Financial Terms

Accrual is an accounting method that records revenue when it is earned and expenses when they are incurred, rather than when cash changes hands.

An adjustment is a change made to a financial record, transaction, valuation, forecast, or statement to make it more accurate.

Aggregate demand is the total monetary value of all finished goods and services demanded in an economy at a given price level over a set period.

Alpha is a performance measure that shows how much an investment returns above or below its benchmark.

Amortisation is the process of spreading a cost or a repayment across a set period.

An asset is a resource owned or controlled by a person, company, or institution that has measurable economic value.

Appreciation is the increase in an asset's market value above its original purchase price or previous valuation.

Balance of trade is the difference between the value of a country's exports and the value of its imports over a set period.

The Bank of England is the central bank of the United Kingdom, also known as the BoE.

The Bank of Japan is the central bank of Japan, also known as the BoJ.

A base rate is the benchmark interest rate that a central bank sets as the starting point for borrowing and saving across an economy.

Beta is a measure of how sensitive an investment is to movements in the wider market.

A bond is a debt instrument that lets a government, municipality, or company borrow money from investors.

Book value is the net value of a company or an asset as recorded in the accounts.

Brexit is the United Kingdom's withdrawal from the European Union.

CREST is the electronic settlement system for securities traded in the UK and Ireland.

A capital gain is the profit you make when you sell an asset for more than you paid for it.

Capital gains tax is a tax charged on the profit you make when you sell an asset for more than you paid for it.

Capitalise means to record a cost as a long-term asset on the balance sheet instead of charging it as an immediate expense on the income statement.

Cash flow is the net movement of cash and cash equivalents into and out of a business, project, or account over a set period.

Collateral is an asset a borrower pledges to a lender as security for a loan or other financial obligation.

Compound interest is interest calculated on both the original principal and the interest already added in earlier periods.

Contagion is the spread of financial stress from one market, country, sector, or asset class to another.

A credit default swap, or CDS, is a derivative contract that pays out if a borrower fails to repay a debt.

A credit rating is an assessment of how likely a borrower is to repay its debt on time.

A current account is the part of a country's balance of payments that records its trade in goods and services, its income from abroad, and its transfer payments with the rest of the world.

Current ratio is a liquidity measure that divides a company's current assets by its current liabilities.

A debenture is a debt security that a company or government issues to borrow money from investors.

Debt ratio is a leverage measure that divides a company's total debt by its total assets, usually shown as a percentage.

A deficit is a shortfall that arises when outgoings exceed incomings over a set period, such as spending above revenue or imports above exports.

Depreciation is an accounting method that spreads the cost of a tangible asset across the years it is expected to be useful.

A dove is a central bank policymaker who favours lower interest rates and looser monetary policy to support growth and employment.

EBITDA is a measure of a company's operating profitability that strips out financing, tax, and non-cash charges.

The ECB is the central bank of the eurozone, the group of countries that use the euro as their official currency.

EURIBOR is a benchmark interest rate that reflects the average rate at which major eurozone banks lend unsecured short-term funds to each other.

An emerging market is a country with an economy that is developing toward the income, infrastructure, and financial maturity of a developed market.

Equity is the ownership value left in an asset, company, or account after any liabilities are subtracted.

Euroclear is an international securities settlement system that completes and safekeeps trades in bonds, shares, and funds for banks and other financial institutions.

An exchange-traded fund, or ETF, is an investment fund that holds a basket of assets such as shares, bonds, or commodities and trades on a stock exchange like an ordinary share.

The FCA is the United Kingdom's financial regulator, responsible for supervising the conduct of financial firms, financial markets, and the products they sell to consumers and businesses.

FOMC Minutes are the official record of a Federal Open Market Committee meeting, the gathering at which the US Federal Reserve sets monetary policy.

Fair value is an estimate of what an asset or liability is genuinely worth in an orderly transaction between a willing buyer and seller.

The Federal Reserve is the central bank of the United States, usually called the Fed.

A financial analyst is a professional who studies financial information to help a business, investor, or institution make decisions.

A financial institution is a company that provides financial services such as deposits, loans, investments, insurance, or payments.

A financial market is a system where financial instruments are bought and sold.

Financial risk is the chance that an actual financial outcome differs from the expected one, usually for the worse.

Financing is the way an individual, company, or government raises money to fund expenses, operations, investments, or growth.

A fund is a pool of capital gathered from multiple investors and put to work toward a shared objective.

G7 is the Group of Seven, an informal forum of seven advanced economies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

Gearing ratio is a measure of how much a company funds itself with debt compared with equity.

A gilt is a bond issued by the UK government to borrow money from investors.

Gross profit margin is the share of revenue a company keeps after subtracting the direct cost of producing its goods or services, expressed as a percentage.

Income tax is a tax charged by a government on the income earned by individuals and businesses.

Inflation is a sustained rise in the general level of prices across an economy.

Interest is the cost of borrowing money or the return earned from lending or saving it.

An interest rate is the percentage charged for borrowing money or paid for lending, saving, or investing it.

Intrinsic value is the underlying worth of an asset judged from its fundamentals rather than its current market price.

An investor is a person, company, or institution that commits money to an asset, business, or fund in the expectation of earning a return.

A Junior ISA, short for Junior Individual Savings Account, is a tax-free savings and investment account for a child under 18 who lives in the UK.

LIBOR (the London Interbank Offered Rate) is a discontinued benchmark interest rate that estimated the cost of unsecured short-term borrowing between major global banks.

A liability is a financial obligation that a person, business, or institution must repay or settle in the future.

M2 money supply is a broad measure of the money available in an economy.

Mark to market is a valuation method that records an asset or liability at its current market price rather than its original cost.

Market value is the price that buyers and sellers will accept for an asset in an open market.

Maturity is the date when a financial instrument reaches the end of its agreed term and the principal falls due.

The multiplier effect is the process by which an initial change in spending or investment produces a larger total change in economic output.

A mutual fund is a pooled investment vehicle that collects money from many investors and buys a portfolio of financial instruments on their behalf.

NISA is Japan's tax-free investment account scheme, formally the Nippon Individual Savings Account.

Negotiable is a financial term for an instrument whose ownership can be transferred from one party to another, so the right to receive payment moves to the new holder.

Net income is the profit a company keeps after subtracting every expense from total revenue.

Net profit margin is a profitability ratio that shows how much of each unit of revenue a company keeps as net income.

Net working capital is the difference between a company's current assets and its current liabilities.

Nominal is a value or rate stated in current money terms, with no adjustment for inflation.

A nominee is a person or institution that holds legal title to an asset on behalf of someone else.

Operating income is the profit a company earns from its core business operations, before interest and tax.

Operating margin is a profitability ratio that measures the percentage of revenue a company keeps as operating profit.

Quick ratio is a liquidity metric that measures whether a company can cover its current liabilities using only its most liquid assets.

Rate of return is the percentage gain or loss on an investment over a set period, measured against what was originally paid.

A recession is a broad, sustained decline in economic activity that runs longer than a brief slowdown.

A reserve is a pool of funds or assets that a company, bank, or government sets aside instead of spending it now.

Time value of money is the principle that a sum of money is worth more today than the same sum in the future.

Valuation is the process of estimating the worth of an asset, business, security, or investment.

A variable cost is a business expense that changes in direct proportion to a company's level of activity.

Wall Street is a metonym for the US financial industry and the markets it runs.

A weighted average is an average that gives each value a different level of importance, set by a weight, before the figures are combined.

Withholding tax is tax deducted from a payment at source, before the money reaches the recipient.

Z-Score is a metric that estimates how close a company is to financial distress or bankruptcy.

Zakat is an obligatory form of almsgiving in Islam and one of the religion's core duties.