For non-finance professionals, If you are thinking about sending money abroad it helps to be familiar with some financial terms. To help ensure that you’re savvy before you begin your cross-border money transfer journey, here are our top 10 must-know financial terms when you are using remittance services or performing basic financial transactions.
Remittance is derived from the word ‘remit’ which means ‘to send back’. Remittance refers to money that is sent or transferred to another party, usually overseas. Remittances can be sent via a wire transfer, electronic payment system, mail, draft, or cheque. Another word for Remittance is “money transfers”. Remittances represent one of the largest sources of income for people in low-income and developing nations, often exceeding direct investment and international development assistance.
The costs of a remittance transaction include a fee charged by the sending agent, typically paid by the sender, and a currency-conversion fee for delivery of local currency to the beneficiary in another country. Some smaller operators charge the beneficiary a fee to collect remittances, presumably to account for unexpected exchange-rate movements. And remittance agents (especially banks) may earn an indirect fee in the form of interest (or “float”) by investing funds before delivering them to the beneficiary. The float can be significant in countries where overnight interest rates are high.
An exchange rate is the value by which two currencies are traded for one another. In other words, it is the rate or value at which one currency can purchase another currency. If you are sending money abroad it is important to know about exchange rates because they will determine how much your money in one country is worth in another country. For example if you were in Nigeria and you wanted to send money to Ghana, USA or UK, you would want to know what the exchange rate was between the Nigerian Naira and the Ghana Cedi (GHS), United States Dollar (USD) or British Pound Sterling (GBP).
Simply, a beneficiary is the person receiving the money from a money transfer agent. The individual that sends something to the beneficiary is known as the benefactor. A beneficiary is also known as a recipient. A beneficiary can be a person, or a business entity.
The interest rate is the amount charged on top of the principal by a lender to a borrower for the use of assets. Interest is what you pay for the privilege of borrowing someone else’s money. An interest rate also applies to the amount earned at a bank or credit union from a savings account. A borrower that is considered low risk by the lender will have a lower interest rate. A loan that is considered high risk will have a higher interest rate.
Interest rates are definitely something you need to keep an eye out for. While you may often find them in the small print, they can have a big impact on the money you have or the money you borrow.
Assets are items you own that can provide future benefit to your business, such as cash, inventory, real estate, office equipment, or accounts receivable, which are payments due to a company by its customers. There are different types of assets, including: Current Assets and Fixed Assets.
7.EBITA (or EBITDA)
EBITA stands for Earnings Before Interest, Taxes, (Depreciation), and Amortization. EBITA is used in financial accounting to work out a company’s earnings before deducting interest expenses (depreciation on fixed assets), taxes and adding amortization on assets like land/goodwill. To get EBITDA, you would add net profit, interest, taxes, depreciation together, and subtract amortization.
Equity, often called shareholders’ equity or owners’ equity on a balance sheet, represents the amount of money that belongs to the owners of a business after all assets and liabilities have been accounted for. Using the accounting equation, shareholder’s equity can be found by subtracting total liabilities from total assets.
Cash flow refers to the net balance of cash moving in and out of a business at a specific point in time. Cash flow is commonly broken into three categories, including: Operating Cash Flow, Investing Cash Flow and Financing Cash Flow.
10.Return on Investment (ROI)
Return on Investment is a simple calculation used to determine the expected return of a project or activity in comparison to the cost of the investment, typically shown as a percentage. This measure is often used to evaluate whether a project will be worthwhile for a business to pursue. ROI is calculated using the following equation: ROI = [(Income – Cost) / Cost] * 100
By mastering these basic finance terms, you can not only gain a more holistic view of things you need to know when using remittance services, but also finance terms used in business operations and transactions.
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