• Banking Terms – X, Y & Z

     

    Term

    Meaning

    Yield Curve A yield curve (also called the term structure of interest rates) represents a snapshot in time of the yields offered by bonds of the same type – and, in particular, of the same credit quality – but of different maturities. The yield curve is actually the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower in a given currency. For example, the current U.S. dollar interest rates paid on U.S. Treasury securities for various maturities are closely watched by many traders, and are commonly plotted on a graph which is informally called “the yield curve.”
    Yield Curve Risk Yield curve risk is the huge risk involved in a fixed income instrument, due to major fluctuations in the market rates of interest.
    Yield to Call (YTC) The yield on a bond calculated on the supposition that the issuer will redeem the amount at the first call as stated on the bond’s prospectus is called as yield to call.
    Yield to maturity (YTM) The Yield to maturity (YTM) of a bond denotes the internal rate of return the bond provides to the investor if the investor holds the bond until maturity and all the coupon payments and principal payment at the end are paid properly as per the schedule. Yield to maturity varies with the current market interest rate and the current market value is affected by the change in the yield to maturity value.
    Z score Z score is a measure, used in the banking field, to determine the difference between a single data point and a normal data point.
    Zero Balance Account A checking account in which balance is always maintained as Zero in order to have control over disbursements. The zero balance account will be credited by the exact amount of the check from the master account when the actual transaction takes place. Once the account is debited the balance is retained to Zero. These accounts are used by corporate which wants to have centralized cash control.
    Zero Cost Collar A type of arrangement, wherein, the borrower buys a cap from the bank and sells the floor. In this arrangement, the cost of the cap is recovered by sale proceeds of the floor or vice versa.
    Zero Coupon Bond  A bond with no coupon that is sold at a deep discount from par value.
    Zero Coupon Yield Curve Zero coupon yield curve is also called as spot yield curve, and is used to determine discount factors.
    Zero-Down-Payment Mortgage Zero-down-payment mortgage is a type of mortgage given to a buyer who does not make any down payments while borrowing. The mortgage buyer borrows the amount at the entire purchase price.

     

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