IMPORTANT DEFINITION OF FINANCIAL TERMS

IMPORTANT DEFINITION OF FINANCIAL TERMS

Q1. Certificate of Deposit (CD): What is Certificate of Deposit?

Ans: A certificate of deposit (CD) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.

Q2. What is Commercial Paper?

Ans: An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.

Q3. Treasury Bill (T-Bill): What is T-Bill?

Ans: Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest.

Q4. Government Security: What is Government Security?

Ans: A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation.

Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).

Q5. Graduated Payment Mortgage: What is Graduated Payment Mortgage?

Ans: A type of fixed-rate mortgage in which the payment increases gradually from an initial low base level to a desired, final level. Typically, the payments will grow 7-12% annually from their initial base payment amount until the full payment is reached. In a graduated payment mortgage, only the low initial rate is used to qualify the buyer, which allows many people who might not otherwise qualify for a mortgage to own a home. This type of mortgage payment system may be optimal for young home owners as their income levels gradually rise to meet higher mortgage payments.