DEFINITION of 'Loan Syndication'Theprocessof involving several different lenders in providing various portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too much for a single lender to provide, or may be outside the scope of a lender's risk exposure levels. Thus, multiple lenders will work together to provide the borrower with the capital needed, at an appropriate rate agreed upon by all the lenders.INVESTOPEDIA EXPLAINS 'Loan Syndication'Mainly used in extremely large loan situations, syndication allows any onelenderto provide a large loan while maintaining a more prudent and manageable credit exposure, because the lender isn't the only creditor. Loan syndication is common in mergers, acquisitions and buyouts, where borrowers often need very large sums of capital to complete a transaction, often more than a single lender is able or willing to provide.

DEFINITION of 'Lease 'A legaldocumentoutlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid.INVESTOPEDIA EXPLAINS 'Lease 'Leases are the contracts that lay out the details of rental agreements in thereal estatemarket. For example, if you want to rent an apartment, the lease will describe how much the monthly rent is, when it is due, what will happen if you don't pay, how much of a securitydepositis required, the duration of the lease, whether you are allowed to have pets, how many occupants may live in the unit and any other essential information. The landlord will require you to sign the lease before you can occupy the property as a tenant.

DEFINITION of 'Mutual Fund'An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks,bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.INVESTOPEDIA EXPLAINS 'Mutual Fund'One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or shares, are issued and can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS.Afactory(previouslymanufactory) ormanufacturing plantis an industrial site, usually consisting of buildings and machinery, or more commonly a complex having several buildings, where workersmanufacturegoodsor operatemachinesprocessingone product into another.

DEFINITION of 'Forfaiting'The purchasing of an exporter's receivables (the amount importers owe the exporter) at a discount by paying cash. The forfaiter, the purchaser of the receivables, becomes the entity to whom the importer is obliged to pay itsdebt.INVESTOPEDIA EXPLAINS 'Forfaiting'By purchasing these receivables - which are usually guaranteed by the importer's bank - the forfaiter frees the exporter from credit and from the risk of notreceiving paymentfrom the importer who purchased the goods on credit. While giving the exporter acash payment, forfaiting allows the importer to buy goods for which it cannot immediately pay in full. The receivables, becoming a form of debt instrument that can be sold on the secondary market, are represented by bills of exchange or promissory notes, which are unconditional and easily transferred debt instruments.DEFINITION of 'Venture Capital'Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.INVESTOPEDIA EXPLAINS 'Venture Capital'Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuingdebt. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.DEFINITION of 'Custodian'A financial institution that holds customers' securities for safekeeping so as to minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form. Since they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms.INVESTOPEDIA EXPLAINS 'Custodian'In addition to holding securities for safekeeping, most custodians also offer a variety of other services including account administration, transaction settlements, collection of dividends and interest payments, tax support and foreign exchange. The fees charged by custodians vary, depending on the services desired by the client. Many firms charge custody fees payable quarterly that are based on the aggregate value of the holdings.Corporate servicesare activities that combine or consolidate certainenterprise-wide needed support services, provided based on specialized knowledge,best practices, and technology to serve internal (and sometimes external) customers and business partners.DEFINITION of 'Securitization'The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace.INVESTOPEDIA EXPLAINS 'Securitization'Mortgage-backed securities are a perfect example of securitization. By combining mortgages into one large pool, the issuer can divide the large pool into smaller pieces based on each individual mortgage's inherent risk of default and then sell those smaller pieces to investors.The process creates liquidity by enabling smaller investors to purchase shares in a larger asset pool. Using the mortgage-backed security example, individual retail investors are able to purchase portions of a mortgage as a type of bond. Without the securitization of mortgages, retail investors may not be able to afford to buy into a large pool of mortgages.Definition of "Derivative"A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. Futures contracts,forward contracts,optionsandswapsare somecommontypesof derivatives used inhedgingor togainleverage.

DEFINITION of 'Forex - FX'The market in which currencies are traded.The forexmarket is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day and includes all of the currencies in the world.

INVESTOPEDIA EXPLAINS 'Forex - FX'There is no central marketplace forcurrency exchange; trade is conducted over the counter. The forex market is open 24 hours a day, five days a week and currencies are traded worldwide among the major financial centers of London, New York, Tokyo, Zrich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.

The forex is the largest market in the world in terms of the total cash value traded, and any person, firm or country may participate in this market.DEFINITION of 'Line Of Credit - LOC'An arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the bank will permit the borrower to maintain. The borrower can draw down on the line of credit at any time, as long as he or she does not exceed the maximum set in the agreement.INVESTOPEDIA EXPLAINS 'Line Of Credit - LOC'The advantage of a line of credit over a regular loan is that interest is not usually charged on the part of the line of credit that is unused, and the borrower can draw on the line of credit at any time that he or she needs to. Depending on the agreement with the financial institution, the line of credit may be classified as a demand loan, which means that any outstanding balance will have to be paid immediately at the financial institution's request.DEFINITION of 'Commercial Paper'An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days.The debtis usually issued ata discount, reflecting prevailing market interest rates.INVESTOPEDIA EXPLAINS 'Commercial Paper'Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue.A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of financing can only be used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC involvement.treasury bill (T-bill)Short-term(usually less than one year, typically threemonths) maturitypromissory noteissued by a national (federal) government as aprimaryinstrumentfor regulatingmoney supplyand raisingfundsviaopen market operations. Issued through thecountry'scentral bank, T-bills commonlypayno explicitinterestbut are soldat a discount, theiryieldbeing thedifferencebetween thepurchasepriceand thepar-value(alsocalledredemption value). This yieldis closely watched byfinancial marketsand affects the yield on municipal andcorporate bondsandbankinterest rates. Although their yield is lower than on othersecuritieswithsimilarmaturities, T-bills are very popular withinstitutional investorsbecause, being backed by thegovernment'sfull faith and credit, they come closest to arisk free investment. Issued first time in 1877 in the UK and in 1929 in the US.

DEFINITION of 'Certificate Of Deposit - CD'A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.INVESTOPEDIA EXPLAINS 'Certificate Of Deposit - CD'A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.For example, let's say that you purchase a $10,000 CD with an interest rate of 5% compounded annually and a term of one year. At year's end, the CD will have grown to $10,500 ($10,000 * 1.05).CDs of less than $100,000 are called "small CDs"; CDs for more than $100,000 are called "large CDs" or "jumbo CDs". Almost all large CDs, as well as some small CDs, are negotiable.What is inter bank participation?In the non-cash payment system money is transferred from a payer's account to a payee's account. This means that the operating of the non-cash payment system is reserved to financial institutions - banks with which clients deposit their money on accounts. Banks execute the payments based on their clients' instructions transmitted in the form of a writtendocument(payment instruction forms, cheques, etc.), or by technical means (instructions transmitted on data media, electronically via computers linked with the bank, vocally by phone, or via a special bankingapplicationsby mobile phone, or using a payment card, which may also be considered anelectronic paymentinstruction). If both the payer and the payee have their accounts at the same bank, that bank will execute themoney transfer(account settlement) in its own clearing centre. If the payer and the payee have accounts with different banks, the payer's bank has to use the "interbank clearing centre" for the transfer.Inter-Bank Participation Certificate:Inter-Bank Participation Certificates are instruments issued by scheduled commercial banks only to raise funds or to deploy short term surplus. This instrument is issued as per RBI guidelines for two purposes:a. on risk sharing basisb. without risk sharingInter-Bank Participation without risk sharing can have tenure of 90 days only where, the issuing bank as borrowing and the participating bank advances to the banks. In case of risk sharing basis, the lender bank shares losses with the borrowing banks by mutually determining the interest rate. The tenure may be for 90 to 180 days.DEFINITION of 'Zero-Coupon Convertible'A fixed income instrument that is a combination of a zero-coupon bond and a convertible bond. Due to the zero-coupon feature, the bond pays no interest and is issued at a discount to par value, while the convertible feature means that the bond is convertible into common stock of the issuer at a certain conversion price.INVESTOPEDIA EXPLAINS 'Zero-Coupon Convertible'The zero-coupon and convertible features offset each other in terms of the yield required by investors. Zero-coupon bonds are often the most volatile fixed-income investments because they have no periodic interest payments to mitigate the risk of holding them; as a result, investors demand a slightly higher yield to hold them. On the other hand, convertibles pay a lower yield compared to other bonds of the same maturity and quality because investors are willing to pay a premium for the convertible feature.DEFINITION of 'Yield'The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.DEFINITION of 'Deep-Discount Bond'1. A bond that sells at a significant discount from par value.

2. A bond that is selling at a discount from par value and has a coupon rate significantly less than the prevailing rates of fixed-income securities with a similar risk profile.INVESTOPEDIA EXPLAINS 'Deep-Discount Bond'1. Typically, a deep-discount bond will have a market price of 20% or more below its face value. These bonds are perceived to be riskier than similar bonds and are thus priced accordingly.

2. These low-coupon bonds are typically long term and issued with call provisions. Investors are attracted to these discounted bonds because of their high return or minimal chance of being called before maturity.

DEFINITION of 'Index-Linked Bond'A bond in which payment of income on the principal is related to a specific price index - often the Consumer Price Index. This feature provides protection to investors by shielding them from changes in the underlying index. The bond's cash flows are adjusted to ensure that the holder of the bond receives a known real rate of return.

In Canada, they also referred to as "real return bonds."INVESTOPEDIA EXPLAINS 'Index-Linked Bond'This type of bond is valuable to investors because the real value of the bond is known from purchase and the risk involved with uncertainty is eliminated. These bonds are also less volatile than nominal bonds and they help investors to maintain their purchasing power. For example, assume that you purchase a regular bond with a nominal return of 4%. If inflation is 3%, you will actually only receive 1% in real terms. On the other hand, if you buy an index-linked bond your cash flow will be adjusted to changes in inflation and you will still receive the full 4% in returns.