BIBF Financial Advice Programme flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Net Present Value

The sum of a project's future cash flows discounted at the required rate of return, minus the initial outlay. A positive NPV indicates the project adds value.

Internal Rate of Return

The discount rate that makes a project's net present value equal to zero. It is compared with the hurdle rate, but can misrank mutually exclusive projects.

Fisher Effect

The relationship linking nominal and real interest rates and inflation, where one plus the nominal rate equals one plus the real rate multiplied by one plus inflation.

Beta Coefficient

A measure of an asset's sensitivity to movements in the overall market. A beta above one means the asset is more volatile than the market portfolio.

Modified Duration

A bond risk measure giving the approximate percentage change in price for a one percentage point change in yield, calculated as Macaulay duration divided by one plus yield.

Liquidity Coverage Ratio

A Basel standard requiring a bank to hold enough high-quality liquid assets to survive a thirty-day stress scenario, calculated as liquid assets divided by net stressed outflows.

Common Equity Tier 1

The highest-quality regulatory capital, mainly ordinary shares and retained earnings, measured as a ratio to risk-weighted assets to absorb losses before other capital tiers.

Diversification Effect

The reduction in portfolio risk achieved by combining assets whose returns are not perfectly positively correlated, since individual fluctuations partly offset each other.

Insurable Interest

A legal or financial relationship in which the policyholder benefits from the subject's continued existence or suffers loss from its damage, required for a valid insurance contract.

Utmost Good Faith

The mutual duty on proposer and insurer to disclose all material facts relevant to the risk, breach of which may allow the insurer to avoid the contract.

Principle of Indemnity

The rule that property and liability claims restore the insured to the pre-loss financial position, never exceeding the actual loss or the sum insured.

Subrogation

The insurer's right, after paying a claim, to pursue recovery from the negligent third party responsible for the loss, preventing the insured from recovering twice.

Average Clause

A co-insurance provision reducing a claim in proportion to under-insurance, calculated as the loss multiplied by the sum insured divided by the required insured value.

Reinsurance Quota Share

A proportional treaty in which the reinsurer accepts a fixed percentage of every risk within the treaty, receiving the same share of premiums and paying the same share of losses.

Excess of Loss Cover

A non-proportional reinsurance arrangement in which the reinsurer pays losses above an agreed attachment point, up to a stated limit, for each loss or event.

Cooling-Off Period

A regulatory window after policy inception during which the policyholder may cancel the contract and receive a refund of premium, subject to stated conditions.

Murabaha

A Shariah-compliant cost-plus sale in which the institution buys an asset and resells it to the client at a disclosed mark-up payable in instalments.

Musharakah

A partnership in which partners contribute capital and share profits by agreed ratio, while losses are borne strictly in proportion to each partner's capital contribution.

Mudarabah

A profit-sharing contract between a capital provider and an entrepreneur who manages the venture; the provider bears financial loss absent negligence or misconduct by the manager.

Ijarah

A Shariah-compliant lease of a specified asset or usufruct for a rental, in which the lessor retains ownership and responsibility for major maintenance.

Riba

Any predetermined increase or interest charged on a loan of money, or an unjust gain in exchange, which Islamic finance prohibits as a core principle.

Gharar

Excessive uncertainty or ambiguity in the essential terms of a contract, such as unclear price, subject matter or delivery, which invalidates a transaction.

Sukuk

Investment certificates representing undivided ownership in tangible assets, usufruct or a project, so returns derive from the underlying asset rather than a debt.

Takaful

A cooperative form of protection in which participants contribute to a pooled fund on a donation basis and share any surplus under Shariah-compliant governance.

Open Banking

A framework requiring banks, with customer consent, to share account data with licensed third parties through secure application programming interfaces, promoting competition.

Strong Customer Authentication

A requirement that electronic payments be verified using at least two independent factors from knowledge, possession and inherence, reducing fraud risk.

Tokenisation

The process of replacing sensitive data such as card numbers with a non-sensitive surrogate token, so the original credential is not stored or transmitted.

Shared Responsibility Model

A cloud arrangement in which the provider secures the underlying infrastructure while the regulated firm remains accountable for data, access control and compliance.

Data Minimisation

A data protection principle limiting collection and processing to personal data that is adequate, relevant and necessary for the stated purpose.

Straight-Through Processing

The automated completion of a transaction end to end without manual intervention, commonly used as a measure of digital operating efficiency.

Recovery Time Objective

The maximum acceptable duration for restoring a system or process after disruption, used to design and test operational resilience arrangements.

RegTech

The application of data analytics and automation by regulated firms to meet compliance obligations more efficiently, including reporting, monitoring and screening.