Earnings Yield: The ratio of earnings to price (E/P). • Investment: A vehicle for funds expected to increase its value and/or generate positive returns.. • Index Fund: A mutual fund that holds shares in proportion to their representation in a market index. or other individuals with privileged access to information. 02/12/2012 . • Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will grow over a period of time when it is placed in an account paying compound interest. • Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire new shares in that company at a specified price and for a specified period of time. • Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated on a per share basis. For transactions during the ex-dividend period. major owners. as interest in-lieu to the bondholders. • Derivative Instrument: Financial instrument whose value depends on the value of another asset. • Duration: A measure of bond price volatility. • Future Value: The amount to which a current deposit will grow over a period of time when it is placed in an account paying compound interest. • Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time.financialmodelingguide. • Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.. • Fixed-income Securities: Investment vehicles that offer a fixed periodic return.com/financial-modeling-tips/tips/banking-financial-te. • Earnings: The total profits of a company after taxation and interest. expectations for future interest rates and risk evaluation of the firm. • Inside Information: Non-public knowledge about a company possessed by its officers. • Futures Contract: A commitment to deliver a certain amount of some specified item at some specified date in the future. it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments. The reciprocal is price earnings ratio (P/E). http://www. Interest is calculated on face/nominal value. • Discount Bond: A bond selling below par.

The fund issues new shares of stock and fills the purchase order with those new shares. • Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange by the public • Margin Call: A notice to a client that it must provide money to satisfy a minimum margin requirement set by an Exchange or by a bank / broking firm. the stock price is determined by supply and demand. the rate at which banks are prepared to accept deposits. so long as they do not go into default. • Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which the order is to be transacted. • Money Market: Market in which short-term securities are bought and sold.. • Option: A security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time. • Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors. • Limited Company: The passive investors in a partnership. • Leverage Ratio: Financial ratios that measure the amount of debt being used to support operations and the ability of the firm to service its debt. The share prices are determined by their net asset value. also used with preferred stock. or on behalf of. • Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value. produce high yields. and sell them back to. 02/12/2012 . Standard & Poor’s BBB rating or below. • Junk Bond: High-risk securities that have received low ratings (i. or Moody’s BBB rating or below) and as such. the holders of securities already in issue. • Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing market price. • Offer for Sale: An offer to the public by. • Listing: Quotation of the Initial Public Offering company’s shares on the stock exchange for public trading.financialmodelingguide. • Oversubscribed: When an Initial Public Offering has more applications than actual shares available. • Open Offer: An offer to current holders of securities to subscribe for securities whether or not in proportion to their existing holdings.. who supply most of the capital and have liability limited to the amount of their capital contributions. the mutual fund itself. Investors buy their shares from. • Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make continuous two-sided quotes.e. Once the company has gone Initial Public Offering. • IPO price: The price of share set before being traded on the stock exchange.com/financial-modeling-tips/tips/banking-financial-te. • Market Capitalization: The product of the number of the company’s outstanding ordinary shares and the market price of each share. • Libor: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). • Net Asset Value: The underlying value of a share of stock in a particular mutual fund. • Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. Investors will often apply for more shares than required in anticipation of only http://www. • Offer for Subscription: The offer of new securities to the public by the issuer or by someone on behalf of the issuer.Page 5 of 13 • Investment Adviser: A person who carries on a business which provides investment advice with respect to securities and is registered with the relevant regulator as an investment adviser. The LIBOR rate is published daily by the British Banker’s Association and will be slightly higher than the London Interbank Bid Rate (LIBID).

com/financial-modeling-tips/tips/banking-financial-te. Risk-Taking: Risk-averse describes an investor who requires greater return in exchange for greater risk. Reinvestment Value: The rate at which an investor assumes interest payments made on a bond which can be reinvested over the life of that security. Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the company’s common stock. Redemption Value: The value of a bond when redeemed. Resistance Level: A price at which sellers consistently outnumber buyers. or the sale of. at its face value). Risk-taking describes an investor who will accept a lower return in exchange for greater risk. IPO prices etc. Portfolio: A collection of investment vehicles assembled to meet one or more investment goals. 02/12/2012 . which includes all terms and conditions. preventing further price rises. Repurchase Agreement: An arrangement in which a security is sold and later bought back at an agreed price and time.e. Prospectus: A detailed report published by the Initial Public Offering company. http://www. Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will discount back to present when it is depreciated in an account paying compound interest. Risk-neutral describes an investor who does not require greater return in exchange for greater risk. Risk-Neutral. usually measured on a scale from 1 to 100. The growth rate of purchasing power derived from an investment.. Senior Bond: A bond that has priority over other bonds in claiming assets and dividends.. for the IPO Put Option: The right to sell the underlying securities at a specified exercise price on of before a specified expiration date.Page 6 of 13 • • • • • • • • • • • • • • • • • • • • • • • • • receiving a fraction of the requested number. Risk-Averse. Return: Amount of investment gain or loss. Investors and underwriters will often look to see if an IPO is oversubscribed as an indication of the public’s perception of the business potential of the IPO company. Present Value: The amount to which a future deposit will discount back to present when it is depreciated in an account paying compound interest. Preference Shares: A corporate security that pays a fixed dividend each period. Placing: Obtaining subscriptions for. Premium Bond: Bond selling above par. Par Value: The face value of a security. 1 being the worst and 100 being the best. Real Interest Rate: The net interest rate over the inflation rate. primary market.financialmodelingguide. application procedures. Rate of Return: A percentage showing the amount of investment gain or loss against the initial investment. Rights Issue: An offer by way of rights to current holders of securities that allows them to subscribe for securities in proportion to their existing holdings. The price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to the market price of its stock. It is senior to ordinary shares but junior to bonds in its claims on corporate income and assets in case of bankruptcy. Perpetual Bonds: Bonds which have no maturity date. where the new securities of issuing companies are initially sold. Par Bond: A bond selling at par (i. Relative Strength Index (RSI): A stock’s price that changes over a period of time relative to that of a market index such as the Standard & Poor’s 500. Premium (Warrants): The difference of the market price of a warrant over its intrinsic value. Privatization: The sale of government-owned equity in nationalized industry or other commercial enterprises to private investors.

financialmodelingguide. • Window Dressing: Financial adjustments made solely for the purpose of accounting presentation. debenture. • Speculation: The process of buying investment vehicles in which the future value and level of expected earnings are highly uncertain. • Short Selling: The sale of borrowed securities. • Yield (Internal rate of Return): The compound annual rate of return earned by an investment • Yield to Maturity: The rate of return yield by a bond held to maturity when both compound interest payments and the investor’s capital gain or loss on the security are taken into account. • Trust Deed: A formal document that creates a trust. when an issuer fails financially. securities sold. • • 24 http://www. or exceeding. normally at the time of auditing of company accounts. • Warrant: An option for a longer period of time giving the buyer the right to buy a number of shares of common stock in company at a specified price for a specified period of time. • Valuation: Process by which an investor determines the worth of a security using risk and return concept. • Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivered.. and receives from the broker the proceeds of a sale. but before equity holders. permissible spreads according to the prices of securities available for trading and board lot sizes for each security. Owners of this kind of bond stand last in line among creditors. such as charts of price. (It is an attempt to predict movements in security prices from their trading volume history. a two for one split doubles the number of shares but does not change the share capital. • Support Level: A price at which buyers consistently outnumber sellers.com/financial-modeling-tips/tips/banking-financial-te. volume. and after some general creditors in its claim on assets and earnings. • Underlying Security: The security subject to being purchased or sold upon exercise of the option contract. Contrasted with fundamental analysis which involves the study of financial accounts and other information about the company. 02/12/2012 . preventing further price falls. • Stock Splits: Wholesale changes in the number of shares. can help predict future (usually short-term) market trends. For example. and open interest. 10% of the share capital. • Trading Rules: Stipulation of parameters for opening and intra-day quotations.. • Subordinated Bond: An issue that ranks after secured debt. and other bonds.Page 7 of 13 • Short Hedge: A transaction that protects the value of an asset held by taking a short position in a futures contract. • Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value. their eventual repurchase by the short seller at a lower price and their return to the lender.) • Time Horizon: The duration of time an investment is intended for. • Substantial Shareholder: A person acquires an interest in relevant share capital equal to. It states the purpose and terms of the name of the trustees and beneficiaries. • Short Position: Investors sell securities in the hope that they will decrease in value and can be bought at a later date for profit. • Technical Analysis: A method of evaluating securities by relying on the assumption that market data.

Dev Very Useful for reference at any time specially for a middle level accountant like me. financial management..Thanks 3. analysts and investors from 195 countries have benefited.j. irfan khan http://www. 02/12/2012 .sarkar excellent 4.com/India • Financial Valuation Concepts – Discounted Cash Flow • Commonly Used Terms In Business & Financial Valuation • Analysis and Valuation of Equity Investments 10 Responses to “Key Banking & Financial Terms” 1.4xp.Page 8 of 13 If you're new to Financial Modeling Guide. tanmoy dey mind blowing article. Don't miss out on this outstanding opportunity for high quality. s. attend seminars. Over 65.VentureIntelligence.. A. globally recognized financial education: Sign Up For Free Now! After reading this article. Newsletter.in Properties in Bangalore Best Property to Live in Bangalore.S. if one follow this article then he/she should be benefitted in any bank po exam. Know More! IndiaHomes. Reports on PE & VC deals. corporate finance & valuation. connect with others and download free finance spreadsheet templates about financial modeling. people also reviewed these financial modeling and valuation resources: Indian Venture Capital Database.0 network. ask questions. to enroll in online financial training programs. you may want to join our sister site.com/financial-modeling-tips/tips/banking-financial-te. entrepreneurs.000 finance professionals. 2. the Finance 3.com/Bangalore_Properties Online Investing Earn Maximum Interest with Forex. Save upto Rs 1 Lac.financialmodelingguide. Financials & Valuations www. quantitative finance and accounting. Invest Now & Receive 15% Cash-Back www.

financialmodelingguide. funding the Harvard Economic Research Project for the study of the structure … Key Banking & Financial Terms [. the Rockefeller Foundation got in on the ground floor by making a four-year grant to Harvard College. 5...Page 9 of 13 It is good for the young people to understand the banking and company assets and liabilities. kamal lochan excellent list of terms.] Weigh in .U Excellent set of notes….share your financial insights on this article Name (required) Email (not published) (required) Website Submit Reset http://www.. 10.Pradeep This information is really very useful for preparing for my placements. Very very useful… Thanks alot… Keep on going… 8.. Sukesh Interesting and good one 7. Reshma Babu palakkal Good one 6.] … strongly suspected that it was possible for them to control the whole world with the push of a button.com/financial-modeling-tips/tips/banking-financial-te. so for me it too good that it provides me information about my studies. Immediately. Trackback: inventory control research paper | Bookmarks URL [. 02/12/2012 .. M. Anunadh. 9..

.Page 10 of 13 • Latest • Popular • Sections • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Building A Magazine Publisher Financial Model How To Input Historical Financial Statements In A Financial Model Financial Valuation Concepts – Points to Consider The Concept Of Free Cash Flow (FCF) Real Options (Strategic Options) in Financial Modeling Planning a Financial Model – Define Key Deliverables Mechanics of Discounted Cash Flow Valuation – WACC Key Banking & Financial Terms Analysis and Valuation of Equity Investments Financial Valuation Concepts – Discounted Cash Flow Analytical Tools in Financial Modeling – Financial Ratios Basic Accounting Principles Financial Valuation Concepts – The Internal Rate of Return (IRR) Financial Management Excel Templates (All Inclusive 150 Workbook Pack) Glossary Of Accounting Terms Mechanics of Discounted Cash Flow Valuation – WACC Contact Us Financial Valuation Concepts – Discounted Cash Flow Key Banking & Financial Terms The 10 Most Innovative Online Financial Analysis Tools For Investors Accounting Analytical Tools Financial Modeling Basics Financial Modeling Discipline Financial Modeling Essentials Financial Modeling Tricks Financial Ratios Planning a Financial Model Valuation Concepts Video http://www.com/financial-modeling-tips/tips/banking-financial-te. 02/12/2012 ..financialmodelingguide.

Page 11 of 13 Financial Modeling Video » • • • • • Analysis and Valuation of Equity Investments Financial Analysis Primer Damodaran on Dividends and Stock Buy Backs Understanding The Value Of Intangible Assets Deducting Intangibles (Purchase Price Allocation) View full article » View full article » http://www..com/financial-modeling-tips/tips/banking-financial-te.financialmodelingguide.. 02/12/2012 .

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financialmodelingguide.com/financial-modeling-tips/tips/banking-financial-te.finance30. I have a number of tools that I us… February 6 at 9:37pm 2.0 .Social N www. Melissa Bilguunjav Vishal Aveline Ablaze Tininha Raheel Jim Gloria David Ratna Sankar Copyright © 2007 to 2010 · Financial Modeling Guide · About FMG · FMG Team · Feature Your Book · Feedback · Contact Us · Sitemap · · Financial Training · · Financial News · http://www.. 02/12/2012 .0 on Facebook Like Finance 3.com/forum/topics/stockcomparison-excel-spreadsheet-with-open-sourced-vbacode-to Stock Comparison Excel Spreadsheet with open sourced VBA code to get DATA!! .427 people like Finance 3.Page 13 of 13 Finance 3.0 and depending on my feedback I get from users of this site I hope it wont be the last.finance30.0 http://www.0.com This is my first post on Finance 3.Finance 3..

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