Treasury Flashcards
1
Q
A financial product that acquires its value by inference through a formulaic connection to another asset. The other asset is termed the underlying asset, and can be a financial instrument (e.g., a stock or bond), currency, or commodity.
A
derivative
2
Q
The time interval or delay between the day a payment (and any related remittance information) is mailed and the day it is received by a payee or at a payee’s processing site.
A
mail float
3
Q
The process of turning over unclaimed assets to the government, in specific instances. In the business world, escheat statutes primarily impact banks or companies that hold unclaimed assets of customers or employees. The most general occurrence of escheat is when an entity (e.g., a bank) holds money or property (e.g., an account in that bank) and the property goes unclaimed for some specified period of time (generally referred to as a dormant account). In many jurisdictions, if the owner cannot be located, such property must be escheated to the government.
A
escheatment
4
Q
In the cash conversion cycle, this is the average number of days between the purchase/receipt of materials or supplies and issuance of payment for them.
A
days’ payable
5
Q
A measure of the number of years required to recover the true cost of a bond, considering the present value of all coupon and principal payments received in the future. In its simplest form, it is the weighted average time to receipt of all future cash flows associated with a bond investment, but it can also provide a measure of the sensitivity of the investment to changes in underlying interest rates. This is one of the primary measures of risk for a bond or fixed-income portfolio.
A
duration
6
Q
A type of insurance coverage that provides payments to an organization in the event it is unable to pursue a normal line of business for some period of time due to an unforeseen event. Business interruption insurance generally covers the loss of profits and continuing fixed expenses (e.g., debt or lease arrangements) while the organization is temporarily out of business.
A
business interruption insurance
7
Q
The due diligence procedures that a financial institution must follow to determine or verify the identity of its customers. This is considered a key part of anti-money laundering compliance activities.
A
know your customer (KYC)
8
Q
The risk that the other party in a contract or financial transaction will not perform as promised. One component of this is related to credit and default risk. In a generic context, however, the concept extends to the risk related to any type of performance failure on the part of any of the counterparties with which an organization must interact.
A
counterparty risk
9
Q
A type of note that is usually granted for a short period of time and specific purpose, with both the principal and interest amounts paid at maturity. Because of the limited duration and precise maturity of a single payment note, a specific cash flow event is frequently identified as the repayment source at the time the funds are advanced.
A
single payment note
10
Q
The time interval or delay between the day when a check is deposited by the payee and the day when the payor’s account is debited.
A
clearing float
11
Q
The attempt to conceal the source of ownership of money by creating a complex series of transactions (layers) in order to provide anonymity. Used in relation to money laundering
A
layering
12
Q
A department or operation within a multiunit organization tasked with supplying multiple business units and their respective divisions and departments with specialized services, such as information technology (IT), human resources (HR), or accounts payable (A/P) services. In some companies this includes day-to-day treasury operations (cash management) and other treasury functions, which may be operated as this.
A
shared services center (SSC)
13
Q
An organizational function that involves determining the need for present and future funding to support operations. An important part of this function is the forecasting of revenues, income, and external financing required to support the company’s planned growth.
A
financial planning
14
Q
A type of bond that is usually issued as (1) a currency option bond that allows investors to choose among several predetermined currencies, or (2) a currency cocktail bond that is denominated in a standard basket of several currencies (e.g., special drawing rights).
A
multicurrency bond
15
Q
A type of forecast in which the period of the forecast assumptions are reviewed and the forecast is updated or “rolled” forward at the end of each period. Typically, the number of periods in the forecast (days, weeks, months, etc.) remains constant, but old periods are dropped and new periods are added as the forecast progresses.
A
rolling forecast
16
Q
A sophisticated information management, production, and accounting software package that links different functional areas or operational divisions of a company on an enterprise-wide basis.
A
Enterprising Resource Planning system (ERP)
17
Q
A bond issued by a national government and typically denominated in the currency of the issuing government. Also referred to as sovereign debt.
A
sovereign bond
18
Q
The inability to pay one’s debts in a timely manner. This term and bankruptcy are often used interchangeably, but in some jurisdictions, such as the United Kingdom, bankruptcy refers only to personal while this general term applies to both corporate and personal.
A
insolvency
19
Q
A management tool used to measure a vendor’s performance in both a qualitative and quantitative method. The primary purpose of this is to provide a quantitative measure of the service provided and the benefit received, but it also provides feedback for the service provider to better understand how the customer perceives the value, quality, and cost of the service(s) provided.
A
vendor scored card
20
Q
A system typically used to transfer funds from outlying depository locations (often at different banks) to a central bank account at a company’s primary bank, commonly referred to as a concentration account. These systems are used in situations where companies may have to deal with a number of separate banks in disbursed geographic locations.
A
cash concentration system
21
Q
A US bankruptcy petition filed by a company that allows it to reorganize under court protection to restructure debts and emerge from bankruptcy after meeting certain conditions imposed by the court.
A
Chapter 11 bankruptcy
22
Q
Foreign or cross-currency settlement risk, especially between bank counterparties; the risk that one party to a transaction defaults and is not able to fulfill its obligation to settle the transaction, potentially triggering a string of other defaults. This is named after a German bank that failed in 1974, causing a cascading string of payment defaults.
A
Herstatt risk
23
Q
The concept of having more than one person required to complete a specific activity, such as making a vendor payment or collecting and posting revenue from customers. This is a key internal control issue that is important in managing risk and reducing fraud. At an operational level, responsibilities such as approval, authorization, and verification functions, including expense approval, check-signing authority, and account reconciliation, should be separated.
A
segregation of duties
24
Q
A type of sales tax that involves charging a separate tax at each discrete stage of production and/or distribution based on the increased value (i.e., value added) occurring at that stage.
A
value-added tax
25
An accounts receivable (A/R) financing process that involves the outright sale of receivables to a factor, a company that specializes in the financing and management of receivables. It may be performed on a with or without recourse basis. In a with recourse arrangement, it may return any uncollectable A/R to the seller for full credit. In a without recourse arrangement, this takes all the risk of default on the A/R.
factoring
26
The inability to pay one's debts in a timely manner. This term and bankruptcy are often used interchangeably, but in some jurisdictions, such as the United Kingdom, bankruptcy refers only to personal while this general term applies to both corporate and personal.
insolvency
27
A classification for securities that are impaired (i.e., market value is less than adjusted cost) and whose impairment is not or cannot be expected to be cured in the foreseeable future. If a security is considered to be temporarily impaired due to market or credit conditions, then there is considerable flexibility in accounting for that security. If, on the other hand, the impairment is deemed to be other-than-temporary, then the Financial Accounting Standards Board has provided amended guidelines (ASC Codification Topic 325: Investments—Other) for the valuation of these securities.
other-than-temporary impairment (OTTI)
28
A comprehensive, organization-wide approach to identifying, measuring, and managing the various risks that threaten the achievement of an organization’s strategic objectives and therefore its overall operations. It is characterized as having a viewpoint that encompasses all areas of the organization.
enterprise risk management (ERM)
29
A payment instrument resembling a check that is drawn against the payor rather than the bank. It is handled like a check through the clearing process, but the responsibility for paying the draft lies with the payor, referred to as the drawee in the case of drafts.
payable through draft (PTD)
30
Concerned primarily with the legal liability of losses caused by personal injury or property damage, this type of insurance provides specific coverage for a variety of losses. Typical examples include plate glass, crime, robbery, boiler or machinery, and aviation insurance. Many insurers also write surety bonds and other forms of insurance not classified as property insurance.
casualty insurance
31
This reg implements provisions of the Electronic Funds Transfer Act of 1978, which establishes the rights, responsibilities, and liabilities of parties engaging in consumer-related EFTs. (also ATMs, ACH, and credit cards)
Reg E
32
An equity account that reflects the difference at the time of issue between the par value and the issuance price (less underwriting costs) of any new stock sold by a company.
additional paid in capital (APIC)
33
A special arrangement between a bank and a company, in which the bank lets the customer receive or make payments in a range of currencies from a single account or multiple subsidiary accounts.
multicurrency account
34
(1) In the check clearing process, this is the bank that accepts a check for deposit and collects the funds from the payee’s bank. The bank is also referred to as the bank of first deposit or depository bank.
(2) In a documentary collection process, this is the bank (the buyer’s bank) that presents the documents to the buyer. The bank is also referred to as the presenting bank.
collecting bank (presenting bank)
35
This reg implemented the interest-bearing account resolution of the Glass-Steagal Act of 1933 and barred the paying of interest on any corporate demand deposit accounts.
Reg Q
36
Revenues/ Current Assets
current asset turnover
37
The interval that begins with the purchase of raw materials or parts from vendors and suppliers at the start of the operating cycle and ends when payment is received from customers at the completion of the operating cycle
cash flow timeline
38
An XML-based global messaging standard for the financial services industry whose intended use is transmitting information related to securities, payments, financial reporting, account management, international trade, and foreign exchange.
International Organization for Standardization - ISO 20022
39
The total dollar value of earnings credit (imputed interest) that can be used by a company to offset the bank service charges incurred during the account analysis period.
earnings credit allowance
40
A tax owed on the value of accumulated real property or business equipment, or on the value of a financial portfolio. This tax may be charged in some countries in order to impose tax liabilities on a business even through that business may not show a profit or owe income tax on an international project.
asset tax
41
An authentication method for information technology and network purposes requiring the presence of different factors of authentication: (1) something the individual knows, such as a password or personal fact; (2) something the individual has, such as a token or a cell phone; and (3) something the individual is, such as a fingerprint or facial scan.
multifactor authentication
42
A medium-term cash forecasting technique that involves projecting financial statements based on the historical relationship between sales and liquid balance sheet accounts that tend to change in value along with sales. Cash, accounts receivable, inventory, and accounts payable are the more important accounts. Account size (e.g., cash or inventory) is expressed as a percentage of sales. This percentage is then used in conjunction with forecasted sales to produce a forecast of account size.
percentage-of-sales method
43
A system typically used to transfer funds from outlying depository locations (often at different banks) to a central bank account at a company’s primary bank, commonly referred to as a concentration account. These systems are used in situations where companies may have to deal with a number of separate banks in disbursed geographic locations.
cash concentration system
44
A pay service that matches against the payee field, in addition to the serial number and amount of a check, in an effort to detect an altered payee.
payee positive pay
45
A type of wire transfer where the debit and credit parties remain the same (as in a repetitive wire transfer), but the description (e.g., a customer or an invoice number) may be changed, along with the date and the dollar amount.
semi-repetitive wire
46
In a payment clearing process, this is one of two banks that have accounts with each other for the purpose of clearing and settlement of payment items between the banks.
correspondent bank
47
An international standard for identifying bank accounts across national borders.
International Bank Account Number (IBAN)
48
Under New York Stock Exchange standards, this is a director who has no material relationship with the listed company, either directly or as a partner, shareholder, or officer of the organization.
Independent Director
49
An account used by an organization to receive funds from collection accounts or to provide funding for disbursement accounts as part of a zero balance account (ZBA) arrangement. These accounts are sometimes referred to as concentration accounts.
master account
50
A tax-motivated, short-term investment strategy that is available to corporations that pay taxes in the United States. A corporation may exclude from its taxable income 70–80% of the dividends received from stock owned in another corporation, as long as it owns the stock for at least 46 days of the 91-day period starting 45 days prior to the ex-dividend date. Even though this requires an equity investment, the strategy is considered a short-term investment because the stock is held only long enough to capture the dividend and qualify for the dividend exclusion.
dividend capture
51
In a payment system, this is the point in time when the payee can use the funds provided by the payment, even though the payment may not be final.
availability
52
A value that represents the price per share of a mutual fund or an exchange-traded fund. It is generally calculated as the total value of all the securities or assets in the fund (less any liabilities) divided by the number of shares outstanding. For most funds, this will fluctuate as the market values of the securities in the fund portfolio change. The primary exception is a money market fund, which generally has a fixed equivalent to one unit of the currency of denomination.
Net asset value (NAV)
53
A cross-border financing instrument that can be used to finance the import, export, or domestic shipment of goods, as well as the storage of properly titled goods. They are used frequently in conjunction with letters of credit (L/Cs) requiring a time draft drawn on a bank. This is created when one person signs an unconditional written order directing a bank to pay a certain sum of money on demand or at a definite time to another person, usually to finance the shipment or temporary storage of goods. The unconditional written order, also known as a time draft, is stamped “accepted” by the bank.
banker's acceptance (BA)
54
The time interval or delay between the time the buyer/payor initiates payment and the time the seller/payee receives good funds; it consists of mail float, processing float, and availability float.
collection float
55
A process whereby a bank sets a forward value date on which the value of funds credited to an account is determined and establishes a back value date on which the value of funds debited from or credited to an account is determined.
value dating
56
An account with a financial institution that is owned by a nonresident of the country in which the account is held.
nonresidential account
57
The practice of having treasury become the main provider of banking services for all the company’s operating entities.
in-house bank
58
(AR/Rev) x 365
In the cash conversion cycle, this is the average number of days required to convert a credit sale into a collection.
days’ receivable
59
(Inv/COGS) x 365
In the cash conversion cycle, this is the average number of days that elapse from the purchase of raw materials until the sale of finished goods.
days’ inventory
60
What are the major provisions of the Gramm-Leach-Bliley Act?
- eliminates the provisions of the Glass-Steagal Act
- permits the creation of financial holdings companies (FHC) that can engage in any activity that the Fed considers financial in nature
- establishes the Fed as the primary regulator of FHCs
- allows easier entry into the US by foreign banks
- includes consumer protection provisions
61
In processing checks, this is the bank in which a check is initially deposited as part of the clearing process. Also known as the depository bank or collecting bank.
bank of first deposit
62
In an automated clearinghouse transaction, this is the financial institution that acts as an intermediary between the originator and the receiver, on the receiver's side of the transaction.
receiving depository financial institution (RDFI)
63
An electronic message that instructs the originating depository financial institution to move funds from the originator’s account to the receiver’s account at the receiving depository financial institution.
Automated Clearinghouse (ACH) credit transaction
64
In the cash conversion cycle, this is the average number of days required to convert a credit sale into a collection.
days' receivable
65
A management tool used to measure a vendor’s performance in both a qualitative and quantitative method. The primary purpose of this is to provide a quantitative measure of the service provided and the benefit received, but it also provides feedback for the service provider to better understand how the customer perceives the value, quality, and cost of the service(s) provided.
vendor score card
66
The rate of return anticipated on a bond if it is held until the maturity date. This is considered a long-term bond yield expressed as an annual rate. The calculation takes into account the current market price, par value, coupon interest rate, and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes, this is simply referred to as yield.
yield to maturity
67
In working capital management, this formula explains and calculates how much time elapses from when funds are disbursed in direct support of a revenue-generating activity until the time when funds are recovered from revenues. It is calculated as days’ receivables plus days’ inventory minus days’ payables. The result is the average number of days between the cash outflow for the acquisition of materials and supplies, and the cash inflow from the sale of products or services.
cash conversion cycle (CCC)
68
A period of time, often specified in a loan agreement, in which an event of default may be corrected before the lender may pursue default remedies.
cure period
69
The period of time between the day that a bill or invoice is sent/received (depending on the perspective of the seller or buyer) and the day that payment is actually credited to the biller’s bank account.
payment float
70
CA/CL It is the ratio of cash and assets expected to become cash in one year or less, to short-term liabilities that must be paid in one year or less.
current ratio
71
A payment instrument resembling a check that is drawn against the payor rather than the bank. It is handled like a check through the clearing process, but the responsibility for paying the draft lies with the payor, referred to as the drawee in the case of drafts.
payable through draft (PTD)
72
An investment bank function that involves consultation with a company raising funds about the characteristics of a securities issue and any underlying documents. The investment bank also monitors market conditions and advises the company about the best time to bring the issue to market in order to maximize the price per issued share and the amount of funds the firm wishes to raise.
origination
73
A type of bank account (typically used for disbursements via check or electronic funds transfer) where the end-of-day balance in the account is maintained at zero. Transfers are made from a master account to fund this account, typically at the end of the day. This can also be set up as a depository account from which funds are debited and transferred to a master account at the end of each day.
zero-balance account (ZBA)
74
A balance sheet account that represents the accumulated net earnings of a corporation since its inception, less dividends paid to shareholders. It also represents the changes in shareholders' equity arising from the retention of profits and losses of the company, less any dividends paid out to shareholders.
retained earnings
75
This reg establishes procedures, duties, and responsibilities for check collection and settlement through the Federal Reserve System.
Reg J
76
The inability of the purported maker or originator of a statement, document, or payment to challenge the validity of the original item. It may also be used to refer to the inability of a receiver to deny having received the item.
non-repudiation
77
Requires FIs and creditors to develop and implement written identity theft prevention programs, as part of the Fair and Accurate Credit Transactions Act of 2003 (FACT)
Red Flags Rule
78
A type of bond issued by a level of government below the national or central government, which includes regions, provinces, states, municipalities, etc. These are subject to a wide variety of national and regional provisions in their country of origin and may have tax implications.
sub-sovereign bond
79
A liquidity ratio that is calculated as cash plus short-term investments and accounts receivable, (cuurrent assets - inventory) divided by total current liabilities. It is also known as the acid test ratio because it is a more stringent measure of liquidity than the current ratio.
Quick Ratio (acid test ratio)
80
A type of option contract that gives the contract owner the right, but not the obligation, to buy the underlying asset from the contract writer at a fixed price through the delivery date.
call option
81
This reg applies the Truth in Lending Act (TIL) which promotes informing consumers about credit use. (credit cards, home mortgages, student loans, and installment loans)
Reg Z
82
Days' Inventory + Days' Receivables - Days' Payables In working capital management, this formula explains and calculates how much time elapses from when funds are disbursed in direct support of a revenue-generating activity until the time when funds are recovered from revenues. It is calculated as days’ receivables plus days’ inventory minus days’ payables. The result is the average number of days between the cash outflow for the acquisition of materials and supplies, and the cash inflow from the sale of products or services.
cash conversion cycle (CCC)
83
A current asset financing strategy that involves using longterm financing (e.g., debt and equity) to finance fixed assets, permanent current assets, and some portion of fluctuating current assets. Short-term financing is used for the remainder of the fluctuating current assets.
conservative financing strategy
84
An account through which an account holder uses a bank to transfer funds to, and receive deposits from, a third party. Also known as a checking account or a current account.
demand deposit account (DDA)
85
current assets - current liabilities
working capital
86
A medium- or long-term statistical cash forecasting process where a serial chain of values (known as a time series) for some variable (e.g., sales) is identified. Every time series contains a trend, seasonal pattern, cyclical pattern, and random movement. A trend is the general direction that the values are moving. A seasonal pattern repeats with regard to time of year. A cyclical pattern repeats without regard to time of year. Random movement is a change in the series not identifiable as a trend, or a seasonal or cyclical influence
time series forecasting
87
In an exponential smoothing forecasting methodology, this is the weight assigned to the most recent actual value and the most recent forecasted value. It is calculated using a computer program. The program selects this value that weights past actual values and past forecasted values so as to produce the most accurate forecast of the variable’s value in the next period.
Alpha (smoothing constant)
88
A type of demand deposit account that pays an unregulated rate of interest determined by individual institutions. Generally, there can be no more than six withdrawals per calendar month or statement cycle, no more than three of which can be by check, draft, or debit card.
money market deposit account (MMDA)
89
A note with a variable interest rate. The adjustments to the interest rate are made periodically (usually every six months) and are tied to a certain money market index.
floating-rate note (FRN)
90
A type of industrial bank that is a subsidiary of a large industrial corporation and whose sole purpose is to finance purchases of the corporation’s products
captive finance company
91
In the selection and validation of a forecasting model, this process tests a forecast for accuracy using the historical data used to develop it. If the forecast accurately predicts one data series from one or more other series, the relationships among the data series are deemed to be validated. When a forecast is initially developed, however, there typically is no other data available to test it.
in-sample validation
92
A type of insurance that covers property for perils not covered by basic property insurance policies. It is often purchased to fill voids in policies purchased overseas and to insure property in transit. Typically used in conjunction with multiple basic policies to make them uniform, this insurance does not provide additional limits of coverage for basic property perils (as an umbrella policy does for liability insurance)
difference in conditions insurance
93
This reg requires banks to help meet the credit needs of the entire community in which they do business.
Reg BB
94
In an automated clearinghouse transaction, this is the financial institution that initiates the transaction on the originator’s behalf.
originating depository financial institution (ODFI)
95
An electronic message that instructs the originating depository financial institution to move funds from the receiver’s account to the originator’s account.
Automated Clearinghouse (ACH) debit transaction
96
In the selection and validation of a forecasting model, this process tests the forecast using data that were not used to develop it.
out-of-sample validation
97
365/ Cash Conversion Cycle
cash turnover ratio
98
The risk that an asset will be affected by external conditions such as government regulation, exchange rates, or political stability, especially in international trade.
economic risk
99
An availability assignment method used in banking in which availability is assigned to each check as it is processed.
proof of deposit (POD)
100
Total common stockholders’ equity divided by the number of shares outstanding.
book value per share
101
An international standard for uniquely identifying banks, including country and branch locations.
Bank Identification Code (BIC)
102
A message encoded with the sender’s secret, private key that the receiver can use to identify the source. It is essentially an electronic signature used in place of a written signature and is tied to a document and to the signer, meaning the signer’s signature will be different for each document signed.
digital signature
103
A financial intermediary that performs a variety of services, such as: (1) underwriting, by acting as an intermediary between an issuer of securities and the investing public; (2) facilitating mergers, acquisitions, divestitures, and other corporate reorganizations; and (3) acting as a broker/financial advisor for institutional clients.
investment bank
104
A short-term rate (most commonly the 90-day US Treasury bill rate) that is multiplied by the investable balance to determine the earnings credit allowance for the period, as part of the account analysis process.
earnings credit rate
105
106
365/CCC A ratio that indicates the number of cash cycles a firm experiences in one year, generally defined as the days in the year (365) divided by the cash conversion cycle.
cash turnover ratio
107
A cross-border financing instrument that can be used to finance the import, export, or domestic shipment of goods, as well as the storage of properly titled goods. They are used frequently in conjunction with letters of credit (L/Cs) requiring a time draft drawn on a bank. This is created when one person signs an unconditional written order directing a bank to pay a certain sum of money on demand or at a definite time to another person, usually to finance the shipment or temporary storage of goods. The unconditional written order, also known as a time draft, is stamped “accepted” by the bank.
banker's acceptance (BA)
108
A type of netting system that is similar to a bilateral system but it involves more than two subsidiaries. Each subsidiary informs a central treasury management center of all planned cross-border payments through an electronic system. This is used primarily for intracompany transactions.
multilateral netting system
109
A type of pooling structure that combines both sweeping and pooling. It is typically used when a company’s primary bank has branches in several countries, but the branches do not provide a full range of domestic banking services. A local bank is used to provide collection and disbursement transactions and accounts, and to sweep surplus funds to the primary bank. The primary bank (overlay bank) then notionally pools or physically transfers cash balances in overlay accounts, providing a multi-country solution
bank overlay structure
110
A type of tax credit available to a company with foreign income that has already been taxed by the foreign jurisdiction. For example, a US company’s income derived from its non-US operations typically is included in its tax return to determine the amount of US income tax due. If income from foreign sources has already been subjected to foreign income taxes, the same income is taxed twice. To relieve the effect of double taxation, US tax law grants a US company a tax credit against its total US income tax liability for foreign income taxes paid by the parent and its subsidiaries.
foreign tax credit
111
In an over-the-counter field deposit system, this is a process that allows an organization to scan and image checks, then transmit those images to its depository bank for posting and clearing, instead of having to deposit physical checks. In the United States, the bank then transmits the images to the Federal Reserve or another image exchange network for clearing.
remote deposit capture (RDC)
112
The interval that begins with the purchase of raw materials or parts from vendors and suppliers at the start of the operating cycle and ends when payment is received from customers at the completion of the operating cycle.
cash flow timeline
113
A type of pooling that requires the use of a single currency because balances are physically transferred out of subaccounts and into a main account on a daily basis. This type of pooling can be used in cross-border structures
physical pooling
114
The risk that a security investment cannot be sold quickly without experiencing an unacceptable loss. This risk can also affect the yield and pricing on a security. By definition, a liquid security is one that can be converted quickly and easily into cash with very little exposure to market price risk and for a small transaction cost.
asset liquidity risk
115
A type of sales tax that involves charging a separate tax at each discrete stage of production and/or distribution based on the increased value (i.e., value added) occurring at that stage.
value-added tax
116
A current asset financing strategy that involves using long-term financing (e.g., debt and equity) to finance fixed assets, permanent current assets, and some portion of fluctuating current assets. Short-term financing is used for the remainder of the fluctuating current assets.
conservative financing strategy
117
This represents the balances in the customer’s account that the bank was able to invest in income-producing assets during the account analysis period. It is also defined as the amount of funds available for withdrawal from an account, based on the bank’s availability schedule and/or local regulations that require specific availability for certain funds (e.g., Federal Reserve Regulation CC in the United States; (sometimes referred to as the investable balance)
available balance
118
The time gap between a cash outflow and a cash inflow.
working capital gap
119
A disbursement service used to combat payment (primarily check, but increasingly ACH) fraud, wherein a company transmits a file of payment information to the disbursement bank either at or before the time of the physical distribution of checks or anticipated ACH debits. The bank matches check serial numbers and dollar amounts of checks presented for payment against the issue database and pays only those checks or ACH transactions that match all relevant criteria. Any exceptions are conveyed to the company for its decision whether to pay or return the item.
positive pay
120
A type of pooling that requires a company’s subsidiaries to use branches of the same bank. All excess and deficit balances in the company’s subsidiary accounts are summed each day to calculate the net interest earned or due. Funds are not actually transferred; rather, they are simply totaled for the purpose of calculating interest.
notional pooling
121
The sum of the daily ending collected balances (both positive and negative) divided by the number of days in the analysis period. In many account analysis statements, this item is calculated as the average ledger balance minus the average deposit float.
average collected balance
122
The sum of the daily dollar amount of items in the process of collection (primarily checks) divided by the number of calendar or business days in the account analysis period.
average deposit float
123
A measure of the number of years required to recover the true cost of a bond, considering the present value of all coupon and principal payments received in the future. In its simplest form, it is the weighted average time to receipt of all future cash flows associated with a bond investment, but it can also provide a measure of the sensitivity of the investment to changes in underlying interest rates. This is one of the primary measures of risk for a bond or fixed-income portfolio.
duration
124
Largely unique to the US banking system, this is a record of the services provided to the customers of a bank, along with detailed information on balances and credits earned for those balances. This term is often used synonymously with account analysis statement. It can also refer to the process used by the bank to determine earnings credits and service charges in creating this statement.
account analysis
125
A type of bond sold in a particular country by a foreign borrower, but usually denominated in the domestic currency of the country where issued. These bonds are primarily regulated by the authorities in the country of issue.
foreign bond
126
In a check-clearing process, a file of check images or a bundle of checks accompanied by a list of individual items and other control documents.
cash letter
127
This reg imposes uniform reserve requirements on all depository institutions with different levels of reserves for different types of deposits. The Fed uses this regulation to control the supply of money.
Reg D
128
The subset of treasury management that specifically deals with managing the daily liquidity (available cash) of a company or organization.
cash management
129
A bank balance that reflects all entries to a bank account, regardless of whether the deposited items have been collected and are available for withdrawal.
ledger balance
130
An interest rate that consists of a base rate, such as the London Interbank Offer Rate (LIBOR), the US prime rate, or the Fed funds rate, plus a spread that is added to, or occasionally subtracted from, the base rate. Rates on lines of credit are normally variable and adjust immediately to changes in the base rate
All-In rate
131
A balance maintained in a company’s deposit accounts at a bank for the purpose of increasing the bank’s overall revenue on the account. They generally do not earn interest or offset depository service charges.
compensating balance
132
A process that allows a simultaneous exchange of the payments for both sides of underlying financial transactions (e.g., foreign exchange contracts, nondeliverable forward contracts, and over-the-counter derivative contracts), thereby eliminating settlement risk.
Continuous Linked Settlement (CLS)
133
An investment bank function that involves consultation with a company raising funds about the characteristics of a securities issue and any underlying documents. The investment bank also monitors market conditions and advises the company about the best time to bring the issue to market in order to maximize the price per issued share and the amount of funds the firm wishes to raise.
origination
134
The risk that a security investment cannot be sold quickly without experiencing an unacceptable loss. This risk can also affect the yield and pricing on a security. By definition, a liquid security is one that can be converted quickly and easily into cash with very little exposure to market price risk and for a small transaction cost.
asset-liquidity risk
135
A form of risk that is related to how a change in the credit quality of a company, including its ability to make payments in a timely manner, would affect the value of a security or portfolio of investments. It arises both from transactions and from any risk in the portfolio due to concentration of similar assets. Higher yields are typically associated with higher risk, as investors will require a higher return to compensate for a higher chance of loss.
credit risk or default risk
136
An independent US government agency with the mandate to regulate commodity futures and option markets in the United States.
Commodity Futures Trading Commission (CFTC)
137
The average number of days required to convert a credit sale into a cash inflow. Also referred to as average collection period.
days' sales outstanding
138
Actions taken with regard to crisis management, alternative operating procedures, and communications to staff and customers. The intent of disaster avoidance, recovery, and remediation measures is to preserve the firm’s revenue stream.
business continuity
139
A commingled pool of money market instruments, typically held by banks or investment firms, in which fund investors have an ownership interest. The funds may be offered in the local currency or, where allowed by local regulators, in a foreign currency. They generally have a net asset value set at one unit of the currency of the offering. Known as unit trusts in the United Kingdom and Europe.
money market fund (MMF)
140
A process whereby a bank sets a forward value date on which the value of funds credited to an account is determined and establishes a back value date on which the value of funds debited from or credited to an account is determined.
value dating
141
A cross-border financing instrument that can be used to finance the import, export, or domestic shipment of goods, as well as the storage of properly titled goods. They are used frequently in conjunction with letters of credit (L/Cs) requiring a time draft drawn on a bank. This is created when one person signs an unconditional written order directing a bank to pay a certain sum of money on demand or at a definite time to another person, usually to finance the shipment or temporary storage of goods. The unconditional written order, also known as a time draft, is stamped “accepted” by the bank.
banker's acceptance
142
A forecasting tool that specifies the percentage of credit sales during a time period (e.g., one month) that remain outstanding at the end of the current time period and each subsequent time period.
accounts receivable balance pattern
143
The time of day when a bank deposit must be received in order to be posted to the ledger balance of the depositor’s account.
ledger cutoff
144
A method of establishing insurance policy deductibles in which the deductible is set on a per-period basis, regardless of the number of occurrences (claims).
aggregate basis
145
A type of option contract that can be executed or settled on or any time prior to the stated expiration date of the contract. Contrast with European option and Bermuda option.
American option
146
The senior manager who is responsible for overseeing the financial activities of an entire company. This includes signing checks, monitoring cash flow, and financial planning.
Chief Financial Officer (CFO)
147
A check deposited with a financial institution that is drawn on another financial institution.
transit check
148
A type of option contract that is exercisable only on specified dates that are spaced evenly over the option’s life, in contrast with both American and European options.
Bermuda option
149
A US bankruptcy petition for liquidation filed by a company, which protects the debtor from legal actions by creditors. In this type of bankruptcy, all remaining assets are liquidated, and the company ceases to exist.
Chapter 7 bankruptcy
150
(AP/COGS) x 365
In the cash conversion cycle, this is the average number of days between the purchase/receipt of materials or supplies and issuance of payment for them.
days’ payables
151
A US Securities and Exchange Commission (SEC) term used to refer to any transaction, agreement, or other contractual arrangement that obligates the reporting company but does not appear on the balance sheet. It is intended to include off-balance-sheet arrangements for which a company may have contingent liabilities or obligations that are not readily apparent to an investor. These arrangements must be disclosed in the discussion portion of financial statements.
off-balance-sheet arrangement (OBSA)
152
An aggregate of bank account balances that is calculated as the average ledger balance minus the deposit float.
collected balance
153
The sum of the daily ending ledger balances (both positive and negative) divided by the number of days in the account analysis period. Balances used in the calculation are net of any current-period adjustments.
average ledger balance
154
A third party that typically takes possession of securities, receives delivery or book entry of principal and interest payments, performs record keeping, and provides maintenance services for an investment portfolio.
custodian
155
A legal document that outlines the rights and obligations of the borrower (bond issuer) and lender (bondholder). It is a contract between the company and the bondholders, which includes various restrictive covenants that impose constraints on the actions of a company’s management.
bond indenture
156
A derivative instrument that allows trading partners to establish predetermined exchange rates for set periods, which effectively hedges against foreign exchange risk. They include options, futures, swaps, and forwards contracts.
currency derivative
157
Usually made at the board of director’s level, this is the basic account or service authorization empowering a representative of the business to enter into agreements for financial services. It usually specifies the functions that can be performed by specific individuals or job titles, the persons authorized to open and close accounts, and the entire scope and limitations of the relationship. It is a specific type of board resolution.
account resolution
158
The restoration of systems and communications after an event causes an outage
disaster recovery
159
days' receivable + days' inventory - days' payable
In working capital management, this formula explains and calculates how much time elapses from when funds are disbursed in direct support of a revenue-generating activity until the time when funds are recovered from revenues. It calculates the average number of days between the cash outflow for the acquisition of materials and supplies, and the cash inflow from the sale of products or services.
cash conversion cycle (ccc)
160
A price quote in which a dealer or other entity provides both the price at which it is willing to purchase (bid) and sell (offer) a specific commodity or security. The difference between the two is referred to as the bid-offer spread or bid-ask spread.
bid-offer quote
161
A typical method of cash concentration in countries where banks can pay interest on excess demand deposit balances and charge interest on deficit balances.
pooling
162
The executing of cross-border payments between subsidiaries before the scheduled payment date. This is employed when a subsidiary country’s currency is expected to depreciate relative to the parent company’s currency.
Leading
163
The executing of cross-border payments between subsidiaries after the scheduled payment date. This is used when a subsidiary country’s currency is expected to appreciate relative to the parent company’s currency.
Lagging
164
Control over funds or accounts, which may be separate from signature authority or legal title. It recognizes that the entity in whose name an account is opened with a bank is not necessarily the person who ultimately controls the funds or who is ultimately entitled to the funds.
beneficial ownership (beneficial interest)
165
A type of risk that represents the classic risks to success in operating a business venture, such as uncertainty about the demand for products or services, the price that can be charged for those products or services, and the costs of producing and delivering the products or services. It is primarily associated with the general day-to-day management of a company.
business risk
166
A company or other organization that trades securities for its own account or on behalf of its customers.
broker-dealer
167
The time between receiving good funds and the time the organization knows that it has the funds available and can actually make use of those funds. For a company receiving payments on accounts receivable, there may also be delays between the receipt of the payment and the posting of that payment to a customer’s account. If the customer is close to its credit limit, this could, in turn, delay the ability of the company to sell more goods or services to that customer.
information float
168
Government revenue from the issuance of coin and currency, which is based on the difference between the value of the money and the cost to produce it. Historically, it arose from the manufacture of coins, which were worth more than the metal used to mint the coins.
seigniorage
169
A type of political risk, this is the practice of a government not allowing the conversion from the local currency into a major trading currency.
blocked currencies
170
In a payment system, this is the actual movement of fund from the payor’s account to the payee’s account.
settlement
171
This reg defines and regulate the nonbanking activities in which bank holding companies and foreign banking organizations in theUS my engage, includung anti-tying restrictions.
Reg Y
172
An availability assignment method used in banking in which availability is assigned to each check as it is processed.
proof of deposit (POD)
173
The highest ranking executive in a company whose main responsibilities include developing and implementing high-level strategies, making major corporate decisions, managing the overall operations and resources of a company, and acting as the main point of communication between the board of directors and the corporate operations.
Chief Executive Officer (CEO)
174
365/ccc
cash turnover ratio
175
The yield a bond would provide if the issuer calls it prior to maturity. Since callable bonds usually are called only if interest rates have fallen, this is typically lower than the yield to maturity.
yield to call
176
The time within the banking day when an item must be ready for transit at the depository bank’s processing center to qualify for the availability stated in the availability schedule.
deposit deadline
177
A multi-tiered, automated system for purchasing, holding, and transferring marketable securities. This exists as a delivery system that provides for the simultaneous transfer of securities against the settlement of funds. Securities owners (or their brokers on their behalf) receive interest and redemption payments wired directly to their linked accounts. It is operated by the US Treasury and is also known as the Treasury/Reserve Automated Debt Entry System, or TRADES.
Commercial Book-Entry System (CBES)
178
What is a central bank?
An entity that is responsible for implementing and managing a country's monetary policy or the country's money supply and interest rates.
179
A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management-related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies, and executive compensation. Every public company must have this.
Board of Directors
180
A financial instrument that is similar to a banker's acceptance (BA) except it is drawn on, and accepted by, a buyer (importer).
trade acceptance
181
A type of check-clearing process that occurs when checks are deposited at a financial institution that are drawn on related financial institutions or on financial institutions that share a common check-processing system, thus eliminating the need to clear the checks through another bank.
on-we check clearing
182
A requirement included in a loan agreement that serves to protect the lender. This imposes either restrictions (known as restrictive or negative covenants) and/or obligations (known as affirmative or positive covenants) on the part of an organization’s management. They typically have a significant impact on an organization’s financial decision making.
Loan Covenant
183
The number of days in a year, when calculating the yield on an investment. Money market yield is traditionally based on a 360-day year, while bond equivalent yield is based on a 365-day year.
year basis
184
In the cash conversion cycle, this is the average number of days that elapse from the purchase of raw materials until the sale of finished goods.
days' inventory
185
A schedule that specifies, for each drawee endpoint, when a bank grants available credit or collected balances for deposited items.
availability schedule
186
A real-time gross settlement system used for the transfer of US Treasury, government agency. and other securities.
National Book-Entry System (NBES)
187
An account maintained at a fixed amount for a particular purpose or activity. Sometimes used as a petty cash account.
imprest account
188
An account used by an organization that has its depository institution sweep any excess, end-of-day funds into an investment account. Though these are not actually a separate category of short-term investment, they are used widely and are diverse, offering investment in repos or other money market instruments, managed accounts, and mutual funds. Some offer tax-exempt, offshore investments.
sweep account
189
A period of time, often specified in a loan agreement, in which an event of default may be corrected before the lender may pursue default remedies.
cure period
190
The practice of a bank adding additional time as part of the collected-balance calculation when a check takes longer to clear than the initial availability that was granted.
as-of adjustment
191
An internal company (intracompany) payables system that is designed to reduce the number of cross-border payments among company units through the elimination or consolidation of funds denominated in different currencies.
netting
192
This reg was designed to speed the collection and return of checks, and mandates banks to return unpaid checks expeditiously.
Reg CC
193
A process whereby a company’s bank transmits a file of the checks presented for payment to the company on a daily or intraday basis. Within a specified time deadline, the company matches this file to a list of checks issued and notifies the bank of any items to be returned.
reverse positive pay
194
A type of tax credit available to a company with foreign income that has already been taxed by the foreign jurisdiction. For example, a US company’s income derived from its non-US operations typically is included in its tax return to determine the amount of US income tax due. If income from foreign sources has already been subjected to foreign income taxes, the same income is taxed twice. To relieve the effect of double taxation, US tax law grants a US company a tax credit against its total US income tax liability for foreign income taxes paid by the parent and its subsidiaries.
foreign tax credit
195
The attempt to conceal the source of ownership of money by creating a complex series of transactions (layers) in order to provide anonymity. Used in relation to money laundering.
layering
196
The process by which an asset is purchased in one financial market and sold in another market to produce a riskless profit. It is the primary mechanism that ensures efficiency in financial markets.
arbitrage
197
A financial intermediary that performs a variety of services, such as: (1) underwriting, by acting as an intermediary between an issuer of securities and the investing public; (2) facilitating mergers, acquisitions, divestitures, and other corporate reorganizations; and (3) acting as a broker/financial advisor for institutional clients.
investment bank
198
In a payment clearing process, this is a group of banks or other financial institutions that agree to exchange payment instruments (paper or electronic).
clearinghouse
199
A type of check-clearing process that involves a single bank and occurs when a payee deposits a check in an account at the same bank on which it is drawn.
on-us check clearing
200
Outstanding Accounts Receivable/ Average Daily Credit Sales
days’ sales outstanding (DSO)
201
A type of risk that is related to employees and represents a significant source of internal operational risk. The general risk of intentional employee fraud is typically referred to as defalcation risk, while the specific case of theft of money, securities, or property by an employee is known as fidelity risk. A more significant source of internal risk stems from unintentional actions by employees. Examples include employee errors in data entry or reentry, as well as transposition or deletion of numbers.
employee risk
202
A type of bond sold simultaneously in many countries outside the country of the borrower. Usually, this is issued by an international syndicate and categorized according to the currency in which it is denominated.
Eurobond
203
A form of voting that allows a shareholder as many votes per share owned as there are open positions on the board in the same election.
cumulative voting
204
The right to vote at the annual meeting can be assigned to another individual
proxy
205
A shareholder right that provides existing shareholders the first right to purchase shares of any new stock issue on a pro rata basis and based on the proportion of shares owned
preemptive right
206
The date when the board of directors announces (declares) a dividend.
declaration date
207
the date when shareholders of record are entitles to receive the declared dividend
record date
208
The date on which a stock is sold without entitlement to the upcoming dividend. It is usually two business days prior to the shareholder-of-record date, thereby enabling brokerage firms to send an updated list of shareholders to a company on time.
ex-dividend date
209
