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Banking & Financial Awareness

Banking Terminology

AAA-

  • AAA is a term or a grade that is used to rate a particular bond. It is the highest rated bond that gives maximum returns at the time of maturity. Usually, the grade AAA is given to the best debt obligation or a security, by a credit rating agency.
  • Ratings agencies Standard & Poor’s (S&P) and Fitch Ratings use the letters “AAA” to identify bonds with the highest credit quality, while Moody’s uses the similar “AAA”, to signify a bond’s top tier credit rating.

 Absorption-

  • Absorption is a term related to real estate, banking, and finance fields. The word ‘absorption’ means the process of renting a real estate property that is newly built or is recently renovated.

 Alternative Minimum Tax-

  • Alternative minimum tax, also known as the AMT is a special tax that prevents people with high incomes from abusing deductions and credits to pay little or no income tax. The alternative minimum tax (AMT) is basically levied on the individuals and organizations that misuse and take advantage of tax benefit schemes that are in monetary terms exorbitant, if rationally compared to their annual incomes.

 Bridge Loan-

  • A bridge loan is a short-term, high-interest loan that provides a quick source of cash for commercial or individual needs. It is called a bridge loan because it serves as a bridge between one period of funding and another, more permanent source of funding.
  • The bridge loan is also known as a swing loan.
  • The loan period may vary with different vendors, but it can range between twelve months to three years.
  • One of the main features of this loan is the high rate of interest attached to it.

 Due Date-

  • Due date, also known as maturity date, is mostly used to denote the date when some accruals fall due. Due date rate is the amount of debt that has to be paid on a date decided in the past.
  • Due date amount is also calculated widely for bank deposits, FDs, NSCs, and other investment instruments and via financial institutions.
  • If the due date amount is higher than the actual amount, then it results in profit, otherwise it’s a loss.

 E-cash-

  • E-cash, also known as electronic cash and digital cash, is a technology where the banking organizations resort to the use of electronics, computers and other networks to execute transactions and transfer funds.
  • In short, e-cash is stored online in a digital wallet and can be used to pay for goods and services and to instantaneously transfer funds between accounts and people through electronic means.

 Early withdrawal Penalty-

  • An early withdrawal penalty is basically a penalty that is levied by a bank because of an early withdrawal of a fixed investment by any investor. There can be several types of early withdrawal penalties, like forfeiting the promised interest.

 Forbearance Agreement-

  • A forbearance agreement is an authenticated agreement between a debtor and a creditor, and is utilized by the creditor, when the debtor initiates a debt settlement or the loan is defaulted, or the former becomes bankrupt.

 Grace Period-

  • A grace period is an interest-free period that is to be given by a creditor to a debtor after the period of the loan gets over, before initiating the process of loss recovery. The grace period depends on the amount of the loan and also the credit score of the borrower.
  • A grace period allows a borrower to delay payment beyond the due date without penalty.
  • For credit card users, a grace period protects the borrower from incurring interest charges on a new purchase before the bill is even due.
  • If a loan or other agreement has a grace period, its length of time will be noted in the contract.

 Net Stable Funding Ratio-

  • The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.
  • “Available stable funding” (ASF) is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year.
  • The amount of stable funding required (“Required stable funding”) (RSF) of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance sheet (OBS) exposures.
  • The objective of NSFR is to ensure that banks maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities.