The practice of making a profit from trading on two markets simultaneously. Such trades profit by exploiting price differences of similar financial instruments on different markets or in different forms.
If the price of wheat in Indonesia is lower than in Singapore, buying in Indonesia and simultaneously selling in Singapore will allow you to earn in the difference.
In a financial context, if the stock of company X is traded at $10 on the Singapore Stock Exchange (SGE) while it is simultaneously trading on the Indonesian Stock Exchange (IDX) for $10.50, a trader could exploit this arbitrage by buying the stock on the SGE and immediately selling the same shares on the IDX.
If you’ve heard of the banking term “bear”, you can most likely guess what a bear market is. A bear market is any market where securities prices exhibit a declining trend for a prolonged period of time. Since bears attack by clawing down, this term is associated with a falling market.
The recession following the great Wall Street stock market crash in 1929 can be referred to as a bearish market. With investors struggling to get out of the market by selling their stocks, the market incurred huge losses which led to a sustained decline in the economy, known as the Great Depression.
No, it’s not the coupon you redeem. Instead, this coupon refers to the annual interest rate due on a debt product, such as a bond or a loan. You wouldn’t be quite as happy to receive this kind of coupon!
A $1,000 bond with a coupon of five per cent pays $50 a year. Quite often, these interest payments are semi-annual, whereby the investor receives $25 twice a year.
The amount of money an insured individual pays before insurance kicks in.
Imagine your deductible is $500, but you incur medical expenses for $2,000. In this case, you’ll pay the $500, and your insurer will pick up the remaining $1,500. However, if your entire medical bill is $500 or less, you’ll pay the entire amount and your insurer will pay nothing.
A brief speech or presentation that outlines an idea for a product, service or project, it’s delivered in a short period of time – as short as an elevator ride, which is usually about 20 to 60 seconds.
If you’re looking to market your product and present it as something worth investing in, you’ll want to use an elevator pitch to get straight to the point in order to capture the client’s attention.
An investment vehicle, usually in the form of a debt instrument, that has a fixed time period of investment. A fixed term investment has the investor parting with his or her money for a specific period of time. The principal investment is later repaid to the investor at the end of the investment period.
A term deposit is an example of a fixed term investment, where investors deposit their funds with a financial institution for a specified duration. Until that period of time has elapsed, they’re forbidden from withdrawing their funds from said institution.
An illegal practice wherein market makers collectively attempt to influence the price of a stock. Corrupt companies engage in this to profit from the price movement.
When a firm buys or sells a large amount of a certain stock with a second firm doing the same and causing a buy or sell frenzy, the two firms ghosting – who are supposedly competitors – can then profit as the market is unaware of their collusion.
A security measure used in banking security to detect, prevent and dismantle cyberattacks by luring the perpetrators to a specific area of a computer system. The term is taken from the idea of a bear stealing honey from a honeypot, which serves as a temptation for the bear.
Banks lay traps for cybercriminals trying to hack into their information systems using honeypot software.
A principle whereby the insurer seeks to place the insured in the position he or she was in prior to a loss.
The insurance company agrees to indemnify – used as a verb – the policyholder against any claim arising from a breach of professional duty.
Jointly and severally
A legal term that describes the liability of a group of people bound together by an agreement, often in the context of a loan. In short, all parties are obligated to perform as required under contract, under any proportionality.
If a bank loans $500,000 to three people jointly and severally, then all three individuals are responsible for repaying the total amount of the loan to the bank.
Keep and pay
An allowance that lets a bankrupt individual keep an asset under the condition that he or she continues to make payments.
Keep and pay allows you to not have your home repossessed, although the bank could still liquidate that asset if necessary.
The non-renewal or cessation of a privilege, right or policy as a result of inaction.
An insurance policy will lapse if the holder doesn’t pay the premiums.
This is the area or function of a bank that doesn’t generate profit, but instead supports the front office in financial and legal matters. In essence, the middle office is responsible for managing risk and ensuring all transactions are executed correctly.
The treasury is part of the middle office, alongside the legal and risk management departments.
The practice of outsourcing work to companies in another country, but with the benefits of a closer offshore location.
In Singapore, nearshoring to Indonesia is better than offshoring to China because of the country’s proximity. This not only makes contact easier, but it’s also more efficient and reduces running costs.
A benefit that a person could have received, but gave it up to take another course of action. In other words, it’s an alternative given up when a decision is made.
When making big decisions much like investing in treasury bonds, clients will likely diligently research the pros and cons prior to making a choice in order to outline the potential opportunity costs.
This is a useful term for graduates looking to join the international banking segment. A parallel loan usually involves two parent companies taking loans from their respective national financial institutions before lending the resulting funds to the other company’s subsidiary.
In a parallel loan, ABC, a Singaporean company, would borrow Singaporean dollars from a Singaporean bank. On the other hand, XYZ, a Malaysian company, would borrow Malaysian Ringgits from a Malaysian bank. ABC would then lend the Singaporean funds to XYZ’s Singaporean subsidiary and XYZ would lend the Malaysian Ringgits to ABC’s Malaysian subsidiary.
Quid pro quo
A Latin phrase typically used in financial circles to describe a mutual agreement to exchange goods or services of roughly equivalent value.
A soft dollar agreement is a quid pro quo agreement whereby Firm A uses Firm B for research. In return, Firm B executes all of Firm A’s trades as an exchange of services.
The legal right for the lender to collect the pledged collateral in the event that the borrower is unable to satisfy the debt obligation.
Recourse lending provides protection to financial institutions, as they’re assured to have some sort of repayment, either in cash or liquid assets.
The initial capital used to start a business that usually comes from the founders’ personal assets, or from their close ones with the aim of covering initial operating expenses and attracting venture capitalists.
Seed capital is needed to support the preliminary activities for the launch of XYZ company, such as market research, product research and development and business plan development.
A term to describe a business that’s ready for immediate operation.
ABC is considered a turnkey business as it has a proven, successful business model that merely requires capital and labour.
The process of determining whether to accept a risk or not, and, if so, what amount of insurance the company’s willing to take on as acceptable risk, and at what rate.
Companies manage risks and accurately price risk in order to adequately cover the true cost of insuring policyholders. If an applicant’s risk is deemed to be too high, underwriters may refuse to cover it.
Not to be confused with venture capitalists, this kind of capitalists invest to exploit and profit from unsuccessful individuals or organisations that lack the resources to achieve success.
Vulture capitalists typically purchase a controlling interest in a troubled company and use its own assets as collateral for the loan used to purchase it. The vulture capitalists will then sell the company at a profit.
The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond.
Yield burning was attempted to reduce the amount of tax that was incurred on fixed-income investments.
A term used in Islamic finance to refer to the mandatory process for Muslims to donate a certain proportion of wealth each year to charitable causes.
Instances of wealth liable for Zakat include gold and silver, paper currency held in cash or in the bank, tradable assets owned by a business, herded animals and crops