FINANCE TERMINOLOGY

[Document subtitle]



Finance-
A journal is also called as a book of prime entry.
Transactions occurred are first entered in this book to show
which accounts should be debited and which should be credited.

On the basis of entries made in the journal, accounts are
prepared, the book which contains the accounts is called a
ledger. Transactions entered in the journal are classified
according to their nature and posted in their respective
accounts in ledger. It is also called as book of final entry.

Difference between debenture and bond-
A debenture is a debt security issued by a corporation that is not secured by specific assets,
but rather by the general credit of the corporation.

Finance: Finance is the study of how investors allocate their assets over time under
The study of how money is managed and the actual process of acquiring needed funds.
Conditions of certainty and uncertainty.

Financial statement tells about financial position and performance about the company

Account is an individual record of increases and decreases in an item.

Account receivable: or debtors to which company have sold goods on credit and they will
pay after a specified period of time.

Unearned revenue: Amount received from customers and services yet to be provided. It is
liability.

Secured liabilities are backed by assets of company.

Retained earnings: Profit earned by the company dividends

Drawing: If owner withdraw cash or asset from business for its own use

Bill receivables: is a legal document containing a right to receive a certain sum of money at
a specified date.

Working capital: requirement of funds for day to day operations.

Net working capital: is current asset- Current liabilities

Revenue increases equity while expenses decrease it

Double entry book system records every transaction with debit and credit entry
GAAP provides the framework

Period for which company reports its net profit is fiscal year or financial year or accounting
period

Revenue is gross inflow of economic benefits during the period

Expenses are decrease in economic benefit during the accounting period

Gains are increase in equity

Losses are decrease in equity

Realization principle : Revenue is recognized when it is earned

Accrual system: Business recognizes revenue when it is earned, whether we have received it
or not

Matching principle: recording revenue in the same accounting period in which the expenses
incurred to earn that revenue

Unearned revenue: cash received in the past period and services yet to be provide

Accrued revenue: Cash receivable in future period for services provided in the current
period

Accounting cycle:
Understand and analyse the business transaction
Record the transaction in Journal
Prepare ledger
Prepare trial balance
Prepare adjusted trial balance
Prepare financial statements
Carry forward the balance sheets account in next period

Residual value: amount an organization will realize by disposing the asset.

Straight line method of depreciation:

(Cost- Residual value)/Useful life

Written down method:
1-nresidual value/ cost
By using this formula we are calculating depreciation rate

Financial assets:
Cash or equity instrument
Right to receive cash or another financial assets by another entity
Financial assets are of two types:
Held for trading: for short term profit making eg. trading securities
Held to maturity investments: for medium or long term eg. investment in other companys
debenture or bonds
Investment in debt and equity by mutual funds are example of financial assets at fair value
through profit and loss account
Loans and receivables are also financial assets
Business combination: is a transaction or event in which an entity obtain control over a
business
The entity that obtains control is acquirer and the business that is under control is the
acquire
Goodwill: When acquirer is paying more amount than the value of its tangible assets
Techniques for financial statement analysis:
Horizontal analysis- Calculates the amount and %age change from the previous year to
current year

Trend Analysis- Calculation of %change in financial statements for a successive years

Vertical Analysis- or common sized statement: proportional expression of amount

Ratio Analysis-
Why cash flow statement: There is difference between companys earnings and the cash
generated from its operations
Accrual based statements consider items which have no effects on an enterprises cash flow
Eg. Depriciation, revenues not received, expenses not paid, amortization of intangibles.

Bankers and investors pay higher attention to its cash flow statement

Premium: The amount by which bond or stock are sold above its par value.
Bull markets are characterized by optimism, investor confidence and expectations that
strong results will continue.

Definition of 'Bear Market' A market condition in which the prices of securities are falling,
and widespread pessimism causes the negative sentiment to be self-sustaining.
Current assets: which can be converted into cash within a short period (generally 1 year)
Eg. Cash at hand, cash at bank, Bills receivables, Sundry debtors, account receivables,
inventories, raw material, work in progress and finished goods, prepaid expenses, accrued
income and marketable securities

Current liabilities: Those liabilities which are intended to be paid within short period
Short term loans, dividends payable, bank overdraft, bills payable, accrued expenses, sundry
(various) creditors

What is cost principle: The accounting principle that goods and services purchased should
be recorded at their historical cost and not at their current market value.



What are adjustment entries?

Adjusting entries are usually made on the last day of an accounting period (year, quarter,
and month) so that the financial statements reflect the revenues that have been earned and
the expenses that were incurred during the accounting period.
Sometimes an adjusting entry is needed because:
1. revenue has been earned, but it has not yet been recorded.
2. an expense may have been incurred, but it hasnt yet been recorded.
3. a company may have paid for six-months of insurance coverage, but the accounting
period is only one month. (This means that five months of insurance expense is
prepaid and should not be reported as an expense on the current income statement.)
4. a customer paid a company in advance of receiving goods or services. Until the goods
or services are delivered, the amount is reported as a liability. After the goods or
services are delivered, an entry is needed to reduce the liability and to report the
revenues.
A common characteristic of an adjusting entry is that it will involve one income statement
account and one balance sheet account. (The purpose of each adjusting entry is to get both
the income statement and the balance sheet to be accurate.)

Financial accounting is used by investors to analyse the credit worthiness of a company

Book value is price paid for a particular asset, it is useful to track profit and Market value is
current price of the share

Market capitalization is value of one share of a company * no. of outstanding shares

Book value per share: Equity + reserves/ no. of equity shares outstanding

EPS= Net profit- Preference dividend dividend tax/ no. of outstanding shares

What Is trial balance?
A trial Balance is a list of Debit and Credit or a list of Debit & Credit Balance of
all the ledger accounts prepared on any particular date"


When to issue equity?
The main reasons for raising funds through equity are:-
1.When project is long term in nature and payback period is high.
2.When company is already debt laden then it will not be very easy to raise debt
or it will be costly, it will be better to raise equity to balance risk level.

Management Accounting is concerned with providing information to managers -
that is, people inside an organization who direct and control its operation. Managerial
accounting provides the essential data with which the organizations are actually run.
Managerial accounting is also termed as management accounting or cost accounting.
Techniques of management accounting are:
Just in time
The make or Buy decision
Inventory management
Variance Analysis etc
What is net worth of a company?
Networth is the total assets minus total liabilities of a company.

What are treasury bills?
A Treasury Bill (known as T-Bill) is an instrument of money market, used
to finance short term requirements of Government of a country. A T-Bill is
issued at a rate lower than the Face value, and redeemed at Face value on
maturity, this difference is the rate of interest on T-Bill. This rate of interest is
called Risk free Rate of the country.





The Government of Indian First phase 14 Nationalized banks:
1. Bank of India
2. Union Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Punjab National Bank
6. Indian Bank
7. Indian Overseas Bank
8. Central Bank of India
9. Canara Bank
10. Syndicate Bank
11. United Commercial Bank
12. Allahabad Bank
13. United Bank of India
14. Dena Bank

2nd phase 6 banks in 80s
1. Andhra Bank
2. Corporation Bank
3 New Bank of India
4. Oriental Bank of Commerce
5. Punjab and Sindh Bank
6. Vijaya Bank

Difference between nominal and real?
When nominal is corrected for inflation then it is real.
Difference between P&L and income & Expenditure account?
P&L A/c is prepared for the Business Organization whose aim
is to earn profit by running business whereas Income &
Expenditure A/c is prepared for the non-Profit
Organization,Trusts etc.


P&L A/c is prepared by trading organisations to find out the net profit or loss from
business operations.
Income and expenditure A/c is prepared by non-trading organisations to find out
whether they have enough income to meet the expense or not there may be surplus or
deficiency.

What is crossover rate?
Crossover rates have to do with the amount of earnings that
are generated by two different but similar projects. The
crossover rate is the point at which the two projects
achieve the same net present value. In terms of investments,
calculating a crossover rate between two similar securities
can help an investor determine what to buy and what to sell.
What is RAROC?
RAROC is a risk-adjusted framework for profitability measurement and profitability
management. It is a tool for measuring risk-adjusted financial performance. And it
provides a uniform view of profitability across businesses (Strategic Business Units /
divisions). RAROC and related concepts such as RORAC and RARORAC are mainly
used within (business lines of) banks and insurance companies. RAROC is defined as
the ratio of risk-adjusted return to economic capital.




Real account?
Elements or accounts which represent assets
Personal account:
Elements or accounts which represents persons or organizations
Nominal account:
Elements or accounts which represent expenses, losses, income or gains
Depreciation is a non-cash expense that reduces the value of an asset over time.
there are two methods of depreciation-

1. Straight line method- a constant amount of depreciation is calculated once and deducted
every year from the fixed asset value.

2. Written down value method- amount of depreciation is calculated every year on reduced
value of fixed asset. In this, value of asset never becomes zero.
What is interim dividend?
Definition of 'Interim Dividend'
A dividend payment made before a company's AGM and final financial statements. This
declared dividend usually accompanies the company's interim financial statements.
Investopedia explains 'Interim Dividend'
This is used more frequently in the United Kingdom, where it is usual for dividend payments
to occur semi-annually. The interim dividend is generally the smaller of the 2 payments
made to shareholders.

What is mutual fund?
An investment vehicle that is made up of a pool of funds collected from many investors for
the purpose of investing in securities such as stocks, bonds, money market instruments and
similar assets. Mutual funds are operated by money managers, who invest the fund's capital
and attempt to produce capital gains and income for the fund's investors.

One of the main advantages of mutual funds is that they give small investors access
to professionally managed, diversified portfolios of equities, bonds and other securities,
which would be quite difficult (if not impossible) to create with a small amount of capital.

What is the Relationship between the Return and Risk?
Low risk low return and high risk high return
What is the difference between merger and acquisition?
When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition.

a merger happens when two firms, often of about the same size, agree to go forward as a
single new company rather than remain separately owned and operated.

For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged,
and a new company, DaimlerChrysler, was created.

What is IPO?
An initial public offering (IPO) or stock market launch is a type of public offering where
shares of stock in a company are sold to the general public, on a securities exchange, for the
first time. Through this process, a private company transforms into a public company.
Why Go Public? Going public raises cash, and usually a lot of it. Being publicly traded also
opens many financial doors:
Because of the increased scrutiny, public companies can usually get better rates when they
issue debt.
As long as there is market demand, a public company can always issue more stock. Thus,
mergers and acquisitions are easier to do because stock can be issued as part of the deal.
Trading in the open markets means liquidity. This makes it possible to implement things like
employee stock ownership plans, which help to attract top talent.

What is asset management?
This includes such products as equity, fixed income, real estate, agriculture
and international investments.
So that overall return can be maximized and risk can be minimized.
Investment management is the professional management of various securities (shares,
bonds and other securities) and assets (e.g., real estate) in order to meet specified
investment goals for the benefit of the investors.
A generic term that most commonly refers to the buying and selling of investments within a
portfolio.
What is beta?
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to
the market as a whole
What are fixed asset and current asset?
fixed asset means the value of the asset is more than one year is called fixed asset ex-
Building, Machinery and all....
curerent asset means the value of the asset is less than one year is called current asset ex-
debtors, stock(inventory) and all..
What is GDR?
GDR is a certificate issued by depository bank by which we trade in securities of foreign
countries
What is SEBI?
Securities and Exchange Board of India, which regulates the security market of India by its
formulated rules and regulations.
Types of business organization-
Merchandising or trading organization- Wal-Mart, Pantaloon, Amazon.com
Manufacturing organization
Service organization
What is accounting?
Accounting is a language of business. It is for external users include investors and lenders.
The systematic recording, reporting, and analysis of financial transactions of a business

Decisions which are based on accounting information-
When to buy when to sell
Assess the ability of the enterprise to pay and provide other benefits to its employees
Determine taxation policies
Determine distributable profits and dividends
Users of accounting information-
Investors, Lenders, Managers, Security analysts & Rating agencies, Employees- wages &
bonuses, customers- After sales support, Govt & regulatory authorities.
What is account?
A record of financial transactions for an asset or individual
What is accountancy?
Accountancy is the process of communicating financial information about a business
entity to users such as shareholders and managers.
What is management accounting?
It is used by internal stake holders like managers to take decisions related to planning,
controlling formulating strategies.
Accounting measurement assumption:
1. Reporting entity or accounting entity- business is distinct and separate from its
owner and other business firm.
2. Going concern- Accountants assume that business is continuing enterprise.
3. Periodicity- Dividing the activities of an enterprise into artificial time period to
provide time to time information to its stake holders.
4. Money measurement- Express and records of all business transaction in term of
money.
GAAP- Generally accepted accounting principles-
To make meaningful comparison between a firms past history and with other companies
financial position, we need a standard format of financial statement.
The common set of accounting principles, standards and procedures that companies use to
compile their financial statements.

Who influence Indian Gaap?
MCA- Ministry of corporate affairs
SEBI, RBI, Income tax authority
Sole proprietorship- Single individual carries on a business, unlimited liability
Partenership- minimum of 2 and maximum of 20 persons trading together. Each person has
unlimited liability.
Limited company- Public- at least seven shareholders and three directors
Private limited company- must have at least two shareholders and two directors
Liability is limited for each partner
Limited liability partnership- Corporate bodies can also be partners. Atleast two partners no
upper limit.
Accounting equation-
Assets= Liabilities+ Equity
Asset- is a resource from which future benefits are expected to flow to the entity, What we
own
Liability- Present obligation of the entity arising from past events, What we owes
Equity- Share capital + Share Premium + Retained earnings
Share capital- Amount contributed by shareholders towards the companys capital
Share premium-If share holder pays more than the cost if share.
Retained earnings or retained profit-amount of net profit which is not distributed to the
shareholders but kept in the business.
Dividends- A distribution of a portion of a company's earnings to its shareholders
Financial statements-
Profit and loss account- revenues earned and expenditures incurred within a period by a
company.
Statement of retained earning- What firm did with its net profit. Its a bridge between P&l
and balance sheet of a company.
Balance sheet- Enterprises asset, liability and equity at the ending of a period
Cash flow statement- The cash flow statement is distinct from the income statement and
balance sheet because it does not include the amount of future incoming and outgoing cash
that has been recorded on credit.
Double entry book keeping- Every transaction with equal debit and credit
What is T account-?
A title, which describes asset, liability or equity
A left side- Debit
A right side- Credit
Drawings- Drawings is any money taken out of the business for the owners own personal
use
From capital
Unearned revenue?
Accrual accounting- The accrual system recognizes revenue when it sells good & services,
regardless when it receives cash
Cash accounting- The cash system reports revenue on receiving cash and expenses on
paying cash
Realization principle- or Revenue recognition process- Revenue to be recognized at the
time it is earned.
Not recognizing the revenue when order is received.
Matching principle-Requires recording expenses in the same accounting period in which the
revenues are earned because of the expenses incurred.
Corporate finance-
Major factors affecting stock prices-Environmental regulation, product and work place
safety regulation, Employment practices rules, Federal reserve policy, International rules
Internal-
Relative use of debt financing, Dividend policy, Production method used, types of products
and services produced
Level of economic activities & corporate tax-
Expected cash flow, timing of cash flows, perceived risk of cash flows
Condition in the financial market

Time value of money or discounted cash flow analysis-
Compounding- the process of going from present value to future value is called
compounding
Future value- Value of asset or cash at a specified date in future
Annuity- Annuity is a series of equal payments made at fixed intervals for a specified
number of periods.
If the payments occurred at the end of the each period- ordinary or deferred annuity
If the payments are made at the beginning of the each period- annuity due
In annuity due the future value will be higher than ordinary or deferred annuity
Perpetuities- Annuities for indefinite period of time.
Perpetuity = payment/ interest rate
Uneven cash flow
Growing annuity- A series of payment that is growing at a constant rate for a specified
number of periods
Amortized loans- If a loan is repaid in equal periodic amount
Compounding- the process of determining the future value of cash flow or series of cash
flows
Discounting- The process of finding the present value of a future cash flow or a series of
cash flow.
Risk related to an asset- Risk in generating cash flows
Risk of an asset- Stand-alone- risk which is related generating cash flow from a particular
asset
In a portfolio context-Where the cash flows are generated from a number of assets
Portfolio context- 1) Diversifiable- portfolio containing different types of assets
2) Market risk- Stock market is declining
What is risk?
Exposure to loss or injury, Chance that some unfavourable event will occur
Probability- Chance that event will occur
How to measure stand alone risk?
Standard deviation
If sigma is +-1 THEN PROBABILITY = 68.26%
+ - 2 then = 95.46%
+ - 3 then = 99.74%
Coefficient of variation = standard deviation / Expected rate of return
The part of stock risk that can be eliminated is known as diversifiable risk and the part of the
risk that cannot be eliminated is known as market risk.
Diversifiable risk is caused by random events such as strikes, successful or unsuccessful
marketing programs.
WELL EVENTS IN ONE FIRM CAN BE OFFSETTED BY GOOD EVENTS IN ANOTHER FIRM.
Market risk- War, Inflation, recession, high interest rate
CAPM (Capital asset pricing model) tool which is used to analyse the relationship between
risk and rates of return
Beta- Amount of risk that the stock contributes to the market portfolio
Beta= (sigma i/ sigma m)* rho im
Rho im = correlation between expected return of individual stock with expected return of
market portfolio
Beta is 2 ,it means stock is twice as risky as an average stock
Market risk premium= Rm - Rrf
11%- 6%= 5%
It means investors are paying 5% more than the risk free return to bear the risk
Required return = risk free rate+ risk premium

SML (security market line equation) = required return= Rrf+ (Rm- Rrf)*B
Impact of inflation= Rrf+ IP(Inflation premium)
High beta stock is more volatile than average stock
Bond- A bond is long term contract under which a borrower agrees to make payment of
interest and principal on specific dates to the holder of bond
Treasury bonds or government bonds- no default risk
Corporate bond- Exposed to default risk
Municipal bonds- Are issued by state or local government
Foreign bonds are issued by foreign government or foreign corporation
Par value- is stated face value of the bond
Coupon interest rate- Coupon payment is divided by par value
Zero coupon bond- No coupon payment- Capital appreciation rather than interest income.
These are discounted below their par value
Maturity date- On which par value must be repaid
Risk free rate is decreasing it means PV is increasing. The bond would sell above par or at a
premium.
If the interest rate has risen then bond will be sold at the discounted rate
Yield to maturity- is the internal rate of return (IRR, overall interest rate) earned by an
investor who buys the bond today at the market price, assuming that the bond will be held
until maturity, and that all coupon and principal payments will be made on schedule.

Risk returns trade-off- Lowest risk & Highest return
Diversification- Diversification lowers the risk of portfolio.
Dollar cost averaging is the process of buying, regardless of the share price, a fixed dollar
amount of a particular investment on a regular schedule. More shares are purchased when
prices are low, and fewer shares are purchased when prices are high. The cost per share
over time eventually averages out. This reduces the risk of investing a large amount in a
single investment at the wrong time.


Golden rules of accounting-
1.personal account
debit the receiver
credit the giver
2.nominal account
all expence and loses debit
all incomes and gains credit
3.real account
what comes in debit
what goes out credit

Asset allocation is an investment portfolio technique that aims to balance risk and
create diversification by dividing assets among major categories such as bonds, stocks, real
estate, and cash.

Random walk is a stock market theory that states that the past movement or direction of
the price of a stock or overall market cannot be used to predict its future movement.


Efficient market hypothesis-
It states that it is impossible to beat the market because prices already incorporate and
reflect all relevant information.

Harry Markowitz developed CAPM model.
The capital asset pricing model (CAPM) describes the relationship between risk and
expected return, and it serves as a model for the pricing of risky securities.

The risk/return tradeoff is the balance between the desire for the lowest possible risk and
the highest possible return.

Higher risk equals greater possible return.

Diversification lowers the risk of your portfolio.

Dollar cost averaging is a technique by which, regardless of the share price, a fixed dollar
amount is invested on a regular schedule.

Asset allocation divides assets among major categories in order to create diversification and
balance the risk.

Random walk theory says that stocks take a random and unpredictable path.

Efficient Market Hypothesis (EMH) says it is impossible to beat the market because prices
already incorporate and reflect all relevant information.

The concept of the optimal portfolio attempts to show how rational investors will maximize
their returns for the level of risk that is acceptable to them.

Capital asset pricing model (CAPM) describes the relationship between risk and expected
return and serves as a model for the pricing of risky securities.

Accrue income- Asset, Income is earned but not received
Accrue Expenses- Liabilities

Preferred shares or preferred stock:
a financial instrument that has characteristics of both debt (fixed dividends) and equity
(potential appreciation).

A class of ownership in a corporation that has a higher claim on the assets and earnings than
common stock at the time of liquidation

Difference between accounting and book keeping-
Book keeping is a sub set of accounting.
Income statement- How company earns? Shows revenue by selling goods and services
before expenses are taken out? Or P&L
'Leveraged Buyout - LBO'
In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high
debt/equity ratio, the bonds usually are not investment grade and are referred to as junk
bonds.
When small company buys a large company
Third country national-
Host country
Parent country
E

1. Ratios are tools of quantitative analysis, which ignore qualitative points of view.

2. Ratios are generally distorted by inflation.

3. Ratios give false result, if they are calculated from incorrect accounting data.

4. Ratios are calculated on the basis of past data. Therefore, they do not provide
complete information for future forecasting.

5. Ratios may be misleading, if they are based on false or window-dressed
accounting information

Definition of 'Amortization'
1. The paying off of debt in regular instalments over a period of time.






swap
Exchange of one type of asset, cash flow, investment, liability, or payment for another.
Common types of swap include: (1) Currency swap: simultaneous buying and selling of a
currency to convert debt principal from thelender's currency to the debtor's currency. (2)
Debt swap: exchange of a loan (usually to a third world country) between banks. (3) Debt to
equity swap: exchange of a foreign debt (usually to a Third World country) for a stake in the
debtor country's national enterprises (such as power or water utilities). (4) Debt to debt
swap: exchange of an existing liability into a new loan, usually with an extended payback
period. (5) Interest rate swap: exchange of periodic interest payments between two parties
(called counter parties) as means of exchanging future cash flows.
Accounting cycle:
Preparing financial statements for financial transactions is known as accounting
cycle.

Dupont Analysis:
ROE= Asset turnover* profit margin* equity multiplier
ADVERTISING AGENCIES:
Brand republic in UK
Frog design
Big eye creative
C section

Indian:
Akshara advertising
Creative advertising
Equs advertising
A typical ADR goes through the following steps before it is issued:
The issuing bank in the US studies the financials of the foreign company in detail to
assess the strength of its stock.
The bank buys shares of the foreign company.
The shares are grouped into packets.
Each packet is issued as an ADR through an American stock exchange.
The ADR is priced in dollars, and the dividends are paid out in dollars as well, making it as
simple for an American investor to buy as the stock of a US based company. Today, there
are thousands of ADRs in the American markets offered by leading banks like Deutsche Bank
and JP Morgan.
Pricing of ADR
When an ADR is issued, it typically follows the price of the underlying foreign stock. For
example, consider company As shares that have a current market value of $5 (after
currency conversion) in the foreign country. The company issues ADRs through a bank. The
bank purchases 10 million shares of the company and issues ADRs at a ratio of 5:1.
This means that every ADR is worth 5 shares of the company. Each ADR will initially be
priced to reflect the prevailing share value in the home country. In this case, the ADR will be
priced at $25. Subsequent price movements are influenced by demand supply forces, the
condition of the foreign countrys economy, the prospects for the company and several
other factors.

Basel III is a global regulatory standard on bank capital adequacy, stress testing and market
liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision
in 2010-11, and scheduled to be introduced from 2013 until 2018
Statutory Liquidity Ratio refers to the amount that the commercial banks require to
maintain in the form gold or govt. approved securities before providing credit to the
customers. Here by approved securities we mean, bond and shares of different
companies. Statutory Liquidity Ratio is determined and maintained by the Reserve Bank of
India in order to control the expansion of bank credit.

Market order
A Market Order is an order to buy or sell a stock at the market's current best displayed price.
Comptroller and Auditor General of India(CAG)
The Comptroller and Auditor General (CAG) of India is an authority, established by
the Constitution of India , who audits all receipts and expenditure of the Government of
India and the state governments, including those of bodies and authorities substantially
financed by the government.
Long position (Finance)
In finance, a long position in a security, such as a stock or a bond, or equivalently to be
long in a security, means the holder of the position owns the security and will profit if the
price of the security goes up. In simple terms a shareholder is said to be in a long position
when he has BOUGHT a share.
Analyst
A person with expertise in evaluating financial investments; he or she performs investment
research and makes recommendations to institutional and retail investors to buy, sell, or hold;
most analysts specialize in a single industry or business sector.
Basis point (BPS)
A basis point is a unit of measure used in finance to describe the percentage change in the
value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a
percent) or 0.0001 in decimal form. In most cases, it refers to changes in interest
rates and bond yields.

For example, if the Reserve bank of India raises interest rates by 25 basis points, it means that
rates have risen by 0.25% percentage points. If rates were at 2.50%, and the RBI raised them
by 0.25%, or 25 basis points, the new interest rate would be 2.75%.
Capital market
A capital market is a market for securities (debt or equity), where business enterprises
(companies) and governments can raise long-term funds. It is defined as a market in which
money is provided for periods longer than a year,
Basket
A group of stocks or products traded or tracked as one unit.
Consumer Price Index (CPI)
An economic indicator that measures the rate of inflation by tracking the cost of a
fixed market basket of goods and services for urban consumers. The Consumer Price Index is
reported as a total number and as the core CPI, which excludes the highly volatile food and
energy prices.
SHARES OUTSTANDING
The total number of shares that the company has issued for public trading.
Bear
This refers to an investor who believes the stock market or a particular stock is declining.
This is the opposite of a Bull.
Broker
A person that buys or sells stocks, bonds, commodities and such in exchange for a fee which
is called a commission.
Industrial Production Index (IIP)
An economic indicator that is released monthly . The indicator measures the amount
of output from the manufacturing, mining, electric and gas industries. The reference year for
the index is 2002 and a level of 100.
Money laundering
Money laundering is the process by which large amounts of illegally obtained money (from
drug trafficking, terrorist activity or other serious crimes) is given the appearance of having
originated from a legitimate source.
Guidance
Guidance is Information that a company provides as an indication or estimate of its future
earnings. Also known as "earnings guidance."
Credit rating agency
A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain
types of debt obligations as well as the debt instruments themselves. In some cases, the
servicers of the underlying debt are also given ratings.
Some Top Credit Rating Agency.
Standard & Poor's (U.S.)
Moody's Investors Service (U.S.)
Fitch Ratings (U.S / U.K)

Credit Rating Agency in India.

o CRISIL (India)
o CARE (India)
o ICRA Limited (India)
Credit rating
An assessment of the credit worthiness of individuals and corporations. It is based upon the
history of borrowing and repayment, as well as the availability of assets and extent of
liabilities.
Reverse Repo Rate
Reverse Repo rate is the rate at which the RBI borrows money from commercial banks.
Repo Rate
The rate at which the RBI lends money to commercial banks is called repo rate
Cash reserve ratio (CRR)
The Cash Reserve Ratio (CRR) refers to the liquid cash that banks have to maintain with the
Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities. For
example if the CRR is 10% then a bank with deposits of Rs 1,00,000 will have to deposit Rs
10,000 with the RBI as liquid cash.
Statutory liquidity ratio (SLR)
Statutory liquidity ratio is the amount of liquid assets such as precious metals(Gold) or
other approved securities that the commercial banks require to maintain with RBI.
Current Account Deficit
Current Account Deficit Occurs when a country's total imports of goods, services and
transfers is greater than the country's total export of goods, services and transfers. This
situation makes a country a net debtor to the rest of the world.
Inflation
The rate at which the general level of prices for goods and services is rising, and,
subsequently, purchasing power is falling. Central banks attempt to stop severe inflation,
along with severe deflation, in an attempt to keep the excessive growth of prices to a
minimum.
Capital Markets
A market in which individuals and institutions trade financial securities.
Organizations/institutions in the public and private sectors also often sell securities on the
capital markets in order to raise funds. Thus, this type of market is composed of both
the primary and secondary markets.
Mutual Fund
An investment vehicle that is made up of a pool of funds collected from many investors for
the purpose of investing in securities such as stocks, bonds, money market instruments and
similar assets. Mutual funds are operated by money managers, who invest the fund's capital
and attempt to produce capital gains and income for the fund's investors.
Debenture
A type of debt instrument that is not secured by physical asset or collateral. Debentures are
backed only by the general creditworthiness and reputation of the issuer. Both corporations
and governments frequently issue this type of bond in order to secure capital. Like other types
of bonds, debentures are documented in an indenture.
Share
A unit of ownership interest in a corporation or financial asset. While owning shares in
a business does not mean that the shareholder has direct control over the business's day-to-
day operations, being a shareholder does entitle the possessor to an equal distribution in any
profits, if any are declared in the form of dividends.