Banking, Credit, Public Debt, and Monetary Systems

Vocabulary flashcards covering core banking operations, credit mechanisms, sovereign debt, and international monetary systems.

Account

Funds deposited in a bank that are credited to and subject to withdrawal by the depositor.

Current account / Checking account

A deposit account, sometimes interest-bearing, which enables customers to place funds and withdraw available funds on demand, typically by writing a check.

Overdrawn account

An account that enters negative balance (in arrears) when a bank honors a payment exceeding available funds, incurring bank fees until a sufficient deposit is made.

Savings account

In the US, a deposit account that pays interest, but from which funds cannot be withdrawn by check writing.

Bank statement

A printed or online record detailing all debit and credit transactions occurring on an account throughout a given statement cycle.

ATM (Automated Teller Machine)

An automated machine used for cash withdrawals and banking transactions; non-bank ATMs typically charge fees and do not accept deposits.

Balance

The amount of money remaining in a deposit or loan account at a given date after all remittances, payments, and withdrawals have been accounted for; it can be positive (credit) or negative (debit).

Retail bank / Commercial bank

Mass-market banking where individual customers use local branches to access services such as savings and checking accounts, mortgages, personal loans, debit cards, and credit cards.

Investment bank / Merchant bank

A financial institution that helps companies and governments raise capital by issuing and selling debt and equity securities in capital markets.

Mutual savings bank / Credit union

A financial institution chartered through a state or federal government to provide individuals with a safe place to save and invest in mortgages, loans, stocks, and bonds.

Endorse

To sign one's name on the back of a check in order to cash or transfer it.

Bad / Bouncing cheque

A check returned unpaid by a bank due to insufficient funds in the account holder's account.

Stale cheque

A check that remains uncashed or outstanding for six months or longer, which a bank is not legally obligated to pay.

Change

The balance of money returned to a payer when the tender offered exceeds the total price due.

Float / Check float

The period of time represented by checks in transit between the date they are deposited into an account and the date they are formally settled or paid.

Hoard money

The accumulation of money or assets (historically gold) without spending or investing them, driven by risk aversion, liquidity preference, or lack of better investment opportunities.

Overdraft

A deficit that occurs when account withdrawals exceed available funds, but the bank honors the transaction and advances the money.

PIK (Payment in Kind)

A financial mechanism where bond interest is paid in a medium other than cash, most commonly by increasing the principal debt owed to the bondholder by the interest amount.

Standing order

An instruction given by an account holder to a bank to pay a regular, fixed sum of money to a specified person or organization at set intervals.

SWIFT

Founded in Brussels in 1973, the Society for Worldwide Interbank Financial Telecommunication is a cooperative network providing standardized global communication for financial transactions.

Credit

The provision of resources by a lender to a borrower without immediate payment, establishing a debt that the borrower agrees to repay at a later date.

Arrears / Arrearages

A legal term denoting debt that is overdue after a borrower misses a scheduled payment, accruing from the date the payment was originally due.

Cash credit

A bank credit arrangement where a borrower provides collateral security and can draw funds on demand up to an agreed credit ceiling.

Frozen credit

A market condition in which credit becomes severely restricted or unavailable, even to borrowers with pristine credit records.

Microcredit / Microloan

Small-scale lending provided to low-income individuals, unemployed persons, or small entrepreneurs who lack steady employment, collateral, and verifiable credit history.

Revolving credit

A flexible line of credit with no predetermined schedule of fixed payments, allowing borrowers to repeatedly draw and repay funds (e.g., credit cards).

Secured credit

A loan arrangement where the borrower pledges an asset as collateral, allowing the lender to claim and liquidate the asset in the event of default.

Bridge loan / Swing loan

A temporary short-term loan used to purchase a new home before the proceeds from selling an existing home become available.

Swap

A derivative agreement between two counterparties to exchange streams of cash flows (known as legs), commonly categorized into interest rate, currency, credit, commodity, and equity types.

Service a debt

To make required recurring payments covering both principal and accrued interest on outstanding debt obligations.

Foreclosure

A legal procedure whereby a lender takes ownership of or sells collateralized property following a borrower's default on loan payments.

IOU

An informal written document acknowledging a personal debt between individuals (short for 'I owe you').

Accrued interest

Interest that has accumulated on an account or debt over time but has not yet been paid or disbursed.

Deferred / Outstanding interest

Unpaid interest that has accrued on an outstanding loan balance up to the most recent accounting accrual date.

Freddie Mac (FHLMC)

A United States government-sponsored enterprise established in 1970 to purchase mortgages on the secondary market and package them into mortgage-backed securities.

Loan collateral

An asset or piece of property acceptable to a lender as security for repayment of a loan.

Loan maturity

The designated duration of a loan contract until full repayment of the principal and final interest is required.

Loan-sharking

The illegal practice of lending unsecured money at exorbitant interest rates, often enforced through coercion or threats of violence.

Principal

The baseline capital amount borrowed or lent, distinct from interest charges, fees, or premiums.

Rescheduling of a debt

Restructuring loan contracts by extending payment maturities to make repayment manageable for distressed borrowers.

National debt / Public debt

The cumulative total of money owed by any level of government (central, federal, state, or municipal) to external and domestic creditors.

Bail out

Injecting capital or liquidity into a failing corporation or bank to prevent bankruptcy and help it fulfill short-term financial obligations.

External / Foreign debt

The portion of a country's total public and private debt owed to foreign creditors, such as international banks, overseas governments, or the IMF.

Debt overhang

A severe sovereign fiscal crisis where existing public debt exceeds the state's projected capacity to service or repay it.

Debt relief

The partial or total forgiveness of debt, or the slowing of its accumulation, notably granted to Heavily Indebted Poor Countries (HIPC).

Sovereign bond

A debt security issued by a national government, commonly designated as a government bond when denominated in the domestic currency.

International Monetary Fund (IMF)

An international organization based in Washington, D.C., that oversees the international monetary system, exchange rates, and balance of payments, offering financial assistance to members.

World Bank

A developmental financial institution consisting of the IBRD and IDA, providing low- or zero-interest loans and grants to developing countries to reduce poverty.

European Central Bank (ECB)

Established in 1998, the primary central bank responsible for monetary policy and stability throughout the Eurozone.

Barter

A direct exchange of goods and services between parties without using money, typical of economies where formal monetary systems are absent.

Capital flight

A rapid, large-scale exit of financial capital from a country, often triggered by economic or political instability.

Soft / Weak currency

A currency that is prone to rapid depreciation, difficult to convert on foreign exchanges, and generally unstable compared to hard currencies.

Foreign exchange market (Forex / FX)

The decentralized global market where national currencies are bought, sold, and exchanged, representing the largest financial market in the world.

Devaluation

An official reduction in the fixed exchange rate of a domestic currency against a foreign benchmark currency, declared by monetary authorities.

European Exchange Rate Mechanism (ERM)

A mechanism introduced by the European Community in March 1979 under the EMS to minimize exchange rate volatility across European currencies ahead of the euro's launch.

Floating a currency

Permitting a currency's exchange value to fluctuate freely on global currency markets relative to supply and demand, rather than fixing it to a peg.

LIBOR (London Interbank Offered Rate)

The benchmark interest rate at which leading banks in London lend short-term funds to one another in the Eurodollar market.

Revaluation

An official upward adjustment of a currency's value relative to a reference currency within a fixed exchange rate framework.