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Glossary Terms
Special> Coping With the Global Financial Crisis> Glossary Terms
UPDATED: April 17, 2009
A Glossary of Terms (II)

Deposit insurance: A government guarantee on individual savings up to a certain level. Some countries have opted to provide an unlimited guarantee on personal savings.

Depression: An economic downturn in which GDP falls by more than 10 percent; Before the great depression which began in 1929 and lasted more or less until the outbreak of the Second World War, all economic downturns were known as depressions; the term recession was coined to refer to the less serious downturns that occurred after World War Two.

Derivatives: Derivatives are a way of investing in a product or security without having to own it. Their value can depend on anything from the price of coffee to interest rates or what the weather is like. Derivatives can be used as insurance to limit the risk associated with another investment, but are also used to speculate on the price of the underlying asset. Credit derivatives are based on the risk of borrowers defaulting on their loans, such as mortgages.

Dead cat bounce: A phrase long used on trading floors to describe a short-lived recovery of share prices in a falling stock market.

Dividends: A payment by a company to its shareholders; usually linked to its profits.

Equity: In a business, equity is how much all of the shares put together are worth. In a house, your equity is the amount your house is worth minus the amount of mortgage debt that is outstanding on it.

Guarantee: The assumption of responsibility for payment of a debt or performance of some obligation if the liable party fails to perform to expectations.

FDIC: The Federal Deposit Insurance Corporation; the United States government agency that insures deposits in banks and thrifts.

Fundamentals: Fundamentals ultimately determine a company, currency or security's value. A company's fundamentals include its assets, debt, revenue, earnings and growth.

Futures: A futures contract is an agreement to buy or sell a commodity at a predetermined date and price. It could be used to hedge or to speculate on the price of the commodity.

Hedging: Making an investment to reduce the risk of price fluctuations in the value of an asset. For example, if you own a stock and sell a futures contract agreeing to sell your stock on a particular date at a set price, a fall in price would not harm you - but nor would you benefit from any rise.

Hedge Fund: A private investment fund with a large, unregulated pool of capital and very experienced investors. Hedge funds use a range of sophisticated strategies to maximize returns - including hedging, leveraging and derivatives trading.

Home Equity Line of Credit (HELOC): A line of credit secured by a home. Borrowers can draw on it for a fixed period set by the lender, usually five to 10 years.

Interbank trade: Refers to international trade in currencies carried on between banks.

Investment bank: Investment banks provide financial services for governments, companies or extremely rich individuals. They differ from commercial banks where you have your savings or your mortgage.

(Agencies via China.org.cn November 13, 2008)


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