Thursday, July 11, 2013





01. Subprime credit card:
A type of credit card issued to people with substandard credit scores or limited credit histories. These cards will typically carry much higher interest rates than credit cards granted to prime borrowers; they also come with extra fees and lower credit limits. Subprime credit cards are issued by both major issuers and smaller financial institutions that focus only on subprime lending.

02. Emerging market economics:
A nation’s economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body. Emerging markets generally do not have the level of market efficiency and strict standards in accounting and securities regulation to be on par with advanced economies, but emerging markets will typically have a physical financial infrastructure including banks, a stock exchange and a unified currency.

03. Asset and Liability management:
It is the management of a bank’s assets and liabilities to maximize long term wealth for the bank’s shareholders. This requires planning to meet needs for liquidity, avoiding excessive risk of default, planning maturities and durations to avoid unwanted exposure to interest rate risk, and controlling interest rates offered and paid to ensure an adequate spread between the cost of and the return on funds. Management focuses on measuring the sensitivity of net income and/or economic value of shareholders’ equity to changing interest rates

04. Provision norms:
Assuming that a certain percentage of loans will go bad, banks set apart a portion of their profits to cover such losses. The amount is deducted from the pre-tax income and set aside in a separate account in order to create a cushion for lending gone bad. The general provisioning refers to the provisioning that the banks have to do towards all advances made by them while the specific provisioning means provisions made towards lending to specific categories like real estate or capital markets. The new norms specified by Reserve Bank of India require all banks to reach 70% general provision cover by September, 2010

05. Securities lending and borrowing:
Securities lending and borrowing enables lending of idle securities by the investors to the clearing corporation and earning a return through the same. For securities borrowing and lending system, clearing corporations of the stock exchange would be the nodal agency and be registered as the approval intermediaries. The clearing corporation can borrow on behalf of the members, securities for the purpose of meeting shortfalls. The defaulter selling broker may make the delivery within the period specified by the clearing corporation. In the event of the defaulted selling broker failing to make the delivery within the specified period, the clearing corporation has to buy the securities from the open market and return the same to the lender within seven trading days. In case of an inability to purchase the securities from the market, the transaction shall be closed out.

06. Y-share:
A class of mutual fund shares that often has a high minimum investment, such as $500000 per lot, and the added benefit of waived or limited load charges and fees. Due to the high minimum investment required, Y-shares are often only accessible by large institutional investors

07. Structured financial messaging system:
Structured financial messaging system called as SFMS is a secure messaging standard developed to serve as a platform for intra bank and inter bank applications. It is an Indian standard similar to SWIFT  which is the international messaging system used for financial messaging globally. The SFMS has a number of special features and it is modularized and web enabled software, with a flexible architecture facilitating centralized or distributed deployment.

08. Rate improvement mortgage:
It is a  type of fixed rate mortgage which contains a clause that entitles the borrowers to reduce the fixed interest rate charge on the mortgage once, and early in the mortgage. The option will be exercised when interest rates fall lower than the borrowers initial mortgage rate. There is typically a fee associated with exercising this option, and the initial mortgage might have a higher than market interest rate and or high costs. However, the rate reduction option could save the borrower the costs of refinancing which might be more than the cost of using their rate improvement option

09. Held for trading:
Held for trading securities (or simply trading securities) are considered short term assets, and their accounting is handled as such. Held for trading securities include debt and equity instruments that are held for short periods of time, purchased with the intention of profiting from short term price changes.

10. XBRL – extensible business reporting language:
A standard that was developed to improve the way in which financial data is communicated, making it easier to compile and share this data. XBRL is a type of XML (extensible market language) which is a specification that is used for organizing and defining data. XBRL uses tags to identify each piece of financial data, which then allows to be used programmatically by an XBRL compatible program.

11. Semi closed system payment instruments:
These are payment instruments which are redeemable at a group of clearly identified merchant locations/establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal redemption by the holder.

12. Waterfall concept:
It is a  life insurance plan that provides a tax benefit in regard to inter generational transfers of wealth. The concept occurs when a tax exempt insurance policy is rolled over to a child or a grandchild. The origin of this term is derived from the fact that this insurance plan is similar to waterfalls in that it only flows downwards.

13. LIBOR rate:
LIBOR is the London Interbank Offered Rate, an interest rate at which banks can borrow money from each other. An interest rate benchmark used to establish the floating interest rate that is paid on the notional princi0pal in an interest rate swap.

14. Five against Bond Spread-FAB:
A spread in the futures markets created by taking offsetting positions in futures contracts for five year treasury bonds and long term (15-30 year) treasury bonds. A FAB spread is created by either buying a futures contract on five year treasury bonds and selling one long term treasury bonds or vice versa. Investors speculating on interest rate fluctuations will enter into this type of spread in hopes of under or overpriced treasuries

15. Motor Pool:
The motor pool arrangement collects all the commercial vehicles third party damage premiums into the pool and distributes the excess of claims over the premiums across all the non life insurance companies in the country, in accordance with a formula. Since the total claim has always exceeded the total premium collected, all companies have had to bear pool losses, regardless of whether or not they underwrite commercial vehicles and third party damage risks

16. Credit default swap:

A swap designed to transfer the credit exposure of fixed income products between parties. The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap. For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller of the swap should the bond default in its coupon payments.

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