Simple Interest - p*r*t/100

Compound Interest -[P*(1+r/100)^t P]

Inflation current (KG)/(1+i)
CPI - Consumer Price Indices
Inflation captures the rise in the cost of goods and services over a period of time
CPI is the weighted average price, of a predefined basket of basic goods.
The % increase of the CPI this year vs. the CPI of last year, gives the inflation
Inflation results in a decrease in the value of money over time.
Nominal rate of interest (N) refers to the stated interest rate in the economy.
Real rate of interest (R) refers to the inflation-adjusted rate of interest.
Real rate of interest (R) less than the nominal rate of interest for economies having positive
rate of inflation.
R= N-I where R (real rate of interest), N (nominal rate of interest) and I (rate of inflation)
Future Value is the value that a sum of money invested at compound interest will have after
a specified period.
FV = PV*(1 + i)^n where FV : Future Value, PV : Present Value, i : Interest rate ,n : Number of
time periods
If a cash flow is compounded more frequently than annually, then intra-year compounding is
being used.
To adjust for intra-year compounding, an interest rate per compounding period must be
found as well as the total number of compounding periods.
The interest rate per compounding period is found by taking the annual rate and dividing it
by the number of times per year the cash flows are compounded.
The total number of compounding periods is found by multiplying the number of years by
the number of times per year cash flows are compounded.
Present Value is the current value of a future cash flow or of a series of future cash flows.
PV = FV / (1+I) ^n where FV : Future Value, PV : Present Value, I : Interest rate ,n : Number
of time periods
NPV - Net Present Value (NPV)
Net Present Value (NPV) is a concept often used to evaluate projects/investments using the
Discounted Cash Flow (DCF) method.
NPV of a project/investment = Discounted value of net cash inflows Initial cost/investment.
The project/investment is viable if NPV is positive while it is not viable if NPV is negative.
NPV of a project Increases with increase in future cash, Decreases with increase in initial
outlay, Decreases with increase in required rate of return
IRR - Internal Rate of
Internal Rate of Return is also referred to as Yield.
IRR- is the implied interest rate that makes net present value of all cash flows equal zero.
cost of capital - cost for raising money by individuals, corporations and governments raise
money
Equity represents ownership of the company and takes the form of stock
Equity refers to the value of the funds contributed by the owners (the stockholders) plus the
retained earnings (or losses).
Debt is funded by issuing Bonds, Debentures and various certificates.
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The use of debt is also referred to as Leverage Financing.

Income is the main objective for a debt investor. This income is paid in the form of Interest
Capital Appreciation is only a secondary consideration for debt investors.
Capital Appreciation is the main objective for a equity investor.
Income is only a secondary consideration for debt investors and is received in the form of
Dividends.
Debt is considered senior to equity (i.e.) the interest on debt is paid before dividends on
stock
Security is a financial instrument that signifies ownership in a company. example Stock,
Bond, Option
Debt is money owed by one person or firm to another. Bonds, loans, and commercial paper
are all examples of debt
Bond - An investor loans money to an entity (company or government) that needs funds for
a specified period of time at a specified interest rate. In exchange for the money, the entity
will issue a certificate, or bond, that states the interest rate (coupon rate) to be paid and
repayment date (maturity date).
Interest on bonds is usually paid every six months (semi annually).
Bonds - Bearer Bonds, Registered As to Principal Only and Fully Registered Bonds.
Bearer bonds are like cash since the bearer of the bond is presumed to be the owner.
Bearer bonds are Unregistered because the owners name does not appear on the bond
Bonds that are registered as to principal only have the owners name on the bond certificate
Bonds that are issued today are most likely to be issued fully registered as to both interest
and principal.
Fully Registered Bonds have no physical certificate
CORPORATE BOND - A bond issued by a corporation.
CORPORATE BOND - Secured Bonds, Unsecured Bonds (Debentures), and Subordinated
Debentures.
Secured Bonds - Mortgage Bonds, Equipment Trust Certificates, Collateral Trust Bonds
Mortgage Bonds are secured by real estate owned by the issuer
Equipment Trust Certificates are secured by equipment owned and used in the issuers
business
Collateral Trust Bonds are secured by a portfolio of non-issuer securities.
Treasury bills are short-term obligations issued for one year or less. They are sold at a
discount from face value and don't pay interest before maturity.
Treasury notes and bonds bear a stated interest rate, and the owner receives semi-annual
interest payments. Term is >1 year and < 10 yrs
Treasury bonds are issued by the U.S. Government. interest on Treasury bonds is not subject
to state income tax and term is > 10 yrs
Savings Bonds are bonds issued by the Department of the Treasury and are not transferrable
ZERO COUPON BONDS - generate no periodic interest payments but they are issued at a
discount from face value
COMMERCIAL PAPER - An unsecured, short-term loan issued by a corporation, typically for
financing accounts receivable and inventories.

Commercial paper maturities range from 1 day to 270 days, but most commonly is issued for
less than 30 days. Paper usually is issued in denominations of $100,000 or more.
Credit rating agencies like Standard & Poor rate the Commercial papers
Investors in the commercial paper market-private pension funds, money market mutual
funds, governmental units, and bank trust departments, foreign banks and investment
companies.
IPO- Initial Public Offering
Corporations seeking capital sell it to investors through a Primary Offering or an Initial Public
Offering (IPO).
SEC - Securities and Exchange Commission
Before shares can be offered, or sold to the general public, they must first be registered with
the Securities and Exchange Commission (SEC).
NYSE - New York Stock Exchange
From time to time, the Issuer may choose to repurchase the stock they previously issued.
Such repurchased stock shares are referred to as Treasury Stock
Shares that remain trading in the secondary market are referred to as Shares Outstanding.
POP - Public Offering Price
Public Offering Price (POP) The price at which shares are offered to the public in a Primary
Offering.
Book Value The theoretical liquidation value of a stock based on the company's Balance
Sheet.
Par Value An arbitrary price used to account for the shares in the firms balance sheet.
Current Market Price The price determined by Supply and Demand in the Secondary
Markets.
Preferred shareholders have priority over common stockholders on earnings and assets in
the event of liquidation
Preferred stock is issued with a fixed rate of return that is either a percent of par (always
assumed to be $100) or a dollar amount.
Preferred stock investors are primarily seeking income.
different types of preferred stock are Straight, Cumulative, Convertible, Callable,
Participating and Variable
Convertible preferred stock can be converted into shares of common stock either at a fixed
price or a fixed number of shares.
Convertible preferred stock is essentially a mix of debt and equity
Convertible preferred stock is most often used as a means for a risky company to obtain
capital when neither debt nor equity works
Convertible preferred stock offers considerable opportunity for capital appreciation.
Non-convertible preferred stock remains outstanding in perpetuity and trades like stocks.
ADR - AMERICAN DEPOSITORY RECEIPTS
ADR - facilitate the domestic trading of a foreign stock
An ADR is a receipt for a specified number of foreign shares owned by an American bank
ADRs trade like shares, either on a U.S. Exchange or Over the Counter
HYBRIDS - Hybrids are securities, which combine the characteristics of equity and debt.

CONVERTIBLE BONDS - Convertible Bonds are instruments that can be converted into a
specified number of shares of stock after a specified number of days.
Warrants are call options variants of equity.
Warrants are offered as bonus or sweetener, attached to another security and sold as a Unit.
A derivative is a product whose value is derived from the value of an underlying asset, index
or reference rate.
A forward contract is an agreement to buy or sell an asset (of a specified quantity) at a
certain future time for a certain price.
A futures contract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price
Hedging involves protecting an existing asset position from future adverse price movements.
Arbitrage: An arbitrageur is basically risk averse. He enters into those contracts were he can
earn risk less profits.
An option is a contract, which gives the buyer the right, but not the obligation to buy or sell
shares of the underlying security at specific price on or before a specific date.
Two kinds of options: Call Options and Put Options.
Call Options are options to buy a stock at a specific price on or before a certain date.
Put Options are options to sell a stock at a specific price on or before a certain date.
The primary function of options is to allow investors ways to manage risk
Their price of stock is determined by factors like the underlying stock price, strike price, time
remaining until expiration (time value), and volatility.
American options can be exercised at any time between the date of purchase and the
expiration date. Most exchange-traded options are of this type.
European options can only be exercised at the end of their life.
Long-Term Options are options with holding period of one or more years
LEAPS - Long-Term Equity Anticipation Securities
Long-Term Options are called LEAPS
The simple calls and puts are referred to as "plain vanilla" options
Non-standard options are called exotic options
Open Interest is the number of options contracts that are open; these are contracts that
have not expired nor been exercised.
Swaps are the exchange of cash flows or one security for another
Currency Swap involves the exchange of principal and interest in one currency for the same
in another currency.
Forward Swap agreements are created through the synthesis of two different swaps,
differing in duration, for the purpose of fulfilling the specific timeframe needs
Swaptions - An option to enter into an interest rate swap.
Swapation - The contract gives the buyer the option to execute an interest rate swap on a
future date.
A financial transaction is one where a financial asset or instrument, such as cash, check,
stock, bond, etc are bought and sold.
Financial Market is a place where the buyers and sellers for the financial instruments come
together and financial transactions take place.
Primary market is one where new financial instruments are issued for the first time.
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Secondary Market is a place where primary market instruments, once issued, are bought
and sold.
Role of capital market - Channelling funds from savings pool to investment pool,
Providing liquidity to investors, Providing multitude of investment options to investors,
Providing efficient price discovery mechanism.
NASDAQ - National Association of Securities Dealers Automated Quotations
LSE - London Stock Exchange
BSE - Bombay Stock Exchange
NSE - National Stock Exchange of India
The share price is determined by the market forces, i.e. the demand and supply of shares at
each price.
Bond markets are also sometimes called Fixed Income markets.
The central bank of the country such as Federal Reserve in US and Reserve Bank of India in
India, is the biggest player in the bond market
Then the market interest rates go up, prices of bonds fall and vice-versa.
Foreign exchange markets are where the foreign currencies are bought and sold.
Currency trading is conducted in the over-the-counter (OTC) market.
The central bank regulates the markets to ensure its smooth functioning.
Money market is for short term financial instruments, usually a day to less than a year.
A repo is a contract in which the seller of securities, such as Treasury Bills, agrees to buy
them back at a specified time and price.
Money market instruments - Treasury bills of very short tenure, commercial paper,
certificates of deposits
SEBI - Securities and Exchange Board of India
SEC - Securities and Exchange Commission
PORTFOLIO MANAGEMENT SYSTEMS - allow the investment managers to choose the
instruments to invest in.
Stock markets, bond markets, money markets, foreign exchange markets and derivatives
markets are prominent examples of financial markets.
Shares (stock) of a company are issued and traded in the stock markets.
A Balance sheet is a statement that lists the total assets and the total liabilities of a given
business to portray its net worth at a given moment of time.
An Asset is anything owned by an individual or a business, which has commercial value.
A Liability is a debt payable by the firm to its creditors
Current Assets are those assets of a company that are reasonably expected to be realized in
cash, or sold, or consumed in the next one year.
Cash And Cash Equivalents means all cash, securities, which can be converted into cash at a
very short notice
Short Term Investments: All investments, which will be converted in Cash in the next one
year.
Receivables: Also referred to as Account receivables. This indicates the money due to the
firm, for service rendered or goods sold on credit.
Inventory: Inventory for companies includes raw materials, items available for sale or in the
process of being made ready for sale.
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Long-term assets are those assets that are not consumed during the normal course of
business, e.g. land, buildings and equipment, goodwill, etc.
Fixed Assets are assets of a permanent nature required for the normal conduct of a business,
and which will not normally be converted into cash during the next fiscal period.
Assets lose their value as they provide service. This loss of value, or spreading of cost, is
called depreciation.
Intangible Asset is an asset that is not physical in nature. Examples are things like copyrights,
patents, intellectual property, or goodwill.
Current Liabilities are amounts, or goods and services, to be paid or executed, within next
one year.
An accrued expense is an expense that the company has already incurred but company has
not paid for it so far.
Short Term Loans: All the loans that have to be paid in the next one year.
when company declares dividend, Nothing changes till the company pays out dividends
when company pays out dividends, Retained earnings go down by amount of dividend
Profit And Loss Statement (P&L) is also known as an income statement
Profit And Loss Statement (P&L) shows business revenue and expenses for a specific period
of time.
The difference between the total revenue and the total expense is the business net income.
EBIT- Earnings Before Interest and Taxes
PBT - Profit Before Tax
PAT - Profit after Tax
EPS - Earnings per share
EPS(T) = S/ Number of shares where S is Net Income or PAT
P/E Ratio = Market price/T where T is EPS
Revenue is the inflows of assets from selling goods or providing services to customers.
Direct Cost is that portion of cost that is directly expended in providing a product or service
for sale e.g. material and labour.
Gross profit shows the relationship between sales and the direct cost
Indirect Cost is that portion of cost that is indirectly expended in providing a product or
service for sale
Operating Expenses is all selling and general & administrative expenses. This includes
depreciation, but not interest expense.
Operating Income is revenue less cost of goods sold
Interest expense captures all the finance charges incurred on any borrowed capital.
Net Income or PAT (Profit after Tax)is is the profit after all the obligations, which can be
distributed to shareholders
Revenue is the Top Line and Net Income or PAT is the Bottom-line in P &L statement
Earnings per Share (EPS) is the amount of net income (earnings) related to each share
Price to Earnings Ratio (P/E) is a performance benchmark that can be used as a comparison
against other companies or within the stock's own historical performance
CASH FLOW STATEMENT - Statement accounting for all the inflows and outflows of cash is
captured in this statement.

Bank is used generically to refer to any financial institution that is licensed to accept
deposits and issue credit through loans.
The Central bank of any country can be called the bankers bank.
The Federal Reserve is the central bank of the United States, while Reserve Bank of India is
the central bank in India.
CRR - Cash Reserve Ratio
Banks facilitate the investing/spending of money that multiply funds through circulation and
this is known as Money Multiplier effect.
The difference between the rates, which banks offer to depositors and lenders, is generally
referred to as Spread.
Top 10 US Banks -JPMORGAN CHASE & CO 2 CITIGROUP INC 3 BANK OF AMERICA
CORPORATION 4 WELLS FARGO & COMPANY 5 HSBC NORTH AMERICA HOLDINGS INC.6
TAUNUS CORPORATION 7 PNC FINANCIAL SERVICES GROUP, INC. 8 U.S. BANCORP 9 BANK
OF NEW YORK MELLON CORPORATION, 10 SUNTRUST BANKS
The universal banking concept permits banks to provide commercial bank services, as well as
investment bank services at the same time.
Glass-Steagall Act of 1933, created a Chinese wall between commercial banking and
securities businesses in US.
The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and
insurance services.
Provisions that prohibit a bank holding company from owning other financial companies
were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act.
The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to
consolidate
Banks are an integral part of any economy channelizing savings from lenders to borrowers
Central banks define a nations monetary policy
A bank makes a profit by investing or lending money that is earning a higher rate of interest
than it pays to its depositors.
Banks are generally organized as corporate banking, investment banking, retail banking, and
private banking functions.
CDBs - Community development banks
Community development banks provide retail banking services to the residents of the
community and spureconomic development in low- to moderate-income geographical areas
CDFI - Community Development Financial Institution
The largest and oldest community development bank is Shore Bank, headquartered in the
South Shore neighborhood of Chicago.
A credit union is a cooperative financial institution that is owned and controlled by its
members
Credit Union is operated for the purpose of promoting thrift, providing credit at reasonable
rates, and providing other financial services to its members
Private Banks manage the assets of high net worth individuals
Offshore banks are banks located in jurisdictions with low taxation and regulation
An offshore bank is a bank located outside the country of residence of the depositor

Savings banks primary purpose is accepting savings deposits. It also provides other services
such as payments, credit and insurance.
Demand deposits are accounts that allow money to be deposited and withdrawn by the
account holder on Demand (Savings, Checking).
Deposits placed with a bank for a specified term and is called Term Deposits
IRA - Individual Retirement Account
IRA - Roth IRA, Simple IRA, Traditional IRA, SEP IRA, Self Directed IRA
Roth IRA - contributions are made with after-tax assets, all transactions within the IRA have
no tax impact, and withdrawals are usually tax-free.
Traditional IRA -contributions are often tax-deductible,all transactions and earnings within
the IRA have no tax impact, and withdrawals at retirement are taxed as income
SEP IRA - a provision that allows an employer to make retirement plan contributions into a
Traditional IRA established in the employee's name
SIMPLE IRA - a simplified employee pension plan that allows both employer and employee
contributions
Self-Directed IRA - a self-directed IRA that permits the account holder to make investments
on behalf of the retirement plan.
A typical Retail branch at a Bank has these two primary activities:Teller Operations and
Relationship Managers
A bank teller is an employee of a bank who deals directly with most customers.
Relationship Managers are the Banks single point of contact to the customer.
Relationship Managers have day-to-day personal contact with the Client for new account
opening, account maintenance and product sales.
CORE BANKING/MULTI BRANCH BANKING is a special facility that allows a customer to
operate his Accounts through a network of branches of the bank where he has an account.
Core banking vendors of repute are Fidelity, Temenos, Infosys (Finacle), Oracle (FLEXCUBE).
An automated teller machine (ATM) is a computerized telecommunications device that
provides the customers with access to financial transactions in a public space without the
need for a human clerk or bank teller
PIN - personal identification number.
Debit cards and ATM cards are used to transact in ATMs and PoS (Point of Sale) Terminals.
Visa and Master networks are large global networks that service ATMs
ATM consortium - is a computer network that connects the ATMs of different banks and
permits these ATMs to interact with the ATM cards of non-native banks.
Telephone banking allows customers to perform transactions over the telephone
VRU - Voice Response Unit
CTI - computer telephony integration
Voice Response Unit (VRU) is a computer telephony integration (CTI) term that refers to the
interaction between a human and a computer that is programmed to respond to the
humans requests.
IVR - interactive voice response
IVR - this is a computer phone application that accepts touch-phone keypad selection input
from the caller and provides appropriate information in the form of voice answers.

The contact centre /Call centre handle inbound service calls, technical support requests and
sales enquiries, Sell products and advice through outbound calls.
Online banking (or Internet banking) allows customers to conduct financial transactions on a
secure website operated by their bank or credit union.
Mobile banking is a term used for performing balance checks, account transactions,
payments etc. via a mobile phones
Instruments are used to move and /or transfer funds from one account to another.
A check is a bill of exchange and is an instrument instructing a financial institution to pay a
specific amount of a specific currency from an account holders specific demand account held
in that bank.
The receiver of the check is payee.
Paper check processing - The drawer issues the check in the name of the Payee. The Payee
presents the check in the drawer/makers bank to the credit of his account.
This clearing and settlement process is known as Check-truncation.
By introducing check-truncation, intra-city clearing turn-around-times can be reduced
dramatically.
An electronic check is a transaction that starts at the cash register with a paper check for
payment is converted to an electronic debit, which is processed via ACH
ECC converts a paper check into an electronic payment at the point of sale
ELECTRONIC CHECK CONVERSION -In a store, the customer can present a check to a store
cashier -> The check can be processed through an electronic system that captures the
banking information and the amount of the check. -> Once the check is processed, the
customer signs a receipt authorizing the store to present the check to the bank electronically
and deposit the funds into the stores account.-> The customer gets a receipt of the
electronic transaction and the check is returned to the customer.-> It should be voided or
marked by the merchant so that it can't be used again.
Retail payments usually involve transactions between consumers and businesses
Bill PaymentPayment for previously acquired or contracted goods and services.
P2P PaymentsPayments from one consumer to another.
EFT - electronic funds transfer
Electronic banking, also known as electronic fund transfer (EFT), uses computers and
payment networks as a substitute for checks and other paper transactions.
EBPP - ELECTRONIC BILLING PRESENTATION AND PAYMENT
Electronic Bill Payment allows a depositor to send money from his demand account to a
creditor or vendor to be credited against a specific account.
Electronic bill presentment and payment (EBPP) is a process that enables bills to be created,
delivered, and paid over the Internet.
BSP - Bill Service Provider
The banking operations are basically divided in to three; Front office, Middle Office and Back
Office.
Front office is the Banking channels Branch, ATM, Banks Website, etc. where the
customers contact the Banks representatives for their financial services.
Middle Office is where the decisions are made about the product, interest rate, credit
policies, Compliance monitored etc.
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Back office mostly does the data base management, data processing, transaction processing
etc.
Checks can be processed in various modes: Paper check processing, check imaging /Check
truncation, Electronic Check conversion.
Consumers generally use one of these retail payments systems: Purchase of Goods and
Services, Bill Payment, P2P payments, Cash withdrawals and Advances.
Electronic banking, also known as electronic fund transfer (EFT), uses computer and
electronic technology as a substitute for checks and other paper transactions.
The federal Electronic Fund Transfer Act (EFT Act) covers most (not all) electronic customer
transactions.
EBPP is a mode of transaction involving the use of electronic means, such as email or a short
message, for rending a bill
A residential mortgage is a loan made using residential property as collateral to secure
repayment.
A commercial mortgage is a loan made using commercial real estate, like multifamily
property, or an office complex etc. as collateral to secure repayment.
The process by which a mortgage is secured by a borrower is called origination.
PROCESSING - This process ensures that documentary requirements are fulfilled and
regulatory checks are done.
UNDERWRITING - This is a process by which a lender determines if the risk of lending to a
particular borrower under certain parameters is acceptable.
Three Cs of underwriting: Credit, Capacity and Collateral.
It is always up to the underwriter to make the final decision on whether to approve or
decline a loan.
Escrow accounts is used for handling taxes and insurance premiums.
Fixed Rate - A fixed Rate Mortgage (FRM) is a mortgage loan where the interest rate on the
note remains the same through the term of the loan
Balloon Payment Mortgage - Balloon Payment Mortgage has a fixed rate for the term of the
loan followed by the ending balloon payment.
Adjustable Rate Mortgage (ARM) - An Adjustable Rate Mortgage (ARM) is a mortgage loan
where the interest rate on the note is periodically adjusted based on a variety of indices
such as 1-year constant-maturity Treasury (CMT) s
securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR)
Graduated Payment Mortgage - is a mortgage with low initial monthly payments which
gradually increase over a specified time frame
Interest Only Loan -An interest-only loan is a loan in which for a set term the borrower pays
only the interest on the principal balance, with the principal balance unchanged
Amortization refers to gradual decrease of principal balance of the loan as the loan is repaid
gradually over its term.
Negative Amortization occurs whenever the loan payment for any period is less than the
interest charged over that period and so the outstanding balance of the loan increases.
Standard Variable Rate with Cash Back - one receive a substantial cash sum (Example 35%
of the amount borrowed) when we take up the loan.
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Base Rate Tracker - the interest rate is guaranteed to be a set amount above the base rate
and alters in line with changes in that rate.
Discounted interest rate - The payments are variable, but they are set at less than that
lenders going rate for a fixed period of time. At the end of the period, one is charged the
lenders standard variable rate.
Capped rate - The payments go up and down as the mortgage rate changes but are
guaranteed not to go above a set level (the cap) during the period of the deal.
FHA Loan - FHA loans are meant for lower income Americans to borrow money for the
purchase of a home
VA Loan - home financing to eligible veterans in areas where private financing is not
generally available
Conventional Loans - These are loans without any government backing
Agency Loans - These are the loans issued by Government Sponsored Entities (GSEs) such as
Fannie Mae, Freddie Mac and Ginnie Mae.
Mortgage backed Security (MBS) is a type of asset-backed security that is secured by a
mortgage or collection of mortgages.
Self Certification Mortgages, informally known as "self cert" mortgages, are available to
employed and self employed people who have a deposit to buy a house but lack the
sufficient documentation to prove their income.
100% mortgages are mortgages that require no deposit (100% loan to value). These are
sometimes offered to first time buyers, but almost always carry a higher interest rate on the
loan.
Together/Plus Mortgages represent loans of 100% or more of the property value - typically
up to a maximum of 125%.
Student Loans are Loans availed by eligible students to pursue graduate and post graduate
studies in Schools/Colleges/Universities.
Students Loans offered can be categorized broadly into two types: Federally sponsored loans
& Non-federally sponsored loans
Federally sponsored loans are of two types - Federal Family Education Loan Program (FFELP)
& Federal Direct Loan (FDLP)
Federal Direct Loan (FDLP)- where the department of Education directly provides the loans
Federal Family Education Loan Program can further be divided into four types - Federal
Stafford, Federal PLUS, Consolidation loans, Graduate Plus
Federal Stafford Federal Stafford loans are the most common source of education loan
funds in the US.
Federal PLUS - PLUS loans are availed by the parents of a full- or half-time undergraduate
student.
Consolidation loans - A consolidation loan involves two or more existing federally sponsored
loans into one single loan.
Graduate Plus - The Graduate PLUS loan or Grad PLUS loan is a low, fixed interest rate
student loan guaranteed by the U.S. Government.
The Key Entities in the Student Loan System are Federal government, Schools, Lenders,
Servicers and guarantors and the borrower.
Federal government: Sponsors and authorizes funds for grants and loan programs.

11

Lenders: are the institutions approved by the DOE for voluntary participation in any or all of
the FFELP student loan programs.
Servicer: is an entity that collects payments on a loan and performs other administrative
tasks associated with maintaining a loan portfolio.
Guarantor is a state agency, which guarantees or insures the loan and is a not-for-profit
agency.
Borrower: is the student / parent who avails of the loan.
Retail Auto lending is basically lending to the individual customers for cars, two wheelers,
recreational vehicles and boats for their personal use.
School: The school is certified by the department of education as an eligible school to
participate in the FFELP or FDLP loan programs.
Manufacturers also recognized the profitability associated with the auto loan business and
entered the market. These companies are known as captive finance companies.
Direct Lending: The Bank or the finance company directly lends to the buyer or the borrower
in this case.
Dealer financing: This is a type of loan available through the dealer. The lending and
repayments are done by/to the dealer.
Leasing: Vehicle/ Auto lease is a contract between the borrower and an auto leasing
company.
Lessee or the borrower: The party to whom the vehicle is leased. The lessee is required to
make payments and to meet other obligations specified in the lease agreement.
Lessor or the lender or the lending institution is the original owner of the vehicle or property
being leased
The lease can be closed ended or open ended.
Closed end lease - A lease agreement that establishes a non-negotiable residual value for the
leased auto and fee amounts due at the end of the lease term.
Open End lease - A lease term that requires the lessee to pay the difference between
residual value and fair market value at the end of the lease term if the fair market value
is lower
The Key Entities in an Auto Loan process are: Borrower, Dealer, Lender, Credit bureau,
Appraiser, Insurer, Loan servicer, Collection agencies, Repossession agencies and Valuation
agencies
The Auto Finance Loan process can be divided into Loan origination, Servicing, and
Secondary marketing.
Loan Origination is the process by which a borrower applies for a new loan, and a lender
processes that application.
Auto loan receivables can be securitized into pools called as Asset Backed Securities (ABS.
This offers liquidity advantages to an auto lender.)
Personal loans are amount borrowed by individuals to cover their personal expenses.
Lease is a long-term rental agreement for the asset, while Hire Purchase allows the user to
own the asset after all the payments have been made to the lender.
Drawing Power (DP) - lower of L and (1-M)*AV , where Limit (L) max outstanding allowed,
Margin (M) percentage of limit that can be drawn, Asset value (AV) value of
underlying asset

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Lessee or the borrower: The party to whom the vehicle is leased, The lessee is required to
make payments and to meet other obligations specified in the lease agreement.
Community development banks (CDBs) are banks designed to serve residents and spur
economic development in low- to moderate-income (LMI) geographical areas.
The largest and oldest community development bank is Shore Bank, headquartered in the
South Shore neighbourhood of Chicago.
A credit union is a cooperative financial institution that is owned and controlled by its
members, and operated for the purpose of promoting thrift, providing credit at
reasonable rates, and providing other financial services to its members
A building society is a financial institution, owned by its members, that offers banking and
other financial services, especially mortgage lending. Building societies are prevalent only in
UK.
The Farm Credit System is a federally chartered network of borrower-owned lending
institutions composed of cooperatives and related service organizations.
FARM CREDIT - Their mission is to provide sound and dependable credit to American
farmers, ranchers, producers or harvesters of aquatic products, their cooperatives, and
farm-related businesses.
Check 21 law - banks may now truncate all checks and replace them with electronic images,
presenting them electronically to paying banks that agree or as paper substitute checks to
those that require paper.
ODFI - Originating Depository Financial Institution
RDFI - Receiving Depository Financial Institution
NACHA The Electronic Payments Association is a not-for-profit association that oversees
the Automated Clearing House (ACH) Network, a safe, efficient, green, and high-quality
payment system.
ELECTRONIC BENEFITS TRANSFER (EBT) - Electronic system that allows a recipient to
authorize transfer of his/her government benefits from a Federal account to a retailer
account to pay for products received.
MOBILE PAYMENTS - Mobile Payment is paying for goods or services with a mobile device
such as a mobile phone, Personal Digital Assistant (PDA), or other such device.
MOBILE PAYMENTS - Remote Payments and Proximity/Local Payments
Remote Payments - These transactions are conducted independent of the users location.
Proximity/Local Payments - These transactions involve a mobile device communicating
locally (e.g., via Bluetooth, IrDA, RF, Near Field Communication) with a POS/ATM,
SEPA is an objective set by the European Union for the purpose of creating a single payment
market, within which everyone can make payments simply and safely, at the same cost
and as efficiently as those presently being made at the national level.
There are three main payment instruments forming part of the SEPA objective:SEPA Credit
Transfer (SCT),SEPA Direct Debit (SDD),SEPA Cards Framework (SCF)
SEPA Cards Framework (SCF) spells out high level principles and rules which when
implemented by banks, schemes, and other stakeholders, will enable European customers to
use general purpose cards to make payments and cash withdrawals in Euro throughout the
SEPA area with the same ease and convenience than they do in their home country
EMV is the standard devised by Europay, MasterCard and Visa (EMVCo.) for smart card
based credit and debit cards to replace the existing magnetic based stripe cards.
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ACH enables batch-processed, value-dated electronic funds transfer between originating

and receiving financial institutions.
Transaction Economics A credit card transaction involves various fees. / Charges such as
interchange fee, merchant transaction fee and issuer transaction fee. The merchant discount
rate is the basis for much of the competition between the banks of a credit card association.
Corporate Lending refers to various forms of loans extended by banks to corporate bodies
like proprietorship, partnership, private limited companies or public limited companies.
Interest is usually paid on the disbursed amount of the loan.
CORPORATE CREDIT RATING - Rating levels might vary from AAA (highest), AA+, AA- to
default ratings like D.
Credit enhancement is a mechanism used to increase the original rating of a loan for a
corporate.
Long-term loans are extended for purposes like new projects, capacity expansion or plant
modernization. These loans are usually repayable over a 2-7 year period after an initial
moratorium period
Short term loans are extended usually for meeting working capital requirements. The loans
can be repayable in various tenures starting from a week to as long as 1 year.
Junk bonds is issued by corporate with very low credit ratings and carry very high rates of
interest.
LINES OF CREDIT - These are short term loans sanctioned for a fixed validity period, allowing
the corporate to draw the loan as and when required within the validity period and
repay the loan after a certain period
A bill (Bill of Exchange) is a financial instrument by which one party promises to pay the
other party a certain amount of money on a specified due date
Commercial Paper is an instrument by which a corporate borrows money from banks for
short periods of time. A CP binds the corporate to make a payment equal to the face value
of the CP to the issuing bank on a specified due date.
SUPPLIER AND DEALER LOANS - These are short term loans provided by banks to suppliers
and dealers of large companies.
Asset Securitization loans are loans which are backed by specified future cash flows or other
assets of the corporate.
A syndicated loan is a lending facility defined by a single loan agreement in which 2 or more
banks participate
Credit derivatives are financial contracts that transfer credit risk from one party to another.
The Treasury Services department is concerned with managing the financial risks of the
bank.
Forward Rate Agreement (FRA) - A contract that determines the rate of interest, or currency
exchange rate, to be paid, or received, on an obligation beginning at some future start date.
Interest Rate Swap (IRS) - A deal between banks or companies where borrowers switch
floating-rate loans for fixed rate loans in another country.
FX Options: Forex Options give the holder the right to buy or sell a currency in terms of
another currency at a particular rate on a particular date or within a period of time.
Cash Management Services - CMS is a service provided by banks to its corporate clients for a
fee to reduce the float on collections and to ease the bulk payment transactions of

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the client.
Interest Rate Swap: An agreement to exchange net future cash flows.
Forward Rate Agreement (FRA): A FRA allows purchasers / sellers to fix the interest rate for a
specified period in advance.
Interest Rate Guarantee: An option on a forward rate agreement (FRAPurchasers have the
right, but not the obligation, to purchase
Swaption: An option to enter an interest rate swap. A payer swaption gives the purchaser
the right to pay fixed (receive floating), a receiver swaption gives the purchaser the right to
receive fixed (pay floating).
Nostro (Our/my account with you): Current account maintained by one bank with another
bank abroad in the latters home currency
Vostro (Their account with me/us): Current account maintained in the home currency by one
bank in the name of another bank based abroad
The most basics tools of Forex risk management are 'spot' and 'forward' contracts.
Forward rate (Local currency/USD) = Spot rate *(1+ interest rate in US) / (1+ local interest
rate),
TREASURY MANAGEMENT SYSTEMS - Front arena/sungaurd, Summit, Calyspo, Wall street
Checks lock box service a collecting service which enables companies to collect and settle
checks locally.
Pooling allows a company or several companies belonging to the same group profit from
efficient liquidity management, centralized treasury and credit-line management and
optimization of interest results.
Netting is the fundamental method for centralizing and offsetting intra company and third
party payments.
Check 21 Act- The law facilitates check truncation by creating a new negotiable instrument
called a substitute check, which permits banks to truncate original checks, to process
check information electronically, and to deliver substitute checks to banks that want to
continue receiving paper checks.es
A substitute check is the legal equivalent of the original check and includes all the
information contained on the original check.
SPV - Special Purpose Vehicles
RTGS - REAL TIME GROSS SETTLEMENT
CLS - CONTINUOUS LINKED SETTLEMENT
TRADE FINANCE - The main objective of trade finance is to facilitate transactions.
BOL - BILL OF LADING
A bill of lading or BOL is contract between a carrier and a shipper for the transportation of
goods.
LC - Letter of Credit
The letter of credit (LC) allows the buyer and Seller to contract a trusted intermediary (a
bank) that will guarantee full payment to the seller provided that he has shipped the goods
and complied with the terms of the agreement.
The LC serves to evenly distribute risk between buyer and seller. The seller is assured of
payment when the conditions of the LC are met and the buyer is reasonably assured of

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receiving the goods ordered.

LCs are typically irrevocable, which means that once the LC is established it cannot be
changed without the consent of both parties.
LC - One of the most costly forms of payment guarantee
LC variations include: Revolving, Negotiable, Straight, Red Clause, Transferable, and
Restricted.
Safest type of letter of credit from the sellers point of view is the Standby letter of credit.
The standby LC is like a bank guarantee.
Back to Back LC allows a seller to use the LC received from his buyer as collateral with the
bank to open his own LC to buy inputs necessary to fill his buyers order.
A draft (sometimes called a bill of exchange) is a written order by one party directing a
second party to pay a third party.
There are two basic types of drafts: sight drafts and time drafts.
Bankers' acceptances are negotiable instruments (time drafts) drawn to finance the export,
import, domestic shipment or storage of goods.
The consignment method requires that the seller ship the goods to the buyer, broker or
distributor but not receive payment until the goods are sold or transferred to another
buyer.
Counter-trade indicates that the buyer will compensate the seller in a manner other than
transfer or money or products.
Factoring is for short-term receivables (under 90 days) and is more related to receivables
against commodity sales.
Forfaiting can be for receivables against which payments are due over a longer term, over 90
days and even up to 5 years.
BAFT - BANKERS ASSOCIATION FOR FOREIGN TRADE
The Bankers Association for Foreign Trade (BAFT) is a collection of banking institutions,
dedicated to promoting American exports, international trade, and finance and investment
between U.S. firms and their trading partners.
Fedwire is an electronic transfer system developed and maintained by the Federal Reserve
System.
CHIPS - Clearing House Interbank Payments System.
SWIFT - Society for Worldwide Interbank Financial Telecommunication
ASSET ALLOCATION - Asset allocation is an investment portfolio technique that aims to
balance risk and create diversification by dividing assets among major categories such as
cash, bonds, stocks, real estate and derivatives.
Rebalancing is the process of buying and selling portions of ones portfolio in order to set the
weight of each asset class back to its original state.
Portfolio Risk Management is the process of measuring and assessing ones portfolio's
exposure to market risk.
NAV is the actual value of the investments made by the pooled fund for each unit issued by
it.
NAV = (Value of investments + Receivables +Accrued Income Accrued Expenses +Other
Current Assets Liabilities) / Number of units outstanding

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Although high net worth is not defined, it is generally taken at a household income of at
least $100,000 or net worth greater than $500,000.
COMMON PRIVATE BANKING PRODUCTS - PERSONAL INVESTMENT COMPANIES,PAYABLE
THROUGH ACCOUNT,HEDGE FUNDS
A PIC is a shell company set up by a Private Banks offshore division (e.g. trust division) for a
client, usually in a tax haven like the Cayman Islands. The
PTAs are transaction deposit accounts that allow banks in one country to offer their foreign
clients of a foreign bank, such services as check-writing.
Private banking is a fee-driven business.
A mutual fund is a fund that pools together money from many investors and invests it on
behalf of the group, in accordance with a stated set of objectives.
CLASSIFICATION OF MUTUAL FUNDS - OPEN-ENDED PLANS and CLOSE-ENDED PLANS
OPEN-ENDED PLANS are Any time entry and exit option
Close-ended plans have fixed maturity periods
"Index fund" describes a type of mutual fund or Unit Investment Trust (UIT) whose
investment objective typically is to achieve the same return as a particular market index.
Growth Funds are those that invest for medium term to long-term capital appreciation.
Income Funds invest for regular Income.
Growth and Income/ Balanced Funds that tries to generate both regular income and long
term capital appreciation.
Sector Funds that have unique investment objectives.
Special Funds are special types of Mutual Funds.
NAV - NET ASSET VALUE
Net asset value," or "NAV," of an investment company or a mutual fund is the
company/funds total assets minus its total liabilities.
SMA - separately managed account
A separately managed account is a portfolio of securities owned directly by the investor and
managed by professional money manager in lieu of an asset-based fee.
Separately managed accounts help investors build and manage their wealth by focusing on
the investor's individual investment goals, time horizon, and risk tolerance.
A Retirement Pension Plan is any plan or program maintained and sponsored by an
employer, an employee organization or both.
A qualified retirement plan is a plan that meets specific requirements of the Internal
Revenue Code (IRC), the Department of Labor (DOL) and Employee Retirement Income
Security Act (ERISA).
Employers who wish to provide benefits to certain key employees on a discriminatory basis
can do so through a non-qualified plan.
DEFINED BENEFIT PLAN (DB) - This promises a specified monthly benefit at retirement.
DEFINED CONTRIBUTION PLAN (DC) - the employee or the employer (or both) contribute to
the employee's individual account under the plan
CASH BALANCE PLANS - Combine elements of both defined benefit and defined
contributions plans,
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) - These allow a person to set aside and invest a
contribution each year in an individual account.
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KEOGH PLANS - These are tax-deferred retirement accounts for self-employed workers or
persons employed by unincorporated businesses.
Hedge funds are exempted from registration and disclosure requirements.
Hedge funds are more riskier than Mutual funds
Investment Management aims at managing investors money efficiently and cost effectively
to generate superior investment returns. The ultimate objective is to deliver equity
type returns with lesser volatility risk and achieve capital preservation
Front Office covers functions like Sales & Client prospecting, Contact Management, Account
Aggregation and Financial Advisory services.
Middle/Back Office covers functions like Asset Allocation, Research, Portfolio Analysis, Risk
Management, Trade Processing, Compliance and Documentation
Hedge funds, including fund of funds are unregistered private investment partnerships,
funds or pools that may invest and trade in many different markets, strategies and
instruments (including securities, non-securities and derivatives) and are NOT subject to the
same regulatory requirements as Mutual funds.
An investment bank is a financial institution that raises capital, trades in securities and
manages corporate mergers and acquisitions.
CORPORATE FINANCE generally performs Mergers and acquisitions advisory and
Underwriting
Traders facilitate the buying and selling of stock, bonds, or other securities such as
currencies, either by carrying an inventory of securities for sale or by executing a given
trade for a client.
Broker is a party that mediates between a buyer and a seller.
An initial public offering (IPO) is the process by which a private company transforms itself
into a public company.
An Underwriter is a broker/dealer or an investment bank. He guarantees that the capital
issue will be subscribed to the extent of his underwritten amount. He will make good of any
shortfall.
Selling group comprises of broker/dealers chosen to assist the syndicate in marketing the
issue (in a broker capacity).
LISTED MARKET - These are exchanges where an Auction method is used and specialists
provide liquidity on the floor of an exchange.
OVER-THE-COUNTER MARKET - A negotiated market without a physical location where
transactions are done via telecommunications.
The price at which market makers will buy or sell a particular security is known as the Bid or
Ask Price
ORDER TYPES (BASED ON PRICE) - Market Orders,Limit Orders,Stop order,Stop Limit
order,Do-not-reduce Order.
Market Orders is executed at once, "at the market." A market order guarantees execution,
but does not guarantee a price. The final price is determined by supply and demand.
Limit Orders - Some investors may want to buy or sell, but only at a specific price. A Limit
order is executed at a set price or better and will not be executed if that price is not met.
Stop order - If the market price hits or passes through the stop price (Trigger), a market
order is Elected.
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ORDER TYPES (BASED ON TIME) - Day Order and Open Order or Good Till Cancelled (GTC).
Fill or Kill (FOK) The order must be immediately filled in one trade or canceled completely.
All or None (AON) - The entire order must be filled or canceled completely, but unlike FOK,
AON can remain good till cancelled.
Immediate or Cancel (IOC) must immediately be filled for as much of the order as possible in
one trade, with the remainder being cancelled.
Market Not Held order The floor broker has the discretion concerning time and price. A
key point is that Market Not Held orders are never on the Specialist's Book.
Unlisted securities trade Over the Counter (OTC).
Corporate Action refers to dividend declarations, stock splits etc. The Corporate Action
department makes sure that the rightful owners (as on the Record Date) receive the
dividends, Splits etc.
The Accounting department records, processes and balances the movement of money in the
brokerage firm. They produce the Daily Cash Records and Trial Balance, Balance Sheet and
Profit & Loss statements on a periodic basis.
VALUE WEIGHTED INDEX is a stock index in which each stock affects the index in proportion
to its market value.
PRICE WEIGHTED INDEX is a stock index in which each stock affects the index in proportion
to its price per share.
The custody service business evolved from safekeeping and settlement services provided by
banks to its customers for a fee.
Securities marketplace is a mechanism for bringing together those seeking investment and
those seeking capital.
The trade execution is carried out on a stock exchange after an order is placed.
An order in entered into the trading system by the brokers and they specify the information
regarding the trade details.
The date the trade is executed is known as the Trade Date, and is referred as T or T+0.
The process of trade enrichment involves the selection, calculation and attachment to a
trade of relevant information necessary for efficiently servicing the clients.
Trade validation is a process of checking the data contained in the fully enriched trade, in
order to reduce the possibility of erroneous information being sent to the client
Trade settlement is the act of buyer and seller exchanging securities and cash on or after the
value date in accordance to the contractual agreement.
The settlement period is the time between the execution of the trade and the settlement of
trade.
Asset servicing is a core ongoing service provided by custodians. This service includes
collecting dividends and interest payments, processing corporate actions and applying
for tax relief from foreign governments on behalf of customers.
Cash sweep is a value added service provided by custodian banks to its customers. This
service ensures that the surplus cash in customers accounts are effectively invested in
short-term investment funds
An exchange is a regulated market place, where buyers and sellers come together to
exchange what they want.

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TRADE CYCLE = Decision to trade-> Place an Order->Trade Matching->Trade Execution>Clearing of Trades->Settlement of Trades->Security/FundTransfer
Settlement on net basis reduces the number of transactions to be settled drastically
reducing the overall transaction cost for everyone
netting reduces the number of settlements needed by more than 95%.
process of transferring obligation from one party to the other is also known as Novation.
Account Period Settlement - In an account period settlement cycle the Trading occurs for a
period of time (number of days). All the trades done during this period are aggregated
as at the end of the predefined number of days, netted and settled.
In this type of settlement every Trading Day is considered separately. Trades are not
aggregated for a period of time as is the case with Account Period Settlement
T+1, T+2, and T+3 refer to the settlement date of security transactions and denote that the
settlement occurs on a transaction date plus one day, plus two days, and plus three
days.
The goal of DVP is achieve a simultaneous exchange of securities and payment.
Risk is the degree of uncertainty associated with an action, such as project implementation
within time and budget, profitability of a project, market returns on an investment
etc
Operational risk can be defined as the exposure to potential monetary losses resulting from
inadequate or failed people, systems and internal processes or from external events.
Credit risk is the risk due to uncertainty in counterpartys (also called an obligor or creditor's)
ability to meet its obligations. The term obligation refers to making debt payments on a
timely basis. The failure to make these payments is called default. For this reason, credit risk
is also known as default risk.
Interest rate risk captures the exposure of an institution or an individuals financial condition
to adverse movements in interest rates.
Currency Risk captures the potential losses arising from unanticipated exchange rate
changes.
Equity Risk is the risk arising due to volatility in a stock price. The level of volatility of the
investment is directly proportional to the potential gains (and losses).
Commodity risk refers to the uncertainties of future market values and of the size of the
future income, caused by the fluctuation in the prices of commodities.
Liquidity risk is the inability to meet financial commitments, as they fall due, through
ongoing cash flow or asset sale at fair market value.
A Legal Risk can be defined as a potential economical loss deriving from the infringement of
a legal norm.
Value-at-Risk (VaR) is an integrated way to deal with different markets and different risks
and to combine all of the factors into a single number which is a good indicator of
the overall risk level.
preferred confidence level. 99% = 2.33 * standard deviation.
Variance-Covariance method - This is a very simplified and speedy approach to VaR
computation
Strategic risk is the current and prospective risk to earnings or capital arising from adverse
business decisions, improper implementation of decisions, or lack of responsiveness to
industry changes.
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Country risk refers to the risk that a country won't be able to honour its financial
commitments.
Political risk represents the financial risk that a country's government will suddenly change
its policies.
Effective Yield = (1 + (i / n))^n - 1
A Defined Benefit Plan is an employer-sponsored retirement plan in which retirement
benefits
Money laundering is the flow of cash or other valuables derived from, or intended to
facilitate, the commission of a criminal offence.
Forfeiture: The act allows confiscation of all of the property of participants in or plans an act
of domestic or international terrorism;
The Sarbanes-Oxley Act was signed into law on 30th July 2002.
A subprime loan is a loan given to borrowers that are considered more risky, or less likely to
be able to make their loan payments,
TARP - Troubled Asset Relief Program
The Troubled Asset Relief Program (TARP) is a program of the United States government to
purchase assets and equity from financial institutions in order to strengthen its
financial sector

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