Finance and treasury glossary
Clear, practical definitions of the finance, treasury, banking, risk and automation terms that matter, each linked to the videos and courses that explain them.
Liquidity and treasury
Cash flow forecastingProjecting the cash coming in and going out over a future period so a business or bank can plan its funding and liquidity.Collateral managementHandling the assets pledged to secure exposures, so both sides are protected if one party defaults.Economic Value of Equity (EVE)The present value of a bank's assets minus the present value of its liabilities, used to measure interest rate risk to value.Funds Transfer Pricing (FTP)The internal pricing system a bank uses to charge business lines for funding they use and reward them for funding they raise.High Quality Liquid Assets (HQLA)Assets a bank can turn into cash quickly and without material loss, held to meet the Liquidity Coverage Ratio.Interest Rate Risk in the Banking Book (IRRBB)The risk that changes in interest rates hurt a bank's earnings or the economic value of its banking book.Intraday liquidityThe cash and collateral a bank needs during the day to settle payments as they fall due, before end of day balances net out.Liquidity Coverage Ratio (LCR)A Basel III rule that a bank must hold enough high quality liquid assets to survive a thirty day stress in cash outflows.Liquidity riskThe risk that a bank cannot meet its obligations as they fall due without taking unacceptable losses.Net Interest Income (NII)The difference between the interest a bank earns on its assets and the interest it pays on its funding.Net Stable Funding Ratio (NSFR)A Basel III rule that a bank must fund its assets with enough stable funding over a one year horizon.Repurchase agreement (repo)A short term secured loan where one party sells securities and agrees to buy them back later at a slightly higher price.Working capitalThe money a business needs to fund its day to day operations, measured as current assets minus current liabilities.
Risk
BacktestingComparing a model's predictions against what actually happened to see how well it performs.Counterparty credit riskThe risk that the other party to a trade, especially a derivative, defaults before the final settlement of its cash flows.Credit riskThe risk that a borrower or counterparty fails to meet its obligations, causing a loss.Expected Credit Loss (ECL)The forward looking estimate of credit losses that banks provision for under IFRS 9, weighted by the probability of default.Expected shortfall (ES)The average loss in the worst cases beyond the Value at Risk threshold, a measure of tail risk.Exposure at Default (EAD)The amount a lender is exposed to at the moment a borrower defaults, including undrawn commitments likely to be drawn.Loss Given Default (LGD)The share of an exposure a lender expects to lose if a borrower defaults, after any recoveries.Market riskThe risk of losses from movements in market prices such as rates, foreign exchange, equities and commodities.Model riskThe risk of loss from decisions based on models that are wrong or used incorrectly.Model validationThe independent review that checks a model is conceptually sound, correctly built and fit for its intended use.Operational riskThe risk of loss from failed internal processes, people or systems, or from external events.Probability of Default (PD)The estimated likelihood that a borrower will fail to meet its obligations over a given period, usually one year.Risk appetiteThe amount and type of risk an organisation is willing to take in pursuit of its objectives.Stress testingEstimating how a bank or portfolio would perform under severe but plausible adverse scenarios.Value at Risk (VaR)An estimate of the largest loss a portfolio is likely to suffer over a set period at a given confidence level.
Capital and regulation
Basel 3.1 (Basel IV)The latest round of Basel reforms, often called Basel IV or the endgame, that revises how risk weighted assets are calculated.Basel IIIThe global set of banking rules, agreed after the 2008 crisis, that strengthened capital, liquidity and leverage standards.Capital adequacy ratioA measure of a bank's capital relative to its risk weighted assets, showing its ability to absorb losses.Common Equity Tier 1 (CET1)The highest quality bank capital, made up mainly of common shares and retained earnings.ICAAPA bank's own process for judging how much capital it needs for all its risks, reviewed by supervisors.IFRS 9The accounting standard for financial instruments, best known for its forward looking expected credit loss model for provisions.ILAAPA bank's own process for judging whether it holds enough liquidity for all its risks, reviewed by supervisors.Leverage ratioA simple backstop that compares a bank's capital to its total exposures, without risk weighting.Risk Weighted Assets (RWA)A bank's assets scaled by how risky they are, used as the denominator for capital ratios.SREPThe process supervisors use to assess a bank's risks, governance and capital, and to set any additional requirements.Tier 2 capitalA bank's supplementary capital, ranking below Tier 1, that absorbs losses if the bank fails rather than while it keeps trading.
Markets
Bond pricingValuing a bond as the present value of its future coupon and principal payments, discounted at the market yield.DerivativesFinancial contracts whose value derives from an underlying asset, rate or index, such as swaps, futures, forwards and options.DurationA measure of how sensitive a bond's price is to a change in interest rates, expressed in years.Hedge accountingAn accounting treatment that matches the timing of gains and losses on a hedge with the item it is hedging, reducing profit volatility.Interest rate swapA derivative where two parties exchange interest payments, typically swapping a fixed rate for a floating rate on the same notional amount.Yield curveA line plotting the interest rate, or yield, on bonds of the same quality across different maturities.
Data and automation
AlteryxA visual data platform that lets analysts prepare, blend and analyse data through drag and drop workflows rather than code.DataFrame (pandas)A table like data structure in the Python pandas library, the main way analysts hold and work with data in memory.ETL (extract, transform, load)The process of pulling data from sources, reshaping it, and loading it into a destination for analysis.NumPyThe core Python library for fast numerical computing, built around efficient arrays.Python for financeThe use of the Python programming language to automate analysis, modelling and reporting in finance.Regular expressions (regex)A concise pattern language for searching, matching and manipulating text.SQLThe standard language for querying and managing data held in relational databases.