Glossary of Terms

Credit rating.
Indicating intermediate credit rating category.
Brought forward.

Also written BF.
Business to Business.
Business to Customer.
Banker's Acceptance.

British Airways.
Back office
The part of the treasury organisation that administers and supports the trading activities of the treasury front office.

The back office’s main functions are to process, confirm, verify, settle, reconcile and record financial market transactions.

The back office is also responsible for ensuring that the organisation’s treasury management policy and controls are followed, as well as ensuring general compliance with rules and regulations.

In a more general sense, the term refers to all administrative functions that support an organisation and includes areas such as payroll and expenses, accounts payable, accounts receivable and accounting.
Back price
Market conditions under which related market prices do not have their usual relationships to one other, potentially creating an arbitrage opportunity.
Sometimes written 'backprice'.

More often known as a 'backwardation'.
Back pricing
The determination of the price for a transaction, to which a mutual commitment has already been made.

The related practice of committing to a transaction for which the price will be determined at a future date.
Back test
Back testing is a form of scenario analysis in which historical data are input into a financial forecasting model.
The idea is to identify - according to the model being used for the back testing - what the future outcomes would be if the selected historical scenarios were to recur in the future.

Another use of back testing is to test the validity and accuracy of the forecasting model itself, in cases where actual historical data is available in relation to the output of the model.

In this form of back testing historical data are input into the forecasting model, and the outputs from the model being back tested are compared with the related actual data for the variable being forecast by the model. Any differences identified may be the result of errors or limitations in the forecasting model.
Back value date
Compensation practice of banks in some jurisdictions where debits to a customer’s statement of account will reflect a date prior to the actual outflow of funds.
Back-to-back loan
A mechanism under which two parties lend each other matching sums on matching terms in different currencies or on a different interest rate basis, with the objective of obtaining a cost advantage or of hedging currency or interest rate risk.

A similar arrangement undertaken for any other purpose.
In futures or options trading, an unusual market condition in which longer-term contracts carry a lower price than near-term contracts.
The usual relationship - known as contango - is that longer-term contracts carry a higher price than near-term contracts.

The extent to which a spot price of a foreign currency plus carrying cost exceeds the forward price.

More generally, any market conditions under which related market prices do not have their usual relationships to one other, potentially creating an arbitrage opportunity.
(Also sometimes known as a 'back price'.)
Bankers' Automated Clearing Service. A funds transfer system.
Bad debt expense
An item in the income statement of a reporting entity, reflecting the total amount of losses from irrecoverable trade receivables during the accounting period under review.
Bad debt provision
An item in the balance sheet of a reporting entity, reflecting the estimated amount of total trade receivables which are expected to be irrecoverable.
Bad debts
In accounting terms, bad debts are a potential source of overstatement of assets as a result of credit customers being unable to pay their debts to the company.

In commercial terms, bad debts are a potential source of losses.
Badges of trade
Elements of a transaction or of a series of transactions which identify whether or not trading is taking place for tax purposes.
A technique used as part of the resolution of a failed bank under statutory authority.
The Resolution Authority (RA) makes an assessment of the extent of expected losses and reconstructs the bank's capital accordingly.
In reconstructing the bank's capital the RA imposes losses on creditors, including preferred shareholders and depositors.
The allocation of the total expected losses follows the creditor hierarchy that would apply in a liquidation, until the total expected losses are covered.

The remaining (surviving) layers of debt are partially converted to equity to recapitalise viable parts of the business.
The viable parts of the business are thus enabled to continue under new ownership.

The RA is normally given significant discretion in how the reconstruction - including bailin - is applied.

Contractual bailin refers to a provision in the terms of certain bank debt that are to be converted automatically to equity or written off, if conditions specified in the contract obtain.
Balance and transaction activity
Information on current ledger and collected balances, one and two-day float, debit and credit detail, and adjustment items.

Average balances and a balance history may also be reported.
Balance netting
Also known as Single legal account pooling.
Balance of cost pension scheme
A pension scheme where the beneficiary makes a defined contribution (usually a percentage of pensionable salary) and the main sponsor pays the remainder of the (unknown) cost of providing the benefits.

Historically most UK defined benefit pension schemes were established to be of this type.
Balance of payments
A financial statement prepared for a country summarising the flow of goods, services and funds, inwards and outwards, between the residents of that country and the residents of the rest of the world during a particular period.
Balance of trade
The level of a country's exports minus imports.

A trade surplus is where exports exceed imports.

A trade deficit is where imports exceed exports.
Balance sheet
One of the primary statements of a reporting entity's financial accounts.
Also known as the Statement of financial position.

The balance sheet lists the assets, liabilities and shareholders’ funds at the balance sheet date.

Under the 'double entry' accounting convention, assets are Debits (DR) and liabilities and shareholders' funds are Credits (CR).

The standard UK balance sheet presentation for external reporting is Net Assets = Shareholders' Funds.

The Net assets part of the balance sheet is sometimes called the 'top half'.
The Shareholders' funds part being the 'bottom half'.

For example in summary:

Assets 100 DR
- Liabilities (20) CR
= Net assets 80 DR

Shareholders’ funds 80 CR

(Total shareholders' funds being appropriately detailed in turn into share capital and reserves, as well as the individual assets and liabilities being appropriately listed in fuller detail.)

The balance sheet equation in summary using the convention above is 80 = 80.

There are many other ways to present this information in other balance sheet formats.
Alternative balance sheet conventions maintain the balanced/double-entry principle, but may show for example:

Total Assets = Total Liabilities + Shareholders' Funds.

Presented on this alternative (assets = liabilities) basis, using the same summary figures:

Total assets 100 DR

Total liabilities 20 CR
+ Shareholders’ funds 80 CR
= Total liabilities & shareholders’ funds 100 CR

The same balance sheet information has now been presented as 100 = 100, using the alternative convention.
The Total liabilities of 20 CR are now presented in the bottom half of the balance sheet (rather than in the top half as before).

The choice of presentation will depend on the purposes for which the balance sheet information is required, together with any rules or conventions applying to the entity's external reporting.
Balance sheet exposure
1. Foreign exchange risk.
Exposure which arises from the process of translating balance sheet items denominated in foreign currency into the group accounts denominated in the parent’s currency.
This is a form of foreign exchange Translation exposure.

More generally, the risk of adverse effects in the balance sheet arising from foreign exchange risk or from other sources.
Balancing adjustment
UK tax.
An adjustment arising on the disposal of an asset for UK capital allowance purposes.
Balancing allowances
UK tax.
Capital allowances adjustments arising on the disposal of certain individual fixed assets where the sale proceeds are less than the balance of unrelieved expenditure (tax written down value).
Balancing allowances reduce the amount of taxable profits.
Balancing charges
UK tax.
Capital allowances adjustments arising on the disposal of certain individual fixed assets where the sale proceeds exceed the tax written down value or where there is a negative value in the general capital allowances pool.

Balancing charges increase the amount of taxable profits.
Balloon payment
A final repayment of a loan or bond which is substantially larger than any previous amortised payment.
A regulated institution offering certain financial services.
In the UK, the banking system includes the Bank of England (the Central Bank), the Commercial Banks, Merchant banks plus branches of foreign banks and the National Savings bank and the National Girobank.

To deposit (cash, cheques or similar) in a bank or transact business with a bank.
Bank account
An account maintained by a bank or a building society in which a depositor’s money is kept.
Bank cheque
A cheque drawn by a bank on itself. The cheque is purchased by the payor and sent to the payee, who presents it to its bank for payment. That bank presents it to the payor’s bank for reimbursement.
Bank draft
A draft drawn by a bank on itself. The draft is purchased by the payor and sent to the payee, who presents it to its bank for payment. That bank presents it to the payor’s bank for reimbursement.

Also known as Cashier's cheque.
Bank float
Time during which a remittance in the banking system is available neither to the payer nor to the payee.
Bank for International Settlements
(BIS). An international organisation fostering international monetary and financial cooperation, the Bank serves as a bank for central banks and also hosts a number of international organisations.

Customers are exclusively central banks and international organisations.

It was established by agreement between the parties (plus Switzerland) to arrangements after World War I for payment of reparations by Germany to the principal allied victors. Its mandate and membership was extended and it now a principle hub of cooperation between central banks and non-central-bank bank supervisors generally.
Bank identifier code
Formerly the internationally agreed ISO (International Organisation for Standardization) standard, a bank identifier code uniquely identified a bank’s address.

Renamed the Business identifier code and updated to give it a broader scope to include non-financial institutions.

Also known as a SWIFT address.

Bank of England
The central banking authority in the UK.
Bank reconciliation
A quantified explanation of the difference between:

1. A bank account balance in the customer's accounting records; and

2. The bank statement balance.

Sometimes abbreviated to 'bank rec'.
Bank relationship management
A comprehensive approach to managing important banking relationships, covering both credit and non-credit services.
Bank transfer
A remittance process whereby a payer may make a payment at any branch of any bank for the account of a payee at any branch of the same or any other bank.

Also called credit transfer or direct transfer.
Banker's acceptance
A bill of exchange (draft) which has been accepted by a bank.

A draft accepted by a bank constitutes an unconditional and binding obligation on the part of the bank to pay the draft at maturity.
Banker's payment
Payment order issued by a bank on behalf of its customer, whereby the recipient looks to the bank for settlement, thus minimising credit risk for the recipient.
Bankruptcy costs
Also known as Cost of financial distress.
Bar chart
A chart where the quantity of an item is represented by the height of a bar.
Barriers to entry
Obstacles which prevent a new firm from entering a market. Barriers may include natural, legal or artificial barriers.
1. Base rate.
2. Base currency.
Base currency
The base currency in a foreign exchange rate quotation is the currency which there is one of.

In the quotation 1 GBP = 1.4600 USD,
the base currency is GBP;
meaning one British pound is exchanged for a variable number of USD, depending on the rate quoted.

Also known as the Reference currency or the Fixed currency.

Generally it means the currency to which other currencies are compared.
In a multicurrency liquidity arrangement, refers to the currency in which the master account is denominated and to which all other currencies are converted.

The base currency also serves as the basis for all interest rate calculations.
Base rate
A widely recognised and quoted interest rate - such as the Fed funds rate, the prime rate, or LIBOR - by reference to which a rate of interest is calculated.

For example, ‘LIBOR plus 50 basis points’.

A central bank rate may be known as Base Rate. This is normally the rate at which they will lend overnight funds to financial institutions and by changing this they can influence market rates
Basel I
The Basel Committee on Banking Supervision published in 1988 a set of minimum capital requirements for financial institutions to minimise credit risk.
It was enforced by law in the G10 countries in 1992.

Also known as the 1988 Basel Accord.

Now superseded and updated by Basel II and Basel III.
Basel II
A second agreement developed by the Basel Committee on Banking Supervision in 2004 to promote international standards for measuring and ensuring the adequacy of a bank's capital.
Basel III
A third amended and strengthened international bank capital adequacy framework under development, designed to improve upon Basel II.

Basel III leverage ratio framework and disclosure requirements were issued in January 2014.
The method or convention under which a value or price has been calculated.

Basis risk.

In futures markets, the price differential between the price of the asset underlying the futures contract and the price of the futures contract.
Basis point
1. Interest rates.
One hundredth of 1%
= 0.01%
= 0.0001 as a decimal.

While bond coupons may be expressed in fractions (for example, quarters, eighths or sixteenths), yields and prices of most money market instruments, such as commercial paper or treasury bills, are quoted in basis points.

3. Foreign exchange rates.
One hundredth of a cent, for example $0.0001, or its equivalent in other currencies.
Often, but not always, this represents a minimum price movement in the related foreign exchange rate quotation.
Basis risk
Basis risk usually means the risk of an unfavourable change in the relationship between the price of a derivative and the market value of an underlying asset or liability being hedged.

For example resulting in a smaller profit being enjoyed on a hedging derivative, than the loss suffered on the underlying exposure.

Good hedge design therefore seeks to eliminate or minimise basis risk in the hedged position, so far as practicable.
Basis swap
A swap that exchanges two floating interest rates, each being calculated on a different basis. For example, 3-month LIBOR against 6-month LIBOR, or LIBOR against Prime.

The use of a basis swap for hedging is to transform a borrowing or deposit with interest calculated on a particular basis, into a synthetic liability or asset with interest effectively calculated on an alternative basis. This alternative interest basis being considered preferable by the hedger.
An artificial currency based on a mixture of actual currencies.
The transmission or processing of a group of payment orders and/or securities transfer instructions as a set at discrete intervals of time.
Banker's Acceptance Tender Facility.
British Bankers’ Association.
British Chambers of Commerce.
Boston Consulting Group.
Business contingency management.

Also known as disaster recovery planning.
Bearer Depository Receipt.
An investor or trader who takes the view that market prices are likely to fall and sells securities hoping to make a profit by subsequently buying at a lower price. Hence 'bear market' describes a market which is on a trend of falling prices.
Bear spread
1. Options speculation.
A composite speculative deal in two options, which results in a profit/loss profile similar to a conventional put option, except that the upside potential is capped in return for a reduction in the net premium payable.

A bear spread can be constructed using put options by buying a put with a given strike price, and selling an otherwise identical put with a lower strike price. It can also be constructed using appropriate call options.

2. Hedging with options.
A composite transaction in two options plus an underlying asset or other exposure, resulting in the same profit/(loss) profile as the deal described in 1. above.
Bearer bond
A bond/security that is not registered in the name of a specific owner. The owner of the bond is the person who holds it. Thus, title to the bearer bond is transferred through delivery.

Principal and interest were historically paid, upon presentation of coupons, to a paying agent. Nowadays bearer bonds usually operate by book entry, whereby investors buy and sell their interests in a global note representing the entire issue and held within the clearing system.
Bearer instrument
A valuable document, which does not bear the name of its legal owner and may be redeemed by whoever is in possession of it. Bearer instruments are not registered to the holder, and can therefore be transferred by delivery.

Also known as a bearer security.
Bearer security
Also known as a Bearer instrument.
Behavioural economics
Economic analysis which takes explicit account of the social, emotional and psychological drivers of economic activity, including behaviours deemed to be 'irrational' under more traditional economic theories.

The insights of behavioural economics into 'irrational' decision making in the economy may provide a theoretical basis for some types of technical analysis and forecasting of market prices.
Bells and whistles
The additional features of a security intended to attract investors or reduce issue costs or both.
1. A standard of performance set by the market (such as stock market index) or by an institutional investor (such as an internally developed benchmark) against which the performances of a fund or portfolio can be managed and tracked.

2. Similar measures relating to the performance of other organisations or departments.
The practice of comparing the performance of a business or investment operation, typically against a best practice standard in a given field, industry, or investment asset class.
The party that is named by the grantor, settler or creator of the trust and is entitled, according to the terms in the respective trust deed, the benefit from the revenues of the trust.
Benefit in kind
A non-cash benefit - usually taxable - received by an employee due to their employment.
Break even point.
Bermudan-style option.
Bermudan-style option
An option which can be exercised only on pre-specified dates up to its maturity.

So Bermudan options’ characteristics are part-way between European-style and American-style options in respect of their exercise dates.

The term derives from Bermuda's geographical location 'part-way' between Europe and America.
Business Expansion Scheme.
Bespoke Software
Software which is developed by a third party organisation to the requirements of a specific customer.
Best practice
Commercial or professional guidelines or procedures that are considered the most effective ways to promote quality.

They provide a standard way of doing things which can be used as a benchmark across an organisation or between organisations.
A measure of market risk.

Beta can refer to the market risk for a single financial asset or to an entire portfolio. By definition, the beta of the whole market is one.

Therefore a beta of greater than 1 means that, on average, the asset is expected to increase in value by more than the market when the market is rising – and to reduce in value by more than the market when the market is falling. An asset with a beta less than 1 is expected - on average - to increase and to reduce in value by less than the market.

Beta for a security can be calculated for historical periods using regression analysis.
The historical beta is the slope of the line of best fit comparing the historical returns on the individual security with those of the market as a whole.
Bond Equivalent Yield.
Bank Financial Strength Rating.
British Gas.
Bahrain interbank offered rate.
The former Bank Identifier Code.

Business Identifier Code.
Bid bond
Trade finance.
A trade finance bond issued as part of a contract tendering (bidding) process.
The bid bond is issued by a bank or insurance company to the potential customer, to protect the customer against a contractor's failure to sign a contract in accordance with the terms of the tender.
Bid price
The market-maker’s buying price of securities or assets.
Bid rate
The price at which market makers are willing to buy currencies or other traded assets.
Also known as Bid-offer.
Bid-offer price
Bid offer prices (or bid-ask prices) are quoted by market makers simultaneously as the prices at which they will deal with the market either to buy or to sell.

Spread means the difference between the bid price and the offer price. The greater the spread, the greater the market maker’s compensation for their work and risk in making the two way price; and the greater the all-in transaction cost for the price taker.
Bid-offer spread
The difference between the prices at which market makers (such as banks and other foreign currency dealers) are willing to buy and sell currencies or other traded assets.

The term also applies to the difference between the borrowing rate and the deposit rate quoted for a particular maturity of funds.
Benefit in Kind.
Involving two parties only. For example, a bilateral loan is a loan agreement between one lender and one borrower.
Bilateral net settlement system
A settlement system in which participants’ bilateral net settlement positions are settled between every bilateral combination of participants.
Bilateral netting
An arrangement between two parties to net their bilateral obligations. The obligations covered by the arrangement may arise from financial contracts, transfers or both.

For example purchases between two subsidiaries of the same company may be netted against each other so that over time, typically one month, only the net difference is transferred.
Bilateral repo
Bilateral repurchase agreement.
Bilateral repurchase agreement
(Bilateral repo).
A repurchase agreement (repo) between two parties.

The corporate investor in a bilateral repo is responsible for administrative processes including confirmation and settlement of the trade and the daily collateral management.

This arrangement differs from a tri-party repo, under which an agent acts as an intermediary between the two principal parties and deals with related administrative processes.
Bill of exchange.

Treasury bill.

3. Law.
Parliamentary bill (private or public).
Bill of exchange
Bills of exchange are widely used to finance trade and, when discounted with a financial institution, to obtain credit.

The formal legal definition of a bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum in money to order or to bearer.

Expressing this in less formal language, it is a written order from one party (the drawer) to another (the drawee) to pay a specified sum on demand or on a specified date to the drawer or to a third party specified by the drawer.
Bill of lading
(BL, B/L).
Document signed by a freight carrier confirming receipt of goods for transportation and providing details of the contract of carriage.
One thousand million (1,000,000,000 or 109).

For example
EUR 100 billion = EUR 100,000,000,000.

Often abbreviated to 'bn' or 'Bn'. For example EUR 100bn.

Historically in the UK and some other countries, 'billion' used to refer mathematically to 1,000,000,000,000 (or 1012).

This historical usage never became well-established in finance, and is now - for practical purposes - defunct.
Buy-in and management buy-out.
Binary system
A system containing exactly two different types of parts.

For example in binary code used in computing all information is represented by a combination of the digits 0 and 1.
Binomial models assume that there are only two possible outcomes, each time a trial is run.
For example, a fixed percentage jump up or jump down in a market price per short time interval.

A binomial tree or binomial lattice can then be built up from a series of binomial outcomes, to model market prices over longer time periods.
Similar modelling can also be applied to non-financial variables.
Binomial distribution
A discrete probability distribution built up from a series of binomial trials.

The binomial distribution can be an appropriate model for processes where:

1. The process consists of a limited whole number of identical trials or situations (n).
2. Each trial results in just one of only two possible outcomes (eg success or failure).
3. The probability of success (p) remains constant for each trial.
4. The trials are independent and
5. Primary interest lies in the probability of a specified number of successes (or of failures) in the n trials.

For example, the total number of sales achieved in a fixed number of sales appointments, assuming the probability of achieving a sale remains constant for each appointment.
Binomial option pricing model
An option pricing model which assumes a binomial tree of possible underlying asset market prices.
Binomial tree
A set of multiple possible outcomes - often shown in a diagram - built up from a series of individual binomial steps.
The Bank for International Settlements.

The UK Government Department for Business, Innovation and Skills.
Black Scholes option pricing model
The Black Scholes option pricing model is an example of a risk-neutral valuation model.
It models the value of European-style options on non-dividend paying assets, based on the underlying price, the strike price, the underlying volatility, the time to expiry and the risk-free rate of return.
Black swan
Risk management.
An apparently unusual event of very high impact.
Particularly one which - before it happened - was believed in error to be highly improbable, or even impossible.

The use of the term in finance derives from the widespread historical (and wrong) belief in the Northern hemisphere that black swans did not exist. This wrong belief was held in the period before the common occurrence of black swans in the Southern hemisphere had been reported in the North.

The concept was popularised in a 2007 book by Nassim Nicholas Taleb - "The Black Swan".
Taleb summarises the problem in risk management as "the confusion of absence of evidence of Black Swans (or something else) for evidence of absence of Black Swans (or something else)."
This means that the existence of financial "black swans" tends to lead to systematic under-assessment and understatement of financial risk.
Blank endorsement
Endorsement of a negotiable instrument without naming the person to whom it would be paid.

Also known as Endorsement in blank.
Blocked currency
A currency that is not freely convertible to other currencies due to exchange controls.
Blocked input tax
Input tax that can never be recovered, for example Input tax on business entertaining.
Blue Book
The UK City Code on Takeovers and Mergers.
Blue chip
An equity share that is considered to be of the highest quality.
Blue collar worker
A worker who performs manual labour.
One billion (1,000,000,000).

For example
EUR 100bn = EUR 100,000,000,000.

Sometimes written 'Bn'.
Board for Actuarial Standards
Former UK body, part of the Financial Reporting Council, that set and improved actuarial technical standards.

The Financial Reporting Council now deals with these matters through the Accounting Council of the FRC's Codes and Standards Committee.
Board of directors
Board of Governors of the Federal Reserve System
A board of seven members, appointed by the President of the US from the 12 Federal Reserve Banks, who formulate monetary policy and have regulatory and supervisory responsibilities for banking activities carried out in the US.

Commonly called the Federal Reserve Board.
Bank of China.
Bank of England.
Bank of Japan.
Bona fide
Latin term referring to persons or actions that are in good faith and honest.
A marketable longer-term debt instrument usually administered by a trustee.
Bonds typically require the issuer to repay the amount borrowed plus interest over a designated period of time.
The current market yield on the bond is both the market rate of return to the debt investor and the pre-tax market cost to the issuer of debt capital.
Issuers of bonds include a wide range of corporate and public sector entities, including central governments.

In trade finance, an instrument issued by a bank or an insurance company, in favour of a buyer, on behalf of a supplier, as additional assurance to the buyer that the supplier will perform its obligations under the supply contract.
Such a bank bond or insurance company bond will be supported by an indemnity issued by the supplier in favour of the bank or insurance company.

A guarantee provided by one party to another.

An amount of money provided as security for a guarantee.
Bond basis
The method used to calculate accrued interest in the eurobond market using a 360 day year of twelve 30 day months (known as 30/360).
Bond equivalent yield
A conventional basis of short term yield quotation, which counts Actual days per 365 day conventional year.
Bond futures
Bond futures are an example of long term interest rate futures.
They are derivative contracts whose price is related to the market price of a specified reference bond.
Bond indenture
A specialised Trust deed used in a bond issue.
The bond indenture is analogous to a loan agreement in a bank borrowing.
Bond issue
An issue of bonds.

A term to describe all of the bonds issued at the same time, under the same terms.
Bond mandate
A letter of instruction and authorisation given to a lead manager by the issuer of a bond.
Bonus issue
A distribution of free shares to shareholders based on existing shareholdings.

Also known as Capitalisation issue.
Part of a system of accounting records.

An abbreviation for Book value.
Book entry
An electronic method of registering ownership of and transferring securities.

The recording of a transaction or of an adjustment in accounting records.
Book funds transfer
Transfers directly from one account to another account within a bank.
Book keeper
A person who records business transactions in a ledger (paper or electronic).
Book keeping
The skill or occupation of systematically recording business transactions.
Book reserve
Any provision in a company's financial accounts.

A provision in a company’s accounts for a future pension benefit liability for which no funds have been set aside.

Book reserves are commonly encountered in countries such as Germany.
Book value
The value as recorded in a company’s books, in other words its accounts including its published balance sheet.

Historically the book value of an asset was normally its original cost less any depreciation or other write-down in value. This is distinct from market value, the fair market price which the asset might be expected to raise if offered for sale.

More recently, accounting practice has been moving toward a system of book valuation which is aligned more closely with market values.
Book-entry system
An accounting system that allows the transfer of claims (for example, securities) without the physical movement of paper documents or certificates.
To calculate zero coupon yields from given par yields for the same maturities of funds.

More generally, to calculate any yield curve from another given yield curve for the same maturities.

To undertake any calculation process where the results from earlier calculations are inputs to subsequent calculations.

Bootstrap effect.
Bootstrap effect
The short-run increase in earnings per share which occurs in a share for share exchange when a company trading on a higher price to earnings ratio acquires a company trading on a lower price to earnings ratio.
Balance of Payments.
Binomial Option Pricing Model.
Boston Consulting Group
International management consulting firm and advisor in business strategy.
Developed the Boston Matrix.
Boston Matrix
Strategic analysis.
An analysis model identifying business segments according to their relative market share and the rate of growth of the market in which they operate.

Developed by the Boston Consulting Group.

Balance of Trade.
Bottom line
1. Accounting.
An informal name for net profit.

By analogy, the net result or net effect of any decision or other course of action.
Bought deal
A new issue procedure for securities whereby one or more lead managers commit to underwrite an entire offering of securities on agreed terms, rather than offering to place the issue on a best efforts basis.
Basis point.
BP plc. The oil and energy corporation formed in 1954 as The British Petroleum Company. In 1998 it merged with Amoco (formerly the Standard Oil Company) and in 2001 was renamed BP plc.
Business process re-engineering.
British Retail Consortium.
Breach of contract
Failing to perform any term of a contract, written or oral, without a legitimate legal excuse.

Breach of covenant
Failure to comply with a covenant.
Break even point
1. (BEP).
The number of units of production at which contribution is equal to total fixed cost, in other words this is the level of production at which a producer will neither earn a profit nor make a loss.

The market price at which a strategy results in neither a profit nor a loss.

A point - however measured - at which two alternative strategies give the same result.
It is therefore the point of indifference between two choices or strategies. For example two trading strategies each resulting in the same expected profit.
So when the breakeven point is crossed, the optimum decision or choice will change.
Break-up value
Also known as liquidation value.
Also known as Break even point.
Bretton Woods Conference
A meeting of representatives of non-communist countries in Bretton Woods, New Hampshire, USA in 1944. Representatives agreed on the characteristics of the international monetary system, effectively the fixed exchange rate system, which prevailed until 1971.
Brazil, Russia, India and China.
Brazil, Russia, India, China and South Africa.
Bridge Bank
A bank created and authorised to receive and hold assets and liabilities of another (insolvent) bank with a view to continuing the operations of the bank until sale or liquidation.
Bridge financing
A type of loan, usually at fluctuating interest rates, that takes the form of renewable overdrafts or discounting facilities.
It is used as a continuing source of funds until the borrower obtains medium or long-term financing to replace it.
British Airport Authority
Former name of the UK airport operator now known as Heathrow Airport Holdings.
British Bankers' Association
Trade association for the UK banking and financial services sector.
British Chambers of Commerce
The national body for a network of accredited Chambers of Commerce across the UK.
British Retail Consortium
Trade association for the UK retail industry.
Broad money
A measure of money supply in the economy that includes physical money (currency and coins), demand deposits at commercial banks, and other monies held in easily accessible accounts.

All the components making up broad money are still very liquid, and non-cash components can usually be converted quickly and easily into cash.

Commonly used measures of broad money are M2 and M3.
A market intermediary who brings together buyer and seller for a commission paid by the initiator of the transaction or by both sides.
The broker does not take market positions itself.

More specifically, an individual or a firm (also called broking house) that acts as an agent for investors by dealing in securities.

Usually, the broker will charge commissions (called brokerage) for providing advisory and trading services. Brokers do not buy or sell on their own account but act as agents for clients.
Balance Sheet.
Black Scholes Option Pricing Model.
Business Service Provider.
British Telecommunications plc.
British Thermal Unit.
Any plan expressed in monetary terms.

The level of taxation minus government spending. A budget surplus is where taxation exceeds government spending. A budget deficit is where government spending exceeds taxation.

3. UK.
A formal statement - normally made annually - by the UK Chancellor of the Exchequer setting out the government's taxation proposals for the next fiscal year.

Similar formal statements made by the finance ministers of other governments, or by the responsible officers of other organisations.
Budget line
A graphical representation of the amounts an individual can buy of two alternative goods, given his income and the prices of the goods.
Bulk funds transfer system
Also known as retail funds transfer system.
Bulk transfer
The transfer of pension liabilities (and usually an equivalent value of assets), relating to a group of members, from one pension scheme to another. Such transfers often arise in connection with merger and acquisition activity.
An investor or trader who takes the view that market prices are likely to rise and buys securities hoping to make a profit by subsequently selling at a higher price. Hence 'bull market' describes a market which is on a trend of rising prices.
Bull spread
1. Options speculation.
A composite speculative deal in two options, which results in a profit/loss profile similar to a conventional call option, except that the upside potential is capped in return for a reduction in the net premium payable.

A bull spread can be constructed using call options by buying a call with a given strike price, and selling an otherwise identical call with a higher strike price. It can also be constructed using appropriate put options.

2. Hedging with options.
A composite transaction in two options plus an underlying asset, resulting in the same profit/(loss) profile as the deal described in 1. above.
A bulldog bond.
Bulldog bond
A sterling denominated bond issued by a foreign borrower in the UK domestic market.
Sometimes abbreviated to 'bulldog'.
Bullet maturity
Repayment of a loan or bond in a single lump sum at final maturity, without amortisation.
Activities undertaken for the purpose of earning profits.

Larger businesses are normally undertaken by companies. Smaller and medium-sized businesses are more commonly undertaken by sole traders or by partnerships.
Business contingency management
Also known as disaster recovery planning.
Business cycle
Economy-wide fluctuations in economic activity over several months or years.
Business model
The purpose, strategy and trading practices of a business.
Business process re-engineering
An approach to business analysis and development which seeks improvements by adopting a 'clean sheet' approach, without preconceptions.
Business review
Financial reporting.

A narrative report, which could also contain numerical analysis, formerly required in an Annual report (or similar financial report). Similar to the Management discussion and analysis under US financial reporting.

Now replaced by the Strategic Report.

Business risk
In the capital asset pricing model (CAPM) this term is used to mean the ungeared beta of the business. Because it is ungeared it represents the overall risk (beta) of the business with its element of financial risk removed.

Risk in this CAPM context is defined narrowly to mean the correlation between movements in the company's share returns and the returns to the overall market.

The term is also used more broadly to refer to the set of risks taken by a business in seeking to operate in a normal competitive environment; launching a new product or investing in new equipment.

These decisions are risky and they may or may not result in the expected reward, they may even result in extreme cases in the demise of the business. Many firms attempt to limit the scale of this risk by restricting the range of their business to their core competences.
Business unit
Also known as operating unit.
Buyer credit
A form of export finance under which the Export Credit Guarantee Department's (ECGD's) unconditional guarantee to a bank in the UK enables that bank to make a loan to the overseas customer of a UK exporter, which in turn enables that customer to pay the exporter on cash terms of payment.
Besloten Vennootschap.
Designation to indicate a private limited company in the Netherlands.

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