unit 12 banking

Deposit

Money placed into a bank account

Liquidity

Available cash and how easily assets turn into cash.

Collateral

Asset pledged as security or guarantee for a loan

Overdraft

Facility allowing negative account balance up to a limit

Current Account

Checking account drawn freely via wire/checks.

Savings Account

Deposit account earning interest with withdrawal rules

Solvency

Bank's ability to cover total liabilities and avoid failure

Maturity Date

Expiration date for a financial contract or loan

Interest Spread

Difference between lending rate and deposit rate.

Commercial / Retail Banks

Receive deposits, issue loans, process payments, and provide trade

finance (Letters of Credit).

Investment Banks

Underwrite Initial Public Offerings (IPOs), structure Mergers &

Acquisitions (M&A;), issue stocks/bonds.

Private Banks

Provide personalized banking & wealth management for

High-Net-Worth Individuals (HNWIs).

Hedge Funds

Private investment partnerships using high-risk, aggressive strategies

(short-selling, derivatives).

Islamic Banks

Interest-free banking adhering to Sharia law; operate on

profit-and-loss sharing contracts (Sukuk).

Microfinance Institutions

Provide collateral-free micro-loans to low-income micro-entrepreneurs using peer social collateral

Liquidity Risk

Occurs when a bank cannot meet immediate withdrawal demands from

depositors, even if total assets exceed liabilities.

Solvency Risk

Occurs when borrower default rates erode bank capital, causing total

liabilities to exceed total real asset value.

The Inter-Bank Clearing System

When buyers and sellers use different banks (e.g., Barclays vs. Lloyds), debts between financial institutions are settled through a central clearing house. The clearing system calculates the net balance owed between member banks, reducing societal transaction costs.

Subprime Lending

US mortgage lenders issued loans to high-risk buyers with low credit ratings ('no down payment, no job verification').

Bookkeeping

Writing down details of business transactions (debits & credits).

Financial Accounting

Preparing external financial statements showing income, expenditure, assets, and liabilities.

Management Accounting

Providing internal financial data to allow managers to plan operations and develop strategies.

Cost Accounting

Calculating all expenses involved in producing goods/services (materials, labor, overhead).

Auditing

Inspecting and reporting on financial records to ensure accuracy, compliance, and honesty

Tax Accounting

Calculating tax liabilities owed to governments and minimizing them legally.

Matching Principle

Expenses matched to the revenues they helped generate in the same period.

Conservatism Rule

Anticipate possible losses; record assets at lower of cost or market value

Depreciation

Non-cash expense spreading fixed asset cost over its useful economic life.

Share Premium

Capital raised from investors above the nominal/par value of stock

Business Cycle / Trade Cycle

Fluctuations in real GDP over time.

Expansion / Recovery

Phases where output, employment, and demand increase.

Recession / Depression

Phases of falling output and demand; a prolonged or severe contraction.

Peak & Trough

The high turning point and low bottom-out point of the cycle

Potential Output & Output Gaps

Output achieved at full employment; positive gaps occur above full employment, negative gaps below

Fiscal Policy

Government actions regarding taxation and public spending

Monetary Policy

Central bank actions controlling the money supply and interest rates.

Creative Destruction

Technological innovations replacing established companies/industries

Business Ethics / Ethical Standards

Rules and standards guiding moral behavior in

commerce.

Stakeholders

Groups with an interest or claim on a firm (employees, suppliers,

customers, community, stockholders

Accountability & Transparency

Being open, explainable, and responsible for organizational actions

Efficiency

Maximizing output without wasting labor, materials, or time

Downsizing / Rightsizing

Reducing the number of permanent employees

Rationalization / Restructuring

Reorganizing operations to operate more effectively and reduce costs.

Outsourcing / Delocalization

Contracting out services to external firms or relocating business functions abroad.

Redundancy

Ending employment when positions are no longer needed

Free Trade

Trade policy without restrictive tariffs, quotas, or artificial barriers.

Tariffs & Quotas

Taxes imposed on imports vs. numerical limits placed on imported volumes

Infant Industry

A new, developing domestic industry requiring temporary protection against foreign competitors