A–Z / KNOWLEDGE AT YOUR FINGERTIPS
Financial terms.
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THE FINANCIAL GLOSSARY
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Accumulation
Accumulation means a fund retains and reinvests income rather than distributing it to investors.
In plain languageAsset allocation
Asset allocation is how a portfolio is divided among asset classes such as stocks, bonds, property and cash.
In plain languageBear market
A bear market is a prolonged period of substantially declining prices. A fall of at least 20% from a previous peak is a common rule of thumb.
In plain languageBenchmark
A benchmark is a reference used to evaluate an investment or strategy, often a financial index.
In plain languageBid–ask spread
The bid–ask spread is the gap between the highest buying offer and the lowest selling offer for a security.
In plain languageBond
A bond is a tradable debt security. You lend money to a government or company in exchange for contractual payments.
In plain languageBudget
A budget is a plan comparing income, expenses and savings goals over a specific period.
In plain languageBull market
A bull market is a prolonged period of rising market prices, often accompanied by optimistic expectations.
In plain languageCash flow
Cash flow describes cash moving in and out over a period. For companies, it is often split into operating, investing and financing activities.
In plain languageCompound interest
Compound interest occurs when earned interest is reinvested and generates further interest in later periods.
In plain languageCreditworthiness
Creditworthiness describes a borrower’s ability and willingness to meet payment obligations.
In plain languageDeflation
Deflation is a sustained decline in the general price level across an economy.
In plain languageDistribution
A distribution is a payment of income or other amounts from a fund to its shareholders.
In plain languageDiversification
Diversification means spreading money across different investments to reduce dependence on individual risks.
In plain languageDividend
A dividend is a distribution from a company to its shareholders, usually funded by profits.
In plain languageDividend yield
Dividend yield divides the annual dividend per share by the share price.
In plain languageDrawdown
A drawdown is an investment’s percentage decline from a previous peak to a subsequent lower value.
In plain languageDuration
Duration measures the timing of a bond’s cash flows. Modified duration estimates its sensitivity to interest-rate changes.
In plain languageEasy-access savings
Easy-access savings are interest-bearing bank deposits that you can generally access without a fixed term. The interest rate is usually variable.
In plain languageEffective interest rate
An effective annual borrowing rate expresses yearly credit costs including certain charges that determine the price.
In plain languageEmergency fund
An emergency fund is readily accessible money set aside for unexpected expenses or loss of income.
In plain languageETF
An ETF (exchange-traded fund) is an investment fund whose shares trade on an exchange. Many ETFs track an index.
In plain languageFixed-term deposit
A fixed-term deposit is money placed with a bank for an agreed period at a fixed interest rate.
In plain languageGross domestic product (GDP)
Gross domestic product measures the value of goods and services produced within a country over a period, net of intermediate inputs.
In plain languageIndex
A financial index measures the performance of a basket of securities selected according to specified rules.
In plain languageInflation
Inflation is a sustained rise in the general price level. The same amount of money buys less on average.
In plain languageInterest
Interest is the price of using money for a period. Savers may receive it, while borrowers pay it.
In plain languageInvestment fund
An investment fund pools money from many investors and invests it in different assets according to a defined strategy.
In plain languageLimit order
A limit order specifies the maximum purchase price or minimum selling price for a security.
In plain languageLiquidity
Liquidity describes how quickly an asset can be converted into cash at a reasonable price. For people and companies, it also refers to the ability to pay obligations.
In plain languageMarket capitalisation
Market capitalisation is a company’s stock-market value: share price multiplied by the number of outstanding shares.
In plain languageMarket order
A market order is a buy or sell instruction without a specified price limit, intended to execute at an available market price.
In plain languagePolicy interest rate
Policy interest rates are rates used by a central bank to guide monetary policy and influence financing conditions.
In plain languagePortfolio
A portfolio is your collection of investments, such as stocks, funds, bonds and cash reserves.
In plain languagePrice-to-earnings ratio (P/E)
The P/E ratio divides a stock’s price by earnings per share. It is a commonly used company valuation metric.
In plain languagePrincipal repayment
Principal repayment is paying back the amount borrowed on a loan. It is separate from interest payments.
In plain languageReal interest rate
The real interest rate describes interest after accounting for inflation, reflecting a change in purchasing power.
In plain languageRebalancing
Rebalancing means adjusting investment weights back towards a previously chosen target allocation.
In plain languageRecession
A recession is a period of declining economic activity. It can affect production, employment, income and demand.
In plain languageReturn
Return describes an investment’s gain or loss relative to the capital invested. It is often expressed as a percentage.
In plain languageRisk
Financial risk is the possibility that an investment or decision turns out differently than expected, particularly with a loss.
In plain languageStock
A stock represents a share of ownership in a company. As a shareholder, you participate in its economic development.
In plain languageTotal expense ratio (TER)
The total expense ratio measures certain ongoing fund expenses relative to its average assets per year.
In plain languageTracking difference
Tracking difference is the gap between an index-tracking fund’s return and its benchmark return over the same period.
In plain languageVolatility
Volatility measures how strongly an investment’s returns fluctuate around their average over a period.
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