For advanced learners: sophisticated financial and macroeconomic terminology found in policy papers, analyst reports, and financial journalism.
35 cards
quantitative easing
a central bank policy of creating new money to buy financial assets and stimulate the economy
derivatives
financial contracts whose value is based on the performance of an underlying asset, index, or rate
securitisation
the process of pooling financial assets such as loans and selling them as tradeable securities to investors
fiduciary
relating to the legal duty to act in the best financial interests of another person
macroprudential
relating to policies designed to manage risk across the entire financial system, not just individual institutions
solvency
the condition of having enough assets to cover all debts and long-term financial obligations
monetary policy
actions taken by a central bank to control the money supply and interest rates to manage inflation and growth
venture capital
private funding provided to early-stage companies with high growth potential in exchange for equity
short-selling
the practice of borrowing and selling an asset you do not own, hoping to buy it back cheaper later and profit from the price fall
capitalisation
the total market value of a company's outstanding shares, or the process of converting earnings into capital
insolvency
the state of being unable to pay debts when they fall due, which may lead to bankruptcy
regulatory arbitrage
the practice of exploiting differences in financial regulations across jurisdictions to reduce costs or oversight
systemic risk
the danger that the failure of one financial institution or market could cause a collapse across the entire system
contagion
the rapid spread of financial distress from one institution or country to others
Basel accord
an international banking agreement that sets standards for the amount of capital banks must hold to absorb losses
write-down
a reduction in the book value of an asset when it is worth less than originally recorded
haircut
a percentage reduction applied to the value of an asset used as collateral, reflecting its risk
coupon rate
the fixed annual interest rate paid to bondholders as a percentage of the bond's face value
yield curve
a graph showing interest rates for bonds of different maturities, used to gauge economic expectations
mark to market
the practice of valuing assets at their current market price rather than their original cost
moral hazard
the tendency to take greater risks when you know you will not bear the full consequences of failure
deleveraging
the process of reducing the proportion of borrowed money in a company's or economy's financial structure
liquidity trap
a situation where low interest rates fail to stimulate borrowing or spending because people hoard cash
carry trade
borrowing in a low-interest currency and investing in a higher-interest one to profit from the difference
ring-fencing
separating a bank's retail operations from its riskier investment activities to protect ordinary customers
covenant
a clause in a loan agreement that the borrower must comply with, such as maintaining a certain debt ratio
recapitalisation
the process of restructuring a company's or bank's capital, often by issuing new shares or converting debt to equity
principal
the original sum of money borrowed or invested, excluding any interest or earnings
tranches
distinct portions of a financial instrument or loan, each with different levels of risk and return
counterparty risk
the possibility that the other party in a financial agreement will fail to meet their obligations
credit default swap
a financial contract that provides protection against a borrower failing to repay a debt, similar to insurance
tapering
the gradual reduction of a central bank's asset purchase programme as the economy improves
stagflation
an unusual economic condition where high inflation and stagnant growth occur at the same time
crowding out
the effect where high government borrowing reduces the funds available for private investment
nominal vs real
the distinction between figures that include inflation and those adjusted to remove inflation's effect