Financial English | 07 Financial English Section 7

Mini-Dictionary of Finance

A selective list of 1,000 common terms

“The definition of a recession is when your neighbor loses

his job – a depression is when you lose yours.”

US President HARRY S. TRUMAN

Financial and Economic Terms

Note: only one (financial) meaning is given for most words and terms; some words also have other, non-financial, meanings.

Above par – describes a bond or other fixed-interest security whose market value is higher than the price at which it was issued.

Above the line – normal business expenses and revenues that come above the net income or net profit in a profit and loss account or income statement

Absolute advantage – the ability to produce a particular good more cheaply than other countries

Absorption costing – see full costing

Accelerated depreciation – subtracting a high proportion of the cost of capital investments from taxable profit during the first years of use

Accelerator or acceleration principle – changes in the demand for consumer goods cause even greater changes in the demand for capital goods

Accepting houses – banks that buy (for a commission or fee) export merchants’ short-term bills of exchange, expecting the debtor to pay up at the right time

Account – a statement of money paid or owed; an arrangement with a firm that allows credit for payments

Accountability – the state of being responsible to someone for some actions (company directors are accountable to the company’s shareholders)

Accountancy – the profession or business of an accountant

Accountant – person who keeps and checks an organization’s or an individual’s financial records.

Account day or settlement day – the day on which all deals made during the previous 14-day account or accounting period on the London Stock Exchange must be settled

Accounting – keeping financial records (recording income and expenditure, and profits and losses, valuing assets and liabilities, etc.)

Accounting-entity assumption – see separate-entity principle

Accounting-period assumption – see time-period principle

Accounting equation – the fundamental identity of the balance sheet: Assets = Liabilities + Owners’ Equity

Accounting principles – a dozen or so concepts, conventions or doctrines generally observed in accounting

Accounting standards – a country’s exact rules concerning valuation, measurement and disclosure

Accounts – a company’s set of accounting records for a particular period

Accounts payable – see creditors

Accounts receivable – see debtors

Accrual – a gradual or automatic increase in an amount of money (e.g. interest), usually money owed to someone; (to accrue)

Accrual basis – in a budget or balance sheet, estimates expenses and income for the period in which they are incurred rather than actually spent or received

Accrued expenses – expenses incurred at the date of the balance sheet, but not yet paid (e.g. wages, taxes and interest)

Accrued revenue – revenue earned but not yet received or recorded

Accumulate – to grow by way of regular additions (e.g. accumulated debts)

Acid-test ratio – see quick-asset ratio

Acquire – to buy, to gain, to get, to receive, to take possession of something; to take over a company by buying shares; to make an acquisition

Actuary – person who calculates probabilities for an insurance company, so that it can set its premiums

Administrator – see liquidator

Affiliate – one of a group of companies which is wholly or partly owned by another; to enter into association with others

Agent – person who negotiates purchases and sales in return for commission or a fee

Aggregate demand – the total amount spent in a country by consumers, companies and the government

Aggregate supply – the amount of output that business produces and sells, given current prices, costs and production capacity

Aid – money given to developing countries by richer ones

Allocating costs – the process of assigning costs to individual products, processes and departments

Allocative efficiency – the situation in which all the resources in an economy are fully and efficiently employed

Amalgamate – to merge, to combine; to join two or more businesses into a single organization

Amortization – the process of repaying a debt by instalments; in company accounts the systematic write-off of costs incurred to acquire an asset (to amortize)

Annual General Meeting (AGM) (GB) or Annual Stockholders Meeting (US) – a yearly meeting to which companies have to invite all shareholders

Annual report – sent by all publicly quoted (US:listed) companies to their shareholders after each financial year (before the AGM)

Annuity insurance -  a life assurance contract in which the insurer pays a fixed sum of money annually, usually in return for a single cash premium

Annuity system of depreciation – spreads the cost of an asset equally over several years and charges this, and an amount representing the interest on current value, each year

Anti-trust laws – legislation (especially in the US) to prevent commercial and industrial companies forming large, potentially monopolistic combinations

Appreciate – to increase in price or value

Appreciation – an increase in the value of an asset

Arbitrage – the simultaneous buying and selling of the same currency in different markets to profit from rate differentials

Arbitrageur – person who buys and sells currencies for profit; a person who buys stakes in companies involved (or expected to be involved) in takeover bids

Arrears – money owed that should already have been paid, e.g. rents, taxes, subscriptions, etc.

Articles of Association (GB) or Bylaws (US) – the rules and regulations of a company, setting out shareholders’ rights, directors’ duties, etc.

Artificial person – a company or corporation, which according to law has an existence separate from the actual persons who run and own it

Asset – anything of value owned by a business that can be used to produce goods, pay liabilities, etc; often used in the plural – assets

Asset-stripping – buying a poorly performing or under-valued company and then selling off the assets at a profit

Asset turnover – the ratio of a company’s net sales to its average assets

Asset value per share – the total book-value of all a company’s assets divided by the number of ordinary shares issued

Assurance – contract guaranteeing payment of a fixed sum upon the occurrence of a specified event (typically, life assurance, with the sum payable on death or retirement)

Auction – (verb and noun) a way of selling at a public meeting in which each item is sold to whoever makes the highest bid

Audit – (verb and noun) an inspection (or check for accuracy) and an evaluation of financial records by a second set of accountants (called auditors)

Audit report – written by the external auditors, declares that the annual financial statements present a true and fair view or a fair presentation of the company’s situation

Austerity – economic situation when policies designed to reduce inflation, imports, government spending, etc. are in operation

Autarky – total self-sufficiency and the consequent absence of foreign trade

Authorized share capital (GB) or authorized capital stock (US) – the maximum amounf of particular type of share a company can issue, as stipulated in the Memorandum of Association (or Certificate of Incorporation)

Available assets – see liquid assets

Average cost – the sum of variable and fixed costs divided by the number of units produced

Backward integration – when a company takes over or acquires its suppliers of raw materials or components

Bad debts – amounts of debtors (GB) or accounts receivable (US) that are never likely to be paid

Bail out – to rescue a person or organization in financial difficulties by providing money

Balance – the amount of money (or the size of the deficit) in an account at a particular time; an amount of money remaining to be paid

Balance of payments – the difference between what a country pays for its imports and receives for its exports

Balance of trade – the difference between the money values of a country’s visible imports and exports

Balance sheet – financial statement which shows a company’s financial condition (amount of debits and credits) on the last day of an accounting period

Bank – (verb) to have an account with a bank

Bank account – an arrangement with a bank to deposit and withdraw money, settle bills, etc.

Banker’s draft – a document guaranteeing payment by a bank (often used instead of cheques to pay bills in foreign currencies)

Banker’s order – see standing order

Bank for International Settlement (BIS) – the central bankers’ central bank in Basle

Bank holiday – in Britain, public holidays (Christmas, Easter, etc.); in the US, when the government temporarily closes a bank to prevent panic (a run on the bank)

Bank loan – a fixed sum of money, lent for a fixed period, on which interest is paid

Banknote – a piece of paper money, issued by a (central) bank

Bankruptcy – the state of being bankrupt or insolvent: unable to pay debts

Bank statement – a record of all transactions (credits and debits) in a bank account during a particular period

Barometer stock (GB) or bellwether stock (US) – a widely-held stock that can be considered as an indicator of present and future market performance

Barriers to entry – factors which prevent or deter new producers from entering an industry

Barter or counter-trade – the exchange of one good for another, without the use of money

Base rate (GB) or prime rate (US) – the lowest lending rate, which banks charge blue chip borrowers

Basket of currencies – a weighted average of a selection of different currencies used by the IMF for Special Drawing Rights

Bear – (verb) to support or carry a risk, a responsibility, etc.

Bear – a person who sells shares hoping to buy them back at a lower price before the next account or settlement day

Bearer share – a share made out to whoever possesses it, without the owner’s name being written on it

Bear market – a period during which stock market or currency prices are falling

Bear spread – an options strategy designed to profit form a fall in the price of a security or commodity

Bellwether stock – see barometer stock

Below par – describes a bond or other fixed interest security whose market value is lower than its face value

Below the line – extraordinary items placed below the net profit figure in a profit and loss account or income statement

Bid – (to make) an offer to buy something at a particular price

Big Bang – in October 1986, abolished minimum brokers’ commissions and introduced new electronic dealing systems at the London Stock Exchange

Bill – a statement of money owed for goods or services; (US) a banknote

Bill of exchange or commercial bill – a written order instructing someone (usually an importer) to pay someone else (usually an exporter) a certain sum on a given date

Bill of lading – document giving title to goods that acts as a receipt and contract to ship them, and can be used by shippers as security when discounting bills of exchange

Black market – goods or currencies sold illegally

Blue chip – a security in a company considered to be virtually without risk

Bond – an interest-bearing security, redeemed after a fixed period

Bonus – something extra, usually a payment, as a reward for good work, or for undertaking a dangerous or unpleasant job

Bonus issue or scrip issue or capitalization issue – British names for new shares issued to shareholders instead of a dividend

Bookkeeping or book-keeping – recording financial data by writing down the details of transactions

Book value – the worth of an asset as recorded in a company’s accounts

Boom – a period when demand is rising, and an economy is working close to capacity

Boost (an economy) – to expand it by fiscal policies: increased government spending or decreased taxation

Borrow – to receive money that will later have to be paid back (usually plus interest)

Bottom line – the net profit or net income line on a profit and loss account or income statement

Bought deal – an arrangement by which a merchant bank or investment bank finds buyers for bonds before they are even offered for sale

Branch – a local office or shop of a business

Breakdown – an analysis or classification of something (e.g. costs) into component parts

Breakeven point – sales volume at which a company covers its costs

Bretton Woods Agreement – pegged or fixed the value of many currencies against the US$, which was pegged against the price of gold (1944-1971)

Bridging loan (GB) or bridge loan (US) – a loan for a short period, covering the time between needing to spend money and receiving money that is due

Broker – an agent in a particular market, such as securities, commodities, insurance, etc.

Bubble – a period during which speculative investors buy shares, pushing their prices up to unsustainable levels

Budget – a financial operating plan showing expected income and expenditure

Building society – an organization (in Britain) that receives deposits and lends money as mortgages to home-buyers

Bull – person who buys securities expecting their price to rise so that he or she can resell them before the next account day

Bullion – gold bars (or silver or other precious metals), often part of bank’s reserves

Bull market – a period during which stock market or currency prices are rising

Bull spread – an option strategy that speculates on a rise in the price of a security or commodity

Burden rate – the rate at which indirect costs are allocated to specific products, processes or departments

Business – trade and commerce in general; or an organization that makes or buys and sells goods or provides a service

Business market – see industrial market

Buyout – see leveraged buyout and management buyout

Bylaws – see Articles of Association

Calendar spread – involves buying and selling options on the same security with different maturities

Called-up capital – the amount of money a company has when shareholders have only paid for part of the total share capital that has been issued

Call option – the right to buy a fixed quantity of a commodity, security or currency at a certain price on a certain future date

Cambist – a dealer in foreign currencies and bills of exchange

Cap or ceiling – the upper limit of a floating interest rate

Capital – the money invested in a business and used to buy the assets

Capital allowance – the amount of tax-free profit allowed to cover the cost of replacing fixed assets

Capital assets – see fixed assets

Capital formation or accumulation – spending money to increase the supply of capital goods rather than consumer goods

Capital gains tax – a tax on profits from the sale of assets

Capital goods or investment goods – goods that are used to make further goods; the goods that make up the industrial market (machines, tools, factories, etc.)

Capital intensive – requiring a large amount of capital investment per employee

Capital market – the banks and financial institutions form which companies and governments can raise long term finance

Capital ratio – is between a bank’s capital and reserves on the one hand, and its total assets (loans) on the other

Capital sum – a lump sum of money paid by an insurance company (after an accident, on retirement, etc.)

Capital transfer tax – see inheritance tax

Capital turnover ratio – the ratio of annual sales is issued share-capital

Capitalism – economic system based on the private ownership of the means of production, distribution and exchange

Capitalization – the aggregate stock market price of all a company’s ordinary shares or common stock

Capitalization issue – see bonus issue

Carrying cost – the cost of owning assets, which can be compared with the amount of interest that could be earned if the money was lent instead

Cartel – a group of producers or sellers who combine to avoid competition and increase profits by fixing prices and quantities

Cash – money in the form of banknotes and coins

Cashcard – a plastic card issued by a bank to its customers to use in cash dispensers

Cash dispenser – a computerized machine that allows bank customers to withdraw money, check their balance, etc., by using their cashcard and a private number, called a PIN number

Cash flow – a company’s ability to earn cash; the amount of cash made during a specified period which can be used for investment

Ceiling – see cap

Central bank – the bank that issues currency, carries out the government’s financial policy, etc.

Certificate of deposit – short-term, interest-bearing bank deposits that can be traded like a share or bond

Certificate of Incorporation – see Memorandum of Association

Certified Public Accountant (CPA) – person who has passed the standard American accounting examinations

Chartered Accountant – person who has passed the standard British accounting examinations

Checking account – see current account

Cheque (GB) or check (US) – a written order to a bank to pay on demand a specified sum to a named person or business

Cheque card – a plastic card issued by a bank guaranteeing cheques drawn on the customer’s account, up to a certain limit

Circulating assets – see current assets

City (the) – collective name for all the financial institutions in London

Claim – demand made to an insurance company for payment according to an insurance policy; a demand for higher wages, etc; to make such a demand

Classical unemployment – the loss of jobs caused when wages are too high

Clean floating exchange rate – see freely floating

Clear – (adjective) describes a market situation in which prices fluctuate until supply matches demand; (verb) to pass a cheque through the banking system

Clearing – the process by which cheques and other payments are passed through the banking system

Closing entry – a journal entry transferring a balance from an ongoing account to the profit and loss account at the end of an accounting period

Collar – a double limit to a floating interest rate, comprising both a floor and a ceiling (lower and upper limits)

Collateral – anything that acts as a security or a guarantee for a loan

Collective bargaining – group negotiations between trade unions and employers, concerning pay and working conditions

Collectivism – economic system in which the means of production are owned by the state, which plans the economy, sets prices and output levels, etc.

Command economy – see planned economy

Commerce – the buying and selling of goods and the activities of banks and other financial institutions

Commercial bank – a business that trades in money, receiving and holding deposits, paying money according to customers’ instructions, lending money, etc.

Commercial bill – see bill of exchange

Commercial paper – short-term, discounted and unsecured corporate debt of large American banks and companies issued as a way of borrowing money, etc.

Commercial traveler or (US) traveling salesman – alternative names for sales representative

Commission – money paid to sales representatives, proportional to the total value of the goods they sell; money charged by a bank for undertaking a transaction

Commodities – either goods in general, or specific raw materials or primary products (cereals, metals, tea, coffee, rubber, etc.) traded on special markets

Common pricing – an agreement between companies to sell at the same prices, or to tender at the same price

Common stock – see ordinary shares

Company or corporation (US) – an association of people formally registered as a business (partnership, limited company, etc.)

Comparative advantage or comparative cost principle – relative advantage in the production of particular goods over some, but not all, other countries

Compensation – money paid (by an insurer) to someone who has suffered injury or had property lost or damaged

Competition – rivalry between businesses in the same market

Competitive advantage – the element that makes one company better than its competitors: a better product or service, lower prices (due to economies of scale), etc.

Competitive bidding – see tendering

Competitor – a rival in business offering the same or similar goods or services

Component – any of the pieces or parts that make up a machine, product, etc.

Conglomerate – a large corporation, or a group of companies, marketing a large number of different goods or services

Conservatism or prudence – an accounting principle which states that where alternative accounting methods are possible, one understates rather than overstates profits

Consistency principle – the same methods (of inventory valuation, depreciation, etc.) are used form one accounting period to the next

Consolidated statements – the combination of the financial statements of a parent company and its subsidiaries, as if they formed a single entity

Consumer or end-user – person who (buys and) uses goods or services; person whose needs are satisfied by producers

Consumer goods – goods that are bought and used by the public, rather than being used for manufacturing further goods

Consumer market – the individuals and households that buy products for their own personal consumption

Consumer price index – see retail price index

Consumption – the using, or using up of goods

Consumption function – the relation between the level of consumption and the level of consumers’ disposable income

Contingent liabilities – possible future liabilities that are mentioned in notes added to a balance sheet

Continuity principle or going-concern assumption – in accounting, assumes that a business will continue indefinitely into the future

Contract – a legal agreement, e.g. to buy, to sell, to provide insurance, etc; or to shrink or get smaller

Contraction – act of getting smaller, like national income during a recession

Controlling interest – possession of more than 50% of a company’s voting shares, allowing one to decide policy

Convertible bond – fixed interest company security which the holder may convert into the issuer’s ordinary shares at a specified price

Convertible currency – one that can be freely exchanged for others

Corporation tax – the tax on company profits in Britain

Correspondent bank – one that works as an agent for another bank, especially abroad

Cost accounting – involves the determination of the unit cost of a particular product made by a company, including materials, labour, overheads, etc.

Cost leadership – a strategy that aims to create a competitive advantage by producing goods at a lower cost than competitors

Cost of living – the amount of money that has to be paid for essentials such as food, accommodation, heating, clothing, etc.

Cost-plus pricing or mark-up pricing – involves adding a fixed percentage to unit cost (which includes an approximate allocation of fixed costs)

Cost-push inflation – when costs (rather than excessive demand) push up prices and wages (e.g. excessive wage increases or increases in the price of oil)

Counter-trade – see barter

Coupon – the amount of interest paid by a bond

Crash – a dramatic collapse in the value of stocks and shares, caused by large-scale selling

Creative accounting or window dressing – the attempt to disguise the true financial position of a company

Credit – an arrangement to receive goods or services but pay later; an amount of money paid into a bank account; an amount entered on the right-hand side of an account, recording a payment received; to make such an entry

Credit card – a plastic card issued by a bank or finance company that guarantees payment for goods or services purchased by the cardholder, who pays back the bank at a later date

Creditor – person or organization to whom money is owed (for goods or services rendered, or as repayment of a loan)

Creditors (GB) or accounts payable (US) – on a balance sheet, money a business owes to suppliers for purchases made on credit

Credit standing or credit rating or creditworthiness – a lender’s estimation of a borrower’s present and future solvency

Credit terms – the possibility of paying for goods in instalments, over a period of time

Crowding in – theory that government borrowing and expenditure can lead to higher economic activity and a subsequent increase in private investment

Cum div – means that the shareholder will receive the next dividend payment

Currency – the money used in a particular country

Currency swap – an exchange of one currency for another currency between two borrowers in different countries

Current account (GB) or checking account (US) – bank account which pays no or little interest, but allows the holder to withdraw his or her cash with no restrictions

Current assets or circulating assets  or floating assets – those which will be consumed or turned into cash in the ordinary course of business

Current cost accounting or replacement accounting – values assets (and related expenses like depreciation) at the price that would have to be paid to replace them today

Current liabilities or current debt – are usually (arbitrarily) defined as debts to be paid within one year of the date of the financial statement

Current ratio or working capital ratio – measures liquidity, and is current assets divided by current liabilities

Current revenue pricing – maximizing current (short-term) sales revenue

Current value – the actual value of an asset, as opposed to its historical price

Current yield – the income from a security expressed as a percentage of its present market price

Customer – person (or company) that buys a product or service from a shop or a producer