The practice of accepting or paying a bill of exchange after it has been dishonoured, by an individual aiming to preserve the honour of the drawer or an endorser.
An accommodation party is an individual who signs an accommodation bill as the drawer, acceptor, or endorser, thereby acting as a guarantor to assure the payment of that bill.
An instruction printed on a cheque that makes it non-transferable, ensuring that the cheque can only be deposited into the account of the individual or entity named on the cheque, adding an additional layer of security.
Words written on a bill of exchange to indicate that the drawee has been informed that the bill is being drawn on him or her.
The term 'After Sight' refers to the specific wording used in a bill of exchange that indicates the time period for payment will start from the date the drawee accepts, or 'sees', the bill.
The abbreviation ASB can refer to two distinct financial terms: the Accounting Standards Board, which oversees the development and implementation of accounting standards, and asset-backed security, a financial instrument backed by an underlying asset.
Asset-Backed Commercial Paper (ABCP) refers to short-term debt instruments issued by financial institutions, which are backed by physical assets such as receivables, leases, or loans.
Asset-backed commercial paper (ABCP) is a short-term debt instrument issued by a special purpose vehicle (SPV) that is backed by various assets like trade receivables, auto loans, or other commercial assets.
An Asset-Backed Medium-Term Note (ABMTN) is a type of debt security that is secured by a pool of assets and typically has a maturity period ranging from one to ten years.
An Asset-Backed Medium-Term Note (ABMTN) is a financial instrument combining the attributes of medium-term notes and asset-backed securities, typically used to raise capital through securitization.
Asset-Backed Securities (ABS) are financial instruments backed by loan paper or accounts receivable originated by banks, credit card companies, or other providers of credit, often enhanced by a bank letter of credit or by insurance coverage from a third party.
The term 'at par' refers to a financial instrument, such as a bond, that is trading at its face value. In other words, the market price of the bond is equal to its nominal or par value.
Auction Market Preferred Stock (AMPS) is a type of U.S. preference share where the dividend is variable and set through an auction process among investors.
Backdating refers to the practice of marking a document, check, or other financial instruments with a date that precedes the actual date. It is often used in accounting, finance, and legal contexts.
A bad check is a check that cannot be processed due to insufficient funds or a closed account, also known as an NSF (Non-Sufficient Funds) check or rubber check.
A bank draft, also known as a banker's cheque or banker's draft, is a cheque drawn by a bank on itself or its agent. It is commonly used when a creditor needs assurance that the cheque will not be dishonoured.
The banker's discount is the discount calculated by a bank when purchasing a bill of exchange before its maturity.
A banker's draft, also referred to as a bank draft, is a payment on behalf of an individual that is guaranteed by the issuing bank.
Basic financial instruments are the underlying tools used in financial operations, including currencies, bonds, stocks, and derivatives. These instruments serve as the backbone of financial transactions and investment strategies.
A beneficiary is a person or entity who is designated to receive benefits or assets from trusts, wills, insurance policies, or other financial instruments.
A blank bill refers to a bill of exchange where the name of the payee is left blank. It allows the holder of the bill to fill in the name of the payee at a later date or upon presenting the bill for payment.
Bonds are IOUs issued by borrowers to lenders. These instruments come in various forms and are typically used by governments, local authorities, or companies to raise funds, offering fixed or variable interest rates and different terms.
Bond yield refers to the return an investor realizes on a bond. Various types of bond yields provide investors with insight into the return they could potentially receive if they hold the bond until maturity or sell it earlier.
Book-entry securities are securities that exist only as electronic records and do not have a physical certificate, facilitating efficient trading and ownership transfer.
A Brokered Certificate of Deposit (Brokered CD) is a type of CD issued by banks or thrift institutions but bought in bulk by brokerage firms who then resell it to their clients. These CDs often offer higher interest rates compared to those offered directly by banks.
A depositor's check certified by a bank, promising that the account holder has sufficient funds for the amount, ensuring that the recipient will receive the payment.
A check protector is a machine that prints checks in a manner that makes it difficult to alter. It elevates the written amount to create many small bumps on otherwise smooth paper, thereby enhancing check security and reducing the risk of fraud.
A cheque is a preprinted form on which instructions are given to an account provider such as a bank or building society to pay a stated sum to a named recipient. It's a common method for paying debts of various kinds.
The world's oldest futures and options exchange, the Chicago Board of Trade (CBOT) was formed in 1848 as a centralized marketplace for the grain trade. Over the years, its product line has expanded to include numerous contracts on agricultural commodities and financial instruments.
A confirmed irrevocable letter of credit adds an additional layer of security for the beneficiary by employing a second bank's confirmation, ensuring payment even if the initial issuing bank fails.
The contract rate, also known as the face interest rate, refers to the interest rate stated on a financial instrument, such as a bond or loan, which dictates the amount of interest the issuer will pay periodically to the holder.
The dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock; announced when the convertible security is initially issued.
The conversion ratio is a relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred share when the conversion takes place.
A bond issued with detachable coupons that need to be presented to a paying agent or the issuer to receive semiannual interest payments. These are bearer bonds, meaning the interest is payable to whoever holds the coupon.
Credit enhancement involves various techniques to improve the credit rating of asset-backed securities, either through internal measures by the issuer or external methods such as third-party guarantees.
A crossed cheque is a cheque that has two parallel lines drawn across its face with the purpose of instructing the bank that the cheque should only be deposited directly into a bank account and not immediately cashed by the bank over the counter.
The Committee on Uniform Securities Identification Procedures (CUSIP) system uniquely identifies financial instruments and facilitates transactions and record-keeping in the securities industry.
In finance, a dealer is an individual or entity involved in the buying and selling of financial securities or other commodities, often at their own risk, for personal sales or to customers.
A security representing money borrowed that must be repaid, typically having a fixed amount, specific maturity, and usually a specific rate of interest or an original purchase discount.
The removal from the balance sheet of assets and liabilities that had previously been recognized in the financial statements of a company.
A financial instrument that derives its value from the performance of an underlying asset, commodity, currency, economic variable, or financial instrument. Derivatives can be used for hedging, speculation, or arbitrage purposes.
In the UK, the discount market refers to a segment of the money market where banks, discount houses, and bill brokers engage in the discounting of bills and short-term financial instruments to facilitate liquidity and profitability.
A dividend warrant is a cheque issued by a company to its shareholders that provides details of dividends paid, including tax deducted and the net amount payable.
A documentary draft is a written order requiring the recipient to pay the amount specified on the document, either upon presentation (sight draft) or at a fixed future date (time draft).
In accounting, a draft can refer to several different financial instruments or preliminary versions of documents, each serving specific purposes in financial transactions or documentation processes.
Dragon bonds are foreign bonds issued in the Asian bond markets, designed to tap into the growing pool of Asian investors.
The drawer refers to a person or entity who issues a financial instrument such as a bill of exchange or a cheque, instructing the drawee to pay a specified sum of money either immediately or at a later date.
Drop Lock is a financial mechanism applied to bonds initially issued with variable rates of interest, converting them into fixed-rate bonds upon the occurrence of a trigger event such as the underlying index or interest rate falling below a pre-set threshold.
Electronic trading refers to the process of buying and selling financial instruments, such as stocks and options, through electronic platforms via the Internet. This modern method of trading allows customers to place orders online through brokers, often at lower commission rates compared to traditional or discount brokers.
An equity instrument is any financial instrument that signifies ownership interest in an entity, such as stocks, options, or warrants.
An equity kicker, or simply a 'kicker,' is a financial term used to describe an added benefit for investors, often taking the form of equity participation in a company, offered as an incentive to sweeten a debt transaction.
Eurodollars are U.S. dollars held as deposits in foreign banks, mainly in Europe, and are commonly used to settle international transactions.
Euronext.liffe is an exchange that provides a diverse range of futures and options contracts in several asset classes. Formed by the integration of LIFFE and Euronext, it offers trading facilities for financial instruments such as equity and interest rate derivatives.
An exchange-traded note (ETN) is a debt instrument that tracks the performance of a specific index and promises to repay the principal adjusted by applicable fees and index performance. Unlike exchange-traded funds (ETFs), ETNs are backed by the issuer.
The process of making use of a right available in a contract; commonly used in context with options and convertible securities.
An extendible bond is a type of bond whose maturity date can be extended at the option of all the involved parties. This flexibility can benefit both issuers and investors under certain market conditions.
A facility is an agreement between a bank and a company that grants the company a line of credit with the bank. This can either be a committed facility or an uncommitted facility.
Fair value, often referred to as fair market value, is the estimated amount for which an asset or liability could be exchanged in an arm's length transaction between informed, willing parties. It plays an essential role in acquisition accounting, and is significant in accounting for derivatives and other complex financial instruments.
Federal Reserve Notes are paper currency issued by the Federal Reserve System (FED) and circulated by the Federal Reserve Banks. They serve as liabilities of the Federal Reserve Banks and constitute obligations of the U.S. government.
Financial instruments are monetary contracts between parties. They can be created, traded, modified, and settled. They may be cash (currency), a contractual right to deliver or receive cash (as expressed by a bond), or another type of instrument that conveys ownership (equity).
A financial liability is a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial instruments on potentially unfavorable terms.
A forward contract involves the actual purchase or sale of a specified quantity of a commodity, government security, foreign currency, or other financial instrument at a price agreed upon now, with delivery and settlement at a future specified date.
A futures option is a derivatives contract that grants the holder the right, but not the obligation, to buy or sell a futures contract at a predetermined price before the option expires.
A futures transaction refers to the buying and selling of futures contracts on commodities or financial instruments, which obligate the buyer to purchase or the seller to sell an asset at a predetermined future date and price.
A discount UK government stock that has been issued by the Bank of England since 1996. A bond can be divided into a set of payments, which are made by the state and sold at a discount.
A Guarantee Letter is a document issued by a commercial bank that ensures payment of the exercise price of a client's put option if or when an assignment notice is presented to the option seller (writer).
In the USA, a guaranteed bond is issued by one party with payment guaranteed by another party. This often involves a subsidiary undertaking issuing the bond while the holding company guarantees the payment.
Home equity conversion involves the process of liquidating all or a portion of the equity in one's home. This can be achieved through various financial products aimed at providing the homeowner with cash while retaining the right to live in the home.
A hybrid investment or security combines features of multiple types of financial instruments. These investment vehicles are crafted to provide a mix of benefits from the different underlying instruments they are associated with. For example, a structured note could resemble a bond but have its interest rate linked to the performance of an underlying commodity.
An instrumentality refers to a federal agency whose obligations, while not direct obligations of the U.S. government, are sponsored or guaranteed by the government and backed by the full faith and credit of the government. These agencies issue various financial instruments such as notes, certificates, and bonds to support their respective mandates.
Intangible property represents possessions that hold real value but do not have a physical presence. Examples include stock certificates, bonds, promissory notes, and franchises.
The Inter Bank Offered Rate (IBOR) is the average interest rate at which a selection of banks on the interbank market is prepared to lend to one another.
An IOU (phonetic abbreviation of 'I owe you') is a signed document acknowledging a debt and stating the amount owed. It is informal and less legally binding compared to other financial instruments such as promissory notes or bills of exchange.
Irrevocable refers to something that is incapable of being recalled or revoked and is unchangeable. For instance, an irrevocable letter of credit issued by a bank guarantees that the bank will lend the money requested if the terms of the contract are met.
A leasehold mortgage is a type of lien placed on the tenant's interest in real estate, which is generally subordinate to other liens on the property.
A letter of credit (L/C) is a financial instrument issued by a bank or other financial institution that guarantees a buyer's payment to a seller will be received on time and for the correct amount.
Leverage refers to the use of various financial instruments or borrowed capital—such as margin—to increase the potential return of an investment.
A liquid instrument refers to a negotiable instrument that the purchaser can sell or trade before its maturity date, offering flexibility and quick access to funds.
LIBOR, or the London InterBank Offered Rate, is the rate at which banks offer to lend to each other on the London interbank market. It serves as a global benchmark for interest rates on loans and financial instruments, with terms ranging from overnight to five years.
A printed pattern that can be read or scanned by a specific device, usually an electronic device. This technology is crucial for various applications such as grocery product labels, checks, and more.
A financial instrument issued in a eurocurrency with a maturity period typically ranging from three to six years. These notes can be either unsecured or asset-backed.
An agreement between a bank and a company that provides the company with the ability to borrow up to a certain limit each day in the money markets, typically on a short-term basis, often overnight or up to one month.
A Mortgage-Backed Certificate (MBC) is a type of security that is backed by a collection of mortgages. Investors in MBCs receive periodic payments derived from the interest and principal payments made on the underlying mortgages.
A Mortgage-Backed Security (MBS) is a type of asset-backed security that is secured by a collection of mortgages. These securities enable banks to lend more aggressively while transferring the associated risk to investors.
In Islamic finance, Murabaha refers to a sales contract where the seller discloses the cost and profit margin to the buyer.
A naked option refers to an options contract where the buyer or seller does not hold the underlying asset associated with the option. This type of position can expose the writer to unlimited losses or substantial gains.
A Negotiable Certificate of Deposit (NCD) is a time deposit with a bank that can be sold in the secondary market. These large-denomination CDs are typically issued in amounts over $100,000 and pay interest either to the bearer or to the order of the depositor.
A negotiable note is a record of an unsecured loan, with the term 'note' preferred over 'bond' for principal sums repayable in less than five years.
A Negotiable Order of Withdrawal (NOW) is a type of bank or savings and loan withdrawal ticket that functions as a negotiable instrument, allowing for withdrawals from interest-bearing checking accounts.
The nominal loan rate, also known as the face interest rate, is the interest rate stated on a loan agreement or financial instrument without adjusting for inflation or other factors that could affect the real cost of borrowing.
Noncallable refers to a type of preferred stock or bond that cannot be redeemed at the option of the issuer. These financial instruments provide call protection for a certain period, ensuring stability for the investor.
The term 'Not Negotiable' is used in the context of bills of exchange, indicating that the instrument is no longer a negotiable instrument. This term provides a safeguard against passing on a defective title.
A Note Issuance Facility (NIF) is a type of credit arrangement that allows for the issuance of short- to medium-term notes in the Eurocurrency market. It provides borrowers with the ability to secure short-term debt funding on a continuous or revolving basis.
A note or note payable is a written document that acknowledges a debt and contains a promise to pay a specified sum to a certain party by a certain date. Maturity terms can be definite or become definite over time.
The New York Stock Exchange (NYSE) is the largest stock exchange in the world by market capitalization. It provides a platform for buying and selling an extensive range of securities, including stocks, bonds, and other financial instruments.
An obligation bond is a type of mortgage bond in which the face value is greater than the value of the underlying property. The difference compensates the lender for costs exceeding the mortgage value.
An option is a financial instrument that gives the holder the right, but not the obligation, to buy or sell an asset at a predetermined price before or at the expiration date.
Order paper is a type of negotiable instrument that is payable to a specified person or their assignee, requiring the payee to be named with reasonable certainty.
The OTC Market (Over-the-Counter Market) is a decentralized market where trading of financial instruments such as stocks, bonds, commodities, and derivatives occurs directly between two parties without a central exchange or broker.
The over-the-counter market (OTC market) facilitates the trading of financial instruments that occur directly between two parties, outside of formal exchanges.
