Financial economics/Glossary

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Glossary of terms related to Financial economics.

(For definitions not shown below, see the economics glossary [1])


  • Agency cost [r]: The cost to the owners (or company shareholders) of an organisation of actions by their agents (or the company management) that are contrary to the owners' interests - and the cost of attempting to prevent such actions. [e]
  • Arbitrage [r]: transactions to take advantage of a price differences of a product in different markets by buying where it is cheap and selling where it is dear. The possibility of arbitrage often prevents the occurrence of price differences. [e]
  • Basel I & Basel II [r]: international banking regulations put forth by the Basel Committee on Bank Supervision of the Bank for International Settlements requiring banks' minimum capital adequacy ratios to be related to the riskiness of their loans. [e]
  • Beta [r]: A measure of the degree to which the rate of return of a share tracks that of the equity market as a whole (defined as the covariance between the share's rate of return and the average market rate, divided by the variance of the market rate). If beta = 1 the share's rate of return moves in line with the market rate; if it is negative, it falls when the market rate rises. [e]
  • Bubble (economics) [r]: A surge in prices that raises expectations of further increases, so generating further increases: a process that continues until confidence falters, the bubble "bursts" and prices rapidly revert to an objectively-based level. [e]
  • Capital adequacy ratio [r]: The ratio of a bank's capital to its risk weighted credit exposures. May be defined in terms of tier 1 (core) or tier 2 capital. [e]
  • CDO [r]: Collateralised Debt Obligation. A portfolio of corporate bonds, grouped into tranches that are ranked by estimated risk. [e]
  • CDS [r]: Credit-Default Swap. An insurance agreement that guarantees protection against a bond default in return for a fee. [e]
  • Central Bank [r]: A government agency that is responsible for monetary policy and the support of the banking system (for example the Federal Reserve Board and the Bank of England). Usually responsible for controlling a country's monetary policy and preserving the value of its currency. [e]
  • Corporation [r]: Please do not use this term in your topic list, because there is no single article for it. Please substitute a more precise term. See Corporation (disambiguation) for a list of available, more precise, topics. Please add a new usage if needed.
  • Cost_of_capital [r]: The weighted average of the rates of return paid by a company on its equity (share issue) and on its debt (bonds and commercial borrowing). [e]
  • Covariance [r]: A statistical parameter that indicates whether two random variables show a related linear trend. [e]
  • Currency mismatch [r]: The situation created when a government's bond issue is denominated in terms of a foreign currency so that the cost of serving it varies with the exchange rate. [e]