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Assignment
An
assignment occurs when one party to a contract (a right, claim, or interest)
transfers (assigns) his or her rights under the agreement to a third person.
The person who transfers the right is called the assignor; the person to whom
the right is transferred is called the assignee. The other party to the
contract against whom the right can be exercised is the obligor.
Generally,
only contractual rights (not contractual duties) can be assigned.
Contractual duties can be delegated if they do not require personal services or
the personal attention of the obligor. To be enforceable, an assignment
must constitute a contract, i.e., a statement indicating an intent to make the
assignee the owner of the right, claim, or interest. The assignment can
usually be made orally or in writing.
Special rules have been formulated by stock exchanges to govern the assignment of stock.
Available
Fund(s)
This term
has two meanings:
1.
A fund held by a non-stick savings bank in cash or on deposit with another bank
or trust company for the purpose of paying withdrawals in excess of current
receipts, meeting current obligations, or awaiting a more favorable opportunity
for investment. In New York State this fund is limited to 20% of deposits.
2.
Total funds of a bank available at any time for conversion into earning assets
or other investment are not only its deposits but its total capital funds and
any borrowed money as well.
Bank Notes
A bank’s own
promise to pay to bearer upon demand, and intended to be used as money.
Bank notes are often referred to as circulating notes or circulation. The
current emission of note issue in the U.S. is now confined to the Federal
Reserve banks, which issue FEDERAL RESERVE NOTES. Power to issue notes
still exists in national banks, but no government bonds bearing the circulation
privilege are issued or outstanding. So does the power to issue bank notes
continue to exist in state banks, but federal 10% tax thereon in the Internal
Revenue Code continues to bar issue as a matter of feasibility. Since
March, 1935, funds have been on deposit with the Treasurer of the U.S. to cover
retirement of all FEDERAL RESERVE BANK NOTES and, since August, 1935, to cover
retirement of all outstanding NATIONAL BANK NOTES.
Certificates
of Deposit
A receipt
for the deposit of funds in a bank. Certificates of deposit (CDs) are of
several types:
1. Demand
CDs. Demand CDs are non-interest bearing and payable on demand; they
are used mainly as a guarantee of payment – for example, as lottery prizes.
2. Time
CDs. Time CDs are interest bearing and may range in maturity from 30
days to several years; denominations vary from less than $1,000 (individual CDs)
to more than $100,000 (institutional CDs); the very large denominations may be
negotiable and, properly endorsed, may serve as security for loans.
Zero-rate CDs are sometimes used in lieu of compensating balances because of
their lower reserve requirements.
3. Variable-rate
CDs. Variable-rate CDs were instituted in 1973; their interest rate is
tied to the 90-day CD rate and is adjusted every 90 days.
4. Variable
interest CDs. Variable interest plus CDs were discontinued in 1981;
their interest rate was tied to the weekly auction of six-month Treasury bills,
and they could be used as collateral for short-term loans.
Banks are
required to keep reserves against demand and time CDs corresponding to the
reserves for demand and time deposits, respectively.
Commercial
Paper
All classes
of short-term negotiable instruments (notes, bills, and acceptances) that arise
out of commercial, as distinguished from speculative, investment, real estate,
personal, or public transactions; short-term notes, bills of exchange, and
acceptances arising out of industrial, agricultural, or commercial transactions,
the essential qualities of which are short-term maturity (three to six months),
automatic or self-liquidating nature, and non-speculativeness in origin and
purpose of use.
ESCROW
A written
agreement, e.g., deed, bond, or other paper, entered into among three parties
and deposited for safekeeping with the third party as custodian to be delivered
by the latter only upon the performance or fulfillment of some condition.
The custodian or depository is obliged to follow strictly the terms of the
agreement respecting the other parties.
Encumbrance
The term has
two meanings: (1) a claim or lien on real or personal property, such as a
mortgage, which diminishes the owner’s equity in the property; (2) a reservation
of part of a governmental appropriation that is recognized at the time a
commitment is made. The purpose is to ensure that a period’s expenditures
do not exceed appropriations.
Fee
This term
has two meanings:
1.
A
commission; charge for services. This term now is rarely used in finance,
being supplanted by the term COMMISSION. It is primary used in connection
with court costs in referring to witnesses fees, jurors' fees, and lawyers'
fees.
Financial
Instruments: Recent Innovation
Wall Street
has developed numerous innovative financial instruments in recent years.
These new financial instruments are difficult to classify according to
traditional categories: debt, equity, and hedging instruments.
Frequently they are hybrid instruments. The following "Glossary of
Selected Financial Instruments" has been published in the Journal of
Accountancy, November 1989, using the following categories: Debt
instruments; Asset-backed securities; equity instruments; hedging instruments.
Debt
instruments
Asset-Backed
Securities
Equity
Instruments
Hedging
Instruments
Financier
One skilled
in FINANCE; particularly one engaged in promoting and underwriting.
Funding
The process of converting the floating indebtedness of a government or political
subdivision thereof, or a business corporation, into long-term debt.
Funding may be accomplished by converting a series of short-term note issues
into long-term bonds when interest rates are low or, in corporate finance, by
selling stock and paying off short-term debts with the proceeds. In this
way stockholders virtually buy out the interest of the creditors. Funding
by means of the sale of additional stock is usually undertaken when the equity
market is favorable.
General
Purpose Financial Statements
Financial statements that are expected to present fairly the economic facts of
the operationing, investing, and financing activities of an entity for
investors, creditors, and other users of the statements.
=
Gross
Deposits
Aggregate deposits, without any exclusions or deductions. Included in
gross deposits are all types of demand and time deposits, including deposits due
to banks and U.S. government deposits.
High-Grade
Investments
Investments of superior merit, i.e., of low financial risk (risk of nonpayment
if obligations, and risk of lack of earnings and nonpayment of dividends if
equities).
Most obligations of governmental units and such bonds of seasoned corporations
as are protected by well-established and adequate earning power, in addition to
being secured by underlying mortgages if secured obligations, belong to this
class. In general, the securities of the Federal government, the states,
and political subdivisions thereof, as well as the senior bonds of seasoned
railroad, public utility, and industrial corporations, will be found assigned
the highest investment rating, but variations in such quality will be found
among the "municipals." In their respective groups, the strongest
preferred and common stocks may be characterized as high-grade.
Highly-Leveraged Transaction
A transaction in which credit is extended in connection with LBOs, mergers and
acquisitions, or corporate restrucEagle Tradersg, and where the credit results
in an organization that has a total debt/asset ratio exceeding 75%. FDIC
recommends how bank examiners are to assess bank policy on portfolio analysis,
distribution and participation in HLTs, internal credit reviews, equity
investments, mezzazine financing, and loan-valuation reserves. The
guidelines also outline approaches to evaluating concentrations of credit and
individual highly-leveraged transaction credits. The guidelines are
primarily aimed at bank financing of corporate leveraged buyouts, and are in
part a response to political pressure related to the risks banks may assume when
financing LBOs. FDIC examiners are encouraged to use the 75% figure as a
benchmark and to make industry-specific determinations of the significance of
debt/asset ratios.
To assess the bank's full exposure to an HLT borrower, the guidelines suggest
that the examiner review all loans, extensions of credit, acquisition-related
debt and equity securities, standby letters of credit, legally binding
contractual commitments, and other financial guarantees. Under the
guidelines, an examiner should analyze relevant bank policies, credit
concentration, and individual credits.
Hypothecation
The deposit of securities or other COLLATERAL, e.g., notes, acceptances, bills
of lading, warehouse receipts, etc., as a ;ledge for the payment of a loan.
Securities must be in negotiable form before they are acceptable as collateral.
Insider
A person who, because of his employment or business connections, has intimate
knowledge of the financial affairs of a concern before such information is
published and is available to the public. He is therefore in a peculiarly
advantageous position for capitalizing on this information by speculating, i.e.,
making commitments in the securities of the concern in accordance with this
knowledge, in advance of the public.
Instrument
Any kind of document in writing by which some right is conferred or contract is
expressed. Practically all documents used in finance, e.g., check, draft,
note, bond, coupon, stock certificate, bill of lading, trust deed, trust
receipt, etc., are instruments.
Investment
Banker
A firm engaged in investment banking, i.e., financing the capital requirements
of business through the investment markets as distinguished from seasonal or
current requirements normally financed by means of bank or finance company
credit.
Leverage
The effect
of trading on the equity, i.e., use of senior capital in capitalization's, in
the form of borrowed funds, bonds, or preferred stock, ranking ahead of the
junior equity, the common stock. In addition to such capitalization
leverage, there is operating leverage, provided by relatively fixed operating
expenses relative to expanding or contracting sales or revenues. There is
also leverage provided by invested assets (or investment companies and insurance
companies) and earnings assets or deposits (for banks), relative to
stockholders’ equity or book value.
Maturity
The
terminating or due date of a note, time draft, acceptance, bill of exchange,
bond etc; the date a time instrument of indebtedness becomes due and payable,
e.g., a 60-day note become due and payable at the expiration of that period.
A check or sight or demand instrument matures upon presentation for payment.
Note
A promise to
pay as distinguished from an order to pay, such as a draft or check.
Formally defined, a note is a written promise of the maker to pay a certain sum
of money to the person named as payee, on demand or at a fixed or determinable
future date. The Board of Governors of the Federal Reserve System has
defined a promissory note as “an unconditional promise, in writing, signed by
the maker, to pay, in the United States , at a fixed or determinable future
time, a sum certain in dollars to order or to bearer.”
Program
Trading
Arbitrage
between the market for stock index futures and the stock market itself.
Arbitrage traders attempt to profit by buying in one market and selling in
another. Program traders try to buy a stock index futures contract, such
as the S&P 500 stock index, when it is cheap relative to the prices of the
underlying stocks, and sell it when it is high. If the price of the
futures contract becomes overvalued, program traders sell the futures and buy
the stocks.
Standby
Letter of Credit
A
contractual arrangement guaranteeing financial or economic performance involving
three parties – the “issuer” (bank), the “account party” (the bank customer),
and the “beneficiary”. The bank guarantees that the account party will
perform on a contract between the account party and the beneficiary. The
effect is to substitute the bank’s liability for the account party’s liability.
The account party compensates the bank for the risk. The standby letter of
credit contract typically includes provisions that allow the bank to (1) require
the account party to deposit funds to cover anticipated payments the bank must
make under the arrangement, and (4) book any un-reimbursed balance as a loan at
interest and on terms set by the bank.
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