Saturday, December 31, 2011

13. (M) Basic Banking Guide A to Z


M-1 Know your customer (KYC)
This is a prudential regulation related to the completion of KYC/ CDD requirement, minimum documentations required for opening various types of accounts, dormant account and their activation.

M-2 Anti money laundering measures
This is a prudential Regulation related to Anti money laundering measures, such as banking services will not be provided for any illegal activities, customers status and source of funds must be monitored on regular basis. In case of remittance banks must keep full information of the originator of the remittance. Staff should be properly trained to control KYC and AML measures.

M-3 Record retention
Banks / DFIs shall maintain record for a minimum period of five years, all necessary records on transactions, both domestic and international.

Customer official identification documents like passports, identity cards, driving licenses or similar documents, account files and business correspondence for at least five years after the business relationship is ended.
The records relating to the suspicious transactions reported by the bank / DFI will be retained by the bank / DFI, even after the lapse of the period prescribed above, till such time the bank / DFI gets permission from State Bank of Pakistan to destroy such record.

M-4 correspondent Banking
The banks / DFIs shall gather sufficient information about their correspondent banks to understand fully the nature of their business. Factors to consider include, Know your customer policy (KYC), Information about the correspondent bank’s management and ownership, Major business activities, their location, Money laundering prevention and detection measures, The purpose of the account. Bank should have effective KYC policy. Approval of opening correspondent banking account should be obtained by senior management

M-5 Suspicious transactions
The banks / DFIs should pay special attention to all complex, unusually large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose.

The back ground and purpose of such transactions should, as far as possible, be examined, the findings should be made available to relevant authorities in inspection and investigation.
If the bank / DFI suspects, , that funds are the proceeds of a criminal activity or terrorist financing, it should report promptly, its suspicions, through Compliance Officer of the bank / DFI to Director General, Financial Monitoring Unit,
Karachi. The report should contain, at a minimum, the following information:
(a) Title, type and number of the accounts.
(b) Amounts involved.
(c) Detail of the transactions.
(d) Reasons for suspicion.
The employees of the banks / DFIs are strictly prohibited to disclose the fact to the customer or any irrelevant quarter that a suspicious transaction or related information is being reported for investigation.

Macro economic
This is t study of the economy at the large/ aggregate level, just opposed to the specific level or sub groups level or individuals case, which is called microeconomics.

Magnetic ink character recognition (MICR)
This is a character recognition technology adopted mainly by the banking industry to facilitate auto processing of cheques. MICR characters are printed with a magnetic ink or toner, usually containing iron oxide .they are read with a MICR read head which is a device.

Mail transfer (MT)
It is the transfer of funds from one office of the bank to an other office through a funds transfer credit advice. In international banking it refers to e-mail  transmission  of funds through Simple Mail Transfer Protocol (SMTP)

Mala fide
With bad intention. It is a legal concept in which a malicious motive on the part of a party are determined and also become cause of action.

Any person who uses management powers or designated as "manager"

Managers discretionary limit
It refers to lending decision which a branch manger can take without referring to the higher management.

Managing trustee
Trustee who manages the affairs of the trust

This refers to express authorization by a person, group or entity to another to take a certain course of action. A mandate is automatically terminated on the removal from office, or death of the person given the mandate.

Essential, compulsory e.g. mandatory fields in an account opening form.

Manufacturing account
A manufacturing account is prepared to find out the cost of goods manufactured.  This includes all resources used, directly or indirectly, in the manufacture of goods.  Such as materials direct labor and direct expenses and indirect cost not directly related to production, e.g. factory rent, factory power, depreciation of plant and machinery, etc. 

Manuscript signature
Signature done by hand

Difference between the market value of a collateral and amount of the loan advanced against

Very small, e.g. very small profit can be termed as marginal profit.

Marine insurance
It refers to the coverage against loss of or damage to a ship; and cargo loss or damage over waterways, land, and air.

Maritime law
It refers to the law relating to registration, license, and inspection procedures for ships and shipping contracts, insurance and carriage of goods and passengers travel through passenger ships.

Maritime lien
It refers to the claim that binds a ship or its cargo for payment of a maritime liability associated with a voyage. A maritime lien is attaches to the vessel whether it is at open sea or in a port.

It generally refers to the difference between the highest current bid price and the lower price that a dealer pays to a customer.

Marketable securities
It refers to the securities which can be easily converted into cash at a reasonable price very quickly.

Market capitalization
It refers to the aggregate value of a company’s shares.  It is calculated by multiplying the number of shares outstanding by their market price per share. For example, if a company has 1,000,000 shares and a price per share is Rs.10, then the market capitalization is 1,000,000 x Rs 10 = Rs10, 000,000.

It refers to the management process through which goods and services move from development of idea, taking it as real shape and finally delivery to the customer on a competitive price.

Market report
It refers to the plan which includes product development, promotion, distribution, and pricing approach, identifies the company’s goals, that will be achieved within allocated time

Market research
Market research is done to find out information about target markets and its requirement, competitors, market trends, customer satisfaction with products and services, etc.

The amount added to the cost to determine the asking price. It is the difference between the cost of funds plus intermediation cost and its selling price.

Material alteration
It refers to any addition to or deletion in the text of a negotiable instrument or a legal instrument that  changes its legal effect, and may thus invalidate it.

Mates receipt
It is a temporary signed by an captain or an officer of a ship evidencing receipt of a shipment onboard.  It is an interim measure until a proper bill of lading can be issued.

It refers to the form or table in which information or entries appear governed by certain rules.

It refers to the period for which a financial agreement, guarantee, term deposit, is issued or is in force

It refers to any Communication channels through which news, entertainment, or promotional messages are transmitted. It  includes newspapers, magazines, TV, radio, billboards, direct mail, telephone, fax, and internet.

It refers to an attempt to effect an agreement or reconciliation between two parties.

Medium of exchange
It refers to the instrument used to sale, purchase or trade of goods between parties. the instrument which is used  as medium of exchange is currency.

Medium term credit
Medium term credits are defined in the policy manual of each bank. For example loan up to Rs. 50 (M) repayable in less than 7 years

Memorandum of association
This is a document that pertains with the company's external activities and must be prepared before company’s registration with the registrar. Memorandum with the articles of association forms the company's constitution. A 'memorandum,' should have, clauses of company's name, location of its registered office, It also states the company's  objectives,  amount of authorized share capital,  whether liability of its members is limited by shares.

Memorandum of deposit
This is a security document got signed by those borrowers who wanted to avail financing against shares and securities. In this document borrower declares that he / she is the beneficial owner of the security and entitled to pledge it, it constitute a continuing security, and the bank can sale it if the advance became overdue.

Mercantile law
The law which deals with customs and practices of local and international trade and  legal code that governs operations of banks insurance and businesses of all kinds.

All type of commodities, that are bought and sold in wholesale and retail.

It refers to amalgamation of two companies into one new legal entity. Mergers take place by exchange of the pre-merger shares with the shares of the new company. the resources of the merging entities are pooled for the benefit of the new company.

Metric system
This is decimal system of weights and measures, devised in France in 1791 It comprises of seven base units: (1) kilogram (kg) (2) mole (mol) for quantity of matter, (3) meter (m) for length, (4) second (s) for time, (5) Kelvin (K) for temperature, (6) ampere (A) for electric current, (7) candela (cd) for luminous intensity.

Person below legal age (commonly 18 years) in Pakistan is called minor. A minor possesses no legal capacity hence cannot enter into an agreement in his/her name.

Minority shareholders
Share holders of a company who does not have the voting control due to below fifty percent ownership of the company's equity capital.

Minute book
The register/ folder that contain detailed record of the resolutions adopted at, a company's official meetings. All registered companies  are required by law to maintain an up-to-date minute book which should be accessible to all shareholders of the company at its registered office.

This refers to the official record of the proceeding of an official meeting

It refers to the intentional, illegal use of the property or funds of another person for  own use or other unauthorized purposes, by any person whose responsibility is to take care for and protect another's assets.

An act of presenting information in a way that does not reflect truth or sometimes by concealment of facts, for the purpose of deceiving, an other person with the intention to obtain undue advantage.

Mixed economy
It refers to an economic system which allows simultaneous operation of publicly and privately owned enterprises. It combines elements of capitalism and socialism, by mixing some private ownership and state owned enterprises.

Mobile banking
Mobile Banking refers to provision and utilization of banking services with the help of mobile phone / tele-communication devices. The scope of services offered may include facilities to conduct banking transactions such as balance checks, account transactions, utility bills payments etc. this also known as SMS banking.

Monetary base
Generally it refers to the money supply, the amount of money in the economy. In banking term it refers to the commercial banks' reserves with the central bank.

Monetary policy
It refers to the central banks actions that are taken to control supply of money in the country. This includes changing the discount rates, changing bank reserve requirements, and or by open-market operations.

Monetary system
It refers to the government policies regarding money supply, policy relating to the convertibility of local currency with the others, type of exchange adopted such as fixed or floating etc. These decisions are taken by every governments by taking into account domestic economic issue.

Monetary unit
The standard unit of value of a currency, as the Pak Rupees in Pakistan dollar in the United States

Money at call
It refers to a debt which must be paid upon demand but generally it take place on predetermined period from overnight to seven days. Credit lines for institutions are predefined both for clean and against REPO .

Money lender
The person who offers small personal loans at high rates of interest. Generally they charged interest on monthly basis. Moneylenders are an important source of credit for those borrowers who are refused credit by the banks.

Money laundering
It is a process whereby, the identity of dirty money is changed/ washed through apparently legitimate transactions and process.

Money market
Network of banks, financial institutions, and large exchange companies who borrow and lend among themselves for the short-term . Money markets also trade in highly liquid financial instruments with maturities less than 90 days to one year such as bills FIB, and foreign exchange.

Money market instruments
Short-term, high grade financial instruments which are easily accepted by the market dealers such as certificates of deposit (CDs), and treasury bills.

Money supply
Total quantity of cash in an economy that can be exchanged for goods and services. Increase in money supply results to inflation and decrease leads to deflation.

It refers to a market situation where one producer or a group controls supply of a good or service. Monopolist companies keep the price high & earn maximum profit. Now a days monopolies officially exist due to copyrights, patents, exclusive technologies etc.

It refers to an agreed or officially authorized temporary delay in performance of an obligation or an action. For example, a creditor may be permitted temporary delay of repayments of a house loan till its completion.

It refers to the conditional transfer of the right of ownership in the form of lien on a property by the mortgagor (owner) to a financer  the mortgagee (bank) as security for a loan. The lien is recorded with the registrar in the register of title documents, and is redeemed when the loan is repaid in full.

Moveable assets
All assets other than land and building

Multilateral trade
Free trade between more than two countries without any restriction under an agreement

Multinational company (MNC)
Companies that are operating in several countries but managed from home country. Generally, any company that earns a quarter of its total revenue from operations outside of its home country is considered a MNC,

Multiple exchange rate
It refers to a system in a country where both fixed and floating foreign exchange rates are operating at the same time, and both can be used when exchanging currencies in that country. This is frequently used to give preferential treatment to high valued customers.

Mutilated cheque
A damaged or torn cheque that that is repaired by tape. These cheques are pad only when collecting bank confirms mutilation against available balance .

Mutual fund
A mutual fund is a company that pools money from investors and invests the pool money in stocks, bonds, short-term money-market instruments, or other securities.


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