GLOSSARY

List of Financial Terms in alphabetical order:

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IBCA Rating Credit rating on debt and financial institutions given by IBCA, a rating agency similar to Moody's and Standard & Poor's. IBCA, which is based in the U.K., concentrates on rating banks and other financial institutions compared to the corporate focus of the other two rating agencies.

IBF See International Banking Facility

IBNR See Incurred But Not Reported Reserves

IFAs See Independent Financial Advisors

Immediate Annuity An annuity whose payment begins immediately after payment of the initial premium.

Immobilized Securities Securities held by a depository after they have been issued. Accounts at the depository are credited and debited in response to trading activity, but the actual securities remain at the depository and are not delivered to the investor.

IMF See International Monetary Fund.

Impaired loan Loan judged likely to produce a loss because a specific event, such as late principal or interest payments, has occurred. Past due loans and loans on non-accrual status are also described as impaired loans.
Impairment Describes when an insurance company's surplus falls below statutory minimums and regulatory action is imminent.

Import Credit Letter of Credit in which the importer (buyer) is the bank's customer. For example, an exporter in New York is selling to an importer in Malaysia. The importer requests its Malaysian bank to open a letter of credit (once open, this is now called an import credit).

Incurred But Not Reported Reserves (IBNR) Loss reserve account on an insurer's balance sheet that reflects claims that are expected based upon actuarial estimates but have not yet been reported to the insurance company.
Incurred Losses Losses paid or incurred for claims covered by a policy during a specific coverage period as stated in the policy.

Indemnity A term usually used in property and casualty insurance that refers to compensation for a loss intended to restore the insured to the same financial state that existed prior to the loss.

Indenture A contract stating the terms for repayment of a bond. It specifies the time, interest payment amount, repayment amounts (amortizations) and convertibility options.

Independent Financial Advisors (IFAs) Insurance professionals in the U.K. and other countries who provide financial advice to customers and are required to disclose the compensation they receive as a result of selling different financial products to their customers.

Index A method used to measure market performance based on statistical measures of the changes in a portfolio of stocks that represent a portion of the overall market. An example is the Standard and Poors' Index that measures overall change in value of the 500 stocks of the largest companies in the U.S.

Index Swap A type of interest rate swap where the principal amount is tied to an index rate, such as LIBOR. In theory, the index protects the party with the fixed rate from prepayment risk.

Indirect Loan A loan made to an individual or corporation that originated outside of a bank. Examples include the financing of automobiles or mobile homes and the use of mortgage brokers.

Individual Retirement Account (IRA) A personal tax deferred retirement account in the U.S. for employed people.Individuals can contribute yearly and these contributions are deductible against their earned income. Interest and profits accumulate in the account on a tax-deferred basis. Withdrawals without penalty can be made starting at age 591/2. Early withdrawals are subject to penalties. If an employee receives a lump sum payment due to termination or changes in employment, the law allows the sum to be rolled over into another IRA account.

In-force premiums Aggregate premiums from all insurance policies recorded before the specified date that have not expired or been cancelled.

Individual Savings Account (ISA) Savings accounts in the U.K. with annual contribution limits that are exempt from income tax and capital gains. This account replaces the personal equity plan (PEP) and the tax-exempt savings account (TESSA).

Initial Margin For an individual investor, this represents the amount of money they need to deposit in their brokerage account (specified by regulators) to open a margin account. Once the initial amount is deposited, the investor can deal with the broker on margin (credit). This is also the minimum deposit that a futures exchange or clearing house requires from customers for each futures contract in which the customer has a net long or short position. The initial margin is based on the volatility of price movement of the underlying instrument. Since these margins relate to exchange traded contracts, either the exchange or the related clearing house sets the minimum margin requirements for their clearing members.

Initial Public Offering (IPO) The first offering of a company's shares (or stock) to the public ("going public"). IPO's provide existing equity investors in a company with the ability to profit from their initial investment since the shares at issuance will be given a market value based on the company's projected future growth. Company's typically go public to attract capital, increase the shareholder base of the company and provide the shareholders with a liquid market to trade their shares.

Insolvency The inability to meet financial obligations (debts) on an ongoing basis. It also refers to the inability of a financial institution (e.g., insurance companies and banks) to meet a specific solvency test imposed by a regulatory agency.

Institutional Investor An organization such as mutual funds, banks and pension funds that trade and invest in large volumes (or blocks) of securities. Because institutional investors make such large trades, they sometimes have greater access to the markets and are catered to more by financial institutions as compared to individual investors.

Institutional Investors See Institutional Investor.

Insurable Risk A risk which meets most of the following criteria: a) The loss insured against must produce a definitive loss not under the control of the insured, b) It must be accidental. (c) It must be large enough to cause a hardship to the insured. (d) The insurance company must be able to determine a reasonable cost for the insurance. (e) The insurance company must be able to calculate the chance of loss.

Insurance A system of protection against losses where individuals and companies reduce risk by transferring the risks to an insurer in exchange for a fee (or premium). The insurer agrees, for a fee, to compensate the insured if specified losses occur.

Insurance Exchange Term used to describe a facility that provides a market for reinsurance and for the insurance of large and unusual domestic and foreign risks that are difficult to insure through normal channels. Examples include the New York Insurance Exchange and the Insurance Exchange of the Americas.

Insurance Underwriter An employee at an insurance company that evaluates a risk to determine whether or not insurance coverage will be issued and on what basis the coverage can be written (price, structure, etc.)

Insured The person whose life, property or exposure to liability is insured. Organizations that hold a policy are also sometimes referred to as "insureds."

Interbank Market Any market in which the primary counterparties are banks or other financial institutions.

Interchange Fees Fees paid by banks to other banks in a shared ATM network for allowing customers of one bank to withdraw money by using ATMs of other banks. This term also refers to fees charged by a credit card issuing bank to a merchant's bank for making payments to the merchant for credit card transactions prior to receiving payment from the cardholder.

International Banking Facility (IBF) Division of an existing U.S. banking operation that is allowed to conduct Eurocurrency business, but is prohibited from issuing negotiable certificates of deposit. IBFs were allowed by the Federal Reserve Board beginning in December 1981 and have since become popular with the U.S.-based operations of foreign banks, such as the Italian and Japanese banks. Other countries, such as the Philippines, have also allowed similar entities for the purpose of conducting off-shore (non-domestic) international business.

Interest Rate Risk Risk that interest rates will rise leading to an increase in the interest liabilities of borrowers or the risk that interest rates will fall leading to a decline in the interest income of floating rate investors/lenders. In a bank, interest rate risk arises from interest rate mismatches (fixed vs. floating) in the volume and maturity of interest-sensitive assets, liabilities and off-balance sheet items.

Interest Rate Swap When two parties agree to exchange interest payments for a specific period based on a notional amount of principal. More precisely known as "single currency interest rate swaps", these are derivatives that allow a borrower to convert medium- to long-term floating-rate liabilities to fixed-rate liabilities and vice versa. Interest rate swaps can be floating/floating or floating/fixed and the actual principal is not exchanged.

Intermediary Person or institution that acts between two unrelated parties, such as a bank's traditional role as an intermediary between depositors and borrowers.

International Monetary Fund (IMF) An organization set up in 1944 that focuses on lowering trade barriers and stabilizing currencies. The organization helps developing countries pay their debts through credits, loans, and acts as an advocate for fiscal reform. Monies used by the Fund come from the treasuries of the developed nations in the form of member subscriptions.

In The Money Refers to a call option when the strike price that can be paid for its underlying asset is below the price of that asset, or to a put option with a price above the price of the asset on which the put was written.
Inventory In financial services, this refers to securities purchased and held by a dealer for sale to customers at a future date.

Investment Banking The process whereby a financial institution is engaged in the underwriting and issuing of securities for mergers, acquisitions, initial public offerings and other general corporate purposes. Investment banks also assist their customers in issuing debt and provide advice and access to the capital markets.

Investment Grade Securities Securities rated AAA to those rated BBB, which includes securities determined to have the lowest risk of default to those with a reasonable degree of default risk.

Investment Risk The risk that the market value of an investment will drop. For example, if a financial institution buys 1,000 shares of a stock for $50 per share, and the share price drops to $45 a share, the financial institution will lose $5,000.

Investment Securities Securities purchased to be held to maturity.

IPO See Initial Public Offering

IRA See Individual Retirement Account

ISA See Individual Savings Account

Issue A stock or bond offered for sale by a company or a government agency through an underwriter.

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