Finance Terminology You Should Know

09 Oct 2023 - Category: Blog /
Finance Terminology

Thinking of sending money home and don’t know where to start?

Let’s get started by first understanding financial terminologies and see how they may be relevant to your money transfer needs. In this post, we’ve listed some of the most common financial words you’re likely to come across and provided some definitions and more detailed explanations. Terms like remittance or exchange rate are used quite frequently in the money transfer ecosystem so it is important that you understand what these terms mean.

What is a Remittance (also known as Home Remittance)?

Remittance is another word for money transfers. What is a money transfer? It is a sum of money sent in payment or as a gift. In the context of sending money abroad, a remittance or money transfer payment often comes in the form of a transfer of funds to another bank account and cash pick-up in the case of Small World Financial Services.

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).

What is a Beneficiary?

A beneficiary is the person receiving the money from a money transfer. The individual who sends money to the beneficiary is known as the benefactor.

What is a Transaction Fee or Transfer Fee?

Transaction fees or transfer fees are a small amount you pay your money transfer service provider for handling your money transfer for you.

This is another cost you should consider when choosing an international money transfer service. Not sure which service to go for? Sign up with Small World and send your first transfer fee-free!

What is a Receiver Bank Fee?

The beneficiary or receiver (someone who will receive the money you will send) will be charged a fee by their bank. This, however, happens sometimes depending on the policies of the receiving bank. The receiver bank charges a fee to process an incoming international payment.

Money transfer companies such as Small World do not handle these fees and therefore have no control or say over them.

What is a Currency Code?

Most countries, if not all, have their own unique currency code. In most cases, the currency code is an abbreviated version of the currency’s name itself. For example, USD for the United States Dollar, GBP for the Great Britain Pound, BDT for the Bangladeshi Taka, and PKR for the Pakistani Rupee.

When making an international money transfer you exchange one currency for another. That is why it is essential to know the currency codes as well as the exchange value of both currencies in advance to avoid last-minute hassle.

Keeping an eye on the exchange rates and planning your money transfers when the receiver’s currency is of a lower value than your sending currency is one of the easiest ways to save money on your international money transfers.

What is an IBAN?

IBAN is the abbreviation for International Bank Account Number. You will almost always need the beneficiary or receiver’s bank account details including IBAN to complete an international money transfer. IBANs are used in most of countries including the US, UK, all EU countries, Pakistan, the Middle East, and Africa.

Different countries have different IBAN numbers but they typically have up to 34 letters and numbers. They include:

  • Country code
  • Check digit
  • Bank Identifier Code (or BIC)
  • Branch Code
  • Account Number

What is a SWIFT Code/BIC?

SWIFT and BIC are used interchangeably for the international bank code that helps identify banks around the world. Every bank has its own code that helps customers identify a specific bank amongst many and where the bank is located. It is typically 8 to 11 characters long and consists of numbers and letters.

What is a Routing Number?

A bank routing number is also known as a routing transit number and international routing code. It is a nine-digit number used to identify certain banks.

The difference between IBAN and routing number is that IBAN identifies specific accounts while routing number only specifies the location of the banks. The difference between SWIFT code and routing number is that SWIFT is used for international transactions and transfers while routing number is used to identify bank location when a domestic transfer is being made.

What is an MTN?

MTN or Money Transfer Number is the number you receive after you have successfully transferred funds to your beneficiary’s account. This number helps you track the status of your transfer and get customer support’s assistance if an issue arises.

What is a Payer ID?

Payer ID is a unique identification number you create with your money transfer service provider so they can track your money transfer and address any issues that may arise.

The difference between Payer ID and MTN is that a Payer ID is a unique number for every individual customer. While an MTN is a unique number to identify a transfer. Every transfer gets a new MTN while the Payer ID is created once.

What are 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.

What is an 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.

What is an 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 amortization.

To understand what EBITA means, it helps to know what all these other terms mean. We’ve covered the 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.

Amortization 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.

What are 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.

What is 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, maximize long-term free cash flow.»(Investopedia)

Use Small World To Transfer Money Today

It pays to know your stuff. In this post, 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 all over the world every year.

It is a Financial Conduct Authority (FCA)-approved money transfer service verified by Visa, Mastercard, Maestro, European Payment Institutions Federation (EPIF), and IAMTN. So, if you need to support your loved ones, no matter where they are in the world, you can rely on Small World FS. Your first transfer online is always fee-free!

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