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ACES See Advanced Computerized Execution System ACH See Automated Clearing House. Accidental Death Benefit Benefit in addition to the amount of a life insurance policy, payable in the event of accidental death of the insured. Account Aggregation A service that allows customers to electronically access and consolidate personal account information from a variety of unrelated sources through a single user name and password. Useful for banks and brokerage houses as an enhancement of their advisory services and as a component of a customer relationship management (CRM) strategy. Accrued Liability An amount owed that has not yet been paid as of the balance sheet date. Accrued taxes are a common type of accrued liability. Accumulation Period Refers to the time between the payment of the first premium and the first benefit payout under a deferred annuity. Acquisition Costs Variable costs that are principally related t the acquisition of new and renewal insurance contracts (for example commissions and salaries of employees involved in the underwriting of new policies). Actuary An expert employed by an insurance company who uses risk tables and other tools to calculate a variety of estimates and projections including life expectancy, premium rates, dividends, pension calculations, and annuity rates. Actuaries are required to pass a series of rigorous mathematical examinations before becoming a certified actuary.

Adjustable Life Insurance A type of life insurance in which the insured can raise or lower the face amount of the insurance, the premium or the protection period. Adjustable Rate Mortgage (ARM) A loan on a property in which the interest rate (or coupon rate) periodically changes depending on changes in a specific index rate. These types of mortgages will typically have floors and caps that limit the changes that occur in the interest rate annually or for the duration of the loan. Admitted Insurance Carrier An insurance company licensed to do business in a given state in the U.S., subject to the rules and regulations of that state. Disputes between admitted insurance carriers and their clients or prospects are investigated and adjudicated by the relevant states insurance commission. ADR See American Depository Receipt. Advanced Computerized Execution System (ACES) A system run by the NASDAQ stock market that automates trades between firms that have an existing trading relationship. Firms designate specific amounts of securities for automatic execution and the system executes the purchase. Adverse Selection Occurs when a party to a transaction holds information not available to you regarding the value of a transaction. The term is used in insurance when people with a high probability of filing a claim withhold significant information regarding their risk profile from the insurance underwriter, thereby affecting the price the underwriter sets for the policy. An example would be someone who smokes and does not tell the insurer to whom an application for a life insurance policy is being made. Advising Bank The bank which notifies the seller (exporter) that a letter of credit has been opened by the buyer (importer) for the specified trade transaction. The term is used in trade finance. (Please note: advising banks do not guarantee payment while a confirming bank does. A

bank can be both the confirming and advising bank, in which case payment would be guaranteed. However, these roles can also be handled by two different banks.) Affinity Cards Credit cards issued by major banks and sponsored by other companies such as airlines, automakers, and department stores or nonprofit organizations such as alumni associations or charities. The issuer and the company or group co-market the cards and share in the revenue that is generated. See co-branded cards. Aftermarket The trading of a stock or security that happens after the initial public offering (IPO). Also referred to as the secondary market. Proceeds from sales in this market go to brokers and dealers, whereas the proceeds in an IPO go to the issuing company. Agency Services A service for which an agency charges the customer a fee. In banking, these services can include investment management and the safekeeping of assets. A bank carries a more limited level of responsibility to protect and defend the clients interests when providing these services than when providing fiduciary services. ALCO See Asset Liability Committee. Allowance for Credit Losses See Allowance for Loan Losses. Allowance for Loan Losses An item on a banks balance sheet that shows the amount of funds the bank has set aside to absorb future loan losses expected from its existing loan portfolio. As the bank experiences actual loan charge-offs, these charge-offs reduce the banks allowance. Funds used to increase the Allowance are shown on a banks profit and loss statement as the provision for loan losses. See also Provision for Loan Losses. Alpha An estimate expressed as a coefficient that measures how a stock will perform based solely on its inherent value (e.g., growth in earnings per share), independent of market movements. This is in contrast to Beta, which indicates return based on share volatility.

Alternative Risk Transfer A term used to describe a broad range of innovative, customized products used to manage a clients total risk, including insurance, financial and business risks. The ART market encompasses a variety of mechanisms including captives, finite risk insurance, and securitization of risk. American Depository Receipt (ADR) A receipt given for the shares of a foreign-based corporation that is held in a U.S. bank. Transfer and settlement practices are the same as for the securities of U.S.-based companies. Holding an ADR is essentially the same as owning the stock itself. However, it provides investors with lower transaction costs and ready access to information on the U.S. exchanges regarding the stock. American Option Option that can be exercised at any time before the stated exercise date. Amortization Schedule Schedule of repayments of the principal amount of a loan. Annual Limits A statement of the allowable annual movement of interest rates charged to a borrower. Annuitant The person who receives an annuity income payment. Annuity (or Annuity Contract) A contract, traditionally sold by insurance companies (but is also sold by other financial services companies), that allows a customer to make tax deferred investments that guarantee a fixed or variable payment at a future time. Annuities are most often used as a long-term investment for retirement and are funded either through a lump sum or through a series of payments. Arbitrage A transaction that involves the simultaneous purchase and sale of securities, currencies or commodities in two or more markets. Profit is made from the gap between the prices in the different markets. In classical arbitrage, both sides of the transaction are guaranteed,

thereby excluding the risk of loss. Risk arbitrage is the simultaneous purchase of a stock in a company being acquired and the sale of the stock of the proposed acquirer. Profit is created by the differential between the expected rise in the target companys shares and the drop in price of the acquirers shares. Risk is incurred if the proposed acquisition is not completed. Arbitrageur A trader that attempts to profit through arbitrage. See Arbitrage. Arbitrageurs See Arbitrageur. ARM See Adjustable Rate Mortgage. Arrears A term that generally refers to any past due obligation, such as an interest or principal payment on a loan. Can also be specifically used in reference to deferred dividends on cumulative preferred stock that must be paid to the holders before common stock dividends. ATM See Automated Teller Machine. Ask Price The price at which a security is offered for sale on an exchange or market. Also known as the offer price. Asset Allocation Investment approach that involves dividing an investors funds among different types of assets to manage risk exposure and increase opportunities for overall gains in the portfolio. Asset Financing (Asset-Backed Lending) Financing that converts assets (e.g., receivables, inventory, and real estate) into working cash in exchange for a security interest in those assets. Asset/Liability Committee (ALCO)

A management committee at a bank that is responsible for coordinating borrowing and lending strategy through the monitoring of interest rate fluctuations, pricing and profitability targets. Asset-Backed Securities Securities backed (securitized) by a pool of receivables that are issued and sold by a trust or special purpose vehicle (SPV). The receivables in the pool may carry varying degrees of risk and payment terms. Asset-Liability Management Process in which banks and other financial institutions monitor the maturity of their deposits (and short-term liabilities) against the length of their commitments (loans and investments and other short-term assets) taking into account interest rate fluctuations and their potential impact on the financial results of the institution. Assignment The document (and the process) that enables the transfer of ownership rights of a life insurance policy from the insured to another person. Assumption Reinsurance A type of reinsurance in which the contractual relationship, policy administration and liabilities pass to the reinsurer. At-The-Money Refers to a call or put option when the strike price (price that can be paid for the underlying security) is equal to the value of the asset on which the option is written. Auction Market A system where buyers enter competitive bids and sellers enter competitive offers at the same time. Traditionally with auctions, there is one seller and multiple buyers. The New York Stock Exchange is a double auction system because there are multiple buyers and sellers. Authentication A method in electronic funds transfer of verifying that a payment instruction has been sent by the sending institution without any tampering or interference by unauthorized parties. Authorization

The act of approving the completion of a transaction or the issuance of funds. An example would be the authorization a merchant receives from a bank on a credit card transaction in which the bank indicates that the customer has available credit. Automated Clearing House (ACH) A computer-based clearing and settlement network established for the exchange of electronic transactions among participating institutions within a domestic market. ACH also provides an automated, low cost method for processing and issuing checks. Automated Payment Systems Systems that enable customers to transfer funds electronically, replacing the use of paper checks. Automated Teller Machine (ATM) A terminal located either on the banks premises or at a remote location ( e.g., supermarkets, convenience stores) that allows customers to perform limited types of banking transactions 24 hours a day. Automatic Premium Loan A feature in a life insurance policy that allows the insurer to use the loan value of the policy to pay any premiums unpaid at the end of the grace period. Average Balance Sheet A type of balance sheet used by financial institutions showing average amounts in each balance sheet category (assets, liabilities, and equity) over a period of time. It also includes rates paid and earned on average over a given period. The average balance sheet is supplemental to the year-end financial reporting.

Back End Load A charge to investors when they sell shares in a mutual fund. The charge is to discourage withdrawals. In the U.K., the practice is known as an exit charge. Back Office In the financial services industry, the term is used to describe departments in a bank or brokerage house that are not directly involved in selling or trading with customers. These

departments handle areas such as transaction processing, accounting, record keeping and compliance. Balance Sheet A financial report that shows the status of a companys assets, liabilities and equity capital at a particular point in time, usually at the close of the calendar month or year. It is also sometimes referred to as a Statement of Condition. Bancassurance A term used to describe the selling of insurance products through a banks established distribution channels. The term describes a bank that integrates the selling of banking, insurance, lending and investment products to its customers. Bank Holding Company A corporation established for the specific purpose of owning one or more banks and other types of financial services companies. This structure is primarily found in the United States. Corporations that hold more than 25% of the voting stock in a bank are required to register with the Federal Reserve Bank Board of Governors, thereby coming under special scrutiny and supervision by that regulatory authority. Bankers Acceptance Time drafts drawn on and accepted by banks for payment on their maturity date. They are widely accepted as money market instruments. In trade financing, drafts that are authorized under a letter of credit in effect become a bankers acceptance when the bank places its acceptance on the draft, (i.e., acceptance is called aval). Bankwire A private computer network owned by an association of U.S. banks that provides communication and clearing services for their member banks. Basis The price you originally paid for something. If you purchase stock in Company B for $100 and you sell it for $125, your basis in that stock is $100. Additionally, your gain on the sale of the stock is $25, calculated as your sales price less your basis in the stock. Basis Point

The smallest measurement of yield. 100 basis points equal 1%. A bond whose yield increases from 6.0% to 6.25% is said to increase by 25 basis points. When the prime rate of interest increases from 7.5% to 8.0%, it has increased by 50 basis points. Basis Points See Basis Point. Basis risk Exposure of a transaction or portfolio to the differences in the price performance of the instruments in the portfolio. Also referred to as correlation risk, basis risk may also be used to specifically describe the risk that the rate or basis relationship between a transaction in one market, and a hedge of that transaction in another market in the same currency will change. Basket A vehicle for program trading by institutional investors that allows the purchase of all the stocks in a certain category. For instance purchasing a basket of stocks that comprises the Standard & Poors 500 Composite Index in a single trade. Basle Committee on Banking Supervision An international committee that sets standards for banking supervisors and regulators. The committee is chartered by the Group of 10 (G10) and meets at the Bank for International Settlements in Basle, Switzerland. Bear market A period of generally falling prices and pessimistic attitudes. Bearer bond Bonds on which the coupon and principal are payable to whoever has possession of the bond certificates; an unregistered bond. The only evidence of ownership is possession. Beneficiary Named party who will receive the proceeds upon a specific event. For example, the named beneficiary of a life insurance policy will receive the life insurance proceeds upon the death of the insured. Bid Price

The price level at which buyers offer to acquire securities from sellers. Bill Often called a bill of exchange or draft, a bill is an unconditional demand for payment made by one party to another party. In the investment industry, it commonly refers to a U.S. Treasury bill or T-bill, a short-term discounted government security sold at weekly and monthly auctions. Binder A temporary insurance contract that provides coverage for a customer while their application is investigated for underwriting purposes. Block of Insureds A group of insurance customers who all fall into the same risk category based on factors such as age, sex and lifestyle. Each customer in the block pays the same premium rate. Bond A negotiable certificate evidencing indebtedness. A legal contract sold by an issuer promising to pay the holder its face value plus amounts of interest at future dates. Bonds are also referred to as fixed income securities. Book Value The value of a financial instrument or portfolio carried on a balance sheet at the purchase price (in other words the original recorded value when purchased). This is in contrast to market value, which is an indication of how the market values the instrument or portfolio today. Borrowed Funds Also called borrowings or purchased funds, these are funds (other than deposits) that are loaned to an institution for which it pays interest. These may include short-term borrowings and repurchase agreements. Borrowed Reserves Money borrowed by a US financial institution from the Federal Reserve Bank in order to maintain the required reserve ratios. Borrowing Securities

(more commonly referred to as Securities Borrowed) Borrowing of securities by a financial institution from another institution to enable the payment of obligations and prevent failure. Broker In the securities industry, the term refers to an individual or firm who introduces the two parties in a transaction to each other for a commission or fee. Since brokers, unlike market makers, do not buy and sell for their firms own account, they do not risk the firms capital to stand behind a price quote. The broker must be registered with the exchange where the securities are traded and therefore is called a registered representative. In the insurance industry, the term refers to someone who solicits insurance business from a client, but does not represent any particular insurance company. Brokerage Services Transactions that involve the purchase and sale of bonds, stocks and other securities for a customer. Brokered CD Certificates of Deposit issued by banks, but offered through brokerage firms rather than directly by the issuing banks. These firms can select from a variety of bank-issued CDs with different maturities and interest rates. CDs are negotiable instruments that pay a stated amount of interest on the maturity date, but can be bought and sold daily in the secondary market. Brokers Loan Money borrowed by brokers from banks to fund the underwriting of new issues, finance customer margin accounts and purchase stock (shares). Building Societies Term used to describe the equivalent of a savings and loan bank in the United Kingdom. These institutions are mutual societies, owned by their depositors and borrowers. There are relatively few building societies as the majority have now converted to full banking institutions through the process of demutualization. Bull Market A period of generally rising prices and optimistic attitudes. Business Liability Insurance

Insurance coverage for a business that protects it in the event of product liability, accidents on the premises and negligence.

CAC-40 Index of the 40 most actively traded shares on the Paris Bourse (stock exchange). Call In the financial services arena, the term generally refers to the optional right of an issuer to redeem bonds before the stated maturity, at a given price on a given date. When used in the context of a call option, the term refers to a contract allowing the holder to buy a given number of shares of stock (or financial instruments or stated assets) at a stated price on or before a given date. Call Option Option to buy an asset at a specified exercise price on or before a specified exercise date. Callable Bond Debt securities redeemable by the issuer before maturity at a specified price on, before or after a specified date. Typically, bonds are called when interest rates fall so that new bonds can be floated at a lower rate. CAMEL Rating A measure used by bank supervisory agencies to evaluate the condition of a financial institution. The measure evaluates capital, asset quality, management, earnings and liquidity. Cap A contract on a short-term interest rate in which the writer pays the buyer of the cap the increased borrowing cost for any interest period prior to expiration when the rate is fixed at a level above the ceiling rate specified in the cap. Cap also refers to a loan term that indicates that the interest rate that will be charger to the borrower will not exceed a specific rate. Capacity

An insurance term that refers to the maximum amount of insurance a company will write on one risk. In lending, it is one of the five Cs of credit and refers to a borrowers ability (or capacity) to pay an obligation when it is due; also sometimes referred to as debt capacity. Capital The funds raised by a company through the sale of stock (shares) or debt securities and retained earnings. In banking, it is also divided into primary or core capital (stockholders equity), secondary or supplementary capital (debt and loan loss reserves) and tertiary or market risk capital (short-dated subordinated debt). Capital Adequacy The ability of a bank to absorb losses or a shrinkage in the value of assets. Banking supervisory agencies have set standards to ensure that a banks capital is sufficient to absorb a reasonable degree of losses and remain a going concern. These standards have been established primarily to protect depositors and the global banking system as a whole. Capital Asset Pricing Model (CAPM) A classic and widely used model of the relationship between expected risk and expected return for a marketable asset. Capital Gains Income from the sale of assets when the assets are sold for more than the original purchase price. The capital gains are calculated by taking the sale price and subtracting the original purchase price. Capital Markets Markets where debt and equity securities are issued and traded. The term includes primary and secondary markets and exchanges. Captive An insurance company, formed and managed by a separate company to provide insurance for the parent company. The term can also refer to captive finance companies established to provide financing for the purchase of the companys products, such as automobiles (General Motors Acceptance Corporation Captive Agents

Insurance agents who work exclusively for one company. This is in contrast to an independent agent who sells policies offered by many different companies. Carrier An insurance company or person who agrees to pay losses. A carrier can be organized as a stock, mutual or reciprocal company or as an association of underwriters. Case Reserve referred to in the insurance industry as a liability for loss estimated to be paid in the future on an outstanding claim. Cash Account A term used in the brokerage industry to signify an account that requires settlement in full in cash by the settlement date usually for securities purchased or sold. This settlement must occur without the use of margin or borrowed funds. Cash and Due from Banks Includes what a bank has on hand to cover customer demand deposits and operational expenses, accounts at correspondent banks, cash items (checks and drafts) in the process of collection and deposits held at the central bank to meet reserve requirements. Cash Equivalents Any assets that can be quickly sold for cash. These can typically include money market funds and government treasury bills. Cash Market Instrument A cash market instrument is one in which a principal sum is paid upfront. In exchange for this upfront cash, the buyer obtains the right to interest and a return on that principal after a period of time, such as occurs in a loan, deposit or bond transaction, or the right to a part ownership of a company in the form of an equity share. Cash Value Insurance A life insurance policy that generates a savings component over time. The policy has a cash value against which the policyholder can borrow. Casualty Insurance

A class of insurance that provides coverage for the cost of damage to property or persons as a result of accidents or other specific perils. The losses covered include automobile, general liability, theft and personal liability. It excludes life, fire and marine insurance. CD See Certificates of Deposit. Cedant Insurance or reinsurance company that is transferring risk to another reinsurance company. Cede To transfer all or part of a risk written by an insurer to a reinsurer. Ceding An agreement, often called a treaty, between one or more reinsurance companies to transfer part of an insured risk. Ceding Company A company that transfers all or part of an insurance risk to another company through reinsurance. Also called a primary company. Central Bank A countrys official bank that performs several functions, which includ e the administration of monetary policy. In some countries, the central bank acts as the main regulatory authority for banks. In the United Kingdom, the central bank is the Bank of England; in Japan, it is the Bank of Japan and in the United States, it is the Federal Reserve Bank. Certificates of Deposit (CDs) negotiable instruments issued by a bank and payable to the bearer or the individual whose name appears on the certificate issued as evidence of a time deposit. CDs pay a stated amount of interest at a fixed rate and mature on a stated date. Maturities normally range from three months to five years. CDs may be bought and sold daily in the secondary market. CHAPS See Clearing House Automated Payments System Chartered Life Underwriter

Chartered Life Underwriter (or CLU) is a professional designation in the insurance industry. Chartered Property and Casualty Underwriter Chartered Property and Casualty Underwriter or a CPCU is a professional designation in the insurance industry. CHIPS See Clearing House Interbank Payments System City Banks A group of Japanese commercial banks with extensive assets and a large system of nationwide branch banking. Historically involved in serving industrial customers, they have diversified in recent years into retail and investment banking services. Claim A demand for payment of a policy benefit because of the occurrence of an insured event such as death, disability, or an accident involving the insured. Claim Adjusting The process of investigating, appraising, negotiating and sometimes settling claims. Claim Reserves Funds set aside by an insurance company to pay existing or expected claims. The amount is calculated by actuaries and regulated by state law. Claims expenses Expenses incurred to investigate and settle insurance claims (e.g., investigation, adjustment and legal fees). Clearance and Settlement The actual exchange of securities and cash after a transaction has been booked (concluded). Regulations pertaining to the sales of securities govern clearance and settlement procedures. Clearing Banks

Big Four English (Barclays, Lloyds, Midland, which is now HSBC Bank, and National Westminster) and two Scottish (Bank of Scotland and Royal Bank of Scotland) commercial banks with the largest retail branch networks in the U.K. These banks were originally the main clearers of drafts and cheques in the U.K. Clearing House The central location for matching security transactions of members to enable determination of minimum quantities to be received or delivered. Clearing House Automated Payments System (CHAPS) A private computer-based clearing and settlement network established for interbank clearing of payments in British Pound Sterling. The system is operated by the BankersClearing House of London. Clearing House Interbank Payments System (CHIPS) A computer-based clearing and settlement network established for international clearing of dollar payments and same day settlement. The system links international financial institutions with the system at the New York Clearing House (NYCH) offices in New York City. Final settlement is processed through the Federal Reserve Bank of New York. Clearstream An international clearing system that holds and settles international securities such as Eurobonds. CLSS See Continuous Linked Settlement Services CLU See Chartered Life Underwriter. CMO See Collateralized Mortgage Obligation Co-branded Cards

A type of affinity card jointly issued by a bank and a partner, such as a retail store or airline. The card contains the bank brand and that of the partner. Card customers receive special promotions and discounts to be used with the partner organization. Coding The process in insurance of converting policy data into numerical form so that the data can be classified and analyzed. Collar Upper and lower limits on the interest rate that can be charged on a floating rate bond. Collateral An asset pledged by a borrower to ensure payment to the lender or performance of an obligation. Collateral may include such things as goods, securities, intangibles, real estate assets and cash. Collateralized Mortgage Obligation (CMO) A bond backed by the cash flow from a pool of mortgages. The principal and interest payments from the mortgages are separated into different pools, creating several bonds with different interest rates. CMOs are considered high quality investments due to the low default rate on mortgages and often carry AAA bond ratings. Collection Letter A document specifying the exchange of checks and other items requiring payment between twofinancial institutions. When cash letters are used the institutions agree to make the exchange without and intermediary. Combined Ratio Used in the insurance business and it is the sum of both the loss ratio and expense ratio and it is used to measure underwriting performance. Commercial Bank A term used to describe a bank that offers a full range of lending, deposit and other services for individual (retail) and business (wholesale) customers. Commercial Lines

Various types of commercial insurance coverage available specifically for businesses. Commercial Loan Loans extended by banks to commercial entities. These may be short-term annually renewable loans to fund working capital needs, such as the purchase of raw materials, or medium-term loans to finance equipment purchases or plant construction. The interest rate on these loans usually involves a margin over a market rate (a base lending rate or an interbank rate). Commercial Paper A short-term, unsecured promissory note issued by corporations in exchange for cash. Issuers must maintain a high credit standing to continue issuing this instrument. Commercial paper is considered to be a highly liquid and relatively safe investment. Commitment Fee A fee paid by a borrower to a lender to ensure that credit in a specific amount and/or rate is available. The fee is typically charged only on the unused portion of the available credit line. Commodities Bulk agricultural and natural resource products traded on an exchange or on the spot market. Examples of commodities may include pork bellies, unrefined oil or precious metals such as gold, silver and copper. Financial institutions commonly trade derivatives based on the commodities instead of trading the actual Commodities Exchange Act A U.S. Federal Act passed in 1974 that regulates the commodities and futures markets. The act created the Commodities Futures Trading Commission (CFTC). Commodities Futures Trading Commission (CFTC) The regulating body for commodities and futures trading in the United States. Commodity Indices Indices that measure the price and performance of actual commodities based on the price of the futures contracts for those commodities. Commodity Swap

A transaction where two parties contract to the price at which they will sell and purchase a specific commodity during a fixed period of time. Essentially they exchange cash flows. Common Stock or Common Shares A security that represents ownership interest in a public corporation. Stock or shares represent the last obligation to be paid by a company in a liquidation situation. In return for taking this risk, stockholders benefit from the appreciation (increase) of the stock price and/or from cash or stock dividends paid by the corporation. Compensated Lines of Credit A commitment by a financial institution that allows a customer to draw down funds up to a pre-set limit in order to fund trading activity. The institution earns interest on the loan and may charge a fee for the use of the funds. Compensated Overdraft A service that allows customers to overdraw their cash account (demand deposit, checking or current accounts) up to a predetermined limit. The bank receives interest on the drawn (borrowed) amount as compensation for providing the service. In some countries, banks are not permitted to provide direct overdraft lines linked to cash accounts. In these countries, a similar service is achieved by providing a separate line of credit account from which funds are drawn to cover overdrafts in the cash account. Concentration account Cash management account located at one bank in a specific country into which funds held in accounts at different banks in the same country are consolidated. All of the accounts must be in the name of the same legal entity. Confirming Bank Bank that adds its obligation to pay on behalf of the opening bank and will make payment under the Letter of Credit if the opening bank fails to pay for any reason. Conservation Actions by the existing insurer or its agent to dissuade a policyholder from the replacement of existing insurance. Consumer Credit

Credit extended to individuals for personal needs (e.g. the purchase of a car, education, or home remodeling). Contingent Liability A potential liability for a financial institution that is based on the action or default of an unrelated party. For example, if a bank discounts a note receivable, no immediate liability to pay the note is created. However, a contingent liability exists because the drawer (maker) of the note may default and the endorser (the bank) may be required to make payment on the note. Since these types of possible obligations are not existing liabilities until an event actually occurs, they are not recorded on the banks balance sheet. Contingent liabilities are usually disclosed in the footnotes of the annual report. Continuous Linked Settlement Services (CLSS) London-based organization composed of leading banks and financial institutions that provides a system of simultaneous payment/settlement of foreign exchange transactions to minimize settlement or delivery risk, commonly referred to as Herstatt risk. Convergence A term that describes the integration of banking, insurance and securities firms into financial services companies. In futures trading, it is a term used to describe the movement of the price of a futures contract when the futures price and the cash price converge near the contracts expiration date. Convertible Term A type of term life insurance that allows the insured to exchange the policy for a universal ordinary life policy without medical examination. Convertibles Securities or bonds issued by a corporation that can be exchanged for a set number of securities of another form (e.g., bonds for common shares) at a predetermined price. Cooperative Banks Term used to describe banks that were originally created to provide low cost loans and pay interest on pooled deposits (e.g., credit unions and some state chartered savings associations). These banks now offer many of the same services as retail banks. Core

Capital another term for Tier I capital under the Basle Accord Capital Adequacy agreement. Core capital consists of equity capital (permanent shareholders equity in the form of issued and fully paid ordinary shares/common stock and perpetual non-cumulative preference shares) plus disclosed reserves, which include share premiums (paid-in-capital), retained earnings, general loan loss reserves and legal reserves. The definition excludes revaluation reserves and cumulative preference shares. Core Deposits The level of primarily retail time deposits and non-interest bearing demand deposits that remain with a bank over an extended period of time. These are the funds that banks rely on as a stable source of funding for lending, investment and trading activities. Corporate Actions Activities performed by a corporation that affect the marketability of its securities. These actions include repurchase of stock, stock splits and mergers. Corporate Finance Financing services used to enable large corporate purchases, capital investments (equipment, plant, premises) and trade financing. Correspondent Banks Banks that regularly provide services to each other (e.g., check collection, data processing, credit services). The term also refers to banks that maintain nostro/vostro account relationships with each other. Cost/Income Ratio Measure of a banks efficiency in using expenses to generate revenues. The ratio is calculated by dividing operating costs, both interest and non-interest expenses, by operating revenues. Cost/Income Ratios See Cost/Income Ratio. Country Risk Risk that changes in the business environment within a specific country will occur, reducing the profitability of conducting business in that country. These changes can potentially affect

asset values as well as operating profits. Country risks include political changes, inflation, high interest rates, labor unrest and war. Coupon Bond Debt security in which the bond certificates come with detachable coupons that must be removed (clipped) and presented either semi-annually or annually for the payment of interest. Coupon Rate The interest rate stated on a bond. Covenant Agreement in a loan or bond contract concerning the borrowers future conduct. Cove nants may involve such things as the agreement to maintain certain balance sheet ratios or to adhere to certain IMF program requirements. CPCU See Chartered Property and Casualty Underwriter. Credit Card Association Association involving financial institutions that jointly operate a credit card business and share common processing and administrative facilities. Credit Portfolio Management The management of credit risk in the lending portfolio of a financial organization. Managers monitor various factors associated with the loan portfolio (such as liquidity of loans) and use various techniques to minimize risk. Credit Rating Independent assessment of the creditworthiness of any security of indebtedness (e.g., bond or note) by a credit rating agency. For investment grade securities, the ratings run from triple A as the highest and triple B as the lowest. Any security rated below triple B is considered non-investment grade and is commonly known as a junk bond. Credit Rating Agency

Provides research, opinions, and ratings on securities and other credit obligations. Investors use this information to analyze the credit risks. Popular debt rating agencies include Moodys and Standard and Poors Rating Services. Credit Risk Risk that a borrower will not pay what is owed resulting in a loss to a financial institution. Credit Scoring Methodology used to determine the creditworthiness of an applicant. The method involves the assignment of points to specific characteristics and behaviors of a potential or existing borrower. These points are then added to arrive at an overall credit score helping the financial institution to evaluate the credit risk for that particular borrower. CRM See Customer Relationship Management Cross-Currency Interest Rate Swap A type of derivative combining the features of a currency and an interest rate swap. In this type of swap, the fixed rate cash flow in one currency is swapped (exchanged) for the floating rate cash flow in another currency. Currency Risk The risk posed to an investment by fluctuating worldwide exchange rates. A common risk is when an investment in one country currency is converted to another country currency losing value due to that conversion. Currency Swap A type of derivative that is a contract between two parties to exchange both the principal amount and the interest rate payments on their respective debt obligations in different currencies. An exchange of principal of the two different currencies occurs at the beginning of the swap, interest payments are exchanged over the life of the contract and the principal amounts are repaid either on the maturity date of the deal or according to an agreed amortization schedule. Customer Relationship Management (CRM) Defines enterprise-wide software applications that allow a company to manage all aspects of their customer relationships including sales, marketing, and customer support.

Companies use these systems to build and strengthen customer satisfaction, service and loyalty.

Data Marts Databases representing a portion of data pulled from an institutions data warehouse(s). Data marts are typically used by individual line units to feed their business applications without the risk of corrupting the data warehouse. Data marts can also be customized to provide optimal performance for the line unit. Data Mining The process of using database applications to look for hidden patterns that reveal valid and potentially useful information in different groups of data. For example, a company may engage in this process to search for buying patterns in their customer base. Data Warehouses See Data Warehousing. Data Warehousing Combining of databases across an entire enterprise to present a coherent picture of business conditions to support management decision-making. DAX See Deutsche Aktienindex Day Trading The process of selling and buying stocks on a very short-term basis, usually completing the transaction within the same day. Brokerage houses offer quotes, other financial information and computer terminals for a fee for investors who wish to participate in day trading. Dealer An individual or institution that purchases and sells financial instruments that it owns for its own account. Typically dealers interact with dealers at other institutions and do not conduct trades directly with individual or corporate customers. Debenture

Term used to describe an unsecured bond or note, i.e., a general unsecured obligation of a company (can typically have long terms over 15 years). Investors who hold these securities are often compensated for the risk by receiving a higher interest rate than on secured bonds or by the ability to convert the security into common stock. Debit Balance Total amount owed to a brokerage firm based on loans, commissions and fees. Debit Card A payment card issued by banks and other financial institutions that allows the cardholder to use the card as an alternative to cash or check payments for purchases and services. The amount is debited against (deducted from) the holders account. In the case of on -line debit cards, the debit to the account occurs immediately. With off-line debit cards, it may take up to three days for the debit to the account to be recorded. The cardholder can also use the card to withdraw cash from their account. Debit Spread A conservative strategy used in selling options. The investor buys a call (option to buy a stock at a certain price for a certain time) and sells a call with a strike price that is higher than the current market value of the underlying security. This creates a spread in the account and limits the risk and the reward on the options purchase. Debt Security A tradable security that represents borrowed funds (e.g., bond, bill, note or commercial paper) and an obligation to repay those funds. Deferred Annuity An annuity contract whose income payments are postponed until a future date. (Also called a Deferred Payment Annuity). Defined Benefit Plan A type of pension plan where the employer determines the pension benefit (usually based on the employees years of service and final salary with the employer). Defined Benefit Plans See Defined Benefit Plan.

Defined Contribution Plan A category of savings plan that allows employers and employees to make tax deferred contributions on a periodic basis. Examples of these include profit sharing plans and 401k plans. Defined Contribution Plans See Defined Contribution Plan. Delinquent Loan A loan for which payment is overdue (usually defined as 30 days or more overdue). Delinquent Loans See Delinquent Loan. Demand Deposit A type of account that pays funds on demand (e.g., a checking or current account) by checks, cash withdrawals or electronic fund transfers. Demutualization The conversion of a mutual company or institution into a stockholder based company. This membership change affects the companys ability to raise capital and merge or acquire other companies. Depository Clearinghouses that store physical securities under a specific agreement. Accounts at the depository are credited and debited as securities are purchased and sold but the physical securities are never moved. Can also refer to a correspondent bank holding deposits for another bank for clearing services and/or required reserves. Depository Institutions Institutions that obtain the majority of their funding by accepting deposits. Examples include credit unions, savings and loans and banks. Depository Transfer Check

A preprinted check that does not require a signature and is often used by corporations as a method of processing incoming funds through a concentration account at another bank. Depository Trust Company (DTC) A national repository through which members electronically transfer and store stocks and bonds. It is privately owned by members of the financial services community and is a member of the Federal Reserve System. Derivatives Financial instruments whose value depends upon the characteristics and value of another underlying instrument, typically an option or futures contract. Income is provided through changes in the value of the underlying instrument(s). Deutsche Aktienindex (DAX) Index of the largest 30 German companies listed on the Frankfurt Stock Exchange. Digital Signature An electronic legal signature that customers can use in place of a regular pen and paper signature when sending documents through the Internet. The digital signature must have three parts: authentication, no repudiation and data integrity (the documents being signed are unalterable). The technology is currently under development. The use of digital signatures has been legalized in the U.S. by the Electronic Signatures in Global and National Commerce Act of 2000. Direct Debit A payment system where the payer provides authorization for a payee to take a predetermined amount of funds from a specified account on a regular basis. (e.g., to pay electric bill or make insurance payments.) Direct Disbursement The distribution, or crediting, of borrowed funds directly into the borrowers account. Direct Loan A loan between a bank and its customer that does not involve a third party, such as a broker. Direct Premiums

Total premiums, net of return premiums, on policies issued to provide the primary insurance on a given risk. Direct Selling Process in the insurance industry of marketing insurance products to the consumer, bypassing the use of agents or brokers. Techniques include direct mail and telemarketing. Discount Describes the difference between the price (lower) paid for a security and the securitys face amount (or maturity value) when it was issued. If you hear a bond being quoted at 98, then it is most likely being quoted a discount of 2 off the maturity value of 100. An option is said to be trading at a discount if it is selling for less than its intrinsic value. A futures contract is considered to be trading at a discount when it is trading for less than the price of the underlying security. Discount Broker Brokerage firm/broker that charges a lower commission on the buying and selling of financial instruments than a full-commission broker. A discount broker typically has limited research capabilities and does not give investment advice to its clients. Discount Rate In U.S. banking, this is rate that the Federal Reserve charges member banks for advances. Discount Window Federal Reserve mechanism for making direct loans to financial institutions with deficiencies in their reserve accounts. The institutions borrow funds at the discount rate, which is established by the Federal Reserve Bank. Regular borrowing at the discount window is discouraged as this is an indication of a banks inability to effectively manage its asset/liability position. Disintermediation Term used originally to describes the process whereby customers did not include the oftenused intermediary, the bank to complete a transaction. Customers withdrew funds from traditional bank savings and checking accounts and placed them in alternative accounts outside the banking industry (i.e., investment accounts at brokerage firms). In other words, this term refers to the outflow of deposit funds from banks into other types of financial institutions or investments (mutual funds, the stock markets). Disintermediation also may

refer to the frequent occurrence in which banks traditional corporate custom ers go directly to the bond market rather than borrowing from domestic banks. Dividend Earnings paid out to the shareholders of a corporation. Draft A signed, written order by which one party (drawer) asks another party to pay a specific amount to a third party. This unconditional demand for payment is also called a Bill of Exchange. Drawee Party to whom a check or draft is written, also called the payee. Drawor Party who writes a check or draft based on the funds in their account (payor). DTC See Depository Trust Company Due Diligence Investigation that is performed prior to underwriting a loan or an investment (acquisition) that considers all aspects that may affect the financial performance of that investment. Many times due diligence is performed by a buying firm before it purchases a firm being sold to gain an understanding of the true value of the assets of that firm. Dutch Auctio n A type of auction where the price of a security is gradually reduced until a bid is offered and the item is sold. U.S. Treasury bills are sold in this way.

Earning Assets Assets that create earnings for a financial institution. Earning assets can typically be loans and securities as they generate interest income for the institution.

Earned Premium The portion of the total policy premium earned by the insurance company that applies to the expired portion of the policy period. See unearned premium. Earnings Per Share A ratio used to determine the amount of profit generated per share of stock owned. It is determined by dividing net income (minus dividends) by the amount of outstanding common stock (shares). ECB See European Central Bank ECML See Electronic Commerce Markup Language Economic Cycle Recurring periods when the economy moves in and out of recession, recovery and boom phases. EDGAR (Electronic Data Gathering, Analysis And Retrieval System) U.S. government system for the electronic filing of corporate financial reporting. The system is maintained by the Securities and Exchange Commission (SEC), which requires that all U.S. public companies post their filings on EDGAR. The filings include 10-Ks (annual), 10Qs (quarterly) and mutual fund prospectuses among other documents. EDI See Electronic Data Interchange Efficiency Ratio A measure of how a financial institution is utilizing its employees, facilities and operations to create profits. The ratio is calculated by taking the non-interest expense and dividing it by the sum of the net interest income and non-interest income. Institutions continually try to lower their efficiency ratio as that will result in higher profits. Efficiency Ratios

See Efficiency Ratio. EFT See Electronic Funds Transfer Electronic Commerce Markup Language (ECML) A standard used with electronic wallets for merchant field data collection with electronic purchases on the Internet. The standard allows a merchant to accept input from any ECML enabled wallet and transfers the relevant details, automatically making purchases easier and quicker. Electronic Data Interchange (EDI) The electronic transmission of data for commercial or administrative transactions using an agreed upon data format and syntax for those transactions. EDI also refers to the electronic exchange of data (e.g., payments, invoices, etc.) between businesses and financial institutions using shared protocols. Electronic Funds Transfer (EFT) The transfer of funds between accounts electronically, bypassing paper-based methods. The two main categories are wire transfer systems such as FedWire that link banks in the federal reserve system with CHIPS and consumer electronic payment systems. Electronic Wallet A software application that creates an electronic version of a wallet where customers can store their credit card information for purchases conducted on the Internet. The wallet reduces the number of cumbersome forms customers fill out to make electronic purchases. The most popular forms of wallet use a standard (most commonly ECML) for merchant field data collection and the transfer of details needed for electronic purchases. Emerging Market stock or bond market in an economically developing country as opposed to markets in the more industrialized countries. Endorsement An additional document added to a contract that was not part of the original contract that alters the terms or conditions. In insurance, a rider is a type of endorsement on an insurance policy.

Endowment Policy Life insurance that pays the face value of the policy in the case of the policy owners death during a predetermined period or survival past the end of the period. Equity Ownership interest held by stockholders in a corporation. In the context of a brokerage account, it refers to the market value of the securities minus debit balance and credit balance. Equity Swap A type of swap where payments on one or both sides are tied to the price of a specific equity issue or a specific equity index. Errors and Omissions Liability Insurance A type of insurance policy available to various professions that need protection for negligence or omissions that may result in bodily injury or property damage to a client. EU See European Union EUR See Eurotop 100 Euro A common currency initially adopted by 11 European nations to provide for a single stable currency. The European Central Bank oversees the value of the Euro. Eurobonds Bonds sold simultaneously in a number of countries by an international syndicate. Eurobonds have been issued in many currencies, but the majority of these bonds have been issued in currencies that are actively traded, fully convertible (to other currencies) and relatively stable. Euroclear

One of two main international clearing systems that holds and settles international securities such as Eurobonds. Started in 1968, Euroclear is located in Brussels, Belgium. European Central Bank (ECB) A bank, based in Brussels, founded to oversee the value and growth of the Euro for the countries that are converting their local currencies to the Euro. European option Option that can be exercised only on the stated exercise date. European Union (EU) Economic and political alliance between 15 European countries formed to enhance commerce between its members. Eurotop 100 (EUR) Benchmark for the performance of the European stock market. It is comprised of the 100 most actively traded shares on the nine largest exchanges in Europe. Exercise Price The price at which an option buyer may purchase (call option) or sell (put option) the asset upon which the option is written. Also referred to as the strike price. Expense Ratio A ratio used to analyze the amount paid for operating expenses and management fees by a company. In the insurance industry, the percentage is obtained by dividing the underwriting expenses by net premiums written. It represents the amount used to pay the costs of acquiring, writing and servicing insurance business. Experience Rated Reinsurance A type of reinsurance where the premiums and commissions are determined using the loss experience of the business over time. Export Credit Letter of credit in which the Opening Bank is the banks customer. For example, an exporter in New York is selling to an importer in Malaysia. The importer requests its Malaysian bank to open a letter of credit (import letter of credit). The opening bank is not familiar to the

exporter and the exporter requests the transaction pass through a local New York bank. The opening bank then approaches a correspondent bank known to the exporter to process the transaction in New York. To that New York bank, the letter of credit is referred to as an export credit. Exposure The term has a number of meanings: 1. The possibility of loss; 2. The possibility of loss due to the risks you are exposed to; 3. In the insurance industry, loss causing peril. Exposure Unit A unit of measurement that is used in the pricing of insurance. Extension A term that refers to making advances under a line of credit or changing the time associated with payment on a loan.

Face Amount The amount of insurance coverage provided by a life insurance company as stated in the contract. Face amount can also refer to the denomination (or maturity value) of a bond. Face Value Denomination or value (exclusive of discount or premium) due to a security holder at maturity. It is also referred to as par value and is usually inscribed on the face of the security. Factoring The sale or transfer of a companys accounts receivable to an outside company called a factoring company that now collects and processes the receivables as well as incurs any risks associated with their collection. Usually a company factors its receivables, selling them at a discount to the factoring company, in exchange for cash. Facultative Reinsurance

The reinsuring of a part or all of a risk provided by a single policy. The original insurer offers the risk to be reinsured and the reinsurer has the option to accept or reject the individual risk. Fail A trade that does not settle on its settlement date. When this occurs on the sell side, it is called failure to deliver and on the buy side it is called a fail to receive. Fannie Mae A shareholder-owned US corporation that purchases mortgages from lenders. Fannie Mae raises funds to purchase mortgages by issuing stock or mortgage-backed securities backed by mortgage loans it holds. FDIC See Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation (FDIC) A U.S. federal agency created in 1933 that guarantees, up to a stated limit, the reimbursement to depositors of deposits in member banks and thrift institutions that are liquidated as the result of insolvency (collapse). FedFunds See Federal Funds Federal Funds (FedFunds) FedFunds are short-term borrowings and investments (typically overnight) between other banks transferred using each banks Federal Reserve District Bank. One bank (borrowing bank) requires short-term funding and refers to that transaction as FedFunds purchased. The other bank (lending bank) has excess funds and refers to the transaction as FedFunds sold. FedFunds are not loans from the Federal Reserve. Fed Funds Market Interbank market for borrowing and lending deposits held by commercial banks in the U.S. that are member banks at theFederal Reserve. Since reserve requirements are satisfied with federal funds, banks with deposits in excess of the required reserves will lend these excess funds to banks with a shortage of reserves at a market determined interest rate, known as the Fed Funds Rate. The Fed Funds Market is usually an overnight market, with all loans made in immediately available funds that are repaid by 11 am EST on the following day. Fed Funds can also trade for periods as long as six months. Federal Funds Rate

Rate at which overnight FedFunds are traded. Federal Reserve System A system established in 1913 to regulate the U.S. monetary and banking system. The system consists of a board of governors in Washington, D.C., 12 regional Federal Reserve Banks and their 24 branches. The Federal Reserve has monopoly power over the monetary base and has the authority to set reserve requirements, to conduct open market activities and to lend directly to commercial banks. The regional reserve banks monitor commercial and savings banks in their area for compliance with Federal Reserve Board regulations, provide emergency funds from their discount windows, act as depositories and provide transfer and other services for their member banks. Federal Wire (FedWire) Electronic communication network that links all the Federal Reserve Banks related offices and associated federal agencies. The network facilitates transfer money between member institutions quickly in immediately available funds at a minimal cost. FedWire See Federal Wire Fidelity Bonds A type of insurance policy that protects employers against loss of monies, securities or property due to employee dishonesty and fraud. Fiduciary A person in a position of great trust and responsibility who supervises the financial affairs of others. In the financial services area, it can be a person or institution that manages money or property for another and must exercise proper and prudent judgment as stipulated by law. Finance Companies Finance companies are similar to banks in that they issue loans to customers. However, finance companies cannot accept deposits. Instead, they raise funds by issuing debt, selling off assets and borrowing from other financial institutions. Since they do not accept deposits, finance companies are less regulated than banks and other depository institutions. Some finance companies focus specifically on loans to consumers (referred to as consumer finance companies) or loans to businesses (referred to as commercial finance companies).

Some finance companies focus on one specific line of business, while others offer a wide range of diversified financial services. Financial Planning Process of providing a client with impartial assistance in analyzing and organizing their financial affairs to achieve a financial goal or outcome. Financial Reinsurance A special form of limited liability insurance aimed at the financial and strategic goals of the reinsured rather than the risk transfer goals. Financial Services Authority (FSA) Financial services industry regulator in the United Kingdom. Finite Risk Reinsurance A highly customized insurance contract that spreads the risks for an individual policyholder over time. Claims are geared towards actual claim experiences instead of general industry performance. First Pillar Term used to describe funding for financing retirement benefits as articulated by the World Bank. Under their three-pillared system, the first pillar consists of mandatory, publicly financed solutions. Fixed Annuity An annuity contract with a guaranteed interest rate provided by the insurance company for the life of the contract. Fixed annuities can be either immediate or deferred. Fixed Assets The tangible property used in operating a business. These items, which include plant, premises, machinery and equipment, are listed on the balance sheet at their depreciated values. Fixed assets are the least liquid assets held by a company. Fixed Costs

The companys expenses that remain fairly stable and do not vary from period to period in response to changes in the degree to which capacity is utilized on the basis of business or sales volume. Examples include salaries, depreciation expense and rent. Fixed Income See Fixed Income Investment. Fixed Income Investment A financial instrument that pays a fixed rate of return. Examples include a bond that pays a fixed rate of interest until maturity, or a preferred stock that pays a fixed dividend. Fixed-Rate Loan A loan whose interest rate remains fixed over time. Examples include conventional mortgages and consumer installment loans. Flexible Premium Annuity A deferred annuity with periodic payments over time. The payment amount and frequency may vary over time. Flipping The practice of buying and selling a security quickly in order to turn a profit. An example is an investor who purchases a stock at an initial public offering and then resells it almost immediately in the aftermarket or secondary market. Some securities are underwritten with penalties to discourage flipping. Float In banking, this refers to the time between the deposit of a check in the bank and the crediting of available funds to the depositors account. This time difference creates float or short-term available funds to the bank. The term floated shares refers to the number of a companys outstanding shares that are available for sale to the public. Floor A contract on a short-term interest rate in which the writer of the floor pays the buyer the difference for any period prior to expiration when the rate is fixed at a level below the floor rate specified in the cap. Floor can also refer to the minimum interest rate on an adjustablerate security or loan.

Foreclosure Legal process in which a property owner (borrower) forfeits its property to a lender, following a default on the lenders loan by the borrower. The property is considered collateral and used to allow the lender to attempt to recover the principal and interest it loses because the loan defaulted. Foreign Currency Intervention Purchases and sales of foreign exchange by the central bank in an effort to support the exchange rate of the countrys currency at a specific level. Like central bank open market operations, this activity impacts the monetary base of the country. Foreign Exchange Options Contracts that allow the holder to call (buy) or put (sell) a predetermined amount of currency for another currency within a specific period. Options do not have to be exercised. Foreign exchange risk See Currency Risk. Forward Contractual agreement between two parties to buy or sell financial instruments such as, commodities, securities and currencies etc. for delivery at a specified future date and a fixed price. The buyer is said to be long the forward while the seller or short agrees to deliver the items under the specified conditions. Banks act as intermediaries in forward transactions and may function as the depository for any collateral associated with forward contracts. Forward Rate Agreement cash-settled interbank forward contract on interest rates. The seller pays the buyer the difference between the current rate and the agreed-upon rate if the interest rate has risen above the agreed-upon rate. If the interest rate has fallen below the agreed-upon rate, then the buyer pays the seller. FRA See Forward Rate Agreement. Front Office

Refers to the sales and/or customer service personnel in banks, insurance, brokerage or other financial services institutions. FSA See Financial Services Authority. Footsie100 (FTSE)- Stands for the Financial Times Stock Exchange, an index of 100 blue chip stocks traded on the London Stock Exchange FTSE See Footsie 100 Fundamental Analysis The study of a companys earnings history, products, management, operating environment and other factors that will affect profitability and growth. Futures Contracts that cover the purchase and sale of financial instruments or physical commodities for future delivery at a predetermined quantity, date and price. FX Risk Foreign exchange risk. See Currency Risk.

G-7 See Group of Seven G-10 See Group of Ten GAAP See Generally Accepted Accounting Principles

Gap Management A process of asset-liability management whereby the gap between maturing assets and liabilities is monitored and managed in order to achieve profitability and reduce interest rate risk. GDP See Gross Domestic Product Gearing A term used in international banking to describe the borrowing of money to invest in an income-producing asset with capital growth capacity. General Agency System Type of insurance marketing where an agent represents one insurance company and is responsible for managing an assigned territory, which involves hiring and training new agents. General Liability Insurance A type of liability insurance that covers personal, professional and commercial risks (for instance it may cover physical and property damages not covered by other types of insurance such as auto insurance). General Obligation Bond (G-O Bond) State or municipal bonds in the United States that are approved by voters and backed by the full faith, credit and taxing power of the issuer. These bonds are usually issued to finance public projects such as road construction and schools. Generally Accepted Accounting Principles (GAAP) Rules set forth by the Financial Accounting Standards Board (FASB) that outlines conventions and procedures for accounting practices in the United States. GIC See Guaranteed Investment Contract. Giro

An electronic credit transfer system based in Europe and Japan that is used for making consumer bill payments. Glass-Steagall Act U.S. federal law passed in 1933 that forced a separation between commercial banking and investment banking. G-O Bond See General Obligation Bond Goodwill Intangible asset, such as the value of a companys brand or reputation. Goodwill is also the price paid by a company to acquire another company that exceeds the value of the acquired companys assets. Goodwill arising from an acquisition under the purchase method of accounting is shown on the acquiring companys balance sheet and, in most countries, is amortized over an extended period of time, typically in the range of 20 to 30 years. Goodwill from an acquisition in the banking industry must be deducted in full immediately from Tier I capital (core capital) for capital adequacy purposes. Government Agency Securities Securities issued by government associated agencies that have a high credit rating but are not government obligations and therefore not directly backed by the full faith and credit of the issuing governments. Government Depository A bank that is eligible to accept government deposits. In the U.S. these include the Federal Reserve Banks, national banks, and charted banks in the Federal Reserve System. Government Obligations Government debt instruments that the government has pledged to repay. These may include bonds from the government treasury, notes, bills and savings bonds. Gramm-Leach-Bliley Act A 1999 U.S. law that removed barriers for qualifying banks to participate in insurance underwriting and agency activities and provided complex rules and regulations regarding allowable activities for banks.

Gross Domestic Product (GDP) The market value of the goods and services produced in a country during a calendar year. Group Insurance Policies Insurance written for a group of people who are then covered by one master policy. Typically, these polices are issued to employees of a company or to individuals affiliated with a specific association, such as the American Association of Retired Persons (AARP). Group of Seven (G-7) An organization of the seven major industrialized nations that meet to discuss international economic issues. The G-7 countries are Canada, France, Germany, Great Britain, Italy, Japan and the United States. Group of Ten (G-10) the eleven major industrialized countries that meet to coordinate policies that lead to more stable monetary and fiscal policies worldwide. The Group of Ten includes Canada, the United States, Japan, France, Germany, Great Britain, Italy, the Netherlands, Belgium, Sweden and Switzerland. Group Term Life Insurance A type of group life insurance that provides yearly renewable term insurance for employees during the term of their employment. Group Underwriting The underwriting of risk associated with a group rather than that associated with an individual. Guaranteed Investment Contract (GIC) A retirement plan funding vehicle, under which the insurer accepts a single deposit from the plan sponsor and guarantees to pay a specific interest rate on the deposited funds for a specific time period. Sometimes called a guaranteed income contract or a guaranteed interest contract. Guarantor

A secondary party, either a person or company, who guarantees payment in the event of default by the responsible primary party to a transaction. Typically there are specific terms and conditions set for the guarantor that must be met in the case of default. Guaranty Fund A fund established in the U.S. to meet the policy obligations of insurance companies that fail. The insurance companies make contributions to the fund, which was established by the U.S. government.

Hang Seng Index (HSI) An index of the leading stocks on the Hong Kong stock exchange that provides an indicator of stock performance. As of March 2001 the index consisted of 33 companies. The index is arithmetically calculated and weighted by market capitalization. Hazard Insurance A type of insurance that protects against property damages caused by a fire or a severe storm. It is different from regular homeowners insurance and is usually purchased by people who live in areas at risk from hurricanes or floods. Health Maintenance Organization (HMO) An organization that provides a wide range of comprehensive health care services for a specified group at a fixed periodic payment. Hedge Fund Hedge funds are designed for wealthy individuals and institutional investors, and are not regulated as other forms of investment funds are (e.g., mutual funds). Hedge funds are allowed to employ riskier investment strategies that other investment funds are not allowed to use, including using derivatives (such as stock options), selling short, borrowing money to leverage returns and trading in currency. As a result of these strategies, hedge funds often have higher returns than mutual funds and other investment funds, and can earn positive returns in down markets. On the other hand, hedge funds can also face enormous losses. Hedging

A method used by traders, sophisticated investors and financial institutions to reduce loss due to market fluctuations. Various instruments, such as forwards, futures and options, are used to offset the potential value fluctuations in portfolios, thereby reducing risk often at the expense of return. Hedging costs should be taken into account when looking at the total return on a portfolio. An example of hedging: Holders of a given stock buy a put option or sell a call option on the same stock. If the stock goes down, the option will rise in value, providing a hedge" against losses. Herstatt Risk Term used to define the risk that one party in a currency swap will default after the other party has met their obligation. Herstattt or settlement risk arises because differences in time zones lead to different settlement times for each part of a currency exchange. This risk is named for a small, privately owned German bank that went into liquidation in 1974 and defaulted on foreign exchange contracts. At the time, Herstatt had several maturing spot and forward contracts where it received Deutschemarks and had to pay out U.S. dollars. In the six hours between the time Herstatt received the D-marks and the time when it had to pay its U.S. dollar obligations in New York, the bank went into liquidation and did not make the necessary payments under the foreign exchange contracts. High Street Banks A term that describes U.K. banks that have retail banking operations. The reference is to the high street or main shopping street in a community. High Yield Bond Fund Term used to describe taxable bond funds with at least 70% of their portfolio invested in high yield corporate bonds (a.k.a., junk bonds), which are a riskier category of bonds with non-investment grade credit ratings. Highly Leveraged Transaction (HLT) Transaction that is financed with a large proportion of debt compared to the amount of equity capital invested. Leveraged buyouts are an example of an HLT. HLT See Highly Leveraged Transaction HMO See Health Maintenance Organization

Homogeneity A term used to describe the similarity of the insureds of the same rating class. Hot Issue A newly issued stock that is in great demand. Typically, a hot issue increases in price drastically right after it is offered to the public. In some countries (including the U.S.), regulations limit the involvement of investment industry personnel in the trading of hot issues on the primary market. However, they may trade in the stock in the aftermarket. House Maintenance Requirement Internal regulations set by individual brokerage houses regarding the handling of and activities associated with customer accounts. Brokerages enact these rules in order to better meet outside regulatory requirements. (A.k.a., house rules.) HSI See Hang Seng Index Hybrid capital instruments Financial instruments that have characteristics of both debt (specific rate of interest or amount of dividend paid, issuer able to deduct interest paid for tax purposes) and equity (permanent nature of issue, low priority ranking in liquidation, exchangeable for common shares). Examples are preference shares and convertible bonds.

IBCA Rating Credit rating on debt and financial institutions given by IBCA, a rating agency similar to Moodys and Standard & Poors. IBCA, which is based in the U.K., concentrates on rating banks and other financial institutions compared to the corporate focus of the other two rating agencies. IBF See International Banking Facility IBNR See Incurred But Not Reported Reserves

IFAs See Independent Financial Advisors Immediate Annuity An annuity whose payment begins immediately after payment of the initial premium. Immobilized Securities Securities held by a depository after they have been issued. Accounts at the depository are credited and debited in response to trading activity, but the actual securities remain at the depository and are not delivered to the investor. IMF See International Monetary Fund. Impaired loan Loan judged likely to produce a loss because a specific event, such as late principal or interest payments, has occurred. Past due loans and loans on non-accrual status are also described as impaired loans. Impairment Describes when an insurance companys surplus falls below statutory minimums and regulatory action is imminent. Import Credit Letter of Credit in which the importer (buyer) is the banks customer. For example, an exporter in New York is selling to an importer in Malaysia. The importer requests its Malaysian bank to open a letter of credit (once open, this is now called an import credit). Incurred But Not Reported Reserves (IBNR) Loss reserve account on an insurers balance sheet that reflects claims that are expected based upon actuarial estimates but have not yet been reported to the insurance company. Incurred Losses Losses paid or incurred for claims covered by a policy during a specific coverage period as stated in the policy. Indemnity A term usually used in property and casualty insurance that refers to compensation for a loss intended to restore the insured to the same financial state that existed prior to the loss. Indenture

A contract stating the terms for repayment of a bond. It specifies the time, interest payment amount, repayment amounts (amortizations) and convertibility options. Independent Financial Advisors (IFAs) Insurance professionals in the U.K. and other countries who provide financial advice to customers and are required to disclose the compensation they receive as a result of selling different financial products to their customers. Index A method used to measure market performance based on statistical measures of the changes in a portfolio of stocks that represent a portion of the overall market. An example is the Standard and Poors Index that measures overall change in value of the 500 s tocks of the largest companies in the U.S. Index Swap A type of interest rate swap where the principal amount is tied to an index rate, such as LIBOR. In theory, the index protects the party with the fixed rate from prepayment risk. Indirect Loan A loan made to an individual or corporation that originated outside of a bank. Examples include the financing of automobiles or mobile homes and the use of mortgage brokers. Individual Retirement Account (IRA) A personal tax deferred retirement account in the U.S. for employed people.Individuals can contribute yearly and these contributions are deductible against their earned income. Interest and profits accumulate in the account on a tax-deferred basis. Withdrawals without penalty can be made starting at age 591/2. Early withdrawals are subject to penalties. If an employee receives a lump sum payment due to termination or changes in employment, the law allows the sum to be rolled over into another IRA account. In-force premiums Aggregate premiums from all insurance policies recorded before the specified date that have not expired or been cancelled. Individual Savings Account

(ISA) Savings accounts in the U.K. with annual contribution limits that are exempt from income tax and capital gains. This account replaces the personal equity plan (PEP) and the tax-exempt savings account (TESSA). Initial Margin For an individual investor, this represents the amount of money they need to deposit in their brokerage account (specified by regulators) to open a margin account. Once the initial amount is deposited, the investor can deal with the broker on margin (credit). This is also the minimum deposit that a futures exchange or clearing house requires from customers for each futures contract in which the customer has a net long or short position. The initial margin is based on the volatility of price movement of the underlying instrument. Since these margins relate to exchange traded contracts, either the exchange or the related clearing house sets the minimum margin requirements for their clearing members. Initial Public Offering (IPO) The first offering of a companys shares (or stock) to the public (going public). IPOs provide existing equity investors in a company with the ability to profit from their initial investment since the shares at issuance will be given a market value based on the companys projected future growth. Companys typically go public to attract capital, increase the shareholder base of the company and provide the shareholders with a liquid market to trade their shares. Insolvency The inability to meet financial obligations (debts) on an ongoing basis. It also refers to the inability of a financial institution (e.g., insurance companies and banks) to meet a specific solvency test imposed by a regulatory agency. Institutional Investor An organization such as mutual funds, banks and pension funds that trade and invest in large volumes (or blocks) of securities. Because institutional investors make such large trades, they sometimes have greater access to the markets and are catered to more by financial institutions as compared to individual investors. Institutional Investors See Institutional Investor. Insurable Risk

A risk which meets most of the following criteria: a) The loss insured against must produce a definitive loss not under the control of the insured, b) It must be accidental. (c) It must be large enough to cause a hardship to the insured. (d) The insurance company must be able to determine a reasonable cost for the insurance. (e) The insurance company must be able to calculate the chance of loss. Insurance A system of protection against losses where individuals and companies reduce risk by transferring the risks to an insurer in exchange for a fee (or premium). The insurer agrees, for a fee, to compensate the insured if specified losses occur. Insurance Exchange Term used to describe a facility that provides a market for reinsurance and for the insurance of large and unusual domestic and foreign risks that are difficult to insure through normal channels. Examples include the New York Insurance Exchange and the Insurance Exchange of the Americas. Insurance Underwriter An employee at an insurance company that evaluates a risk to determine whether or not insurance coverage will be issued and on what basis the coverage can be written (price, structure, etc.) Insured The person whose life, property or exposure to liability is insured. Organizations that hold a policy are also sometimes referred to as insureds. Interbank Market Any market in which the primary counterparties are banks or other financial institutions. Interchange Fees Fees paid by banks to other banks in a shared ATM network for allowing customers of one bank to withdraw money by using ATMs of other banks. This term also refers to fees charged by a credit card issuing bank to a merchants bank for making payments to the merchant for credit card transactions prior to receiving payment from the cardholder. International Banking Facility

(IBF) Division of an existing U.S. banking operation that is allowed to conduct Eurocurrency business, but is prohibited from issuing negotiable certificates of deposit. IBFs were allowed by the Federal Reserve Board beginning in December 1981 and have since become popular with the U.S.-based operations of foreign banks, such as the Italian and Japanese banks. Other countries, such as the Philippines, have also allowed similar entities for the purpose of conducting off-shore (non-domestic) international business. Interest Rate Risk Risk that interest rates will rise leading to an increase in the interest liabilities of borrowers or the risk that interest rates will fall leading to a decline in the interest income of floating rate investors/lenders. In a bank, interest rate risk arises from interest rate mismatches (fixed vs. floating) in the volume and maturity of interest-sensitive assets, liabilities and offbalance sheet items. Interest Rate Swap When two parties agree to exchange interest payments for a specific period based on a notional amount of principal. More precisely known as single currency interest rate swaps, these are derivatives that allow a borrower to convert medium- to long-term floating-rate liabilities to fixed-rate liabilities and vice versa. Interest rate swaps can be floating/floating or floating/fixed and the actual principal is not exchanged. Intermediary Person or institution that acts between two unrelated parties, such as a banks traditional role as an intermediary between depositors and borrowers. International Monetary Fund (IMF) An organization set up in 1944 that focuses on lowering trade barriers and stabilizing currencies. The organization helps developing countries pay their debts through credits, loans, and acts as an advocate for fiscal reform. Monies used by the Fund come from the treasuries of the developed nations in the form of member subscriptions. In The Money Refers to a call option when the strike price that can be paid for its underlying asset is below the price of that asset, or to a put option with a price above the price of the asset on which the put was written. Inventory In financial services, this refers to securities purchased and held by a dealer for sale to customers at a future date. Investment Banking

The process whereby a financial institution is engaged in the underwriting and issuing of securities for mergers, acquisitions, initial public offerings and other general corporate purposes. Investment banks also assist their customers in issuing debt and provide advice and access to the capital markets. Investment Grade Securities Securities rated AAA to those rated BBB, which includes securities determined to have the lowest risk of default to those with a reasonable degree of default risk. Investment Risk The risk that the market value of an investment will drop. For example, if a financial institution buys 1,000 shares of a stock for $50 per share, and the share price drops to $45 a share, the financial institution will lose $5,000. Investment Securities Securities purchased to be held to maturity. IPO See Initial Public Offering IRA See Individual Retirement Account ISA See Individual Savings Account Issue A stock or bond offered for sale by a company or a government agency through an underwriter.

Joint Underwriter Associations (JUAs) Organizations formed in each state in the U.S. to provide insurance to those who cannot obtain insurance in the voluntary market due to being in a high-risk category. State

statutes require that all companies providing the same type of insurance and share the cost of coverage for this group of insureds. JUA See Joint Underwriter Association Judgement Rating A method for determining insurance rates where each exposure is individually evaluated and the rate is determined largely by the underwriters judgment. Jumbo CD. See Jumbo Certificate of Deposit. Jumbo Certificate of Deposit Certificates of Deposit issued in large denominations for a minimum of $100,000. Jumbo Loans Large mortgage loans in the United States that exceed the national guidelines set by Freddie Mac and Fannie Mae. Junk Bonds Non-investment grade bonds with a credit rating of BB or lower; also known as high-yield bonds.


Kampo Products The insurance products or riders underwritten or sold on consignment by the Ministry of Posts Telecommunications in Japan. Keiretzu

A cluster or grouping of banks, financial firms and non-financial firms in Japan with a common name, cross-shareholdings, shared directorships, close supplier-customer relationships and an emphasis on mutual cooperation within the cluster.

Landesbank German regional state banks that carry the reserves for savings banks and provide clearing services. The banks offer low interest loans to local borrowers and are expanding their services to corporate customers. Lapse Termination of an insurance policy due to non-payment of a premium. Lapse Rate Describes the percentage of in-force policies that terminate due to non-payment of renewal payment during a policy year. The rate is determined by dividing the number of policies that lapse by the number of polices in force at the beginning of a policy year. Law of Large Numbers A theory of probability used as the basis for spreading risk in the insurance industry. The larger the number of risks, the more closely the actual results will approximate the results anticipated by the mathematics of probability. Layering Refers to a process in reinsurance where different layers or amounts are ceded to different reinsurers. Often different amounts of coverage carry different terms. LC See Letter of Credit L/C See Letter of Credit Legal Lending Limit

(LLL) Banking regulation used in most countries to limit the amount of exposure that a bank is allowed to have to any one obligor (borrower), either individually or on a consolidated basis in the case of a financial conglomerate or bank holding company. The limit is typically based on a percentage of the banks capital. The most common percentage used by regulators globally is 25%. Lender of Last Resort An institution, normally a central bank, that stands ready to lend to the commercial banking system when an overall shortage of funds occurs, or to an individual bank experiencing a liquidity squeeze. Letter of Credit (L/C) The written undertaking, or obligation, of a bank made at the request of its customer (a buyer) to honor a sellers drafts or other demands for payment upon compliance with the conditions specified in the Letter of Credit. There are different forms of L/Cs with different terms to meet different purposes. Level Premium Insurance Insurance premium that remains the same over the period that the premiums are paid. Premiums at the beginning of the policy are more than the cost of protection and less than the cost during the latter years. This excess creates a natural reserve. Leverage Describes the amount of debt in relation to equity in a company. The more debt a company holds, the greater the financial leverage. In the investment arena, the term refers to the use of debt to increase returns, an example of which is buying securities on margin. Leveraged Buyout Acquisition transaction in which borrowed funds in the form of issued debt are used to gain control of a company by purchasing its stock. The assets and cash flow of the target company are used to partially secure the debt issued to finance the acquisition. After the takeover, the acquired company issues bonds to help pay off the debt incurred in the buyout. Liability A term that refers to the funds owed by a bank or a company. These include time and demand deposits, funds borrowed from the Federal Reserve Bank or other banks and other debt including short- and long-term debt. Liability Management The process of managing

bank liabilities (primarily deposits and borrowings) to support lending activities and grow other bank assets. LIBOR See London Interbank Offered Rate Life Assurance The term commonly used in Europe for life insurance. The most popular form of coverage is level term assurance in which an insured pays a specific amount for a set term and, in the event of death, the claim under the policy is paid as a lump sum to the assured. LIFFE See London International Financial Futures Exchange. Limit Order An order given to a broker that has restrictions on execution. Typically the customer will specify a price to purchase a security. The order is only executed if the market price equals or is better than that price. Limit orders also have periods of time that they are valid if they are not cancelled. If the order is not executed in a specified period of time, the limit order expires. Limited-Payment Policy A form of whole life insurance where premiums are paid until a predetermined date or until death. At that time, the contract is paid in full and insurance coverage continues without additional payments being made. Line of Credit A loan in which a bank makes funds available to the customer. The customer can borrow these funds (up to a pre-established maximum) at any time. Typically, customers only pay interest on the amount of loan they are using (i.e., the amount of the line they have drawn down). Lines of Credit See Line of Credit. Liquid Market A market where there are a large number of buyers and sellers interacting and sustaining a high level of trading activity.

Liquidity The ability of a financial services organization to meet its current financial obligations. Also refers to the ease with which financial instruments can be quickly converted into cash with minimal loss in value. Liquidity Ratio Strict cash ratios set by the Federal Reserve Bank for banks in the U.S. and by regulatory authorities in most countries for their local banks. The ratio is designed to monitor a banks cash (bank notes, coin) relative to the amounts owed (liabilities) to its customers. Liquidity Risk Refers to the risk that a financial institution will not have sufficient funding available at any given time to conduct business and meet its obligations. Liquidity risk is primarily related to the effective management and diversification of funding sources. Liquidity risk can also be caused by having too much or unexpected liquidity (possibly due to prepayments of loans that were not expected) which can impair an institutions ability to create profits in the short-term. LLL See Legal Lending Limit Lloyds Of London One of the worlds oldest and largest insurance markets organized to spread risk. Members are a group of different brokers and syndicates of Lloyds which specialize in underwriting a particular risk. Load Fee charged by some mutual funds to its investors to cover the brokers commissions. Loan Arrears Principal amounts under the terms of a loan agreement that have not been paid to a bank by the borrower on the due date. Loan Grading A type of credit scoring system used by banks to determine the quality of a loan portfolio. Most U.S. financial institutions use the National Banks Examiner Risk Classification System when assigning risk in order to meet the regulatory requirements for the loan quality report that must be filed quarterly with the bank supervisory agency.

Loan Portfolio The combined holdings of multiple types of loan products with varying yields and maturity dates. Loan To Value Ratio (LTV) The relationship between the amount of the loan and the value of the underlying collateral. With home mortgages, the ratio is used to determine if default insurance is required with the loan. LOC See Line of Credit. London Interbank Offered Rate (LIBOR) The rate of interest at which banks in London are willing to lend to other banks. Most international variable-rate loans are tied to LIBOR. LIBOR changes often depending on supply and demand regarding cash and currency markets. London International Financial Futures Exchange (LIFFE) London International Financial Futures Exchange where Eurodollar futures and futures-style options are traded. Long duration contract An insurance contract that generally is not subject to unilateral changes in its provisions, such as noncancelable or guaranteed renewable contracts, and requires the performance of various functions and services for an extended period. Long Position Used to describe trading situations in which the amount purchased is greater than the amount sold. Financial institutions can have long positions in any instrument that is traded, such as foreign exchange and specific equities. A long position also refers to having an excess of foreign currency assets over liabilities. Long Term Credit Bank (LTCBs) A small group of banks in Japan that focuses on providing long-term loans to Japanese industry through funds raised by issuing long-term debt with a maturity of up to five years. These banks, which are not permitted to use retail deposits as a source of funds,

can hold deposits of client firms and government bodies. There are three LTCBs: Industrial Bank of Japan, Long Term Credit Bank of Japan, and Nippon Credit Bank. Losses Claims (in the insurance industry). Loss Ratio The ratio that expresses the relationship of losses to premiums. There are two common loss ratios that include 1) Paid loss ratio LTCB See Long Term Credit Bank LTV See Loan To Value Ratio.

Magnetic Ink Character Recognition (MICR) A standard used to encode checks so they can be read electronically and processed by check sorting machines. Maintenance Margin Minimum margin that a customer must keep on deposit with a member at all times. Also minimum equity that a futures exchange requires in a customers account for each futures contract subsequent to the deposit of the initial margin. If equity (funds or securities) drops below the maintenance level, then funds in the form of cash or other securities must be added to the account to bring the equity up to the initial level. MAP See Market Assistance Plan Margin In banking, the margin compares the yield on assets to the cost of funding those assets (calculated by net interest income divided by average earning assets). In the securities

industry, margin is the money and/or securities that an investor must deposit (or the equity in the account) with a broker as a security bond to ensure performance on a contract. Margin Call Occurs when a securities broker or futures clearing house demands that an investor provide additional funds to offset declines in market value in their account as a result of their position being marked to market on a daily basis. This action is taken to restore the account balance to the initial margin level. Marginal Cost Distribution Actions in the insurance industry aimed at reducing or eliminating distribution costs as a percentage of premium sales. This could be accomplished by selling life insurance products through banks or securities brokers, bypassing the companys own sales offices. Mark-to-Market Daily process in which financial institutions revalue specific financial assets (futures contracts and securities) at the currently available market price. Market Assistance Plan (MAP) Groups of insurance companies that take a portion of the high-risk business in a given market on a rotating basis. Market Capitalization The value of a companys outstanding shares. The figure is calculated by multiplying the number of issued and outstanding shares by the current market price. In the stock markets, companies are categorized on the basis of the size of their market capitalization and referred to as micro, small, mid and large caps. Market Maker A market participant that is willing to quote two-way (bid and offer) prices to customers and is ready to commit the firms capital to complete either buy or sell side transactions in overthe-counter securities at the publicly quoted prices. The market maker helps to maintain liquidity (fills buy and sell orders using its own capital) in the securities industry. Market Order Order to buy or sell a security to be executed at the best possible price as soon as possible.

Market Risk The risk that an asset will decline in price due to changes in market conditions (can include interest rates or market prices), resulting in a financial loss when the asset is sold. Also known as price risk, this is the risk that the price of a financial asset will be volatile. Matched Book Used to describe the situation in which a bank maintains no open positions in foreign currency and does not have any tenor or rate mismatches in its asset/liability structure. A matched book in the securities industry means that the firms borrowing costs are equal to the interest earned on loans to customers and other brokers. Mathematical Reserves Reserves required to be held by insurance companies based on formulas developed by regulators (statutory reserves or technical reserves in some countries). Maturity Date Date on which the principal balance of a loan or any financial instrument is due and payable to either the lender or the holder of the obligation. Maturity Gap Difference between the maturity structure of a banks assets and liabilities. Banks attempt to manage the gap by matching pools of funds with loans or investments on a maturity basis and by securitizing assets, which effectively transfers the maturity mismatch off the balance sheet. MBS See Mortgage Backed Securities Member Bank A depository financial institution that is a member of the Federal Reserve System in the U.S. All nationally chartered banks in the United States are required to be members of the Federal Reserve. Member banks must meet certain criteria established by the Federal Reserve Bank and must adhere to federal banking regulations. Only member banks can borrow funds from the Federal Reserve discount window. Merchant Banking

A bank that primarily serves corporate clients and offers a range of services including investment banking, international trading and other fee-based services. Merchant banks rarely accept credit risk and usually provide fee-based services. Merchant Discount Rate Fee a credit card issuer charges a merchant for processing credit card sales drafts and authorizing charges. The fee is traditionally based on a percentage of the net sales on the card. Merger A term that describes the uniting of two previously separate companies to form one new company. The companies exchange their assets for those of the new company and the company assumes the liabilities of the partner company. Mezzanine Financing Mezzanine debt is subordinated to the senior debt, but superior to preferred equity in the corporations capital structure. Since mezzanine is superior to equity, the investor bears less risk than with straight equity. Based upon its place in the hierarchy, mezzanine financing is intermediate in risk and should also provide an intermediate return to mezzanine investors. MICR Acronym for magnetic ink character recognition. MICR numbers are printed on checks, deposit slips and other forms and can be read by special processing equipment. This equipment provides high-speed processing and sorting of MICR-encoded items. Middle Office In the financial services industry, the term is used to describe the departments in a bank or brokerage house where positions are monitored and managed, such as the Risk Management and Compliance areas. Mixed Companies Insurance companies that offer life and general (property and casualty) insurance products. In the U.K., this type of insurance company is called a composite. ModCo See Modified Coinsurance.

Model Laws Insurance regulations adopted by the National Association of Insurance Commissioners (NAIC) and forwarded for their adoption to the different states in the U.S. Modified Coinsurance (ModCo) A type of life reinsurance where the reserves are returned to the ceding company while the risk remains with the reinsurer. The ceding company credits the reinsurer with a share of the investment income derived from a proportional share of the reserve. Monetary Policy Methods used by central banks and governments to control the level of economic activity in a national economy. Rates of economic growth can be controlled through the supply of credit to the banking system, changes in interest rates, or by altering the reserve requirement for the banks. Economic activity is typically measured by looking at industrial production, employment and consumer spending statistics. Money Center Bank A term that describes the largest U.S. banks located in major financial centers that participate in national and international money markets. Money Center Banks are the U.S. equivalent of City Banks in Japan and Clearing Banks in the U.K. Money Market The market for the purchase and sale of short-term financial instruments. Money Market Instruments Debt instruments with a maturity of one year or less. A type of highly liquid investment that can include T-bills, bankers acceptances and negotiable bank certificates of deposit. Money Supply The total of a countys currency in circulation and other liquid instruments in the economy. The money supply is divided into three categories: M1, M2 and M3, based on the type and size of the instrument. Mono-line Insurance

Company Insurance company focused on a single product line, such as marine or property insurance. Moodys Investors Services A highly regarded bond-rating company. The company also rates commercial paper and equities. Morbidity The relative incidence of disability because of disease or physical impairment. Morningstar Rating System A system for rating the risk of open- and closed-end mutual funds as well as annuities developed by Morningstar Inc. of Chicago. The system rates funds on a scale of 1-5 (5 is best). Fund performance is assessed based on the three month U.S. Treasury bill rate. If the return on the fund outperforms the T-bill rate, then the funds rating will be high. Mortgage Backed Securities (MBS) An investment instrument that provides an investor with part ownership in the cash flow from a pool of mortgages. These securities provide banks with additional funding and reduce their capital adequacy requirements by removing the assets from the balance sheet. Moving Average A technique that technical analysts use to gain insight into the direction of a stock and to look for evidence of a buy or sell recommendation. Analysts look at 5, 50 and 200-day moving averages. The 50-day measure is an indicator of the price trend for a security. The 200-day moving average is a longer-term measure used in comparison with the shorter averages to assess the stocks overall direction. Multilines (or Multiline Insurers) Insurers offering both property and liability lines of insurance. Multiperil Any combination of insurance coverage, excluding life insurance. Municipal Bond

A debt security issued by a state or local government in the U.S. to raise money to finance capital expenditures. The expenditures can include funding a school, hospital, or other large building project. Mutual Fund Managed investment fund whose shares are sold to investors. Investors are shareholders in the fund and participate in the funds gains or losses. Shares can be redeemed when needed in an open-end fund and at specific times in a close-ended fund. Mutual fund companies offer a variety of different funds (as stated in their prospectus) in order to attract investors with different financial goals, i.e. income, growth or tax benefits. Mutual Insurance Company An insurance company that is owned by its policyholders who elect directors to manage the company. A portion of surplus earnings may be returned to the policyholders in the form of dividends. A member relinquishes ownership in the company when their insurance contract ends due to death, maturity or surrender of the policy.

NAIC See National Association of Insurance Commissioners. Naked Position Condition when an investment company holds securities that are not sold or hedged. Names Refers to the people who invest in the Lloyds of London Insurance syndicates. Narrow Market Securities or commodities market where there is minimal trading activity. The light trading results in greater price fluctuations than if there were moderate to heavy trading. Narrowing the Spread The process of narrowing the gap between the bid and ask price for a financial instrument as a result of activities by marketmakers in that instrument.

NASD See National Association of Securities Dealers NASDAQ An automated stock market owned and operated by the National Association of Securities Dealers. The system provides dealers and brokers with price quotations for securities traded over-the-counter and for stocks listed on the NASDAQ. NAV See Net Asset Value. National Association of Insurance Commissioners (NAIC) An association of insurance regulators in the U.S. who promote uniform insurance regulation, draft model laws for implementation by the states and monitor the solvency of insurance companies. National Association of Securities Dealers (NASD) An association that includes nearly all of the major investment banks and firms dealing in the over-the-counter market. Operating under the supervision of the SEC, this organizations goals are to standardize practices, set ethical standards for securities tradin g, and ensure that members maintain a high degree of solvency and financial integrity. National Bank A U.S. bank that is chartered on the federal level (as opposed to the state level). National banks are required to be members of the Federal Reserve System. The FDIC insures their deposits. Net Asset Value (NAV) This represents the share value of a mutual fund. NAV is calculated at the end of each day is calculated by adding total assets less liabilities to arrive at equity (or net worth). The equity is then divided by the number of outstanding shares in the mutual fund, to get NAV. Net Interest Income Interest income less interest expense.

Net Premium Amount of premium required to provide insurance benefits for a policy. Net Premiums Earned Net insurance premiums adjusted for an increase or decrease of unearned premiums during the year of the Net Premiums Written Refers to gross insurance premiums written less returned premiums plus reinsurance assumed premiums less reinsurance of ceded premiums. New Issue A stock or bond that is offered to the public for the first time. This can include initial public offerings by previously private companies or additional stock or debt issued by existing companies. Non-accrual Loan Loan carried on a banks balance sheet on which the bank is no longer accruing interest. Any payments received are deducted from the principal rather than being treated as interest income. Loans are typically placed on non-accrual status when interest payments are 90 days past due, although this may vary from country to country. Non-admitted Insurance Can refer to U.S. based insurance companies operating in states where they are not licensed or to insurance offered by a foreign insurer without being licensed in that country. Non-performing Loans Loans on which payments, either principal or interest, are overdue by a specific amount of time, as stipulated by the relevant regulatory authorities or by the institution. For example, loans that are 90 days or more past due may be considered non-performing. This timeframe is becoming the international standard for classifying loans as non-performing. Non-proportional Reinsurance A form of reinsurance that, for a specified limit, indemnifies the ceding company against the amount of loss. It includes various types of a reinsurance, including catastrophe, per risk and aggregate excess of loss reinsurance. (A.k.a., excess of loss reinsurance.) Nostro Account

A current (transactional) account maintained by a bank with a bank in another country, usually in the currency of the country where the account is held. The bank maintaining the account refers to it as a nostro account (our account with you). This account is typically viewed as a reciprocal arrangement related to the vostro account (your account with us). The terms nostro and vostro are frequently used in the context of foreign exchange transactions and the related transfer of funds. Note Unsecured debt (promise to pay) that usually has a maturity of less than 15 years. Novation Discharge of one obligation in a debtor/creditor relationship and the creation of an entirely new obligation. Novation is necessary in clearinghouse arrangements because the direct obligation to pay one of the participants is typically replaced with an obligation to pay an overall net position to the clearinghouse.

OCC See Office of the Comptroller of the Currency Ocean Marine Insurance Insurance for all ocean-going and inland vessels, including business or leisure craft and the associated facilities such as piers, terminals and repair facilities. Off Balance Sheet Instrument Any derivative (swap, forward, or option) that does not represent an obligation to pay at the time of the balance sheet date. Off-balance sheet instruments impact the institutions risk structure without appearing on the balance sheet. Information regarding derivatives and other obligations is disclosed in the footnotes of the annual report in many countries. And in some countries, banks are required to show their mark-to- market in the money positions as an asset and their out of the money positions as a liability Off-Balance Sheet Items Broad term incorporating both contingent liabilities (guarantees, committed lines of credit, letters of credit) and off-balance sheet instruments (derivatives) that do not represent an obligation to pay at the time of the balance sheet date. The institutions risk structure is

impacted by these items, which do not appear on the balance sheet. Information regarding these items is shown in the footnotes of the financial report in many countries. Offer Price Price at which a securities dealer, market maker or any prospective seller is willing to sell the asset. Also referred to as the asked price or ask. Office of the Comptroller of the Currency (OCC) The agency that supervises the administrative and investment policies of the nationally chartered banks in the U.S. Every national bank is examined on a periodic basis by the OCC and is required to file a Statement of Condition at least four times a year. Offshore Banking Describes the establishment and operation of a U.S. or foreign bank in offshore tax havens such as the Cayman Islands, the Bahamas and the British Virgin Islands. Also refers to International Banking Facility (IBF). Open Market Operation One of the methods used by central banks, such as the Federal Reserve, to conduct monetary policy. It involves the purchase and sale of domestic government securities or other domestic assets by the central bank. This action alters bank reserves, which then affects the credit supply and monetary base. The change is then felt throughout the economy. Open Position Net long or short foreign currency or futures, the value of which will change with a change in the foreign currency rate or futures prices. Operational Risk Risk of direct or indirect loss from the failure of internal processes, personnel, systems, or external events. The loss could be catastrophic or occur incrementally over time. It includes fraud, theft and computer system failure. Option An exchange-traded contract that gives the holder the right, but not the obligation, to buy (call option) or sell (put option) an asset (securities, commodities, etc.) at a stated price (strike or exercise price). European options can only be exercised on a stated date, while

American options can be exercised at any time up to and including the stated date. The term also includes any non-exchange-traded contract with similar economic characteristics to an exchange-traded option. Options See Option. Order Flow Volume of securities trading from a customer to a dealer. Large volumes of orders enable a dealer to gauge the state of the market. As a result, the dealer can offer more competitive terms on certain securities. Ordinary Banks Term used to describe commercial banks in Japan. Ordinary Life Insurance A type of life insurance where premiums are paid continuously over the lifetime of the insured at predetermined intervals (e.g., annually, quarterly or monthly). Once one of the most popular forms of life insurance, it has been recently displaced by newer products such as universal and variable life insurance. Origination Fee Fee charged by a lender to cover the application and credit investigation costs related to a loan. OTC See Over The Counter. Out-Of-The-Money Term used to describe a call option when its strike price (stated price at which the underlying asset may be purchased or sold) is greater than the current market price of the underlying asset. A put option is out-of-the-money if the strike price is less than the current market price of the underlying asset. Over The Counter

(OTC) Market where traders are connected through computer networks and telephones and conduct trading through these mechanisms rather than on the floor of an exchange. Rules for OTC trading are written and enforced by the National Association of Securities Dealers (NASD) in the U.S. Overallotment Provision A clause found in a securities underwriting agreement that allows the underwriter to buy additional shares of an initial public offering to cover orders in excess of the designated amount which that particular underwriter committed to sell. Overriding Commission A term used in traditional insurance to describe a commission earned by a field office manager based on the business produced by the agents in that office. The term is also used in reinsurance and describes an allowance paid to the ceding company to allow for overhead expenses and includes room for profit. Oversubscribed A term used in securities underwriting to describe a new stock issue when there are more buyers than available shares to sell. The result will be that the share price will increase as soon as the shares are available on the market. In certain situations, the issuer may increase the number of shares available when an issue is oversubscribed.

Package Policy An insurance contract that provides coverage for several perils including property and casualty perils (a.k.a., multi peril insurance). An example of a package policy would be homeowners insurance, which combines property liability and theft coverage into one policy. Par Value The face value of a security, which is shown on the certificate. Bonds that are trading at par are trading for the same amount as when they were issued. Bond prices are quoted as a percentage of the par or face value of the bond. Participating Depository Financial Institution

A financial institution that is authorized to send or receive ACH automatic clearinghouse entries in the United States. Partnership Interest Describes the ownership of equity in a partnership. In general partnerships, the owners have unlimited liability for the partnerships losses. In a limited partnership, the owners liability is limited. Payee A party to whom a payment is made. Payer A party that makes a payment to a payee. Paying agent One financial institution or a syndicate of institutions responsible for distributing interest and principal payments associated with a bond issue to the bondholders on behalf of the issuer of the bond. Paying Bank A bank to which a check is sent for payment or collection. In a Letter of Credit transaction, the paying bank is the bank that will make the payment to the exporter (seller). This is usually the bank that is appointed as the drawee bank in the Letter of Credit. P/E See Price/Earnings Ratio. PEP See Personal Equity Plan Peril Classification of loss occurrences insured against, such as fire, windstorm, collision, hail, injury or loss of profits. Periodic Level Premiums

Premiums that are paid on a regular basis until the time that the annuity payment begins or the insurance policy is paid. Permissible Non-bank Activities Types of financial activities, such as securities and insurance underwriting, trust activities and property services, closely related to banking in which a bank holding company (BHC) may engage directly or through a non-bank subsidiary as determined by the banking supervisory authority. In the U.S., the Federal Reserve Board determines which non-bank activities are permissible. Persistency Term used to refer to the length of time that insurance policies stay in force through the continued payment of premiums. Personal Equity Plan (PEP) A tax-free investment plan in the U.K. where individuals could invest in equities on a tax-free basis. This plan has now been closed to new investments and replaced with the Individual Savings Account (ISA). Personal Liability Coverage Insurance that provides coverage for injuries to other people or damage to other peoples property. Personal Lines Kinds of insurance policies issued for individuals and families as opposed to businesses. PKI See Public Key Infrastructure. Point of Sale Terminal (POS) Electronic terminals found in business establishments allowing customers the opportunity to pay for goods and services through debits to their accounts that simultaneously issue credits to the sellers accounts. Policies In Force Unexpired insurance polices that a carrier has written and recorded on their books.

Policy Reserves The funds that an insurance company is required to hold to pay benefits and obligations for the future. Insurance laws or regulations typically stipulate that reserves must be calculated so that the reserve amount is sufficient to cover all future claims. Policy Year The year in which the insurance policy is effective. Portfolio Diversification An investment strategy to limit risk by diversifying around a variety of investment instruments. In banking, this can be accomplished by ensuring that assets in a portfolio are not limited to a specific geographic region, industry or customer. Portfolio Theory A structured approach to decision-making regarding risk and return on an investment portfolio. The approach has four steps: security valuation, determining asset distribution, optimization of the portfolio and systematically measuring the return of each asset relative to others in its class. POS Terminal see Point of Sale Terminal Position An interest in the market in terms of financial instruments. For instance if a dealer has a short position it has an excess amount of sales over purchases of that security. A long position describes an excess of purchases over sales of that security. Position taking involves holding long or short positions in order to profit from price movements in the market. Short positions are settled (or closed) at the end of the day by purchasing the amount of securities you are short. Postal Banks Banks that provide savings and payment services to certain customers through the national post office. These banks are also referred to as Giro Banks. Predictability The probability of loss that is used to calculate the basic premium rate in insurance.

Preferred Stock A type of stock that takes priority over common stock with regards to dividends and in liquidation and typically pays fixed dividends. Normally, dividends may not be paid on common stock unless the dividend is paid on all preferred stock. Preferred stock may be issued as cumulative, in which dividends on common stock may not be paid until all past dividends on preferred stock have been paid, or as non-cumulative, where any suspension of the dividend payment on the preferred stock is not ultimately paid to the investor. Also referred to as preference shares. Premiums The consideration (money) paid (in one payment or a series of payments) for an insurance contract to be in force. Prepayment Risk The risk of loss of additional profits due to the early repayment of principal on a higher yielding debt instrument or loan, than could be obtained at current market prices (e.g., refinancing of mortgages when interest rates fall). Price Appreciation A figure that indicates how much an investors investments have appreciated in price. It is calculated using market value less cost. Price/Earnings Ratio (P/E, P/E multiple) Ratio that is used in determining the value of a stock. It is calculated by taking the latest closing price of a stock (share) and dividing it by the earnings per share for the most recent twelve month period. A stock selling at $60 per share with earnings of 3% ($3.00) per share has a PE of 20. Primary Market The market where new, previously unissued securities are traded. After their initial issue, the securities are then traded on the secondary market. Primary Reserves The cash needed to operate a bank in a specific country plus the legal reserves required. Principal

Amount of debt that must be repaid. If a lender issues a loan for $100,000 at 10% interest, the principal is $100,000. Or par value or face amount of a security exclusive of principal and interest. Principal Transaction A transaction in which the counterparty is purchasing or selling an asset on their own behalf. Private Placement Describes the offering and selling of any security by a brokerage firm to a select group of investors and does not involve a public offering. Historically, the buyers of private placement securities have been banks, insurance companies and pension funds. The term is also referred to as direct placement. Problem Bank A bank whose ratio of non-performing loans in proportion to its total capital is very high or whose practices in trading or other areas are considered to be in contradiction of existing regulations. Supervisory agencies in the U.S. conduct regular bank examinations and assign a 4 or 5 CAMEL rating (1-5 scale) to problem banks and place these banks under greater scrutiny and/or regulatory control. Proprietary Trading The practices of trading in securities for an organizations own account. Also referred to as trading for your own book. Provision for Loan Loss See Provision For Loan Losses. Provision for Loan Losses An item on a banks profit and loss statement that shows the amount of funds the b ank has set aside in the current reporting period to increase its allowance for loan losses. See also Allowance for Loan Losses. Protection and Indemnity Mutuals P& I clubs that provide collective self-insurance to their members. (A.k.a., mutual marine protection and indemnity insurers.) The clubs provide insurance for damage claims against vessel owners or operators that are not covered under basic marine insurance.

Public Key Infrastructure (PKI) A term used to describe an infrastructure (hardware, software and internal systems) that enables users of unsecured public networks such as the Internet to securely and privately exchange data. PKI involves user authentication, data integrity, nonrepudiation of transactions and encryption of information. Put Option A contract that gives the purchaser the right, but not the obligation, to sell a specified amount of an underlying asset/security at a specified price (strike price) on or before a stated date. See also Option (American and European).

QIB See Qualified Investment Buyer Qualified Investment Buyer (QIB) An investor in the U.S. (e.g., corporations, licensed small businesses, charitable organizations, trust and registered investment advisors) permitted to purchase securities that are not offered to the public for their own account or that of another QIB. The amount of investment in these types of securities is limited by regulations. Quick Ratio A ratio that is used to perform a swift test of an organizations liquidity by subtracting inventory from current assets and then dividing that sum by current liabilities. Quote Driven Market A dealer based market where a price is determined by dealers bid/offer quotes. This is opposed to an order driven market which is auction based.

RAA See Risk Adjusted Assets.

RAROC See Risk Adjusted Return on Capital. Rate The charge per unit for determining the cost of insurance premiums. In lending the rate is also referred to as the quoted rate of interest that the borrower will pay annually for an outstanding loan. Rate Making The statistical process used by insurers to determine rates for basic classes of insurance. Rated Policy An insurance policy that carries a higher premium to cover for extra risk (e.g., life insurance when the insured is in a high-risk occupation). These types of policies are also referred to as rated up or extra risk policies. Rating A letter grade signifying a securitys investment quality. Typically a rating of A is highest. Real Estate Investment Trust (REIT) A highly liquid investment that provides investors with the ability to invest in a portfolio of real estate properties. REITs are companies that buy, sell and manage real estate assets. Shares in REITs are traded on major exchanges. Recapitalization The process of changing the capital structure of a company by either increasing or decreasing the amount of corporate debt and/or equity. Recapture The process in which the cedant recovers the liabilities that have been previously transferred to a reinsurer. Receiving Bank A bank or depository in any payment system that is eligible to send and receive transactions for credit and debit entries posted to customers accounts.

Reciprocal Insurance Exchange Unincorporated group or group of organizations that write insurance for their members. Members are both policyholders and insurers and are usually engaged in similar types of activities. Regional Bank A bank with branches in a certain regional area whose business is making loans to the customers in that area. Regional banks have a broader customer and geographical focus than community banks, but are smaller than a money center bank both in scope of business and geographical reach. Registered Representative (RR) Individual in the investment banking and securities industry that has successfully completed the examination and licensing required by a self-regulatory organization. Registrar Usually a trust company or bank that is responsible for preventing the issuance of more stock than is authorized for a company. Regulatory Risk The risk incurred by a financial institution of not complying with regulatory requirements. Regulators can penalize financial institutions with monetary fines, give orders to financial institutions in how to operate and even close financial institutions down if certain regulations are not followed. Reinsurance A transaction in which a reinsurer (assuming entity), for a consideration (premium), assumes some or all of a risk undertaken originally by another insurer (ceding entity). There are two major types of reinsurance: treaty that is based on a block of the ceding companys business and facultative which is based on individual risk. Reintermediation The flow of funds from competing non-bank investments into banks. This happens when customers move funds from money market funds into bank accounts. Reinvestment Risk

The uncertainty around reinvestment rates at a future date. An example is the inability of a bondholder to reinvest his coupons at a higher or equivalent coupon rate when the bond matures. REIT See Real Estate Investment Trust. Reputation Risk The risk to capital or risk that would adversely affect profits as a result of negative publicity whether true or untrue. Reputation risk for financial institutions can cause loss of customers, reductions in profits and sometimes costly litigation. Repurchase Agreement In a repurchase agreement, a financial institution sells securities to another institution with the promise to buy back the securities on a specific date (usually within a few days). For the seller, a repurchase agreement provides a source of short-term funding at a relatively low rate. The buyer (who is entering a reverse repurchase agreement) is providing a loan (for which it will receive interest) backed by collateral (i.e., the securities it is holding). Repurchase agreements are commonly referred to as repos, and transactions are usually for $1 million or more. Repurchase Agreements See Repurchase Agreement. Reserve Account Non-interest bearing account that contains the funds deposited by a financial institution to meet its reserve requirements. In the U.S., banks that are members of the Federal Reserve System deposit their funds at a Federal Reserve Bank. Non-member banks deposit their funds with either a Federal Reserve Bank or an approved correspondent bank. The combined funds in the reserve accounts enable the exchange of funds between depository institutions using the FedWire system. Reserve Funds An allocation of the net profits in a specific accounting period that are set aside by banks to meet actual or anticipated future payments, needs or obligations. There are two types of reserves: primary reserves that include funds necessary to operate the bank and the

interest-free deposits at a central bank to meet the reserve ratio and secondary reserve requirements. Reserve Ratio The ratio of interest-free account balances held at the central bank to total deposits based on the reserve requirements. Reserve Requirements Balances required of all depository financial institutions that must be maintained at a central bank or an approved correspondent bank. These funds cannot be lent nor do they earn interest. The amount of the reserves is set by the central bank, which has the right to impose special supplemental reserves as a means of controlling the money supply. Reserves Funds kept by an insurer to provide for future obligations and claims under existing policies. In the United States, the amount of the reserve is established by law and companies must meet these requirements to be able to satisfy the solvency tests and licensing requirements of the state authorities. Residual Markets Alternate channels where insurance coverage can be obtained for risks that insurance companies are unwilling to provide in the voluntary markets. Restructured Loan Loan refinanced at a concessionary rate, which reduces or eliminates interest, because the borrower cannot service (pay interest and principal) the loan on the basis of the original loan agreement terms. Retail Banking Activities performed by a bank involving loans, deposits and fee generating services provided to individual customers and, in some cases, to small businesses. Retained Earnings The portion of a companys annual earnings that is not paid out as dividends to stockholders and is reinvested in the company. Retention

The amount of risk that an insurer retains for its own account and is not reinsured. Retrocession Process where a reinsurer obtains reinsurance from another reinsurance company. Return On Assets (ROA) A ratio that measures how well a company is generating profit from its assets. It is calculated by dividing a companys annual earnings (net income) by its total assets. Return On Equity (ROE) An indicator that measures a companys profitability relative to the equity invested in the company. It is calculated by dividing net income by average shareholders equity. Reverse Repurchase Agreements See Repurchase Agreements. Reverse Swap A transaction that occurs on the secondary swap market. It is used to offset currency rate or interest rate exposure on an existing swap. Revolving Credit A committed line of bank credit that may or may not be used at the borrowers discretion. With commercial revolving credits available to companies, interest is paid only on the amount of credit actually in use, while a commitment fee is typically paid on the unused portion. Through credit cards, individuals can access revolving credit lines that allow them to repeatedly use and pay back the credit without having to reapply each time that credit is used. When purchases are made or cash advances taken with a credit card, the cardholder draws against the available line of credit. The cardholder is then required to make a monthly payment based on the total amount of credit outstanding. The available credit line is restored as the cardholder makes the required payments or pays the balance outstanding in full. Risk The uncertainty that a loss may occur or that an asset may fail to provide an expected rate of return. Since financial institutions invest most of their funds in interest sensitive assets, they monitor the following types of risks: capital, credit, delivery, exchange, interest rate, liquidity, operational, political, reinvestment, and payment systems risks. Alternatively, in the

insurance industry referring to risk can mean that you are referring to what is insured or the risk assumed. Risk Adjusted Assets (RAA) The values of assets after percentage risk weightings based primarily on the degree of default risk and, to a certain extent, country risk have been applied to each asset category. Risk-weighting factors are used in accordance with the capital adequacy requirements of the Basle Accord and are applied to each included category of both on and off-balance sheet assets. Risk-weightings for specific asset categories may vary from country to country within the broad guidelines of the BIS (Bank for International Settlements) agreement. Banks are required to keep a minimum of 8% capital against the value of their risk-adjusted assets. Risk Adjusted Return on Capital (RAROC) Economic approach that includes a series of complex calculations that is used to measure returns based on the risk-adjusted capital of a financial institution. Many financial institutions use RAROC to provide a better measure of profitability based on the economic capital (capital to support the incurred risks of the institution). Risk Based Capital Rules for establishing minimum required levels of capital for financial institutions. Capital is allocated to types of bank assets based upon weightings assigned to those assets in accordance with the capital adequacy requirements of the Basle Accord and are applied to each included category of both on and off-balance sheet assets. Risk-weightings for specific asset categories may vary from country to country within the broad guidelines of the BIS (Bank for International Settlements) agreement. Banks are required to keep a minimum of 8% capital against the value of their risk-adjusted assets. Risk Management Function with responsibility for controlling and monitoring the probability of an adverse event so that the adverse event is within acceptable limits. Financial institutions are subject to an array of risks including credit risk, market risk and operational risk to name a few. Strategies for managing these risks include the use of derivatives for hedging risk, exposure monitoring systems and credit assessment processes. Risk Weighted Assets (RWA) See Risk Adjusted Assets

ROA See Return on Assets. ROE See Return on Equity. Roll Rates Statistics used by collections management to monitor the movement of accounts from current status to various delinquent categories (30, 60, 90 days, etc.) based on a percentage of the amount outstanding in the previous time category. Rollover Loans Bank loan for which the interest rate is updated at specified points in time based on current market rates. The interest rate on the loan for each period is the sum of a reference rate, such as the prime rate or a base lending rate plus a lending margin. At each the period that the borrower continues to borrower, the loan is said to have been rolled over. Real Time Gross Settlement (RTGS) Funds settlement system used in many countries, such as the G10 countries (in the U.S., the FedWire system uses RTGS), Hong Kong, Korea, Thailand and the Czech Republic, and planned for use by other countrys payment transfer systems. Real-time refers to the transfer of ownership of the funds quickly or immediately upon receipt of evidence that an obligation is covered by an account balance, a credit line, which may be a daylight overdraft, or pledged collateral. Gross means that a specific obligation is paid in full rather than netted against offsetting obligations. RTGS See Real Time Gross Settlement

Safe Deposit Box A fee-based service provided by banks that provide an area where customers can store important documents, jewels and other valuables. Typically a box is provided to the

customer that is located at the bank and the customer and bank hold two keys needed to open the safety deposit box. Safe Harbor A rule by the Securities and Exchange Commission (Rule 10b-18) that allows companies to repurchase their own securities at certain points in time without being charged with securities price manipulation. Salvage Property taken over by an insurance company to reduce the amount of a loss. The term also refers to the cost of saving property exposed to a peril. SAP See Statutory Accounting Principles Savings Account An interest bearing deposit account that carries no time limit or requirement. Often customers deposit funds in these accounts and do not make withdrawals for some time, thereby providing the bank with a stable source of funding. Savings Banks Originally a term to describe banks that took in small deposits from local customers and then used those deposits to make secured loans, particularly home mortgage loans. Recent banking deregulation in many countries has expanded the activities and services that savings banks may provide. SBLC See Stand-by-Letter of Credit SEC See Securities and Exchange Commission. Second Pillar Term used to describe funding for financing retirement benefits as articulated by the World Bank. Under this three pillared system, the first pillar consists of mandatory publicly financed solutions and the second pillar consists of pension schemes offered by employers.

Secondary Loan Market The market where financial institutions buy and sell loan and mortgage portfolios. The loans may be sold at full value or at a discount. The secondary market provides the lending originators with a supply of money for new loans, and allows the purchasers to obtain certain types of financial instruments without incurring the related marketing costs. Secondary Market Market in which securities and other financial instruments, such as CDs, are traded following the date of their original issue. Secured See Secured Loan. Secured Loan Loan that is backed by property or some other form of tangible collateral. If the borrower defaults on the loan conditions, the lender may take legal action to reclaim and sell the collateral. Secured Loans See Secured Loan. Securities Equity and debt instruments, such as bonds. Securities and Exchange Commissio n (SEC) The U.S. government agency charged by Congress to regulate the securities market and protect investors. The agency regulates reporting practices associated with the trading of securities of publicly owned companies. Its goal is to provide for full public disclosure and protect investors against fraud and manipulative securities practices. Similar agencies in other countries include the Securities Council in Germany and the Financial Services Authority in the U.K. Securities Lending Lending by a financial institution of its securities to another financial institution for a predetermined period. The borrower often uses the securities to cover a short position. See also Borrowed Securities. Securities Registration The process of obtaining approval from a regulatory entity to sell specific securities to the public. In the United States, this process

was initiated by the Securities Act of 1933, which requires issuers to file a registration statement with the Securities and Exchange Commission. Securitization The process of creating a financial instrument (a security) by pooling other financial assets (e.g., mortgages, bank loans), using these pooled assets as backing for the newly issued securities, and then marketing those securities to investors. Mortgage backed securities are an example of securitization. Securitization of Risk And Contingent Capital A type of alternative risk transfer in insurance that allows investors to protect themselves against the frequency of loss associated with natural disasters. Self-Insurance A method of risk financing in which a firm assumes all or a part of its own potential losses. Servicing The activities and services (collection of principal and interest payments, property taxes and sometimes management of collateral) associated with loans sold on the secondary market or with loans that have been securitized. Settlement In securities trading, the term refers to the act of delivering securities in exchange for payment. In banking, settlement refers to the process by which the availability of funds is confirmed through the payment systems provided by various clearinghouses. Settlement Date In the securities industry, the term refers to the date on which the actual transfer of cash and securities involved in a trade actually takes place. In banking, it refers to the date on which funds transferred through a central bank payments system, such as FedWire, or a private network are credited (deposited) to a customers account and available for use. Short Position Used to describe trading situations in which the amount sold of a specific security or class of securities is greater than the amount purchased. Financial institutions can have short positions in any instrument that is traded, such as foreign exchange, futures contracts and

specific equities. A short position also refers to having an excess of foreign currency liabilities over assets. Short Selling The process of selling a security or commodity that the investor does not own at a specific price for future delivery. This strategy is used in order to profit from a decline in the price, allowing the investor to buy the asset for delivery to the buyer at a lower price than the price previously agreed with the buyer. Short-tail Lines of Insurance Types of insurance with large claim volumes that occur quickly and are terminated quickly. (e.g., auto and medical insurance). Single Premium A type of life insurance where one lump sum payment is made and coverage is provided for the duration of the policy with no additional payments required. Single Premium Deferred Annuity (SPDA) A deferred annuity where only one payment is required. Because it is a deferred annuity, the investment grows tax-free during the accumulation period. Withdrawals and conversion options are available under certain specified conditions. Single Premium Immediate Annuity (SPIA) An immediate annuity where only one payment is required. Because it is an immediate annuity, an income stream of payments begins soon after the contract is issued. Society For Worldwide Interbank Financial Telecommunications (SWIFT) An organization that provides electronic payment messages on a global basis. This international body sets protocols and standards for international payment messages, such as electronic money transfers and securities transactions. SPDA See Single Premium Deferred Annuity. SPIA See Single Premium Immediate Annuity.

Special Class Type of insurance policies that carry higher premiums due to extra risk. Specialist A securities firm that holds a seat on a securities exchange. Specialists maintain a fair and orderly market in one or more securities where they have an exclusive franchise. Spot Markets In commodities trading, the term refers to a market where goods are sold for cash and delivered immediately. Generally, spot foreign exchange is traded for settlement two business days from the trade date. With futures contracts, the spot month is also the current calendar month. Spread In banking, spread refers to the difference between borrowing and lending rates and the margin between a banks cost of funds and the interest rate charged for loans. The term has different meanings when applied to different types of securities trading. In stocks and bonds, the term refers to the difference between the bid and the offer (ask) price. In options trading it refers to a position consisting of one long call and one call option or one long put and one short put option. In either case, they are referred to as one leg of the spread. The term can also refer to the difference between the buying and selling rates of a foreign currency or a bond. In banking, spread refers to the difference between borrowing and lending rates and the margin between a banks cost of funds and the interest rate charged for loans. Stand-by Letter of Credit (SBLC) Type of performance Letter of Credit that ensures the repayment of a financial obligation. A standby letter of credit is a bank promise to pay the third party in the event of some defined failure by the banks customer, usually, but not always, a failure to pay. SBLCs have been an instrument used primarily by U.S. banks, which are prohibited by law from issuing guarantees on behalf of third parties. State Bank A bank in the United States that receives its charter from a state based regulatory agency as opposed to a national bank chartered on the Federal level. In other countries, a state bank would be a bank that is owned by the government. Statement of Condition

Report that summarizes the status of assets, liabilities, and equity (i.e., the balance sheet) of a company for a specific period of time. Banks file sworn statements of financial condition (referred to as a call report in the United States) every quarter as per banking regulations. Bank supervision in the majority of countries consists of requiring and monitoring bank statements of condition and visits by bank examiners. Statutory Accounting Principles (SAP) Special financial reporting requirements for the insurance industry as required by various state insurance departments in the United States. It differs from the Generally Accepted Accounting Principles (GAAP) used by other U.S. industries in the reporting of their financial information. Stock Company A company that has its capital divided into shares and is publicly owned by shareholders. Stock Symbol Unique symbol composed of letters that is assigned to each quoted security. The symbol provides information regarding the security and indicates the exchange where it is traded. Stockholder Individuals or corporations that hold an ownership interest (share) in a corporation. Stop Loss A form of reinsurance that limits insurers total loss exposure to a predetermined amount and period. This type of reinsurance is offered on policies, classes of policies, or an entire book of business. STP See Straight Through Processing Straight Through Processing (STP) Refers to a movement away from sequential processing to fully automated processing of securities transactions from pre-trade information to settlement. An anticipated one-day settlement cycle for securities trading known as T+1 (one-day settlement), plus the effects of globalization and an increased need for efficiency are all driving the push for straight through processing. Strike Price Price at which an asset upon which an option is written can be purchased (if a call option) or sold (if a put option).

Sub-custodian A custodian in a foreign market who provides safekeeping and settlement services for a global custodian. Subordinated Debt A debt that takes a secondary priority to senior debt (sometimes called junior debt). In the event of bankruptcy, subordinated debtholders are not paid until all senior debt is paid in full. Subrogation The right of an insurer to pursue any course of action for collecting damages from a third party that is liable for costs relating to an insured event that has been paid by the insurer. Super Regional Bank A large bank (ranking in the top 100 banks in the U.S.) that operates a full service bank in several states outside its home state. This type of bank is found in all major geographic regions of the U.S. Supermarket Banking A type of alternate banking delivery system where banks have branches and/or automated teller machines located in supermarkets. This term may also refer to one-stop shopping whereby a financial institution provides products and services to meet all the financial needs of individuals. In the U.K., the term refers to banking services that are actually offered by the supermarkets themselves. Surcharge Fees charged to automated teller machine (ATM) users by the bank that owns the ATM. Surety Bonds A bond that backs the performance of a person or company that is bonded, such as a contractor or construction company. The surety company provides for monetary compensation if the person or company fails to perform the specified services within the stated period. Surplus The amount by which an insurance companys assets exceed its liabilities and capital.

Swap A contract to exchange a series of periodic payments between two parties. Swaps are available in all active financial markets. There are many types of swaps (e.g., interest rate, currency, forwards, commodities, and assets). Official definitions of swaps and swap related terminology are outlined in the International Swap and Derivatives Association publication, Definitions. Swaption Option to enter into a fixed for floating rate swap at a predetermined fixed rate. Sweep Account Cash management account into which funds from other accounts are transferred at the end of each business day. This vehicle is a means of aggregating balances from a multitude of different accounts so that the funds can be invested overnight in larger amounts to earn a higher yield than would be available on the investment of individual account balances. SWIFT SWIFT is the acronym for the Society for Worldwide Interbank Financial Telecommunications. More commonly, SWIFT is the name given to the payment messages network operated by SWIFT. This network is used by banks to transmit high value payment messages internationally and operates through standardized message formats in a highly secure environment. Because of the standardization, banks can process these transactions on a totally automated basis, which reduces processing costs and virtually eliminates message transmission errors. The SWIFT system also generates detailed balance and transaction information on a daily basis to facilitate the reconciliation of customer accounts. SWIFT is only a communications network, not a payments network. Payment messages sent over SWIFT still need to be settled through one of the other systems. However, SWIFT messages automatically initiate payments in many financial institutions. Syndicate Group of banks that acts jointly on a temporary basis to lend money in a large bank credit or to underwrite a new issue of bonds. Syndicates also exist in the insurance industry and act to share the risk of specific types of insurance. Lloyds of London is the largest and oldest insurance syndicate. Syndicated loan

Jumbo loan to a company, country or government agency in which many banks participate because the total amount of the loan is too large for any one bank to absorb on the basis of risk exposure to the borrower. Systemic risk Any risk that affects a large number of banks within a market or on a global basis. This is the risk that a failure of one bank caused by specific circumstances will affect an entire banking system.

Tax Exempt Special Savings Account (TESSA) Tax-free individual savings account that has been used in the past as an investment vehicle in the U.K. This type of account has now been replaced by the Individual Savings Account (ISA). Tax-Sheltered Annuity (TSA) A tax sheltered retirement investment instrument in the United States for employees of certain non-profit organizations and educational organizations. Contributions are made on the basis of a percentage of their income on a pretax basis and the annuity earns taxdeferred income until retirement. There are restrictions on withdrawals and contribution levels set forth in the U.S. Internal Revenue Code. Technical Analysis The study and research of the demand and supply dynamics of financial markets. This contrasts with fundamental analysis, which is concerned with the financial analysis of an individual company. Tender Offer The sale of securities where the seller sets a tender price to offer the securities for sale. Tenders are made where applicants state the price they are prepared to pay for the securities. The securities then are sold to the highest bidder. Term Life Insurance Life insurance that provides death benefit coverage during a limited number of years and expires without value if the insured survives the stated period.

Term Loan A loan type that specifies the time frame or period in which the principal is to be repaid. Usually the borrower pays the loan back in periodic installments plus interest. A private placement is a form of a term loan. Term Loan See Term Loan. Term structure of Interest Rates Relationship between interest rates on debt of different maturities. TESSA See Tax Exempt Special Savings Account Third Country Trading International trade that is conducted among three countries (a.k.a., triangular trading). Third Party Administrator (TPA) Insurance term that describes a third party, which is either a person or a company (not the insurer), who provides managerial and other services involved in the administration of an insurance plan for a company (the insureds). Third Pillar Term used to describe funding for financing retirement benefits as articulated by the World Bank. Under their three-pillared system, the third pillar consists of private pension programs provided primarily by insurance companies. Thrifts Thrift institutions are depository institutions that raise funds primarily from consumer deposits (e.g., savings and time deposits) and lend these funds primarily in the form of residential mortgage and consumer loans. Thrifts include savings and loan associations (S&Ls) and savings banks. Tier I

Capital A component in computing the capital adequacy of banks. It refers to the core capital, which consists of the sum of equity capital and disclosed reserves. Tier I or core capital is used to cover both credit and market risk in a banks trading and lending books Tier II Capital A secondary component in computing capital adequacy. It includes undisclosed reserves, general provisions/general loan loss reserves, asset revaluation reserves, hybrid debt-equity instruments and subordinated long-term debt. Tier II or supplementary capital is used to cover both market and credit risk in a banks trading and lending books. Tier III Capital An additional component to be faceted into the newly merged market risk and credit risk based capital adequacy framework. It refers to an additional type of capital, composed of short-term subordinated debt issues that meet specific criteria. Tier III or market risk capital can only be used to cover market risk in the calculation of capital adequacy. Time Deposits A certificate of deposit or savings account at a bank or other financial institution where funds are not available on demand. Because the funds are promised to the bank for a predetermined amount of time, the bank can invest the funds in longer term, higher yielding investments. Title Insurance An insurance policy that protects the title of a parcel or property. Essentially it insures that the ownership is as the policy states as well as the priority of any liens on the property is as the policy states. This can protect either the current or future property owner or a lender providing funds to purchase a property. Total Capital Term used to describe Tier I, Tier II and Tier III capital when calculating overall capital adequacy for a bank. TPA See Third Party Administrator. Tranche

Part of a single financing or security that is split into different maturities or principal amounts (or sometimes different currencies). Transaction Account An account over which transactions related to payments and receipts are processed. Also referred to as an operating account. Transaction Services A term that describes the various fee income generating services that a bank performs for its customers (e.g., money transfers and cash management services). Transparency Refers to the degree of full disclosure of accounting and other relevant data in financial reporting. Travelers Checks Checks issued by financial institutions that enable the holder to pay for goods and services or convert them into cash. Customers pay a fee and then sign each check. The check is an accepted form of payment worldwide once the holder has countersigned with the same signature. Treasuries A category of negotiable debt securities sold by the U.S. government and backed by the full faith and credit of the government. These include treasury bills, which are short-term securities (less than one year), treasury bonds that are long-term instruments (maturities up to 10 years) and treasury notes (medium-term securities with maturities between 1 and 10 years). Treasury Bills US Treasury debt instruments issued by the US Federal government with original maturities of one year or less. Treasury Bonds US Treasury debt instruments issued by the US Federal government with original maturities of five years or more. Treasury Bond Yields

The return on investment available to investors in Treasury bonds. The yield is equal to the interest paid on the bond divided by the current market value of the bond. Treaty A contract of reinsurance. Trust See Trusts. Trust Company A financial institution (often combined with a commercial bank) that acts as an agent or trustee. These institutions administer funds and perform fiduciary investment management services for individuals or businesses. Trust receipt Agreement signed by the Importer stating that the importer is the banks agent and is acting for the bank in selling the goods. Part of the agreement is that any outstanding loan or acceptance will be liquidated (repaid) when the sale of the goods is completed. Trustees Trustees administer trusts, which includes making investment decisions, paying taxes, filing legal reports and providing income to beneficiaries all according to the terms of the trust agreement. See also Trusts. Trusts Trusts are legal entities that earn income, pay taxes and distribute income, just like a corporation. Trusts are created when the owner of assets (called the grantor) transfers ownership of the assets to a trustee. The trustee can be an individual or an organization (e.g., a financial institution), and the trustee administers the trust, which includes making investment decisions, paying taxes, filing legal reports and providing income to beneficiaries all according to the terms of the trust agreement. Tax-Sheltered Annuity (TSA) See Tax-Sheltered Annuity.

Umbrella Policy

A policy that insures losses in excess of amounts covered by other liability insurance policies. In some instances, the policy may also protect the insured in cases not covered by the usual liability policy. Underlying Security The security that must be delivered in the event that a put or call option contract is exercised. Underwriter The person that assesses and classifies the risk that a 1) proposed insured poses to an insurance contract, or 2) proposed borrower may pose for a loan offered by a financial institution based on the credit standards of that institution. Underwriting In insurance, the term refers to the process of examining and selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk. The ultimate goal of the underwriting process is to spread the risks out among a wide enough pool of insureds. Securities underwriting refers to the process in which a firm purchases an issue of securities from a company on a commitment basis for resale to investors. Unearned Premium The portion of an insurance premium that applies to the unexpired portion of the policy period. For example, in the case of health insurance being paid in advance prior to the term of coverage, the entire premium is considered unearned until the term of coverage begins. Half way through the term, half of the premium is considered unearned and so on. Unit In the securities industry, the term refers to a minimum amount of securities allowed for trading on an exchange. It can also refer to a group of specialists who trade in a specific security, maintaining a fair and open market for that security. Unit Investment Trust (UIT) An investment vehicle (offered by a large investment firm) that consists of a fixed portfolio of securities (e.g., bonds, shares, or mortgage-backed securities). Units in the trust are sold to investors through brokers. The trust expires on a future date based on the maturity dates of the securities in the portfolio. Upon expiration, the investor receives a

proportion of the remaining principal and income in the trust. UITs are a form of mutual fund that is most commonly found in European countries. Unit Linked Annuity Contracts A type of annuity where the contract owner assigns the funds in the annuity to a variety of different investment funds offered by an insurance company. The cash value that results is based on the performance of the different investments. The return on these contracts is not at a guaranteed rate. Unit Linked Life Insurance A type of life insurance policy where premiums are invested into asset backed funds that include a variety of investments and securities. The owner of the policy determines the distribution of his funds among the different investment choices. The value of the life insurance benefit is based on the performance of the investments in the fund (variable life insurance in some countries). Universal Banks A term originally used to describe the German banking system, where banks offered both bank and non-bank financial services and were formally linked to commercial firms through equity holdings and shared directorships. Universal banks in various forms are present not only in Germany, but also in Switzerland, Sweden, the Netherlands, Austria, Belgium and Luxembourg. In the U.S., there are no universal banks because U.S. law only allows banks to hold equity investments in commercial firms under limited conditions, such as holding equity that is exchanged for debt obligations in a company restructuring under bankruptcy protection. Universal Life Insurance A form of life insurance that combines low cost term protection with a savings component. The policy is highly flexible and allows the insured to increase or decrease premium payments and coverage at different intervals over the life of the policy. Unsecured See Unsecured Loan. Unsecured Loan A loan that is made based on the reputation and credit history of the borrower and is not secured (or backed) by collateral. The borrower signs a promissory note that states the loan

conditions and terms. Credit card lending is an example of an unsecured loan offered to individuals. Unsecured Loans See Unsecured Loan.

Valuation In general, the term refers to determining the current worth of an asset. In the insurance industry, it specifically refers to examining the in-force business on a predetermined schedule (quarterly or annually) to calculate the policy reserve liability. Value at Risk (VaR) Total value of the potential risk of loss while holding a specific market position. Under the amended Basle Accord, banks can now use VaR models to compute the market risk in their portfolios that must be covered by the various tiers of capital for capital adequacy purposes. VaR See Value at Risk. Variable Annuity An annuity whose premiums are invested in a variety of investment vehicles (stocks, bonds, etc.). The annuity holder decides the allocation of their funds between the different investments that are offered and receives a return that varies based on the performance of the investments selected. Variable Costs Unit costs and/or operating expenses that vary proportionately with business volume. Variable Life Insurance A type of life insurance policy where the cash value of the policy and the death benefit fluctuate based on the investment performance of a separate account fund. Premiums are invested into a fund that includes a variety of investments and securities. The owner of the

policy determines the distribution of his funds among different investment choices. The value of the life insurance benefit is based on the performance of the investments in the fund. (Similar to Unit linked Life Insurance.) Variable Rate Loan A loan that carries a fluctuating (floating) interest rate that is tied to changes in an index rate. Rates are revised at predetermined intervals. Many commercial loan rates are adjusted against changes in the London Interbank Offered Rate (LIBOR). Variable Universal Life A type of variable life insurance where the insured selects between investment options for a portion of the premium payment. The insureds beneficiaries receive compensation upon the insureds death based on a minimum payment plus the return on the investments selected. The insured assumes some degree of investment risk, but is guaranteed a minimum return. Venture Capital Financing for start-up companies that entails greater risk than is normally acceptable, but offers the potential for higher returns. In return for their investment, venture capitalists may receive a share of the companys profits, preferred stock and/or common stock from the company. Sources of venture capital include small business investment companies (SBIC), specialized areas of banks, individual investors, investment banks and venture capital partnerships. Virtual Insurance Company A term used to describe an insurance company that outsources all of its functions and operations while it retains all aspects of the risk. Vostro Account A current (transactional) account for a bank that is held on the books of a bank in another country and is usually denominated in the currency of that country. The bank holding the account refers to it as a vostro account (your account with us). This account is typically viewed as a reciprocal arrangement related to the nostro account (our account with you). The terms nostro and vostro are frequently used in the context of foreign exchange transactions and the related transfer of funds.

WACC See Weighted Average Cost of Capital. Warehouse Receipt Document that provides evidence of the ownership of goods stored in a warehouse. Warehouse Receipt Loan A bank loan that uses a negotiable warehouse receipt as collateral. A warehouse receipt is issued when imported merchandise is placed in a warehouse for storage purposes. Since the warehouse receipt is evidence that the buyer owns the stored goods, the receipt can be used as collateral for a loan. Warrant Long-term call option issued by a company. Unlike exchange-traded options, warrants are not issued by individuals and performance on the option contract is not guaranteed by a clearing house or clearing corporation. Weighted Average Cost of Capital (WACC) Average cost of capital represented by the rate used to discount the expected cash flows of the entity. Whole Life Insurance Life insurance where the insured pays premiums over the course of their life and the policy pays a death benefit to a beneficiary. The insured pays a lifetime premium and the policy builds cash value that the insured can borrow against. The insurance company invests the premiums in traditionally secure investments and guarantees a predetermined death benefit (similar to ordinary life or straight life). Wholesale Banking Banking services offered to commercial customers such as corporations, merchant banks and other financial institutions. Wire Transfer Method of electronic funds transfer. An electronic payment order from one party to another. FedWire and CHIPS are wire transfer systems. Workers Compensation Insurance Coverage that provides compensation for injuries sustained by employees during the course of their employment (or on-the-job). Worksite Marketing

The selling of insurance products and services directly to employees of a corporation with the sponsorship of the employer. Also known as payroll deduction marketing, it is a fast growing alternative channel for insurance selling for many insurance companies. World Bank The name used for the International Bank for Reconstruction and Development (IBRD). The bank is an international organization set up after World War II to help finance the reconstruction of Europe and Asia. Today, the banks focus is on providing technical assistance, guidance and financing for major projects in developing nations. The bank is funded by the paid-in capital subscriptions of member nations, from borrowings in the global capital markets and from net earnings. Written Premiums The amount of premiums due in a year for all polices issued by an insurance company.

XML Extensible Markup Language is a way to create common, usable formats of data that can be easily shared on the World Wide Web, on intranets and for other automated uses. For example, many international associations representing financial institutions are lobbying for financial data to be shared using XML. This will create a standard allowing faster distribution and sharing of financial data, providing users (investors, analysts and other users) with faster and more efficient methods to access, manipulate and measure the data.

Yearly Renewable Term Term life insurance that gives the insured the opportunity to renew every year. The insured can renew until the time specified in the contract. (Similar to Annually Renewable Term Insurance-ART.) Yearly Renewable Term Reinsurance (YRT) A type of reinsurance in which the ceding company purchases yearly renewable term insurance from the reinsurer. Also called risk premium reinsurance or pure risk reinsurance. Yield

The return on an investment. The rate of return on an investment is expressed as an annual percentage rate. Yield curve Graphic illustration of the relationship between individual yields and maturities for a given range of securities at a given period of time. Yield to Maturity The calculation of the return an investor receives on a bond from its current date until maturity. YRT See Yearly Renewable Term Reinsurance.

ZBA See Zero Balance Account. Zero Balance Account A current account used in cash management to collect funds during a business day with the total amount of the balances on the account being transferred to a central account (often referred to as a sweep account) so that the final daily balance on the account is zero. Zero-Coupon Bond A bond that pays no interest and is redeemed for its face value at maturity. These bonds are sold at a deep discount from their face value. The return on the bond depends solely on the relationship between the purchase price and the face value. Zero-coupon bonds are considered to be very volatile due to the absence of regular interest payments.