JAIBP Stage III flashcards

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

Cash Reserve Ratio

A regulator-mandated percentage of net demand and time liabilities that a bank must hold as cash with the central bank, earning no interest and constraining lendable funds.

Dual Control

A control requiring two authorised officials to act together on sensitive operations such as vault access, blank stationery, and safe deposit boxes, so no single person controls the asset.

Dormant Account

An account with no customer-initiated transaction for the bank's specified period; reactivation requires fresh identification and, where applicable, updated KYC.

Drawing Power

The maximum amount a borrower may draw under a cash credit limit, computed from eligible paid stock and receivables after applying the margin and deducting unpaid stock.

Debt Service Coverage Ratio

Net profit plus depreciation plus interest on term loan, divided by interest plus the instalment due; a ratio below the lender's benchmark indicates weak repayment capacity.

Hypothecation

Creation of a charge over movable assets without transferring possession to the lender; the borrower retains use while the bank holds a charge.

Non-Performing Asset

A loan where principal or interest has remained overdue beyond the regulator's specified period, triggering income reversal, higher provisioning, and closer monitoring.

Turnover Method

A working capital assessment where permissible bank finance equals twenty percent of projected annual turnover, with the borrower contributing at least five percent as margin.

UCP 600 Examination Period

The issuing bank has five banking days following presentation to examine documents and give notice of refusal; failing to notify in time can bar it from claiming discrepancies.

CIF Incoterm

Cost, insurance, and freight: the seller delivers goods on board, pays freight to the named destination port, and provides insurance, while risk passes at loading.

On-Demand Guarantee

A guarantee payable on the beneficiary's first written demand without proof of default, exposing the issuing bank to payment regardless of underlying contract disputes.

Net Open Position

The difference between a bank's assets and liabilities in a foreign currency, capped by treasury limits to control exchange rate risk.

Murabaha

A cost-plus sale where the bank acquires the asset, bears ownership risk, and sells it to the customer at a disclosed profit on deferred payment terms.

Musharakah

A partnership where parties contribute capital, share profit per agreed ratio, and bear loss strictly in proportion to capital contributed.

Mudarabah

An arrangement where one party supplies capital and the other supplies effort and management; profit is shared per ratio and monetary loss falls on the capital provider absent negligence.

Ijarah

A lease of a specified asset or usufruct for a rental; the lessor keeps ownership and bears major maintenance obligations, unlike a financing sale.

Sukuk

Certificates representing undivided ownership in tangible assets, usufruct, or a project, with returns tied to the underlying asset rather than to debt interest.

Shariah Supervisory Board

An independent body of scholars with authority to issue fatwas, approve products, and oversee Shariah compliance, including profit distribution and charity purification.

Modified Duration

A measure of a bond's price sensitivity: the approximate percentage change in price for a one percentage point change in yield.

Liquidity Coverage Ratio

High-quality liquid assets divided by net cash outflows over a thirty-day stress period; the ratio must meet the regulator's minimum to demonstrate short-term resilience.

Value at Risk

The maximum expected loss over a defined holding period at a stated confidence level; it does not quantify losses beyond that confidence level.

Operational Risk

The risk of loss from inadequate or failed internal processes, people, systems, or external events; strategic and reputational risk are excluded from this definition.

Interest Rate Gap

The difference between rate-sensitive assets and liabilities repricing in a time bucket; a positive gap benefits from rising rates, a negative gap from falling rates.

Wrong-Way Risk

Arises when derivative exposure to a counterparty increases as that counterparty's credit quality deteriorates, so collateral and limits must reflect the correlation.

Suspicious Transaction Report

A confidential report filed with the financial intelligence unit when a transaction has no apparent economic purpose or suggests proceeds of crime, made without tipping off the customer.

Fit and Proper Test

Criteria for directors and senior managers covering integrity, competence, financial soundness, and absence of disqualification, applied at appointment and on material change.

Connected Party Exposure Limit

A prudential cap, expressed as a percentage of capital, on aggregate lending to related parties, who must be financed on arm's-length terms with disclosure.

Customer Confidentiality Duty

A bank may disclose customer information only where law requires, the customer consents, or a regulator's statutory power compels it, with each disclosure documented.

Whistleblowing Channel

A confidential route for staff to report misconduct, with protection from retaliation and escalation of serious cases to the audit committee or board.

Know Your Customer

Identity, address, and beneficial ownership verification at onboarding, with risk-based periodic updates that are more frequent for high-risk customers.

Forward Rate Formula

Forward rate equals spot rate multiplied by one plus quote-currency interest times days over 360, divided by one plus base-currency interest times days over 360.

Priority Sector Target

A regulator-set minimum share of adjusted net bank credit to be lent to specified sectors; shortfalls are typically met by parking funds in designated low-yield instruments.