Glossary of Finance Unit TermsThis is a featured page



Terms you need to know for Unit 3

Revenue -

Margin of Safety -








A to Z of Advanced Financial Terms

AAA This is the highest rating given by investment bond agencies, indicating the bond is an incredibly safe investment. However, while you probably won't lose your money, you might not make much either. Lower risk tends to mean lower returns.

Above Base Rate (ABR)
A term used by some banks and building societies to describe the amount of interest they charge when your current account is overdrawn. If, for example, a bank has an ABR of 10% it means it will charge you 10% plus the base rate (say 6%) on your overdrawn balance.

Accumulation Units
Unit trusts or life assurance funds where interest or dividends are reinvested to increase the value of your investment, rather than paid out as income.

Acid Test Ratio
A common investment ratio that measures a company's solvency, and is used to determine its creditworthiness. The acid test ratio is determined by a formula:
liquid assets ÷ current liabilities = company solvency.
This test is not foolproof, and can give a misleading impression of how well-off a company is; a supermarket might make lots of money, yet have a low ratio as it has such a high product turnover. A ratio of less than one is a sign of real danger.

Actively managed
An investment where the manager decides an investment strategy. The aim is to outperform a benchmark. For example, an actively managed stock market fund might aim to beat the performance of the FTSE All-Share. The opposite of active management is passive management, which uses computers to automatically replicate an index. Actuary
The accountant's accountant. Mathematically minded professionals who crunch numbers to solve long-term financial problems, such as pension returns. Act of God
Less miraculous than it sounds. It is an insurance term that typically excuses insurers from paying out in the event of unforeseeable and unusual circumstances such as natural disasters. Advisory Broker
A stockbroker who offers advice on which shares to buy and sell. Not surprisingly, this service usually comes at a cost.

Affinity Card
A credit card linked to a third party organisation, usually a charity or a sporting club. Every time you use the card, the card issuer makes a donation to this third party. A donation is usually made when the card is first used as well. Check the fine print on these cards as they often charge over the odds in interest.

Alternative Investment Market (AIM)
The Alternative Investment Market (AIM), was created on 19 June 1995 as a subsidiary of the FTSE All-Share index. Smaller and newer companies often float on this market first as the admittance rules are less stringent than for a full stock exchange listing. There are tax breaks involved with investing in this market which can be attractive to investors. However it is significantly higher risk and the shares are likely to be less liquid, so you might not be able to sell when you want.

Analyst
Someone, usually a paid professional, who researches companies, markets or countries to discover their investment potential. They are typically employed by large investment banks and sell their work to other investors.

Annual Report
An annual statement issued by companies that reveals the overall financial position and performance over the past year.

Annual Percentage Rate (APR)
The measure of how much a loan will cost in interest per year. It takes into account all charges, such as valuation fees on a mortgage or any annual charges on a credit card, so it is the best measure of the total cost of a loan.

Annuity
A financial product that pays you an income until you die. You have to spend the bulk of your pension on an annuity by the age of 75.

Annuity (deferred)
An annuity that starts at a specific time in the future, usually on retirement.

Appreciation
The increase in price or value of an asset, such as a house or a share.

Asset
In strict terms it is anything that benefits its owner. In financial terms it can be either tangible, like stocks and property, or intangible, like goodwill or trademarks.

Bankruptcy
People are made bankrupt when they cannot afford to meet the monetary demands of their creditors. Bankruptcy lets you make a fresh start, subject to restrictions, and shares out your assets fairly among your creditors. A court makes a bankruptcy order after a petition has been presented by the debtor or their creditors. If you are made bankrupt, creditors must make their claims to your trustee - you no longer control your assets. You can keep basic items needed to live and for your work, but might have to sell your home to pay your debts. In some future financial dealings, you will have to say you are bankrupt. You will be discharged as a bankrupt after a couple of years or when your debts are paid. Companies are never bankrupt, but they can be forced into, or declare, insolvency.

Bankers Draft
This is a cheque issued by your bank or building society on your behalf. This means it is guaranteed by them, making it as good as cash.

Banking Ombudsman
An industry-sponsored independent arbitrator who assesses public complaints against banks. The ombudsman's office can award up to £100,000 in damages. Its decision is binding on the 60 banks that subscribe to the scheme, though the public does not have to accept its decision.

Base Rate
More correctly called the Repo (repurchase transaction) rate, this is the borrowing and lending rate set by the Bank of England. It directly determines our savings and mortgage rates. The Bank of England uses the rate to influence economic activity. If it needs to stimulate activity it cuts the rate to encourage borrowing and spending. If it wants to slow the economy it increases the rate, discouraging borrowing and spending.

Basic Rate Tax
The standard rate of tax paid by the majority of people. For the tax year 2004-2005 the rate has been set at 22% and covers income from £2,021 to £31,400. People earning less than this will pay lower rate tax, while those earning more than the upper limit will also pay higher rate tax.

Basis point
Most widely used in the description of interest rate moves. One basis point is one hundredth of a percentage point. A 50 basis point rise is therefore a rise of half of one per cent. Bear
An investor who believes that a share, or a stock market, will lose value. The opposite of a bear is a bull.

Bear Market
A prolonged period of falling share prices.

Benchmark
A standard against which we can compare the performance of an investment. For example a UK stock market fund's benchmark would typically be the performance of the FTSE All-Share.

Bid Price
The highest price at which someone is willing to buy an asset. It is therefore the price you will get when you sell your asset. It is most commonly used when talking about share prices. The price at which someone is willing to sell is called the offer price.

Bid-offer Spread
The difference between the buying and selling price of an investment such as a share or unit trust. The spread is determined by the cost of transferring ownership of the asset (including things like stamp duty) and market forces.

Blue chip
In casinos, the highest value betting chip is blue. Blue chip companies are therefore those companies which are most highly valued and regarded.

Bonds
A bond is effectively an IOU for a company's debt. Government bonds are called gilts. The investor lends money to the company or government, which in turn promises to repay the debt, along with interest, on an agreed date.

Bottom Feeding
Nothing to do with biting behinds! Bottom feeding actually means buying an investment when the price is low or near the bottom of its range. The bottom feeder hopes the price will then rise.

Bottom-Up
A term used by fund managers to describe an investment strategy driven by research on individual companies. Otherwise known as stock picking, it involves buying shares based on the individual merits of a company rather than sector or country expectations. The opposite of bottom-up management is top-down management.

Bounced Cheque
A cheque that a bank refuses to honour. Your cheque will bounce if you don't have enough money in your account to cover the payment. If your cheque bounces expect to pay as much as £30 in penalty fees.

Broker
Anyone who sells financial products. A stockbroker sells stock, an insurance broker sells insurance and so on.

Bubble
A stock market phenomenon caused by rapid buying of shares. Bubbles are driven by market fear that failure to buy immediately will mean paying a higher price at a later date. They are characterised by rapid share price growth, such as in dot.com shares during 1998-1999. Bubbles tend to burst.

Building Society
A mutual institution owned by its customers. Building societies claim to be able to offer customers better value because they return all profits to their members in the form of cheaper loans and better savings rates. The number of building societies has fallen from more than 2,000 in 1900 to fewer than 70 today, as members have voted to sell their ownership to the stock market or merge with other mutuals.

Building Societies' Ombudsman
An industry-sponsored independent arbitrator who assesses public complaints against building societies. The ombudsman's office can award up to £100,000 in damages. Its decision is binding on the building societies that subscribe to the scheme, though the public does not have to accept its decision.

Bull
An investor or commentator who thinks the market is about to rise is called a bull. Bullish news is good news, which will tend to make the market rise. The opposite of a bull is a bear.

Bull Market
A prolonged period of share price growth. Call Option
A contract that gives you the right - but not the obligation - to buy a share at an agreed price and date in the future. It is essentially a gamble that an asset will increase in value by more than the amount you paid for the option - if it does that you have made money. Capitalism
The economic system where companies and individuals are allowed to compete in an open market for their personal financial gain. Margaret Thatcher was a devout believer in this system, as she proved when she privatised the utility companies in the 1980s. Capitalisation
Also known as invested capital, this is the total of a company's debt, stock and earnings. The total value of a listed company (also known as market cap or market capitalisation) can be calculated by multiplying the number of shares outstanding by the current price per share. Capital Gains Tax (CGT)
The government's way of getting a slice of your financial good fortune by taxing you on the increased value of your assets. For the tax year 2004-2005 CGT kicks in when you have made more than £8,200 in taxable gains. Some assets, including your main home, are exempt from CGT. Central Bank
In England, we have the Bank of England. In America, they have the Federal Reserve Bank. These institutions act as watchdogs, keeping an eye on how much currency there is in circulation and trying to make sure the economy does not slip into either inflation or recession by raising or lowering the interest rates as they see fit. Charge Card
Like a credit card but you have to pay the balance in full at the end of each credit period. City (The)
A strip of very expensive London real estate that is home to the London Stock Exchange and most of the country's biggest financial institutions. Financial journalists like to say things like: "The City responded well to the news...", when they are describing the reactions of these institutions to financial information. Commission
The majority of personal finance products pay a commission to the person who sells them to an investor. Everything from pensions, life insurance, endowments and unit trusts are sold on a commission basis. Independent Financial Advisers (IFAs) are compelled by law to tell you how much commission they are making whenever they sell you a product. Commodities
Things like orange juice, oil, sugar and pork bellies (honestly). Basically naturally occurring goods that are traded. Consolidation
This is when a company decides to reduce the number of shares it has in issue. It might offer one new share for every 10 shares held. If you originally had 1,000 shares worth £1 each, you could end up with 100 shares each worth £10. Council Tax
A tax imposed by local government. It is calculated on the value of your property and charged in bands. Credit Card
A plastic card that entitles you to a flexible personal loan up to a pre-set limit. At the end of every month you will be given the option to pay the money back in full or pay a minimum instalment on the amount you owe. You will typically pay interest of anywhere between 10% and 25% on outstanding balances, though some cards offer better short-term deals. Credit Reference Agency
A company which collects and stores information used by lenders to determine an individual's credit risk. You have the right to see this information, for a small fee. Cyclical
Something that happens in cycles. Cyclical industries and stocks are affected by varying stages of the economy, especially variations in interest rates. Dead Cat Bounce
A temporary increase in the value of a stock following a dramatic decline. So called because even if a dead cat bounces off the floor after a fall, it's still dead! Debit Card
A plastic card that allows you to pay for goods and services directly from your current account - effectively an electronic cheque. Demerger
This is when a company splits into two or more companies. The number of shares you get in each new company reflects their value compared with the value of the old company. If the market thinks the move will benefit shareholders, the new companies might be worth more in total than the old business.

Demutualisation
The sale of a mutual company by its members to a non-mutual company or to the stock market. Mutual companies, such as building societies, some life insurance companies and friendly societies, are those that are owned by their customers. Derivatives
Securities whose value is based on another underlying investment. The main derivatives are options, futures and warrants. They can be attractive investments as they can offer very large profits for a relatively small amount of money. Derivatives are basically a bet on which way the underlying investment will go, therefore money can be made whether the market goes up or down. They are not suitable for everyone though, as they tend to be high risk and losses can be considerable. Dividend
As an ordinary shareholder in a company you become a part-owner. This means you are entitled to a share in the company's profits. This share of profits is called a dividend. The size of the dividend depends on the profits being made by the company and their policy about profit distribution. Not all shares qualify for a dividend. For example, ex-dividend shares don't pay dividends. Earnings Per Share (EPS)
EPS is a good measure of a company's profitability, as it shows how many pence is being earned for every share held. It is a ratio calculated by dividing a company's net income by the current number of shares in issue, and is one of way of determining what value the shares should trade at. For example, if a company makes £10m and has 100m shares in issue, its EPS is 10 pence. Effective Annual Rate (EAR)
The amount of loan interest charged each year by a lender. Unlike the Annual Percentage Rate (APR) it does not include charges and fees and can therefore be misleading when it comes to calculating the cost of a loan. Endowment
A savings and insurance plan you pay into on a regular basis, usually monthly. Money is mostly invested in stocks and shares over a fixed period. Endowments can be attractive as they could provide a cash lump sum upon maturity. However, there are many cases of shortfalls because the stock market has not performed as well as expected. The insurance part is a life insurance policy that covers payments into the investment in the event you die. Equities
Another name for shares in a listed company. Ethical Investment
Investments made in companies which are deemed to be responsible corporate citizens. Ethical investments tend to exclude companies involved in tobacco, gambling, arms and some mining operations. Euro (The)
The European single currency adopted in 1999 by 11 members of the European Union. Eurozone
The geographical and economic area including those European Union countries which have adopted the euro. Exceptional
An accounting term used to describe large, usually one-off, costs or windfalls attributed to a company during a given reporting period. These items can have a dramatic effect on the overall profit or loss of a company. Execution-only Broker
A stockbroker who offers no investment advice. Usually these brokers offer the cheapest means of buying or selling shares. Exchange Traded Fund
An exchange traded fund (ETF) is a type of tracker fund. It differs from a standard tracker fund because it is set up as a listed company, which means investors can buy and sell shares in them on the stock market through most UK stockbrokers. In a traditional tracker fund you can only trade (buy and sell) units with the company that manages the fund. ETF share prices are listed in the financial pages under London Shares in a section entitled Exchange Traded Funds. In America the funds are also called SPDRs, pronounced spiders, which stands for S&P Depositary Receipts. Exit Charge
A fee levied on the sale of an investment, typically a unit trust. Flotation
When a company first sells its stock to the general public, through a stock market, it is said to have floated. Friendly Societies
Mutual organisations that provide savings and life insurance plans to their members. They benefit from special tax treatment but investors can only put away very small amounts, currently £25 a month. Front-end Loading
A common practice among investment and insurance companies that sees them charge the bulk of fees in the early months of a new savings plan. The advantage to them is that they get their money upfront. But for the saver it means that real returns are low and sometimes negative in the first months. FTSE
Stands for Financial Times Stock Exchange. The FTSE UK indices are the benchmark for measuring how companies are performing in the market. The FTSE 100 Index was created in 1984 with a base of 1,000 to contain the 100 largest UK companies by market capitalisation. It is owned by the London Stock Exchange and the Financial Times. Fund of funds
A managed fund that invests in other managed funds, usually unit trusts. Futures
These should carry health warnings... losses can be unlimited! Only for the very experienced investor, or for those without high blood pressure. A future is a contract for an investor to take delivery of a bond, commodity or share at a specified price at a specified future date. GDP
Gross Domestic Product. GDP is usually rolled out around Budget time. It is the grand total of all the consumer and government spending, investments and exports minus the value of imports. Gearing
Gearing, or 'leverage', as it is called in the States, is the percentage of borrowing compared to the percentage of assets. In simpler terms, it means borrowing money, generally from a bank, in order to invest it. Investment trusts, both conventional and split capital, are able to do this because they are companies. The gearing ratio measures the percentage of capital employed that is financed by debt and long term finance. The higher the gearing, the higher the dependence on borrowings, and the higher the level of financial risk due to the increased volatility of profits. Gilts
The name given to bonds which are issued by the UK government. They are IOUs which offer the purchaser a fixed rate of interest for a fixed period of time. At the end of the agreed period, the original loan is repaid. Many gilts are not held until maturity and a secondary market has developed in which these IOUs are bought and sold. Globalisation
The world is shrinking thanks to advancing technology. Depending on what you read, this increasingly interconnected global marketplace is either the best or the worst thing to happen. Meetings of bodies such as G8, the International Monetary Fund and the World Bank often generate large demonstrations. Gross
Income, such as interest, wages or dividends, before tax and other charges are removed. Grey Market
An unofficial market in a good or service. Grey markets are particularly common in share trading where it refers to share sales not made on the official stock exchanges. Hang Seng Index
The 33 largest companies on the Hong Kong stock market. Hedging
This is a form of insurance - you "hedge" your investment against risk. When hedging you buy two investments that will have an opposite response to market forces. So, if one rises the other will fall, leaving you in the same position. Hedge Funds
These are funds usually used by wealthy private investor or institutions. Hedge funds are restricted by law to no more than 100 investors; the minimum contribution is typically $1m! The first hedge fund started in New York on 1 January 1949. Hedge fund managers sell stock short and trade in options of the shares they hold. Higher-rate Income Tax
Income tax paid by higher earners. In the 2004-2005 tax year that is those earning over £31,400 a year. Higher rate tax is currently 40%. High-Tech Stock
Technology shares reached a peak in February 2000 as the dot.coms became ever more popular, before crashing spectacularly a month later. They are a very volatile sector of the stock market. The New York-based NASDAQ and the Techmark 100 in the UK both specialise in high-tech stock. Independent Financial Adviser (IFA)
An individual or a firm that is licensed by the financial watchdog, the Financial Services Authority, to carry out the business of advising on and selling financial products. Independent financial advisers are not committed to sell any single firm's products and are obliged to give "best advice" when recommending products to clients. Index Tracker Funds
Commonly shortened to simply tracker funds, these are investments whose returns mimic that of a nominated index, like the FTSE All-Share. They do this by maintaining the same proportion, or weighting, of shares as is present in the real index. Or by buying derivatives that mimic the chosen index. The funds are generally cheaper than managed funds, which rely on human judgement to guide investment decisions. Individual Savings Accounts (Isas)
Isas are government approved investments that allow you to tuck away up to £7,000 a year in tax-free investments. They were Introduced in 1999 to replace Tessas and Peps. Inflation
Remember when Mars Bars were 9p? Now they are more than 30p. That's inflation at work - people needing more money to buy less. You might think prices are going up all the time, but it's nothing compared to the hyperinflation in 1920s Germany. Money literally was not worth the paper it was printed on - it took a wheelbarrow full to buy a loaf of bread! Ironically, banknotes from the Weimar Republic are now so rare that they are worth quite a bit! Inheritance Tax (IHT)
The last twist of the taxman's knife. Inheritance tax is due on the value of a deceased person's estate. In the 2004-2005 tax year it is charged at a single rate of 40% but only applies to amounts over £263,000. Money left to a spouse is exempt as are gifts made more than seven years before a person dies. Interest
The amount charged by the lender for the borrowing of a certain amount of money. How much it is depends upon the credit risk of the borrower and the current inflation rate. It can also refer to the return upon an investment. Initial Public Offering (IPO)
The first offering of a company's shares to the general public. This is known as floating on the market. Insolvency
A company is insolvent if it doesn't have enough assets to pay its debts as they fall due. An individual is insolvent if he or she is unable to discharge his or her debts as they fall due. An insolvent company goes into administration, administrative receivership or liquidation. An insolvent person becomes bankrupt. A company never goes bankrupt in the UK, although this term is used in the United States. Investment Trust
A company quoted on the stock exchange which invests its shareholders money in the shares of other companies.

Junk Bonds
Like other bonds these are IOUs issued by companies. The difference being that these companies are perceived to carry a high risk of never repaying the money loaned to them. In order to persuade investors to accept this risk, the interest rates offered by junk bonds can be much higher than those offered by many other types of bonds. Knock-out Option
An option that has reached its expiry date and is now worthless. Leasehold
A form of home ownership in which you buy a house or flat for a set number of years but the land it's on remains the property of the freeholder. At the end of the leasehold period the freeholder reclaims ownership of the property. Most flats are subject to leasehold. Leveraged Buyout
A takeover in which the buyer borrows money to purchase a controlling interest in a company. Sometimes shortened to LBO. Liquid Assets
Nothing to do with drink! How liquid you are depends on how much cash you have - the more the better! Shares and bonds could also be described as liquid assets, provided they are good quality ones and can easily be converted into hard currency. Liquidation
When a company becomes insolvent, this is one of the courses available. In a members' voluntary liquidation, shareholders appoint a liquidator and the company's assets are sold and all debts, including interest, settled within 12 months. Other methods are a creditors' voluntary liquidation, which is initiated by shareholders, or a voluntary liquidation, which is ordered by a court. Liquidation is usually the end of the road for a company and it will then be removed from the companies' register. Lloyd's of London
The world's longest-running insurance market. It is here that most of our policies are underwritten. M&A
Short for mergers and acquisitions. It describes the process of companies either joining forces in a merger or of one company taking control of another in a takeover. Market Value Weighted Index
An index in which each company's weighting is based on its market value. The FTSE All-Share is a good example of a market value weighted index. Marginal Tax Rate
The highest rate of tax paid by an individual or company. Most simply described as the rate of tax you would pay on an extra pound earned. MBO
Short for Management Buyout. This occurs when an existing management team takes over ownership of a company they already run. Mid-price
Halfway between the bid and offer price for an asset. Neither buying nor selling takes place at the mid-price. It is used as a shorthand indication of share prices and allows the media to quote just one price per share without having to quote both selling and buying prices. Mortgage
A loan where the borrower offers a property as security to a lender until the full amount is repaid. Mutual
A company that is owned by its members. Building societies and friendly societies are mutuals as are some insurance companies. Nasdaq
National Association of Securities Dealers Automated Quotations. The Nasdaq's home is Wall Street, New York, and it was the world's first fully computer generated stock exchange. It deals in high-tech shares and counts Microsoft as its biggest member. National Insurance Contributions (NI)
A tax that funds state safety nets like the National Health Service, state pensions and other benefits. NI is charged as a percentage of earnings. Negative Equity
The moment your mortgage is worth more than your home you are said be in negative equity. It is never a good thing, but only becomes a real problem if you want to sell your home. Unless you can make up the deficit then your lender can block the sale. New Issue
When a new company floats on the stock market - an IPO - it sells shares to the public and City institutions. The shares are called a new issue because, not unreasonably, they have been issued and they are new. Nikkei
Nihon Keizai Shimbun. Founded in 1876, the Nikkei index features the 225 leading stocks traded on the Tokyo Stock Exchange. Nominee
The name in which securities are registered and held in trust on behalf of the proper owner. This can be a useful way of holding shares. The nominee deals with all the nasty paperwork and leaves you to enjoy the profits - or commiserates with your losses. Some share perks are not available to shareholders who hold their certificates in a nominee account. Ofex
Established on 2 October 1995 by JP Jenkins Ltd, this London-based market deals in unlisted and unquoted securities - hence its name Ofex, which stands for Off Exchange. It is the third stock exchange in the UK, after the London Stock Exchange (LSE) and the Alternative Investment Market (AIM). Many of the riskier, lesser-known shares are listed on Ofex. Offshore Investment
Any investment that is not directly subject to the UK tax system. Offshore investments tend to be made in regions with low tax burdens, like Jersey and Ireland. The investments are subject to UK tax law when the funds are brought back into the country. Options
A contract which gives the holder the right, but not the obligation, to buy stock, currency, debt, shares etc at a specified price during a specified period of time. Once they have expired, options are worthless pieces of paper. Like futures, these are best left to the investors more comfortable with risk. Ordinary Shares
Holding ordinary shares usually gives you the right to vote at the company's annual general meeting (AGM) and the right to any dividend payments (as long as they weren't bought at the time when the shares were ex-dividend). The share price is dependent upon market forces. If there are more people wanting to buy than sell, the share price will rise. If there are more people wanting to sell than buy, the price will fall. Ordinary shareholders' rights are unsecured. If the company goes bust, then the shareholders are last in line for any payout. Overweight
An investment term describing a share portfolio that, when compared against a benchmark, has a disproportionately large percentage of money invested in a single sector. If for example 80% of the shares you own are issued by water companies, you are overweight water when compared to FTSE All-Share. PAYE (Pay As You Earn) Tax
The tax taken directly out of your pay packet. PAYE is paid by most workers, except the self-employed. Penny Shares
As their name suggests, any share which costs less than £1. Recently the Financial Services Authority defined penny shares as being any share which is hard to buy or sell without affecting the price - more specifically, any share with a spread larger than 10%. Just because they are cheap does not necessarily make them a good value investment. In order to make even a small profit on them the share price must increase significantly to cover the wide spread. Peps
Personal Equity Plans were the old government equity savings scheme. They were replaced in 1999 by Individual Savings Accounts (Isas). Personal Allowance
In tax terms this is the amount of money you can receive before you start paying tax. For the tax year 2004-2005 the personal allowance is £4,745. For the over 65s it's more, it's actually £6,830. And for those aged 75 and over it's £6,950. Placing
A private share sale, sometimes used to dispose of large blocks of shares. Preference Shares
In the event of a company going under, preference shareholders will take precedence over those with ordinary shares. These shares often do not carry voting rights but shareholders are guaranteed a fixed dividend. Premium (Investment Trust)
When used in relation to an investment trust a premium describes the excess value of a trust above the value of its underlying assets. The correct term is Premium to Net Asset Value. So if a trust owns £1m in shares but its market capitalisation is £1.2m it has a £200,000 premium. This is usually expressed per share. Price Earnings Ratio (P/E Ratio)
The price earnings ratio is one way of valuing shares. It compares the price of the share with the earnings of the company. The p/e ratio can then be compared with other shares in the same sector of the stock market. A high p/e ratio indicates great things are expected from the company in question, but also suggests the share could be a risky investment. Protected Fund
An investment fund that uses complex financial instruments to ensure that investors don't lose money. This protection comes at a cost, usually meaning lower returns if markets are strong. Quanto Option
An option in one currency which pays out in another. Recession
If there is a decline in GDP for two quarters in succession, then it is officially a recession. A severe recession is a depression. Rights Issue
A rights issue takes place when a company invites existing shareholders to purchase additional discounted shares in the company. The right to buy more shares is related to the amount of stock already owned. A one in six rights issue will entitle the investor to buy one new discounted share for every six shares currently held. If the investor doesn't want the new shares, they can sell the rights. For capital gains tax purposes, any shares bought at a rights issue are deemed to have been bought at the same time as the original shares. Running Yield
Used to describe income currently being generated by an investment fund. Scrip Dividend
Instead of receiving dividends in the form of cash, investors can also receive them in the form of more shares. Instead of a cash dividend this is known as a scrip dividend. Securities and Exchange Commission (SEC)
Set up to protect investors against fraudulent dealings in the stock market. Selling Short
A way of making money when the market is falling. Investors borrow a security from a trader with an agreement to return it at a later date. They then sell that stock in the market and wait for the share price to fall. As the date they have to return the stock to the trader approaches they buy it again (at a lower price, they hope!) and complete the deal by returning it to the broker. Selling short can force share prices down, allowing traders to buy the shares back at a huge profit. To prevent fraud, the SEC allows short selling to take place only when shares are trading either at an uptick or zero plus tick. Self-Assessment
Launched in 1997, this was the government's plan to cut down the cost of calculating tax by making us responsible for our own tax returns. People whose only source of income is from employment and savings don't usually have to fill out a self-assessment form. The forms are issued in April and have to be back, along with tax due, by January. Serps
The State Earnings Related Pension Scheme (SERPS) was introduced by the government in April 1978. It allowed employees (but not self-employed people) the chance to top up their state pension with additional contributions based on their salary. The more you earned, the higher your pension. People could contract out of SERPS and receive a rebate on their National Insurance contributions to invest in a personal pension plan or an occupational pension. The scheme was replaced in April 2002 with the State Second Pension. Any SERPS entitlement already built up is protected, both for those who have already retired and those who have not yet fully reached state pension age. Spread
The difference between the bid (purchase) and offer (sale) price of any asset is known as the spread. Stakeholder Pension
These were introduced in April 2001, and are promoted as low-cost flexible pensions. Since October 2001, all employers who don't offer a pension scheme and who have five or more staff must offer one to their employees. There is no obligation for people to contribute to one. Stakeholder pensions have a maximum annual management charge of 1% and the annual contribution limit is £3,600. State Second Pension (S2P)
This replaced SERPS in April 2002. It works on similar lines but provides a more generous additional pension for low and moderate earners. Also, for the first time, it covers certain carers and people with a long-term illness or disability, whose working lives have been interrupted or shortened. They are able to build up an additional state pension for periods when they cannot work. Taper Relief
A tax relief available to people who have to pay Capital Gains Tax. It is designed to encourage us to hold shares for longer. Taper relief starts at 5% after three years, rising to 40% after 10 or more years. Tax Band
The tax man breaks income tax into three distinct bands: lower, basic and higher. That proportion of income falling within a specific band is taxed at that band's rate. Tax Year
The twelve months from April to April over which the government budget, our tax and many company accounts are calculated. TechMark 100
This is the specialist FTSE technology market, which includes everything from FTSE 100 companies down to newly formed tech stock. The London Stock Exchange normally requires companies to have had three years trading history, but to be included in the FTSE Techmark, the company just has to show it is committed to technological innovation. Tessa (Tax Exempt Special Savings Account)
A tax-free savings scheme set up by the government to encourage longer term saving. Tessas were replaced in April 1999 by Isas. Thin Market
The opposite of a liquid market, this is where shares are difficult to sell and volatility is high. Even very small fluctuations in supply or demand can have a big influence on the market price. Underperform
When an investment fails to keep pace with its benchmark. Underweight An investment term describing a share portfolio that, when compared against a benchmark, has a disproportionately small percentage of money invested in a single sector. If for example 1% of the shares you own are issued by banks, you would be underweight banks when compared to the FTSE All-Share. Unit Trusts
A means of spreading the risk of investing. Instead of buying shares directly, your money goes into a fund with a lot of other people's money. That cash pot is then invested in a wide range of shares. This should be able to give you a more diversified portfolio than you would otherwise be able to obtain. Uptick
Either a stock market transaction or a quote where the price is higher than the previous one for the same share (a downtick is where the transaction or quote is lower than the previous one for the same share). Venture Capitalist
A person who invests money into risky but potentially very profitable businesses. Warrants
Certificates which allow the holder to buy a specified amount of stock at a set price sometime in the future. Will
A legally enforceable document which directs the disposal of a deceased person's property. If someone dies intestate (without making a will) the property will be distributed by probate according to the laws of the country in which the person resided. Yield
The annual income from an investment calculated as a percentage of its market price. For shares, the yield is worked out by dividing the annual dividends by the purchase price. For bonds, it is the coupon rate divided by the market price. Zero Plus Tick
Where a share price is the same but still greater than the previously quoted different share price. Zombie
An insolvent company which continues to operate as it awaits takeover or closure.


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timwoods 		Latest page update: made by timwoods , Nov 2 2007, 11:14 AM EDT (about this update About This Update timwoods Edited by timwoods

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