If you are thinking about sending money abroad it helps to be familiar with some financial terminology. Often when you are in financial situations terms like remittance or exchange rate will be used, and it is important that you understand what these terms mean.
In this blog we’ve listed some of the most common financial words you’re likely to come across and provided some definitions and more detailed explanations
Key Finance Terminology
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Remittance
Remittance is another word for “money transfers”. It is a sum of money sent in payment or as a gift. In the context of sending money abroad, a remittance payment often comes in the form of a transfer of funds to another bank account.
This is an important term for immigrants to know because it is the word used when migrants send money home.
Remittances are a huge deal and can amount to a significant part of a country’s economy. “In 2020, the top five recipient countries for remittances inflows in current USD were India (83 billion), China (60 billion), Mexico (43 billion), the Philippines (35 billion), and Egypt (30 billion) (ibid.). India has been the largest recipient of remittances since 2008.” (MigrationData)
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Beneficiary
Simply, a beneficiary is the person receiving the money from a money transfer. The individual that sends something to the beneficiary is known as the benefactor.
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Exchange Rate
An exchange rate is about the value of one currency compared to 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 a European country, like France, you would want to know what the exchange rate was between the Nigerian Naira and the Euro. During the first few months the average exchange rate was 1 EUR to 479 NGN - meaning 1 euro was worth 479 Nairas.
Hopefully, through this comparison with the currencies of Nigeria, India and Pakistan you can see how exchange rates illustrate the worth of a currency on the global stage. Exchange rates are also a good indication of the health and size of a country’s economy.
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Expenses
Expenses are the costs you have for buying something or for doing something. In other words, it’s the cost of operations for a company or an individual. There are many common expenses including paying suppliers or manufacturers, rent, and employee wages.
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Interest Rate
Interest is what you pay for the privilege of borrowing ‘hiring’ someone else’s money. Similarly, if you are saving money in the bank, it is the bank that will pay interest to you for the privilege of hiring your money. “An interest rate is a percentage charged on the total amount you borrow or paid on the amount you save.”(BOE)
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.
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EBITA (or EBITDA)
EBITA stands for Earnings Before Interest, Taxes, (Depreciation), and Amortisation. EBITA is used in financial accounting to work out a company’s earnings before interest expenses, taxes and amortisation.
To understand what EBITA means, it helps to know what all these other terms mean. We’ve covered expenses above and you probably already know that taxes are a compulsory contribution to the state on income, business profits, the cost of some goods/services and many other things.
Amortisation “is the practice of spreading an intangible asset's cost over that asset's useful life.” (Investopedia). You’re unlikely to come across EBITA unless you're dealing with money in a business or a formal financial situation.
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Assets
Assets are resources with economic value. A financial asset is a resource owned or controlled by a business.
There are many different types of assets including fixed assets, operating assets and non-operating assets, plus current or short-term assets. In general, knowing that an asset is a resource with economic value is good enough unless you are dealing with complex financial issues.
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Cash Flow
Cash flow is the total amount of money going in and out of a business at a specific point in time. If you are dealing with a business in any way you are likely to come across this term.
Obviously, businesses want to have positive cash flow with more money coming in than going out on expenses. “At a fundamental level, a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows or, more specifically, maximise long-term free cash flow.”(Investopedia)
If you want to send money or receive funds from people overseas the whole process will be easier once you get to grips with this finance terminology. If you’re ever unsure about some finance terminology you can always come back to this blog to refresh your memory.
Use Small World
It pays to know your stuff. In this blog we’ve explored quite a few financial terms that are used in conversations, negotiations and other formal communication. But you are also likely to come across these terms in everyday life. Knowing these terms will help you if you plan on sending money abroad to family, friends or business.
Small World is an international money transfer service that facilitates millions of money transfers every year. So, if you need to support your loved ones, wherever they are in the world, you can rely on Small World.
Your first transfer online is always free of fees!
