Categories » Finance A-Z

• The carry trade

  The carry trade is a means by which a speculator ‘pairs’ two world currencies – one with a low interest rate, the other with a high interest rate – in order to make a profit on the exchange rate differential between the two.

  Be the first to comment | November 2010

• Currency pairs

  A currency pair is the means by which currencies are quoted for trading in the foreign exchange market. The first currency in the pair is known as the ‘base currency’ (or ‘primary currency’), and the second is known as the ‘quote currency’ (or ‘secondary currency’ or ‘counter currency’). Currency pairs are denoted as follows:

  Be the first to comment | October 2010

• Functional currency

  Functional currency refers to the currency of the primary economic environment in which a company operates and in which most, if not all, of its income and expenses are generated. A company’s functional currency is not necessarily the currency in which it presents its financial statements, which is known as the reporting or presentation currency.

  Be the first to comment | September 2010

• Chapter 11

  A chapter of the US Bankruptcy Code, Chapter 11 permits reorganisation of a company under the bankruptcy laws of the US. If a company is unable to pay its creditors or service its debts it may file for Chapter 11 protection with a federal bankruptcy court. Chapter 11 allows the debtor to remain in control of business operations while working with its creditors to reorganise the company, under the supervision of the court. Lehman Brothers was the largest organisation ever to file for Chapter 11 bankruptcy, listing over $639 billion in assets.

  Be the first to comment | July 2010

• Asset liability management

  Asset liability management was originally a tool used by financial institutions to manage the risks that arise from the mismatch between assets and liabilities. Also known as ALM, the principle behind asset liability management, is to ensure that the liabilities carried by the bank or business are managed in proportion to the assets of the company.

  Be the first to comment | June 2010

• Algorithmic trading

  Algorithmic trading (AT), sometimes known as automated trading, is the use of computer programs that run advanced mathematical models to make real-time market trading decisions. An AT system is designed to determine the precise time to trade stock without affecting the stock price or inflating the purchasing costs. This is done by breaking up large blocks of shares into smaller lots.

  Be the first to comment | May 2010

• Net asset value

  A synonym for book value, net asset value (NAV) is the value of a corporation’s assets less its liabilities. In terms of valuing businesses, NAV is a useful measure if the company’s value is derived from its assets rather than its revenue. This may be the case for property companies for instance, or investment trusts. In the world of treasury, net asset value is often used in the context of valuing mutual funds.

  Be the first to comment | April 2010

• Short selling

  Short selling is the practice of trading assets, such as shares, currencies or commodities, so as to benefit the investor when the price of that asset falls. Short sellers ‘borrow’ stock from brokers which they sell. Their aim is to buy back that stock at a lower price in the future, repay the debt and keep the difference as profit. Short selling is sometimes referred to as ‘shorting’ or ‘going short’.

  Be the first to comment | March 2010

• Reserve currency

  A reserve currency is a foreign currency that is held by governments, central banks and other major financial institutions around the world in order to pay international debts, influence national exchange rates or as part of their foreign exchange reserves.

  Be the first to comment | February 2010

• Glass-Steagall Act

  The Glass-Steagall Act (GSA) was reactionary legislation to the 1929 stock market crash, which aimed to combat the reckless nature of the financial institutions that caused the crisis. The primary concern of the legislation was to make commercial and investment banking separate entities. The act was in fact, two separate bills. Together they became known as the Glass-Steagall Act, and its predominant function was to regulate financial institutions and prevent commercial banks from becoming involved in high risk or speculative investment banking. The act clearly defined the boundaries between commercial banking functions, investment houses and insurance companies.

  Be the first to comment | January 2010

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