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Financial Markets Vocabulary
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Bull Market
A financial market of a group of securities in which prices are rising or are expected to rise.
Bear Market
A financial market in which prices are falling, especially over a long period.
Liquidity
The measure of how quickly and easily an asset can be converted to cash without significant loss in value.
Asset Allocation
An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon.
Diversification
The practice of spreading your investments around so that your exposure to any one type of asset is limited.
Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
Bond
A fixed income instrument that represents a loan made by an investor to a borrower, typically corporate or governmental.
Mutual Fund
An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, and other assets.
Exchange-Traded Fund (ETF)
A type of security that tracks an index, commodity, bonds, or a basket of assets like an index fund but trades like a stock on an exchange.
Volatility
Refers to the frequency and severity with which the market price of an investment fluctuates.
Derivative
A financial security with a value that is reliant upon or derived from an underlying asset or group of assets.
Hedge Fund
An alternative investment using pooled funds that employ different strategies to earn active return, or alpha, for their investors.
Market Capitalization
The total market value of a company's outstanding shares of stock.
Yield
The income return on an investment, such as the interest or dividends received from holding a particular security.
Initial Public Offering (IPO)
The process of offering shares of a private corporation to the public in a new stock issuance.
Dividend
A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Price-to-Earnings Ratio (P/E Ratio)
A valuation ratio of a company's current share price compared to its per-share earnings.
Return on Investment (ROI)
A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments.
Credit Rating
An evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt and an implicit forecast of the likelihood of the debtor defaulting.
Fiscal Policy
The use of government spending and taxation to influence the economy.
Monetary Policy
The process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
Commodity
A basic good used in commerce that is interchangeable with other goods of the same type.
Options Contract
A financial derivative that represents a contract sold by one party (option writer) to another party (option holder).
Index Fund
A type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the S&P 500.
Leverage
The use of borrowed money (debt) to amplify the potential return of an investment.
Insider Trading
The trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company.
Capital Gain
An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.
Interest Rate
The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
Mortgage
A loan taken out to buy property or land, which comes with a 'lien' on the property that the lender can possess if repayments are not made.
Arbitrage
The simultaneous purchase and sale of the same asset in different markets to profit from tiny differences in the asset's listed price.
Treasury Bond
A fixed interest government debt security with a maturity of more than 10 years.
Credit Default Swap (CDS)
A financial derivative that allows an investor to 'swap' their credit risk with that of another investor.
Price Discovery
The process of determining the price of an asset in the marketplace through the interactions of buyers and sellers.
Quantitative Easing
A monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to inject liquidity directly into the economy.
Inflation
The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Gross Domestic Product (GDP)
The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
Financial Leverage Ratio
A measure of the degree to which a company utilizes borrowed money to finance its operations.
Deflation
The reduction of the general level of prices in an economy.
Portfolio
A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange traded funds (ETFs).
Risk Tolerance
An individual investor's ability to accept loss of some or all of the money they have invested, based on a number of factors including age, financial situation, and long-term goals.
Capital Market
A financial market in which long-term debt (over a year) or equity-backed securities are bought and sold.
Junk Bond
A high-yielding bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds, and municipal bonds.
Capital Expenditure (CapEx)
Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.
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