.

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 (semiannually).
.
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 owner�s name does not appear on the bond
.
Bonds that are registered as to principal only have the owner�s 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, 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 firm�s 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.
.
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.
.
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 labor.
.
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 banker�s 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 nation�s 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
human's 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/maker�s 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 store�s 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 Payment�Payment for previously acquired or contracted goods and services.
.
P2P Payments�Payments 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, Bank�s Website, etc. where the
customers contact the Bank�s representatives for their financial services.
.
Middle Office is where the decisions are made about the product, interest rate,
credit
policies, Compliance monitored etc.
.
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 C�s 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) 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
3�5%
of the amount borrowed) when we take up the loan.
.
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
lender�s going rate for a fixed period of time. At the end of the period, one is
charged
.
the lender�s 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.