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Business Glossary 2019

Business Glossary defines terms across a business domain, providing an authoritative source for all business
operations, and database systems. This vocabulary gives clear meaning and business context and can be linked to the underlying technical metadata to provide a direct association between business terms and objects.
Let’s define each term in the glossary.

Accounts
Companies must produce an annual set of accounts, must produce information on their profits six months into the financial year.

Actively managed funds
They generally invest in a particular geographical area, have a defined strategy or have a theme such as focusing on technology or smaller companies.

Actuary
They are employed by insurance companies and pensions providers to calculate factors such as life expectancy, accident rates, and likely payouts by using complex mathematical formulas.

Administration
The main goal of an administrator is to rescue the company as a going concern. 

After-hours dealing
Many shares and bonds are now quoted on more than one stock market and after-hours dealing allows dealers to buy and sell outside the official hours of the market.

Allocation rate
The percentage of the money you pay into a pension scheme or life insurance policy that is actually invested. A lower allocation rate means less value for money.

Alternative investment market
Tax breaks exist to encourage investment in Aim stocks. Investment in Aim companies is riskier but can yield greater returns.

Annual bonus
The sum paid to with-profits policyholders at the end of each year from surpluses in the with-profits fund. due to the problems experienced with with-profits funds, many companies have cut or scrapped their annual bonuses.

Annual equivalent rate (AER)
The AER is calculated by adding each interest payment to the original deposit and then calculating the next interest payment, compounding the interest.

Annual general meeting (AGM)
While influential shareholders usually know the score already, the AGM is a chance for private investors to grill the fat cats.

Annual percentage rate (APR)
The APR is the rate of interest that you agree to pay on money that you borrow. It was designed to allow consumers to compare products on a like-for-like basis and every lender must quote this rate by law.

Annuity
It is a type of insurance policy that provides a regular income in exchange for a lump sum paid into it on retirement.

Arbitrage
It is often associated with risk arbitrage, which means buying shares in potential takeover targets, waiting for a bid that inevitably pushes up the share price and then selling the shares for a profit.

Asset stripping
a company with the aim of selling off its assets, such as property, to make a profit, rather than developing the business.

Auditors
They are accountants who must certify that the company accounts prepared and signed by the board of directors are a ‘true and fair view’ of the company’s financial position.

Average (arithmetic mean)
The arithmetic mean, commonly called the average, is found by adding all the individual numbers concerned and dividing by how many numbers there were.

Average earnings growth
An economic indicator of future inflation, because higher earnings cause price rises if they are not matched by increases in productivity.

Balance of payments
The balance of payments accounts record all flows of money in and out of a country. These flows might result in exports and imports.

Balance sheet
A summary of the financial value of a company, usually published at the end of its financial year.

Banker’s draft
A cheque is drawn from a bank or building society against real cash. Bankers’ drafts are considered a safe way of obtaining money from someone.

Bear market
A Stock Market in which share prices fall precipitously.
Some bear markets are short – bad news creates a panic and stocks are sold off suddenly. But when investors realize that the world is not coming to an end, markets bounce back.

Bid-offer spread
Used to describe the buying price and selling price of shares, currency, bonds or other financial instruments. The difference between the two prices is the spread.

Blue chip
The name was given to a company considered to be large, safe and prestigious. Such companies are usually well-known, have a large market capitalization and a good track record of dividend payments.

Bridging loan
A type of loan that can be taken out by people moving house who need access to finance in order to cover them until they sell their home.

Broker
The generic term used to describe an intermediary between two parties, generally a buyer and a seller.

Budget
The budget is in deficit when government income falls short of spending plans, and in surplus when the government collects more in taxes than it intends to spend on public goods and services.

Bull market
A market when prices roar ahead.

Business cycle
Economic expansions tend inexorably to create bubbles in share or house prices or both, which inevitably burst.

Buy-out
It occurs where a controlling proportion of a firm’s shares are purchased by a single party. Another type of buy-out is where a company buys back shares in itself that it has previously sold off, thereby taking itself off the stock market and turning itself back into a private firm.

Carry trade
It occurs when investors borrow money at low rates of interest in one currency and invest it at higher rates in another.

Capital account
The part of the balance of payment that records a nation’s incoming and outgoing investment flows, such as payments for parts of or entire companies, stocks, bonds, bank accounts, real estate and factories.

Commercial paper
Asset-backed commercial paper is a form of IOU that banks use in money markets to lend and borrow from each other. The paper is backed, in theory at least, by assets.

Competition Commission
Commission investigations often take around six months and the delay can be enough to put off the bidder.

Commodity
It’s typically are bought and sold in futures markets where producers combine with manufacturers and speculators to create a smoothly functioning market.

Consumer Prices Index (CPI)
The CPI tracks changes in the prices of a basket of goods and services that a tytpical household might buy.Core CPI excludes the prices of volatile items such as energy and food.

Current account
The trade in services – or invisible – such as banking and insurance is more important for developed countries, which is why the US and Britain are particularly keen for developing countries to open up their service sectors.

Consumer confidence
Rising confidence can mean consumer spending will rise, driving economic growth and inflation, interests rate special reports.

Contents insurance
A popular extra is to ensure home contents against accidental damage, such as spilling coffee over a laptop computer or smashing an expensive vase.

Cost-push inflation
Cost-push inflation occurs when production input costs – wages, raw materials – rise.

Credit default swaps
CDS contracts can be used by bond investors – as a hedge against potential defaults – or traded separately when they are called naked CDSs.

Day trading
It is the buying and selling of stocks during the trading day by punters on their own account.

Dead cat bounce
A term used by traders to describe a pattern wherein a spectacular decline in share prices is immediately followed by a moderate and temporary rise before resuming its downward movement.

Defined benefit pension
The amount of income an employee receives on retirement is defined based on the number of years he or she has worked for an employer and the level of their salary when they retire.

Defined contribution pension
the scheme is set up by the employer, and he or she must contribute to the scheme.
Deflation
A fall in the general level of prices.

Demand-pull inflation
It occurs when demand is high and suppliers, unable to meet demand, put up prices until the excess demand disappears.

Demutualization
Occurs when a society, which is owned by its members, becomes a public company owned by its shareholders.

Depression
It is an economic downturn more severe and prolonged than a recession.

Derivatives
referred to as complex financial instruments, derivatives derive their value from something else – hence their name. The most common derivatives are futures and Options of Bonds, equities and commodities.

Diminishing returns
The economic concept that each consecutive unit of good consumed, or resource used, is less useful or productive than the preceding one.

Discount mortgage
you initially pay a rate of interest that is a set amount below the lender’s standard variable rate (SVR), for a specified period of time, after which you revert to the SVR.
Dividend
When a firm makes profits, it may decide to reward its shareholder by paying them a dividend on their investment.

Ebit
A type of operating profit. It stands for earnings before interest and tax.

Earnings per share (EPS)
A measure of how much profit a company is making for its shareholder.

Economic growth
It usually refers to the growth in value of gross domestic product.

Economies of scale
A reduction in unit costs that arise from an increase in production.

Elasticity
Usually used to explain consumer demand in response to changes in prices.

Endowment policy
It is investment schemes that include life assurance.

Enterprise value
The enterprise value of a company is often used as an alternative to straightforward market capitalization – especially when talking about takeovers.

Equity
Shares are bits of equity. When companies start up they need cash for an office and employees.

Ethical investment
Ethical investors avoid companies such as military equipment manufacturers or firms that harm the environment.

Externalities
Costs or benefits that affect society but are not included in the market price of a good or service.

Financial Services Authority
Its responsibilities range from the sale of endowments and insurance to controls on City dealers trading in derivatives.

Financial year
A firm’s financial year can run over any 12-month period it chooses.

Fiscal policy
The use of government spending and taxation, as opposed to monetary policy, to try to influence the level of economic activity.

Fixed costs
Costs that a company incurs in making goods regardless of how much it is producing.

Fixed rate mortgage
A mortgage where the interest you pay, and therefore your monthly repayments, remains the same.

Foreign exchange (Forex)
markets are where one currency is exchanged for another.

Freehold
It gives the buyer the right to do as they like with their home, subject to the law and planning controls.

Gazumping
Describes the process whereby a seller who has already accepted one buyer’s offer then goes on to accept a higher offer, pushing the first buyer out of the picture.

Gazundering
Where the buyer has the upper hand and threatens, just before contracts are exchanged, to pull out of a house purchase unless the price is reduced.

Gearing
A highly geared company is one where a large amount of money has been borrowed relative to the company’s equity.

Gilts
When the government wishes to borrow money, it issues loan stock, known as gilts.

Glass-Steagall Act
A ground-breaking piece of legislation that prevented commercial banks which took deposits from embarking on risky trading activities.

Guaranteed annuity rate
A promise made by pension providers to pay a minimum retirement income to pension policyholders.

Home reversion plan
These are available to people aged 60 and over and are designed to allow you to free up the cash held in your home.

Horizontal merger
A merger of two companies at the same production stage in the same industry.

Hostile takeover
A hostile bid is when a takeover is unwelcome or the terms are unacceptable, and the board advises against agreeing to the bid.

Income protection insurance
this pays a monthly amount if you are unable to work because of an illness or disability.

Income statement
An annual summary of income and expenses of a given business in order to determine the profit of the business.

Income tax
If you earn money in any capacity, you will probably pay income tax on it.

Independent financial adviser (IFA)
It will give you advice about which financial products you should be buying.

Individual savings account (Isa)
A type of account introduced by the government as a means of encouraging more people to save for the future.

Inflation
it happened when prices rise.

Inheritance tax
Because of rising property prices, this tax – payable by your heirs on the value of your estate – is affecting more people.

Joint account
A bank account held in the names of two or more people, often a couple.

Leasehold
A leasehold property is leased from the freeholder for a specified period of time.
Liquid asset
An asset which can be converted easily into cash.

Macroeconomics
The part of economics which looks at economies as a whole, rather than dealing with the actions of individuals or groups.

Microeconomics
It takes a close up look at decisions taken by individuals and companies, without worrying about the wider economy.

Money supply
A measure of the amount of money in circulation. Various measures of money supply exist.

Nominal interest rate
An interest rate which has not been adjusted for inflation.

Non-executive director
A director of a company who is not involved in the day-to-day running of the business.

Open-market operations
The buying and selling of government securities on the financial markets.

Overdraft
An overdraft allows you to borrow an agreed amount of money on top of your bank balance.

Pay As You Earn (PAYE)
Tax is collected at the source for those working for an employer through the pay as you earn (PAYE) system.

Personal loan
It is a way of borrowing money from a bank, building a society or other financial service provider.

Profits
profits, or earnings, are the excess of revenues overall costs. However, many different measures exist, which can be confusing.

Profit and loss account
Shows the final outcome of the firm’s trading over the past financial year.

Quantitative easing
is what non-economists call ‘turning on the printing press’.

Quantity theory of money
the quantity theory of money states that the price level is proportional to the quantity of money in the economy.

Quarterly report
companies have to issue financial reports every three months.

Quota
A limit set by a country’s government on the amount of a product or commodity that can be imported to or exported from that country.

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