If there is one thing I have learnt over time is that not everything is common knowledge. Some things that you or I consider to be common knowledge are unknown to some people. That is why I have grown to appreciate that no one is to be ridiculed when they ask questions. Looking at the fields of business and finance, there is a lot to know. This makes it necessary to define fundamental concepts or terms. I have done this in separate articles on specific areas before, e.g. sales, cryptocurrency, and business and entrepreneurship. Our focus today is frequently used terms in the banking industry.
Savings And Checking (Or Cheque) Accounts
A savings account is a bank account that you open to keep the money either for the short term or the long term. Normally it is an account whose balance accrues interest. You can make deposits or withdrawals at any time so long it is in line with the respective bank’s policies. It does not have a maturity date, plus it seldom requires a minimum balance.
A checking account is also one in which you can deposit money. It might or might not accrue interest; it depends on the bank. The money in it is subject to withdrawal using cheques. Most people use checking accounts for receiving recurring payments such as salaries. They also use it for making day-to-day transactions. The fundamental difference is that savings accounts are for saving money. Yet checking accounts are typically for daily or regular transactions.
Let us suppose you have money in a bank account or your mobile money wallet. You might want to access that money from an ATM. You might also want to access that money to make payments, e.g. at till points in supermarkets. A debit card is a specialized electronic card that you use to appropriate that money electronically. When you do any transaction, be it a withdrawal or payment, the money is debited or deducted from your account immediately.
This is the profit realized when one entity sells (or disposes of) a capital asset. It can be profit realized from holding a capital asset when its market value is rising. For example, a financial institution can sell or dispose of some of its properties or entire investments.
This refers to the measure of how much one or an entity has money or assets (immediately convertible to cash) to meet immediate obligations. It can be considered a measure of the ability of current assets to meet current liabilities. It can also refer to the extent of how quickly an investment portfolio can be converted to cash with minimal or zero loss in value.
This is an exclusive or informal financial market where banks borrow short-term funds from other banks having excess liquidity. The borrowing and lending are done in accordance with stipulated internal limits. Some of the major players in all of this are the government, central bank, investors, and corporations. Activities in this market determine currency exchange rates.
This happens when a business is discontinued or when it has become bankrupt. It is a process where the remaining assets are sold in order to settle debts to creditors. In the event that after settling all that, there is money remaining, it is shared amongst the shareholders. Shareholders of an entity can be the ones who choose to roll out a liquidation process. In other cases, creditors might be the ones who seek court approval to initiate the process.
This is a system designed to cater for low-income people or entities. Its thrust is for such people or entities to access financial products or services easily. It is mostly a 3-tier system that facilitates savings, lending, and insurance for low-income domains.
When you see the term ‘fiscal’, refers to public or government revenues, spending, debt, and finance. In basic terms, the government realizes revenue and spending. By the end of a financial year, the government would have two key figures: total revenue and expenditure. When the total expenditure exceeds the total revenue, there is a fiscal deficit. The difference between those two figures is what is called the fiscal deficit.
I am sure you might have something along the lines of ‘blue chip’ companies. The term was inspired by the fact that the most valuable chip in poker is a blue chip. Thus, a blue chip is a term used to refer to stocks or investments with high value or prices due to their perceived reliability. These are stocks or investments of often big, prestigious, and profitable enterprises. When an entity is labelled a blue chip firm or company, its earnings and dividend payments are always exceptional. Even the long-term growth projections are solid and reliable.
This is a decentralized financial market or system comprising the stock market, the money market, and the bond market. The system facilitates the demand and supply of debt and equity capital. It streamlines the flow of money from financial institutions (e.g. banks and insurance companies) to those borrowing or being invested in. This is done through the use of shares, bonds, and the like – commonly referred to as securities.
Credit Crunch (Or Credit Squeeze)
This refers to when banks are so depressed that they cannot issue loans. Loans will be highly sought after but hard to access. The major cause of a credit crunch is usually governmental interference. For example, the government might impose stricter terms on banks issuing loans in a bid to control inflation.
This is the act of stealing money or property done by someone entrusted to or responsible for taking care of those assets. This typically applies to scenarios where an employee or someone in management steals company assets.
The banking industry is quite huge; no wonder we could only cover just some of the frequently used terms. It is essential to familiarize yourself with these terms and more. They directly or indirectly have a bearing on your personal life.