What is the Bretton Woods Agreement? The Bretton Woods Agreement was reached in a 1944 summit held in New Hampshire, USA on a site by the same name. The agreement was reached by 730 delegates, who were the representatives of the 44 allied nations that attended the summit. The delegates, within the agreement, used the…
What are Risk-Weighted Assets? Risk-weighted assets is a banking term that refers to an asset classification system that is used to determine the minimum capital that banks should keep as a reserve to reduce the risk of insolvency. Banks face the risk of loan borrowers defaulting or investments flatlining, and maintaining a minimum amount of…
What is the Global Financial Crisis of 2008-2009? The Global Financial Crisis of 2008-2009 refers to the massive financial crisis the world faced from 2008 to 2009. The financial crisis took its toll on individuals and institutions around the globe, with millions of American being deeply impacted. Financial institutions started to sink, many were absorbed…
What is Restricted Cash? Restricted cash refers to cash that is held onto by a company for specific reasons and is, therefore, not available for immediate ordinary business use. It can be contrasted with unrestricted cash, which refers to cash that can be used for any purpose. Restricted Cash on the Balance Sheet Restricted cash…
What is the Federal Funds Rate? In the United States, the federal funds rate refers to the interest rate that depository institutions (such as banks and credit unions) charge other depository institutions for overnight lending of capital from their reserve balances on an uncollateralized basis. Types of Rates There are two types of federal funds…
What is a Leveraged Loan? A leveraged loan is a loan that is extended to businesses that (1) already hold short or long-term debt on their books or (2) with a poor credit rating/history. Leveraged loans are significantly riskier than traditional loans, and, as such, lenders typically demand a higher interest rate to reflect the…
What is Capital Employed? Capital employed refers to the amount of capital investment a business uses to operate and provides an indication of how a company is investing its money. Although capital employed can be defined in different contexts, it generally refers to the capital utilized by the company to generate profits. The figure is…
What is a Reserve Fund? A reserve fund refers to a savings account or highly liquid assets set aside to meet unexpected costs or financial obligations. Businesses, individuals, and condominium homeowners’ associations are common users of reserve funds. Understanding Reserve Funds Reserve funds are established to meet unexpected future costs or financial obligations that may…
What is the Reserve Ratio? The reserve ratio – also known as bank reserve ratio, bank reserve requirement, or cash reserve ratio – is the percentage of deposits a financial institution must hold in reserve as cash. The central bank is the institution that determines the required amount of reserve ratio. A bank’s reserve usually…
What is a Credit Memorandum? A credit memorandum – often shortened to credit memo – is given to a customer by a seller that provides goods and/or services. The memo is issued as a way to reduce the amount owed by the customer. The deduction is taken from an invoice that was previously issued, which…
