Bank of Valletta p.l.c.
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Glossary of Banking Terms
Bank of Valletta p.l.c.
Web site - Glossary of Banking Terms
A
Accrued Interest
The amount of interest which has accumulated in respect of an interest bearing security from the last payment up to settlement
date.
Actuary
Professionally qualified person who makes calculations on which pensions, insurance and investment companies base
their products. An Actuary uses statistical theory and probability to evaluate the risk involved in insurance, and therefore the
premiums payable by persons taking out insurance.
Agent
An intermediary, bank or other financial organisation that regularly performs services for another in a place or market to which
the other does not have direct access. Intermediaries may have agents in foreign countries or on exchanges of which they are
not members. Sometimes also referred to as ‘correspondent’.
Agent (insurance)
A company or person appointed by an insurance company as its representative and licensed by the MFSA. The agent
solicits, negotiates or effects contracts of insurance, and provides service to the policyholder on behalf of the insurer. See
Sub-agent.
Allocation rate
Describes how the money paid into a pension is used. The company you invest with will take some of your money for charges
(eg administration fees). The amount remaining is the allocation rate.
Annual Percentage Rate
(APR)
The interest rate that reflects the actual cost of credit on a yearly basis expressed as a percentage.
Annuity
An annuity converts a lump sum (usually from a pension fund) into retirement income.
Asset
Anything that is valuable, useful or earns money. In money terms this is used when talking about investments.
Asset allocation
The spread of investments across the asset classes.
Assignment
The legal transfer of one person's interest in an insurance policy to a third party. For example: transfer of a policy to a bank
as security for a loan.
Assurance
Life insurance – a contract between the policy owner and the insurer, whereby the insurer agrees to pay a sum of money
when the policy owner dies.
Automated Teller Machine
(ATM)
An electronic device through which customers may perform various banking transactions, including withdrawals and deposits.
Other transactions include checking your balance, ordering a cheque book and viewing your account statement.
Automatic Transfer
An arrangement that moves money at certain specified times, often monthly, from one account into a different account
Available Balance
The portion of a customer’s account balance on which the bank has placed no restrictions, making it available for immediate
withdrawals.
B
Balance
The amount of money in a particular account. In credit, balance refers to the amount owed.
Balance Due
The amount representing the sum of the pervious balance due plus cash advances and merchandise purchases for the billing
period less credit for payments plus any appropriate finance charge
Bank
An organisation that offers a range of financial services (for example current or savings accounts, loans and mortgages).
Bank Assurance
The sale of insurance through a bank. The most common type of bank assurance is when a bank requires life insurance on
mortgages. The borrower can buy the insurance directly from the bank.
Bank Cheque
A cheque that is (1) drawn on a bank, (2) signed by a bank officer or authorised signer on behalf of the bank as a drawer, (3) a
direct obligation of the bank, and (4) provided to a customer of the bank or obtained from the bank for remittance purposes.
Bank Sort Code
A number which is assigned to a branch for internal use. This number can be found on cheque books and statements, and
must be given when applying for a direct credit.
Base Rate
The Bank’s Base Rate (BBR) means the basis, established by the Bank from time to time, on which the rate of interest payable
generally on all Bank lending is determined. The applicable Bank’s Base Rate varies in accordance with the type of lending
involved, whether Business Loans, Consumer Loans or Home Loans, as quoted on the Bank’s official website.
Basic State Pension
A government-administered pension, based on the number of qualifying years gained through National Insurance contributions
(NICs) you’ve paid or been credited with throughout your working life.
Basic Point
One step on a 100-point scale representing one percent: used especially in expressing variations in the yields of bonds. Fixed
income yields vary often and slightly within one percent and the basis point scale easily expresses these changes in hundreds
of one percent. For example, the difference between 12.83% and 12.88% is 5 basis point (or 0.05%).
Bear Market
A nickname investors give the stock market when security prices are generally declining over an extended period of time.
Down markets got nicknamed bear markets because of the popular myth that bears attack with their paws pointing down.
(See Bull Market)
Beneficiary
The person who receives money or other assets from, for example, an insurance payout or inheritance on someone’s death.
The person who took out the insurance premium or owned the assets is the benefactor.
Best Market
The current highest bid and the lowest offer in a specific security
Bid
An order by a stockbroker to buy securities at a certain price. Can also refer to a price which a buyer is willing to accept for
his securities.
page 2 of 11
Bank of Valletta p.l.c.
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Bid price
The price at which an investment can be sold.
Blue Chip
Securities of a big, well-known company that has a history of good earnings. Some examples of blue chip companies are
Disney, Microsoft and British Telecom.
Blue Chip Stock
Equity ownership in highly regarded investment-quality companies that tend to be well established, older, and have the ability
to pay dividends in good and bad years.
Block-trade
A proposed match which is sufficiently large to exceed the capacity of the market. Effected during a special session in the
market.
Bond
A long-term security in which the issuer agrees to pay the owner the amount of the face value on a future date and to pay
interest at a specified rate at regular intervals.
Bond funds
Pooled investments investing in bonds.
Bonus
Share of the surplus of a life assurance company allocated to policy holders of with-profit policies.
Bounced Cheque
A cheque that a bank has refused to cash or pay because there are no funds to cover it in your account.
Broker
A person or company who acts as an intermediary and who deals with either agents or insurance companies in arranging for
coverage required by the customer, and is paid by commission.
Budgeting
A way to work out how much money you have coming in and going out each month.
Bull Market
A nickname investors give the stock market when stock prices are generally rising over an extended period of time. The bull
market got its name by the popular myth that bulls raise their heads up high when they charge. (See Bear Market).
C
Cancellation
The termination of an insurance policy before its normal expiry date, either by the insured or by the insurance company. The
cancellation clause in the policy will show the terms for such cancellation and the period of notice required.
Capital (savings &
investments)
The overall amount of money saved or invested.
Capital Gain/Loss
The profit or loss made between the buying and selling prices of shares.
Capital Growth
Any increase to your original investment after costs, charges and depreciation have been taken into account.
Capital Loss
The loss on an investment when it is sold for less than it originally cost.
Capitalisation
The value of a company obtained by multiplying the number of shares issued by their market price.
Certificate
The actual piece of paper that is evidence of ownership of a share in a company or stock issued by a government.
Certificate of Deposit
A fixed deposit on which a bank pays principal and interest at a stated maturity date.
Claim
A request for payment of a loss which may come under the terms of an insurance policy.
Clients’ Account
Intermediaries are required to establish separate bank accounts into which investors’ money available for investment
is maintained. MFSA prohibits an intermediary from using investors’ money to finance his own activities. It also requires
intermediaries to segregate such money from that of his own.
Client contract notes
A record of the details of a transaction, its total value and all relevant charges incurred.
Closed Ended Funds
Shares in Closed Ended Funds are not readily transferable on the market especially if they are not listed on a securities
exchange. Shares issued by such funds are bought and sold similar to ordinary shares. The capitalisation of these companies
remains the same unless action is taken to increase the issued share capital. (see Open Ended Funds)
Collateral
see Security
Collective Investment
Scheme (CIS)
A way of pooling contributions from lots of people into a single investment fund. The scheme or fund is divided into segments
called ‘units’, which are to some degree similar to shares. Investors take a stake in the fund by buying these units – they will
therefore become unit holders. The price of a unit is based on the value of the investments the fund has invested in (Net Asset
Value/NAV).
Commission
A payment to someone, for example a financial adviser, for arranging for a product to be sold.
Compliance Officer
An official of an intermediary whose role is to ensure that the entity complies with the all laws under which it operates and
rules issued by the Regulator
Compound Interest
Interest that is calculated on the original amount borrowed or saved, as well as any interest already charged or earned.
Concealment
Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.
Conditions
Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.
Contract
A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is
embodied in a written document called the policy.
Contract Note
A document sent by a stockbroker to a client as evidence of having bought or sold securities in accordance with the client’s
instructions. It will state the quantity of securities traded, price, the commission, the total amount due and the settlement date.
Contract of Insurance
An agreement of utmost good faith between the insurer and one or more parties, called the insured, whereby the insurer
undertakes in return for the payment of a certain consideration, called the premium, to pay to the insured a certain sum of
money or to grant certain compensation on the happening of a specified event.
page 3 of 11
Bank of Valletta p.l.c.
Web site - Glossary of Banking Terms
Convertible Bond
A type of bond that can be converted into shares of an issuing company at a specific price within a certain time frame.
Cooling-off period
The time you have to change your mind and have your money back when buying insurance or other financial products or
services. The actual time varies, so check your paperwork.
Corporate bond funds
Funds that invest in a selection of individual company bonds.
Corporate bonds
A certificate of debt issued by companies – essentially an IOU. You get a fixed income, but the price of the bond moves up
and down until maturity.
Coupon
A bond’s fixed rate of interest as a percentage of its nominal value. A 5% coupon implies that the bond pays 5% interest.
Coupon Rate
The interest rate that an issuer promises to pay periodically over the life of a bond or other debt security, expressed as a
percentage of “face value”.
Cover
The protection given by insurance.
Credit Card
Credit Cards are issued to a customer after an approval from the Bank, when the card is issued, cardholders can make
purchases at merchants accepting that card. When purchases are done using the card, customers can opt to pay the whole
balance or to carry forward part of the balance to the next month, at the cost of having interest charged.
Credit Score
A statistical method of assessing an applicant’s credt worthiness. An applicant’s credit card history; amount of outstanding
debt; the type of credit used; negative information such as bankruptcies or late payments; too little credit history, and too many
credit lines with the maximum amount borrowed are all included in the credit-scoring models to determine the credit score.
Critical illness insurance
A long-term insurance policy designed to pay a lump sum on the diagnosis of certain life-threatening or debilitating (but not
necessarily fatal) conditions.
Current Account
This type of account enables customers to deposit and withdraw their funds whenever required. When opening such an
account a cheque book is given and therefore funds may be withdrawn by writing a cheque.
Custodian
Someone who maintains assets on behalf of their owner. In the case of a minor, a custodian protects, manages and maintains
assets until the individual reaches majority age, when the assets are turned over to him or her.
D
Death Benefit
A payment made to a designated beneficiary upon the death of the life assured.
Debit Card
A banking card enhanced with ATM (automated teller machine) and POS (point-of-sale) features that can be used to purchase
goods and services electronically. The amounts are deducted directly from the card account.
Debt
A sum owned by one person to another.
Debt securities
Another name for a bond.
Debt to Equity Ratio
A company’s debt divided by its equity. In other words a determination of how much a company has borrowed versus what
the company is worth.
Declaration
A statement signed by the proposer (insured) at the foot of a proposal form, certifying the accuracy and truthfulness of the
information given to the best of his/her knowledge or belief.
Declinature
The insurer’s refusal to accept a new proposal or renew an existing policy after careful evaluation of the application for
insurance and any other pertinent factors.
Decreasing Term
Assurance
A form of Term assurance under which the sum assured decreases during the term of the policy.
Defensive Stocks
Shares of companies relatively unaffected by general fluctuations in the economy. These companies tend to have slow, steady
growth and become more popular during recessions. These companies usually provide products necessary for everyday life.
Dependant
An individual who relies on you for financial support.
Depreciation
The drop in value between the price you paid for a product and the price you can sell it for.
Derivatives
A right or an obligation to buy or sell another type of asset – such as a share or a bond – to someone else at a specific date
and time in the future. Derivatives are complicated and risky, and not usually available to retail investors.
Direct Debit
A direct debit is a payment method that allows an organisation to instruct their bank to collect varying amounts directly from
customers’ accounts. This is done when customer’s give a written authorisation to the organisation allowing them to debit
their account with the said amount.
Direct Credit
A method of payment which electronically credits the account.
Discount
The amount by which a stock may sell below its par value.
Discretionary Portfolio
Management
An account in which the customer gives the intermediary discretion to buy and sell securities, including selection, timing,
amount and price to be paid or received.
Diversification
Spreading your investments across different asset classes, or different types of investments within an asset class. Investors
diversify so they can reduce the risk of their investments losing money. If you put your money into five shares and five bonds,
for example, you’re practising diversification. In effect, you’re hoping that if one investment is not doing well, it will be offset by
most of the other investments, which presumably are making money. Buying a collective investment scheme is one of the
best ways to diversify. Collective Investment Schemes, because they are a collection of shares, bonds or other securities,
are typically diversified investments.
Dividend
A payment made to the owners of a company (the stockholders) of a portion of that company’s profits.
Duty of Disclosure
The duty of the proposer to disclose all the material facts (to the insurer) about the risk being proposed whether such facts
are requested or not.
page 4 of 11
Bank of Valletta p.l.c.
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E
Earnings per share (EPS)
EPS is the total profit that a company has made, divided up among the ownership units (shares). EPS is reported quarterly
and is calculated by dividing the net income (earnings) for the quarter by the number of shares outstanding during that quarter.
Effective Date
The date on which the insurance cover under a policy begins. Also called the Inception date.
Emergency Fund
Money you put aside to help you pay bills and buy important items if you are short of cash.
Endorsement
Any amendment to the standard terms of a policy or to the original agreed terms. These amendments are evidenced by an
additional document that is attached to the policy.
Endowment
Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured
dies prior to that date. Can be With or Without Profits.
Equities
Another name for shares in a company.
Estate
Your estate is everything you own when you die, less what you owe.
Exchange Floor
The room, area and other facilities from time to time designated or made available by the Exchange for effecting trades and
other transactions between members during trading sessions of the Exchange.
Exchange Rate
Also known as the foreign-exchange rate, forex rate or FX rate. It is the rate between two currencies that specifies how much
one currency is worth in terms of the other.
Exchange Traded Funds
(ETFs)
An open-ended investment fund which tracks certain indexes and is bought and sold on an exchange rather than through a
fund manager.
Exclusions
Things that your insurance will not cover.
Ex-Dividend
A synonym for ‘without dividend’. A share is described ex-dividend (xd or ex-div) when a potential purchaser will no longer be
entitled to receive the company’s current dividend, the right to which remains with the vendor.
Execution only
Selling or buying shares through a broker who gives no advice, but merely executes your instructions.
F
Face Value (or par value)
The value of a bond that appears on the face of the bond, unless the value is otherwise specified by the issuing company.
Face value is not an indication of market value.
Fiduciary
A person who holds something in trust for another.
Final Dividend
The dividend paid by a company at the end of its financial year.
Financial Advice
Discussion and a recommendation about the most suitable financial product for you made by an adviser who is regulated by
the MFSA.
Fixed Income Investment
A security, such as a bond, that pays a specific rate of interest.
Fixed Rate of Interest
A rate of interest that does not vary for the term of the loan or deposit. An interest rate that is fixed (i.e. it doesn’t move up or
down) for a set period of time. This is relevant to savings and mortgages.
Float
The amount of time the bank takes to clear or reject (bounce) a cheque for payment; the time at which funds are debited from
the issuer’s account.
Flotation
When a company’s shares are sold to investors and quoted on the stock exchange for the very first time.
FTSE 100
The Financial Times Stock Exchange 100 index, which is made up of the 100 largest firms quoted on the London Stock
Exchange.
Fund Manager
The expert running a unit trust, investment trust or pension fund who decides what shares, bonds or gilts the fund should
buy or sell.
G
Gearing
The use of borrowing potentially to increase the amount you get back; however, it will also increase the risk.
General Insurance
Most types of insurance, including cover for cars, homes, contents and travel.
Gilts
Bonds issued by the UK government.
Grace Period
A specified period after the renewal date of the policy, during which the policyholder will still be covered provided he pays the
premium within the grace period. Certain classes of insurance, such as Motor insurance, do not offer days of grace.
Gross
Before tax has been deducted (as opposed to net, which is after tax has been deducted).
Gross Interest
Interest paid to you before tax is taken off is gross interest. If you are a non–taxpayer you can apply to have the interest paid
gross.
H
Health Insurance
Protection which provides payment of benefits for covered sickness or injury. Included under this heading are various types
of insurance such as Accident insurance, Disability income insurance, Medical expense insurance, and Accidental death and
Dismemberment insurance.
High-yield bond funds
The same as bond funds but investing in higher-risk bonds that offer a higher interest rate.
page 5 of 11
Bank of Valletta p.l.c.
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I
Income protection
insurance (permanent health
insurance)
Insurance that pays you a monthly income if you’re unable to work due to illness or injury, until you are able to return to work,
or retirement age, whichever is the sooner.
Income tax
A tax you pay on your income above a certain level.
Inflation
Increase in the prices for goods and services.
Initial charge
When you buy a unit trust, around five per cent of your stake goes in charges. This is to pay for administration, commission
and profit to the unit trust company.
Initial Public Offering
(IPO)
The first time a company issues shares and lists on the stock exchange is known as an IPO, new share issue or flotation. The
shares offered may be existing ones held privately, or the company may issue new shares to offer to the public.
Instant Access Accounts
Savings accounts that let you take your money out whenever you want, without penalty.
Institutional Investor
A professional money manager whose job it is to put money into shares and other assets on behalf of private investors who
entrust them with money via their pension and life insurance funds. Institutional investors also manage pooled investments
such as unit trusts and investment trusts.
Insufficient Funds
A term indicating that an account does not contain enough money to cover a cheque presented for payment.
Insurable Interest
This is the financial relationship that must exist between the insured and the subject-matter of the insurance policy such that
he benefits from its safety or absence of liability or is prejudiced by its loss/damage or existence of liability. This relationship
gives the insured the legal right to insure that subject-matter.
Insurance
A product you buy to pay you money if something goes wrong. There are lots of insurance products available.
Insurance Company
Any corporation primarily engaged in the business of furnishing insurance protection to the public.
Insured
A person or organisation covered by an insurance policy, including the ‘named insured’ and any other parties for whom
protection is provided under the policy terms.
Interest
Interest refers to both the charge made by lenders on money you borrow from them and the amount earned by your savings.
Interest can be variable (goes up or down) or be fixed.
Interest Rate: Loans and
mortgages
The figure that determines how much interest you pay.
Interest Rate: Savings
The figure that shows how much interest you earn.
Interim Dividend
A dividend declared part way through a company’s financial year, authorised solely by its Board of Directors.
Investment Objective
The goal – such a growth, capital appreciation, or income – that an investor pursues. Collective investment schemes also have
investment objectives which are stated in the prospectus. The investment objective often determines the type of securities in
which the fund invests, the result expected and the level of risk with which it is associated.
Investment Portfolio
A variety of securities owned by an individual or an institution.
Investment Risk
The possibility of losing money or not gaining value in an investment.
Investor Compensation
Scheme
This is the technical term which is used to describe a scheme which provides compensation to retail investors who stand to
lose money as a result of the default or bankruptcy of an authorised intermediary. Payment of claims are limited to a specified
amount – that is, investors may receive only a part of the monies invested through an intermediary who has defaulted or gone
bankrupt.
J
Joint-life Insurance
Typically, life cover usually taken out by two related individuals which pays out when either or both people die.
K
Key Features Document
(KFD)
Important information about the financial product that you’re buying. It describes the main aspects of the product, such as its
aims and the risks.
L
Lapse
The termination or discontinuance of an insurance policy due to non-payment of the renewal premium.
Late payment fee
Charge imposed on a debtor for not paying on time.
Level Premium
A premium which remains unchanged throughout the term of a policy.
Life Assured
The person on whose death or survival the benefit under a Life assurance policy becomes payable.
Life Insurance
Life insurance is a way to provide some financial security if you die, for people who depend on you. There are different types,
but the policy usually pays out a lump sum or an income when the person insured dies.
Life Insurance
(Investment-backed)
Insurance which has two roles: to pay out when on death and to act as an investment.
Life Insurance (term)
Insurance which pays out if death happens within the time specified (the term).
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Lifestyling
An investment strategy where your investments are switched automatically as you get older to more secure holdings, such
as cash.
Linked Long Term
Contracts of Insurance or
LLTCI
An LLTCI is a Life Assurance policy linked to property of any description – such as units in a collective investment scheme. The
benefits are wholly or partly determined by reference to the value of the units in the collective investment scheme.
Liquidity
How easily one’s assets can be converted back into cash. For example, money in an account that can’t be withdrawn for five
years is not very liquid. The ability of the market in a particular security to absorb a reasonable amount of buying or selling at
reasonable price changes. Liquidity is one of the most important characteristics of a good market.
Listed Company
The security of a company that is traded on a Stock Exchange.
Listed Security
A security quoted on the stock exchange.
Loans
A sum of money lent, usually with interest. The amount lent depends on the reason why such loan is being entertained, as
well as on the customer’s salary.
Long Term Business
Policies of insurance that are not renewable annually at the option of the insurer but continue for a number of years. Life
assurances are the most common form.
M
Margin of Solvency
The total assets of an insurance company must exceed its liabilities (other than share capital) by a relevant amount, known
as the margin of solvency.
Market Imbalance
A situation in the Pre-Open market when the best bid is higher than the best offer.
Market Maker
Intermediaries, banks or stockbrokers who buy and sell securities on their own behalf to sell at a profit.
Market Official
An Exchange Official who oversees the trading operations of the Exchange in accordance with the Bye-Laws.
Market Price
The last reported price at which the security sold.
Market Size
The number of shares in which a market maker is prepared to deal either as a buyer or as a seller, at the current, displayed
prices.
Market Value Reduction
In a with-profits policy the amount that we may reduce the return if the policy is cashed in early.
Material Fact
A fact which influences a prudent underwriter in deciding whether to accept or to decline a risk and, if he accepts, in
determining the rate and the imposition of special conditions, if any.
Maturity Date
The date on which a certificate of deposit, bond or other instrument comes due.
Medical Examination
The examination given by a qualified physician to determine the applicant’s state of health. A medical examination may also
be used to determine whether an insured claiming disability is actually disabled and, if applicable, the percentage of disability.
MFSA
Malta Financial Services Authority (Regulator of financial services in Malta).
MiFID
Markets in Financial Instruments Directive.
Misrepresentation
A false, incorrect, improper, or incomplete statement of a material fact, made in the application for a policy.
Money Laundering
Money Laundering may be described as the process through the financial system of the monies received from of crime, in
order to disguise their illegal origin. Criminals mix ‘dirty’ money with ‘clean’ money, ultimately providing a legitimate cover for
the source of their income.
Mortgage
A long-term loan obtained by individuals to buy a home that legally transfers ownership from the debtor to the creditor until
the debt is paid.
MSE Account Number
An account number generated by the Malta Stock Exchange to serve as a point of reference for administrative purposes.
N
Net Assets
This is the difference between total assets on the one hand and current liabilities and non-capitalised long-term liabilities on
the other hand.
Net Asset Value (NAV)
Usually used in connection with collective investment schemes to mean net asset value per share. A collective investment
scheme computes its assets daily, or even twice daily, by totalling the market value of all securities owned. All expenses are
deducted, and the balance divided by the number of units held by the fund’s investors. The resulting figure is the net asset
value per unit.
Net Interest
Interest on savings after tax is deducted.
Nominal Value
Sometimes called the ‘face value’, this is the cost of a bond when it is issued and the amount you get back at the end of the
term.
Nominee Services
Nominee services are provided by a licensed entity to which securities are transferred to facilitate transactions and
administration, while the customer remains as the actual owner of these securities.
Non-professional investor
see Retail Investor.
page 7 of 11
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O
Offer
The price at which a person is ready to sell. For collective investment schemes, the ‘offer’ price is the price at which you
purchase units in the fund. (See spread)
Ombudsman
A type of independent complaints scheme which aims to settle disputes about financial products or services impartially.
Online banking
A service that allows an account holder to obtain account information and perform certain banking transactions through a
personal computer.
Open architecture
investments
These allow you (or your adviser) to buy investments from a number of investment managers in one place.
Open-ended Funds
Open-ended funds sell their own new units to investors, stand ready to buy back their old units, and are sometimes listed
on a stock exchange. Open-ended funds are so called because their capitalisation is not fixed, they issue more shares
depending on how much investors want to invest (in the fund). In Malta, the words SICAV p.l.c. (a French acronym that stands
for collective investment scheme with variable capital) which follows a name of a collective investment scheme denote that
the fund is open ended.
Order
An instruction from a client to a stockbroker to buy or sell securities.
Overdraft
An arrangement between the Bank and the customer which allows the customer t withdraw more than the amount of money
in the account.
P
Paid-up Policy
Policy kept in force for a reduced sum assured after the premiums have ceased to be paid prematurely.
Par
This is the face value of a security at the time of issuance. Par value does not necessarily denote Market Value.
Pension
A vehicle used to provide a replacement income when you retire. There are different types of pension. In Malta there is only
the Pension provided by the Government.
PIN (Personal Identification
Number)
A PIN is issued with your debit or credit card so that you can withdraw money from ATMs. A PIN should be memorized, never
written down and never disclosed to anyone else.
Point of Sale (POS)
Terminals that allow you to pay for retail purchases with your debit/ credit card.
Policy
The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance;
also called the policy contract or the contract.
Policy fee
A charge made by an insurer for issuing a policy.
Policy Term
That period for which an insurance policy provides coverage.
Policyholder
A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of
insurance.
Pooled investments
A way of putting various levels of contributions from lots of people into a single investment fund. There are different types and
they work in different ways.
Portfolio
A group of shares, bonds or other investments owned by a collective investment scheme or individual investor.
Premium
Sum paid to an insurance company in exchange for the insurance protection provided by a policy of insurance.
Prevention of Money
Laundering
This is the term used to describe the world-wide efforts to combat money laundering. In Malta, all intermediaries are obliged
to follow strict rules to ensure that the local financial system is not used by criminals to launder their illegal monies. As part of
this process, intermediaries must establish the identity of the investor with whom they are dealing – a process usually referred
to as “knowing your customer” – by requesting the person to provide his identity card.
Price-Earnings Ratio (P/E
Ratio)
The P/E ratio is a measure of the valuation of a company, based on the level of confidence investors have in the company
(rightly or wrongly). Generally, the higher the figure, the higher the confidence. It is worked out by dividing the current share
price by the last published earnings per share (which is the net profit divided by the number of ordinary shares).
Primary Market
Where a company first offers to sell shares to investors, with the proceeds from the sale going to the organisation.
Private medical insurance
(PMI)
Insurance that pays for you to receive private medical treatment.
Professional Investors
Professional investors would be experienced in financial matters and therefore capable of investing with minimum or without
assistance of intermediaries. (see Retail Investor)
Proposal
An application by a proposer for insurance, on a printed form. The proposer becomes the insured when the application has
been accepted and the contract brought into existence.
Proposal Form
The form used in most classes of business to elicit basic information about the insured and the risk being proposed.
Protected Fund
A type of fund that guarantees an investor at least the initial investment plus any gains or returns, if held until the contract
matures. Typically, these funds would indicate when the fund commences and the term until when it matures. During this
period the fund is able to invest in the stock market in the hope of generating a return on your investment, but with the benefit
that the initial amount invested is returned on maturity. There may be instances where no return is paid if the stock market is
unfavourable.
Put-through
Where a stockbroker has both buying and selling clients in the same security and amounting to the same size.
page 8 of 11
Bank of Valletta p.l.c.
Principal
Web site - Glossary of Banking Terms
The amount of debt, not including interest, outstanding on a loan.
Q
R
Rate of Return
The change in the value of your investment taking into account both income and growth.
Ratings
A grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor’s,
Moody’s and Fitch provide these evaluations of a bond issuer’s financial strength, or its ability to pay a bond’s principal and
interest in a timely fashion. Ratings are expressed as letters ranging from ‘AAA’, which is the highest grade, to ‘C’ (junk), which
is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lowercase letters to differentiate themselves. To illustrate the bond ratings and their meaning, we’ll use the Standard and Poor’s
format: i) AAA and AA: High credit-quality investment grade; ii) A and BBB: Medium credit-quality investment grade, iii) BB, B,
CCC, CC, C: Low credit-quality (non-investment grade), or ‘junk bonds’, iv)D: Bonds in default for non-payment of principal
and/or interest.
Record Date
The deadline, determined by a company’s board of directors, by when an investor must be recorded as an owner of shares
in order to qualify for a forthcoming dividend or share distribution.
Redemption Date
Usually associated with gilts or bonds, it is the date (set in advance) when the gilt or bond will be repaid by the issuing
government or company and you will receive the nominal value of the bond.
Redemption Price
The price at which a bond may be redeemed before maturity, at the option of the issuing entity.
Refinance
To revise a loan agreement to make the terms of payment more suitable to a borrower’s present income and ability to repay.
Refinancing usually provides a lower interest rate and lower monthly payments over a longer period of time.
Register (MFSA)
An online register of firms that are regulated by the MFSA to carry out financial services in Malta. You can check to see whether
a firm is regulated by the MFSA.
Registrar
An organisation or an individual that takes responsibility for maintaining a company’s share register.
Regular Bonus
A bonus paid to your with-profits policy each policy year which becomes guaranteed once it is paid. Also known as a
‘reversionary’ or ‘annual’ bonus.
Regulator
A body set up by law entrusted with overseeing the financial services sector. Sometimes it is also referred to as the Competent
Authority. In Malta, the regulator or competent authority for investment services is the Malta Financial Services Centre.
Reinsurance
The transfer of part or all of the risk accepted by an insurer (called the reinsured) to another insurer (the reinsurer).
Renewal Notice
The notice sent to the policyholder by the insurer to remind him that an insurance is due for renewal.
Renewal Receipt
The written evidence that a renewal premium has been paid.
Retail Investor (also referred
to as Non-Professional
Investor)
A person who buys or sells securities for his or her own account. A retail investor is dependant on the firm for information and
assistance. Therefore the level of protection of a retail investor is higher than that given to a professional investor.
Retirement
The time from when you start to take the benefits from your pension.
Reversionary Bonus
An addition to the sum assured payable in the same circumstances as the sum assured and which is guaranteed. Regular
additions are usually made to policies which have been effected as ‘with profits’ contracts, and the additions arise from
‘surplus’ funds not required by companies to cover their liabilities.
Revival
The resumption of cover under a policy which has lapsed, following the payment of the relevant premium.
Rider
A document that modifies the policy. It may increase or decrease benefits, waive a condition or coverage, or in any other way
amend the original contract. Also known as Endorsement.
Rider Policy
A policy or benefit that operates alongside a main policy such as Whole Life with a critical illness rider.
Risk
see Investment Risk.
S
Schedule
The specific details of what’s covered, and what’s excluded, by an insurance policy.
Social Security
Contributions
You pay Social Security from your pay to qualify for certain social security benefits including the State Pension.
Secondary Market
When stocks or bonds are traded or resold, they are said to be sold on the secondary market. The majority of all securities
transactions take place on the secondary market.
Security(ies)
A general term for stocks, bonds, collective investment schemes and other products. In common usage, stocks are fixed
interest securities and shares are the rest.
Settlement
Once a deal has been made, the settlement process transfers stock from seller to buyer and arranges the corresponding
movement of money between buyer and seller.
Shares
A stake or share in a company.
page 9 of 11
Bank of Valletta p.l.c.
Web site - Glossary of Banking Terms
SICAV
(Sociétéd’investissement à
capital variable)
A type of open-ended investment fund.
Smoothing
A method used to help reduce volatility in a with-profits fund by balancing out the profit made in good years against losses
made in bad ones.
Spread (Bid-Offer Spread)
The difference between the bid and offer price is the ‘spread’ – which usually represents the commission or fee. Therefore,
if you had to buy units (offer price) in a collective investment scheme and sell them on that same day (at the bid price), the
difference in the price will be the commission or fee you paid (the spread).
State Benefits
The State provides some financial help for most situations but it may depend on your income and savings (i.e. means-tested).
State Pension
A government-administered pension based on your Social Security contributions.
State Pension Age
The earliest age at which you can take your State Pension.
Stocks
Another term for shares.
Stock Exchange
A market for the sale and purchase of securities, in which prices are controlled by the laws of supply and demand. Their
basic functions is to allow public companies and governments to raise capital by selling securities to investors. They perform
valuable secondary functions in allowing those investors to buy and sell these securities, providing *LIQUIDITY and reducing
the risks attached to investment. Sometimes referred to as Stock Market.
Stockbroker
A person or entity who buys and sells securities on a Stock Exchange on behalf of an investor and receives remuneration for
this service in the form of a commission.
Structured Products
A wide range of investments which offer income, capital growth, or a combination of both based on the performance of
underlying investments. They are often complicated and you can lose some or all of the money invested in them. Also called
Structured investment products.
Sum Assured
The cash benefit guaranteed by a Life assurance policy. The maximum amount for which an insurer is liable under a policy of
indemnity or the sum payable as a benefit in policies such as Life assurance or Personal accident.
Surrender Charge
The cash benefit guaranteed by a Life assurance policy. The maximum amount for which an insurer is liable under a policy of
indemnity or the sum payable as a benefit in policies such as Life assurance or Personal accident.
Surrender Value
Cash value of a ‘whole of life’ or ‘endowment’ assurance policy when discontinued. Surrender values are small in the early
years of a policy - usually Nil over the first year or two. This is because expenses are highest at the beginning of the term of
a policy and in the first few years there has been little time for interest to accrue. Certain contracts such as Term assurances
do not acquire a surrender value.
Special Trade
A trade whose nature is classified by the Council of the Malta Stock Exchange as ‘special’. Such deals will normally have a
strategic impact on the listed company.
Standing Order
Instructions given to the bank to pay a fixed amount at regular intervals into another account. This can done to transfer
amounts between own accounts or to third parties accounts.
Statement
A detailed record of transactions in a bank customer’s account(s) for a certain period, usually each month, which shows
debits, credits, transfers, payroll deposits, account balance etc.
Stockbroking Firm
A firm consisting of one or more stockbrokers who buy and/or sell securities on behalf of an investor on a stock exchange and
receive remuneration for this service in the form of a commission.
Stop Payment
A request made to a bank so as not to pay a specific cheque. There is a charge attached to such a service, kindly confirm
the amount by viewing our tariff of charges.
T
Tax
A charge you pay to the government – there are different types of tax but income and capital gains tax are the ones most
people may be aware of.
Term
The time to the maturity of a loan or deposit, expressed in months or years.
Term Account/Deposit
Savings accounts where you have to leave your money untouched for a set period (the term).
Term Insurance (or Term
Assurance)
Life insurance giving protection for a specific amount of time (the ‘term’).
Terminal (or Final) Bonus
The bonus calculated and added at the end of your with-profits policy.
Tied Intermediary (MFSA
Register)
A firm that may be acting on behalf of an MFSA-authorised firm who accepts responsibility for the tied intermediary’s activities.
Trade Range
The percentage increase/decrease from the trade weighted average price dealt in during the last trading session in which that
particular security was trading.
Trading Session
The period during which orders can be entered, amended, cancelled and trades take place. A typical trading session
contains a Pre-Open session, a ‘Put-through’ and a ‘Block-trade’ session, ‘At the Open’and an ‘Opened’ stage.
Trading at a Discount/at
Par/at a Premium
Expressions used with investment trusts meaning the value of all the investment trust’s shares combined are below (discount),
equal to (par) or higher (premium) than the underlying investments.
page 10 of 11
Bank of Valletta p.l.c.
Web site - Glossary of Banking Terms
U
Underwriter
An insurance company that receives the premiums and accepts responsibility for the fulfilment of the policy contract;
the company employee who decides whether or not the company should assume a particular risk.
Underwriting
The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will
accept the risk.
Uninsurable Risk
One not acceptable for insurance.
Unit Trusts
A pooled investment which is ‘open-ended’. It gets bigger as more people invest and smaller when they take money out.
Utmost Good Faith
A duty imposed on both parties to an insurance contract. It is of greater force than ordinary good faith. The legal duty implies
full disclosure of all facts material to the contract during negotiations for the contract.
V
Valuation Statement
A report showing the extent to which investments have increased or decreased from all the various gains and losses registered
in a specific period.
Variable Interest Rate
Interest rates offered by banks and financial institutions on loans or deposits which are liable to change according to
circumstances. For example, a movement in the interest base rate set by the Central Bank of Malta could be an influence.
Volume
The total number of shares traded (bought and sold) in a given period of time.
W
Will
This sets out who is to benefit from your property and possessions (your estate) after your death.
With-Profits Fund
A type of fund available within a life assurance investment where premiums for a with-profits policy are pooled with other withprofits policyholders. Everyone in the fund shares the profits and losses.
With-Profits Policy
A policy such as a endowment, bond or whole-of-life policy which is invested in a with-profits fund.
Wire Transfer
An electronic payment service for transferring funds by wire. Wire transfers are guaranteed funds for the recipient, meaning
that the payment cannot be revoked by the sender or the transfer.
Whole Life Assurance
A type of assurance under which benefit is payable on death whenever it occurs. Premiums can continue throughout life or
can be limited in number. Can be ‘with’ or ‘without profits’.
X
Y
Yield
What a bond pays to investors by way of interest as a percentage of its price.
Yield to Maturity
The rate of return earned on an investment (such as a bond) bought at a specified price and held until maturity. The Yield to
Maturity equals all the interest you receive from the time you purchase the bond until maturity (including interest on interest at
the original purchasing yield) plus any gain (if you purchased the bond below its face, or par, value) or loss (if you purchased
it above its face value). The tax payable on the interest and the capital repayments is ignored.
Issue Date: 06.2014
Z
BANK OF
VALLETTA P.L.C.
2131 2020 bov.com
Issued by Bank of Valletta p.l.c.
58, Triq San Żakkarija, Il-Belt Valletta VLT 1130 - Malta
page 11 of 11