content_image/102660.jpg
## GLOSSARY OF FINANCIAL T ERMS 

## Allowance for Credit Losses 

Represents an amount deemed adequate by management to fully provide for impairment in the existing loan portfolios. Allowances for credit losses can be specific or general and are recorded on the balance sheet as a deduction from loans. 

## Assets under Administration and under Management 

Assets administered or managed by a financial institution that are beneficially owned by clients and therefore not reported on the balance sheet of the admin- istering or managing financial institution. 

## Average Earning Assets 

Represents the daily or monthly average balance of deposits with other banks and loans and secu- rities, over a one-year period. 

## BankersGLYPH<213> Acceptances (BAs) 

Bills of exchange or negotiable instruments drawn by a bor- rower for payment at maturity and accepted by a bank. BAs constitute a guarantee of pay- ment by the bank and can be traded in the money market. The bank earns a “stamping fee” for providing this guarantee. 

## Basis Point 

Oneone-hundredth of a percent- age point. 

## Derivatives 

Contracts whose value is “de- rived” from interest or foreign exchange rates, or equity or commodity prices. Use of deriv- atives allows for the transfer, modification or reduction of current or expected risks from changes in rates and prices. 

## Forwards and Futures 

Contractualagreementstoei- ther buy or sell a specified currency, commodity, equity or financial instrument on a spec- ified future date at a specified price. Forwards are customized contracts transacted in the over-the-counter market. Futures are transacted in standardized amounts on regulated exchanges and are subject to daily cash margining. 

## Hedging 

A risk management technique used to neutralize or manage interest rate, foreign currency, equity or credit exposures. 

## Impaired Loans 

Loans for which there is no longer reasonable assurance of the timely collection of princi- pal or interest. 

## Innovative Tier 1 Capital 

OSFI allows banks to issue instruments that qualify as “In- novative” Tier 1 capital. In order to qualify, these instruments have to be issued indirectly through a special-purpose entity, be permanent in nature and free of any fixed charges. The bank has to absorb any losses aris- ing on these Innovative Tier 1 instruments and account for them as non-controlling inter- ests. Innovative Tier 1 capital cannot comprise more than 15% of net Tier 1 capital and the sum of innovative Tier 1 capital and perpetual preferred shares can- not exceed 25% of net Tier 1 capital. 

## Mark-to-Market 

Represents valuation at market rates, as of the balance sheet date, of securities and deriva- tives held for trading purposes. 

## Notional Amount 

The principal used to calculate interest and other payments under derivative contracts. The principal amount does not change hands under the terms of a derivative contract, except in thecaseofcross-currencyswaps. 

## Off-Balance Sheet Financial Instruments 

Assets or liabilities that are not recorded on the balance sheet but have the potential to pro- duce positive or negative cash flows in the future. A variety of products offered to clients can be classified as off-balance sheet and they fall into two broad categories: (i) credit-related arrangements, which provide clients with liquidity protection, and (ii) derivatives for hedging. 

## Options 

Contractual agreements that give the holder the right, but not the obligation, to either buy or sell a specific amount of a currency, commodity, equity or financial instrument at a fixed price, either at a fixed future dateoratanytimewithinafixed future period. 

## Provision for Credit Losses 

charge to income that rep- resents an amount deemed adequate by management to fully provide for impairment in the existing loan portfolios, given the composition of the loan portfolios, the probability of default on the loans, the economic environment and the allowance for credit losses al- ready established. 

## Regulatory Capital Ratios 

The percentage of risk-weighted assets supported by capital, as defined by OSFI under the framework of risk-based capital standards developed by the Bank for International Settlements. These ratios are labelled Tier 1 and Tier 2. Tier 1 capital is considered to be more perma- nent, consisting of common shares together with any qualify- ing non-cumulative preferred shares, less unamortized good- will. Tier 2 capital consists of other preferred shares, sub- ordinated debentures and the general allowance, within pre- scribed limits. The assets-to- capital multiple is adjusted assets divided by total capital. 

## Securities Purchased under Resale Agreements 

Result from transactions that involve the purchase of a secu- rity, normally a government bond, with the commitment by the buyer to resell the security to the original seller at a specified price on a specified date in the future. They represent low-cost, l ow-risk loans. 

## Securities Sold under Repurchase Agreements 

Resu lt from transactions in which a security is sold with the commitment by the seller to repurchase the security at a specified price on a specified date in the future. They provide low-cost funding. 

## S waps 

Contractual agreements between two parties to exchange a series of cash flows. For interest rate swaps, counterparties generally exchange fixed and floating rate interest payments based on a notional amount in a single currency. For cross-currency interest rate swaps, principal amounts and fixed and floating rate interest payments are ex- changed in different currencies. 

<img src='content_image/102660.jpg'>

