Essential Finance & Investment Terms: A Concise Glossary
Essential Finance and Investment Terms
Cash Flows: Incoming and outgoing money; the movement of money in and out of an organization.
Treasury Bills (T-bills): Bonds issued by governments (typically with maturities up to one year).
Maturity: The length of time before a bond becomes repayable.
Nominal Value: The value written on a bond or share, which typically never changes for shares.
Commercial Paper: A short-term loan issued by major companies, sold at a discount. It is unsecured, meaning it is not guaranteed by the company’s assets.
Certificates of Deposit: Short- to medium-term, interest-paying debt instruments.
Investment Accounts: Fixed-term deposits which cannot be withdrawn before maturity.
Time Deposits: Bank deposits that can only be withdrawn after a certain period of time.
Repurchase Agreement (Repos): An agreement to repurchase an asset at a specified price and date.
Par Value: The price written on a security.
Discount: A price below the usual or advertised price.
Sight Deposits: Bank deposits that customers can withdraw whenever they like.
Money Supply: The total stock of money in an economy and the supply of new money. Lower interest rates increase the money supply.
Monetarist Economists: Economists who argue that controlling the money supply can control inflation.
Narrow Money: Currency and sight deposits.
Broad Money: Savings deposits and time deposits.
Money’s Velocity of Circulation: How quickly money moves from one institution or bank account to another. The quantity of money spent is the money supply times its velocity of circulation.
Inflation: The continuous increase in prices, which reduces the amount of goods and services that people can buy.
Founders: The people who start a company.
Convertible Bonds: Bonds that can later be converted to shares.
Preference Shares: Shares that receive a fixed dividend.
Stocks, Shares, and Equity: Certificates representing part ownership of a company.
Go Public: To change from a private company to a public limited company by selling shares to outside investors for the first time.
Due Diligence: A detailed examination of a company and its financial situation. The due diligence report is produced by the company’s own accountants.
Prospectus: A document inviting the public to buy shares, stating the terms of sale and the company’s financial situation.
Financial Results: Details about sales, costs, debts, profits, losses, etc.
Flotation: An offer of a company’s shares to investors (financial institutions and the general public).
Underwrites a Stock Issue: Guarantees to buy the shares if there are not enough other buyers.
Market Price: The price at which a security is currently being traded on the stock exchange.
Market Makers: Traders in stocks who quote bid (buying) and offer (selling) prices.
Blue Chips: Stocks in large companies with a reputation for quality, reliability, and profitability.
Growth Stocks: Stocks that are expected to regularly rise in value.
Income Stocks: Stocks that have a history of paying consistently high dividends.
Defensive Stocks: Stocks that provide a regular dividend and stable earnings, but whose value is not expected to rise or fall very much.
Value Stocks: Stocks that investors believe are currently trading for less than they are worth.
Rights Issue: New shares offered to existing shareholders.
Capitalize: To turn profits into stocks or shares.
Stockbroker: Someone who trades with the market makers.
Bulls: Investors who expect prices to rise.
Bears: Investors who expect prices to fall.
Stags: Investors who buy new share issues hoping that they will be oversubscribed, meaning there will be more demand than available stocks, so the successful buyers can immediately sell their stocks at a profit.
Bull Market: A period when most of the stocks on a market rise.
Bear Market: A period when most of the stocks on a market fall in value.
Cum Div: Meaning the investor will receive the next dividend the company pays.
Ex Div: Meaning the investor will not receive the next dividend the company pays.
Speculators: People who buy and sell shares rapidly, hoping to make a profit, or people who hope to profit from price changes.
Bonds: Loans to local and national governments and to large companies. The holders of bonds generally receive fixed interest payments, once or twice a year, and get their money back (known as the principal) on a given maturity date. This is the date when the loan ends.
Convertible Shares or Convertibles: Bonds that the owner can later change into shares.
Forward and Futures Contracts: Agreements to sell an asset at a fixed price on a fixed date in the future.
Futures: Standardized contracts (contracts which are for fixed quantities and fixed time periods that are traded on a special exchange).
Forwards: Individual, non-standardized contracts between two parties, traded over-the-counter (directly, between two companies or financial institutions, rather than through an exchange).
The futures price for a commodity is normally higher than its spot price (the price that would be paid for immediate delivery). Sometimes, however, short-term demand pushes the spot price above the future price. This is called backwardation.
Financial Futures: These are standardized contracts, traded on exchanges, to buy and sell financial assets.
Currency Futures and Forwards: Contracts that specify the price at which a certain currency will be bought or sold on a specified date.
Interest Rate Futures: Agreements between banks, investors, and companies to issue fixed income securities (bonds, certificates of deposit, money market deposits, etc.) at a future date.
Stock Futures: Fix a price for a stock, and stock index futures fix a value for an index on a certain date. They are alternatives to buying the stocks or shares themselves.