The role of this glossary is to present brief definitions of most of the key concepts in economics and finance (in total 1064 names-definitions) as well as security markets (financial, capital, money) with aim the reader to be able to understand and become familiar with the terminology in the analyses that will present in the category economics.
Additionally, we hope that the reader by acquiring intimacy with the economic terminology, he will also love the science/art of economics, giving to it a significant part of his personal time.
In the following glossary we tried to include the most well-known definitions and terms in the field of Economics & Finance. If you still find that a term or definition is missing and you know that it can be included in this glossary, please do not hesitate to contact us via the contact form of our web-site (Contact Us) and the Liberal Globe will edit it and will include it.
Glossary Economics & Finance
There are currently 107 names in this directory beginning with the letter C.
Call market
is named a security in which trading is allowed only a certain specified times and during these times the persons are physically brought together in order to establish a clearing price for a particular security that they want to trade.
Call money rate
is called the interest rate which the brokerage firms pay to banks on loans which are used to finance margin purchases by the brokerage firm's customers.
Call option
is an option contract that gives the right to buy the underlying security of the contract at a specified price.
Call price
is named the price that an issuer obliges to pay to the bondholders when his bond issue is retired prior to its stated maturity date.
Call provision
is named the provision which is mentioned in some bond indentures that gives the right to the bond issuer to withdraw some or all the bonds in a bond issue prior to the bonds stated maturity date.
Canonical correlation
is named the analysis in which the researcher can depict linear combinations among two sets of variables in such a way that the size of the correlation between the two linear combinations to get its maximum value. These linear combinations can be read as indices representing their respective sets of variables.
Capital account
is part of the balance of payments accounts of a country that records financial transactions of that country with the rest of the world.
Capital Asset Pricing Model (CAPM)
is an equilibrium model of asset pricing which states that the expected return in an asset is a positive linear function of the asset's sensitivity to changes in the market portfolio's return.
Capital Consumption Adjustment
is a type of measure which indicates the size of the portion of corporate earnings which are subject of understand depreciation due to inflation rate. It is estimated as the difference between aggregate depreciation of corporate fixed assets based on historic cost and aggregate depreciation based on replacement cost.
Capital control premium
is named the deviation which occurs from the covered interest rate parity due to restrictions imposed on capital movements.
Capital controls
are restrictions imposed by the government on the free movement of assets into and out of the country.
Capital flight
is the situation where financial assets moved abroad by residents to escape taxation, inflation, political instability or other unfavorable circumstances.
Capital gain (or loss)
is named the difference between the current market value of an asset and the initial purchase price of the asset divided by the initial purchase price of the asset.
Capital market
is named the financial market in which long-term debt and equity securities are traded.
Capital Market Line (CML)
describes the whole spectrum of portfolios which are obtained by combining the market portfolio with the risk-free borrowing or lending instrument equally. If in our assumptions consider homogeneous expectations and perfect markets, the CML represents the efficient set of portfolios.
Capital mobility
describes a situation of free capital movement where the foreigners in easy way can acquire (purchase) a country's assets and on the other hand the country's residents can easily acquire (purchase) foreign assets.
Capitalization of income method of valuation
is a technique to value financial assets and is based on the notion that the fair or intrinsic value of a financial asset is equal to the discounted value of future cash flows generated by that asset.
Cash account
describes an account which a client (investor) of a brokerage firm can deposit cash and the proceeds from security sales in order to cover all time the any cash withdrawals due to his choice and/or the costs of the security purchases.
Cash matching
is named a bond portfolio management technique which involves the purchase of bonds in order to generate a certain stream of cash inflows which must be identical in amount and timing to a set of expected cash outflows over a specified period.
Central Bank
is called the supreme regulator-agent that oversees the banking system. Its main responsibility is to conduct the monetary policy and has an explicit legal mandate to issue banknotes and other liabilities as legal tender. Its character is public or semi-public. Examples European Central Bank (ECB), Federal Reserve System (FED) etc.
Certainly equivalent return
is named the return on an investment (risk-free) that an investor makes in order to be indifferent between the risky and risk-free investments.
Certificate of incorporation
is named a document which the state issues to a corporation and mentions the rights and obligations of the corporation's stockholders.
Chance of Losing money
it shows the probability with which the value of an investment after a 1, 3, 6, 12 month horizon can drop below its initial value.
Characteristic Line
is named a simple linear regression model expressing the relationship between the excess return on a security and the excess return on the market portfolio.
Chartist
is named a technical analyst who mainly relies on stock price and volume charts when evaluating securities.
Clearing house
is a cooperative scheme which belongs to financial intermediaries like banks, brokerage firms etc. Its task is to keep records of transactions that its member firms make during the trading day. At the closing of the market-end of trading day, this organization estimates the net amounts of securities and cash and delivered them among its members. A clearinghouse member has the right to settle once with the clearing house.
Closed-end funds
is named a mutual fund which its structure base on a fixed number of nonredeemable shares. These shares are sold at an initial offering and next are traded in the over-the-counter (OTC) market like a common stock.
Closed-end investment company
is named an investment company that is not able yet to buy back its own shares from its owners and rarely issues new shares beyond its initial offering.
Closing purchase
is named the action that a trader takes by purchasing an option contract in order to offset and to cancel (close), the previous purchase of the same option contract.
Closing sale
is named the action that a trader takes by selling an option contract in order to offset and to cancel (close), the previous purchase of the same option contract.
Co-insurance
is named the condition where only a part of the damages-losses is covered by insurance. In that case both the insured and the insurance agents are suffered by undertaking a percentage of damage-losses.
Coefficient of determination (R2)
in the simple linear regression terminology is called the proportion of the variation in the dependent variable that is explained by the independent variable.
Coefficient of non-determination (1-R2)
in the simple linear regression terminology, is called the proportion of the variation in the dependent variable that is not explained by the independent variable.
Coefficient of variation
measures the variability and is expressed as the standard deviation divided by the mean.
Coincident indicators
are all these indicators-economic variables which are changing while the economy is changing.
Collateral
is named the asset (i.e. property in mortgage) which the borrower has to escort the loan and plays the role of insurance to the lender by pledging it in case that the borrower cannot fulfil his payment requirements.
Commingled fund
this type of fund is like a mutual fund in terms that investors are permitted to purchase and redeem units that represent ownership in a poll of securities. The difference is that this type of fund is offered by an insurance company and a bank.
Commission
is called the reward of a brokerage firm and is paid by an investor for the services which the firm provides him in the trading of securities context.
Commission broker
is called a member of an organized security exchanged whose task is to receive orders from brokerage firms and checks that these orders are executed on the exchange.
Commodity Futures Trading Commission (CFTC)
is named a federal agency-regulator established by the Commodity Futures Trading Commission Act of 1974 that approves or denies the creation of new futures contracts and regulates the trading of existing trading contracts.
Common factor
is named that factor which affects the return on virtually all securities to a certain extent.
Comparative performance attribution
is called the method which is used to evaluate the performance of a portfolio relative the performances of one or more portfolios (or market indices) in order to identify the sources of the differences in their returns,
Compensating balances
is named the minimum amount of capital that must remain in a bank deposit of a firm which firm receives a loan.
Competition policy
is that type of policy which a government implements in an industry or the whole economy with aim to decrease monopoly power or increase the competition among the "players" in the markets.
Competitive bidding
is named a procedure that follows an issuer in order to choose his underwriter by collecting bids on the underwriting and selecting that underwriter who provides the best overall terms.
Complete crowding out
is called the situation which arises in the economy when an increase in government expenditures does not lead to a rise in total output because there is an exactly counteracting movement of private spending.
Composite stock price tables
are named those tables which provide price information on all stocks traded on the national exchanges, the regional stock exchanges and the NASDAQ system.
Consol
is named the UK perpetual bond with no maturity date and no repayment of principal that periodically makes fixed coupon payments.
Consolidated quotations system
is named a system which lists current bid-ask prices of specialists on the national and regional stock exchanges and of certain over-the-counter dealers.
Consolidated tape
is named a system which reports trades that occur on the national stock exchanges, the regional stock exchanges, and the NASDAQ system.
Constant growth model
is a dividend discount model and according to this type of valuation model is assumed that the dividends follow a constant growth state.
Constant money growth rate rule
is called an economic strategy which is supported by Monetarist economists and according to this the Federal Reserve System must keep at constant growth rate the money supply in the economy.
Consumer durable expenditure
is called all the spending which the consumers used to do on durable items like automobiles information technology systems etc.
Consumer price index
is called that index of prices of consumer goods which uses fixed quantity weights in some base year.
Consumer surplus
is called the difference which arise among the maximum amount which a consumer is willing to pay for a specified quantity of goods and what he really pays for it.
Consumption leisure trade-off
is the essential principle which prompts people to choose the work by giving up their leisure time since in order to consume they need income and for this reason they must work.
Consumption smoothing
is defined the methods which the households use in order to smooth out the shocks that arise in their incomes due to temporary disturbances either by borrowing (negative shock) or by saving (positive shock).
Contingent immunization
is named a bond portfolio strategy which a portfolio manager implements in order to sustain the portfolio return. If positive portfolio results are obtained, the bond portfolio is actively managed. If negative results arise, then the portfolio manager immediately immunized it.
Continuous market
is named a security market in which trades does not stop during the business hours.
Convergence hypothesis
is named the hypothesis of a reverse (negative) association between per capita growth and initial per capita GDP.
Convertible bond
gives the right-option to its holder to exchange it for other securities which usually is a common stock.
Core inflation
is called the inflation rate which employers and labour unions considered during wage bargaining to anticipate future inflation or to recuperate losses from past inflation.
Corner portfolio
is named that efficient portfolio which if it combines with another close to it efficient portfolio will produce another efficient portfolio.
Corporatism
is the degree to which trade unions, management and governments work together to achieve macroeconomic objectives.
Correlation coefficient
is named a statistical measure of the linear association between two variables and indicates how closely two variables move together. It is calculated as the square root of the R2 obtained by regressing one variable on the other. Its value ranges between -1 to 1 and indicates if the relationship is positive or negative. A value of zero indicates the absence of correlation; a value of 1 designates perfect positive correlation; a value of -1 specifies perfect negative correlation.
Correlation matrix
is named a matrix displaying the correlation coefficients between different elements of a vector i.e. the j element contains the correlation coefficient between the I and the j elements of the vector; all the diagonal elements are ones, since a variable is perfectly correlated with itself.
Cost method of depletion
is called the method of depleting natural resources for corporate income tax purposes that makes the total cost of finding or purchasing a wasting asset and, for a given time period, expenses an amount based on the proportion of the estimated resource that has been sold during that period.
Cost of living index
is an index which depicts the prices of specific goods and services as well as their associated price changes. These price changes reflect over time the cost of living in a society.
Cost of production
is named the total expenditure (i.e. labour, raw materials, etc.) required to produce a good or service.
Cost push inflation
is named the situation in which the resulting inflation is due to workers' wage demands for higher wages.
Costly state verification
states that the process of monitoring is expensive in terms of time and money.
Countercyclical
is mentioned in situations where specific variables are negatively related to the state of economy.
Coupon bond
is a debt issue which promises to its holder to receive a fixed interest payment on specific time every year until the maturity date where will be paid the principal of the bond.
Coupon rate
is called the amount of the annual coupon payment expressed as a percentage of the value of the coupon's bond.
Coupon stripping
is called the procedure that a trader follows in order to separate and sale the individual cash flows of bonds.
Covariance
measures the statistical relationship between two random variables. It indicates the extent of mutual variation between two random variables.
Covered call writing
is named the process of writing a call option on an asset owned by the option trader.
Covered Interest Parity (CIP)
is named the condition that equates the forward discount rate with the difference between the domestic and foreign interest rates. When this condition occurs does not exist an arbitrage situation.
Credibility
is named the degree of reliability that citizens and businesses attach to a state or private organization to deal with specific e.g. disturbances in the economy. These actions are based on a specific financial observation framework, for example, a credible central bank is known that not tolerate inflation.
Credit rationing
is named the state of the economy where there is excessive demand for loans at the current market rate and lenders refuse to enter into loan contracts at this interest rate.
Cross deductibilty
is called the arrangement among federal and state tax authorities that permits state taxes to be deductible expenses for federal tax purposes, and federal taxes to be deductible expenses for state tax purposes.
Crowding out
is an instrument which an implemented expansionary tax policy at the end to not have the expected positive results on the aggregate output and income due to the reduction of other components of total demand.
Crown jewel defence
is called a strategy which companies use in order to defend against hostile takeovers. The company which implements this strategy sells its most attractive assets in order to become less attractive to the acquiring firm.
Cumulative dividends
require that the issuing corporation pay all previously unpaid preferred stock dividends before any common stock dividends may be paid.
Cumulative voting system
is named a method of voting in which a stockholder is permitted to give any one candidate for the board of directors a maximum number of votes equal to the number of shares owned by that shareholder times the number of directors being elected.
Current account
in the context of an economy is the account that shows international transactions involving currently produced goods and services,
Current yield
is equal the yearly coupon payment divided by the price of a coupon bond. It approximates yield-to-maturity.
