(As investment to earn profit)

*payments and withdrawal through online consumer, traveler’s cheque, cash cheque or cross cheques,
debit cards, ATM, demand draft, pay order, etc.

CENTRAL BANK: Central bank is a financial institution / intermediary which regulate all the banks in
Pakistan. Central bank is responsible for the financial and economic stability of the country. It offers
services to the state and banking industry. As a banker to the state it implement monetary policy &
monopolizes the issue of currency notes, controls credit, manage public debts and act as a custodian of
foreign exchange. As a banker of banks it rediscount the bill of exchange, it provide clearing house
facility, acts as a lender of last resort, maintain cash reserves and provide necessary counseling services.

SOILED NOTE: It is a note which, has become dirty due to over-usage and also includes a two
piece note pasted together wherein both the pieces presented belong to the same note, and form the
entire note (Mutilated banknote is a banknote, of which a portion is missing or which is composed of
more than two pieces.)

SHRED: The SBP replaces soiled notes with fresh ones at no charge to the banks, and that money ends
up in circulation once the banks reclaim their cash. Under tight security, the soiled/unfit currency goes to
a shredder and became shredded.

COMPOUND INTEREST:
Compound interest is interest calculated on the initial principal and also on the accumulated interest of
previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and
will make a deposit or loan grow at a faster rate. Compound interest is also known as compounding.

SUSPENSE ACCOUNT: A suspense account is an account in the general ledger in which amounts are
temporarily recorded. The suspense account is used because the proper account could not be determined
at the time that the transaction was recorded. When the proper account is determined, the amount will be
moved from the suspense account to the proper account.

ATM (SERVERS):
 ONE-LINK: Since its inception 1LINK has focused on the people of Pakistan, empowering
them with the most relevant e-payment modes and services that enable them to do transactions in real
time. 1Link is also recognized as the largest interbank payment network service provider in Pakistan.
1LINK provides a national payment network that allows Pakistanis to access their money through
Automated Teller Machines (ATM) and Point-of-Sale (POS) terminals across Pakistan.

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 MNET (INTERBANK NETWORK): MNET Services Private Limited is a Pakistani operator
of inter-bank connectivity platform for online financial transaction processing and offers a managed
services portfolio that includes card personalization & management, mobile payment services and ATM
& POS controller hosting. (now used by MCB only)

DEBIT CARD/ CREDIT CARD (SERVERS):

 VISA: Visa Inc is an American multinational financial services corporation headquartered in Foster
City, California, United States. It facilitates electronic funds transfers throughout the world, most
commonly through Visa-branded credit cards and debit cards.
(Visa & Visa Virtual Debit Card)
(Visa Gold, Classic, Platinum & Infinite Credit Card)

 MASTERCARD: Mastercard Incorporated is an American multinational financial

services corporation headquartered in the MasterCard International Global
Headquarters, Purchase, New York, United States, in Westchester County. Throughout the world, its
principal business is to process payments between the banks of merchants and the card issuing banks
or credit unions of the purchasers who use the "Mastercard" brand debit and credit cards to make
purchases.
(Mastercard Cirrus & Maestro Debit Card)
(Mastercard Standard, Gold, Titanium, Platinum & World Master Card Credit Card)

BANCASSURANCE:
Insurance by bank for car, credit card or others (internally secured insurance.)
 Bancassurance is an arrangement in which a bank and an insurance company form a partnership so
that the insurance company can sell its products to the bank's client base. This partnership
arrangement can be profitable for both companies. Banks can earn additional revenue by selling the
insurance products, while insurance companies are able to expand their customer bases without
having to expand their sales forces or pay commissions to insurance agents or brokers.
 Bancassurance arrangement benefits both the firms. On the one hand, the bank earns fee amount (non
interest income) from the insurance company apart from the interest income whereas on the other
hand, the insurance firm increases its market reach and customers. The bank acts as an intermediary,
helping insurance firm reach its target customer in order to increase its market share.

(On theft or ATM’s problem; Bank will pay the lost amount; when claim for money is made within two
hours, providing FIR)

BRANCH BANKING: (for equal distribution of wealth & money, in different regions)
Branch banking is the act of doing one's banking business at a location that is separate from the bank's
central business location. Many large and small banks use branch banking in order to extend the reach of
their services to different locations in a community, state, or country. Smaller branches are also less
expensive to operate, and often easier for customers to access, while providing all of the features of a
larger bank.

Advantages of Branch Banking: proper use of capital, spreading of risk, banking facilities in backward
area, better facilities to customer, etc.

UNIT BANKING: It 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.

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INTEREST: Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a
borrower for the use of assets. (It is a charge given by borrower on the use of same commodity to the
lender)

AMORTIZATION SCHEDULE: An amortization schedule is complete table of periodic loan

payments, showing the amount of principal and the amount of interest that comprise each payment until
the loan is paid off at the end of its term. The last line of the schedule shows the borrower’s total interest
and principal payments for the entire loan term.

SCHEDULE OF CHARGES: SOC is a list of charges levied on an account by a financial institution.

DORMANT ACCOUNT: A dormant account has had no activity (deposits and/or withdrawals) for a
long period of time, other than posting interest or service charges. A statute of limitations usually does not
apply to dormant accounts, meaning that funds can be claimed by the owner or beneficiary at any time.
Financial institutions are required by state laws to transfer resources held at dormant accounts to the
state's treasury after the accounts have been dormant for a certain period of time, which varies by state.
(6 month no balance, account become dormant accountbank will keep the amount, then subject to
closed within 1-2 years)

KNOW YOUR CUSTOMER: KYC is the process of a bank, identifying and verifying the identity of its
customers. Know your customer policy is an important step developed globally to prevent theft, financial
fraud, money laundering and terrorist financing. The objective of KYC is to enable banks to know and
understand their customers better and help them manage their risks prudently. (KYC portion in form)

 AML Know Your Customer Rule:

The Know Your Customer (KYC) provision is a financial regulatory rule that is mandated by the Bank
Secrecy Act and the USA PATRIOT Act of 2003.
It requires banking and non-banking financial institutions to conduct a thorough review of a new
customer before accepting that customer as a new client.
The objective of the KYC rule is to reduce the possibility of the financial system being used for money
laundering and terrorist financing activities.

ANTI-MONEY LAUNDERING: AML refers to a set of procedures, laws or regulations designed to

stop the practice of generating income through illegal actions.
(To know from which source money is coming, illegal resources wouldn’t be credited and the person
will not be allowed to open account).

This AML training course is intended to familiarize employees with the process of money laundering —
the criminal business used to disguise the true origin and ownership of illegal cash — and the laws that
make it a crime. The course is available in more than 15 versions adapted for various industries, regional
laws and jurisdictions.

CRM: Customer relationship management (CRM) is an approach to managing a company's interaction

with current and potential future customers. The CRM approach tries to analyze data about customers'
history with a company, to improve business relationships with customers, specifically focusing on
customer retention, and ultimately to drive sales growth.

EMI: An equated monthly installment (EMI) is a fixed payment amount made by a borrower to
a lender at a specified date each calendar month. Equated monthly installments are used to pay off both
interest and principal each month so that over a specified number of years, the loan is paid off in full.

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NEXT OF KIN: A person's next of kin (NOK) is that person's closest living blood relative or relatives.
Some countries, such as the United States, have a legal definition of "next of kin". In other countries, such
as the United Kingdom, "next of kin" may have no legal definition and may not necessarily refer to blood
relatives at all.
(Claim must be made within 30 days after the death of the insurer, otherwise bank will keep the money
with itself & If next of kin is not mentioned, money in bank will be distributed according to ISLAM)

DEBT BURDEN RATIO (DBR): DBR is the ratio of total monthly installment of credit card or loan
and total income of the customer. It is very important for assessing customer re-payment ability. Through
this calculation we can know if customer is able or unable to pay his installment
DBR = (Total monthly installment of card or loan/Total Income of the applicant)*100.

DAYS PAST DUE (DPD): Past due is a loan payment that has not been made as of its due date. A
borrower who is past due may be subject to late fees, except if the borrower is still within a grace period.
Failure to repay a loan on time could have negative implications for the borrower's credit status. (OR)
The “DPD” indicates how many days a payment on a respective account has been delayed. Anything
other than “000” and “XXX” reflecting in customer’s “DPD” section would mean that customer have
missed payments on his loan or credit card account. In order to understand “DPD” better, let’s take an
example of a loan whose payments started in March 2015. If the borrower misses a payment for 3 months
from the month of April 2015, then the DPD shall reflect as follows on the borrower’s credit report:
DPD 090 060 030 000 000
Month/Year 07-15 06-15 05-15 04-15 03-15
The above “DPD” information implies that the borrower has missed payments on a loan for 3 months or
90 days. The payments were missed in the month of May, June and July in 2015.
‘000’ indicates “no days past due” for that particular month and implies that customer have been regular
with the payments of his loan/ credit card.

NIFT: National Institutional Facilitation Technologies (Pvt.). Ltd. was incorporated in September 1995
as joint venture between a consortium of six banks and entrepreneurs from the private sector. All
commercial banks and all of branches in major cities avail NIFT’s services. NIFT provide clearing house
services to its member.

Role of NIFT in Clearing:

 NIFT commenced its ACH (automated clearing house) operations in 1996, after signing an agreement
with the SBP.
 ACH is computer based clearing & settlement facility for interchange of electronic debits & credits
among different financial institutions (Banks).

FEDERAL EXCISE DUTY (FED): It is a tax levied by government; payable on the following:
 Goods produced or manufactured in Pakistan.
 Goods imported into Pakistan.
 Services provided or rendered in Pakistan.
 Such goods that are produced or manufactured in the non-tariff areas and are brought to the tariff
areas for sale or consumption therein.
The scope of chargeability of Federal Excise Duty on financial services is @16%.

BANK SPREAD (NET INTEREST RATE SPREAD): In banking, the spread is the difference between
interest earned on loans, securities, and other interest-earning assets and the interest paid on deposits and
other interest-bearing liabilities. OR Bank spread refers to the difference between the interest rate in
which a bank charges a borrower and the interest rate the bank pays a depositor.

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BID: A bid price is the highest price that a buyer (i.e. bidder) is willing to pay for a good.
(In bid and ask, the bid price stands in contrast to the ask price or "offer", and the difference
between the two is called the bid–ask spread.)

KIBOR: (KIBOR is market driven rate)

 Karachi Inter Bank Offer Rate (KIBOR) is the average interest rate at which term deposits are offered
between prime banks in the Pakistani wholesale money market or interbank market. KIBOR is given
by specialized institution on daily, weekly, monthly and on 1, 2 and 3 yearly basis to all the
commercial banks of Pakistan so that they charge interest to their customers on that basis. This rate is
inflation adjusted rate and then banks by adding 2% or 3% in KIBOR rate charge their customers for
their profit.
 KIBOR stands for "The Karachi Inter-Bank Offered Rate" which is used by the banks in order to lend
the money with each other and with their customers. This is the minimum interest rate (inflation
adjusted) which the banks have to charge from
their customers.

SPOT MARKET: If the operation is of daily nature, it is called spot market or current market. It handles
only spot transactions or current transactions in foreign exchange. Transactions are affected at prevailing
rate of exchange at that point of time and delivery of foreign exchange is affected instantly. The exchange
rate that prevails in the spot market for foreign exchange is called Spot Rate.

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FORWARD/FUTURE MARKET: A market in which foreign exchange is bought and sold for future
delivery is known as Forward Market. It deals with transactions (sale and purchase of foreign exchange)
which are contracted today but implemented sometimes in future. Exchange rate that prevails in a forward
contract for purchase or sale of foreign exchange is called Forward Rate. Thus, forward rate is the rate at
which a future contract for foreign currency is made (settled now/ at the spot). A forward contract is
entered into for two reasons:
(i) To minimize risk of loss due to adverse change in exchange rate (i.e., hedging).
(ii) To make a profit (i.e., speculation).
Two Exchange rate quotes: In foreign exchange market, there are two exchange rate quotes, namely,
buying rate and selling rate. If a person goes to the exchange market to buy foreign currency, say, US
dollars, he has to pay higher rate than when he goes to sell dollars. In other words, for a person buying
rate is higher than selling rate.

BILL GENERATION DATE (HOW TO AVOID INTEREST):

Bills for Credit Cards are paid monthly; customer is usually given 20 – 25 days to pay your bill. This
means that when you pay your bill in full & on time you are not charged anything extra. If you do not pay
the entire bill by the due date the Bank will start charging you a Markup which in Pakistan ranges from
37- 43 %.

16Aug‘15 – Your statement period starts

22Aug ‘15 – You buy some shoes. You have 49 days to pay off the total amount owing to avoid interest
08Sep‘15 – You buy a television. You have 32 days to pay off the total amount owing to avoid interest
15Sep‘15 – Your statements period ends. You have an extra 25 days to pay off the total amount owing to
avoid interest
10Oct‘15 – Your payment is due. Pay the total amount owing by the due date to avoid interest
15Oct‘15 – If your payment is late, interest will be charged from the date of each purchase and a late
payment fee may apply

DEPOSIT ACCOUNT: A deposit account is a savings account, term deposit account, current account or
any other type of bank account that allows money to be deposited and withdrawn by the account holder.
These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for
the bank and represents the amount owed by the bank to the customer. Some banks may charge a fee for
this service, while others may pay the customer interest on the funds deposited.

SBP, NATIONALIZED & PRIVATIZED:

 Before independence on August 14, 1947, the Reserve Bank of India was the central bank of what
Pakistan. The Government of Pakistan decided to establish its own central bank. On 1st July, 1948
State Bank of Pakistan was formed as the central bank of Pakistan. In 1948, Pakistani Rupees in the
denomination of Rs.5, 10, and 100 were issued and Indian currency was withdrawn from circulation.
 On January 1, 1974 the Government of Pakistan (Prime Minister Zulfiqar Ali Bhutto) nationalized all
the Pakistani scheduled banks including State Bank of Pakistan, Industrial Bank of Pakistan,
Agricultural Development Bank of Pakistan through the bank- nationalization act, 1974 to achieve the
desired objectives. The weaker commercial banks were merged with stronger ones.
 By 1991, the Bank Nationalization Act was amended, the privatization program was launched on 22
January 1991 by Prime Minister Nawaz Sharif and 23 private banks were established – of which ten
were domestically licensed.

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LIBOR: London interbank offered rate, the basic rate of interest used in lending between banks on the
London interbank market and also used as a reference for setting the interest rate on other loans.

BILL OF EXCHANGE: "A bill of exchange is an unconditional order in writing, addressed by one
person to another, signed by the person giving it, requiring the person to whom it is addressed to pay, on
demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified
person or to bearer."
DISCOUNTING A BILL: (By SBP to importer) When the acceptor of a bill of exchange is a reputable
person the bill is as good as money, and any bank will discount it. If the drawer of the bill does not want
to wait till the due date of the bill and is in need of money, he may sell his bill to a bank at a certain rate
of discount. The bill will be endorsed by the drawer with a signed and dated order to pay the bank. The
bank will become the holder and the owner of the bill. After getting the bill, the bank will pay cash to the
drawer equal to the face value less interest or discount at an agreed rate for the number of days it has to
run. This process is known as discounting of a bill of exchange.

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SMALL AND MEDIUM ENTERPRISES DEVELOPMENT AUTHORITY – SMEDA:
Under Ministry of Industries & Production SMEDA was established in October 1998 to take on the
challenge of developing Small & Medium Enterprises (SMEs) in Pakistan. SMEDA is not only an SME
policy-advisory body for the government of Pakistan but also facilitates other stakeholders in addressing
their SME development agendas. Services included:

 Consultant Database Services

 Financial Services
 Technical Services
 Training Services
 Legal and Contracting Services
 Industry Support Program
 Information Resource Centre - (IRC) Library

SME: Small and Medium Enterprise (means an entity, ideally not a public limited company, which does
not employ more than 250 persons (if it is manufacturing /service concern) and 50 persons (if it is trading
concern) and also fulfills the following criteria of either ‘a’ and ‘c’ or ‘b’ and ‘c’ as relevant:

(a) A trading/service concern with total assets at cost excluding land and building upto Rs 50 million.
(b) A manufacturing concern with total assets at cost excluding land and building upto Rs 100 million.
(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per
latest financial statements.

An Individual, if he or she meets the above criteria, can also be categorized as an SME.

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 CURRENCY EXCHANGE: A business that allows a customer to exchange one currency for another
currency. A currency exchange may be a stand-alone business or may be part of the services offered by a
bank or other financial institution. The currency exchange profits from its services either through
adjusting the exchange rate or taking a commission. The exchange rate that a currency exchange quotes is
typically close to the spot rate, although the exchange will adjust this rate somewhat to ensure that it
makes a profit on the transaction. Because the transaction is not conducted at the spot rate, and depending
on the profit that the exchange wants to make, consumers may find that it is less expensive to
incur ATM or credit card fees at the foreign destination, rather than use exchange services ahead of time.

(We’ll have to pay more on buying exchange/foreign currency (including charges & interest); and
bank/exchange co. will pay less when we sell exchange/foreign currency.)

PAY ORDER: In banking, a pay order is a rough negotiable draft that instructs a bank to pay a certain
sum of money to a third party that may or may not be involved with the bank. A bank pay order is similar
to a check, but it is negotiable unlike a check. (OR) Payment order is an international banking term that
refers to a directive to a bank or other financial institution from a bank account holder instructing the bank
to make a payment or series of payments to a third party. It can be defined as, "Instructions to transfer
funds sent via paper and/or electronic means".
CROSS CHEQUE: A cross check is any check that is crossed with two parallel lines, either across the
whole check or through the top left-hand corner of the check. This symbol means that the check can only
be deposited directly into a bank account and cannot be immediately cashed by a bank or any other credit
institution.
TRAVELER'S CHECK: A traveler's check is a medium of exchange utilized as an alternative to hard
currency. Travelers often used traveler's checks on vacation to foreign countries. Traveler's checks offer a
safe way to take currency overseas. The issuing party, usually a bank, provides security against lost or
stolen checks.
DEMAND DRAFT: A demand draft is a negotiable instrument similar to a bill of exchange. A bank
issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to
pay a certain sum to the specified party (payee). Demand drafts are difficult to countermand. Demand
drafts can only be made payable to a specified party, also known as pay to order. Demand drafts are
orders of payment by a bank to another bank. (OR) A Demand Draft, like an Electronic Transfer, is one
of the methods of transferring money overseas. A Demand Draft is a very convenient option for
transferring money. It is an order to pay a certain sum to a certain person or as his instruction. The
demand draft is handed over to the purchaser who sends it to the beneficiary. The beneficiary obtains
payment on presentation to the bank on which the draft is drawn.
CHEQUE: A check is a written, dated and signed instrument that contains an unconditional order from
the drawer that directs a bank to pay a definite sum of money to a payee. The money is drawn from a
banking account, also known as a checking account.
Pay order and demand draft are basically used for the same purpose, but are different from each other:
 Demand draft is a mode of payment that gets cleared in any branch of the issuing branch.
 A pay order is a mode of payment that is to be cleared in the very specific branch of the bank that
issued it.

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 MODERN BANKING (21ST CENTURY):
VIRTUAL BANKING: A financial institution that handles all transactions via the Web, e-mail, mobile
check deposit and ATM machines. By not having the overhead of physical branches, people expect a
virtual bank to offer higher interest rates on their accounts. (OR) Internet based financial institution that
offers deposit and withdrawal facilities, and other banking services, through automated teller machines or
other devices, without having any physical walk-in premises.

ATM: It is an electronic telecommunications device that enables the customers of a financial

institution to perform financial transactions, particularly cash withdrawal, without the need for a
human cashier, clerk or bank teller. The customer is identified by inserting a plastic ATM card with
a magnetic stripe or a plastic smart card with a chip that contains a unique card number and authentication
is provided by the customer entering a personal identification number (PIN).
(ATM service is additive/special service by bank; not bank’s responsibility)

SUPER ATMs: ATMs have come so far that they serve a variety of handy purposes. Super ATMs now
have the capacity to sell stamps, gift cards, cell phone minutes, concert tickets and allow bills to be paid!

HUMAN TELLERS: The machine works like any other ATM unless the customer pushes a button to
request a human teller. These tellers can assist with services until 10 PM on weekdays and 5 PM on
weekends. They will be able to help with tasks not usually performed by an ATM, including cashing
checks for exact amounts, etc. This is a feature that can create convenience and new jobs.

IBFT: Inter-Bank Funds Transfer enables customers to transfer the funds from their account to anybody
else’s account in any bank through ATM; instantly between banks without the hassle of making pay
orders, writing cheques, etc. (Customers can also pay utility bills through IBFT)

INTERNET BANKING: Customers are able to log on from their home computer and see all of their
accounts and information on their personal screen. Checking balances could be done, as well as making
transactions and payments, seeing images of checks and deposit slips, viewing previous statements, bill
paying and transaction history could be searched.

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ONLINE BANKING: In online banking any branch of a bank has the access of the record of any
other branch having online-banking system, the customer can deposit money in his account from any
branch of his; he can also withdraw money from his account from any other branch of his bank by
presenting cheque; In addition he can also transfer money from his account to another account online
without using a cheque (for making payments or to settle transaction).

SMARTPHONE MOBILE BANKING: Now mobile phones can be equipped with banking apps, which
is similar to internet banking, with the elimination of the need to be at home or work in front of your
computer. Like any phones, balances can be checked, which can be helpful when deciding whether or not
to make a purchase in a store. They can also locate the closest ATM or bank branch.

SMARTER SMARTPHONE BANKING: A recent introduction to smart-phone banking is depositing a

check without the need to go to the bank or ATM. Users simply sign the back of the check, take a picture
of the front and back, and send the image to the bank using the app. Users can also select which account
to send it to 24 hours a day.

ELECTRONIC MONEY: It is the money balance recorded electronically on a stored-value card (credit
card or debit card). Another form of electronic money is network money, software that allows the transfer
of value on computer networks, particularly the internet. Examples of electronic money are bank
deposits, electronic funds transfer, direct deposit, payment processors, and digital currencies.

CREDIT CARD: (39% interest on Credit Card) It is a card issued by a financial company giving the
holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are primarily
used for short-term financing. Interest usually begins one month after a purchase is made, and borrowing
limits (ranging from Rs.25000-2000000) are pre-set according to the individual's credit rating (DBR).
Visa and MasterCard are the two most prominent payment processors for credit cards.

EFTS: Electronic funds transfer system is a retail payment system; in which, the account of purchaser is
automatically debited and the account of seller is automatically credited at the time of transaction. The
bank issues a debit card or credit card to the customer for making payments of commodities purchased or
for payment of utility bills by putting card into a computer terminal at POS.

DEBIT CARD: A payment card that deducts money directly from a consumer’s checking account to pay
for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. In
addition, it offers the convenience of credit cards and many of the same consumer protections when
issued by major payment processors like Visa or MasterCard. Unlike credit cards, they do not allow the
user to go into debt, except perhaps for small negative balances that might be incurred if the account
holder has signed up for overdraft coverage. However, debit cards usually have daily purchase limits,
meaning it may not be possible to make an especially large purchase with a debit card.

MOBILE ATMS: A mobile ATM, meant to be moved from location to location. This type of ATM is
often found at special events for which ATM service is needed temporarily. For example, they may be
found at carnivals, fairs, and parades. They may also be used at seminars and workshops when there is no
regular ATM nearby.

CDM: The Cash Deposit Machine (CDM) is a self-service terminal that lets you make deposits and
payment transactions by cheque/cash. All successful transactions are immediately credited and customers
will be issued an advice slip confirming the transaction. To make the cash deposit process more
convenient, banks have introduced Cash Deposit Machines and are expanding their availability across
different locations to encourage electronic cash deposit without the assistance of banking personnel. To
access the CDM, customers need to have either ATM # or Credit Card #.

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1. Credit Card Payment & other bill payments are also made through CDM.
2. First CDM at the end of 2005 in Pakistan at JS Bank, Standard Chartered Bank & MX Bank.
3. Not reliably used in Pakistan, contemporary.
4. To divert traffic from branch, customer can open account himself by providing CNIC number &
thumbprint. (This is true-online banking)

TYPES OF LOANS:
CREDIT CARD: (39% interest on Credit Card) It is a card issued by a financial company giving the
holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are primarily
used for short-term financing. Interest usually begins one month after a purchase is made, and borrowing
limits (ranging from Rs.25000-2000000) are pre-set according to the individual's credit rating (DBR).
Visa and MasterCard are the two most prominent payment processors for credit cards.

TERM LOANS: A term loan is a monetary loan that is repaid in regular payments over a set period of
time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A
term loan usually involves an unfixed interest rate that will add additional balance to be repaid.

RUNNING FINANCE & REVOLVING LOAN:

 Running Finance is a revolving finance. Once the finance limit is approved, then the borrower is
free to withdraw amounts to the extent of that limit. The borrower can withdraw and repay the amount as
many times as he wishes to; but he has to pay mark-up on the amount which he has actually used on
monthly basis.
 Revolving credit is a type of credit that does not have a fixed number of payments, in contrast
to installment credit. It is basically an arrangement which allows for the loan amount to be withdrawn,
repaid, and redrawn again in any manner and any number of times, until the arrangement expires. Credit
card loans and overdrafts are revolving loans, also called evergreen loan.

OVERDRAFT: (interest on it, per day interest charges are high, regularly charged)
 It occurs when money is withdrawn from a bank account in an amount that exceeds the funds
available in the account. Banks often permit this as a form of short term loan to the account holder. For
example, if a person has an overdraft account, the bank covers the cheque that would otherwise bounce
and get returned without payment. As with any loan, you pay interest on the outstanding balance of an
overdraft loan. Often, the interest on the loan is lower than credit cards.
 A credit agreement made with a financial institution that permits an account holder to use or
withdraw more than they have in their account, without exceeding a specified maximum negative balance.
Establishing an overdraft facility with a bank can help an individual or small business with short term
cash flow problems, although the negative balance typically needs to be repaid within a month.

HOME MORTGAGE: A loan given by a bank, mortgage company or other financial institution for the
purchase of a primary or investment residence. In a home mortgage, the owner of the property (the
borrower) transfers the title to the lender on the condition that the title will be transferred back to the
owner once the payment has been made and other terms of the mortgage have been met.
GUARANTEED LOAN: A loan guarantee, in finance, is a promise by one party (the guarantor) to
assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or
unlimited, making the guarantor liable for only a portion or all of the debt. Guarantor mortgages are
popular with young borrowers who do not have a large deposit saved and need to borrow 100% of the
property value to purchase a property. Generally, their parents will provide a guarantee to the lender to
cover any shortfall in the event of default.

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SECURED LOAN: It is a loan backed or secured by collateral to reduce the risk associated with lending,
such as a mortgage. If the borrower defaults on repayment, the bank seizes the house, sells it and uses the
proceeds to pay back the debt.

UNSECURED LOAN: It is a loan that is issued and supported only by the borrower's creditworthiness,
rather than by any type of collateral. Borrowers generally must have high credit ratings to be approved for
certain unsecured loans.
Term Revolving
Secured  Mortgage/Home loan  Secured overdraft
 Bridging loan  Secured credit card
 Construction loan
 Term Loan
 Car loan
Unsecured  Education loan  Overdraft
 Renovation loan  Credit card
 Personal loans  Charge card
 Personal line of credit

PAPER CURRENCY (REPRESENTS ACTUAL MONEY/FIAT MONEY):

In the past, the money produced by a government was considered representative money. For every
quantity of money printed, there was enough gold or silver to back it. A person could actually go and
exchange the money directly for gold. However, many governments fall to the lure of printing too
much paper money, which leads to inflation. A dollar is no longer worth a dollar in gold. When this
happens, the money becomes fiat money.

LEGAL TENDER MONEY: It is any official medium of payment recognized by law that can be used to
extinguish a public or private debt, or meet a financial obligation. The national currency is legal tender
money in every country. A creditor is obligated to accept legal tender money toward repayment of a debt.

1. Bank need to make money kept within the bank. It does not require the actual flow of money so it
provide facilities of electronic banking, internet banking, online banking, credit cards, etc.
2. To stop actual flow of money: Cash withdrawal by cheque 24/7 ATM withdrawal Credit cards
to swipe.
3. All cards provided by bank are services not it’s product. Bank does not sell it provides services
(service oriented approach). It is a service industry and makes profit.
4. ATM card is owned by bank, it is a service given by bank to a customer to use it in his/her name.
5. 2.5% Zakat To Be Automatically Deducted from Bank Accounts with Rs. 35,557 & Above.

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Actual Money: Actual money is that which actually circulates in the economy as a medium of exchange.
It is the actual money, in terms of which all payments are made and general purchasing power is held. In
Pakistan, notes and coins of all denominations are actual money.

Money of Account: Money of account is that in terms of which prices are expressed and accounts are
maintained. Normally, actual money and money of account are the same but sometimes they are different.
For example, paisa is a money of account in Pakistan but it is not actual money. Now-a-days, it is no
more in circulation.

Metallic Money: Money made of metal such as gold, silver is called metallic money. Coins of all
denomination circulating in economy are examples of metallic money. Metallic money is classified into
following to categories:

1. Full bodied money

If the face value of money is equal to its value as a commodity, it is called full bodied money. If a gold
coin of face value Rs. 100/- contains gold worth of Rs. 100/- it will be called full bodied money or
sometimes standard money.
2. Token money
If the face value of money is more than its value as commodity or intrinsic value it is known as token
money.

Paper Money: The term paper money applies to bank notes and govt, notes which pass freely from hand
to hand as a medium of exchange. Cheques and bills of exchange are not included in paper money
because they are not generally acceptable in payments. Money made of paper is called paper money. It
includes of different denomination Paper money is further classified into following forms:

1. Representative Paper Money

If paper money is issued by keeping hundred percent gold reserve of full bodied coins or gold bullion, it
will be called representative money. The holder of such money can convert it into gold or silver on
demand.
2. Fiat or In convertible Paper Money
Paper money which cannot be converted into full bodied coins or gold bullion on demand is called in
convertible paper money. It is usually issued without keeping metallic reserve behind it.
3. Convertible Paper Money
If paper money can be converted into gold coins or gold bullion on demand it is referred to as convertible
money. This type of paper money is issued by keeping metallic reserve of equal amount behind it.

Legal Tender Money: Legal tender money is that which has a legal approval behind it and people are
bound by law to accept it in all payments. Nobody can refuse to accept it. Legal tender money can be
classified into (i) Limited legal tender (ii) Unlimited legal tender.

1. Limited Legal Tender

It is that form of legal tender money which can be given in payments only up to a certain limit. The payee
can refuse to accept it beyond that limit. In many Asians countries 25 paisa coin and coins of low
denominations are limited legal tender. These coins can be given in payments up to 50 rupees only.
2. Unlimited Legal Tender
Unlimited legal tender means that money which can be given in payments up to any limit.

Optional Money: Optional money is that form of money which is used as a medium of exchange but it
has no legal force behind it. It includes credit instruments like cheques, bills of exchange, etc which are
generally acceptable in payments.

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