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1 A Basic Banking Guide A to Z

A
First letter of English alphabet, first of the series, “A” often used for allotment of grades, Assigned position in a particular class or grade.

AA, AAA
Used for allotment of rating by Moody’s corporation or other institutions that performs financial research and analysis on commercial institutions for allotment of rating for banks, insurance companies etc. This also refers to highest rated bonds and securities, with full payment of principal and interest/ profit expected at maturity.

Abide
To continue in a particular condition, to remain firm, e.g. locker holder has to abide rules and regulations mentioned on locker allotment form.

Absolute title
Undisputed / best type of the chain of title generally created through a registered deed.

Abstract of title
This is a document which contains complete chain of title, up to the point of sale of a property.

Acceptance
It refers to the signing of a drawee of a bill of exchange as consent to the order of the drawer. Acceptance can be given by simply signing on the bill of exchange or with the word “accepted”

Accumulated depreciation
Accumulated depreciation, amount to wear and tear or expiration of an asset. Total depreciation accumulated up to a specified date. This  is subtracted from orignal cost of the assets on which it was booked.

Account
In banking account means any deposit account whether in local currency or in foreign currency maintained by the bank for a customer.

Account History
The payment history of an account over a specific period, including the number of times
the account was over due or over limit.

Account holder
An individual or persons authorized to operate on behalf of an account. Each account holders signature needs to be on record with the bank. The signature is the binding factor
and authorizes that person to conduct business on behalf of the account
Accounting year
Accounting period that can start at any time of the year but has twelve consecutive months
at the end of which profit and loss statements are prepared for filling

Account of Minor
The persons below the age of majority (18 years) are called minor. When a person attains the age of 18 years, he becomes entitled to obtain CNIC from NADRA and can enter into a valid agreement in his / her name. An Account in the name of minor is not opened by minor him / her self. Account in the name of Minor is opened by the guardian in the following way:
Abdul Aziz (Minor) Muhammad Aziz (Guardian).
Account opening form is signed by the guardian only, who continues to operate account even minor attains majority. As a practice a noting to this effect is taken & signed by the guardian at the time of account opening. Generally Saving accounts are opened in the name of minors. Required documents are Photo copy of the CNIC of Guardian and Photo copy of Form bay of minor

Accountancy
The method of recording financial transaction in ledgers and from ledgers preparation of financial statements, such as income statement, balance sheet, cash flow statement trial balance etc is call accountancy.

Account payee
It is an instruction to the collecting bank to ensure that the proceeds of the cheque is credited in the account of the payee mentioned in the cheque.

Accruals
Income or expenditure which is recognized as earned or incurred, but money there against is not received / paid. Accruals entries are passed at the time of preparation of financial statements, in order to arrive correct income / expenditure.

Accrued interest
Interest that has been earned but not yet recovered or paid.

Acquiring company
In a merger, the company that absorbs the company acquired.

Adjustable- markup / interest rate
This also known as variable- markup / interest rate that may change over the life of the loan as market conditions change.

Accumulated depreciation
Accumulated depreciation is the write-down of an assets carrying amount on the balance sheet due to loss of value from usage and age. It is a Contra Account to the fixed asset to arrive at Book Value.


Act of bankruptcy
A petition filed / presented in the court that the debtor is not in position to pay un-secured debts of the creditors

Act of God
The action of uncontrollable natural force which causes massive damage such as earthquake, lightning storm etc. No insurance company is liable to pay such damages.

Adjudication order
The order issued by the count declaring a debtor as “bankrupt”. As a result a trustee is appointed who windup company / assets of the debtor for the settlement of the claims of the creditors.

Advance
In banking it indicates a loan or overdraft has been given either secured or un-secured.

Advance payment guarantee
At the request of the customer the bank may guarantee for the amount of advance payment made to the customers for satisfactory performance of a contract or other work as specified in the guarantee. Before issuance of advance payment against guarantee it should be ensured that, the instrument obligates the bank to a simple commitment to pay the guaranteed amount or the unadjusted part thereof, without taking any responsibility regarding use of the advanced payments funds. The guarantee should become operative only upon receipt of the advance payment funds by the bank for credit to the customers account with the bank. This clause should be material part of the guarantee.

Advice
Information memo informing the customer to whom it is addressed that the that transaction is being or has been completed.

Affidavit
A written statement given under oath.

Agency
A written relationship between principal and the agent, which empowers agent to act on behalf of the principal.

Agent
A person who is empowered to represent his or her principal and to make contract on principal’s behalf.

Aggregate
A sum, or assemblage of particulars; a total or gross amount.

Air waybill
This is also called Air consignment note. Air Waybill (AWB) or air consignment note refers to a receipt issued by an air line, its agent or an international  company for goods and an evidence of the  of carriage.  It is not a document of title to the goods. Hence, the AWB is non-negotiable.
The AWB has a tracking number which can be used to check the status of delivery, and current position of the shipment. The number consists of a three digits airline prefix issued by  and a 8 digit number. The first three copies are classified as originals. The goods in the air  are consigned directly to the party (the consignee) named in the  (L/C). Unless the goods are consigned to a third party like the issuing bank, the importer can obtain the goods from the carrier at destination without paying the issuing bank or the consignor. Therefore, unless a cash payment has been received by the exporter or the buyers integrity is unquestionable; consigning goods directly to the importer is risky

Allied Bank limited
Allied Bank Limited was the first bank to be established in Pakistan. It started out in Lahore by the name Australasia Bank before independence in 1942; was renamed Allied Bank of Pakistan Limited in 1974 and then Allied Bank Limited in 2005.

Allotment
Allocation of the thing applied for purchase. For example allotment of shares applied for purchase. The allotment can be full or if the shares are over subscribed, only a part of the shares applied can be allotted.

Alteration
Any change involving a cutting or rewriting in the date, amount, or payee of a cheque or other negotiable instrument.

Amortization
Amortization generally refers toÊspreading an intangible assets cost over that assets usefulÊlife.ÊIn banking amortization also refers to the redemption of loan in regular installments over term of loan with profit / interest.

Annual general meeting (AGM)
This is a practice that, an yearly meeting between shareholder and the directors of the company should be held once in a year wherein general information about the activities of the company in past one year and future plans of the company are Presented. In the same meeting acceptance of the proposed dividend is made, and appointment of the external auditors is also take place.

Annual percentage rate (APR)
The cost of credit on a yearly basis, expressed as a percentage.

Annual percentage yield (APY)
A percentage rate reflecting the total amount of profit/ markup paid on a deposit account based on the frequency of compounding for a 365-day year.

Annual report
This is the report prepared by the directors of the company every year regarding its activities, performance, future prospect and plans. This includes sales performance, cash flow, income statement & balance sheet.

Annual returns
Every banking company is required to submit annually, certain statements to the regulators (SBP) regarding its assets, assets quality, margin requirement, and liability product. Regulators
evaluate these returns and determine over all health of the banking company.

Annual closing
Annual closing is performed in the banks after accounting periods in the year have been closed. Since it is difficult to close books immediately at the end of the year, these remain open in finance division of the bank for some time into a new year for passing adjustment entries. Annual closing of books is essential, because we have to file an income tax return every.

Antedate
Writing of date on a document, prior to that, on which it is signed. A bill of exchange will not be invalid by reason of it being antedated.

Antedated cheque
A cheque which bears a date by six months or more would be regarded as stale and shall be returned it unless drawer send confirmation to pay it. A cheque which is stale will not be treated as regular and should not be negotiated.

Anti money laundering (AML)
AML is a term mainly used in the  and  industries to describe the legal controls that require banks,  and other regulated entities to prevent or report  activities. Anti-money laundering guidelines came into prominence globally after the  on trade towers NY USA. Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must perform  by ascertaining a customer’s identity and monitor transactions for suspicious activity. To do this, many financial institutions utilize the services of special software, and use the services of companies State Bank of Pakistan (SBP) has provided AML guide lines under PR M-2 that Banks / DFIs should follow in order to safeguard themselves against their involvement in terrorist financing and money-laundering activities, and other unlawful trades.

Application
A written request made by a person/ persons or institution for an extension of credit facility that is made in accordance with the procedures established by a bank or DFI for the type of credit requested.

Appraisal
The act of evaluation and judging the performance of a specific piece of personal or valuation of real property.


Appropriation
Assignment of funds for specific purpose or use is call appropriation. Right of setoff can not be exercised against funds assigned for specific purpose.

Appropriation of payment
A customer can specify any credit in his or her account for adjustment of any due liability.
If customer has not done it, bank is free to appropriate it against any liability which is due.

Arbitrage
Arbitrage is the purchase of currency / securities from one market, for immediate resale on another market, in order to make profit from price difference. Now a day banks customers also switch their money from their bank account to secondary market for making profit is also a form of arbitrage.

Arrangement fee
The fee charged by the banks over & above mark up payable on any facility taken is called arrangement fee, such as processing fee etc.

Arrear
Charges which are not paid on due date are added in the forthcoming bill as unpaid are called arrear.

Article of association
This is a document wherein rules related with the internal conduct of the limited company are given. Such as powers of the directors, matters related to the general meeting of the share holders etc. The article of association can be amended by the special passed by the company.

Asset
Some thing valuable belonging to a person or an organization Assets can be tangible or intangible. A company’s assets can consist of cash, investments, buildings, machinery, specialist knowledge or copyright material such as music or computer software etc.

Asset value
Actual realizable value of the asset if it is sold.

Assignment
Assignment is the legal transfer of right or property by a creditor to an assignee of the right to receive a benefit (which is generally money) from debtors. The instrument by which such transfer is affected is called letter of assignment. Assignment is in fact transfer of right to receive financial benefit. Assignment is generally taken as security for collecting book debts and life insurance policy.

Assignment of debt
In banking term assignment means transfer of the right of any asset / assets to receive payment under an obligation. The person who assigns the rights is called assigner and the person to whom rights are transfer is called assignee.
Assignment of life insurance policy
Transfer of right to receive claim/ benefits under a life insurance policy. If an advance is made against security of an insurance policy, the assured assigns insurance policy in favor of the bank. The insurance company must be informed about the assignment and an acknowledgement from the insurance company should be obtained and kept as security document.

Association
It can be defined as an organization of people with a common purpose and having a formal structure

At call
In banking term at call means, money is to be repaid immediately on demand,

At par
When market value and actual realizable vale of share is equal, it will be called selling at par. In money market when, spot value and forward sale value of currency is same, it will be called selling at par.

At sight
Payable immediately, on demand, as soon as bill is received it becomes due. For example, as soon as document under a sight letter of credit are received, it become due for payment if otherwise in order.

Attachment
Official order to take someone’s money or the things that they own, in order to secure liability. This order is issued by the court when creditor   fails to repay money which was due.

Attest
Formal certification/ witnessing, by a person that it is true.

Attestation
The act of certification/ witnessing by a person that it is true.

Attested copy
A true copy of an original document certified by a competent authority under signature and official stamp.

Attorney
The legally authorized person to act for some one else in his or her financial or business matters. The document which gives some one this right is called “Power of Attorney” in every day life lawyers/ solicitors are also called as attorney, because lawyer acts as attorney for the person who engages him.

Auction
The public bale of goods or property where people make higher and higher bids (offer of money) or each item, until the item is sold to the person who gives biggest bid. The auction is governed under the rules given in the notice of auction. The deal is treated as complete as soon as the auctioneer announce its completion.

Audit
Audit is the official examination of the books of accounts, records of a business by specially authorized and qualified persons. The purpose of audit is to check that the books of accounts
reflect true state and affairs of the company and to discover and prevent frauds.

Auditor
The auditors are authorized persons who examine books of account, and make independent examination of the state and affairs of the company. On completion of audit they should submit a report that they have examined all the books of accounts, all record and information called was provided and in their view books and accounts reflect true and fair view of the company. If auditors have reservation about maintenance of record and books of account, they should mention it in their report.

Audit report
The report which is prepared by the auditors on the matter for which their opinion has been sought, with in the scope and terms and condition of their appointment. The external auditors should comply with the relevant provisions of the Companies Act and should have detailed reports on the financial status and income statement / balance sheet of the company. The elements of an audit report
Title the report is addressed to the members of the company. Auditor is under a statutory
duty to report to the members of the company under company’s ordinance 1984.

Scope the auditors analyze elements of the financial statements which are subject to audit.
The following financial statements are subject to audit.

•  The Balance Sheet.
•  The Profit and Loss Account.
•  The Cash Flow Statement.
•  The Statement of Total Recognized Gains and Losses.

The auditor is also under a statutory duty to consider:

•  Proper accounting records have been kept;
•  The financial statements are in agreement with underlying records and returns;
•  Proper returns have been received from branches not visited by the auditor;
•  Adequate evidence and explanations have been made available to the auditor by the
    officers of the client;

The opinion: The key parts of the opinion paragraph are that:

•  The financial statements have been prepared in accordance with the Companies Act
   1985.
•  The financial statements give a true and fair view;
In the event that the opinion is qualified the heading to the opinion paragraph will state qualified opinion.
Signature and date. The report must be signed by a registered auditor and dated. The audit report cannot be dated before the date of approval because the financial statements do not legally exist until they have been approved by the directors.

Authorization
The permission given, by a credit card issuer to merchant, or other associate, to complete a credit card transaction.

Authorized capital
The total amount mentioned in the memorandum of association which a limited company is authorized to raise through shares. It can also be termed as total number of shares that a company is authorized to issue.. The number of shares authorized are greatly exceeds the number of shares actually issued. In this way, management can issue more shares to raise additional funds, as and when required for expansion.

Automated teller machine (ATM)
ATM is an electronic banking machine that dispenses cash, accepts deposits, and performs other services i.e. acceptance of utility bills, funds transfer within and other banks when a customer inserts a plastic card and pushes the proper coded buttons (Pin Number) 24 hours a day seven days a week

Available balance
The balance of an account less any hold, uncollected funds, and block amount in the account.

Available credit
The difference between the credit limit assigned to a customers account and the present balance of the account

Average
Average is the standard or level which is considered to be typical or usual. This is also the result obtained by adding two or more amounts together and dividing the total by the number of amounts. For example average of 1, 2, 3, is 2. The total of 1+ 2+3 = 6 divided by 3 = 2

Average balance
When daily balance of an account is recorded for a given period and after totaling the same and then dividing the total with numbers of the days of the period, daily average of that account will arrive. Fore example total of daily average balance oj an account for the month of June was Rs. 2, 100, 000. Daily average of the account for the month shall be Rs.70,000

Average cost
Average cost is arrived, by totaling cost of production of a given period divided by the numbers of the units produced.

Averaging
Averaging is the system adopted by the speculators of stock exchange. The speculator increases his or her purchase or sale with the movement in the price of stock. Fore example a bull purchase more if the price of stock falls & a bear sale more if the price rises just to average out their purchase or sale.