FMI definitions

1. Accounts Receivable: the payment that the business has to receive

from its customers who have purchased the goods or services on
credit. The money owed to a company by its debtor.

2. BSE: The Bombay Stock Exchange is Asia’s oldest Stock Exchange,

located in Dalal Street, Mumbai, and established in 1875. It provides
a platform for buying and selling various financial products,
including equities, derivatives, commodities, and bonds.
Sensex a.k.a sensitivity index is the stock market index showing the
performance of 30 major companies actively traded in the BSE.

3. NSE: The National Stock Exchange (NSE) is one of the biggest

and leading stock exchanges in India, established in 1992. It is
located in Mumbai and was created to provide a modern,
transparent, and online trading platform for securities, including
equities, derivatives, commodities, and debt instruments.

The Nifty 50 index represents the performance of 50 major

companies listed on the NSE, and the volumes traded are way more
than BSE.

4. Clearing House: a financial institution that acts as an intermediary

between buyers and sellers in financial markets, ensuring that
transactions are completed smoothly and efficiently. It guarantees
the completion of trades by confirming that the buyer has the
money to pay and the seller has the goods to deliver. It acts as a
safety net to avoid financial problems.

In India, both the National Securities Clearing Corporation

(NSCCL) for the NSE and the Indian Clearing Corporation
Limited (ICCL) for BSE serve as clearing houses.

5. Commercial Paper: a short-term debt instrument issued by

corporations to raise funds for their immediate financial needs, such
as working capital or paying off short-term liabilities. It is typically
issued at a discount to its face value and matures within 1 year.
They are unsecured, meaning no collateral, and are funded by large,
stable financial companies with high credit rating

6. Derivatives: Financial contracts whose value is derived from the

price of an underlying asset, such as stocks, bonds, commodities, or
currencies. It is often used by investors and companies to
speculate on the movement of the underlying asset or to
hedge(protection) against price fluctuations. They are complex and
risky. Common types of derivatives include:
Futures: Agreements to buy or sell an asset at a predetermined
price at a specified time in the future.
 Options: Contracts that give the holder the right, but not the
obligation, to buy or sell an asset at a specific price within a set
period.
Swaps: Agreements between two parties to exchange cash flows or
other financial instruments, usually to manage interest rate or
currency risk.
7. Factoring: a financial transaction in which a business sells its
accounts receivable (invoices) to a third party, known as a factor,
at a discount. This allows the business to receive immediate cash
instead of waiting for the customers to pay their invoices over time.
In this arrangement, the factor assumes the responsibility of
collecting the payments from the business's customers. The
business receives a percentage of the invoice amount upfront, while
the factor typically keeps a portion as their fee and interest. Once
the customer pays the full amount, the factor gives the remaining
balance to the business, minus their fee.

8. Financial Systems: the financial system of an

9. economy consists of three main components:
1) Financial markets;
2) Financial intermediaries (institutions);
3) Financial regulators.
A financial market is a market where financial instruments are
exchanged or
traded. Financial markets provide the following three major
economic
functions:
1) Price discovery
2) Liquidity
3) Reduction of transaction costs
Financial intermediaries have a number of important roles:
●  Risk reduction (reducing the risk of a single default by lending
to
a wide variety of individuals and businesses)
●  Aggregation (pooling small deposits to enable larger advances
to
be made)
●  Maturity transformation (satisfying the different timescale needs
of lenders (generally shorter) and borrowers (generally longer))
●  Financial intermediation (bringing together lenders and
borrowers)

10. Floor pricing: In the stock market, floor pricing refers to the
minimum price at which a security (such as a stock or bond) can be
traded. This price is typically set to prevent the asset from being
sold at excessively low levels, which can harm investor confidence
 and market stability. Some exchanges impose price bands, which act
as a floor and ceiling for how much a stock’s price can move in a
single trading day. These are designed to prevent excessive
fluctuations in stock prices. n certain cases, regulators or exchanges
may intervene to set a temporary floor price on stocks in times of
extreme market conditions, such as during economic crises or in the
case of unusual market activity.

11. Forward Trading: Forward trading refers to a type of

financial transaction in which two parties agree to buy or sell an
asset (such as commodities, currencies, or financial instruments) at
a predetermined price on a specified future date. Unlike futures
contracts, forward contracts are typically customized agreements
and are traded over-the-counter (OTC), meaning they are not
standardized or traded on an exchange.
These contracts are not traded on an exchange, meaning they are
directly negotiated between the buyer and the seller, often with the
help of intermediaries like brokers.

12. Fund-based financial services: Fund-based financial

services refer to financial activities that involve the management,
creation, and movement of funds or capital. These services typically
focus on providing financial products that deal with money directly,
such as loans, investments, and asset management. The goal of
fund-based services is to mobilize funds from those who have
surplus capital (investors, depositors) and channel it to those who
need funds (borrowers, companies).
13. Key Types of Fund-Based Financial Services:
14. Lending Services (Loans and Advances):
15. Banks and Financial Institutions lend money to
individuals, businesses, or governments. The funds are typically
provided in the form of loans or credit, which must be repaid with
interest over time.
16. Examples: Home loans, personal loans, business loans, and
overdraft facilities.
17. Asset Financing:
18. This involves the provision of funds for the purchase of assets,
such as vehicles, machinery, or equipment. These funds are
typically given as loans secured by the asset being purchased.
19. Example: Equipment financing, vehicle loans, and leasing
services.
20. Investment Services:
21. Financial institutions and investment firms manage funds by
investing them in various instruments like stocks, bonds, mutual
funds, and real estate.
22. Mutual Funds: Pooling money from investors to invest in
diversified portfolios of stocks, bonds, etc.
23. Private Equity and Venture Capital: Providing funds to
startups or businesses in exchange for equity ownership.
24. Wealth Management and Advisory Services:
25. These services cater to high-net-worth individuals (HNWI) who
need personalized financial planning and investment advice. Fund
managers guide clients in managing their wealth by creating
diversified investment portfolios and advising on risk management.
26. Treasury and Fund Management:
27. This involves the management of cash and liquid assets for
corporations, ensuring that there is enough liquidity for day-to-day
operations while also investing surplus funds for higher returns.
28. Securitization:
29. The process where financial assets like loans (mortgages, car
loans, etc.) are pooled together and then sold as securities to
investors. This allows the original lenders to obtain funds upfront,
which they can then lend out again.
30. .
31.
32. Insider trading:
33. IPO
34. Loan syndication
35. Mutual Fund
36. NPA
37. Prospectus
38. Put Option
39. Repo instrument