Business Spectator Business Term Glossary
Will Krechting
Confused by the jargon of finance, securities trading and economics? Business Spectator's glossary will help untangle those tricky terms and acronyms.
1630 Levels
Comparable to the 'closing price'. The final price at which a security is traded on a given trading day. On the Australian Securities Exchange there is a single-price auction between 4:10pm and 4:12pm on weekdays to set the daily closing prices. To see the ASX trading hours, click here.
ARM : Adjustable Rate Mortgage
Mortgage whose interest rate is continuously adjusted, normally in reference to central bank rates (Reserve Bank rates in Australia).
ABCP : Asset-Backed Commercial Paper
Used by companies and financial institutions to borrow liquidity. ABCPs typical have a maturity of between 90 and 180 days, but no more than 270 days.
Aussie or AUD
In this context refers to the Australian dollar.
AWOTE : Average Weekly Ordinary Time Earnings
AWOTE is the most important and reliable measure of average wage costs in Australia. It is published by the Australian Bureau of Statistics.
Bear Flattener
A bear flattener can be observed when short-term interest rates are increasing faster than the long-term interest rates so that the yield curve begins to flatten as short-term and long-term rates start to converge.
Bear Steepener
Opposite to the bear flattener: long-term interest rates increase faster than short-term rates. What follows is a larger spread between the two rates.
Beige Book
Officially called the 'Summary of Commentary on Current Economic Conditions'. The Beige Book is a report published by the Federal Reserve Board eight times a year. Each report summarizes "anecdotal information on current economic conditions" by each of the 12 Federal Reserve districts.
bps : Basis Points
Unit equal to 1/100th of a percentage point. Frequently used to express percentage point changes less than 1.
Bull Flattener
The phenomenon of long-term rates decreasing at a rate faster than short-term rates. As the short-term and long-term rates start to converge, the bull flattener becomes visible in a flattening of the yield curve.
Bull Steepener
Short-term rates falling faster than long-term rates.
Carry-Trade
Popular trading strategy in the foreign exchange market involving buying high interest currencies and selling currencies with low interest rates.
CDO : Collateralised Debt Obligation
A CDO is a kind of security backed by a pool of bonds, loans and other assets used to redistribute risk. The relatively opaque repackaging of debt in this way was a major contributor to the sub-prime crisis.
CDS : Credit Default Swap
Provide a simple device for banks and other lenders to hedge the risks associated with lending to a particular company, group of companies or industry. Generally speaking, CDS's hedge the risk that a borrower will default.
CFD : Contract for Difference
A type of equity derivative and a hedge tool. As a future contract between two parties it stipulates that the seller will pay to the buyer the difference between the opening value of an asset and its value at contract time.
COFI : Cost of Funds Index
A regional average of interest rates incurred by financial institutions, which in turn is used as a base for calculating variable rate loans.
Collateral
An asset or property that is offered to the lender in order to secure a loan or other credit. It is forfeited to the lender if the borrower defaults or is insolvent.
CPFF : Commercial Paper Funding Facility
A program providing a liquidity backstop to US issuers of commercial paper.
CPI : Consumer Price Index
The most commonly quoted measure of price inflation, complied by the Australian Bureau of Statistics.
CRB : Commodity Research Bureau
Currency Risk
A form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
EBITDA : Earnings Before Interest, Taxes, Depreciation and Amortisation.
Eurodollar
Eurodollars are deposits denominated in United States dollars at foreign banks or foreign branches of American banks, and thus are not under the jurisdiction of the Federal Reserve. Importantly, there is not necessarily anything 'European' about Eurodollars – the deposits are simply not held within a US jurisdiction.
Federal Reserve Districts
In the United States, there are 12 regional Federal Reserve Banks. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco.
Fed Funds Futures Pricing
The owner of a Fed funds futures contract must deliver the interest paid on a principal amount of $5 million overnight Fed funds held for 30 days. The price of a Fed funds futures contract is 100 minus the average Fed funds rate during the contract month. For example, during a month when the fed funds rate averaged 6.5 per cent, the Fed funds futures contract would settle at 93.50.
FHOG : First Home Owners Grant
Refers to Schemes run at state and federal levels, however, most references to the grant refer to the federal level. The Federal scheme gives up to $7000 to first home buyers. The grant was first implemented in July 2000 under the First Homeowners Grant Act 2000.
FOMC : Federal Open Market Committee
A component of the US Federal Reserve. It is the principal tool of US national monetary policy and undertakes open market operations (OMO's) in the United States.
FRM : Fixed-Rate Mortgage.
FX : Foreign Exchange.
GBP : Great Britain Pound.
IBs : Interbank Futures
Futures contracts that allow traders to take positions on interbank lending rates.
ISM : Institute for Supply Management
A US-based association providing research for the purchasing and supply management profession.
Lagging Indicator
An indicator that reacts slowly to economic changes and therefore has little predictive value.
LIBOR : London Interbank Offered Rate.
LIBOR is the reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London interbank market. LIBOR is fixed by the British Bankers' Association.
Long
See Short
Long End
See Short End
Loonie
In this context refers to the Canadian dollar. It is derived from the picture of a loon on one side of the coin.
M0
A narrow measure of money supply, including all physical currency plus accounts at the central bank that can be exchanged for physical currency. (NB: Each national economy has its own rules for measuring money supply).
M1
M0 money supply minus those portions held as reserves or plus the amount of money in demand accounts ("current" accounts). (NB: Each national economy has its own rules for measuring money supply)
M2
M1 plus most savings accounts, money market accounts, and small term deposits. (NB: Each national economy has its own rules for measuring money supply)
M3
The broadest measure of money supply – M2 plus large term deposits, institutional money market mutual fund balances), deposits of Eurodollars and repurchase agreements. (NB: Each national economy has its own rules for measuring money supply)
MPS : Monetary Policy Statement.
NAHB index
National Association of Home Builders index.
Non-Farm Payroll (NFP)
A monthly employment report by the US Bureau of Labor Statistics.
NULC : Nominal Unit Labour Costs.
OMOs : Open Market Operations
Generic term for monetary policy by which a central bank expands or contracts the amount of money in its national banking system by buying and selling financial instruments in the open market.
PCE : Personal Consumption Expenditure
The US Federal Reserve uses a measure of inflation derived from PCE as its primary gauge of inflation.
PDCF : Primary Dealer Credit Facility
The US Federal Reserve's facility for providing overnight funding to primary dealers in exchange for a specified range of collateral.
P/E Price-to-Earnings Ratio
Common measure of the degree of expensiveness of a stock.
Philly Fed
Survey of manufacturers conducted by the Philadelphia Fed.
PMI : Purchasing Manager’ s Index
An indicator of the condition of the manufacturing sector.
PPI : Producer Price Index
PPIs measure price changes from the perspective of the seller which differs them from the CPI.
PPP : Public Private Partnership.
Range Trading
A trading strategy that includes buying as a price moves to lower support levels, and selling as a price moves to an upper resistance levels.
Richmond Fed Manufacturing
Survey Survey that assesses regional manufacturing conditions for the Richmond Fed District.
SAAR : Seasonally Adjusted Annual Rate
S&P : Standard & Poor's
Publishes financial research and analysis on stocks and bonds. It is one of the top three companies in this business, along with Moody's and Fitch Ratings.
S&P/ASX 200
Stock market index of Australian stocks listed on the Australian Stock Exchange (ASX) from Standard & Poor's.
S&P 500
Standard & Poor describe it as: "Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy."
S&P Global 1200
Standard & Poor describe it as: "the world's first real-time global index, the S&P Global 1200 offers 70% market coverage across 29 markets and 13 different time zones, and assures investors of real-time pricing 22 hours a day. The new S&P/ASX All Australian 50 index now represents the Australian market in the S&P Global 1200."
Short
The sale of a borrowed asset with the expectation that it will fall in value. Opposite of “long”.
Short End
The short end is a part of the yield curve. Generally, the short end of the curve includes the yields from three months to two years. The long end includes the coupon-paying securities from three out to 30 years.
SPI 200
Futures contract Benchmark equity index futures contract in Australia, based on the S&P/ASX 200 Index.
Spread
The difference between sell and buy price for a security, often expressed in basis points (bps). Also used to express that variation of one interest rate over a benchmark rate such as LIBOR.
TAF : Term Auction Facility
A monetary policy used by the Federal Reserve to help increase liquidity in the US credit markets.
Ticks
The minimum upward or downward movement in the price of an asset.
TIPS : Treasury Inflation Protected Securities
TIPS that offer protection from inflation by automatically adjusting interest payments to the increasing consumer price index (CPI).
T.Note (also T-Note) : Treasury notes
US government debt securities that have a fixed interest rate. They mature between one and 10 years. (Compare: Treasury bills, Treasury bonds, and Treasury Inflation Protected Securities (TIPS).)
TSLF : Term Securities Lending Facility
A weekly loan facility that promotes liquidity in US Treasury and other collateral markets.
Yield Curve
Displays the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower in a given currency.