MBA Accounts interview Questions and answers

Back office -- departments of a financial institution that perform work out of sight of customers, including bookkeeping and the processing of checks and loan payments.

Bad debt reserve -- a reserve account maintained by thrift institutions and used to offset losses from foreclosed or un-collectable loans. Within certain guidelines, contributions to the bad debt reserve are deductible from the institution's taxable income. The deduction is known as the bad debt deduction.

Balance -- the remaining amount credited to a customer's account, representing the amount the customer is entitled to withdraw, or conversely, the remaining amount of a customer's debt, which is the amount the customer is obligated to repay. The term also refers to the ratio of total credits to total debits.

Balance sheet -- a financial statement that contains the types and amounts of assets, liabilities and net worth of a company, institution or individual. Also called a statement of condition.

Balloon mortgage -- a mortgage that does not fully amortize by the end of the loan term. Periodic payments may be for principal and interest, or for interest only. At maturity, the unpaid principal is due in a lump sum.

Balloon payment -- the lump sum payment of the unpaid principal remaining at the end of the term of a balloon mortgage loan or other non-amortizing loan.

Baltimore Plan -- an early housing plan implemented in 1944 to upgrade and maintain inner city housing standards. It included building, zoning, fire protection, and housing laws; a citizens' advisory council; a housing bureau in the health department; rodent control and sanitation. The plan was enforced by a special housing court. The Baltimore Plan was a model and an example to other cities trying to solve similar urban problems.

Bank -- when lower case in this glossary, refers to a commercial bank. A commercial bank is an institution that accepts demand deposits and makes commercial loans.

Bank -- when capitalized in this glossary refers to one of the 12 Federal Home Loan Banks.

Bank check -- a check drawn by a bank on itself and signed by an authorized bank officer. Also referred to as a cashier's check, officer's check, or treasurer's check.

Bank draft -- a check written by one bank on its account with another bank.

Banker’s acceptance -- a draft drawn on a bank, which when accepted by the bank, constitutes the bank's obligation to pay the draft writer's bills from a specified creditor when the bills are due. The bank literally stamps "Accepted for payment by (name of bank) on (date)" across the face of the draft. Acceptance converts a depositor's "order to pay" into an unconditional "promise to pay" by the accepting bank. Banker’s acceptances are effectively a guaranty of payment for a purchase and are usually used in financing the import, export, transfer or storage of goods, and qualify as liquid assets when held by a thrift institution.

Banker’s bill -- a negotiable draft without supporting papers drawn by one bank on its credit balance at a foreign bank.

Banking Act of 1933 -- the first major banking legislation of the Roosevelt administration, it created the Federal Deposit Insurance Corporation to provide insurance of deposits of member banks. The Act also provided for the regulation of banks, and limited branch banking. Also known as the Glass-Steagall Act.

Bank Insurance Fund (BIF) -- the fund that provides deposit insurance for commercial banks. It is administered by the Federal Deposit Insurance Corporation (FDIC).

Bank Merger Act (BMA) -- popular nickname for a section of the Federal Deposit Insurance Act (FDIA).

Bank note -- a promissory note issued by an authorized bank that is payable on demand to a bearer and can be used as cash. Under law, such notes are redeemable as money and are considered full legal tender. Bank notes are also called bank bills or bank currency.

Bank Protection Act of 1968 -- a federal law that authorized the Federal Home Loan Bank Board and other federal regulators of depository institutions to set minimum standards to be met by financial institutions in installing security devices to discourage robberies, burglaries and larcenies.

Bankruptcy -- the legal process in which a person or firm declares inability to pay debts. Any available assets are liquidated and the proceeds are distributed to creditors. A person or firm may be declared bankrupt under one of several chapters of the federal bankruptcy code: Chapter 7, which covers liquidation of the doubter's assets; Chapter 11, which covers reorganization of bankrupt businesses; or Chapter 13, which covers work-outs of debts by individuals. Upon a court declaration of bankruptcy, a person or firm surrenders assets to a court-appointed trustee, and is relieved from the payment of previous debts.

BankWire -- an electronic communications network owned by an association of banks and used to transfer messages between subscribing banks. BankWire also offers a clearing service called CashWire that includes a settlement facility.

Basel Agreement -- an accord developed during a 1975 meeting in Basel, Switzerland of central bankers of the industrialized nations setting forth guidelines for the supervision of banks. Included are guidelines for minimum capital requirements. The agreement was reached by the Committee on Banking Regulations and Supervisory Practices (also known as the Cooke Committee after its chairman, Peter Cooke), meeting under the auspices of The Bank for International Settlements.

Baseline program -- another name for the standard program, under which the Federal Home Loan Mortgage Corporation purchases mortgages for cash.

Basic rent -- the rent charged in a subsidized housing project and computed on the basis of a maximum subsidy resulting in a minimum rent payment under provisions of the HUD Section 236, Subsidized Housing Program.

Basis -- the difference between the price of related commodities in the same market or of the same commodity in different markets. Most commonly used in reference to the difference between the cash market price of a commodity and the corresponding futures market price.

Basis point -- one basis point equals 1/1OOth of one percent, or .0001. For example, 50 basis points is equal to 1/2 percent. Basis points are frequently used to describe spreads or changes in yields of interest rates.

Basket provision -- thrift industry slang for provisions in the law that allow savings and loan associations, savings banks and insurance companies to invest a portion of their assets in investments not otherwise permitted.

Bauverein -- the German word for building association. In some U.S. German neighborhoods, local savings associations were called bauvereins.

Bearer bond -- a bond that does not have the owner's name registered on the books of the issuing agency or company, and is payable to whomever holds the bond and bears it to the issuer for payment.

Bearer check -- a check payable to "cash" or to "the bearer" rather than to a specific party.

Bear hug -- an unsolicited corporate takeover proposal, made privately or publicly to directors.

Bear market -- a condition of a stock market characterized by a selling trend and declining prices. Opposite of a bull market.

Before-tax-income -- gross income less all expenses except income taxes.

Belly-up -- slang, used to describe a failed project or institution.

Below-market interest rate -- an interest rate below the current rate for conventional financing in a given area. Programs with below-market rates may be used to assist low- or moderate-income buyers.

Bleeder -- another name for a gazebo.

Benchmark -- a mark made on a permanent object indicating elevation and serving as a

reference in land surveys.

Beneficiary -- the person designated to receive funds in a trust account or an insurance policy.

Beneficiary statement -- the statement of a lender that shows the remaining principal balance and other information about a loan. It is usually obtained when a property owner wants to sell or refinance. It is also called a bene statement, offset statement, or estoppel certificate, and it is normally requested by escrow or title companies.

Bequeath -- to give personal property in a will.

Bequest -- a gift of personal property made by a deceased person.

Berg -- a mound of earth created for either decorative purposes or functional reasons, such as controlling the flow of water or obscuring undesirable views.

Bid -- (1) an offer of money in exchange for property, or anything of value that has been placed for sale. (2) an offer to purchase something of value at a specified price made during an auction. (3) a formal offer in writing by a contractor to provide a product or service for a certain price, usually within a specified period of time. (4) in securities markets, an indication of a willingness to buy at a given price.

Bill check -- a system of payment, in which a debtor authorizes a creditor to obtain payment directly from the debtor's deposit account.

binder -- a written statement binding two parties to an agreement until a formal contract can be executed. A binder is used to secure insurance for a mortgage until a complete policy is issued.

Baleful -- a house with two distinct levels that are side-by-side and less than one story apart in height; also called a split-level.

Bill of credit -- the written request of an individual to his or her depository institution asking it to deliver money to the bearer of the request, with the money drawn from the individual's deposit account, or advanced on the individual's credit.

Bill of exchange -- instructions from one party to a second party to pay a third party following the completion of an assignment.

Bill of lading -- a written statement in which a carrier acknowledges the receipt of freight, identifies the freight, and sets forth terms under which the freight will be delivered to a destination.

Bill of sale -- a written document that transfers title to personal property from the seller to the buyer.

Binary -- a math system based on 2s rather than Los, using only the digits O and 1. It is the operating system for computers.

Blanket -- something that pertains to more than one item, or more than one piece of property. In a blanket condemnation, a number of properties are sold through the power of eminent domain. A blanket insurance policy covers more than one property. A blanket mortgage is a lien on more than one parcel of land and is frequently used by developers and subdividers.

Blanket mortgage loan -- a loan made to developers or contractors to purchase one or more tracts of land with the intention of dividing the land into smaller parcels for resale or development.

Blighted area -- a run-down area in a community or a neighborhood that is close to becoming a slum.

Block -- the smallest square or rectangular portion of a city or town surrounded by four streets. A block may be wholly or partially occupied by buildings or be vacant land.

Blockbusting -- the illegal practice of some real estate dealers who start rumors that play on prejudices against minorities, creating panic selling by an area's residents. The dealers buy the houses from frightened owners at below market prices, and then sell the homes to minority groups at above market prices.

Blue chip stock -- the common stock of large, stable companies that have shown consistent earnings and usually have long-term growth potential.

Board foot -- a unit used to measure lumber. One board foot is one inch thick, one foot wide and one foot long.

Board of directors -- the group of persons who make up the governing body of an institution, and are responsible for policy and overall direction of the organization.

Board of trustees -- the group of persons that manages a mutual savings bank, establishes the policies under which it is to be operated, and appoints executive officers. In some states it is called a board of managers.

Bogus -- false, counterfeit, nonexistent or fraudulent.

Boilerplate -- slang for standard legal language used in loan forms, real estate closings, etc.

Bona fide -- something that is in good faith, not a fraud, the real thing.

Bond -- a certificate that is evidence of a debt. The debt is initiated when the issuer sells the bond to the holder for a specific amount of cash. The issuer is obligated to pay the holder of the bond a fixed sum (the bond's face value) at a stated future date and to pay interest (usually twice a year) at a specified rate during the life of the bond. Bonds may be issued by corporations, the federal government, and by state and local governments as a means of raising funds in the capital markets. Bonds may be issued in registered form, in which the name of the holder is on record with the issuer, or in bearer form, in which the name of the owner is not registered and the bond is payable to whomever bears, or presents the bond to the issuer for redemption.

Bond discount -- the difference between the purchase price and face value of a bond when the face value exceeds the purchase price.

Bond premium -- the difference between the purchase price and the face value of a bond when the face value is less than the purchase price.

Bonus account -- a savings account that earns interest at a higher rate if the customer makes regular, scheduled deposits to the account, leaves a specified amount on deposit for a specified term, or fulfills other conditions of the account agreement.

Book entry system -- the recording, transferring and processing of securities solely by electronic means. The ownership of a security is recorded in a computer file and the purchaser does not receive a piece of paper evidencing ownership.

Bookkeeping -- the recording and balancing of financing transactions of an institution.

Book value -- the value of an asset as it appears on the accounting books of an organization. Book value is the initial cost of the asset, less depreciation. Book value may be different from market value, which is the estimated amount the asset would command if sold. Book value also refers to the total value of a company and is computed by adding all assets, then deducting all debts and other liabilities, and deducting the liquidation price of any preferred stock. The book value of a company may be divided by the number of outstanding shares of common stock to get the book value per share of common stock.

Borrower -- individual or institution receiving funds in the form of a loan and obligated to repay the loan, usually with interest. A borrower is called a mortgagor when the loan is secured by real estate.

Branch office -- an office of a savings institution that is physically separated from the association's home office, but that offers the same kinds of deposit taking, loan and other services conducted at the home office.

Breach -- a violation of a legal obligation.

Breakeven point -- the level of sales or production at which the total costs and total revenue of a business are equal.

Brick -- slang used to describe a package of currency that is banded with steel straps.

Bricks and mortar -- slang for physical branch or main offices of a thrift institution.

Broker -- a person who acts as an agent for others in selling or buying funds, securities, real estate, insurance or other services or products.

Brokered deposits -- deposits placed in a savings institution by a broker. The broker gathers funds from others and packages the funds in batches of $100,000. The broker then shops for thrift institutions paying the highest rates and takes out multiple jumbo ($100,000) certificates of deposit, which typically pay the highest rates of interest and are federally insured. The practice allows persons with less than $100,000 to pool their money and earn the higher rates paid by jumbo certificates of deposit. For his services, the broker charges fees to the investors for getting them higher rates and/or to the thrift institutions for placing deposits with them.

Budget -- an itemized listing, usually prepared annually, of anticipated revenue and projected expenses.

Buffer zone -- an area separating two or more types of land use, such as between a residential area and a commercial area.

Building and loan association -- another name for a savings and loan association.

Building codes -- city, county or state regulations that set forth standards and requirements for the construction, maintenance and occupancy of buildings. The codes are designed to provide for the safety, health and welfare of the public.

Building efficiency -- the ratio of net rentable area to gross building area expressed as a percentage.

Building loan -- a mortgage loan made to finance the construction of a building. It is advanced in stages as the work is completed. Also called a construction loan.

Building society -- the British term for a savings and loan association.

Built-ins -- cabinets, ranges, ovens, and other appliances or furniture that are attached to the structure.

Bulge -- slang for a sudden, temporary increase in the price of a security, stock or debt obligation. Any temporary, significant increase, such as that in the volume of work.

Bull market -- a condition of a stock or securities market characterized by increased buying and rising prices. Opposite of a bear market.

Bungalow -- a one- or one and one-half story house with low exterior lines. In Chicago, a bungalow is a gable-roofed brick building with two to three bedrooms, a half-sunken basement, and stairs leading to an attic. Most bungalows were built in Chicago in the 1920s. In India, a bungalow is a small cottage with a thatched or tiled roof surrounded by a wide veranda.

Bureau rate -- in some states, a standard rate is established by a rating bureau for all companies writing policies for hazard insurance and for title insurance.

Buy -- (1) to acquire ownership of something in exchange for money. (2) The quality of a purchase, as "It is a good buy."

Buy-back agreement -- a provision in a real estate sales contract stating that the seller will repurchase the property within a specified period of time, usually for the selling price, for a specific cause such as the purchaser being transferred by his or her employer from the area.

Buydown -- the practice of a seller, builder or other party advancing money to a mortgage lender resulting in lower monthly mortgage payments by a third party, the homebuyer. As the result of a buydown, monthly mortgage payments may be reduced for the entire life of the mortgage, or for just an initial period of one or more years. Frequently, the amount of the buydown is added to the selling price of the property.

Buyer’s market -- a market condition characterized by an oversupply of items for sale resulting in lower prices for the buyer. Opposite of a seller's market.

Buying hedge -- also called a long hedge. Term refers to buying futures contracts to protect against a possible increase in the cost of buying commodities that will be needed in future.

Buying power -- money and other liquid assets, plus credit, that is available for spending and consumption of goods and services.

Buy on margin -- the act of purchasing securities and paying cash for only a fraction of the purchase price. The remainder of the price is provided by credit extended by the broker to the buyer.

Buy-sell agreement -- a written agreement between a homeowner/borrower, a construction lender and a permanent lender that assigns the mortgage to the permanent lender when the construction is completed. Also called a tri-party agreement.

Bylaws -- the regulations that an institution adopts that set forth duties, limit authority and establish orderly procedures for conducting business.