Financial Glossary You Should Know
A share is a security that documents a proportion of a company’s share capital. Shares can be bought when they are issued, but also at a later point in time on the stock exchange. If the shares have the same nominal value, all shares have the same proportion of the share capital (no-par share). In the past, companies issued shares with different nominal values, so that not all of them have the same share in the share capital. No-par shares are common today. Most of the time, shares are issued in the form of bearer shares because, unlike registered shares, these allow quick and easy transfer. In the case of registered shares, however, an entry must first be made in the company register.
According to the definition of the BVI fund association, an equity fund is an investment fund that primarily invests in stocks. Equity funds often focus on stocks from specific regions or industries. Stock selection based on other criteria such as company size or growth prospects is also common. A fund can be actively managed by a manager or passively track the development of a stock index (index fund).
A bond is a security that the buyer becomes a creditor when buying. He lends money to the issuer (issuer) of the bond. The issuer (issuer) of a bond can be the state, a credit institution or a company. The time horizon of the bonds can be short, medium or long term, the home country of the issuer in anywhere in the world. At a certain point in time, the maturity, the investor then receives his money back. And in the meantime, he receives interest on it. The interest rate is either fixed for the entire term or is based on a key interest rate and can therefore fluctuate.
The launch date indicates when a mutual fund was first launched on the market. If a fund has been around for (many) years, this is usually a positive sign, as the fund has held its own in its segment while others may have had to close in the meantime.
Funds with a more recent launch date still have to prove that they can hold their own in the market.
The front-end load or premium is a one-time fee that investors pay when they buy mutual funds, certificates and other investment products. It is calculated as a percentage of the fund’s market value. In the case of equity funds, the issue surcharge is often five percent of the price or even more. Especially with a short-term investment over a few years, the premium significantly reduces the return that an investor can expect.
A distribution is the distribution of the income generated by a fund over the course of the year. Mutual funds receive income from the securities they own:
- Equity funds receive dividends on their stocks,
- Pension funds interest payments on their bonds.
- And open-ended real estate funds have rental income.
Many funds pass this income on to investors – in the form of distributions. On the day of the distribution, the fund price is reduced by the amount distributed.
The counterpart to distributing funds are accumulation funds. This is where the income is reinvested.
Bank Payout Plan
With a bank payment plan, you invest your capital with a bank or savings bank and agree on a fixed monthly payment rate, i.e. a fixed amount that you regularly receive from your capital. You agree on a fixed interest rate for the money invested in advance. This depends on the current level of interest rates on the capital market and cannot be renegotiated afterwards. Since bank payout plans are often long-term contracts, you should keep this in mind when choosing.
Building Loan Agreement
A home loan and savings contract is a savings contract that the consumer (home saver) concludes with a building society; As a rule, it is used to finance home ownership and its value retention. The building society manages a large pool into which all building society savers pay their contributions. A lower interest rate usually applies to the credit. From this pot, a certain share is then made available to home savings and loan customers every year at a relatively low fixed interest rate. In some contracts you may get a bonus in addition to the low interest rate in the savings phase if you waive the home loan.
Credit rating is another word for credit rating. It stands for the ability and will of a private person, a company or a government institution to repay debts they have taken on.
For investors, creditworthiness is particularly important when buying bonds. The better the creditworthiness of the issuer of a bond, the lower the probability that the issuer will become insolvent. In the event of bankruptcy, bond buyers would not get the capital back as promised, but the money would be wholly or at least partially lost.
However, the following also applies: the better the creditworthiness of a debtor, the lower the interest that the buyer of a bond will receive.
The exchange is an organized market that trades stocks, bonds, foreign exchange, derivatives and other securities. New courses are constantly being created by supply and demand. The rate at which most sales can be made is calculated. Basically, if more investors want to buy a security than there are sellers, the price rises. Trading takes place on floor exchanges, i.e. personally on site by brokers, or on computer exchanges.
Stock Market Index
Stock market indices show the development of parts of the securities market. That is why they are colloquially referred to as “stock market barometers”. Countless different securities are traded on the world’s stock exchanges: stocks, bonds, mutual funds and certificates are just the best known of them.
An order to (sell) securities can be carried out on different stock exchanges. If there are no special instructions from the investor to the custodian bank, the bank determines the stock exchange.
The asking price reflects the price at which the vendor is able to sell the securities. The counterpart to the ask price is the bid price. This indicates the price at which buyers are willing to purchase securities. Bid and ask prices are the lower and upper bounds at which a trade can take place.
A call is an option where there is a buyer and a seller. The seller of the option (writer) is obliged to sell the share at this price. The buyer is therefore assuming that prices will rise. If prices rise, the buyer’s profit potential is – theoretically speaking – unlimited. If, however, prices fall, the buyer loses the option premium paid. The seller continues to bear the risk of loss if the price of his share falls. In any case, he has the option premium as income.
Asset protection is also part of the investment and accumulation area. This ensures that the assets are not endangered by an external event. The term coverage is of central importance here. The term coverage applies to consumers in many areas of life, but this is not always immediately apparent. For example, consumers have a safe deposit box at the bank. The content is insured up to a maximum limit, the sum insured. Other examples are private liability insurance or household contents insurance.
Holders of a securities account receive the deposit statement from their bank at least once a year. The legal basis for this deposit statement are the special provisions for securities transactions and the provisions. There are no uniform, detailed specifications for the structure and presentation. Therefore, the account statements differ from bank to bank.
This rate indicates how much foreign money there is for one euro on the stock exchange. When investing money in a foreign currency, the exchange rate (exchange rate) between the euro and the foreign currency is required to determine the market value of the security in euro.
The development of the certificate is then based on the performance of the base value – for example a share or a stock market index.
In their most widespread form, discount certificates work as follows: If the price of the underlying asset on the certificate’s maturity date is above a predetermined value, the maximum possible profit on the certificate is paid out. This highest possible profit is also called a fixed amount or cap.
In return, discount certificates also offer a buffer against losses: Investors can only incur a loss if the price of the underlying asset slips below the price initially charged for the certificate. How big this buffer is depends on the eponymous discount.
This means that not everything is bet on the famous “one card”, but on a variety of securities and investments. The more widely you have diversified your assets, the lower the likelihood that risks will affect the entire portfolio.
The goal of a company is usually to make a profit. If a stock corporation makes a profit, it often distributes part of it to its shareholders. This distribution is called a dividend. The dividend per share is particularly interesting for shareholders.
Statutory deposit insurance means that in the event of bankruptcy, customer deposits are protected up to a total of 100,000 dollars (without excess). Provided that the bank and the money is deposited in an account that is known as a deposit. These are, for example, overnight money, time deposits, savings accounts and many savings contracts, but not stocks or bonds. The protection also applies to accounts that are held in a currency other than the dollars.
The term “emerging markets” is often used when referring to investments and stock market transactions in emerging countries. An emerging country is a country that is no longer considered a developing country, but is also not yet one of the fully industrialized countries. Emerging countries are often characterized by above-average economic growth and below-average wage costs compared to industrialized countries.
The issuer is the issuer of a security. Such a security can be, for example, a share or a bond. A company is the issuer of a share. In the case of a bond, the issuer can be a company, the state, a public corporation or any other institution.
ETC is the abbreviation for Exchange Traded Commodities. In other words: commodities traded on the stock exchange.
The name says it all: ETCs should enable investors to invest in commodities and to understand their value development. This means that ETCs map the price development of oil, gold, natural gas, wheat and other raw materials, for example.
ETF is the abbreviation for exchange-traded fund. The English term translated means “exchange-traded fund”.
ETFs are mutual funds that are traded on the stock exchange. Conventional investment funds, however, often buy directly from the fund company – brokered by a bank or savings bank. In addition, ETFs differ from conventional investment funds mainly in that there is usually no active and therefore cost-intensive fund management.
Maturity is particularly important for bonds. When investors lend money, for example by buying a federal bond or some other fixed-income security, they do so on the assumption that the money borrowed will one day be paid back. This repayment by the issuer of the bond occurs on the due date, according to the terms of the contract.
In a fixed-term deposit account, you set up the credit for a certain period of time. In return, the bank pays interest. The banks usually require a minimum investment, the amount of which can vary from provider to provider.
Unit-Linked Life Or Pension Insurance
Unit-linked life and annuity insurance are a variant of private annuity insurance in which the savings are invested in investment funds.
Guarantees are given in many different contexts. The word guarantee means that a good has a certain property. Or: that a person or institution assures a certain action in a specific situation. In sales contracts, the guarantee is often confused with the statutory warranty obligation to which the consumer is entitled when purchasing a good. For example, someone who buys a new car or new furniture is legally entitled to a two-year statutory warranty. This means that the seller has to make improvements if there were defects in the goods at the time of purchase, but these only become apparent afterwards.
The bid price indicates the price buyers are willing to pay when buying securities.
The opposite of the bid price is the ask price. This indicates what price sellers expect when selling the securities. Bid and ask prices are the lower and upper bounds at which a trade can take place.
Closed-end funds are entrepreneurial participation models in which donors are recruited for a specific investment project (such as a wind farm or a large construction project). They have nothing to do with mutual funds.
Collective Safe Custody
The share rights in a stock corporation are entered on the global certificate. And you can acquire shares in this global certificate. Only that is actually recorded: who owns what share in this global certificate.
A gold fund is an investment fund whose aim is to track the development of the gold price.
The investment strategies of hedge funds are diverse. They are allowed to sell stocks that they have only borrowed (short sales), to finance their speculations with credit and to enter into risky futures contracts. Hedge funds have three things in common: They are barely regulated, are usually based in permissive tax havens like the Bahamas or the Cayman Islands, and they are not allowed to be sold to private investors in Germany.
The word real estate comes from Latin and originally simply stood for an immovable thing. The word is used accordingly in business terminology – namely in the sense of an immovable material asset. When hearing the word “property”, many consumers only think of property they use themselves.
Inflation means devaluation of money. This means that with a certain amount of money, fewer goods can be bought in a year than today. Because prices go up, it’s worth less. How much less can be bought is described by the inflation rate. This is calculated by the Federal Statistical Office on the basis of a certain shopping basket and the associated price index. This is the central indicator for the development of the monetary value.
You should instead purchase shares in a mutual fund if you don’t want to buy particular stocks or such bonds yourself.
The investment company collects the investors’ money and invests it based on the predetermined objective of the investment fund – for example in stocks, bonds or real estate.
Preservation of capital means that none of the deposited money is used. The capital remains unchanged. If you invest money in a contract such as a bank payment plan, from which money is then to be withdrawn regularly, you can usually choose between the options of capital preservation and capital consumption.
Capital Protection Certificate
A capital protection certificate is a certificate in which the issuer (issuer) guarantees the repayment of the capital invested at the end of the term.
If you invest money in a contract such as a bank payment plan, from which money is then to be withdrawn regularly, you can usually choose between the options of capital preservation and capital consumption.
You grant someone a loan in the confidence that when the time expires, the face value will be repaid. As a rule, interest is also paid. When the loan is granted under a contract of obligations, it is called a loan. Consumers should always think twice about taking out a loan. As a rule, the borrowing interest for loans is higher than the credit interest for savings.
The coupon indicates the amount of annual interest on a bond. It is usually given in percent.
Life insurance is an insurance contract that provides for the payment of a benefit if a certain event occurs.
A person or a company is liquid if they (or it) can meet all outstanding payment obligations at all times. Or, when you are able to pay all your bills on time. Those who cannot do this are not liquid. That doesn’t mean he’s without a fortune. But the most beautiful property and the most profitable savings bond with a fixed term are of no use if there is an additional tax payment or the car needs to be repaired.
Liquidity reserve means that a certain amount of money is invested in such a way that one can freely dispose of it at any time. Unforeseen expenses happen again and again. The car needs to be repaired, the television breaks down, the dentist inserts a crown or an implant and much more. It is really annoying when there is no money with which the bills can be paid promptly. Therefore, every consumer should have a liquidity reserve.
In a market economy, demand and supply determine the price at which a good (or service) is offered – and what quantity is made available.
As we all know; the higher the demand, the higher the price. Either when new people arrive who want a certain good, or when the number of people does not change, but people want more of this good.
If the demand increases – for whatever reason – the providers cannot immediately satisfy this higher demand. The offer has to be expanded, capacities have to be expanded, workers hired and qualified. This is not always possible in the short term via the quantity – therefore an adjustment is made via the price. As there are more people who want this good, companies increase the price.
The nominal value indicates the legal value of the security.
Some securities have a face value, such as bonds, but sometimes stocks. In the bonds, the investor has the right to repayment on the due date – unless the contractual conditions provide otherwise.
Open Real Estate Funds
Anyone who buys shares in an open-ended real estate fund is hoping for income from rental income and increases in the value of the real estate.
An option is a right that can be exercised. The owner of such an option is allowed to (sell) a security at a certain point in time – or within a certain period of time.
A commission is a permissible remuneration in a percentage form of sales that is incurred for the procurement or brokering of a commercial transaction.
The return sets the income generated by an investment in relation to the capital employed. Costs are also taken into account and reduce the return. Even if this basic principle sounds relatively simple, there are many different definitions and variants of the term yield in practice: gross yield, net yield, dividend yield, effective yield, yield on a security and many others.
A bond fund is an investment fund that invests exclusively or primarily in exchange-traded debt securities.
Risk means that there is a certain probability that an event will occur that will result in a loss. Investors are exposed to different risks: for example, the issuer risk that the investment will not be repaid due to insolvency. Or the price risk, if the security is traded on the stock exchange. The currency risk associated with a foreign-currency transaction. The inflation risk that the purchasing power of the investment will decrease. Or the interest rate risk if the interest rate is not guaranteed for the entire term.
Examples of raw materials are grain, wood, oil or coal. In the area of financial investments, raw materials form their own asset class. Consumers can, for example, invest in this asset class through certificates, stocks, funds or ETCs (Exchange Traded Commodities). ETCs are exchange-traded debt securities that invest in the commodities asset class.
With commodity funds, investors can participate in the development of the global commodity markets. They simulate the development of various raw materials with the help of futures and swaps. There are also special equity funds that invest in commodities.
An emerging country is a country that is no longer a developing country, but is also not yet one of the fully industrialized countries.
Emerging countries are often characterized by above-average economic growth and below-average wage costs compared to industrialized countries.
Pension Insurance Starts Immediately
Pension insurances that start immediately, also known as immediate pensions, are offered by insurance companies and guarantee a lifelong annuity after a single payment. You receive a fixed amount as a pension every month, no matter how old you get. Due to the high level of planning security, immediate pensions are particularly suitable for people who have little or no statutory or company pension to expect and who have not made any other provisions.
A savings plan, for example in the form of a bank or fund savings plan, is used to build up wealth. Usually, a fixed amount is saved every month; In principle, one-off investments or varying amounts are also possible.
Swap is the English word for exchange. In business life, a swap refers to an agreement between two contractual partners to exchange payment flows in the future.
In a forex swap, for example, a currency is bought and a future buyback is agreed at the same time. In a credit default swap, one contractual partner pays a regular fee to its counterparty. In return, he receives a compensation payment if a debtor specified in the contract becomes insolvent. Many exchange-traded index funds (ETFs) use index swaps: They exchange the performance of a basket of securities they hold for the performance of an index specified in the swap contract.
Overnight Money Account
Call money accounts usually offer higher interest rates than checking accounts. As with current accounts, you can have your money at any time – i.e. daily.
Therefore, they are particularly suitable for creating a liquidity reserve. In contrast to the current account, however, call money accounts are not suitable for payment transactions.
Accumulating funds reinvest income from securities. This accumulation increases the value of an individual fund unit permanently.
Over the course of a year, mutual funds accrue income from the securities they own: equity funds receive dividends on their stocks, pension funds receive interest payments on their bonds. And open-ended real estate funds have rental income. Accumulating funds reinvest this income. This accumulation increases the value of an individual fund unit permanently.
The basic idea of the reverse mortgage is that consumers of retirement age get a monthly, lifelong pension by selling their (largely) debt-free property.
Through such a loan, companies raise money in the form of outside capital. So you borrow money and promise to repay this money after a certain period of time – for example after two or ten years – and in the meantime to pay interest to the creditor.
Investors who buy such a bond take what is known as the issuer risk. Should the company go bankrupt, the capital is to be wholly or at least partially lost. In return, investors usually receive a higher return than with safe investments without issuer risk.
This fee is incurred for managing mutual funds. It is often also called a management fee, management fee or management fee.
The fee is shown as a percentage of the fund’s assets per year and is a key factor influencing the total expense ratio (TER). The fund company takes the management fee directly from the fund assets – investors do not see the fee directly on their account statement.
Security is a very broad term. This also includes checks or even postage stamps. In general, a security is a document that certifies a certain right. This can be, for example, the right to the payment of a sum of money when presenting a check.
In the financial investment sector, a distinction is made primarily between securities such as shares that are traded on the stock exchange and those that are not traded on the stock exchange.
The economic system – sometimes also called the economic order – determines the principles and rules according to which people in a society live together and how goods and services are created and distributed.
The individual actors of the economic system (consumers, companies, state) act according to these guidelines with the aim of using the scarce resources in such a way that a possibly high demand can be satisfied.
Certificates are securities with which investors participate in the development of another security, the so-called base value.
The interest is the payment for the transfer of capital. This means that an investor receives a certain interest rate for lending his money for a certain period of time. On the other hand, you pay a certain price yourself for getting someone else’s money available, i.e. for taking out a loan.