Glossary
Acquisitions:
The phrase mergers and acquisitions or M&A refers to the aspect of
corporate finance strategy and management dealing with the merging and
acquiring of different companies as well as assets. Usually mergers
occur in a friendly setting where executives from the respective
companies participate in a due diligence process to ensure a successful
combination of all parts.
Arbitrage: trading a price anomaly e.g. the price of a stock in the USA in $ against the price of the same stock in £ in the UK
Amortisation: Paying back the principal of the loan over time, usually along with the interest.
Asset: Any item with economic value held by a company.
Asset Management: The
management of the financial assets of a company in order to maximize
return. An account at a financial institution that includes checking
services, credit cards, debit cards, margin loans, the automatic sweep
of cash balances into a money market fund, as well as brokerage
services. Also known as an "asset management account" or a "central
asset account".
Balance of payments: A record of all transactions made a country over a certain period of time.
Bear: Thinks negative about the market i.e. it will go down
Bearer: Like cash 'if you loose the certificate showing ownership of the security' you've lost it!
Bid: the price at which the bank will buy the product from the Client
Bill: Bond.
Bridge Financing: As
the name implies, bridge financing is intended as temporary funding
that eventually will be replaced with permanent capital. (It is often
referred to as Mezzanine Financing). In some cases, lenders will
provide buyout firms and venture capital firms with bridge loans so
that they can begin investing, before they have closed on capital for
their funds. Likewise, a buyout or venture firm might provide a
portfolio company with temporary financing until permanent financing is
in place.
Broker: An individual or a company that acts as an intermediary between a buyer and a seller.
Bulge Bracket: Bulge
bracket is a finance term referring to the first group listed on the
'tombstone'. That is, the group of firms in an underwriting syndicate
(a group of investment banks) who are responsible for selling the
largest amounts of the stock to investors. Their names appear first in
the advertisement listing, called the tombstone.
Bull: Thinks positive about the market i.e. it will go up
Capital Markets: The markets used by Governments and Corporations to raise money, e.g. by issuing bonds
Capitalisation: (Market
Capitalisation) The price of a company expressed as total value of all
its outstanding (existing) shares. This is calculated by multiplying
the total number of shares by the share price
Caveat Emptor: A
Latin term meaning "let the buyer beware." A legal maxim stating that
the buyer takes the risk regarding quality or condition of the property
purchased, unless protected by warranty.
Chinese Wall: The physical and regulatory separation between the public and "inside" areas of a bank.
CDOS: Collateralised
Debt Obligations. These exploit anomalies in credit ratings. A number
of loans or debt securities payable by various companies are put into a
pool and new securities are issued which pay out according to the pools
collective performance. The new securities are divided into three (or
more) levels of risk, the lowest level takes the first loss if any
companies in the pool default, followed by the mezzanine level, with
the safest level being the last to suffer losses.
CEDEL: Settlement and clearing Agency for bonds. Its owned by the banks
Commercial Banks:
A commercial bank is a type of financial intermediary and a type of
bank. It raises funds by collecting deposits from businesses and
consumers via checkable deposits, savings deposits, and time deposits.
It makes loans to businesses and consumers. It also buys corporate
bonds and government bonds. Its primary liabilities are deposits and
primary assets are loans and bonds.
Counterparty: The other party in a financial agreement.
Credit Spreads: the extra yield required for corporate bonds, over Government bonds
Debt: that which
is owed. A person who owes debt is called a debtor. A person to whom
it's owed is called a creditor. Debt is used to borrow purchasing power
from the future.
Deflation:
Prices fall, consumers assets fall, thus consumers spend less. Also
consumer?s mortgages debt is not eroded by inflation. Deflation rises
bond prices as bonds pay a fixed rate of interest. Consumers not
spending, and corporate debt not being eroded by inflation (thus
increasing the real value of the debt) both reduce company profits.
Derivatives: A
derivative is a financial instrument that derives its value from the
value of other financial instruments or an underlying asset such as a
future, forward, commodity, futures contract, stock, bond, currency,
index or interest rate. Also, trades that are constructed or
derived from another security (stock, bond, currency, or commodity).
Derivatives can be both exchange and non-exchange traded (known as Over
the Counter or OTC). Examples of derivative instruments include
Options, Interest Rate Swaps, Forward Rate Agreements, Caps, Floors and
Swap options.
Dividend: A payment made (often quarterly) by a company to its shareholders out of its earnings. This may take the form of cash or stock.
Dragon Bonds: Issued by non domestic institutions in Asian markets
Equities: Common and preferred stocks, which represent a share in the ownership of a company.
Euro Clear: Settlement and clearing Agency for bonds. Its owned by the banks
Euro Dollars: USD outside the control of the US Govt i.e. held in Europe
Exotics: A type
of transaction that has been made 'more fancy', e.g. an option with a
stop/limit/condition on the share price so that the option is cancelled
if the share price reaches £1.05p. For Interest Rate Derivatives, it
may be a Credit Derivatives exotic where you can buy into differing
levels of credit risk. Money Market or Debt Market exotics would be
CDOS
Fiscal Policy: Tax and Government spending
Fixed Income: A
guaranteed rate of interest on an investment. Bonds, which pay specific
amounts of money over time, are an example of a fixed-income security.
Foreign Exchange Markets:
A computerized communications network embracing all the major financial
centers in the globe, where sellers and buyers of any national money
can quickly and efficiently carry out any desired currency exchange.
Front Running: A
situation that occurs when a securities or commodities trader takes a
position in a security in order to take advantage of a large upcoming
transaction of which he/she is aware.
FSA: The
Financial Services Authority. A new regulator to replace the Securities
and Investment Board (SIB). This is the agency appointed by the
government under the Financial Services Act to oversee the regulation
of the whole financial sector, including supervision of the Bank of
England.
G7: US, France, Germany, UK, Canada, Japan, Italy [G8 = G7 + Russia]
GDP: Gross
Domestic Product: The total of a countries wealth producing capability,
e.g. factories, service industries etc. EU regulation states that an EU
countries national debt to GDP ratio should not exceed 60%, although
the current average is 72%. In the UK consumer spending accounts for
two-thirds of GDP, and UK consumer spending is growing at approx 4% pa
Grey Market: The market in which a security it traded before it is issued properly on the Primary Market.
Initial Public Offering:
A company's first sale of stock to the public. Securities offered in an
IPO are often, but not always, those of young, small companies seeking
outside equity capital and a public market for their stock. Investors
purchasing stock in IPOs generally must be prepared to accept very
large risks for the possibility of large gains. IPO's by investment
companies (closed end funds) usually contain underwriting fees which
represent a load to buyers.
Instrument: A document laying out some legal right or obligation. e.g. share certificate, coupon , agreements and contracts.
Liquidity: The
amount of throughput (buying / selling) of security, Vodafone has
massive liquidity, Millwall has none. The higher the liquidity the
keener the price.
LIBID: London Interbank Bid rate, the rate at which banks bid for deposits.
LIBOR: London
Interbank Offered Rate, the rate used between banks for borrowing from
each other. Used as a benchmark for pricing bonds and derivatives.
Long: Holding / buying the stock
M0: Notes and coins in circulation
M3 + M4: Measure of the banks deposits
Maastricht Treaty:
(Euro Membership) specifies that governments may not have budget
deficits of more than 3% of GDP (i.e. earn £100 and can not spend more
than £103), except in 'severe economic downturn' (defined as a drop in
GDP of more than 2% in a year); Governments are supposed to keep their
budgets near to balance. Failure to comply leads to a deposit (at zero
interest) being lodged with the European Commission of 0.2% - 0.5% of
GDP, if not corrected within 2 years the deposit is converted to a
fine. Suggested debt ratio should be 60% of GDP
Market Making: A
market maker is a person or a firm which quotes a buy and sell price in
a financial instrument or commodity hoping to make a profit on the turn
or the spread (i.e. the difference) between the buying and selling price
Mergers: In
business or economics a merger is a combination of two companies into
one larger company. Such actions are commonly voluntary and involve
stock swap or cash payment to the target. Stock swap is often used as
it allows the shareholders of the two companies to share the risk
involved in the deal
Monetary Policy: Interest Rates
Nostro Account: 'our account with you'; your account with a foreign bank in a foreign currency
Offer: the price at which the Bank will sell the product to the Client
OTC: Over the Counter, you trade and settle direct with another Counterpart e.g. bank, you do not settle via an Exchange
Output Gap: the
level of output relative to potential. If negative (actual output is
below potential i.e. spare production capacity) inflation falls, if
positive inflation rises, historically this has been the best indicator
for inflation
Primary Market: The market for raising the new Money.
Principal: Either the amount borrowed or owed on a loan not including interest or the face value of a bond.
Private Equity:
Private equities are equity securities of companies that have not 'gone
public' (in other words, companies that have not listed their stock on
a public exchange). Private equities are generally illiquid and thought
of as a long-term investment. As they are not listed on an exchange,
any investor wishing to sell securities in private companies must find
a buyer in the absence of a marketplace. In addition, there are many
transfer restrictions on private securities.
PSBR: Public
Sector Borrowing Requirement, the amount a country borrows, a mixture
of money borrowing and the issuing of bonds. Typically between 30% -
40% of GDP, e.g. if you country can produce £100 million in income the
Govt would issue up to £40 million of bonds to fund public works (road
building, wars etc)
Registrar: The
companies that register the ownership of the security and issue
certificates of ownership, if you loose the certificate just contact
the registrar
SEC: The statutory body that regulates the US securities industry.
Securities: An instrument that acts as evidence of debt or equity.
Securitisation: Several instruments brought together into a single security.
Secondary Market: The market in which the security is traded after the Primary market.
Shares: equities
Short: Selling
stock that you don't yet own in the hope that its price goes down
before you have to buy the stock to cover your position.
Sinking Fund: A proportion of the regular repayment is used to pay of the capital amount.
Spread: The difference between the buy and sell price, how the market maker makes money.
Split Capital Investment Trust: Capital appreciation from the funds shares goes to one set of investors, the income to another set of investors.
Spread Trading:
Trading based on the difference between two prices e.g. the difference
in the yields between government bonds in Germany, Spain, France and
Italy.
Straddle: Buying both a put and a call contract on the same security
Stocks: generally bonds
Structured Products:
Bundles of assets sliced into different layers of expected risk and
return. The selection and slicing are done in relation to credit
rating; the slices are then sold to Clients with appetites for each
grade. Also Clients require specially structured transactions e.g.
Client wants to borrow money, collateralising the loan against its
shares and its fixed assets (buildings) to reduce the rate of its
borrowing by 25 basis points (0.25%) below the current rate of
interest.
Tick: the size of the price movement i.e. US bond tick = 1/32, thus bonds up 7 ticks = 7/32.
Tranch: Related securities that are offered at the same time, but have different risks, rewards, and/or maturities.
Venture Capital:
Money used to support new or unusual undertakings; equity, risk or
speculative investment capital. This funding is provided to new or
existing firms which exhibit potential for above-average growth.
Vostro: 'your account with us', a foreign banks account with you in your currency.
