Glossary of Financial Terms
Actuarial Gains or Losses – Changes in the value of the defined
benefit obligation and the plan assets due to differences between
actuarial assumptions and what has actually occurred and due
to changes in actuarial assumptions.
Actuarial Valuation (re: Pension Benefit Plans) – An
assessment of the financial status of a benefit plan performed
by an independent actuary. It includes the valuation of any plan
assets and the defined benefit obligation using estimates of
future events that will affect the costs and obligation for employee
benefits plans.
Amortized Cost – The amount at which the financial asset or
financial liability is measured at initial recognition minus principal
repayments, plus or minus the cumulative amortization using
the effective interest method of any difference between that
initial amount and the maturity amount and minus any reduction
(directly or through the use of an allowance account) for
impairment or uncollectability.
Hedge – A risk management practice used to manage interest
rate or foreign exchange exposures arising from the normal course
of business operations.
Individually Impaired Loans – Loans where there is objective
evidence that an impairment loss has occurred.
Insurance Risk – The risk that the actual experience under an
insurance policy does not follow what was anticipated at policy
inception.
Interest Rate Risk – The risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in market interest rates.
LIBOR – London Inter-Bank Offered Rate – The interest rate at
which banks in London are prepared to lend funds to first-class
banks.
Basis Point – One one-hundredth of a percentage point.
Loss Given Default – Measures the severity of loss on a facility
in the event of a borrower’s default, expressed as a percentage
of exposure at default.
CDOR – Canadian Dollar Offered Rate - An industry determined
financial benchmark and the recognized benchmark index for
Canadian bankers’ acceptances with a term to maturity of one
year or less.
Liquidity Risk – The risk that we would be unable to honour
daily cash outflow commitments or the risk that we would have
to obtain funds rapidly, possibly at an excessively high premium
during severe market conditions.
Contingent Liability – Potential debt which arises from past
events and may become an actual obligation if certain events
occur or fail to occur. Contingent liability is also referred to as
insurance policies and guarantees outstanding.
Market Risk – The risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in market
prices. Market risk comprises three types of risk: foreign exchange
risk, interest rate risk and other price risk.
Credit Risk – The risk of loss incurred if a counterparty fails to
meet its financial commitments.
Net Finance Margin – Net financing and investment income
expressed as a percentage of average income earning assets.
Defined Benefit Obligation – The actuarial present value,
without deducting any plan assets, of expected future payments
required to settle the obligation resulting from employee service
in the current and prior periods.
Net Financing and Investment Income – Revenue earned on
financing, leasing, marketable securities and investment assets,
less interest and leasing and financing related expenses.
Derivative Instruments – Financial contracts that derive their
value from changes in interest rates, foreign exchange rates, credit
spreads, commodity prices, equities, market indexes or other
financial measures. Such instruments include futures, interest
rate, foreign exchange, equity, commodity and credit default swaps.
Effective Interest Rate – The rate that exactly discounts
estimated future cash payments or receipts through the expected
life of the financial instrument or, when appropriate, a shorter
period, to the net carrying amount of the financial asset or
financial liability.
Exposure at Default – Generally represents the gross exposure
– outstanding amount for on-balance sheet exposure and loan
equivalent amount for off-balance sheet exposure.
Facultative Reinsurance – Reinsurance provided on a
transactional basis.
Foreign Exchange Risk – The risk of potential adverse impact
on the value of financial instruments resulting from exchange
rate movements.
Gross Loans Receivable – Principal amounts outstanding under
existing loan agreements.
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Navigating the Volatility
Net Revenue – Net income excluding the provision for credit
losses, claims-related expenses and administrative expenses.
Operational Risk – The risk of direct or indirect loss resulting
from the organizational environment, external events, inadequate
internal processes, people, or systems.
Performing Loans – Loans for which there is reasonable
assurance that EDC can collect the principal and interest on time.
Productivity Ratio – Administrative expenses expressed as a
percentage of net revenue excluding the unrealized gains and
losses on long-term debt and derivatives as well as the impact due
to fluctuations in the exchange rate from the rate projected in the
Corporate Plan.
Probability of Default – Measures the likelihood that a borrower
will default within a one-year time horizon, expressed as a
percentage.
Structured Entity (SE) – An entity that has been designed
so that voting or similar rights are not the dominant factor in
deciding who controls the entity, such as when any voting rights
relate to administrative tasks only and the relevant activities are
directed by means of contractual arrangements.
Undisbursed Loan Commitments – A contractual amount under
an existing loan agreement that has yet to be advanced to the
borrower.