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Viva Terms

Bank Interview

Sub: Finance & Banking

Prepared By: Habib Adnan
Contact: adnan
fb page: Bank focus writinlg

Habib Adnan

Finance describes the management, creation and study of money, banking, credit,
investments, assets and liabilities that make up financial systems, as well as the study of
those financial instruments.

Private Finance includes the Individual, Firms, Business or Corporate Financial activities to
meet the requirements.

Public Finance concerns with revenue and disbursement of Government’s Financial matters.

Wealth maximization is known as value maximization or net present worth maximization.

Profit maximization is called as cashing per share maximization. It leads to maximize the
business operation for profit maximization

Financial statement is an organized collection of data according to logical and consistent

accounting procedures. Its purpose is to convey an understanding of financial aspects of a
business firm. It may show a position at a moment of time as in the case of a balance-sheet
or may reveal a service of activities over a given period of time, as in the case of an income

Income Statement

Income statement is also called as profit and loss account, which reflects the operational
position of the firm during a particular period. Normally it consists of one accounting year. It
determines the entire operational performance of the concern like total revenue generated
and expenses incurred for earning that revenue

Position Statement

Position statement is also called as balance sheet, which reflects the financial position of the
firm at the end of the financial year.

Position statement helps to ascertain and understand the total assets, liabilities and capital
of the firm.

Statement of Changes in Owner’s Equity

It is also called as statement of retained earnings. This statement provides information about
the changes or position of owner’s equity in the company.

Statement of Changes in Financial Position

Income statement and position statement shows only about the position of the finance,
hence it can’t measure the actual position of the financial statement. Statement of changes in
financial position helps to understand the changes in financial position from one period to
another period.

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Liquidity Ratio

It is also called as short-term ratio. This ratio helps to understand the liquidity in a business
which is the potential ability to meet current obligations. This ratio expresses the relationship
between current assets and current assets of the business concern during a particular period.
The following are the major liquidity ratio:

Current ratio = Current assets / Current liabilities

Quick ratio = (Current assets – Inventories) / Current liabilities


= (Cash and equivalents + Marketable securities + Accounts receivable) / Current liabilities

Activity Ratio

It is also called as turnover ratio. This ratio measures the efficiency of the current assets and
liabilities in the business concern during a particular period. This ratio is helpful to
understand the performance of the business concern. Some of the activity ratios are given

Accounts Receivable Turnover=Total Credit Sales/Accounts Receivable

Average Collection Period=365 Days/Accounts Receivable Turnover

Inventory Turnover=Total Annual Sales or Cost of Goods Sold/Inventory Cost

Days in Inventory=365 Days/Inventory Turnover

Solvency Ratio

It is also called as leverage ratio, which measures the long-term obligation of the business
concern. This ratio helps to understand, how the long-term funds are used in the business
concern. Some of the solvency ratios are given below:

Debt to equity = Total debt/ Total equity

Debt to assets = Total debt / Total assets

Interest coverage ratio = Operating income (or EBIT) / Interest expense

Profitability Ratio

Profitability ratio helps to measure the profitability position of the business concern.

Gross Margin = Gross Profit/Net Sales * 100

Operating Margin = Operating Profit / Net Sales * 100

Return on Assets = Net Income / Assets * 100

Return on Equity = Net Income / Shareholder Investment * 100

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A stock is a type of security that signifies ownership in a corporation and represents a claim
on part of the corporation's assets and earnings.

Weighted Average Cost Of Capital - WACC

Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which
each category of capital is proportionately weighted .

Money Market

The money market is where financial instruments with high liquidity and very short maturities
are traded. It is used by participants as a means for borrowing and lending in the short term,
with maturities that usually range from overnight to just under a year. Among the most
common money market instruments are eurodollar deposits,

negotiable certificates of deposit (CDs), bankers acceptances , Treasury bills , commercial

paper, municipal notes ,

federal funds and repurchase agreements (repos).

Capital Markets

Capital markets are markets for buying and selling equity and debt instruments. Capital
markets channel savings and investment between suppliers of capital such as retail investors
and institutional investors , and users of capital like businesses, government and individuals.
Capital markets are vital to the functioning of an economy, since capital is a critical
component for generating economic output. Capital markets include

primary markets , where new stock and bond issues are sold to investors, and secondary
markets , which trade existing securities.

Common Stock

Common stock is a security that represents ownership in a corporation. Holders of common

stock exercise control by electing a board of directors and voting on corporate policy.
Common stockholders are on the bottom of the priority ladder for ownership structure; in the
event of liquidation , common shareholders have rights to a company's assets only after
bondholders, preferred shareholders and other debtholders are paid in full.


The parts of corporate securities are called as preference shares. It is the shares, whichhave
preferential right to get dividend and get back the initial investment at the time of winding up
of the company.

DEFERRED SHARES Deferred shares also called as founder shares because these shares
were normally issued to founders. The shareholders have a preferential right to get dividend
before the preference shares and equity shares.These shares were issued to the founder at
small denomination to control over the management by the virtue of their voting rights.

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When the shares are having no face value, it is said to be no par shares. The value of shares
can be measured by dividing the real net worth of the company with the total number of


A Debenture is a document issued by the company. It is a certificate issued by the company

under its seal acknowledging a debt.debenture includes debenture stock, bonds and any
other securities of a company whether constituting a charge of the assets of the company or


The term capital refers to the total investment of the company in terms of money, and assets.
It is also called as total wealth of the company. When the company is going to invest large
amount of finance into the business, it is called as capital.


Capitalization is one of the most important parts of financial decision, which is related to the
total amount of capital employed in the business concern

Over Capitalization

Over capitalization refers to the company which possesses an excess of capital in relation to
its activity level and requirements. In simple means, over capitalization is more capital than
actually required and the funds are not properly used.

Under Capitalization

Under capitalization is the opposite concept of over capitalization and it will occur when the
company’s actual capitalization is lower than the capitalization as warranted by its earning
capacity. Under capitalization is not the so called inadequate capital.

Watered Capitalization

If the stock or capital of the company is not mentioned by assets of equivalent value, it is
called as watered stock. In simple words, watered capital means that the realizable value of
assets of the company is less than its book value

Capital Structure

Capital structure refers to the kinds of securities and the proportionate amounts that makeup
capitalization. It is the mix of different sources of long-term sources such as equity shares,
preference shares, debentures, long-term loans and retained earnings.

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The term financial structure is different from the capital structure. Financial structure shows
the pattern total financing. It measures the extent to which total funds are available to finance
the total assets of the business.Financial Structure = Total liabilities Or Financial Structure =
Capital Structure + Current liabilities


Optimum capital structure is the capital structure at which the weighted average cost of
capital is minimum and thereby the value of the firm is maximum.

Modigliani and Miller Approach

Modigliani and Miller approach states that the financing decision of a firm does not affect the
market value of a firm in a perfect capital market. In other words MM approach maintains
that the average cost of capital does not change with change in the debt weighted equity mix
or capital structures of the firm.

Cost of Capital

Cost of capital is the rate of return that a firm must earn on its project investments to
maintain its market value and attract funds.

Explicit cost is the rate that the firm pays to procure financing.

Implicit cost is the rate of return associated with the best investment opportunity for the firm
and its shareholders that will be forgone if the projects presently under consideration by the
firm were accepted.

Cost of Equity

Cost of equity capital is the rate at which investors discount the expected dividends of the
firm to determine its share value.Conceptually the cost of equity capital (Ke) defined as the
Minimum rate of return that a firm must earn on the equity financed portion of an investment
project in order to leave unchanged the market price of the shares.

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Cost of Debt

Cost of debt is the after tax cost of long-term funds through borrowing. Debt may be issued
at par, at premium or at discount and also it may be perpetual or redeemable.

The overall cost of capital can be calculated with the help of the following formula;Ko=Kd Wd
+ Kp Wp + Ke We + Kr Wr

Where,Ko = Overall cost of capital

Kd = Cost of debt

Kp = Cost of preference share

Ke = Cost of equity

Kr = Cost of retained earnings

Wd= Percentage of debt of total capital

Wp = Percentage of preference share to total capital

We = Percentage of equity to total capital

Wr = Percentage of retained earnings


Leverage refers to furnish the ability to use fixed cost assets or funds to increasethe return to
its shareholders


The leverage associated with investment activities is called as operating leverage


Financial leverage represents the relationship between the company’s earnings before
interest and taxes (EBIT)or operating profit and the earning available to equity
shareholders.Financial leverage is defined as “the ability of a firm to use fixed financial
charges to magnify the effects of changes in EBIT on the earnings per share”.


Working capital leverage measures the sensitivity of return in investment of charges inthe
level of current assets.

Financial BEP

It is the level of EBIT which covers all fixed financing costs of the company. It is the levelof
EBIT at which EPS is zero.

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Indifference Point

It is the point at which different sets of debt ratios (percentage of debt to total capital
employed in the company) gives the same EPS


Dividend refers to the business concerns net profits distributed among the shareholders. It
may also be termed as the part of the profit of a business concern, which is distributed
among its shareholders.

Cash Dividend

If the dividend is paid in the form of cash to the shareholders, it is called cash dividend. Itis
paid periodically out the business concerns EAIT (Earnings after interest and tax).

Stock Dividend

Stock dividend is paid in the form of the company stock due to raising of more finance.Under
this type, cash is retained by the business concern. Stock dividend may be bonus issue. This
issue is given only to the existing shareholders of the business concern.

Bond Dividend

Bond dividend is also known as script dividend. If the company does not have sufficient
funds to pay cash dividend, the company promises to pay the shareholder at a future specific
date with the help of issue of bond or notes.

Property Dividend

Property dividends are paid in the form of some assets other than cash. It will distributed
under the exceptional circumstance.

Yield To Maturity (YTM)

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until the
end of its lifetime.

Capital Budgeting

capital budgeting is a long-term planning for making and financing proposed capital out budgeting is concerned with the allocation of the firms source financial resources
among the available opportunities. Capital budgeting consists in planning development of
available capital for the purpose of maximizing the long-term profitability of the concern.

Pay-back Period

Pay-back period is the time required to recover the initial investment in a project.

Pay-back period = Initial investment / Annual cash inflows

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Accounting Rate of Return or Average Rate of Return

Average rate of return means the average rate of return or profit taken for considering the
project evaluation

Net Present Value

Net present value describes as the summation of the present value of cash inflow and
present value of cash outflow. Net present value is the difference between the total present
value of future cash inflows and the total present value of future cash outflows.

Internal Rate of Return

Internal rate of return is time adjusted technique. In other words it is a rate at which discount
cash flows to zero.It is expected by the following ratio:

Cash inflow / Investment initial.

Modified internal rate of return (MIRR) assumes that positive cash flows are reinvested at the
firm's cost of capital, and the initial outlays are financed at the firm's financing cost. By
contrast, the traditional internal rate of return (IRR) assumes the cash flows from a project are
reinvested at the IRR. The MIRR more accurately reflects the cost and profitability of a

Economic Order Quantity (EOQ)

EOQ refers to the level of inventory at which the total cost of inventory comprising ordering
cost and carrying cost. Determining an optimum level involves two types of cost such as
ordering cost and carrying cost.


Lease may be defined as a contractual arrangement in which a party owning an asset

provides the asset for use to another, the right to use the assets to the user over a certain
period of time, for consideration in form of periodic payment, with or without a further

Financing lease

Financing lease is also called as full payout lease. It is one of the long-term leasesand cannot
be cancelable before the expiry of the agreement. It means a lease for terms that approach
the economic life of the asset, the total payments over the term of the lease are greater than
the leasers initial cost of the leased asset.For example: Hiring a factory, or building for a long
period. It includes all expenditures related to maintenance.

Operating lease

Operating lease is also called as service lease. Operating lease is one of the short-termand
cancelable leases. It means a lease for a time shorter than the economic life of the assets,
generally the payments over the term of the lease are less than the leaser’s initial cost of the
leased asset.

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Sale and lease back

Sale and lease back is a lease under which the leasee sells an asset for cash to a prospective
leaser and then leases back the same asset, making fixed periodic payments for its use. It
may be in the firm of operating leasing or financial leasing.It is one of the convenient
methods of leasing which facilitates the financial liquidity of the company.

Letter of Credit

A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be
received on time and for the correct amount. In the event that the buyer is unable to make
payment on the purchase, the bank will be required to cover the full or remaining amount of
the purchase.

Back-to-back letters of credit consist of two letters of credit (LCs) used together to finance a
transaction. A back-to-back LC is usually used in a transaction involving an intermediary
between the buyer and seller, such as a broker, or when a seller must purchase the goods it
will sell from a supplier as part of the sale to his buyer.

Venture Capital

Venture Capital termed as long-term funds in equity or semi-equity form to finance hi-tech
projects involving high risk and yet having strong potential of high profitability.


Factoring is a service of financial nature involving the conversion of credit bills into cash.

Merchant Banking

A merchant banking is one who underwrites corporate securities and advises clients on issue
like corporate mergers. Merchant banking is basically service banking which providesnon
financial services such as issue management, portfolio management, asset
management,underwriting of new issues, to act as registrar, share transfer agents, trustees,
provide leasing,project consultation, foreign credits, etc. The merchant bankers may function
in the form of a bank, financial institutions, company or firm.


Mutual fund is one of the funds based financial services which provides the stock market
benefits to small investors. It is a concept, leading to attract the small investors to invest their
pooling of savings in a trusted as well as profitable manner. Mutual funds act as a link
between the investor and the stock market.

Non-banking Financial Institutions

Non-banking Financial Institutions are providing fund based services such as

investment,insurance, mutual funds and lending institutions.

Treasury bill: Treasury Bills issued by the government as an important tool of raising public
finance with a maturity of less than one year.

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Bill of exchange: A non-interest-bearing written order used primarily in international trade that
binds one party to pay a fixed sum of money to another party at a pre determined future date.

Monetary policy: The actions of a central bank, currency board or other regulatory committee
that determine the size and rate of growth of the money supply, which in turn affects interest
rates. Monetary policy is maintained through actions such as increasing the interest rate, or
changing the amount of money banks need to keep in the vault (bank reserves).

Fiscal policy: In economics and political science, fiscal policy is the use of government
revenue collection (taxation) and expenditure (spending) to influence the economy. The two
main instruments of fiscal policy are changes in the level and composition of taxation and
government spending in various sectors. Through fiscal policy, regulators attempt to improve
unemployment rates, control inflation, stabilize business cycles and influence interest rates in
an effort to control the economy.

Gross domestic product (GDP) is the market value of all officially recognized final goods and
services produced within a country in a given period of time.

Gross national product (GNP) is the market value of all the products and services produced in
one year by labor and property supplied by the residents of a country. Unlike Gross Domestic
Product (GDP), which defines production based on the geographical location of production,
GNP allocates production based on ownership.

Dear-money policy: A policy in which a government reduces the amount of money being
spent in an economy by raising interest rates, making it more expensive to borrow money.

Dear money: money which has to be borrowed at a high interest rate, and so restricts
expenditure by companies.

Clearing House: A clearing house is a financial institution that provides clearing and
settlement services for financial and commodities derivatives and securities transactions.

Call Money: Money loaned by a bank that must be repaid on demand. Unlike a term loan,
which has a set maturity and payment schedule, call money does not have to follow a fixed

Money laundering refers to a financial transaction scheme that aims to conceal the identity,
source, and destination of illicitly-obtained money.

Rate of return: The gain or loss on an investment over a specified period, expressed as a
percentage increase over the initial investment cost.

Mobile banking

Mobile banking is a system that allows customers of a financial institution to conduct a

number of financial transactions through a mobile device such as a mobile phone or personal
digital assistant.

Capital markets: are financial markets for the buying and selling of long-term debt- or
equity-backed securities.

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Soft currency: A currency with a value that fluctuates as a result of the country's political or
economic uncertainty. As a result of the of this currency's instability, foreign exchange dealers
tend to avoid it. Also known as a "weak currency".

Hard currency: A currency, usually from a highly industrialized country, that is widely accepted
around the world as a form of payment for goods and services. A hard currency is expected
to remain relatively stable through a short period of time, and to be highly liquid in the forex

Plastic money: debit cards, credit cards, used instead of cash.

Investment Bank - IB'

An investment bank (IB) is a financial intermediary that performs a variety of services.

Investment banks specialize in large and complex financial transactions such as
underwriting, acting as an intermediary between a securities issuer and the investing public,
facilitating mergers and other corporate reorganizations, and acting as a broker and/or
financial adviser for institutional clients.

Repo rate: is the rate at which the central bank of a country lends money to commercial
banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to
control inflation.

Reverse repo is the exact opposite of repo. In a reverse repo transaction, banks purchase
government securities form central bank and lend money to the banking regulator, thus
earning interest.

Reverse repo rate is the rate at which central bank borrows money from banks.

Unit banking refers to a bank that is a single, usually small bank that provides financial
services to its local community. A unit bank is independent and does not have any connecting
banks — branches — in other areas.

Branch banking refers to a bank that is connected to one or more other banks in an area or
outside of it; to its customers, this bank provides all the usual financial services but is backed
and ultimately controlled by a larger financial institution.

Green Banking is a very general term which can cover a multitude of areas from a Bank being
environmentally friendly to how their money is invested.

Green Banking considers all the social and environmental / ecological factors with an aim to
protect the environment and conserve natural resources.

Chain Banking

Conceptually a form of bank governance that occurs when a small group of people control at
least three banks that are independently chartered. Usually, the controlling parties are
majority shareholders or the heads of interlocking directorates.

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Certificate Of Deposit - CD'

A certificate of deposit (CD) is a savings certificate with a fixed maturity date, specified fixed
interest rate and can be issued in any denomination aside from minimum investment

Capital Asset Pricing Model - CAPM'

The capital asset pricing model (CAPM) is a model that describes the relationship between
systematic risk and expected return for assets, particularly stocks.

Syndicated Loan'

A syndicated loan, also known as a syndicated bank facility, is a loan offered by a group of
lenders – referred to as a syndicate – that work together to provide funds for a single
borrower. The borrower could be a corporation, a large project or a sovereignty, such as a
government. The loan can involve a fixed amount of funds, a credit line or a combination of
the two

The 'Rule of 72' is a simplified way to determine how long an investment will take to double,
given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can
get a rough estimate of how many years it will take for the initial investment to duplicate itself

Short selling is the sale of a security that is not owned by the seller, or that the seller has
borrowed. Short selling is motivated by the belief that a security's price will decline, enabling
it to be bought back at a lower price to make a profit.

Parallel Loan' A type of foreign exchange loan agreement that was a precursor to currency
swaps. A parallel loan involves two parent companies taking loans from their respective
national financial institutions and then lending the resulting funds to the other company's

A credit risk is the risk of default on a debt that may arise from a borrower failing to make
required payments

Market interest rate: The prevailing rate of interest offered on cash deposits, determined by

demand and supply of deposits and based on the duration (the longer the duration, the higher
the rate) and amount (the higher the amount, the higher the rate) of deposits

Risk Management'

 Risk management is the process of identification, analysis and acceptance or mitigation of

uncertainty in investment decisions.

Risk financing is concerned with providing funds to cover the financial effect of unexpected
losses experienced by a firm. 

Credit Derivative

A credit derivative consists of privately held negotiable bilateral contracts that allow users to

manage their exposure to credit risk. Credit derivatives are financial assets such as forward

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contracts, swaps and options for which the price is driven by the credit risk of economic
agents, such as private investors or governments

Yield To Call'

Yield to call is the yield of a bond or note if you were to buy and hold the security until the call
date, but this yield is valid only if the security is called prior to maturity.

Scheduled Banks: The banks which get license to operate under Bank Company Act, 1991
(Amended upto 2013) are termed as Scheduled Banks.

Non-Scheduled Banks: The banks which are established for special and definite objective and
operate under the acts that are enacted for meeting up those objectives, are termed as
Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks.

Financial Market

Financial Market is a means of bringing together buyers and sellers to make transactions.
Bonds, stocks and assets are traded in financial market. Financial markets are traditionally
segmented into money market and capital market.

Stock Market: The stock market is the market in which shares of publicly held companies are
issued and traded either through exchanges or over-the-counter markets. Also known as the
equity market, the stock market is one of the most vital components of a free-market
economy, as it provides companies with access to capital in exchange for giving investors a
slice of ownership in the company. The stock market makes it possible to grow small initial
sums of money into large ones, and to become wealthy without taking the risk of starting a
business or making the sacrifices that often accompany a high-paying career.

Share Market is a highly organised market facilitating the purchase and sale of securities and
operated by professional stockbrokers and market makers according to fixed rules. Share
market is a marketplace where securities are regularly traded.

Primary Market is a market where new securities are bought and sold for the first time.

Secondary Market is a market where investors purchase securities or assets from other
investors, rather than from issuing companies themselves. The national exchanges - such as
the DSE and CSE are secondary markets.

Money Market is a segment of the financial market in which financial instruments with high
liquidity and very short maturities are traded. The money market is used by participants as a
means for borrowing and lending in the short term, from several days to just under a year.
Money market securities consist of negotiable certificates of deposit, bankers acceptances,
treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements.

Capital Market is a market for medium to long-term financial instruments such as — shares
and bonds issued by the government, corporate borrowers and financial institutions. In other
words, it is a market that brings together users and providers of capital. It is a marketplace
where debt or equity securities are traded.

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The instruments of Money Market: (a) Treasury bill, (b) commercial paper, (c) banker’s
acceptance, (d) certificate of deposit, (e) repurchase agreement, (f) short-term treasury notes
and bonds, (g) international emergency deposit

The instruments of Capital Market: (a) common stock, (b) preferred stock, (c) mortgage
bond, (d) treasury notes and bonds, (e) corporate notes and bonds, (f) government notes and

Major players of capital market Investors, issuers and financial intermediaries (middlemen or
brokers). Other players are dealers, mutual funds, market makers, investment banks,
depositors, clearing house, Infrastructure Providers, Stock Exchanges, Information Providers,
Regulators, Securities & Exchange Commission (SEC) and Rating Agencies.

Blue Economy Initiative is recently gaining popularity in various countries of the world. It is an
integrated development strategy for fisheries, aquaculture, marine tourism and ecosystem
preserving local system of production and consumption. Sustainable development of Blue
Economy is possible through utilisation of the existing natural and mineral resources in the
Bay of Bengal and its adjoining oceans. The marine-based economic activities and
management of sea and its resources through Blue Economy may be considered as a new
horizon for development of the coastal countries (like Bangladesh) and the small island
developing states.

Market segmentation is a marketing strategy that involves dividing a broad target market into
subsets of consumers who have common needs and priorities and then designing and
implementing strategies to target them. Market segmentation enables companies to target
different categories of consumers who perceive the full value of certain products and
services differently from one another. Market segmentation strategies may be used to
identify the target customers and provide supporting data for positioning to achieve a
marketing plan objective. Businesses may develop product differentiation strategies or an
undifferentiated approach, involving specific products or product lines depending on the
specific demand and attributes of the target segment.

Market Risk: The possibility for an investor to experience losses due to factors that affect the
overall performance of the financial markets. The risk that a major natural disaster will cause
a decline in the market as a whole is an example of market risk. Other sources of market risk
include recessions, political turmoil, changes in interest rates and terrorist attacks.

Tax Holiday: A government incentive programme that offers a temporary tax reduction or
elimination to businesses. Tax holidays are often used to reduce sales taxes by local
governments, but they are also commonly used by governments in developing countries to
help stimulate foreign investment. In developing countries like Bangladesh, governments
sometimes reduce or eliminate corporate taxes for the purpose of attracting foreign direct
investment or stimulating growth in selected industries. Governments usually create tax
holidays as incentives for business investment.

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Mixed Economy is an economic system of a country in which some companies are owned by
the state and some are private that means both public and private sectors have an important
role to play national-building.

LDC (Least Developed Country): The countries whose 80% population depends on agriculture,
more than half of the population are unemployed, most of the people are the victim of
malnutrition, the illiteracy rate is high, then these countries are called the Least Developed
Countries (LDC)

Consortium is a group of companies or banks combining to run a project. Capital Gain is an

increase in the value of the capital assets (investment or real estate) that gives it a higher
worth than the purchase price.

Tariff: Tariff is a tax, or duty, levied on a commodity when it crosses a national boundary. The
most common tariff is the import duty — the tax imposed on an imported commodity.

Direct Tax is a tax that is paid directly by an individual or organization to the imposing entity.
A taxpayer pays a direct tax to a government for different purposes, including real property
tax, personal property tax, income tax or taxes on assets. Direct taxes are different from
indirect taxes, where the tax is levied on one entity, such as a seller, and paid by another, such
a sales tax paid by the buyer in a retail setting.

Indirect Tax is a tax that increases the price of a good so that consumers are actually paying
the tax by paying more for the products. An indirect tax is most often thought of as a tax that
is shifted from one taxpayer to another, by way of an increase in the price of the good. Fuel,
liquor and cigarette taxes are all considered examples of indirect taxes, as many argue that
the tax is actually paid by the end consumer, by way of a higher retail price.

Asset: An asset on a company’s balance sheet that may be used to reduce any subsequent
period’s income tax expense. Deferred tax assets can arise due to net loss carryovers, which
are only recorded as assets if it is deemed more likely than not that the asset will be used in
future fiscal periods.

Capitalism is an economic system in which private-owned companies and businesses

undertake most economic activities (with the goal of generating private profit), and most of
work is performed by employed workers and income is distributed through the operations of
markets. Capitalism is generally characterized by competition between producers. Capitalism
rose to prominence with the end of feudal economies, and has become the dominant
economic system in developed countries.

Market Economy is one which markets play a dominant role coordinating output and price
decisions. This is a free economy where prices are regulated by buyers and sellers, other
market forces and capitalism. The prices formed in markets, convey information and provide
motivation for decision-takers.

Laissez-faire Economy is an economy of complete non-intervention by the governments in

the economy leaving all decisions to the market. The theory (given by Scottish economist
Adam Smith) is that the less the government is involved in free market capitalism, the better
of business will be, and then by extension society as a whole.

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Barter Economy is an economy where people exchange goods and services directly with
another without any payment of money. Market Failure is an imperfection in a price system
that prevents an efficient allocation of resources.

Consumer Surplus is an economic measure of consumer satisfaction, which is calculated by

analyzing the difference between what consumers are willing to pay for a good or service
relative to its market price. A consumer surplus occurs when the consumer is willing to pay
more for a given product than the current market price.

Sunk Cost is a cost that has already been incurred and thus cannot be recovered. A sunk cost
differs from other, future costs that a business may face, such as inventory costs or R&D
expenses, because it has already happened. Sunk costs are independent of any event that
may occur in the future.

Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a
basket of consumer goods and services, such as transportation, food and medical care. The
CPI is calculated by taking price changes for each item in the predetermined basket of goods
and averaging them; the goods are weighted according to their importance. Changes in CPI
are used to assess price changes associated with the cost of living.

Human Development Index (HDI) is a tool developed by the United Nations to measure and
rank levels of social and economic development of different countries based on four criteria
— (a) life expectancy (b) an index for school enrollment and adult literacy (c) an index for GDP
per capita. The HDI makes it possible to track changes in development levels over time and
to compare development levels in different countries.

Purchasing Power is the value of a currency expressed in terms of the amount of goods or
services that one unit of money can buy. Purchasing power is important because, all else
being equal, inflation decreases the amount of goods or services you would be able to

Purchasing Power Parity (PPP) is an economic theory that estimates the amount of
adjustment needed on the exchange rate between countries in order for the exchange to be
equivalent to each currency’s purchasing power.

Recession is a downturn in the economy often used to describe a fall in real GDP lasting six
months or more.

Foreign Direct Investment (FDI) is an investment from one country into another that involves
establishing operations or acquiring tangible assets, including stakes in other business.

Soft Loan is a loan with an artificially low rate of interest and such loans are sometimes
given to the developing nations by the industrialised nations and multinational development
banks (such as the Asian Development Bank), affiliates of the World Bank and government
agencies. Soft loans are loans that have lenient terms, such as extended grace periods in
which only interest or service charges are due, and interest holidays.

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Gresham’s Law is a monetary principle stating that "bad money drives out good." In currency
valuation, Gresham’s Law states that if a new coin ("bad money") is assigned the same face
value as an older coin containing a higher amount of precious metal ("good money"), then the
new coin will be used in circulation while the old coin will be hoarded and will disappear from

Cartel is an organisation created from a formal agreement between a group of producers of a

good or service to regulate supply in an effort to regulate or manipulate prices. A cartel is a
collection of businesses or countries that act together as a single producer and agree to
influence prices for certain goods and services by controlling production and marketing. An
example of cartel — OPEC (Organisation of Petroleum Exporting Countries).

“Big-Push theory” of economic development The big push model or concept in development
economics (given by Professor Paul N. Rosenstein-Rodan) that assumes economies of scale
and oligopolistic market structure and explains when industrialisation would happen. This
theory is needed in the form of a high minimum amount of investment to overcome to
obstacles to development in an underdeveloped economy and to launch it in the path of

Garnishee Order is legal process whereby payments towards a debt owed by an individual
can be paid by a third party - which holds money or property that is due to the individual -
directly to the creditor. The third party in such a case is generally the individual’s employer
and is known as the garnishee. Garnishments are typically used for debts such as unpaid
taxes, monetary fines and child support payments.

Cheap Money is the maintenance of low interest rates during a period of depression to
encourage investment. Cheap money is a loan or credit with a low interest rate or the setting
of low interest rates by a central bank. Cheap money is good for borrowers, but bad for
investors, who will see the same low interest rates on investments like savings accounts,
money market funds and bonds.

Monopoly is a situation or exists when a specific person or enterprise is the only supplier of a
particular commodity. Monopolies are thus characterized by the lack of economic
competition to produce the good or service and lack of viable substitute goods.

Dumping: In international trade, dumping is the export by a country or company of a product

at a price that is lower in the foreign market than the price charged in the domestic market.
As dumping usually involves substantial export volumes of the product, it often has the effect
of endangering the financial viability of manufacturers or producers of the product in the
importing nation.

Poverty Trap: The poverty trap is a mechanism which makes it very difficult for people to
escape poverty. A poverty trap is created when an economic system requires a significant
amount of various forms of capital in order to earn enough to escape poverty. When
individuals lack this capital, they may also find it difficult to acquire it, creating a
self-reinforcing cycle of poverty.

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Poverty Gap is the average shortfall of the total population from the poverty line. This
measurement is used to reflect the intensity of poverty. The poverty line that is used for
measuring this gap is the amount typical to the poorest countries in the world combined with
the latest information on the cost of living in developing countries. The poverty line is
indicated by the widely accepted international standard for extreme poverty.

Automated Clearing House (ACH) is a computer-based clearing and settlement facility

established to process the exchange of electronic transactions between participating
depository institutions. Such electronic transactions take the place of paper cheques.

BACH (Bangladesh Automated Clearing House) is the first ever electronic clearing house of
Bangladesh. It has two components: the Automated Cheque Processing System (ACPS) and
the Electronic Funds Transfer (EFT).

Balance of Payment is the summation of imports and exports made between one country and
other countries that it trades with. Balance of Payment of a country is defined as the record
of all economic transactions between the residents of a country and the rest of the world in a
year. These transactions are made by individuals, firms and government bodies. Thus
balance of payments includes all visible and non-visible transactions of a country in a year.
All trades conducted by both the private and public sectors are accounted for in the BOP in
order to determine how much money is going in and out of a country. If a country has
received money, this is known as a credit, and if a country has paid or given money, the
transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets
(credits) and liabilities (debits) should balance, but in practice this is rarely the case. BOP
tells the observer if a country has a deficit or a surplus economy.

Balance of Trade is the difference in value over a period of time between a country’s imports
and exports.

Multiplication of Money: In monetary economics, a money multiplier is one of various closely

related ratios of commercial bank money to central bank money under a fractional-reserve
banking system. Most often, it measures the maximum amount of commercial bank money
that can be created by a given unit of central bank money.

Financial Inclusion is the delivery of financial services at affordable costs to sections of

disadvantaged and low-income segments of society in contrast to financial exclusion where
those services are not available or affordable.

Mortgage is a contract whereby a borrower provides a lender with a lien on real property as
security against a loan.

Collateral is a form of security such as life insurance policies or shares use to secure a bank

Security refers to anything pledged to cover a loan and interest thereupon for stipulated
period of time.

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Debt is an amount of money borrowed by one party from another. Many
corporations/individuals use debt as a method for making large purchases that they could
not afford under normal circumstances. A debt arrangement gives the borrowing party
permission to borrow money under the condition that it is to be paid back at a later date
usually with interest.

National Debt is the amount of money borrowed at different times by the government for the
expenditure which cannot be met from budgetary revenue allocation. This money can be
used for productive purposes or unproductive purposes.

Liquidity is the ability of an asset to be converted into cash without a significant price
concession. It is known as marketability — the degree to which an asset or security can be
bought or sold in the market without affecting the asset’s price. Liquidity is characterised by a
high level of trading activity.

Assets that can be easily bought or sold are known as liquid assets.

Liquidity Crisis: A negative financial situation characterised by a lack of cash flow. For a
single business, a liquidity crisis occurs when the otherwise solvent business does not have
the liquid assets (cash) necessary to meet its short-term obligations, such as repaying its
loans, paying its bills & paying its employees. If the liquidity crisis is not solved, the company
must declare bankruptcy. Liquidity Risk in foreign exchange is the risk of losses due to the
inability to make timely payment of any financial obligation to the customers or counter
parties in any currency. Liquidity Risk is the risk stemming from the lack of marketability of an
investment that cannot be bought or sold quickly enough to prevent or minimise a loss.
Liquidity risk is typically reflected in unusually wide bid-ask spreads or large price
movements (especially to the downside).The rule of thumb is that the smaller the size of the
security or its issuer, the larger the liquidity risk. Market Risk in foreign exchange is the risk of
losses in on and off balance sheet positions arising from adverse movements in market

Consumer Credit is basically the amount of credit used by consumers to purchase

non-investment goods or services that are consumed and whose value depreciates quickly.
This includes automobiles, recreational vehicles, education, boat and trailer loans.

Opportunity Cost is a benefit, profit, or value of something that must be given up to acquire or
achieve something else. Since every resource (land and money) can be put to alternative
uses; every action, choice, or decision has an associated opportunity cost. Opportunity costs
are fundamental costs in economics and are used in computing cost benefit analysis of a

Bond refers to a certificate issued by the government or a company acknowledging that

money has been lent to it and will be paid back with interest. Bond is a debt investment in
which an investor loans money to an entity (typically corporate or governmental) which
borrows the funds for a defined period of time at a variable or fixed interest rate.

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Treasury Bill is government promissory letter. The government receives short-term loan
through it. The written document by which the government is pledged to pay the due loan
back with interest after three months is called Treasury Bill. So, treasury bill is a short-term
debt obligation backed by the government with a maturity of less than one year. The interest
is the difference between the purchase price and the price paid either at maturity (face value)
or the price of the bill if sold prior to maturity.

Treasury Notes are bonds of 2, 5 or 10 years. They are usually issued at face value and the
client receives regular interest payments. Treasury bonds are long term bonds (30 years) and
work similarly to notes. Treasury bills, notes and bonds are marketable securities the
government sells in order to pay off maturing debt and to raise the cash needed to run the
federal government. When a person buys one of these securities, s/he is lending his/her
money to the government of the Bangladesh. Treasury bills, notes and bonds are securities
that have a stated interest rate that is paid semi-annually until maturity. What makes notes
and bonds different are the terms to maturity. Notes are issued in two-, three-, five- and
10-year terms. Conversely, bonds are long-term investments with terms of more than 10

Bill of Exchange: is a written and unconditional order issued by seller (the drawer) to buyer
(the drawee) who is bound to pay the price of products to the carrier mentioned on the bill at
a predetermined future date. The drawee accepts the bill by signing it, thus converting it into
a post-dated check and a binding contract.

Narrow Money: A category of money supply that includes all physical money like coins and
currency along with demand deposits, saving accounts and other operational liquid assets
held by the central bank.

Broad Money: In economics, broad money refers to the most inclusive definition of the money
supply. Since cash can be exchanged for many different financial instruments and placed in
various restricted accounts, it is not a simple task for economists to define how much money
is currently in the economy. Therefore, the money supply is measured in many different ways.
Broad money can also include Treasury Bills and gilts. These financial securities are seen as
‘near money’.

Foreign Exchange: The exchange or conversion of one currency into another currency. It also
refers to the global market where currencies are traded. Exchange (Conversion) Rate: The
value or price of a nation’s currency in terms of another currency.

Floating Exchange Rate: When the exchange rate of a currency is determined by the demand
and supply of that currency then it is called floating exchange rate. Floating Exchange Rate is
a country’s exchange rate regime where its currency is set by the foreign-exchange market
through supply and demand for that particular currency relative to other currencies. Thus,
floating exchange rates change freely and are determined by trading in the foreign exchange
market. Value Chain is a chain of activities that a firm operating in a specific industry
performs in order to deliver a valuable product or service for the market. It is a high-level
model of how businesses receive raw materials as input, add value to the raw materials
through various processes and sell finished products to customers.

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Negotiable instruments: Cheque, bill of exchange, promissory note, demand draft, bank note,
treasury note and government note Non-negotiable instruments: Postal order, money order,
payment order and share certificate Negotiable Instrument is a document guaranteeing the
payment of a specific amount of money (either on demand or at a set time) without
conditions in addition to payment imposed on the payer. They payment is given to the person
named on the instrument or to the bearer. A negotiable instrument is usually in the form of
cheque, draft, bill of exchange, promissory note or acceptance. A check is considered a
negotiable instrument. This type of instrument is a transferable and signed document that
promises to pay the bearer a sum of money at a future date or on demand. Insurance is a
contract relationship between the customer and the company which deals in risk to property
and life of costumers for a certain period of time.

Account Reconciliation is a process with the help of which the account balance can be easily
verified. It is usually done at the end of the week, month, financial year or at the end of any
financial period.

A derivative is a financial contract that derives its value from an underlying asset. The buyer
agrees to purchase the asset on a specific date at a specific price.

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the
form of cash, or gold or govt. approved securities (Bonds) before providing credit to its

Bank rate, also referred to as the discount rate, is the rate of interest which a central bank
charges on the loans and advances that it extends to commercial banks and other financial
intermediaries. Changes in the bank rate are often used by central banks to control the money

Inflation is as an increase in the price of bunch of Goods and services that projects the
Indian economy. An increase in inflation figures occurs when there is an increase in the
average level of prices in Goods and services. Inflation happens when there are fewer Goods
and more buyers; this will result in increase in the price of Goods, since there is more demand
and less supply of the goods. New rate: P-P: 5.65%, M.A: 6.10%

Deflation is the continuous decrease in prices of goods and services. Deflation occurs when
the inflation rate becomes negative (below zero) and stays there for a longer period.

The Prime Interest Rate is the interest rate charged by banks to their most creditworthy
customers (usually the most prominent and stable business customers). The rate is almost
always the same amongst major banks. Adjustments to the prime rate are made by banks at
the same time; although, the prime rate does not adjust on any regular basis. The Prime Rate
is usually adjusted at the same time and in correlation to the adjustments of the Fed Funds

Deposit Rate Interest Rates paid by a depository institution on the cash on deposit.

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Basel III: It is a global, voluntary regulatory standard on bank capital adequacy, stress testing
and market liquidity risk. It is a comprehensive set of reform measures designed to improve
the regulation, supervision and risk management within the banking sector. The Basel
Committee on Banking Supervision published the first version of Basel III in late 2009, giving
banks approximately three years to satisfy all requirements. Largely in response to the credit
crisis, banks are required to maintain proper leverage ratios and meet certain capital
requirements. Basel III was agreed upon by the members of the Basel Committee on Banking
Supervision in 2010–11, and was scheduled to be introduced from 2013 until 2015; however,
changes from 1 April 2013 extended implementation until 31 March 2018 and again
extended to 31 March 2019.

CAMELS Rating System: An international bank-rating system where bank supervisory

authorities rate institutions according to six factors. It is a supervisory rating system
originally developed in the US to classify a bank’s overall condition. It is applied to every bank
and credit union in the USA and is also implemented outside the USA by various banking
supervisory regulators. The six factors are represented by the acronym CAMELS. Capital
adequacy — Asset quality — Management quality — Earnings — Liquidity — Sensitivity to
Market Risk.

SWIFT — Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a

network that enables financial institutions worldwide to send and receive information about
financial transactions in a secure, standardised and reliable environment. The members of
this society can exchange the international financial news easily, quickly and accurately by
this network. SWIFT also sells software and services to financial institutions.

Call Rate is the interest rate paid by the banks for lending and borrowing for daily fund
requirement. Since banks need funds on a daily basis, they lend to and borrow from other
banks according to their daily or short-term requirements on a regular basis.

Call Money is the money loaned by a bank that must be repaid on demand. Unlike a term loan,
which has a set maturity and payment schedule, call money does not have to follow a fixed
schedule. Brokerages use call money as a short-term source of funding to cover margin
accounts or the purchase of securities. The funds can be obtained quickly.

Call Money Market is a short-term money market — which allows for large financial
institutions, such as banks, mutual funds and corporations to borrow and lend money at
interbank rates. The loans in the call money market are very short, usually lasting no longer
than a week and are often used to help banks meet reserve requirements.

Aging ‐‐ a process where accounts receivable are sorted out by age (typically current, 30 to 6
0 days old, 60 to 120 days old, and so on.) Aging permits collection efforts to focus on accou
nts that are long overdue. 

Intangible Assets are items such as patents, copyrights, trademarks, licenses, franchises, and
 other kinds of rights or things of value to a company, which are not physical objects. These a
ssets may be the most important ones a company owns. Often they do not appear on financi
al reports. 

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Breakeven point ‐‐ the amount of revenue from sales which exactly equals the amount of expe
nse. Breakeven point is often expressed as the number of units that must be sold to produce 
revenues exactly equal to expenses. Sales above the breakeven point produce a profit; below 
produces a loss. 

Earnings per share ‐‐ a company's net profit after taxes for an accounting period, divided by th
e average number of shares of stock outstanding during the period. 80 ‐ 20 rule ‐‐ a general ru
le of thumb in business that says that 20% of the items produce 80% of the action ‐‐ 20% of th
e product line produces 80% of the sales, 20 percent of the customers generate 80% of the co
mplaints, and so on. In evaluating any business situation, look for the small group which prod
uces the major portion of the transactions you are concerned with. 

Net worth ‐‐ total assets minus total liabilities. Net worth is seldom the true value of a compa

Amortization - Gradual and periodic reduction of any amount, such as the periodic writedown
of a BOND premium, the cost of an intangible ASSET or periodic payment Of MORTGAGES or
other DEBT.

Contingent Liability - Potential LIABILITY arising from a past transaction or a subsequent


Employee Stock Ownership Plan (ESOP) - Stock bonus plan of an employer that acquires
SECURITIES issued by the plan sponsor.

Franchise - Legal arrangement whereby the owner of a trade name, franchisor, contracts with
a party that wants to use the name on a non-exclusive basis to sell goods or services,
franchisee. Frequently, the franchise agreement grants strict supervisory powers to the
franchisor over the franchisee which, nevertheless, is an independent business.

Leveraged Buy Out - Acquisition of a controlling INTEREST in a company in a transaction

financed by the issuance of DEBT instruments by the acquired entity.

Promissory Note - Evidence of a DEBT with specific amount due and interest rate. The note
may specify a maturity date or it may be payable on demand. The promissory note may or
may not accompany other instruments such as a MORTGAGE providing security for the
payment thereof.

Spinoff - Transfer of all, or a portion of, a subsidiary's stock or other ASSETS to the
stockholders of its parent company on a PRO RATA basis.


The London Interbank Offered Rate is the average of interest rates estimated by each of the
leading banks in London that it would be charged were it to borrow from other banks

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Duration is a measure of the sensitivity of the price -- the value of principal -- of a fixed-income
investment to a change in interest rates. Duration is expressed as a number of years.

Duration Gap: it is the difference in the price sensitivity of interests yielding assets and the
price sensitivity of liabilities (of the organization) to a change in market interest rates (yields)

Capital Market Line - CML

The capital market line (CML) appears in the capital asset pricing model to depict the rates of
return for efficient portfolios subject to the risk level (standard deviation) for a market
portfolio and the risk free rate of return.

Security Market Line - SML

The security market line (SML) is a line drawn on a chart that serves as a graphical
representation of the capital asset pricing model (CAPM), which shows different levels of
systematic, or market, risk of various marketable securities plotted against the expected
return of the entire market at a given point in time


An option is a financial derivative that represents a contract sold by one party (the option
writer) to another party (the option holder). The contract offers the buyer the right, but not the
obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price
(the strike price) during a certain period of time or on a specific date (exercise date).

Call Option

Call options give the option to buy at certain price,

Put Option

Put options give the option to sell at a certain price

An American option is an option that can be exercised anytime during its life. American
options allow option holders to exercise the option at any time prior to and including its
maturity date, thus increasing the value of the option to the holder relative to European
options, which can only be exercised at maturity.

Futures Contract

A futures contract is a legal agreement, generally made on the trading floor of

a futures exchange, to buy or sell a particular commodity or financial instrument at a
predetermined price at a specified time in the future. Futures contracts are standardized to
facilitate trading on a futures exchange and, depending on the underlying asset being traded,
detail the quality and quantity of the commodity.

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Forward Contract

A forward contract is a customized contract between two parties to buy or sell an asset at a
specified price on a future date. A forward contract can be used for hedging or speculation,
although its non-standardized nature makes it particularly apt for hedging. Unlike
standard futures contracts, a forward contract can be customized to any commodity, amount
and delivery date. A forward contract settlement can occur on a cash or delivery basis.

Forward contracts do not trade on a centralized exchange and are therefore regarded as
over-the-counter (OTC) instruments. While their OTCnature makes it easier to customize
terms, the lack of a centralized clearinghouse also gives rise to a higher degree of default
risk. As a result, forward contracts are not as easily available to the retail investor as futures


Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the
price. It is a trade that profits by exploiting the price differences of identical or similar
financial instruments on different markets or in different forms. Arbitrage exists as a result of
market inefficiencies.


Speculation is the practice of engaging in risky financial transactions in an attempt to profit

from short term fluctuations in the market value of a tradable financial instrument—rather
than attempting to profit from the underlying financial attributes embodied in the instrument

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