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| Version 1 | Version 2 |
|---|---|
| The layman's finance crisis glossary | The layman's finance crisis glossary |
| (about 3 hours later) | |
| The current financial crisis has thrown terminology from the business pages onto the front page of newspapers, with jargon now abounding everywhere from the watercooler to the back of a taxi. | The current financial crisis has thrown terminology from the business pages onto the front page of newspapers, with jargon now abounding everywhere from the watercooler to the back of a taxi. |
| Here is a guide to many of the business terms currently cropping up regularly, as well as some of the more exotic words coined to describe some of the social effects of the credit crunch. | Here is a guide to many of the business terms currently cropping up regularly, as well as some of the more exotic words coined to describe some of the social effects of the credit crunch. |
| The number of times they have appeared in British newspapers, excluding the Financial Times, in the last seven days is noted (figures from Dow Jones Factiva). | The number of times they have appeared in British newspapers, excluding the Financial Times, in the last seven days is noted (figures from Dow Jones Factiva). |
| Readers can send any terms they need explaining using the form at the bottom. | Readers can send any terms they need explaining using the form at the bottom. |
| ADMINISTRATION | |
| A rescue mechanism for companies in severe trouble. It allows them to continue as a going concern, under supervision, effectively to try to trade out of difficulty. | |
| A firm in administration cannot be wound up without permission from a court. | |
| Thousands stranded by XL collapse | |
| BULL AND BEAR | |
| A bull market is one in which prices are generally rising and investor confidence is high. | |
| In a bear market, prices are falling and investors, anticipating losses, tend to sell. This can create a self-sustaining downward spiral. | |
| UK hits bear market as stocks dip | |
| CHAPTER 11 - 31 mentions | CHAPTER 11 - 31 mentions |
| The term for bankruptcy protection in the US. It postpones a company's obligations to its creditors, giving it time to reorganise its debts or sell parts of the business, for example. | The term for bankruptcy protection in the US. It postpones a company's obligations to its creditors, giving it time to reorganise its debts or sell parts of the business, for example. |
| US airlines make bankruptcy move | US airlines make bankruptcy move |
| COMMODITIES - 48 mentions | COMMODITIES - 48 mentions |
| Commodities are products that, in their basic form, are all the same so it makes little difference from whom you buy them. | Commodities are products that, in their basic form, are all the same so it makes little difference from whom you buy them. |
| That means that they have a market price. You would be unlikely to pay more for iron ore from a particular mine, for example. | That means that they have a market price. You would be unlikely to pay more for iron ore from a particular mine, for example. |
| Poor could gain as commodities soar | Poor could gain as commodities soar |
| CREDIT CRUNCH - 561 mentions | CREDIT CRUNCH - 561 mentions |
| The situation created when banks hugely reduced their lending to each other because they were uncertain about how much money they had. | The situation created when banks hugely reduced their lending to each other because they were uncertain about how much money they had. |
| This in turn resulted in more expensive loans and mortgages for ordinary people. | This in turn resulted in more expensive loans and mortgages for ordinary people. |
| Timeline: Global credit crunch | Timeline: Global credit crunch |
| CREDIT DEFAULT SWAP | |
| A swap designed to transfer credit risk. The buyer of the swap makes periodic payments to the seller in return for protection in the event of a default. | |
| A bank which owns a lot of mortgage debt could swap it, but would have to make a pay-out if those mortgages were not repaid. | |
| US economy's next bad thing? | |
| DERIVATIVES - 63 mentions | DERIVATIVES - 63 mentions |
| Derivatives are a way of investing in a particular product or security without having to own it. The value can depend on anything from the price of coffee to interest rates or what the weather is like. | Derivatives are a way of investing in a particular product or security without having to own it. The value can depend on anything from the price of coffee to interest rates or what the weather is like. |
| Derivatives can be used as insurance to limit the risk of a particular investment. | Derivatives can be used as insurance to limit the risk of a particular investment. |
| Credit derivatives are based on the risk of borrowers defaulting on their loans, such as mortgages. | Credit derivatives are based on the risk of borrowers defaulting on their loans, such as mortgages. |
| Derivatives and dangerous times | Derivatives and dangerous times |
| FAKEAWAY - 0 mentions | FAKEAWAY - 0 mentions |
| A home-made, belt-tightening version of a takeaway - think, a curry made with a jar of sauce, bag of rice and a packet of poppadoms from the supermarket. | A home-made, belt-tightening version of a takeaway - think, a curry made with a jar of sauce, bag of rice and a packet of poppadoms from the supermarket. |
| Workers 'opting for home-made meal' | Workers 'opting for home-made meal' |
| FUTURES | |
| A futures contract is an agreement to buy or sell a commodity at a predetermined date and price. It could be used to hedge or to speculate on the price of the commodity. | |
| Can oil speculators be regulated? | |
| HEDGE FUND | |
| A private investment fund with a large, unregulated pool of capital and very experienced investors. | |
| Hedge funds use a range of sophisticated strategies to maximise returns - including hedging, leveraging and derivatives trading. | |
| What is it like working for a hedge fund? | |
| HEDGING | |
| Making an investment to reduce the risk of price fluctuations to the value of an asset. | |
| For example, if you owned a stock and then sold a futures contract agreeing to sell your stock on a particular date at a set price. A fall in price would not harm you - but nor would you benefit from any rise. | |
| Q&A: What is hedging? | |
| HYPERMILING - 0 mentions | HYPERMILING - 0 mentions |
| Techniques used by drivers to get more miles to the gallon, such as coasting in neutral and keeping tyre pressure high. | Techniques used by drivers to get more miles to the gallon, such as coasting in neutral and keeping tyre pressure high. |
| Can a petrolhead be an eco-driver? | Can a petrolhead be an eco-driver? |
| INVESTMENT BANK - 247 mentions | INVESTMENT BANK - 247 mentions |
| Investment banks provide financial services for governments, companies or extremely rich individuals. They differ from commercial banks where you have your savings or your mortgage. | Investment banks provide financial services for governments, companies or extremely rich individuals. They differ from commercial banks where you have your savings or your mortgage. |
| Northern Rock gets bank bail out | Northern Rock gets bank bail out |
| LEVERAGING | |
| Leveraging, or gearing, means using debt to supplement investment. | |
| The more you borrow on top of the funds (or equity) you already have, the more highly leveraged you are. Leveraging can maximise both gains and losses. | |
| Deleveraging means reducing the amount you are borrowing. | |
| Profile: Bear Stearns | |
| LIBOR - 19 mentions | LIBOR - 19 mentions |
| London Inter Bank Offered Rate. The rate at which banks lend money to each other. | London Inter Bank Offered Rate. The rate at which banks lend money to each other. |
| Bank lending rate faces scrutiny | Bank lending rate faces scrutiny |
| LIQUIDITY - 106 mentions | LIQUIDITY - 106 mentions |
| The liquidity of something is how easy it is to convert it into cash. Your current account, for example, is more liquid than your house. | The liquidity of something is how easy it is to convert it into cash. Your current account, for example, is more liquid than your house. |
| If you needed to sell your house quickly to pay bills you would have drop the price substantially to get a sale. | If you needed to sell your house quickly to pay bills you would have drop the price substantially to get a sale. |
| AIG rescue to ease liquidity concerns | AIG rescue to ease liquidity concerns |
| LOANS-TO-DEPOSIT RATIO | LOANS-TO-DEPOSIT RATIO |
| For financial institutions, the sum of their loans divided by the sum of their deposits. | For financial institutions, the sum of their loans divided by the sum of their deposits. |
| Currently important because using other sources to fund lending is getting more expensive. | Currently important because using other sources to fund lending is getting more expensive. |
| Mortgage criteria getting tougher | Mortgage criteria getting tougher |
| NEGATIVE EQUITY - 14 mentions | NEGATIVE EQUITY - 14 mentions |
| Refers to a situation in which the value of your house is below the amount of the mortgage that still has to be paid off. | Refers to a situation in which the value of your house is below the amount of the mortgage that still has to be paid off. |
| Negative equity threat 'for 1.7m' | Negative equity threat 'for 1.7m' |
| PROFIT WARNING - 8 mentions | PROFIT WARNING - 8 mentions |
| When a company issues a statement indicating that its profits will not be as high as it had expected. Also profits warning. | When a company issues a statement indicating that its profits will not be as high as it had expected. Also profits warning. |
| Sharp rise in UK profit warnings | Sharp rise in UK profit warnings |
| RECESSIONISTA - 0 mentions | RECESSIONISTA - 0 mentions |
| A person who manages to look fashionable on a tight budget. | A person who manages to look fashionable on a tight budget. |
| Frugal fashion: New Yorkers learn to look good for less | Frugal fashion: New Yorkers learn to look good for less |
| SECURITISATION - 15 mentions | SECURITISATION - 15 mentions |
| Turning something into a security. For example, taking the debt from a number of mortgages and combining them to make a financial product which can then be traded. | Turning something into a security. For example, taking the debt from a number of mortgages and combining them to make a financial product which can then be traded. |
| Banks who buy these securities receive income when the original home-buyers make their mortgage payments. | Banks who buy these securities receive income when the original home-buyers make their mortgage payments. |
| Analysis: Securitisation triggers time bomb | Analysis: Securitisation triggers time bomb |
| SECURITY | SECURITY |
| Essentially, a contract that can be assigned a value and traded. It could be a stock, bond or mortgage debt, for example. | Essentially, a contract that can be assigned a value and traded. It could be a stock, bond or mortgage debt, for example. |
| AIG fears cause securities trading to halt | AIG fears cause securities trading to halt |
| SHORT SELLING - 31 mentions | SHORT SELLING - 31 mentions |
| A technique used by investors who think the price of an asset, such as shares, currencies or oil contracts, will fall. They borrow the asset from another investor and then sell it in the relevant market. | A technique used by investors who think the price of an asset, such as shares, currencies or oil contracts, will fall. They borrow the asset from another investor and then sell it in the relevant market. |
| The aim is to buy back the asset at a lower price and return it to its owner, pocketing the difference. Also shorting. | The aim is to buy back the asset at a lower price and return it to its owner, pocketing the difference. Also shorting. |
| FSA cracks down on short selling | FSA cracks down on short selling |
| STAGFLATION - 2 mentions | STAGFLATION - 2 mentions |
| The dreaded combination of inflation and stagnation - an economy that is not growing while prices continue to rise. | The dreaded combination of inflation and stagnation - an economy that is not growing while prices continue to rise. |
| US economy 'facing stagflation' | US economy 'facing stagflation' |
| STAYCATION - 0 mentions | STAYCATION - 0 mentions |
| Staying at home for your holiday in a bid to save money. | Staying at home for your holiday in a bid to save money. |
| Faking a vacation at home | Faking a vacation at home |
| SUB-PRIME MORTGAGES - 116 mentions | SUB-PRIME MORTGAGES - 116 mentions |
| These carry a higher risk to the lender (and therefore tend to be at higher interest rates) because they are offered to people who have had financial problems or who have low or unpredictable incomes. | These carry a higher risk to the lender (and therefore tend to be at higher interest rates) because they are offered to people who have had financial problems or who have low or unpredictable incomes. |
| Q&A: Sub-prime lending | Q&A: Sub-prime lending |
| SWAP | |
| An exchange of securities between two parties. For example, if a firm in one country has a lower fixed interest rate and one in another country has a lower floating interest rate, an interest rate swap could be mutually beneficial. | |
| The fallout from the bankruptcy of Lehman Brothers | |
| UNWIND - 42 mentions | UNWIND - 42 mentions |
| To unwind a deal is to reverse it - to sell something that you have previously bought, or vice versa. | |
| When administrators are called in to a bank, they must do the unwinding before creditors can get any money back. | When administrators are called in to a bank, they must do the unwinding before creditors can get any money back. |
| Lehman set to go into insolvency | Lehman set to go into insolvency |
| WRITE-DOWN | |
| Reducing the book value of an asset to reflect a fall in its market value. For example, the write-down of a company's value after a big fall in share prices. | |
| Deutsche writes down 2.7bn euros | |
| Send us the bits of jargon that you think need explaining using the form below. | Send us the bits of jargon that you think need explaining using the form below. |