Important Banking Terms That frequently Asked in bank exam. Set G

June 12, 2014

Garnishee Order: When a Court directs a bank to attach the funds to the credit of customer's account under provisions of Section 60 of the Code of Civil Procedure, 1908.


General Lien: A right of the creditors to retain possession of all goods given in security to him by the debtor for any outstanding debt.


Guarantee: A contract between guarantor and beneficiary to ensure performance of a promise or discharge the liability of a third person. If promise is broken or not performed, the guarantor pays contracted amount to the beneficiary.


Hedge: A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk.


Holder: Holder means any person entitled in his own name to the possession of the cheque, bill of exchange or promissory note and who is entitled to receive or recover the amount due on it from the parties. For example, if I give a cheque to my friend to withdraw money from my bank,he becomes holder of that cheque. Even if he loses the cheque, he continues to be holder. Finder cannot become the holder.


Holder in due course : A person who receives a Negotiable Instrument for value, before it was due and in good faith, without notice of any defect in it, he is called holder in due course as per Negotiable Instrument Act. In the earlier example if my friend lends some money to me on the basis of the cheque, which I have given to him for encashment, he becomes holder-in-due course.


Hypothecation: Charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. In pledge, possession of property is passed on to the lender but in hypothecation, the property remains with the borrower in trust for the lender.


Identification: When a person provides a document to a bank or is being identified by a person, who is known to the bank, it is called identification. Banks ask for identification before paying an order cheque or a demand draft across the counter.


Indemnifier: When a person indemnifies or guarantees to make good any loss caused to the lender from his actions or others' actions.


Indemnity: Indemnity is a bond where the indemnifier undertakes to reimburse the beneficiary from any loss arising due to his actions or third party actions.


Income: The amount of money an individual receives in a particular time period.


Index Fund: A mutual fund that holds shares in proportion to their representation in a market index, such as the S&P 500.


Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time. The company can be referred to as an IPO for a period of time after the event.


Inside Information: Non-public knowledge about a company possessed by its officers, major owners, or other individuals with privileged access to information.


Insider Trading: The illegal use of non-public information about a company to make profitable securities transactions


Insolvent: Insolvent is a person who is unable to pay his debts as they mature, as his liabilities are more than the assets . Civil Courts declare such persons insolvent. Banks do not open accounts of insolvent persons as they cannot enter into contract as per law.


Interest Warrant: When cheque is given by a company or an organization in payment of interest on deposit , it is called interest warrant. Interest warrant has all the characteristics of a cheque.


International Banking: involves more than two nations or countries. If an Indian Bank has branches in different countries like State Bank of India, it is said to do International Banking.


Introduction: Banks are careful in opening any account for a customer as the prospective customer has to be introduced by an existing account holder or a staff member or by any other person known to the bank for opening of account. If bank does not take introduction, it will amount to negligence and will not get protection under law.


Intrinsic Value: The difference of the exercise price over the market price of the underlying asset.


Investment: A vehicle for funds expected to increase its value and/or generate positive returns.


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.


IPO price: The price of share set before being traded on the stock exchange. Once the company has gone Initial Public Offering, the stock price is determined by supply and demand.


JHF Account : Joint Hindu Family Account is account of a firm whose business is carried out by Karta of the Joint family, acting for all the family members.. The family members have common ancestor and generally maintain a common residence and are subject to common social, economic and religious regulations.


Joint Account: When two or more individuals jointly open an account with a bank.


Junk Bond: High-risk securities that have received low ratings (i.e. Standard & Poor’s BBB rating or below; or Moody’s BBB rating or below) and as such, produce high yields, so long as they do not go into default.


Karta: Manager of a Hindu Undivided Family (HUF) who handles the family business. He is usually the eldest male member of the undivided family.


Kiosk Banking: Doing banking from a cubicle from which food, newspapers, tickets etc. are also sold.


KYC Norms: Know your customer norms are imposed by R.B.I. on banks and other financial institutions to ensure that they know their customers and to ensure that customers deal only in legitimate banking operations and not in money laundering or frauds.


Law of Limitation: Limitation Act of 1963 fixes the limitation period of debts and obligations including banks loans and advances. If the period fixed for particular debt or loan expires, one cannot file a suit for is recovery, but the fact of the debt or loan is not denied. It is said that law of limitation bars the remedy but does not extinguish the right.


Lease Financing: Financing for the business of renting houses or lands for a specified period of time and also hiring out of an asset for the duration of its economic life. Leasing of a car or heavy machinery for a specific period at specific price is an example.


Letter of Credit: A document issued by importers bank to its branch or agent abroad authorizing the payment of a specified sum to a person named in Letter of Credit (usually exporter from abroad). Letters of Credit are covered by rules framed under Uniform Customs and Practices of Documentary Credits framed by International Chamber of Commerce in Paris.


Limited Companies Accounts: Accounts of companies incorporated under the Companies Act, 1956 . A company may be private or public. Liability of the shareholders of a company is generally limited to the face value of shares held by them.


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.


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). The LIBOR rate is published daily by the British Banker’s Association and will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.


Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which the order is to be transacted.


Limited Company: The passive investors in a partnership, who supply most of the capital and have liability limited to the amount of their capital contributions.


Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value.


Listing: Quotation of the Initial Public Offering company’s shares on the stock exchange for public trading.


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.


Market Capitalization: The product of the number of the company’s outstanding ordinary shares and the market price of each share.


Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make continuous two-sided quotes.


Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing market price.


Money Market: Market in which short-term securities are bought and sold.


Marginal Standing Facility Rate: MSF scheme has become effective from 09th May, 2011 launched by the RBI. Under this scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities.  The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.


Mandate: Written authority issued by a customer to another person to act on his behalf, to sign cheques or to operate a bank account.


Material Alteration: Alteration in an instrument so as to alter the character of an instrument for example when date, amount, name of the payee are altered or making a cheque payable to bearer from an order one or opening the crossing on a cheque.


Merchant Banking : When a bank provides to a customer various types of financial services like accepting bills arising out of trade, arranging and providing underwriting, new issues, providing advice, information or assistance on starting new business, acquisitions, mergers and foreign exchange.


Micro Finance: Micro Finance aims at alleviation of poverty and empowerment of weaker sections in India. In micro finance, very small amounts are given as credit to poor in rural, semi-urban and urban areas to enable them to raise their income levels and improve living standards.


Minor Accounts: A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.


Mobile Banking : With the help of M-Banking or mobile banking customer can check his bank balance, order a demand draft, stop payment of a cheque, request for a cheque book and have information about latest interest rates.


Money Laundering: When a customer uses banking channels to cover up his suspicious and unlawful financial activities, it is called money laundering.


Money Market: Money market is not an organized market like Bombay Stock Exchange but is an informal network of banks, financial institutions who deal in money market instruments of short term like CP, CD and Treasury bills of Government.


Moratorium: R.B.I. imposes moratorium on operations of a bank; if the affairs of the bank are not conducted as per banking norms. After moratorium R.B.I. and Government explore the options of safeguarding the interests of depositors by way of change in management, amalgamation or take over or by other means.


Mortgage: Transfer of an interest in specific immovable property for the purpose of offering a security for taking a loan or advance from another. It may be existing or future debt or performance of an agreement which may create monetary obligation for the transferor (mortgagor).


Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors.


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