Important Banking terms - 3

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Banking Terms

1. Bouncing of a cheque:
Where an account does not have sufficient balance to honour the cheque issued by the customer, the cheque is returned by the bank with the reason "funds insufficient" or "Exceeds arrangement”. This is known as 'Bouncing of a cheque’.


2. Basis Point:
 One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points.

3. Bear Markets:
 Unfavorable markets associated with falling prices and investor pessimism.

4. Bid-ask Spread:
 The difference between a dealers’s bid and ask price.

5. Bid Price:
The highest price offered by a dealer to purchase a given security.

6. Blue Chips:
 Blue chips are unsurpassed in quality and have a long and stable record of earnings
and dividends. They are issued by large and well-established firms that have impeccable financial
credentials.

7. Bond:
Publicly traded long-term debt securities, issued by corporations and governments, whereby
the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed
amount of principal at maturity.

8. Book Value:
 The amount of stockholders’ equity in a firm equals the amount of the firm’s assets
minus the firm’s liabilities and preferred stock.

9. Broker:
 Individuals licensed by stock exchanges to enable investors to buy and sell securities.

10. Brokerage Fee:
 The commission charged by a broker.

11. Bull Markets:
Favorable markets associated with rising prices and investor optimism.

12. Call Option:
The right to buy the underlying securities at a specified exercise price on or before a
specified expiration date.

13. Callable Bonds:
 Bonds that give the issuer the right to redeem the bonds before their stated
maturity.

14. Capital Gain:
The amount by which the proceeds from the sale of a capital asset exceed its original
purchase price.

15. Capital Markets:
The market in which long-term securities such as stocks and bonds are bought
and sold.

16. Certificate of Deposits (CDs):
 Savings instrument in which funds must remain on deposit for a
specified period and premature withdrawals incur interest penalties.

17. Certificate of Deposit:.
Certificate of Deposits are negotiable receipts in bearer form which can be
freely traded among investors. This is also a money market instrument,issued for a period ranging from 7 days to f one year .The minimum deposit amount is Rs. 1 lakh and they are transferable by 
endorsement and delivery.

18. Cheque:
 Cheque is a bill of exchange drawn on a specified banker ordering the banker to pay a
certain sum of money to the drawer of cheque or another person. Money is generally withdrawn by
clients by cheques. Cheque is always payable on demand.

19. Cheque Truncation:
 Cheque truncation truncates or stops the flow of cheques through the banking
system. Generally truncation takes place at the collecting branch, which sends the electronic image of
the cheques to the paying branch through the clearing house and stores the paper cheques with it.

20. Closed-end (Mutual) Fund:
A fund with a fixed number of shares issued, and all trading is done
between investors in the open market. The share prices are determined by market prices instead of
their net asset value.