Finance Terminologies

1. Abnormal Return
The difference between an actual return and a benchmark or expected return or normal return
based on the market’s return and concern security’s relationship with the market.
2. Accelerated depreciation
The method of depreciation that writes off the cost of a capital asset faster than the write-off
under straight-line depreciation method. The three principal methods of accelerated depreciation
are (a) sum-of years’ digits, (b) double declining balance, and (c) units of production.
3. Accounts payable
The amounts due to suppliers of goods and services of an organization.
4. Accounts receivable
Amounts of money owed to a firm by customers who have bought goods or services on credit. A
current asset, the accounts receivable amount is also called receivables.
5. Accrual accounting
A method of accounting in which revenue is recognized when earned and expenses are
recognized when incurred without regard to the timing of cash receipts and expenditures.
6. Accruals
Liabilities for services received for which payment has yet to be made. Examples include
accrued wages, accrued taxes, and accrued interest.
7. Accrued expenses
Amounts owed but not yet paid for wages, taxes, interests, and dividends. The accrued expenses
account is a short-term or current liability.
8. Active management
Attempts to identify mispriced securities, or to forecast broad market trends.
9. Active portfolio strategy
A strategy that uses available information and forecasting techniques to seek better performance
than a buy and hold portfolio.
10. Agency costs
Costs of resolving the conflicts of interest among stockholders, bondholders, and managers.
They include the costs of providing managers with an incentive to maximize shareholders’

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wealth and then monitoring their behavior, and the cost of protecting bondholders from
shareholders.
11. Agency problem
Conflicts of interest among stockholders, bondholders, and managers.
12. Agency theory
The theory of the relationship between principals and agents. It involves the nature of the costs
of resolving conflicts of interest between principals and agents.
13. Alpha
In a nutshell, alpha is the difference between a fund's expected returns based on its beta and its
actual returns. Alpha is sometimes interpreted as the value that a portfolio manager adds, above
and beyond a relevant index's risk/reward profile.
14. Amortization
Process of writing off or liquidating an asset or loan periodically on an installment basis.
15. Analyst
Employee of a brokerage or fund management house who studies companies and makes buy-
and-sell recommendations on stocks of these companies.
16. Angel investor
A private wealthy individual that has no association with a venture capital firm, investment fund,
etc. The "angel" invests private money into what he/she believes to be promising opportunities
i.e. normally start-up companies.
17. Annual report
Yearly record of a publicly held company's financial condition. It includes a description of the
firm's operations, as well as balance sheet, income statement, and cash flow statement
information. SEC rules require that it will be distributed to all shareholders.
18. Annuity
A series of uniform receives (payments) for a specific number of years, which results from an
initial deposit (receipts).
19. Appreciation
Increase in the value of an asset.

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20. Arithmetic mean or Average
A measure of mean annual rates of return equal to the sum of annual holding period rates of
return divided by the number of years.
21. ARBITRAGE
The simultaneous purchase and sale of an asset in order to profit from a difference in the price.
22. AMERICAN OPTION
An option which can be exercised at any time between the purchase date and the expiration date.
23. ASKED PRICE
The price a seller is willing to accept for a security, also known as the offer price. Along with the
price, the ask quote will generally also stipulate the amount of the security willing to be sold at
that price.
24. Auction market
The most integrated market is an auction market, in which all traders’ coverage at one place to
buy or sell an asset.
25. Asset allocation
The process of deciding how to distribute an investor’s wealth among different asset classes for
investment purposes.
26. Asset pricing model
A model for determining the required or expected rate of return on an asset. See Also Capital
Asset Pricing Model and Arbitrage Pricing Theory.
27. Balance sheet
A financial snapshot, taken at a point in time of all the assets the company owns and all the
claims against those assets.
28. Balloon payment
A payment on debt that is much larger than other payments. The ultimate balloon payment is the
entire principal at maturity.
29. Banker’s acceptance
The short-term promissory notes for which a bank (by having “accepted” them) promises to pay
the holder the face amount at maturity.

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30. Bankruptcy
The legal mechanism by which creditors take the lead over a company after that company could
not meet it's debt commitments.
31. Barter
A form of trading where the parties are accepting goods as payment rather than cash.
32. Behavioral finance
The study of investment behavior, based on the belief that investors do not always act rationally.
33. Beta coefficient
A measure of the extent to which the returns on a specific stock move with the stock market.
34. Blue chip Company
Large and creditworthy company. Used in the context of general equities. Company renowned
for the quality and wide acceptance of its products or services, and for its ability to make money
and pay dividends.
35. Bond indenture
A legal document specifying the rights and obligations of both the issuing firm and the
bondholders.
36. Bond rating
A rating based on the possibility of default by a bond issuer. The ratings range from AAA
(highly unlikely to default) to D (in default).
37. Bond
A security that obligates the issuer to make specified payments to the holder over a period of
time.
38. Bid Price
That a trader of foreign exchange (typically a bank) is willing to pay for a particular currency.
39. Bid-asked spread
Difference between the price at which a bank is willing to buy a currency and the price at which
it will sell that currency.
40. BSEC
The Bangladesh Securities and Exchange Commission (BSEC) is the regulator of the capital
market of Bangladesh, comprising Dhaka Stock Exchange (DSE) and Chittagong Stock
Exchange (CSE). The Commission is a statutory body and attached to the Ministry of Finance.

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41. Block Transaction
An order or trade submitted for sale or purchase of a large quantity of securities. A block trade
involves a significantly large number of shares or bonds being traded at an arranged price
between parties, outside of the open markets, in order to lessen the impact of such a large trade
hitting the tape.
42. Break-even analysis
An analytical technique for studying the relationship among fixed cost, variable cost, profits and
sales volume.
43. Broker
An individual who is paid a commission for executing customer orders. Either a floor broker
who executes orders on the floor of the exchange, or an upstairs broker who handles retail
customers and their orders.
44. Business cycle
A recurrent cycle of growth, decline, recession, and recovery in the economic activity of a
capitalist country.
45. Business risk
The risk related to the inability of the firm to hold its competitive position and maintain stability
and growth in earnings.
46. Buy-side analyst
A financial analyst employed by a non-brokerage firm, typically one of the larger money
management firms that purchases securities on its own account.
47. Call money
Money put into the money market that can be called at short notice.
48. Call option
A contract that gives the holder the right to purchase a specified quantity of the underlying asset
at a predetermined price (the exercise price) on or before a fixed expiration dates.
49. Call provision
A written agreement between an issuing corporation and its bondholders that gives the
corporation the option to redeem the bond at a specified price before the maturity date.

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50. CAMEL rating
A system that assigns a numerical rating to bank based on examiner judgment regarding the
bank’s capital adequacy (C), asset condition (A), management quality (M) , earnings record (E)
and liquidity position (L).
51. CAPEX
An acronym for capital expenditure.
52. Capital adequacy
The ability of a bank to meet the needs of their depositors and other creditors in terms of
available finds.
53. Capital asset
A long-term asset that is not purchased or sold in the normal course of business. Generally, it
includes fixed assets, e.g., land, buildings, equipment, fixtures and furniture.
54. Capital budgeting
The process of identifying analyzing and selecting investment projects whose returns (cash
flows) are expected to extend beyond one year.
55. Capital expenditure
Outlay required for acquiring a fixed asset from which benefits would be available beyond one
year.
56. Capital gain
An increase in the capital value of an asset between the time of its acquisition by its owner and
its sale by that owner.
57. Capital lease
A lease that does not usually provide for maintenance services, is not cancellable, and is fully
amortized over its life.
58. Capital structure
The mix of the liabilities and stockholders' equity side of the balance sheet, especially the ratio of
debt to equity and the mixture of short and long maturities.
59. Capital
The total amount of money or other resources owned or used to acquire future income or
benefits.

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60. Cash cow
A company or division of a company that generates a steady and significant amount of free cash
flow. This type of company pays out most of its earnings per share to stockholders as dividends.
61. Cash flow
The movement of money into or out of a cash account over a specific period of time.
62. Cost of equity capital
The required return on the company’s common stock in capital markets. It is also called the
equity holders’ required rate of return because it is what equity holders can expect to obtain in
the capital market. It is a cost from the firm’s perspective.
63. CEO
An acronym for Chief Executive Officer. The CEO is the principal individual responsible for the
activities of a company.
64. Collateral
Security which is offered to the lender by the borrower, usually in the form of an asset such as
accounts receivable or inventory.
65. Conglomerate
A corporation that is made up of many diverse, often unrelated divisions. This form of
organization is thought to reduce risk, but may create problems of coordination.
66. Closed end mutual fund
A closed-end fund is a publicly traded investment company that raises a fixed amount of capital
through an initial public offering (IPO). Thefund is then structured, listed and traded like a stock
on a stock exchange. Also known as a "closed-end investment" or "closed-end mutual fund."
67. Call option
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond,
commodity, or other instrument at a specified price within a specific time period.
68. CDBL
The Central Depository Bangladesh Limited (CDBL) is a company set up the banks, stock
exchanges and other institutions to operate the central securities depository in Bangladesh.

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69. Capital Market
The market for long-term funds where securities such as common stock, preferred stock, and
bonds are traded. Both the primary market for new issues and the secondary market for existing
securities are part of the capital market.
70. Call Money Rate
The interest rate on a type of short-term loan that banks give to brokers who in turn lend the
money to investors to fund margin accounts. For both brokers and investors, this type of loan
does not have a set repayment schedule and must be repaid on demand.
71. Credit Crunch
(Banking & Finance) a period during which there is a sudden reduction in the availability of
credit from banks and other lenders
72. Country risk
Uncertainty due to the possibility of major political or economic change in the country where an
investment is located. It is also called political risk.
73. Credit risk
The risk that an issuer of debt securities or a borrower may default on his or her obligations or
that the payment may not be made on a negotiable instrument.
74. Crowding-out effect
Phenomenon that occurs when insufficient loanable funds are available for potential borrowers,
such as corporations and individuals, as a result of excessive borrowing by the Treasury, because
limited loanable funds are available to satisfy all borrowers, interest rates rise in response to the
increased demand for funds, which crowds some potential
borrowers out to the market.
75. Crown jewels
An anti takeover tactic in which major assets (the crown jewels) are sold by a firm when faced
with a takeover threat.
76. Cost Leadership
Strategy used by businesses to create a low cost of operation within their niche. The use of this
strategy is primarily to gain an advantage over competitors by reducing operation costs below
that of others in the same industry.

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77. Covariance
A measure of the degree to which returns on two risky assets move in tandem. A positive
covariance means that asset returns move together. A negative covariance means returns move
inversely.
78. Creditworthiness
An assessment of the likelihood that a borrower will default on his or her debt obligations . It is
based upon factors, such as his/her history of repayment and credit score. Lending institutions
also consider the availability of assets and extent of liabilities to determine the probability of
default.
79. Current assets
Assets of a company that are reasonably expected to be realized in cash, or sold, or consumed
during the normal operating cycle of the business (usually one year).
80. Current liability
Amount owed for salaries, interest, accounts payable and other debts due within 1 year.
81. Compounding
The ability of an asset to generate earnings, which are then reinvested in order to generate their
own earnings . In other words, compounding refers to generating earnings from previous
earnings.
82. Capital Structure
In finance, capital structure refers to the way a corporation finances its assets through some
combination of equity, debt, or hybrid securities. A firm's capital structure is then the
composition or ‘structure' of its liabilities.
83. Debentures
Bonds that promise payments of interest and principal but pledge no specific assets. Holders of a
debenture have first claim on the issuer’s income and unpledged assets. These bonds are known
as unsecured bonds also.
84. Debit card
A payment mechanism that allows for payment of a purchase by an immediate charge against the
purchaser’s account at the financial institution that sponsors the card.
85. Debt (liability)
An obligation to pay cash or other goods or to provide services to another.

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86. Debt capacity
The maximum amount of debt (and other fixed-charge financing) that a firm can adequately
service.
87. Debt instrument
An asset requiring fixed taka payments, such as a government or corporate bond.
88. Dedication
A portfolio management technique in which the portfolio’s cash flows are used to retire a set of
liabilities over time. Also known as cash flow matching.
89. Defensive companies
Firms whose future earnings are likely to withstand an economic downturn.
90. Defensive stock
A stock whose return is not expected to decline as much as that of the overall market during a
bear market.
91. Deflation
A general fall in the level of prices of goods and services throughout an economy. Antithesis of
inflation.
92. Delta
The relationship between an option price and the underlying futures contract or stock price when
trading securities. In general usage, it is the difference between two empirical data points, e.g.
the delta between 4 and 6 is 2.
93. Depository institutions
Financial institutions that acquire a bulk of their funds by offering their liabilities to the public in
the form of deposits.
94. Depreciation
The systematic allocation of the cost of a capital asset over a period of time for financial
reporting purposes, tax purposes or bond.
95. Direct lease
A lease under which a lessor buys equipment form a manufacturer and leases it to a lessee.
96. Dividends
The portion of a corporation's earnings which is paid to the stockholders.

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97. Dumping
The selling of merchandise in a foreign country at, or, below cost in order to seize market share.
98. Duration
A measure of the effective maturity of a bond, defined as the weighted average of the times until
each payment, with weights proportional to the present value of the payment.
99. Differentiation
Result of efforts to make a product or brand stand out as a provider of unique value to customers
in comparison with its competitors.
100. Debt Covenants/BANKING/ FINANCIAL
Debt covenants, also called banking covenants or financial covenants, are agreements between a
company and its creditors that the company should operate within certain limits.
101. Discounting
The process of determining the present value of a payment or a stream of payments that is to be
received in the future. Discounting is the method used to figure out how much these future
payments are worth today.
102. Dividend Policy
The amount of a dividend that a publicly-traded company decides to pay out to shareholders .
The dividend policy may change from time to time. Factors affecting a dividend policy include
the company's earnings for the relevant period and its expected performance in the near future.
103. DuPont Analysis
An alternative calculation of the return on equity of an investment . DuPont analysis utilizes the
investment's gross book value instead of its net book value. It is calculated as: (Profits / Sales) *
(Sales / Assets) * (Assets / Equity) = DuPont Analysis return on equity
104. Direct Placement
Selling a new issue not by offering it for sale publicly, but by placing it with one of several
institutional investors. Also known as a private placement.
105. Cannibalization
An act or strategy in which a company introduces a new product into a market where the same
company's products are already well established. A company engaging in corporate cannibalism
is effectively competing against itself.

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106. DSE
The financial marketplace headquartered in Dhaka, Bangladesh. The Dhaka Stock Exchange was
incorporated in 1954, and formal trading began in 1956.
107. Diversifiable Risk
Investment risk that can be reduced or eliminated by combining several diverse investments in a
portfolio. Non-market (non-systemic) risks are diversifiable risks.
108. Non-diversifiable Risk
Risk of an investment asset (bond, real estate, share/stock, etc.) that cannot be reduced or
eliminated by adding that asset to a diversified investment portfolio. Market or systemic risks are
non-diversifiable risks.
109. E/P ratio
The reciprocal of the P/E ratio.
110. Earnings per share
A measure of common shares’ claim on earnings, defined as the total earnings available for a
firm’s common stockholders divided by the number of shares of common stock outstanding.
111. Economic risk
Synonymous to business risk.
112. Economies of scale
The benefits of size in which the average unit cost falls as volume increases.
113. Economies of scope
Occurs when one firm produces two outputs than two specialized firms could produce.
114. Effective interest rate
The actual rate of interest earned (paid) after adjusting the nominal rate for factors such as the
number of compounding periods per year.
115. Efficient frontier
The set of portfolios on the minimum variance frontier, but with maximum expected return for
each given level of standard deviation.
116. Efficient market
A market in which asset prices instantaneously reflect new information.

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117. Efficient portfolio
A portfolio with the highest level of expected return for a given level of risk or a portfolio with
the lowest risk for a given level of expected return.
118. Equilibrium interest rate
The rate at which the amount investors wish to borrow is equal to the amount investors wish to
lend.
119. Exchange rate risk
The risk that an investment's value will change because of currency exchange rates.
120. Exchange rate
The rate at which domestic currency can be converted into foreign currency
121. Externalities
Economic actions undertaken by producers and consumers that exert external economic effect on
other producers or consumers which escape the price mechanism. Such nonprice effects are also
called spillovers or neighborhood effects.
122. Face value
The amount that an issuer agrees to pay at the maturity date. Synonymous to maturity value or
par value.
123. Financial control
The phase in which financial plans are implemented; control deals with the feedback and
adjustment process required to ensure adherence toplans and modification of unforeseen
changes.
124. Financial disclosures
Presentations of financial information to the investment community.
125. Financial distress
Severe liquidity problems that cannot be resolved without a sizeable rescaling of the entity's
operations or structure.
126. Financial engineering
Combining or carving up existing instruments to create new financial products.
127. Financial institution
A financial enterprise that may perform one of several financial services such as accepting
deposits, brokering securities, managing funds, or underwriting securities.

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128. Financial intermediaries
Institutions that connect borrowers and lenders by accepting funds from lenders and loaning
funds to borrowers. These financial intermediaries include banks, investment companies,
insurance companies, or credit unions. Financial intermediaries issue their own securities to raise
funds to purchase securities of other corporations.
129. Financial leverage
Extent to which a firm relies on debt. Financial leverage is measured by the ratio of long -term
debt to long-term debt plus equity.
130. Financial market
The system in which communication networks, financial institutions and relevant rules and
regulations are established and activated in order to facilitate smooth flow of funds and
corresponding financial instruments/assets. Alternatively, financial market is a mechanism
designed to facilitate the exchange of financial assets by bringing buyers and sellers of securities
together.
131. Financial planning
The projection of sales, income and assets based on alternative production and marketing
strategies, as well as the determination of sources needed to achieve these projections.
132. Financial risk
The uncertainty of future incomes due to the company’s financing.
133. Financial statements
The principal published financial data about a company, primarily the balance sheet and income
statement.
134. Financial structure
Synonymous to capital structure.
135. Financial system
A system which deals with the supply and utilization of funds to different economic units in most
efficient manner within the institutional framework on most favorable terms and conditions.
136. Financial year
Any year connected with finance, such as a company's accounting period or a year for which
budgets are made up.

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137. Financing decision
Concerns with determining the best financing mix or capital structure for the firm. An optimal
financing mix should exist in which market price per share could be maximized.
138. Five Cs of credit
Five characteristics that are used to form a judgment about a customer's creditworthiness
character, capacity, capital, collateral, and conditions.
139. Fixed assets
The assets of a permanent nature required for the normal conduct of a business, and which will
not normally be converted into cash during the ensuring fiscal period. For example, furniture,
fixtures, land, and buildings are all fixed assets. However, accounts receivable and inventory are
not.
140. Foreign exchange exposure
The risk that unexpected changes in exchange rates will impose a loss of some kind on the
exposed party. With transaction exposure, the lossis to reported income; with accounting
exposure, the loss is to net worth; and with economic exposure, the loss is to the market value of
the entity.
141. Free cash flow
The cash flow available to a company after financing all worth-while investments; defined as
operating income after tax plus depreciation less investment. The presence of large free cash
flow is said to be attractive to a corporate raider.
142. Free market
A market that is free from government interference, prices rising and falling in accordance with
supply and demand.
143. Future Contract
A contractual agreement, generally made on the trading floor of a futures exchange, to buy or
sell a particular commodity or financial instrument at a pre-determined price in the future.
Futures contracts detail the quality and quantity of the underlying asset; they are standardized to
facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of
the asset, while others are settled in cash.

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144. Forward contact
A contract that specifies the price and quantity of an asset to be delivered in the future. Forward
contracts are not standardized and are not traded on organized exchanges.
145. Golden parachute
Compensation paid to top level management by a target firm if a takeover attempts.
146. Gordon model
A valuation model in which the value of a firm is equal to the present value of all future
dividends expected over the life of the firm.
147. Greenmail
The purchase of a large number of shares in a company, which are then sold back to the
company at a premium over the market price in return for a promise not to launch a bid for the
company. It is sometimes called ‘graymail’.
148. Gross domestic product
The market value of goods and services produced over time including the income of foreign
corporations and foreign residents working in the country, but excluding the income of residents
and corporations overseas.
149. Gross profit margin
Gross profit divided by sales, which is equal to each sales taka left over after paying for the cost
of goods sold.
150. Gross working capital
The firm’s investment in current assets (like cash and marketable securities, receivables, and
inventory).
151. Growth company
A company that consistently has the opportunities and ability to invest in projects that provide
rates of return that exceed the firm’s cost of capital. Earnings of this company are higher than
those of average firms.
152. Growth funds
Mutual funds containing stock of firms that are expected to grow at a higher than average rate;
for investors who are willing to accept a moderate degree of risk.
153. Growth industries
Industries with expected earnings growth significantly above the average of all industries.

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154. Hedge
A strategy to offset investment risk. A perfect hedge is one that eliminates all possibility of gain
or loss due to future movements of the hedged variable.
155. Hedged portfolio
A portfolio consisting of a long position in the stock and a long position in the put option on the
stock, so as to be riskless and produce a return that equals the risk-free interest rate.
156. Hedging
A strategy that negates, in whole or in part, the risk associated with a decision.
157. Holding period return
The total return from an investment, including all sources of income, for a given period of time.
158. Homemade dividend
Indicates that an individual investor can undo corporate dividend policy by re-investing excess
dividends or selling of shares of stock to receive a desired cash flow.
159. Homogeneous expectations
Idea that all individuals have the same beliefs concerning future investments, profits and
dividends.
160. Hostile takeover
A takeover of a company against the wishes of the current management and the board of
directors by an acquiring company or raider.
161. Human capital
The unique capabilities and expertise of individuals.
162. Indenture
A complex and lengthy legal agreement, also called the deed of trust, between the corporation
issuing bonds and the bondholders, establishing the terms of the bond issue and naming the
trustee.
163. Independent project
A project whose acceptance or rejection is independent of the acceptance or rejection of other
projects.

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164. Index analysis
An analysis of percentage financial statements where all balance sheet or income statement
figures for a base year equal 100% and subsequent financial statement items are expressed as
percentages of their values in the base year.
165. Index
Statistical composite that measures changes in the economy or in financial markets, often
expressed in percentage changes from a base year or from the previous month. Indexes measure
the ups and downs of stock, bond, and some commodities markets, in terms of market prices and
weighting of companies of the index.
166. Indifference curve
The expression in a graph of a utility function, where the horizontal axis measures risk and the
vertical axis measures expected return. The curve connects all portfolios with the same utility.
167. Indirect investment
An investment that an investor has by holding a claim on a financial intermediary that has made
direct investment.
168. Industry life cycle
Stages through which firms typically pass as they mature.
169. Industry
A group of firms whose products are perfect substitutes for each other to a common group of
buyers and which are very poor substitutes for all other products in the economy.
170. Initial public offering
The mechanism of offering shares of a specific firm for the first time for public subscription.
171. Inside information
Non public knowledge about a corporation possessed by corporate officers, major owners, or
other individuals with privileged access to information about the firm.
172. Insider trading
The purchase and sale of a firm’s securities by its officers (among others) who are seeking to
benefit from their knowledge of non-public information about the firm’s financial prospects.
173. Insolvency
The condition of having debts greater than the realizable value of one’s assets.

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174. Internal financing
Funds that come from internally generated cash flow. It equals net income plus depreciation
minus dividend.
175. Interpolation
Estimation of an unknown number that lies somewhere between two known numbers.
176. Intrinsic value
The present value of a firm's expected future net cash flows discounted by the required rate of
return.
177. Investment banks
Financial intermediaries who perform a variety of services, including aiding in the sale of
securities, facilitating mergers and other corporate reorganizations, acting as brokers to both
individual and institutional clients, and trading for their own accounts.
178. Investment company
A firm that sells shares of the company and uses the proceeds to buy stocks, bonds, or other
financial instruments.
179. Investment decision
Concerns with the allocation of capital to investment proposals, whose benefits are to be realized
in the future. It also includes the reallocation of capital when an asset no longer economically
justifies the capital committed to it.
180. Investment grade bond
A bond rated BBB and above by Standard and Poor’s, or Baa and above by Moody's.
181. Issued stock
Shares of common stock put forth into circulation which may be more in number than shares of
outstanding stock.
182. Issuer
An entity that puts a financial asset in the marketplace.
183. IRR
An interest rate giving a net present value of zero when applied to the Expected cash flow of a
project. Its value, compared to the cost of the capital involved, is used to determine the project's
viability.

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184. INVESTMENT
In finance, an investment is a monetary asset purchased with the idea that the asset will provide
income in the future or appreciate and be sold at a higher price.
185. Joint venture
Two or more companies forming a new company.
186. Jumbo loan
A mortgage loan that is nonconforming because the amount of the loan is greater than the
maximum permissible loan specified by an agency.
187. Junior bonds
Synonymous to subordinate bonds.
188. Junior lien
A lien subordinated to a previous lien.
189. Junior mortgage
An overlying mortgage that is subordinate to a prior mortgage in the order of priority.
190. Junk bond
A high-risk, high-yield (often unsecured) bond rated below investment grade.
191. Junk commercial paper
Low-rated commercial paper that are issued by the companies facing financial distress.
192. Just in time
An approach to inventory management and control in which inventories are acquired and
inserted in production at the exact times they are needed.
193. Lease
A contractual arrangement whereby the owner of any asset allows the other party to the
agreement to use the full services & benefits of the said asset in exchange of some periodic
payments.
194. Lessee
The receiver of the services of the assets under a lease contract.
195. Lessor
The owner of assets that are being leased.

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196. Letter of credit
A letter from one bank to anther authorizing the payment of a certain sum to the person named in
the letter on certain specific requirements. It is frequently used to guarantee payment of an
obligation.
197. Leverage buyout
Takeover of a company by using borrowed funds, usually by a group including some members of
existing management.
198. Leverage ratio
Measures of the relative value of stockholders, capitalization, and creditors obligations, and of
the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm (debt
plus stockholder capitalization).
199. Leverage
The use of fixed costs in an attempt to increase (or lever up) profitability.
200. Liability
An obligatory payment to a supplier of a good, a service or funds.
201. LIBOR
Lending rate among banks in the London market.
202. Lien
The legal right to keep somebody else’s property as security for a debt.
203. Line of credit
An arrangement whereby a financial institution (bank or insurance company) commits itself to
lend up to a specified maximum amount of funds during a specified period.
204. Liquidating dividend
Payment by a firm to its owners from capital rather than from earnings.
205. Liquidation value
The amount of money that could be realized if an asset or a group of assets (e.g., a firm) is sold
separately from its operating organization.
206. Liquidation
Termination of the firm as a going concern. Liquidation involves selling the assets of the firm for
salvage value.

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207. MUTUAL FUND
An investment vehicle managed by finance professionals that raise capital by selling shares in a
chosen and balanced set of securities to the public.
208. MORTGAGE
A debt instrument, secured by the collateral of specified real estate property, that the borrower is
obliged to pay back with a predetermined set of payments. Mortgages are used by individuals
and businesses to make large real estate purchases without paying the entire value of the
purchase up front.
209. Market Order
An order that an investor makes through a broker or brokerage service to buy or sell an
investment immediately at the best available current price.
210. Marker Maker
A market maker is a firm that stands ready to buy and sell a particular stock on a regular and
continuous basis at a publicly quoted price.
211. Margin
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover
some or all of the credit risk of their counterparty.
212. Merchant Bank
A merchant bank also provides advisory on corporate matters to the firms in which they invest.
213. Management buyout
A leverage buyout (LBO) in which pre-buyout management ends up with a substantial equity
position.
214. Manipulation
Buying or selling a security for the purpose of creating a false or misleading appearance of active
trading or for the purpose of raising or depressing the price to induce purchase or sale by others.
215. Market portfolio
A portfolio consisting of all assets available to investors, with each asset held in proportion to its
market value relative to the total market value of all assets.
216. Market risk
Risk that the stock market experiences lower prices in response toadverse economic condition or
pessimistic expectation.

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217. Minimum variance portfolio
The portfolio of risky assets with the lowest possible variance. By definition, this portfolio must
have the lowest possible standard deviation.
218. Monetary base
The most basic monetary aggregate, also termed high-powered money, defined as currency in
circulation (or coins and bank notes held by the public) plus the total reserves in the banking
system.
219. Noise Trading
A noise trader also known informally as idiot trader is described in the literature of financial
research as a stock trader whose decisions to buy, sell, or hold are irrational.
220. NPV
A measure of discounted cash inflow to present cash outflow to determine whether a prospective
investment will be profitable.
221. Operating leverage
The existence of fixed operating costs, such that a change in sales will produce a larger change in
operating income (EBIT).
222. Operational risk
The risk of losses because of inadequate management or controls.
223. Opportunity cost
The cost associated with opportunities that are foregone by not putting the firm’s resources to
their highest value use.
224. Overdraft
A method of borrowing from a bank where the borrower is given permission by his/her banker to
draw checks for an agreed sum for a specified period in excess of the amount standing to the
credit of his/her account.
225. Perpetual preferred stock
Preferred stock that does not have any maturity date.
226. Perpetuity
An annuity with an infinite life, making continual annual payments.
227. Pledge
The use of a firm’s assets (A/C receivable) as security, or collateral, to obtain a short-term loan.

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228. Portfolio
Holding of more than one stock, bond, real estate asset or other asset by an investor.
229. Preferred stock
A special form of stock having a fixed periodic dividend that must be paid prior to payment of
any common stock dividends.
230. Price earning ratio
The ratio of the price per share to earnings per share; shows the taka amount investors will pay
for Tk.1 of current earnings.
231. Proxy battle/contest
The attempt by a management group to gain control of management of a firm through the
solicitation of a sufficient number of corporate votes.
232. Primary Market
The primary market is the part of the capital market that deals with issuing of new securities.
233. Prospectus
A formal legal document, which is required by and filed with the Securities and Exchange
Commission that provides details about an investment offering for sale to the public.
234. Real rate of interest
Minimum rate of interest that must be earned to allure the investor to invest the resources.
Alternatively it is the nominal interest rate adjusted for inflation.
235. Risk free rate
The rate of return one would earn on a virtually riskless investment such as a government bond.
236. Risk premium
The excess return on the risky asset that is the difference between expected return on risky assets
and the return on risk free assets.
237. Securitization
Pooling loans into standardized securities backed by those loans, which can then be traded like
any other security.
238. Security (collateral)
Asset(s) pledged by a borrower to ensure repayment of a loan. If the borrower defaults, the
lender may sell the security to pay off the loan.

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239. Shirking
The tendency to do less work when the return is smaller. Owners may have more incentive to
shirk if they issue equity as opposed to debt, because they retain less ownership interest in the
company and therefore, may receive a smaller return. Thus shirking is considered agency cost of
equity.
240. Stock dividend
Payment of a dividend in the form of stock rather than cash. A stock dividend comes from
treasury stock, increasing the number of shares outstanding and reduces the value of each share.
241. Syndicated loan
A very large loan made to one borrower by a group of banks headed by one lead bank, which
usually takes only a small percentage of the loan itself, syndicating the rest to other bank and
financial institutions. The loans are usually made on a small margin. The borrower can reserve
the right to know the names of all the members of the syndicate. If the borrower states which
banks are to be included it is known as a club deal.
242. Systematic risk
Risk that is attributable to market movements and cannot be diversified away.
243. Wealth maximization
Maximization of the value of the shareholders. Value is represented by the market price of the
company’s common stock, which, in turn, is a reflection of the firm’s investment, financing &
dividend decisions.
244. Weighted average cost of capital
A weighted average of the after-tax required rates of return on the firm’s common stock,
preferred stock, and long-term debt where the weights are the fraction of each source of
financing in the firm’s target capital structure.

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 Banking
1. What is SLR?

Statutory Liquidity Ratio (SLR) is the percentage of liabilities and time deposits that commercial
banks need to keep with them in form of Cash, Gold or Government approved securities. Right
now SLR is 13%

2. What is CRR Rate?

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with central bank.
If central bank decides to increase the percent of this, the available amount with the banks comes
down. Current CRR is 6%

3. What is Bank rate?

Rate at which central bank lends money to commercial banks without any security.

4. What are treasury bills?

Treasury Bills are the instruments of short term borrowing by the Central/State govt. They are
promissory notes issued at discount and for a fixed period.

5. What is yield?

In finance, the term yield describes the amount in cash that returns to the owners of a security.
Yield applies to various stated rates of return on stocks (common and preferred, and convertible),
fixed income instruments (bonds, notes, bills, strips, zero coupon), and some other investment
type insurance products (e.g. annuities).

6. What is mark to market?

Mark-to-market is an accounting practice by which companies value and report their assets,
especially financial instruments, at market price. Market price basically refers to the price at
which the asset, or a similar asset, is trading at in a public exchange.

7. What is the difference between Cheque and Demand Draft?

Cheque is written by an individual and withdrawn from the account whereas Demand draft is
issued by a bank where you have to pay before issuing.

8. What are NBFIs and difference between NBFIs and Bank?

Non-bank financial Institutions (NBFIs) are financial institutions that provide banking services,
but do not hold a banking license. NBFIs do offer all sorts of banking services, such as loans and

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credit facilities, retirement planning, money markets, underwriting, and merger activities. These
institutions

9. What is the difference between Nationalized Bank and Private Bank?

A Nationalized Bank is one that is owned by the government of the country. The government is
responsible for the money deposited into the accounts of these banks. Whereas a private sector
bank is one that is owned by an independent individual or a company that is controlled by a few
individuals. In short, the bank is owned by someone else and they run the bank. The person
owning/running the bank is responsible for the money deposited into the accounts of these banks.

10. What is a Repo Rate?

Repo rate is the rate at which our banks borrow from central bank. Whenever the banks have any
shortage of funds they can borrow it from central bank. A reduction in the repo rate will help
banks to get money at a cheaper rate. When the repo rate increases, borrowing from central bank
becomes more expensive.

11. What is Reverse Repo Rate?

This is exact opposite of Repo rate. Reverse Repo rate is the rate at which central bank borrows
money from banks. Central bank uses this tool when it feels there is too much money floating in
the banking system.

12. What do you mean by Time Liability?

Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their
anytime demand.

13. What are open market operations?

Buying and selling of government securities and bonds in open market by Government to
maintain desired liquidity levels.

14. What is Commercial paper?

Commercial paper is a short term unsecured debt instrument.

15. What are various services provided by a commercial bank?

 Lockers
 Safe custody of funds
 Advancing loans
 Fund transfers
 Periodic payments
 Underwriting of shares

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  Dealing in foreign exchange
 Discounting of loans
 Overdraft

16. What are NPAs?

NPA stands for Non-Performing Assets. Bank gives loans and advances to its customers. These
loans and advances are bank's assets. When the customers don't repay back the bank's money
they don't perform. Such assets are known as Non-Performing Assets.

17. What are various functions of central bank?

 Government’s banker and performs banking functions for the central and the state
governments.
 Bankers of banks
 Maintain liquidity in the economy
 Regulator of country's financial system
 Regulates and facilitates foreign trade advisor to the Government.
 Issue currency notes

18. What is an Option in derivative market?

An Option give right to Option Holder to buy or sell a commodity during a certain period of time
or on a specific date.

19. What is Call option and Put option?

Call option - An option which gives right to the Option Holder to buy a certain stock at specified
time and specified date.

Put option - An option which gives right to the Option Holder to sell a certain stock at specified
time and specified date.

20. What is Monetary Policy?

Policy by which a central authority attempts to control liquidity and interest aimed high growth
rate and price stability.

21. What is Fiscal Policy?

Government revenue generation and spending policies that impact the macro economy.

22. What is SWIFT?

Financial messaging network which exchanges messages between banks and financial
institutions

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 23. What is Mutual Fund?

Mutual Fund is a pool of fund where investors invest their money for a common objective.

24. What do you mean by 'Investment Banking '?

A specific division of banking related to the creation of capital for other companies. Investment
banks underwrite new debt and equity securities for all types of corporations. Investment banks
also provide guidance to issuers regarding the issue and placement of stock.

25. What is 'Merchant Bank'?

A bank that deals mostly in (but is not limited to) international finance, long-term loans for
companies and underwriting. Merchant banks do not provide regular banking services to the
general public.

26. What is the difference between investment banks and merchant banks?

Merchant banks and investment banks, in their purest forms, are different kinds of financial
institutions that perform different services. In practice, the fine lines that separate the functions
of merchant banks and investment banks tend to blur. Traditional merchant banks often expand
into the field of securities underwriting, while many investment banks participate in trade
financing activities. In theory, investment banks and merchant banks perform different functions.

27. What is Discount Window?

28. What is discounting?

29. What is Electronic funds transfer (EFT)?

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