8 H Basic Banking Guide A to Z

8 H Basic Banking Guide A to Z

H

HBL

HBL was the first commercial bank to be established in Pakistan in 1947 founded by Habib group. In 1973 it was nationalized with other banks of the country. The Government of Pakistan privatized HBL in 2004. HBLs majority shares are owned (51%) by the Aga Khan Fund for Economic Development, 42.5% of the shareholding is retained by the Government of Pakistan (GOP), whilst 7.5% is owned by the general public.

Half yearly closing

At the end of second quarter i.e. on 30th June, banks close their books for calculation f profit, preparation of returns for SBP and Taxation authorities

Hard currency

Money that is backed by gold reserves and is readily convertible into foreign currencies. These are the currencies, usually from a highly industrialized country, that is widely accepted around the world The U.S. Dollar and the British Pound are good examples of a hard currency.

Head office

Office that execute controls and coordination functions of the bank

Health certificate

Certificate issued by the health and sanitation authorities of an airport or seaport to the captain of a visiting vessel (aircraft or ship). A clean certifies that, no contagious disease was known to exist at the air/sea port when the certificate was issued, the vessel is free from all such diseases and, thus safe for carrying people and/or edible cargo. 

Hedging

This is a strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or  shares/securities 

Heir

Who by law succeed other, a person who inherits property of a deceased person, as by relationship, will, or legal process.

Heir ship certificate

A Heirship Certificate is issued by a Tahsildar/ Asst. commissioner or a magistrate. This certificate is useful for, very limited purposes, such as mutation of revenue records and release of very limited amount from the banks Heirship Certificate can be used only where there is no dispute regarding the persons entitled to succeed to the estate of a deceased person, wherever there is a dispute, a Succession Certificate shall be required. 

Hire purchase

This is a system of payment for goods in regular installments while using it. This is very common in Islamic mode o financing

Hire purchase agreement

This , is a contract, of sale of  goods, on credit in regular installments while purchaser using it. The duration of the contract can be for considerably for longer time. Under the agreement the seller may be able to recover the goods at any time on non-payment of number of installments mentioned in the contract. 

Holder

The �Holder� of a promissory note bill of exchange or a cheque means the payee or the endorsee that is in possession of it or a bearer of the instrument. If an instrument is lost and not found again, or is destroyed, the person in possession of it, at the time of loss or destruction shall be treated to continue to be its holder.

Holder for value

A holder to whom a negotiable instrument is issued or transferred in exchange for something of value. If bank is holder for value, it can not claim protection available to the collecting banker under section 131 of the Negotiable instrument Act 1881.

Holder in due course

Holder in due course means the claimer of a cheque / negotiable instrument, who has lawful title free from any defect. Title shall be treated as defective, if possession of the instrument / cheque has been taken by means of any offence, fraud or any unlawful consideration.

The conditions of holder in due course are:-

The holder has taken the instrument before it became overdue, without notice that it was previously dishonored, Instrument was taken in good faith against value, without knowledge that the person who has given the instrument (Negotiated) was having a defective title.Negotiable instruments Act 1881 section (9) defines holder in due course

as under:

�Holder in due course� means any person who for consideration becomes the possessor of a promissory note, bill of exchange or a cheque, if payable to bearer, or payee or endorsee thereof if payable to order, before it became overdue, without notice that the title of the person from  whom he derived, his own title was defective.

Holding company

Holding company is that which controls other companies through stock ownership but that usually does not involve directly in their operations. Since it holds controlling shares, it can effect into management and policy making of the other company.

Honorarium

A payment given to a person for rendering services for which fees or salary is not traditionally paid.

Hot card

Bank card that cannot be honored for payment, due to the card has been reported lost or stolen, or has been cancelled by the issuer. Hot cards are listed in the combined Visa and MasterCard hot cards list

Hot money

It is the money that is moved quickly from one form of investment to another by its owner/investor, just to take advantage of exchange rates or gain high short-term returns on investment.

House bill of lading

Bill of lading issued by a freight forwarder as a receipt for the goods being shipped with other cargo as one consignment. It is not a complete document of title, a forwarders B/L has a legal standing similar to that of a normal B/L. If not specifically prohibited under the terms of the L/C, it is capable of being negotiated and of acceptance by the importers bank for payment under a letter of credit

Hypothecation

It is a kind of security where lender only possesses equitable charge on the goods. It is a kind of security  arrangement in which neither the possession nor the title but only the right to sell an asset passes on to the banker or lender. to

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9 I Basic Banking Guide A to Z

9 I Basic Banking Guide A to Z

I

Idle Money

Un-invested money, that does not earn any income,  idle money may gradually lose its value due to the inflation.

Implied condition

These are fundamental conditions , even if it is not expressly included in a contract documented by the contracting parties. In law, an unwritten requirement implies a condition called condition precedent of the contract. For example, if a diaries / colanders are ordered to be delivered before the start of the year, or immediately at the start of the year but they arrive only after the quarter  ended, that order may be cancelable even if the words "Time is of the essence" are not included in the order.

Import

Products of foreign origin brought into a country.

Import duties

Refer Custom duty

Import liscence

This is a permit that allows an importer to bring in a specified quantity of specified goods during a specified period. Import licenses are used as a tool to control over outflow of foreign currency, to control entry of prohibited items,  and to protect the domestic industry from foreign competition. 

Import quota

This is the methods used in controlling the volume and value of goods coming from and into a country. It is used as a tool to facilitate or restrict the total quantity of goods imported, from a certain country

Import restrictions

Refer import quota

Imprest account

This account is used to settle small payments It is practical and better to use imprest accounts, rather than making purchases through the company�s creditors system.  The operation of such accounts should be strictly monitored because it can be misused.

Inactive account

An account that has no activity; neither deposits nor withdrawals posted to the account for a significant period of time such as one year. Also refer dormant account.

In bond

Imported goods that have not been cleared by the customs authorities due to either for non-payment of duties or insufficient documentation, etc. & kept in customs godown.

Income

This is the excess of revenue over expenses in an accounting period. It is also called earnings or gross profit. In broader term this is the amount by which total assets increased in an accounting period.

Income tax

This is the annual charge levied by the government on both direct earned income such as, salaries, bonus and unearned income e.g. dividends, profit on investment, rents etc. Income tax is a source of financing a governments operations. Its two basic types 1) Personal income tax, levied on incomes of individuals, households, partnerships, and sole-proprietorships; and 2) Corporation income tax, levied on profits of incorporated companies. 

Income yield

This is the annual income earned from an investment, expressed as a percentage of the money invested.

Incorporated company

A company registered under the company�s Act and that has been granted a status of legally recognized separate entity having its own seal, privileges, rights, and liabilities as an artificial person.

Incumbrance

It means Charge, claim, or liability, which is attached to a property. It may affect the clarity of a good title or may diminish the value of property, but generally does not prevent transfer of title. An Incumbrance can be in the form of mortgages, claims by other parties, pending legal action, unpaid taxes, etc.

Indemnifier

This is a person who gives another party security for the reimbursement of payments required in case of an anticipated loss or reimburses another in case of damage or failure to fulfill an obligation. 

Indemnity

This is a contract which provides protection against future loss or it is an agreement whereby one party agrees to secure another against an anticipated loss or damage

Indent

This is an order for goods through a local or foreign agent of a foreign supplier under specified conditions of sale. The acceptance of which either by the supplier or by the agent constitutes a contract of sale. Indent is a used in place of Performa invoice.

Indenture

This is a legal document published by the issuer of a  shares/ security giving details of the terms of the issue and key features of its legal structure.

Index

Alphabetically arranged list of items given at the end of a book with page numbers on which the item can be found.

Indirect evidence

Refer circumstantial evidence

Indirect tax

This is the charge levied by the government on consumption, expenditure, or right but not on income or property. Customs duties levied on imports, excise duties on production, sales tax or value added tax (VAT)  are examples of indirect taxes.

Individual account

 An account in the name of one individual. 

Indorse

To sign a legal document, such as a check or Person or firm who, by signing a negotiable instrument, with the purpose of ing the title of the instrument or the person named therein to another.

Indorsee

Person or firm to whom a negotiable instrument (bill of exchange, bill of lading, delivery order, or other document of title) is transferred by endorsement.

Indorsement

Indorsement of any negotiable instrument (bill of exchange, bill of lading, delivery order, or other document of title) means that the  endorser guarantees that he or she is the lawful owner of the instrument, knows of no defect in it,  has received it in good faith for value received, and is legally capable of transferring it to another party in the normal course of business

Indorsement in blank

An Indorsement which does not mention the name of the person in whose favor it is made; it is made by simple signature of the Indorser on the back of the cheque or bill of exchange. When a negotiable instrument has been indorsed in blank, its negotiability cannot afterwards be restrained and it will become payable to bearer.

Indorser

The person who makes an Indorsement

Inferential statistics

Inferential statistics is the mathematical methods such as hypothesis development that employ probability theory for deducing / inferring the properties of a population from the analysis of the properties of a sample drawn from it.

Inflation

Inflation caused by the increase in money supply due to printing of more money by a government to cover its deficits. It resulted into rapid increase in the general price level. It has its worst effect on the fixed income group, and it becomes disincentive for the saving schemes.

Information technology (IT)

IT is the combination of office automation, multimedia, and telecommunications. It can be described as set of tools to process, storage, retrieval, of data and its analyses and presentation of information.

Inheritance

Property received from successor either through a will or  through succession laws. 

In-house

Any thing Originated within a company. In-house trade means, buyer and seller are within the same company.

Inland bill

Bill issued & payable within country

Insolvency

The term is used in the situation where the liabilities of a person or firm exceed its assets. In other words it is the situation where a person or firm cannot raise enough cash to meet its financial obligations

Inspection

Official examination of a branch�s or banks record by the internal or external inspectors with the purpose to ascertain that the business is being run within the rules and regulations and policies of the bank. 

Inspection certificate

This is a certificate issued by third party, which is generally required for import of machinery, perishable products ,and products where different size of goods are ordered. It certifies that the item meets the required specifications when consignment left the port of departure.

Installment

The regular periodic payment that a borrower agrees to make to a bank or lender in case of loan or credit sale.

Institute of bankers

The Institute of Bankers Pakistan (IBP) was established in 1951. it provided a platform for continuous professional development besides a reliable yardstick for assessing the quality and depth of knowledge and skills. The management of the Institute rests with the Council which in effect operates as a Board of Governors.  The Governor, Central Bank, State Bank of Pakistan is the ex-officio President of the Institute. 

Up to 31st July 2009 in aggregate terms 7599 professionals have passed the requisite examination for the award of prestigious DAIBP.

Institutional investor

These are companies who have large amounts to invest, such as, mutual funds, pension funds, in investment banks etc. Institutional investors are more knowledgeable professionals who are in better position to protect them. 

Instrument

A legal document, as a draft or bond a negotiable instruments such as promissory note, bill of exchange or cheque.

Insufficient funds

When a depositors Chequeing account balance is inadequate to pay a cheque presented for payment.

Insurable interest

A person shall be treated to have an "insurable interest" in something only when loss or damage to it would cause that person financial loss or certain other kinds of losses.

Insurance

Coverage by a contract binding a party to indemnify another against specified loss in return for premiums paid.

Insurance certificate

Refer certificate of insurance

Insurance policy

This is a formal document in the form of contract, issued by an insurance company to an insured. Which covers indemnity clause , narrate the exact terms on which the indemnity cover has been provided, and states other information such as specific risks covered, duration of coverage,  amount of premium,  mode of premium payment, and  deductibles, if any

Insurance premium

The cost of obtaining an insurance cover, either in lump sum or in installments during the duration of the policy. Non payment of premium due automatically cancels the insurance policy which, can be  restored after payment of the outstanding amount within a specified period.

Intangible assets

These are the long-term resources of an entity, but have no physical existence. Intangible assets are classified into two broad categories,  Limited-life intangible assets, such as patents, copyrights, and goodwill, Unlimited-life intangible assets, such as trademarks.

Interbank rate

The profit  rate at which banks lend  and borrow from one another in interbank market. In Pakistan �KIBOR� serve as an indicator of levels of demand and supply in all financial markets.

Interest

This is cost of money, or fee paid for using others money. It is also called cost of debt servicing. The rate of interest is  calculated as an annual percentage of the principal, and is influenced by the money supply, amount being borrowed, creditworthiness of the borrower. There are two types of interest i.e. simple interest and compound interest.

Interim dividend

Distribution of profits to shareholders before a company�s annual profit have been computed. The companies paying interim dividend should be certain about projected profit and that, they can afford it. The necessary adjustments are passed at the year-end for final dividend payments

Intermediary

These are the  persons or companies who acts as a intermediary  between parties to a business deal, negotiation, etc. For example, banks act as intermediaries between depositors and borrowers seeking .loans these are also called a middleman. 

International

Transactions or business where more than one country is involved.

International bank for reconstruction & development (IBRD)

Popular name for IBRD is world Bank. It was established 1944 together with IMF to rebuild the economies destroyed by second world War through financing of commercial and infrastructural projects. Al though it is not a commercial banks, but its lending policies are based on strict commercial criteria. USA has about 20 percent of the voting power and chooses the banks president. 

International law

These are accepted legal rules prevailing between sovereign states. These have been built up through accords, agreements, charters, compromises, conventions, treaties, etc. The International Court Of Justice is a body of the UN The General assembly of the UN is entrusted with developing international law but it has no enforcement power. It has played a vital role in developing procedures and rules in areas such as air, land, sea, human rights. 

International monitory fund (IMF)

International Monetary Fund. An organization set up in 1944 to lower trade barriers between countries and to stabilize currencies by monitoring the foreign exchange systems of member countries, and lending money to developing nations.

International securities

Securities that can be bought and sold in international market.

Intimation letter

It is kind of a notice or memo issued by the bank to the borrower for fulfillment of any obligation, such as arrival of the documents under Letter of credit etc.

In-transit

In transit means that once goods have been left  the port or place of loading, and they are  carried to the port or place of destination over the common route without undue delay or interruption, 

Introduction

In banking the act of making person formally acquainted with the bank is call introduction. The introducer just certifies that what ever intending customer is claiming is right and genuine. The introducer does not stand as guarantor.

In-trust

This means goods/property are held in trust .It is a legal term that refers to a holder of property on behalf of a beneficiary

Inventory

This is the sum total of the details of the raw materials, goods in process and completely finished goods that are considered to be the part of a businesss assets.

Investment bank

An investment bank is a financial institution that trades Corporate Finance and advisory work, new issues of securities for raising finance, take-over, mergers and acquisitions. They also provide banking, for governments, institutions and companies; treasury dealing for corporate clients in currencies, investment management, either for corporate pension funds, private clients, either via direct investment for the more wealthy or via unit and investment trusts. 

Investment corporation of Pakistan (ICP)

The Investment Corporation of Pakistan (ICP) was established in 1966 through an Ordinance of the Federal Government of Pakistan. The objectives for the establishment of ICP are to develop the capital market, broaden the base of investments. The Corporation performs functions such as underwriting public issues of shares, providing financial assistance in local currency through purchase of Term Finance Certificates (TFCs) and providing funds for purchase of Locally Manufactured Machinery (LMM) under SBP Scheme.

Invisible export

This is export of services. The profits, dividends, interest, and royalties� remuneration received from selling a countrys services in other countries. These invisible exports also help in earning foreign exchange for the country.

Invoice

An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. 

I O U

This is abbreviation of "I Owe You." When writing out a formal note acknowledging a debt, the debtor often found it much easier to abbreviate "I owe you" to IOU. An IOU is considered an acknowledgement of a debt, but not equal to �promissory Note. The sum is generally very  negligible that legal collection actions would be counterproductive.

Irredeemable debenture

Irredeemable debentures are those where, no specific date or time is fixed in advance for the payment or redemption.   the has the full authority to choose any time to pay back the debt that it owes to the debenture holder.

Irrevocable credit

It is an undertaking by an issuing bank to pay an accepting bank a specified sum in a specified currency, provided all the conditions mentioned in the L/C document are met. This L/C cannot be canceled or its terms amended without the sellers/ beneficiarys prior written approval.

Irrevocable power of attorney

A power of attorney that cannot be revoked by the principal.

Issued capital

The proportion of authorized capital which has been issued to shareholders in the form of shared.

Issuing bank

The bank who establishes letter of credit (L/C) in favor of a beneficiary or exporter, forwards it to an advising bank for delivery to the beneficiary, and undertakes  to honor drafts drawn by the beneficiary against the amount specified in the L/C. Issuing bank also called opening bank.

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6 F Basic Banking Guide A to Z

6 F Basic Banking Guide A to Z

F

Face value

The value printed on the face of a share, bond, or other financial instrument.

Facility letter

Intimation in writing to the customer from the bank, that such and such financial facilities are approved.

Facsimile

An exact copy or reproduction, as of a document

Feasibility report

A feasibility report is prepared to provide an overview of the primary issues related to a business idea or financial accommodation. It is a study, to determine whether the business idea will be productive / profitable or not? Feasibility basically provides, market analysis which is necessary in order to determine the project�s viability. This information provides the basis for the financial facilities to be sectioned for the business plan. 

A feasibility report covers three major areas: 

a. Market issues 

b. Technical issues 

c. Financial issues 

Fidelity clause

This is a clause in banker�s insurance policy which protects banks against losses (such as embezzlement or theft by employees) that are not generally covered under normal theft or burglary policies. It is a blanket bond (applying to all employees). 

Final accounts

Accounts made at the end of a companys financial year. The final accounts consist on manufacturing account,  trading account, profit and loss account, and  profit and loss appropriation account. A trading firms final accounts will include all of the above except the manufacturing account. 

Final dividend

Dividend declared at the end of the financial year.

Financial statement

These reports shows how a firm has used the funds of shareholders and lenders, and what is its current financial position. The three basic financial statements are the balance sheet, which shows companys assets, liabilities, and net worth on a stated date; income statement which shows how the net income of the company is arrived at over a stated period, and cash flow statement, which shows the inflows and outflows of cash during a stated period.

Financial year

Accounting period that can start on any day of a calendar year but has twelve consecutive months at the end of which account books are closed, profit or loss is computed, and financial reports are prepared . it may or may not match with calendar year.

First in first out (FIFO)

This is a method of inventory accounting in which the oldest remaining items are assumed to have been the sold first. In a period of rising prices, this method shall result into a controlled inventory, a lower cost of goods sold, a higher gross profit and vice versa.

Fiscal year

Twelve months period which is covered by the government in yearly budget. It is also called a tax year. In Pakistan it starts from 1st of July and ends on 30th June.

Fixed assets

Any asset expected to be in use for, more than one year is considered a fixed asset. On a balance sheet, these assets are shown at their book value i.e. purchase price less depreciation.

Fixed charge

Charge (mortgage or lien) on a specific fixed-asset to secure financial facilities. In case of limited company, the banks also registers  charge against the asset with the registrar which remains in force until the loan is repaid. 

Fixed charges

Expenses such as rent, interest, and insurance salaries.etc, which are not related with the actual production/output.

Fixed cost

Cost that remains almost unchanged irrespective of the production level or sales revenue of the company, such as depreciation, insurance, rent, salaries, etc.

Fixed deposit

Fixed deposits is an arrangements where a specific amount of money is placed on deposit under the name of the account holder for a fixed period .Profit is paid as per terms and conditions govern with the account.  Banks offer different deposit products which fall under fixed deposit category.

Fixed loan

A loan repayable of a predefined future date. 

Fixture

Items that are attached to a  property in a manner that it becomes a part of that property. Fixtures are sold and transferred with the real property, even if they are not mentioned in the sale deed. 

Float

The amounts of collected funds remain in the bank, against which no cheque or claim is lodged. The time that elapses between the days a cheque is deposited and the day it is presented for payment to the bank or financial institution on which it is drawn. 

Floating assets

Assets which continuously change in quantity or in value, e.g. accounts receivable, cash, stocks, etc.

Floating charge

Charge on an asset that changes in quantity and/or value from time to time such as an inventory, to secure the repayment of financial facilities.

Floating rate

Any mark-up/ profit rate that changes on the movement of an outside indicator, such as the KIBOR rate. For example, a rate set at " KIBOR plus 2%". This means that the rate on the loan will always be 2% higher than the KIBOR rate, which changes regularly to take into account changes in the inflation rate. 

Floor limit

A floor limit is the amount of money above which credit or debit card transactions must be authorized. It also refers to the minimum profit rate to be charged r recovered.

FOB

The FOB stands for "Free On Board", which means that the seller shall pay for transportation of the goods to the port of shipment, plus loading costs only. The buyer shall pay cost of marine freight  transport, insurance, unloading, and transportation from the arrival port to the final destination.

Forced Sale Value (FSV)

It refers to the value which fully reflects the possibility of price fluctuations and can currently be obtained by selling the mortgaged / pledged assets in a forced / distressed sale conditions.

Foreclosure

The foreclosure is the legal proceedings initiated by a the bank to repossess the collateral for loan that is in default. It is a legal process in which property that is collateral or security for a loan may be sold to repay the loan when the loan is in default.

Foreign bill for collection

Collection of a bill payable in other country (abroad)

Foreign currency

Any currency other than the local currency which is used in settling international transactions. Also called foreign exchange.

Foreign currency account

Accounts other than Pak Rupees are Foreign Currency accounts. Foreign currency account can be opened only in those branches that have been permitted by SBP to deal in Foreign Exchange. Rules related to foreign currencies are given in SBP�s Foreign Exchange Manual chapter VI. All CDD/KYC and AML rules and regulations applicable to Pak rupees accounts are applicable to Foreign Currency Accounts.

Foreign draft

A draft issued by or drawn on a foreign country. 

Foreign exchange

Any currency other than the local currency which is used in settling international transactions. Also called foreign currency.

Foreign trade

Trade with the other countries is called Foreign trade. It is important to the economy because of the countrys need to import a variety of products which are not locally produced. Pakistan had a deficit on its balance of trade each year from 1973.

FOREX

This is the abbreviation of foreign exchange and also used fot foreign exchange market.

Forfeit

To subject to seizing as a forfeit

Forfeiture

The loss of rights to an asset outlined in a legal contract if a borrower  fails to fulfill obligations of the contract signed.

Forged cheque

A cheque on which the drawers signature has been forged. 

Forged currency

This is counterfeit currency that is produced without the legal sanction of the state or government.

Forged signature

Signing in place of some un-authorized person for execution of a document. if someone forges a signature on a cheque, the person whose signature was forged is not then bound to honor the cheque, and the bank does not have to pay it. If a bank pays a cheque with forged signatures, it has to make good any loss that the payment causes the customer. It does not matter how good the forgery is; a skilful forgery is no more valid than a crude one. 

Forgery

The fraudulent signing or alteration of anothers name to an instrument such as a legal document, or cheque  with the intention to deceive or defraud other. 

Forward exchange

Financial transaction involving the exchange of currency to be completed at a future date.

Forward rate

Currency price agreed for delivery on a future date. If that date lies within two business days, it is a spot transaction, otherwise it is a forward exchange transaction.

Franchise

Privilege granted to make or market a good or service under a patented process or trademarked name, and Business operating under such privilege .e.g. franchise of KFC.

Franking machine

A machine that automatically postal stamps envelops passing through it and computes the total charge. 

Fraud

A unlawful deliberately practiced in order to secure unfair or unlawful gain.

Fraudulent

Any thing gained by fraud.

Fraudulent conveyance

Transfer of property by a debtor, with the intention and purpose of moving it outside the reach of creditors existing or future claims. 

Free port

Free trade area of an entire port such as Hong Kong, Dubai, Panama, and Singapore, where imported goods may be stored duty-free pending re-export.

Free trade

Unrestricted interchange of goods and services (but not of capital or labor) without by high  duties/ tariffs, and quotas. Under a GATT (now WTO) treaty signed by 124 nations including Pakistan in 1995, tariffs will be systematically cut during a fixed timeframe.

Free trade area 

This is a group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and services traded between them.

Freight

Charges paid for carriage or transportation of goods by air, land, or sea.

Freight forwarder

Companies specialized in arranging storage and shipping of goods . they generally provides full range of services including inland transportation, preparation of shipping documents, warehousing, negotiating freight charges, insurance, and filing of insurance claims incase of any eventuality. Freight forwarders generally ship under their own bills of lading or air waybills called house bill of lading or house air waybill

Fringe benefit

Compensation in addition to direct wages or salaries, such as company car, Petrol and medical reimbursement, pension schemes, subsidized meals. Some fringe benefits are regarded part of a taxable income.

Frozen account

Bank account from which no funds can be withdrawn because of some definite / legal reason. A deceased account is automatically frozen until its legal process for release of funds is completed. 

Fully paid share

Shares whose full par value has been received by the issuing company. In Pakistan shares are generally issued against full par value not in part/ installment.

Funds based liability

It refers to the liabilities which effects the financial resources of a company, http://www.businessdictionary.com/definition/accounts-receivable-A-R.html. Any change in these immediately reflected in the companys financial position. 

Fund flow statement

This is the statement is also called cash flow statement. It summaries actual or anticipated incomings and outgoings of cash in a company over an accounting period. The cash flow statements is used as the basis for budgeting and business-planning. The accounting data is presented in three main portions sales of goods or services activities, purchase / investing activities and Financing-activities (borrowings, or sale of common stock). While sanctioning facilities to a firm banks   closely examine the cash flow to assess ability of the company to repay the loan. 

Funding

Arrangement of financial resources to finance a business or project. Generally, this term is used when a company requires cash from its own internal reserves, or from external resource such as banks.

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5 E Basic Banking Guide A to Z

5 E Basic Banking Guide A to Z

E

Earmark

To set aside for a specific purpose, use, to earmark for adjustment of certain liability.

Earning 

To yield as return or profit e.g. a savings account that earns profit on deposited funds.

ECU

European currency unit. Unit of money of the European Common Market used in international finance, based on the combined prorated values of the currencies of member nations.

Effective date 

Date on which a transaction is recorded in the books / system or date when an agreement takes effect.

Effect not cleared

Cheques pay orders or  drafts that have been deposited by a customer but have not completed the banks clearing cycle and  the proceeds are expected to be  credited  in the customers account. 

Elective Resolution

This is a resolution that requires the unanimous agreement of the shareholders of a company. Elective resolutions are moved usually at annual general meetings (AGM).

Electronic banking

Use of PC to avail facility of banking services through a wide area network or internet without physically visiting bank premises.

Electronic credit investigation bureau (eCIB)

The Electronic Credit Information Bureau (CIB) was established by State Bank of Pakistan (SBP) in December, 1992. Under the (BCO) 1962 Section 25(A) SBP can call credit information and make such information available to any bank or financial institution. The membership with CIB, , is mandatory for all Banks, Developmental Financial Institutions (DFIs) and Micro Finance Banks (MFBs) All member are required to submit entire borrowers� records online to CIB on monthly basis, within a period of fortnight from the date of close of month. All individuals and sole proprietors are placed under the category of �Consumer Borrower Partnership concerns and corporate entities (both listed and unlisted) are categorized under �Corporate Borrower�.

Electronic funds transfer (EFT)

The transfer of money between accounts by consumer electronic systems-such as automated teller machines (ATMs) and electronic payment of bills-rather than by cheque or cash. 

Embezzlement

Misuse, or theft of funds by some banks official who is entrusted with those funds. 

Emoluments

Salary or Fees received as compensation for being employed or holding an office. This includes fringe benefits.

Encoding

To convert a message or information, etc. into codes. In banking it refers to magnetic  ink  character recognition (MICR) coding on cheques etc. required for auto processing clearing items.

Endorsement

A banking term that refers to the signing of a cheque etc which allows for the legal transfer of a negotiable instrument from one party to another. This also refers to the signature, placed on the reverse of a negotiable instrument, for the purpose of informing paying banker that who is receiving payment. 

Enhance due diligence (EDD)

It refers to the extra precautions in exercising customers due diligence. It is done, in case of dealing high risk persons, such as politically exposed persons (PEP), exchange companies, trust & societies accounts etc.

Entity

It refers to an individual proprietorship, partnership, organization, or business unit which has a legal existence, for which accounting records are kept.

EOBI

Employees Old Age Benefits Institution (EOBI) was founded under an Act in1976 with the purpose to achieve the objective of Article 38 (C) of the Constitution of Pakistan. this  is an autonomous organization under the Labour Division, Government of Pakistan. EOBI�s functions include identification and registration of commercial and non-commercial organizations and their employees in the private sector and collection of contributions from them with a view to provide post-retirement old age benefits and other related social security payments.

Equitable charge

Charge equal to the owner. It  does not pass on the ownership or possession to the banker, but gives  right to start process for recovery of financing provided in case of non-payment.

Equitable interest

Right in a property that equivalent to a real right but is not a legal right, not enforceable by being in conformity with the law.

Equitable mortgage

Where a person delivers to a creditor, bank or financial institution or their agent documents of title to immovable property, with the purpose to create a security thereon, the transaction is called a mortgage by deposit of title deeds or equitable mortgage. At though it does not fulfill requirements of a legal mortgage but It gives the mortgagee the right to foreclose on the property, sell it, or appoint a receiver in case of non payment

Equity

Equity represents funds contributed by the owners /share holders plus reserves/retained earnings minus the accumulated losses if any.  

Equity of the bank

This includes paid-up capital, general reserves, balance in share premium account, reserve for issue of bonus shares and retained earnings / accumulated losses as disclosed in latest annual audited financial statements. In case of branches of foreign banks operating in Pakistan, equity will mean capital maintained, free of losses and provisions, under Section 13 of the Banking Companies ordinance 1962

Equity of the Borrower 

Includes paid-up capital, general reserves, balance in share premium account, reserve for issue of bonus shares and retained earnings / accumulated losses, revaluation reserves on account of fixed assets certain types f preference shares, and subordinated loans.

Error of omission 

Unintentional error, unintentional omission resulting in something not properly done or not done, caused financial / reputational loss.

Error of commission

Intentional error, intentional omission resulting in something not properly done or not done,  which resulted into financial / reputational los

Escalation clause

In banking it is a provision in loan agreements that allows a bank to raise profit rate if the market rates go over a certain level.

Escrow Account

Account to which an accountholder makes monthly or other periodic deposits, and authorizes the bank to withdraw funds to pay for certain fixed obligations such as taxes, rent, insurance premium.

Euro

This is unified banking currency  of all the countries comprising European Union (EU), except Britain, Denmark, and Greece. The euro (�) is the official currency of member states of the Europe Union (EU). The states, known collectively as the Euro zone. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) Euro coins and banknotes started circulation on 1 January 2002. As of November 2008[update], with more than �751 billion in circulation. 

Euro dollar

US currency or funds held in banks outside the United States i.e. in Europe or anywhere else. Eurodollars are used commonly for settling international transactions

Evening safe

Safe in which cash collected after counter hours is kept overnight.

Evidence

Evidence includes everything that is used to determine or demonstrate the truth of a dispute. it includes presentation of documents, records, personal appearance and such items relating to the existence or non-existence of suspected or disputed facts into which a court enquires.

Exchange Commission

Fee for exchanging one currency to the other. e.g. US $ to rupee & vice versa.

Exchange control

Restrictions imposed by government on conversion of a countrys currency for another, with the purpose to improve its balance of payments position.

Exchange equalization account

An account through which treasury settle claims from & to the branches

Exchange rate

Value / conversion of currency in term exchange of other currencies

Exchequer

The treasury /governmental department responsible for the collection and management of the national revenue and funding. 

Ex parte

Unilateral, one-sided, by and for a single party. Cases which are not defended despite repeated summons, these are decided as Ex parte by the court.

Expense

Cost incurred to generate revenue.

Export

Products and services of local origin sold to other countries for the purpose of earning Foreign Exchange.

Export financing

Funds advanced by banks /DFIs against confirmed orders from qualified foreign buyers to enable the exporter to make and supply ordered goods. In order to support genuine exporters, SBP has introduced certain credit schemes. These schemes for export sector have contributed a lot in increasing foreign exchange earning for Pakistan. SBP has launched Export Finance Scheme (EFS) Islamic Export Refinance Scheme (IERS) Scheme for Long Term Financing for Export Oriented Projects (LTF_EOP)

Export house

Export Houses act as intermediaries between the potential buyer and the prospective seller who are possibly unknown to each other. They offer a range of useful trade services. 

Export promotion Bureau (EPB)

This  is the apex agency of the Government of Pakistan engaged in promotion and growth of countrys exports. Since its establishment in 1963 as an attached department of the Ministry of Commerce, EPB facilitate the exporters in overcoming the supply and demand difficulties they face.EPB has its headquarters in Karachi with 14 regional offices all over the country. The regional offices mostly perform facilitation and regulatory functions as well as providing supply side and marketing assistance to the exporters.

Exposure

It refers to financing facilities whether fund based and / or non-fund based except ones drawn against the L/Cs of banks / DFIs rated at least �A� by Standard & Poor, Moody�s, Fitch-Ibca, Japan Credit Rating Agency (JCRA) or credit rating agency on the approved panel of State Bank of Pakistan and duly accepted by such L/C issuing Banks / DFIs. it also indicate total amount of financing facilities provided and availed by a single borrower, group, industry, or country

Extra ordinary general meeting

Any formal meeting of shareholders, held between two annual general meetings (AGM), called by the directors or shareholders cumulatively holding ten-percent or more of the voting rights for transacting some special business.

Extra ordinary resolution

Company resolution that usually does not require any notice of its proposal, but must be passed by a majority of at least three quarters of the votes cast. 

Ex factory 

This is a term of sale which signifies that the price invoiced or quoted by a seller includes charges only up to the sellers factory or premises. All charges from there on are to be borne by the buyer.

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7 G Basic Banking Guide A to Z

7 G Basic Banking Guide A to Z

G

GATT

General Agreement on Tariffs and Trade. (GATT) was first signed in 1947. The agreement was designed to provide an international forum that encouraged free trade between member states by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes. Treaty organization affiliated with the United Nations whose purpose is to facilitate international trade GATT was replaced by the WTO in 1995.

Gazette

Official publication issued by the government, such as gazette of Pakistan, gazetted holidays, 

General average

This is a Marine insurance provision under which damages or expenses incurred by shippers  are shared among them in proportion to the value of their exposed cargo. It is the contract between the cargo owner and the ship owner to compensate loss in case of direct harm to the ship and/or to the cargo, or in a course of action to prevent initial or additional harm to them. 

General crossing

General crossing is a cheque which bears across its face two parallel transverse lines without any words like �and company� �or �& Co.� written in between them. Section 123 of Negotiable instrument Act 1881deals with general crossing. If a cheque is crossed generally, it can not be paid on counter in cash.

General ledger

The general ledger is the main accounting record of a business which uses double-entry bookkeeping. It consist on accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, it provides the entire data for preparing financial statements for the company.

General lien

It applied to all goods, not just the actual goods provided,  by the borrower,. It covers not only the goods or property that gives rise to the debt, but all the goods or property of the debtor. 

General reserve

It is a reserve created for general purpose, by transferring some amount of undistributed profit for funding expansion, acquisition, paying dividends, discharging of liabilities, writing off  of  losses, or redemption of securities etc.

Going concern

Currently operating business that is expected to continue to function as such and remain viable in the predictable future.

Gold credit card

Refer credit card

Golden handshake

Extra payment in the form of generous bonus offered to an employee, as a separation payment, or an inducement to leave the company without creating a controversy or fuss. In late nineties and early two thousand banks operating in Pakistan have offered golden handshake to their employees. 

Gold reserve

the stock of gold held by a government or central bank to back its promissory notes or currency or to settle its international debts.

Gold standard

A monetary standard under which the basic unit of currency is equal in value to and exchangeable for a specified amount of gold.

Good faith

Acting according to the standards of honesty, trust, sincerity, etc. If banker acts in good faith and without negligence, he can claim protection under the law and there should not be any reason to question his motives.

Goodwill

This is the excess of the purchase price over the fair market value of the net assets of a company. It is an intangible asset, arising from the reputation and prestige of a business and its relations with its customers over a period.

Gratuity 

This is a kind of bonus given permanent staff of a company on discharge or retirement in return for services rendered.

Gresham law

The tendency of the public for hording new or fresh currency notes push back in circulation old /inferior types of currency notes. 

GDP

This is the abbreviation of gross domestic products. It is the total market value of all the goods and services produced within the borders of a country during a specified period and a basic measure of a countrys economic performance,

GNP

This is the abbreviation of Gross national product it is the sum total of the total market value of all the goods and services produced by a nation during a specified period. Pakistan�s GNP crossed $ 150 billions in 2007. 

Gross profit

Amount by which sales revenue exceeds production costs or cost of goods sold. A high gross income means stability in the competitive market because the company can afford to cut prices; a low gross profit may mean inability to fight off competition. 

Ground rent

In the indo pak subcontinent, the rent that a person or organization who builds upon land owned by another, commonly under a 99-year lease , pays to the land owner. After the expiry of the lease, either the leasehold owner vacates the land or pays an agreed sum for renewal of the lease.

Group

It refers to the persons, whether natural or juridical, if one of them or his dependent family members or its subsidiary, have control or hold substantial ownership interest over the other. 

A body shall be deemed to be a subsidiary of another company if that other company or body corporate directly or indirectly controls, or holds more than 50% of its voting or otherwise has power to elect and appoint more than 50% of its directors.

Control refers to an ownership directly or indirectly through subsidiaries, of more than one half of voting power of an enterprise.

Substantial ownership / affiliation means beneficial shareholding of more than 20% by a person and/or by his dependent family members, which will include his/her spouse, dependent brothers and sisters. However, shareholding in or by the Government owned entities and financial institutions will not constitute substantial ownership/affiliation, for the purpose of these regulations.

Group insurance

This is a single insurance policy or contract that covers a groups of employees and in some cases their dependents.

Guarantee

A contract of guarantee is an agreement to perform the promise and/or to discharge the liability of a third person in case of default. In other words, a guarantee is an undertaking by the guarantor to be collaterally responsible for a debt in case of default by principle debtor. So for enforcement of guarantee against guarantor, default from principle debtors is must.

Guarantor

The person who gives a guarantee, a surety

Guardian

A person who is entrusted by law to look after the person or property, or both, of another, as a minor or someone legally incapable of managing his or her own affairs. In banking business, generally parents play the part of a guardian, unless specially authorized by the court to an other person.

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