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DEFINITION of 'Loan Syndication'
The process of involving several different lenders in providing various portions of
a loan. Loan syndication most often occurs in situations where a borrower
requires a large sum of capital that may either be too much for a single lender to
provide, or may be outside the scope of a lender's risk exposure levels. Thus,
multiple lenders will work together to provide the borrower with the capital
needed, at an appropriate rate agreed upon by all the lenders.
INVESTOPEDIA EXPLAINS 'Loan Syndication'
Mainly used in extremely large loan situations, syndication allows any
one lender to provide a large loan while maintaining a more prudent and
manageable credit exposure, because the lender isn't the only creditor. Loan
syndication is common in mergers, acquisitions and buyouts, where borrowers
often need very large sums of capital to complete a transaction, often more than
a single lender is able or willing to provide.
DEFINITION of 'Lease '
A legal document outlining the terms under which one party agrees to rent
property from another party. A lease guarantees the lessee (the renter) use of an
asset and guarantees the lessor (the property owner) regular payments from the
lessee for a specified number of months or years. Both the lessee and the lessor
must uphold the terms of the contract for the lease to remain valid.
INVESTOPEDIA EXPLAINS 'Lease '
Leases are the contracts that lay out the details of rental agreements in the real
estate market. For example, if you want to rent an apartment, the lease will
describe how much the monthly rent is, when it is due, what will happen if you
don't pay, how much of a security deposit is required, the duration of the lease,
whether you are allowed to have pets, how many occupants may live in the unit
and any other essential information. The landlord will require you to sign the
lease before you can occupy the property as a tenant.

DEFINITION of 'Mutual Fund'
An investment vehicle that is made up of a pool of funds collected from many
investors for the purpose of investing in securities such as stocks, bonds, money
market instruments and similar assets. Mutual funds are operated by money
managers, who invest the fund's capital and attempt to produce capital gains
and income for the fund's investors. A mutual fund's portfolio is structured and
maintained to match the investment objectives stated in its prospectus.
INVESTOPEDIA EXPLAINS 'Mutual Fund'
One of the main advantages of mutual funds is that they give small investors
access to professionally managed, diversified portfolios of equities, bonds and
other securities, which would be quite difficult (if not impossible) to create with a
small amount of capital. Each shareholder participates proportionally in the gain
or loss of the fund. Mutual fund units, or shares, are issued and can typically be
purchased or redeemed as needed at the fund's current net asset value (NAV)
per share, which is sometimes expressed as NAVPS.
A factory (previously manufactory) or manufacturing plant is an industrial site, usually
consisting of buildings and machinery, or more commonly a complex having several buildings,
where workers manufacture goods or operate machines processing one product into another.

DEFINITION of 'Forfaiting'
The purchasing of an exporter's receivables (the amount importers owe the
exporter) at a discount by paying cash. The forfaiter, the purchaser of the
receivables, becomes the entity to whom the importer is obliged to pay its debt.
INVESTOPEDIA EXPLAINS 'Forfaiting'
By purchasing these receivables - which are usually guaranteed by the importer's
bank - the forfaiter frees the exporter from credit and from the risk of
not receiving payment from the importer who purchased the goods on credit.
While giving the exporter a cash payment, forfaiting allows the importer to buy
goods for which it cannot immediately pay in full. The receivables, becoming a
form of debt instrument that can be sold on the secondary market, are
represented by bills of exchange or promissory notes, which are unconditional
and easily transferred debt instruments.
DEFINITION of 'Venture Capital'
Money provided by investors to startup firms and small businesses with
perceived long-term growth potential. This is a very important source of funding

for startups that do not have access to capital markets. It typically entails high
risk for the investor, but it has the potential for above-average returns.
INVESTOPEDIA EXPLAINS 'Venture Capital'
Venture capital can also include managerial and technical expertise. Most
venture capital comes from a group of wealthy investors, investment banks and
other financial institutions that pool such investments or partnerships. This form
of raising capital is popular among new companies or ventures with limited
operating history, which cannot raise funds by issuing debt. The downside for
entrepreneurs is that venture capitalists usually get a say in company decisions,
in addition to a portion of the equity.
DEFINITION of 'Custodian'
A financial institution that holds customers' securities for safekeeping so as to
minimize the risk of their theft or loss. A custodian holds securities and other
assets in electronic or physical form. Since they are responsible for the safety of
assets and securities that may be worth hundreds of millions or even billions of
dollars, custodians generally tend to be large and reputable firms.
INVESTOPEDIA EXPLAINS 'Custodian'
In addition to holding securities for safekeeping, most custodians also offer a
variety of other services including account administration, transaction
settlements, collection of dividends and interest payments, tax support and
foreign exchange. The fees charged by custodians vary, depending on the
services desired by the client. Many firms charge custody fees payable quarterly
that are based on the aggregate value of the holdings.
Corporate services are activities that combine or consolidate certain enterprise-wide needed
support services, provided based on specialized knowledge, best practices, and technology to
serve internal (and sometimes external) customers and business partners.

DEFINITION of 'Securitization'
The process through which an issuer creates a financial instrument by combining
other financial assets and then marketing different tiers of the repackaged
instruments to investors. The process can encompass any type of financial asset
and promotes liquidity in the marketplace.
INVESTOPEDIA EXPLAINS 'Securitization'
Mortgage-backed securities are a perfect example of securitization. By
combining mortgages into one large pool, the issuer can divide the large pool
into smaller pieces based on each individual mortgage's inherent risk of default
and then sell those smaller pieces to investors.
The process creates liquidity by enabling smaller investors to purchase shares in
a larger asset pool. Using the mortgage-backed security example, individual
retail investors are able to purchase portions of a mortgage as a type of bond.

Without the securitization of mortgages, retail investors may not be able to
afford to buy into a large pool of mortgages.
Definition of "Derivative"
A security whose price is dependent upon or derived from one or more
underlying assets. The derivative itself is merely a contract between two or more
parties. Its value is determined by fluctuations in the underlying asset. The most
common underlying assets include stocks, bonds, commodities, currencies,
interest rates and market indexes. Most derivatives are characterized by high
leverage. Futures contracts, forward contracts, options and swaps are
some common types of derivatives used in hedging or to gain leverage.
DEFINITION of 'Forex - FX'
The market in which currencies are traded. The forex market is the largest, most
liquid market in the world with an average traded value that exceeds $1.9 trillion
per day and includes all of the currencies in the world.
INVESTOPEDIA EXPLAINS 'Forex - FX'
There is no central marketplace for currency exchange; trade is conducted over
the counter. The forex market is open 24 hours a day, five days a week and
currencies are traded worldwide among the major financial centers of London,
New York, Tokyo, Zürich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.
The forex is the largest market in the world in terms of the total cash value
traded, and any person, firm or country may participate in this market.
DEFINITION of 'Line Of Credit - LOC'
An arrangement between a financial institution, usually a bank, and a customer
that establishes a maximum loan balance that the bank will permit the borrower
to maintain. The borrower can draw down on the line of credit at any time, as
long as he or she does not exceed the maximum set in the agreement.
INVESTOPEDIA EXPLAINS 'Line Of Credit - LOC'
The advantage of a line of credit over a regular loan is that interest is not usually
charged on the part of the line of credit that is unused, and the borrower can
draw on the line of credit at any time that he or she needs to. Depending on the
agreement with the financial institution, the line of credit may be classified as a
demand loan, which means that any outstanding balance will have to be paid
immediately at the financial institution's request.
DEFINITION of 'Commercial Paper'
An unsecured, short-term debt instrument issued by a corporation, typically for
the financing of accounts receivable, inventories and meeting short-term

liabilities. Maturities on commercial paper rarely range any longer than 270
days. The debt is usually issued at a discount, reflecting prevailing market
interest rates.
INVESTOPEDIA EXPLAINS 'Commercial Paper'
Commercial paper is not usually backed by any form of collateral, so only firms
with high-quality debt ratings will easily find buyers without having to offer a
substantial discount (higher cost) for the debt issue.
A major benefit of commercial paper is that it does not need to be registered
with the Securities and Exchange Commission (SEC) as long as it matures before
nine months (270 days), making it a very cost-effective means of financing. The
proceeds from this type of financing can only be used on current assets
(inventories) and are not allowed to be used on fixed assets, such as a new plant,
without SEC involvement.
treasury bill (T-bill)
Short-term (usually less than one year, typically three months)
maturity promissory note issued by a national (federal) government as
a primary instrument for regulating money supply and raising funds via open
market operations. Issued through the country's central bank, T-bills
commonly pay no explicit interest but are sold at a discount, their yield being
the difference between the purchase price and the parvalue (also called redemption value). This yield is closely watched by financial
markets and affects the yield on municipal and corporate
bonds and bank interest rates. Although their yield is lower than on
other securities with similar maturities, T-bills are very popular with institutional
investors because, being backed by the government's full faith and credit, they
come closest to a risk free investment. Issued first time in 1877 in the UK and in
1929 in the US.
DEFINITION of 'Certificate Of Deposit - CD'
A savings certificate entitling the bearer to receive interest. A CD bears a
maturity date, a specified fixed interest rate and can be issued in any
denomination. CDs are generally issued by commercial banks and are insured by
the FDIC. The term of a CD generally ranges from one month to five years.
INVESTOPEDIA EXPLAINS 'Certificate Of Deposit - CD'
A certificate of deposit is a promissory note issued by a bank. It is a time deposit
that restricts holders from withdrawing funds on demand. Although it is still
possible to withdraw the money, this action will often incur a penalty.
For example, let's say that you purchase a $10,000 CD with an interest rate of
5% compounded annually and a term of one year. At year's end, the CD will have
grown to $10,500 ($10,000 * 1.05).

CDs of less than $100,000 are called "small CDs"; CDs for more than $100,000
are called "large CDs" or "jumbo CDs". Almost all large CDs, as well as some
small CDs, are negotiable.
What is inter bank participation?
In the non-cash payment system money is transferred from a payer's account to
a payee's account. This means that the operating of the non-cash payment
system is reserved to financial institutions - banks with which clients deposit
their money on accounts. Banks execute the payments based on their clients'
instructions transmitted in the form of a written document (payment instruction
forms, cheques, etc.), or by technical means (instructions transmitted on data
media, electronically via computers linked with the bank, vocally by phone, or via
a special banking applications by mobile phone, or using a payment card, which
may also be considered an electronic payment instruction). If both the payer and
the payee have their accounts at the same bank, that bank will execute
the money transfer (account settlement) in its own clearing centre. If the payer
and the payee have accounts with different banks, the payer's bank has to use
the "interbank clearing centre" for the transfer.
Inter-Bank Participation Certificate: Inter-Bank Participation Certificates are
instruments issued by scheduled commercial banks only to raise funds or to
deploy short term surplus. This instrument is issued as per RBI guidelines for two
purposes:
a. on risk sharing basis
b. without risk sharing
Inter-Bank Participation without risk sharing can have tenure of 90 days only
where, the issuing bank as borrowing and the participating bank advances to the
banks. In case of risk sharing basis, the lender bank shares losses with the
borrowing banks by mutually determining the interest rate. The tenure may be
for 90 to 180 days.
DEFINITION of 'Zero-Coupon Convertible'
A fixed income instrument that is a combination of a zero-coupon bond and a
convertible bond. Due to the zero-coupon feature, the bond pays no interest and
is issued at a discount to par value, while the convertible feature means that the
bond is convertible into common stock of the issuer at a certain conversion price.
INVESTOPEDIA EXPLAINS 'Zero-Coupon Convertible'
The zero-coupon and convertible features offset each other in terms of the yield
required by investors. Zero-coupon bonds are often the most volatile fixedincome investments because they have no periodic interest payments to
mitigate the risk of holding them; as a result, investors demand a slightly higher
yield to hold them. On the other hand, convertibles pay a lower yield compared
to other bonds of the same maturity and quality because investors are willing to
pay a premium for the convertible feature.
DEFINITION of 'Yield'

The income return on an investment. This refers to the interest or dividends
received from a security and is usually expressed annually as a percentage
based on the investment's cost, its current market value or its face value.
DEFINITION of 'Deep-Discount Bond'
1. A bond that sells at a significant discount from par value.
2. A bond that is selling at a discount from par value and has a coupon rate
significantly less than the prevailing rates of fixed-income securities with a
similar risk profile.
INVESTOPEDIA EXPLAINS 'Deep-Discount Bond'
1. Typically, a deep-discount bond will have a market price of 20% or more below
its face value. These bonds are perceived to be riskier than similar bonds and are
thus priced accordingly.
2. These low-coupon bonds are typically long term and issued with call
provisions. Investors are attracted to these discounted bonds because of their
high return or minimal chance of being called before maturity.

DEFINITION of 'Index-Linked Bond'
A bond in which payment of income on the principal is related to a specific price
index - often the Consumer Price Index. This feature provides protection to
investors by shielding them from changes in the underlying index. The bond's
cash flows are adjusted to ensure that the holder of the bond receives a known
real rate of return.
In Canada, they also referred to as "real return bonds."
INVESTOPEDIA EXPLAINS 'Index-Linked Bond'
This type of bond is valuable to investors because the real value of the bond is
known from purchase and the risk involved with uncertainty is eliminated. These
bonds are also less volatile than nominal bonds and they help investors to
maintain their purchasing power. For example, assume that you purchase a
regular bond with a nominal return of 4%. If inflation is 3%, you will actually only
receive 1% in real terms. On the other hand, if you buy an index-linked bond your
cash flow will be adjusted to changes in inflation and you will still receive the full
4% in returns.

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