Glossary of Terms

1. Secured lending.
An amount deducted from the current market value of an asset used as collateral, to calculate the maximum amount of a loan secured against that asset.

For example, if the market value of the asset were £100,000 and the haircut was 2%, the maximum amount of the related secured loan would be £98,000 (= £100,000 LESS 2%).

2. The amount of a loss (or an expected loss) on asset, as a percentage of the total value of the asset.

For example in this context a 50% haircut on Greek debt of EUR 200bn means a loss of EUR 100bn (= 50%) and a recovery of EUR 100bn.

3. A fee or commission, expressed as a percentage of the total value of the related transaction.

(HS). Freefloat-adjusted market capitalisation-weighted stock market index in Hong Kong.

A market said to be hard if prices are rising.

A currency in which international investors generally have confidence.

For example the euro, US dollar, Japanese yen, Swiss franc or British pound.

(HICP). Measures originally developed in the European Union (EU) to allow the European central bank to monitor inflation across EU countries.

See Tax haven.

A chart pattern which approximates to the shape of a person's head and shoulders, implying a fall in share prices.

Hedging.

A system of incorporating a financial hedge into the accounting system.

Under International Financial Reporting Standards (IFRS) a hedge and the underlying transaction being hedged are accounted for separately. Hedge accounting ensures that both items receive similar accounting treatment.

There are qualifications that must be satisfied in order that hedge accounting may be used, for example that the hedge can be shown to be effective.

A higher risk investment fund generally characterised by taking short positions as well as long positions.

The proportion of a hedging instrument required to hedge an underlying position, compared with the amount of the underlying position itself.

So if four options are required to hedge a position of one unit of the underlying asset, the hedge ratio = ¼ = 0.25.

1.
Traditionally hedging refers to the process whereby a firm uses financial instruments (such as forward contracts, futures contracts or options) or other techniques to reduce the impact of fluctuations in such factors as the market price of credit, foreign exchange rates, or commodity prices on its profits or corporate value.

2.
More recently the application of hedging techniques has been extended to the management of many other risks including for example inflation and longevity risk arising in pension funds.

(HMRC). The merged UK government department responsible for the collection of direct and indirect taxes.

Previously it was separately constituted as the Inland Revenue (IR) and HM Customs & Excise (HMCE).

Continuous linked settlement.

Describing an approach to problem solving which emphasises practical experience rather than theoretical explanations.

Harmonised Index of Consumer Prices.

A bond with a sub-investment (speculative) grade credit rating at the time of issue.

This type of bond is used particularly to finance leveraged buy-outs and to pay higher yields to investors than bonds with higher ratings do. The term, therefore increasingly refers to financial instruments with speculative credit ratings.

Also known as Junk bond.

Hire purchase is similar to a finance lease except that it contains a provision giving the hirer an option to acquire legal title to the asset (once certain contract provisions are fulfilled).

A mechanism for gaining the benefits of owning an asset without paying the whole of the purchase price at the outset, but over a period of time.

Statistics.
A bar diagram that illustrates a frequency distribution, each bar is drawn so that its area is proportioned to the number of items in the interval it represents.

Measures based on actual past data, rather than forecast future data.

For example the historic dividend yield is normally based on the most recent past dividend.
(As opposed to the prospective dividend yield which is normally based on the next forecast future dividend.)

Another example is the historic Price to earnings ratio (PER) which is normally based on the earnings for the most recent past period.
(As opposed to the prospective PER which is normally based on the projected earnings for the nearest future forecast period.)

The usual basis of valuation in published financial statements, based on the orginal cost of assets to the reporting entity.

Generally favoured because historical cost is an objective measure which can be relatively easily verified, for example by an auditor.

The use of historical cost accounting can however be challenged on conceptual grounds, especially in times of high inflation.

The foreign currency exchange rate in effect on the date when an asset or liability was acquired.

In Value at risk analysis, a simplified variation of the Historical simulation method.

For all practical purposes, the historical simulation method is to be preferred.

In Value at Risk analysis, an alternative to the Delta-normal method of calculating the underlying probability distribution.

This is conceptually the simplest alternative method to the delta-normal. There is no assumption about how markets operate.

For any given portfolio held today, you calculate repeatedly its hypothetical value change as if it had been held for a one day period in the past, using the relevant market price changes and other market rate changes for each successive day.

At each step, you do a full valuation and calculate the ex-post or historical value changes over one day.

Finally, tabulate the empirical distribution of one-day value changes and identify the lower 95% point. This point is the one-day 95% VaR.

SWIFT currency code for the Hong Kong Dollar.

Her Majesty's Revenue & Customs.

Her Majesty's Revenue & Customs.

Her Majesty’s Revenue & Customs.

A person who has acquired possession of a negotiable instrument through proper negotiation for value, in good faith, and without notice of any defects to it.

A company that owns or controls others.

In the narrow use of the expression, it also implies that the company does not actively trade itself but operates through various trading subsidiaries.

The total net return to an investor over a given holding period, taking account both of income from the investment and of any gains or losses in its capital value.

Banking services which a retail customer of a financial institution can access using a telephone (either fixed-line or mobile), a television set, a terminal or a personal computer.

A homogeneous product has no distinguishing features, meaning that a consumer's preference is driven purely by price.

Alternative spelling of Homogeneous.

A takeover is considered hostile if the target company's board rejects the offer and is resisted strongly by the targeted company, but the bidder continues to pursue it, or the bidder makes the offer without informing the target company's board beforehand.

Speculative bank deposits that are moved around the international money market to take advantage of interest rate and currency movements.

Hang Seng.

Hongkong and Shanghai Banking Corporation.

HyperText Markup Language.

Hypertext Transfer Protocol, Secure.

The rate of return, normally the company's weighted average cost of capital, used for determining the viability of an investment or project.

A term used to describe a financial instrument which displays characteristics of both debt and equity.

Such instruments might be designed to be an intermediate (or mezzanine) category of capital between equity and debt, or to have some of the risk absorbing characteristics of equity and, ideally, the tax efficiency of debt.

Either a pension scheme that offers both defined benefit and defined contribution elements, or a scheme that provides a benefit calculated as the better of two alternatives (for example on a defined benefit or defined contribution basis).

Schemes of this type were once common in Australia.

(html). The predominant markup language for web pages.

(HTTPS). A protocol which provides a secure connection for transferring for documents over the web.

HTTPS combines a normal HTTP interaction but with an additional encryption/authentication layer over an encrypted Secure Sockets Layer (SSL) or Transport Layer Security (TLS).

HTTPS is widely used on the World Wide Web for security-sensitive communications such as payment transactions and corporate logons.