AssignmentSource: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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)
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
One skilled in FINANCE; particularly one engaged in promoting and underwriting.
Funding
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h
Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
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.