Key Financial and Market Terms Explained
Key Financial and Market Terms
Corporate Structures and Market Dynamics
Trust: Refers to companies aiming to dominate the market horizontally (by sector) or vertically (when a company tries to control all or part of the production process).
Holding: A financial company that controls others by holding a majority or a significant portion of their shares. The first major holding was INI (National Institute of Industry).
Multinational Enterprise: A company based in one country that establishes manufacturing and/or branches in other countries, but the parent company remains the primary driving force. Examples include Coca-Cola, McDonald’s, and Repsol. Spanish examples include Banco Santander, Inditex, and Telefónica.
Oligopolistic Market: A market situation characterized by few buyers or few sellers.
Free Trade Market: A market situation with many buyers and many sellers, fostering competition.
Company Types and Financial Instruments
Joint Stock Company: A company whose capital is divided into shares. The liability of the partners is limited to their capital contribution.
Title-Values: Negotiable documents that certify the rights and obligations of the issuer.
Share: Represents the smallest part of a company’s capital. Buying shares means acquiring ownership of the company, becoming a member, and participating with your vote.
Junk Bond: A high-risk bond issued by a company with low creditworthiness. These bonds often promise returns well above the market average.
Capital, Value, and Market Operations
Social Capital: Calculated by multiplying the value of each share by the number of shares. It represents the value of property or money that partners contribute to a company without the right to a return.
Nominal Value: The theoretical value of a share, calculated by dividing the issued share capital by the total number of shares.
Quote: The real value of a share in the market.
Primary Market: The market where newly issued securities are initially distributed for sale.
Secondary Market: The market where buying and selling transactions occur between investors and owners of securities previously issued in the primary market.
Sales Profitability: The difference between the purchase price and the selling price.
Subscription Right: A shareholder’s right to subscribe to new shares preferentially during a capital increase at a predetermined subscription price.
Bid (Tender Offer): An offer to buy shares, published indiscriminately, with the intention of gaining a majority stake in a company. It can be friendly or hostile.
Balance of Payments and Economic Indicators
Balance of Payments: A record of a country’s inflows and outflows of money, divided into several sub-balances.
- Trade Balance: Records the inflows and outflows of money from a country due to goods. It is the value of exports minus imports.
- Balance of Services: Records the inflows and outflows of money from a country for services such as tourism, freight payments, and royalties.
- Balance of Revenue: Records the inflows and outflows of money from a country due to investments (foreign exchange migrants, dividends, etc.).
Deficit: A situation where money paid is less than money received.
Dumping: The practice of selling merchandise in a foreign market at prices below the domestic sales price to dispose of surpluses, earn foreign exchange, or undermine competition.
Anti-Dumping (AD): Legal action to protect domestic markets from unfair competition from abroad, specifically from the use of prices that do not cover production costs.
Inflation: A generalized increase in prices. Measures to combat inflation include:
- Reducing public spending
- Increasing the reserve requirement (less money to lend)
- Raising wages below the inflation rate
- Raising interest rates (making credit more expensive)
Hidden Inflation: Instead of raising prices, products are offered with reduced benefits or lower quality.
Deflation: A generalized decline in prices. This can lead to decreased consumption and investment as consumers and investors wait for even lower prices, potentially paralyzing economic activity.