| Glossary
of Financial and Banking Terms
Assets: Items of economic value owned by an individual or company, which
can be converted to cash. Examples: Cash, Securities,
Stocks, Automobile, House, Office Building, Property, etc...
Balance Sheet: A financial
statement showing the assets, liabilities, and net worth of
a business as of a specific date.
Bankruptcy: A proceeding in a federal court in which a debtor who owes more
than his or her assets can receive debt relief by transferring
his or her assets to a trustee or agreeing to reorganization
of assets and liabilities. Usually, at least two years must
elapse from the discharge of the bankruptcy before lenders will
consider making a loan to someone who had declared bankruptcy.
Beneficiary: An individual, institution, trustee, or estate, which receives,
benefits under a will, insurance policy, retirement plan, annuity,
trust, or other contract.
Bond: Bonds are essentially loans, or debt. Corporations, governments
or municipalities issue them to raise money. A bond certificate
is like an IOU; the issuer is required to pay a fixed sum annually
until maturity and then a fixed sum to repay the principal.
Mutual funds that invest in bonds are called "income funds".
Bonus: A payment, over and above an individual's regular salary based
on performance or company profits.
Broker: An individual or firm who acts as an intermediary between a
buyer and seller, broker's usually charge a commission.
Call Option:
A contract that gives the holder the right to buy a certain
quantity (usually 100 shares) of an underlying security from
the writer of the option, at a specified price (the strike price)
up to a specified date (the expiration date).
Cash
Flow: The
amount of cash generated from income-producing property or investments
after all operating expenses and loan payments have been made.
Central Bank: The principal monetary authority of a nation, a central bank
performs several key functions, including issuing currency and
regulating the supply of credit in the economy. The Federal
Reserve is the central bank of the United States.
Collateral: Assets pledged by a borrower to secure a loan, which are subject
to seizure in the event of a default.
Commission: A fee charged by a broker or agent for his/her service in facilitating
a transaction, such as selling a house or buying stocks/bonds.
Contingent Liability: A liability that is dependent on other events. Such as,
co-signing on a loan.
Creditor: A person or organization that enters into a contractual agreement
in which a borrower receives something of value now and agrees
to repay the lender at some later date.
Current Value: Value the market will pay for your security or asset at this
point in time.
Debenture: Unsecured debt backed only by the integrity of the borrower,
not by collateral and documented by an agreement called an indenture
. One example is an unsecured bond.
Defendant: a person or institution against whom an action is brought in
a court of law; the person being sued or accused.
Default: Failure to make required debt payments on a timely basis or
to comply with the terms of an obligation.
Dividends: An amount distributed out of a company's profits to its shareholders
in proportion to the number of shares they hold. A preferred
dividend usually is for a fixed amount, while a common dividend
may fluctuate with the profits of the company.
Estate: Assets owned by an individual at death, to be distributed according
to the individual's will or a court ruling if there is no will.
Exchange: Any organization, association or group, which provides a marketplace
where securities, options, futures, or commodities can be traded.
Expenditure: A payment or the promise of a future payment.
Federal Reserve Board: The 7-member board that monitors the economic health of the
country oversees Federal Reserve Banks, and establishes monetary
policy.
Financial
Statement: A written statement of the financial position of a person or
company, showing total assets and liabilities as of a certain
date. Many lenders require a financial statement as part of
a loan application.
Income Statement: A financial document that shows how
much money (revenues) came in and how much money (expenses)
was paid out during a period certain of time. Subtracting the
expenses from the revenue gives the net profit.
Inflation: An increase in the amount of money or credit available in relation
to the amount of goods or services available, which causes an
increase in the general price level of goods and services. Over
time, inflation reduces the purchasing power of a dollar, making
it worth less.
Installment Payments: Weekly, monthly, or other scheduled payments on a debt.
Interest: a fixed charge for borrowing money; usually a percentage of
the amount borrowed.
Interest
Income:
Money earned from investments based upon the time value of money.
Interest Rate: Rate charged or paid for the use of money, normally expressed
as a percentage.
Intermediary: A third party (neutral) who facilitates a deal between two other
parties.
Judgment: The decision of a court of law. Money judgments, when recorded,
become a lien on real property of the defendant.
Liability: A financial obligation, potential loss, debt, or claim.
Lien Holder: A legal claim against an asset which is used to secure a loan
and which must be paid when the property is sold.
Life Insurance:
Insurance to be paid to a beneficiary when the insured dies
Market Value: the price as determined by buyers and sellers; price which security
or asset can be sold at this point in time.
Maturity Date: date upon which a debt becomes due for a payment.
Monetary Policy: The regulation of the money supply and interest rates by a central
bank, in order to control inflation and stabilize currency.
Mortgage: A legal document that pledges a property to the lender as security
for payment of a debt.
Note: A written agreement containing a promise of the signer to pay
to a named person, or order, or bearer, a definite sum of money
at a specified date or on demand.
Note Payable: A legal document that obligates a borrower to repay a loan at
a specified interest rate during a specified period of time
or on demand.
Note Receivable: A claim against a debtor, evidenced by an unconditional written
promise to pay a certain sum of money on or before a specified
future date.
Option: The right, but not the obligation, to buy (call option) or sell
(put option) a specific amount of a given commodity, currency,
debt, index or stock at a specified price (the strike price)
during a specified period of time.
Example, for stock options, the amount is usually 100 shares.
Each option has a buyer, called the holder, and a seller, known
as the writer. If the option contract is exercised, the
writer is responsible for fulfilling the terms of the contract
by delivering the shares to the appropriate party.
Pledged: Assets offered to a lender as collateral for a loan. Though
the asset will be pledged to the lender, it is still owned by
the borrower unless he/she defaults on the loan.
Purchase Price: the initial price paid to obtain ownership of a security or
asset.
Put Option:
A contract that gives the holder the right to sell a certain
quantity of an underlying security to the writer of the option
at a specified price (strike price) up to a specified date (expiration
date);
Real Estate: A piece of land, including the air above it and the ground below
it, and any buildings or structures on it.
Regulation T: A Federal Reserve Board regulation that governs customer cash
accounts and the extension of credit by brokers to customers
to purchase and carry securities.
Restricted Account: Margin account, which has less equity than is required by Regulation
T. Purchases cannot be made in such an account, and part of
the proceeds from any sales goes toward reducing the shortfall.
Salary: Financial compensation an employee receives for performing the
job, and part of your compensation package. Can be determined
by hourly, daily, weekly, monthly, and yearly. Also can include
overtime pay, bonuses, and commissions.
Security: An investment instrument, other than an insurance policy or
fixed annuity, issued by a corporation, government,
or other organization which offers evidence of debt or equity. The official
definition, from the Securities Exchange Act of 1934,
is: "Any note, stock, treasury stock, bond, debenture, certificate
of interest or participation in any profit-sharing agreement
or in any oil, gas, or other mineral royalty or lease, any collateral trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit,
for a security, any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities
(including any interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege entered into
on a national securities exchange relating to foreign currency, or in general,
any instrument commonly known as a 'security'; or any certificate
of interest or participation in, temporary or interim certificate
for, receipt for, or warrant or right to subscribe to or purchase,
any of the foregoing; but shall not include currency or any
note, draft, bill of exchange,
or banker's acceptance which has a maturity at the time
of issuance of not exceeding nine months, exclusive of days
of grace, or any renewal thereof the maturity of which is likewise
limited."
Stock: (1)a certificate representing
a share of ownership in a company. (2) Stock is the ownership
of a corporation represented by shares that are a claim on the
corporation's earnings and assets. There are many kinds of stocks,
the most widely known being COMMON STOCK, which usually entitles
a stockholder to vote in the election of directors and other
corporate matters.
Strike
Price: The
specified price on an option contract at which the contract
may be exercised.
Unsecured
Debt:
Debt backed by the integrity of the borrower not by collateral.
Wages: The
payment for work or services to workers - the money people are
paid at their jobs.
Will: A
legally enforceable declaration directing the disposal of a
deceased's property.
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