RBS 2012 Annual Report Download - page 532

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Glossary of terms continued
Currency swap - an arrangement in which two parties exchange specific
principal amounts of different currencies at inception and subsequently
interest payments on the principal amounts. Often, one party will pay a
fixed rate of interest, while the other will pay a floating rate (though there
are also fixed-fixed and floating-floating arrangements). At the maturity of
the swap, the principal amounts are usually re-exchanged.
Customer accounts - money deposited with the Group by counterparties
other than banks and classified as liabilities. They include demand,
savings and time deposits; securities sold under repurchase agreements;
and other short term deposits. Deposits received from banks are
classified as deposits by banks.
Debt securities - transferable instruments creating or acknowledging
indebtedness. They include debentures, bonds, certificates of deposit,
notes and commercial paper. The holder of a debt security is typically
entitled to the payment of principal and interest, together with other
contractual rights under the terms of the issue, such as the right to
receive certain information. Debt securities are generally issued for a
fixed term and redeemable by the issuer at the end of that term. Debt
securities can be secured or unsecured.
Debt securities in issue - unsubordinated debt securities issued by the
Group. They include commercial paper, certificates of deposit, bonds and
medium-term notes.
Debit valuation adjustment (DVA) - an adjustment made by an entity to
the valuation of OTC derivative liabilities to reflect within fair value the
entity's own credit risk.
Deferred tax asset - income taxes recoverable in future periods as a
result of deductible temporary differences (temporary differences
between the accounting and tax base of an asset or liability that will result
in tax deductible amounts in future periods) and the carry-forward of tax
losses and unused tax credits.
Deferred tax liability - income taxes payable in future periods as a result
of taxable temporary differences (temporary differences between the
accounting and tax base of an asset or liability that will result in taxable
amounts in future periods).
Defined benefit obligation - the present value of expected future
payments required to settle the obligations of a defined benefit plan
resulting from employee service.
Defined benefit plan - pension or other post-retirement benefit plan other
than a defined contribution plan.
Defined contribution plan - pension or other post-retirement benefit plan
where the employer's obligation is limited to its contributions to the fund.
Deposits by banks - money deposited with the Group by banks and
recorded as liabilities. They include money-market deposits, securities
sold under repurchase agreements, federal funds purchased and other
short term deposits. Deposits received from customers are recorded as
customer accounts.
Derivative - a contract or agreement whose value changes with changes
in an underlying index such as interest rates, foreign exchange rates,
share prices or indices and which requires no initial investment or an
initial investment that is smaller than would be required for other types of
contracts with a similar response to market factors. The principal types of
derivatives are: swaps, forwards, futures and options.
Discontinued operation - a component of the Group that either has been
disposed of or is classified as held for sale. A discontinued operation is
either: a separate major line of business or geographical area of
operations or part of a single co-ordinated plan to dispose of a separate
major line of business or geographical area of operations; or a subsidiary
acquired exclusively with a view to resale.
Economic capital - an internal measure of the capital required by the
Group to support the risks to which it is exposed.
Economic profit - the difference between the return on shareholders
funds and the cost of that capital. Economic profit is usually expressed as
a percentage.
Effective interest rate method - the effective interest method is a method
of calculating the amortised cost of a financial asset or financial liability
(or group of financial assets or liabilities) and of allocating the interest
income or interest expense over the expected life of the asset or liability.
The effective interest rate is the rate that exactly discounts estimated
future cash flows to the instrument's initial carrying amount. Calculation of
the effective interest rate takes into account fees payable or receivable
that are an integral part of the instrument's yield, premiums or discounts
on acquisition or issue, early redemption fees and transaction costs. All
contractual terms of a financial instrument are considered when
estimating future cash flows.
Equity risk - the risk of changes in the market price of the equities or
equity instruments arising from positions, either long or short, in equities
or equity-based financial instruments.
Expected loss (EL) - expected loss represents the anticipated loss on an
exposure over one year. It is determined by multiplying probability of
default, loss given default and exposure at default and can be calculated
at individual, credit facility, customer or portfolio level.
Exposure - a claim, contingent claim or position which carries a risk of
financial loss.