IBSL Intermediate in Applied Banking and Finance (IABF) Exam flashcards

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

RTGS

Real-Time Gross Settlement: a payment system that settles each high-value interbank transfer individually and irrevocably in real time, reducing settlement risk versus deferred net settlement.

Nostro account

A bank's account held with a foreign correspondent bank in the correspondent's local currency, used to settle cross-border payments and hold foreign currency balances.

Vostro account

A correspondent bank's account held with the reporting bank, denominated in the reporting bank's currency; it is the mirror image of the correspondent's nostro account.

KYC

Know Your Customer: the regulated process of verifying a client's identity, ownership and risk profile before opening accounts or processing transactions, forming the basis of AML controls.

Enhanced due diligence

Heightened identity, source-of-funds and source-of-wealth checks applied to higher-risk customers such as politically exposed persons or those linked to high-risk jurisdictions.

Expected credit loss

The probability-weighted estimate of credit losses equal to probability of default times loss given default times exposure at default, discounted to the reporting date.

Risk-weighted assets

Total exposures adjusted by regulatory risk weights, forming the denominator for capital adequacy ratios such as CET1, Tier 1 and total capital.

Liquidity Coverage Ratio

High-quality liquid assets divided by net cash outflows over a 30-day stress period; the Basel III minimum is 100 percent.

Net Stable Funding Ratio

Available stable funding divided by required stable funding over a one-year horizon, designed to limit reliance on short-term wholesale funding; minimum 100 percent.

Double-entry bookkeeping

An accounting method in which each transaction posts equal debits and credits, keeping assets equal to liabilities plus equity after every entry.

Bank reconciliation

The process of matching the bank's internal ledger to an external statement, explaining differences through items such as uncleared deposits, outstanding cheques and bank charges.

Operational risk

The risk of loss from inadequate or failed internal processes, people, systems, or external events; it excludes strategic and reputational risk under Basel definitions.

Segregation of duties

An internal control that separates authorisation, custody and recording of transactions among different staff so no single person controls an entire process.

Settlement risk

The risk that one party delivers its leg of a transaction but the counterparty fails to deliver the other leg, leaving the first party exposed to loss.

Compound interest

Interest calculated on both the original principal and previously accumulated interest, giving growth of FV = PV(1+r)^n over n periods at rate r.

Present value

The current worth of a future cash flow, computed as FV divided by (1+r)^n, where r is the discount rate and n the number of periods.

Annuity factor

The present value of one currency unit paid each period for n periods, equal to [1-(1+r)^-n]/r; multiply by the payment to value an annuity.

Perpetuity

A level payment stream continuing forever; its present value equals the payment divided by the discount rate, with growth handled by subtracting the growth rate.

Bond yield to maturity

The single discount rate that equates a bond's future coupons and principal to its current price, assuming the bond is held to maturity and coupons reinvested at that rate.

Duration

The weighted average time to a bond's cash flows; modified duration estimates the percentage price change for a one-unit change in yield.

Convexity

The curvature of the price-yield relationship; positive convexity means duration underestimates price gains when yields fall and overestimates losses when yields rise.

CAPM

A model pricing an asset as the risk-free rate plus beta times the market risk premium, where beta measures sensitivity to systematic market movements.

Beta

A measure of an asset's systematic risk relative to the market; a beta above one indicates greater volatility than the market portfolio.

Net present value

The sum of a project's discounted cash inflows minus its initial outlay; a positive NPV at the cost of capital indicates value creation.

Internal rate of return

The discount rate that makes a project's net present value equal to zero; it can give misleading rankings for mutually exclusive or non-conventional cash flow projects.

Interest rate parity

A no-arbitrage condition linking spot and forward exchange rates to the interest rate differential between two currencies, preventing covered arbitrage profits.

Purchasing power parity

The theory that exchange rates adjust so identical goods cost the same across countries, implying currency moves reflect relative inflation differentials over time.

Money multiplier

In the simple model, the inverse of the reserve requirement ratio; it shows the maximum deposit expansion from an initial increase in bank reserves.

Fisher effect

The relationship that the nominal interest rate approximately equals the real rate plus expected inflation, or exactly (1+nominal)=(1+real)(1+inflation).

Yield curve inversion

A situation where short-term interest rates exceed long-term rates, often interpreted as a signal of expected easing and weaker future economic growth.

Systematic risk

Market-wide risk affecting all assets, such as interest rate or recession risk; it cannot be diversified away and is the risk rewarded in equilibrium pricing.