Category: Financial Terms

Basis: Definition and Examples in Finance Basis is a finance term that most commonly refers to the cost or tax basis of an investment—the total amount paid for a security or asset (including commissions and fees). It is also used in commodities and futures markets to describe the difference between the spot (cash) price of…

Basic Materials Sector: Definition, Examples, and Stocks Overview The basic materials (or materials) sector comprises companies that discover, extract, develop, and initially process naturally occurring resources used across the economy. This includes mining and metal refining, chemical producers, forestry products, and producers of construction materials. Because these businesses supply inputs for manufacturing and construction, the…

Basic Earnings Per Share (EPS) What is Basic EPS? Basic earnings per share (EPS) measures how much of a company’s net income is attributable to each share of common stock. It is reported on the income statement and is most informative for companies with simple capital structures (only common stock outstanding). Basic EPS does not…

Baseline: Meaning in Financial Statement Analysis What is a baseline? A baseline is a fixed point of reference used for comparison. In business, it’s a defined starting value—such as costs, sales, or other metrics—against which future results are measured to assess performance, trends, or the impact of changes. Example: A company might use units sold…

Key takeaways Basel III is an international regulatory framework that strengthens banks’ capital, leverage, and liquidity standards to reduce systemic risk. It was developed after the 2007–2008 financial crisis and builds on earlier Basel I and II accords. The most recent phase—often called the Basel III Endgame—tightens capital rules, changes how risk-weighted assets are calculated,…

Understanding the Basel Accords: Regulations and Global Impact Key takeaways The Basel Accords are international regulatory frameworks designed to ensure banks hold sufficient capital to absorb unexpected losses and preserve financial stability. Basel I (1988) introduced risk-weighted assets and an 8% minimum capital requirement. Basel II refined risk measurement and added three pillars: minimum capital,…

Basel II Explained: Banking Regulations, Purpose, and Key Reforms Basel II is an international regulatory framework issued by the Basel Committee on Banking Supervision in 2004. It builds on Basel I to improve capital adequacy, supervisory oversight, and market transparency with the goal of strengthening banks’ risk management and the stability of the global financial…

Basel I: Overview, Rules, and Impact Basel I is the first international framework of banking regulations developed by the Basel Committee on Banking Supervision (BCBS). Introduced in 1988, its purpose was to strengthen the stability of the international banking system by setting a minimum capital requirement tied to the riskiness of a bank’s assets. Key…

What Is a Base Year? How It’s Used in Analysis (with Examples) A base year is the reference point from which changes in data are measured over time. It serves as the starting value for comparisons—used in financial analysis, economic indexes, retail metrics, and real estate leases. Base years may be updated periodically so that…

Base Pay: Definition and How It Differs From Annual Pay Definition Base pay is the standard salary or wage an employee receives for performing their job, excluding additional compensation such as bonuses, benefits, overtime, allowances, or other special pay. It can be expressed as an hourly rate or as a weekly, monthly, or annual salary….

Base Effect: Definition and Why It Matters The base effect describes how the choice of a reference point (the “base”) changes the apparent size or direction of a comparison between two data points. Because most comparisons use a ratio or percentage change with the earlier value as the denominator, an unusually high or low base…

Barter What is barter? Barter is the direct exchange of goods or services between parties without using money or cash equivalents. Each party provides something of agreed-upon value in return for something they need. Barter is the oldest form of commerce and remains in use today in many forms. Key takeaways Bartering trades goods or…

Barriers to Entry: What Limits New Firms from Entering a Market Key takeaways * Barriers to entry are obstacles—financial, regulatory, or market-based—that make it difficult for new firms to compete. * They protect incumbents’ market share and can reduce competition, but some exist for consumer safety or resource scarcity. * Common ways to overcome barriers…

Barrier Options Key takeaways * Barrier options are path‑dependent exotic derivatives whose payoff depends on whether the underlying asset reaches a preset price level (the barrier) during the option’s life. * Knock‑in options activate only if the barrier is reached; knock‑out options terminate if the barrier is reached. * Because of their conditional nature, barrier…

Barrels of Oil Equivalent Per Day (BOE/d): Definition and Uses What BOE/d means Barrels of oil equivalent per day (BOE/d) is an industry metric that aggregates oil and natural gas production into a single, comparable unit. It converts natural gas volumes into “equivalent” barrels of oil based on their energy content so companies that produce…

Barrel of Oil Equivalent (BOE): Definition and Practical Guide What is a BOE? A Barrel of Oil Equivalent (BOE) is a standardized unit that expresses the energy content of different fuels in terms of the energy contained in one barrel of crude oil. It allows companies, analysts, and investors to compare oil, natural gas, and…

Bare Trust A bare trust (also called a naked or simple trust) is a basic trust arrangement in which the beneficiary has the absolute right to the trust’s capital, assets, and income. Trustees hold legal title but have no discretion over distributions; beneficiaries can demand assets and income when they become entitled to them. How…

Bar Chart: Definition and Purpose A bar chart displays price action for an asset over a specified period using a series of vertical price bars. Each bar typically shows four prices for the period: open, high, low, and close (OHLC). Traders and analysts use bar charts to observe trends, volatility, and potential entry/exit points. How…

Barbell Investment Strategy What it is The barbell strategy divides a fixed‑income portfolio (or a broader portfolio) between short‑term and long‑term holdings while avoiding intermediate maturities. The goal is to balance yield and risk: short‑term instruments provide liquidity and reinvestment flexibility, while long‑term instruments offer higher yields. How it works Short‑term bonds: typically maturities of…

Baptism by Fire Baptism by fire describes learning or proving yourself under severe pressure — being thrown into a difficult situation with little preparation and expected to perform. In business, it often refers to new employees or leaders who must handle high-stakes tasks immediately, adapting quickly through direct experience. Origins and meaning The phrase has…

Banner Advertising: Definition and How It Works What is banner advertising? Banner advertising (also called display advertising) uses rectangular graphic units placed on websites or apps to promote brands and drive traffic. These units are primarily image- or media-based (static, animated, video, or rich media) rather than plain text. Common placements and names: * Leaderboard…

Bankruptcy: What It Is, How It Works, and Key Considerations Bankruptcy is a legal process that provides debt relief for individuals and businesses that cannot repay their obligations. It can offer a fresh start but carries significant long-term consequences, including credit damage and possible loss of assets. This guide explains how bankruptcy works, the main…

Understanding Bank Runs What is a bank run? A bank run occurs when a large number of customers try to withdraw their deposits at the same time because they fear the bank is or will become insolvent. Because banks keep only a fraction of deposits as cash on hand, simultaneous withdrawals can exhaust available liquidity…

Bank Reconciliation A bank reconciliation compares your internal cash records (books) with the bank’s records to identify and resolve differences. It ensures the accuracy of your financial records, detects fraud or errors, and improves cash management. Why perform a bank reconciliation? Identify and correct bookkeeping or bank errors (wrong amounts, omitted transactions). Detect unauthorized or…

Bank Guarantee A bank guarantee is a promise from a bank or financial institution to cover a party’s financial obligations if that party defaults under a contract. It reduces counterparty risk, facilitates transactions (especially in international trade), and helps businesses obtain goods, services, or financing by assuring the beneficiary that the bank will pay if…

Banker’s Acceptance What it is A banker’s acceptance (BA) is a short-term negotiable instrument in which a bank guarantees payment on a bill of exchange. It functions both as a guaranteed form of payment in trade and as a money-market investment that typically trades at a discount to face value. How it works (summary) A…

Bank-Owned Life Insurance (BOLI) Key takeaways * BOLI are life insurance policies purchased by banks on select employees (typically senior executives) with the bank as beneficiary. * Earnings on BOLI (premiums and capital appreciation) are generally tax-advantaged for the bank and can offset employee benefit costs. * Main product types: general accounts, separate accounts, and…

Bank Draft A bank draft is a bank-issued payment instrument guaranteed by the issuing institution. The bank withdraws funds from the purchaser’s account and holds them in its reserve until the payee cashes or deposits the draft, which gives the payee certainty that the funds are available. Bank drafts are commonly used for large or…

What is a bank stress test? A bank stress test evaluates how a bank would fare under extreme but plausible adverse economic conditions (for example, a severe recession, large asset-price declines, or a market shock). Designed to reveal capital shortfalls and vulnerabilities, stress tests aim to strengthen financial stability and reduce the risk of bank…

Bank Statement: Definition, How It Works, and Key Details A bank statement is a record provided by a financial institution that summarizes an account’s activity and balances for a specific period. It helps account holders monitor deposits, withdrawals, fees, interest, and other transactions. What a Bank Statement Shows Beginning and ending balances for the statement…

Understanding Bank Reserves: Definition, Purpose, and Impact Key takeaways Bank reserves are cash holdings banks keep to meet withdrawal demands and comply with central bank rules. Reserves can be required (minimum mandated) or excess (held voluntarily). The U.S. Federal Reserve set reserve requirements to zero on March 26, 2020, but banks still follow liquidity standards…

Bank Ratings: What They Are and How They Work A bank rating is a grade—letter, number, or composite score—assigned to banks and thrift institutions to communicate their financial safety, soundness, and credit risk. Ratings help consumers, investors, and regulators understand a bank’s ability to meet obligations and withstand economic stress, and they guide bank management…

Bank Identification Number (BIN) Key takeaways * A Bank Identification Number (BIN), also called an Issuer Identification Number (IIN), is the set of leading digits on a payment card that identifies the issuing institution. * BINs appear on credit, debit, prepaid, charge, gift and other payment cards and speed up transaction routing and fraud checks….

Bank Deposits: What They Are, How They Work, and Types What is a bank deposit? A bank deposit is money placed into a bank or credit union account—commonly checking, savings, money market accounts, or certificates of deposit (CDs). When you deposit cash, the bank becomes the legal owner of the funds; your account represents the…

Understanding Bank Credit: How It Works, Types, and Examples What is bank credit? Bank credit is the total amount of funds a bank is willing to lend to individuals or businesses. It includes loans and revolving credit lines used for home and auto purchases, daily expenses, business operations, and more. The amount and terms depend…