CA Foundation Business & Commercial Knowledge Study Material – Banking Terminology

CA Foundation Business & Commercial Knowledge Study Material Chapter 6 Common Business Terminologies – Banking Terminology

Banking Terminology

• Acceptance: A signed acknowledgement indicating the acceptance of all the terms and conditions of an agreement.
• Accepting house: A bank or financial institution engaged in acceptance and guarantee of bills of exchange.
• Account balance: The net amount standing on the credit/debit side of the bank account of a customer.
• Account payee cheque: A cheque the payment of which can only be credited to the bank account of the payee.
• Accrued interest: Interest earned but not yet paid, also known as interest receivable.
• Administered rates: Rates of interest which can be changed through a contract between the lender and the borrower, or by the Government.
• American depository receipt (ADR): A receipt equal to the specific number of shares issued by a company in a foreign country. ADRs are traded only in the United States of America.
• Annuities: Periodic payments in exchange for deposit of a sum of money.
• Automated clearing house: A nationwide electronic clearing house that administers and monitors the cheque and fund clearance between banks. Through it debit and credit balances are distributed automatically.
• Automated teller machine (ATM): An electronic machine through which money can be withdrawn and deposited at any time and on any day.
• Balance transfer: Transfer of funds from one account to another or repayment of a loan with the help of another loan.
• Bank account: An account with a bank.
• Bank draft: A cheque drawn by a bank on its own branch or on another bank. It is payable on demand and also known as demand draft.
• Bank passbook: A book containing data of transactions between a bank and its customer.
• Bank rate: The rate of interest at which commercial banks can draw from the Reserve Bank of India for a long time period.
• Bank reconciliation statement: A statement prepared to reconcile the difference between balances shown in cash book and passbook.
• Bank statement: A Statement showing transactions between a bank and its customer during a specified time period.
• Basis point: A measure in interest rate, stock market indices and market rates. It is 1 /100 of one per cent e.g. Rs. 0.001.
• Bearer cheque: A cheque that can be encashed by its holder on the bank counter. It is transferable by mere delivery.
• Bill discounting: Encashing a bill of exchange at a discount before the date of its maturity.
• Bridge finance: Finance raised to fill up the time gap between a short term loan and long term loan also known as gap finance.
• Bounced cheque: A cheque which the bank refuses to encash due to lack of adequate balance or for any other valid reason.
• Cap: A limit to which rate of interest can be changed.
• Cash credit: A revolving credit arrangement under which a bank allows the customer to borrow upto the specified amount, interest is charged only on the amount actually withdrawn.
• Cash reserve: The total amount of cash available in the bank account and can be withdrawn immediately.
• Cashier’s cheque: A cheque drawn by a bank to make payments to the banks or any other party.
• Cheque: A negotiable instrument that instructs the bank to pay the specified amount from the drawer’s account to the payee.
• Certificate of deposit: A certificate of making deposit premising to pay the depositor the deposited amount along with interest.
• Chattel mortgage: Loan against the movable assets as collateral.
• Clearing: The process of transferring the amount of a cheque from the payer’s account to the payee’s account.
• Clearing house: Meeting of representatives of different banks to clear and confirm balances with each other. It is managed by the country’s Central Bank.
• Compound interest: Calculating interest on the principal amount and accumulated interest.
• Current account: A bank account from which money can be withdrawn as many times a day as needed and overdraft can be obtained.
• Debit card: An instrument obtained after making payment and used to buy things by swiping it. Deposit slip: A slip containing details of money deposited in a bank account.
• Depositor: The person who deposits, money into a bank account.
• Debt recovery: The process of recovering money from a debtor by selling of collators and other assets.
• Debt repayment: The repayment of debt along with interest.
• Debt settlement: The process of negotiating the amount which a lender accepts repayment below the amount of debt and accrued interest.
• E-cash: Use of electronic networks to transfer funds and execute transactions. Also known as electronic cash, digital cash.
• Early withdrawal penalty: The penalty charged from a customer who withdraws his/her fixed deposit the due date.
• Earnest money deposit: The deposit made by a buyer of real estate with the seller driving negotiation stage.
• Education loan: A loan given for the education of the borrower at a concessional rate of interest.
• Global depository receipt: A receipt specifying the number of shares issued by a company in a foreign country. The receipt is tradable in Europe.
• Guarantor: One who promises to repay a loan in case the borrower fails to repay.
• Interest: The charge which a borrower pays to the lender for use of money. It is the cost of credit.
• Internet banking: Banking transfer done by the Internet. It is also known as online banking or electronic (e)banking.
• Letter of credit: A written promise by a bank to an exporter to pay the specified amount on behalf of the importer for the goods sold.
• Line of credit: An arrangement under which a bank allows a borrower to borrow money from time to time without further negotiations and upto the specified limit.
• Lock-in-period: The time period during which no change in the quoted mortgage rates will be made by the lender.
• Market value: The value at which consumers are willing to buy and sellers are willing to sell. Decided by demand and supply.
• Maturity: The date on which an investment/loan becomes repayable.
• Mortgage: A legal agreement between a lender and a borrower under which real estate is used as a collactral to ensure repayment of the loan.
• Online banking: Same as internet banking.
• Overdraft: Withdrawal of money in excess of the balance in the borrower’s current account. Payee: The person to whom money is to be paid.
• Personal identification number (PIN): A secret code number given to customers to perform transactions through the ATM.
• Repo rate: The rate at which banks borrow money from the Reserve Bank of India for short periods upto two weeks by pledging government securities.
• Reverse repo rate: The rate of interest which the Reserve Bank of India pays to banks which deposit their surplus funds for short periods.
• Smart card: A card with a computer slip used for storage, processing and transmission of data.
• Syndicated loan: A large amount of loan given by a group of small banks to a single corporate borrower.
• Time deposit: A bank deposit made for a specific time period, cannot be withdrawn before the expiry of the period.
• Value at risk (VAR): A sum the value of which is subject to loss due to changes in the rate of interest. Wholesale banking: Banks which offer services to companies, financial and other institutions.
• Zero balance accounts: A bank account in which no minimum balance is required e.g. Jan Dhan Account.
• Zero-down-payment mortgage: A mortgage in which the borrower makes no loan payment. The mortgage buys below the amount at the entire purchase price.