Important Banking Terms - 5

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Banking Terms

1. Customer: A person who maintains any type of account with a bank is a bank customer. Consumer Protection Act has a wider definition for consumer as the one who purchases any service for a fee like purchasing a demand draft or a pay order. The term customer is defined differently by Laws, softwares and countries.

2. Current Account: Current account with a bank can be opened generally for business purpose. There
are no restrictions on withdrawals in this type of account. No interest is paid in this type of account.

3. Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves.
Any changes in the size of the monetary base have to be fully matched by corresponding changes in
the foreign reserves.

4. Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. It is 85. shown as: Coupon Rate divided by Price multiplied by 100%.

6. Custody of Securities: Registration of securities in the name of the person to whom a bank is
accountable, or in the name of the bank’s nominee; plus deposition of securities in a designated
account with the bank’s bankers or with any other institution providing custodial services.

7. Debit Card: A plastic card issued by banks to customers to withdraw money electronically from their
accounts. When you purchase things on the basis of Debit Card the amount due is debited immediately to the account. Many banks issue Debit-Cum-ATM Cards.

8. Debtor: A person who takes some money on loan from another person.

9. Demand Deposits: Deposits which are withdrawn on demand by customers. E.g. savings bank and
current account deposits.

10. Demat Account: Demat Account concept has revolutionized the capital market of India. When a
depository company takes paper shares from an investor and converts them in electronic form through
the concerned company, it is called Dematerialization of Shares. These converted Share Certificates in
Electronic form are kept in a Demat Account by the Depository Company, like a bank keeps money in a
deposit account. Investor can withdraw the shares or purchase more shares through this demat
Account.

11. Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to
buy (sell) the shares of a listed company at a specified price.

12. Derivative Instrument: Financial instrument whose value depends on the value of another asset.

13. Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.


14. Dishonour of Cheque: Non-payment of a cheque by the paying banker with a return memo giving
reasons for the non-payment.

15. Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest in a
timely manner.

16. Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to
increase returns or be exposed to less risk.

17. Duration: A measure of bond price volatility, it captures both price and reinvestment risks to indicate
how a bond will react to different interest rate environments.

18. Earnings: The total profits of a company after taxation and interest.

19. Earnings per Share (EPS): The amount of annual earnings available to common stockholders as
stated on a per share basis.

20. Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).