Category: Financial Terms

Bank Confirmation Letter (BCL) What is a Bank Confirmation Letter? A Bank Confirmation Letter (BCL) is a formal statement issued by a bank that confirms a borrower—an individual, company, or organization—has access to a specified loan amount or line of credit. It reassures third parties (for example, sellers, partners, or counterparties) that the borrower has…

Bank Capital What is bank capital? Bank capital is a bank’s net worth or equity — the difference between its assets and liabilities. It represents the funds available to absorb losses and protect depositors and creditors if the bank faces financial distress or liquidation. Why it matters Bank capital supports ongoing operations when losses occur,…

Bank Bill Swap Rate (BBSW) What is the BBSW? The Bank Bill Swap Rate (BBSW) is a short-term Australian dollar interest-rate benchmark used to price derivatives, floating-rate bonds, and other money-market instruments. It represents the midpoint of bank bill rates supplied by a panel of approved banks for various maturities and reflects the rate at…

What Is a Bank? Definition and Role in the Economy A bank is a licensed financial institution that accepts deposits, safeguards money, and extends credit. Banks facilitate payments, provide savings and investment products (like IRAs and certificates of deposit), and finance consumer and business activity through loans. They serve as intermediaries that move funds from…

Bandwagon Effect What it is The bandwagon effect is a social-psychological phenomenon in which people adopt beliefs or behaviors primarily because many others do. Also called herd mentality, it explains why trends, political movements, consumer fads, and investment manias spread rapidly even when independent evidence is weak. Key takeaways People follow the crowd for social…

Bancassurance: How Banks and Insurers Partner to Sell Insurance Products What is bancassurance? Bancassurance is a commercial arrangement in which a bank offers insurance products from an insurance company to its customers. The bank acts as a distribution channel, earning fee or commission income, while the insurer gains access to the bank’s customer base without…

Baltic Dry Index (BDI) What the BDI is The Baltic Dry Index (BDI) is a daily shipping and trade index published by the Baltic Exchange that tracks the cost of transporting dry bulk raw materials—such as iron ore, coal, and grain—across major seaborne trade routes. Because it measures the demand for shipping capacity against available…

Ballpark Figure What it means A ballpark figure is a rough numerical estimate used as a placeholder when an exact value is unknown. It gives a broad sense of magnitude to help move discussions, planning, or negotiations forward. Common uses Business planning: preliminary cost estimates for market entry, expansion, or project budgets. Finance: quick projections…

Balloon Payment: Definition, How It Works, Examples, Pros and Cons Key takeaways * A balloon payment is a large lump-sum principal due at the end of a loan after smaller periodic payments—often interest-only—during the term. * Common in business lending, mortgages, and some auto loans; it lowers short-term payments but concentrates repayment risk at maturity….

Balloon Loans: What They Are, How They Work, Pros & Cons Overview A balloon loan is a short-term loan that carries relatively low monthly payments but requires a large lump-sum payment—the balloon payment—at the end of the term. Because these loans do not fully amortize, borrowers must plan how to cover the remaining balance when…

Balanced Scorecard: A Practical Guide to Strategy and Performance Measurement The Balanced Scorecard (BSC) is a strategic performance-management framework that expands assessment beyond financial results to include customer outcomes, internal processes, and innovation/learning. Developed by Robert S. Kaplan and David P. Norton, the BSC helps organizations translate vision and strategy into measurable objectives and aligned…

Balanced Investment Strategy What it is A balanced investment strategy mixes asset classes—typically stocks and bonds—to pursue modest growth while limiting volatility. Common allocations include 60% stocks / 40% bonds or 50/50, sometimes with a small cash or money-market component for liquidity. Why use it Seeks a middle ground between capital preservation and long‑term growth….

Balanced Fund What is a balanced fund? A balanced fund is a mutual fund that combines stocks and bonds in a single portfolio with a target asset allocation meant to provide both capital appreciation and income. Typical allocations are in the neighborhood of 60–70% equities and 30–40% fixed income, though exact mixes vary by fund….

Balanced Budget A balanced budget is a financial plan in which total expected revenues equal total planned spending. The concept is most commonly applied to government budgets but can also describe a business or household budget when income matches expenditures over a fiscal period. Key takeaways A budget is balanced when revenues are equal to…

Balance Sheet Key takeaways * A balance sheet is one of the three core financial statements; it shows a company’s assets, liabilities, and shareholders’ equity at a specific point in time. * It follows the accounting equation: Assets = Liabilities + Shareholders’ Equity. * Analysts use balance sheets to assess liquidity, solvency, and capital structure…

Balance of Trade (BOT) The balance of trade (BOT) is the difference between a country’s exports and imports of goods and services over a specified period. It is a core component of the broader balance of payments and provides a snapshot of a nation’s trade relationship with the rest of the world. Key takeaways BOT…

Balance of Payments (BOP) What is the Balance of Payments? The balance of payments (BOP) is a systematic record of all economic transactions between residents of a country and the rest of the world over a given period (typically a quarter or a year). It shows how money flows into and out of a country…

Bait and Switch: Definition, How It Works, and How to Avoid It Bait and switch is a deceptive sales tactic in which a seller advertises an attractive product, price, or rate to draw customers in (the “bait”), then substitutes a different, inferior, or more expensive product (the “switch”) when the customer investigates or tries to…

Bailouts Explained: Key Concepts, Mechanisms, and Historical Cases What is a bailout? A bailout occurs when a government, government agency, or large organization provides financial support to a struggling company, industry, or financial institution to prevent failure and limit wider economic damage. Support can take the form of loans, direct cash infusions, asset purchases, equity…

What is a bail-in? A bail-in is a bank resolution tool that stabilizes a failing financial institution by imposing losses on its creditors and, if necessary, unsecured depositors rather than using taxpayer-funded rescue (a bailout). Debts may be written down or converted into equity to recapitalize the bank and keep it operating. How bail-ins work…

Bail Bonds A bail bond is a financial guarantee that a defendant will appear in court. When a judge sets bail, a defendant can pay the full amount in cash, pledge property as collateral, or obtain a bail bond from a licensed agent (a surety). The bond lets the defendant be released until trial while…

Bag Holder: Definition and Psychological Analysis Definition A bag holder is an investor who continues to hold a security that has fallen substantially in value—sometimes to zero—hoping for a rebound instead of selling. Being the last owner of a failing investment often results in permanent losses. Explore More Resources › Read more Government Exam Guru…

Bad Debt Expense Key takeaways Bad debt expense recognizes receivables a company does not expect to collect. GAAP requires the allowance method (matching principle); the direct write-off method is often used for U.S. tax purposes but can distort matching. Two common estimation approaches are the percentage of sales and accounts receivable aging methods. The allowance…

Bad Debt: Definition, Recording, and Estimation Key takeaways Bad debt is receivable (or loan) value that a creditor expects will not be collected and must be written off. Under accrual accounting and GAAP, companies generally use the allowance method to estimate bad debt so expenses match the period of the related sales. The direct write-off…

Bad Credit: Definition, Causes, and How to Improve Key takeaways * Bad credit usually means a history of late payments or high debt and is reflected by a low credit score. * FICO scores range from 300–850; scores of 579 or lower are generally considered bad, 580–669 are fair. * The most important factor in…

Backwardation What is backwardation? Backwardation is a market condition in which the current (spot) price of a commodity or asset is higher than the prices of its futures contracts. It signals that the market values having the asset now more than having it later—often because of immediate shortages or unusually strong current demand. How it…

Backward Integration Definition Backward integration is a form of vertical integration in which a company expands its operations to take control of suppliers or other earlier stages of its supply chain. This can involve acquiring or merging with suppliers, establishing subsidiaries to produce inputs, or otherwise internalizing functions previously provided by outside firms. How it…

Backup Withholding: What It Is and How It Works What is backup withholding? Backup withholding is a federal tax mechanism that requires payers (banks, brokers, and other payers) to withhold a portion of certain payments and remit it directly to the IRS. Its purpose is to ensure the government collects income taxes owed on payments—often…

Backtesting Backtesting evaluates a trading strategy by applying its rules to historical market data to simulate trades, measure performance, and estimate risk—without risking real capital. Properly done, it helps determine whether a strategy is likely to work in live markets and guides refinements before deployment. How backtesting works Translate the trading idea into explicit, testable…

Understanding Backorders: Definition, Impacts, and Best Practices Key takeaways * A backorder occurs when a customer orders a product that is not available for immediate delivery but is expected to be restocked. * Backorders can signal strong demand, reduce inventory carrying costs, and create marketing buzz—but frequent backorders may indicate operational problems and risk customer…

Understanding Backlogs: Meaning, Effects, and Real-World Examples What is a backlog? A backlog is an accumulation of uncompleted work that a firm needs to process. In finance and accounting it commonly refers to sales orders waiting to be filled or stacks of paperwork such as loan applications. A backlog can signal either insufficient operating capacity…

Backflush Costing: Definition and Overview Backflush costing is an inventory and product-costing method commonly used with just-in-time (JIT) production systems. Instead of recording material, labor, and overhead costs at each stage of manufacture, backflush costing delays—or “flushes”—those cost entries until a product is completed, sold, or shipped. It simplifies accounting by eliminating detailed tracking of…

Backdoor Roth IRA Overview A backdoor Roth IRA is a legal strategy that enables high-income taxpayers—who are otherwise ineligible for direct Roth IRA contributions—to move after-tax money into a Roth IRA. It uses a nondeductible contribution to a traditional IRA followed by a conversion to a Roth IRA. The result, when done correctly, is tax-free…

Back-to-Back Letters of Credit A back-to-back letter of credit (LoC) is a financing arrangement used in international trade when an intermediary (such as a broker or trading house) sits between a buyer and a seller. It uses two separate letters of credit: the buyer’s LoC is issued to the intermediary, and that original LoC is…

Back Stop What is a back stop? A back stop (or backstop) is a financial guarantee in a securities offering where an underwriter, investor syndicate, or major shareholder agrees to purchase any unsubscribed shares or bonds. It ensures the issuer raises a minimum amount of capital by committing to buy the portion of the offering…