Learn more about the main words and terms associated with the world of currency and finance.
Arrears – this word is used specifically to describe an amount of money which should have been paid to clear a portion of a bill or account. For example you may owe a company £100 but you forgot to pay £20 last month. That would mean you are in arrears by £20, even though you still owe them the full £100. Normally the amount you are in arrears by would need to be paid straightaway to avoid any further action being taken to recover it – and possibly the whole debt as a result.
Balance sheet – this is a term which refers to a business and its monetary situation. To find out how much a business is worth at any one time you would need to take the total amount of liabilities (see separate entry) from the total number of assets they have at their disposal. The balance sheet will show essentially what the company is worth, but more than that it is a statement of the monetary information available at that time.
Bank of England – it is quite simply what it says. It has been around for over three hundred years and is responsible for setting the interest rates that can profoundly affect the people in the country. It is also in charge of the monetary system the country uses, and is situated on Threadneedle Street in London. This (and the age of the bank) has given rise to its nickname, the Old Lady of Threadneedle Street. It has created and distributed banknotes since the year it came into being, although it leaves the minting of coins to the Royal Mint (see separate entry).
Banking Code – this is a British scheme which has been set up to try and make the services that customers receive from their banks more transparent and easy to understand. It also aims to set out a number of standards which banks and building societies should ideally adhere to in order to improve the level of service they give to their customers. The only downside of the scheme is that it is voluntary, although most banks and building societies do try and adhere to it as much as they can. As such it provides a blueprint for them to follow but does not demand that they do so. Most financial organisations know however that it is in their best interests to do so.
Bartering – this is where the whole concept of money began back in ancient times. Bartering is the act of exchanging one type of goods for another as a form of payment. It works well in theory but in practice it can lead to problems if you cannot find anyone who has what you want, and who is also willing to accept what you have to offer in return. This is why the idea of having a common form of currency came into being.
Base currency – a base currency is really a standard ‘benchmark’ currency that other ones are held up against for comparison. There is no hard and fast rule as to which currency is the dominant base currency for the entire world, as it can largely depend on where you are as to which one is most relevant for your circumstances. The Euro is most often used as a base currency, but people will usually use their own country’s currency as a base that they can compare other currencies against. The base currency will always be referred to as a single unit – so it might be a dollar, a pound or a yen for example. You would then compare your base currency against another one and see how many units of the other currency you would get for your single base currency unit.
Base rate – contrary to what some people believe, the base rate does not refer to the rate of interest that is set by the main bank in any one country. In the UK, the base rate is something that is set by each separate bank, although this may be done while referring to the interest rate at the current time. The base rate is usually expressed as a percentage, but this percentage does not apply to most people who are customers with a particular bank. It will vary depending on whether you have savings with that bank, or a mortgage or other type of loan. As we know, you are charged more for the privilege of borrowing money, so you can expect to pay slightly more than the actual base rate in interest when you borrow money. If you only have savings then you are earning interest from the bank rather than the other way around, so you can expect to receive a rate of interest which comes in at less than the base rate.
Bear market – this is the term given to the stock market when it is doing badly. It is the opposite of a bull market and indeed the stock market tends to swing naturally between the two over time. A bear market is so called because the animal uses its paws to attack its prey, using a downward strike to make contact. Thus the market is deemed to be heading downwards when it is not doing well. See also bull market for the opposite situation.
Blue chip – a blue chip company is basically a large company that is well known for its stability and reliability. If you buy shares in a blue chip company you can be assured that they are probably the most secure and stable of all the shares you could pick. The FTSE 100 Index (see separate entry) consists of blue chip companies that are always performing well and perhaps define the best opportunities for starting to get involved in the stock market if you are new.
Bubble – this is a term commonly used – and perhaps dreaded – in the stock market. It is used to describe a market or situation where a particular stock has become wildly overvalued. This can happen if a particular company gets a lot of attention from investors looking to place their money with an up and coming outfit. The hype surrounding these kinds of opportunities can sometimes result in them being worth far more on paper than they could ever be worth in reality. As a result the bubble bursts and the overvalued company takes a huge nosedive. One of the most recent examples of this that many people remember is the dot com bubble of the nineties, when the internet was still fairly new and everyone got very excited by the prospect of this new technology.
Budgeting – this is something which should be undertaken by both individuals and businesses. A budget is a plan which takes into account how much money is coming in and how much will be going out to keep either the individual or the business in the position they want to be in. If you don’t have a budget you might end up not having enough money to last you for the week or the month, which could lead to problems. This ties in with cash flow (see separate entry). A budget encourages you to plan ahead and ensure that you will always have enough money to manage on. The same applies to a business – without a budget the business runs the very real risk of folding due to mismanaging their available cash.
Bull market – this is the somewhat strange term given to the stock market when it is doing well and investments are going up. The term is thought to relate to the animal because it traditionally uses its horns to attack its prey; the horns move upwards just as a buoyant market does. See also bear market for the opposite situation.
Bullion coins – mints (see separate entry) don’t just make coins for common circulation, although this is their primary purpose. They also make commemorative and collector’s coins, and among these are what is known as bullion coins. They are so called because they are made from a precious metal such as gold or silver, and as such are not in common usage since they are far more expensive to buy. Certain countries are famous for releasing different issues of specific types of bullion coin, such as the gold sovereigns which are made by the Royal Mint in the UK.
Bundesbank – this is the name given to the Central Bank of Germany. Many people who are involved in the stock exchange and stock markets will be familiar with this bank. It is housed in nine buildings across Germany, and is heavily involved in European monetary issues.
Business cycle – this is the term given to the regular cycle of events that tends to affect all businesses throughout their lives. It is largely affected by the economy and what is going on in the world at the time. A period of growth is often followed by a levelling out effect, and then fortunes will dip and remain stagnant for a while before soaring back up again. The extent to which businesses are affected by this cycle varies, depending on the nature of the business and the factors surrounding it. There is no fixed amount of time for each part of the cycle to last, and indeed the actions of the company in each section can influence how long or short each part is.
Cash flow – this applies to both businesses and individuals, and is essentially a measure of how well each one is doing. Without an ample cash flow there is a chance that the person or business may run into problems due to a lack of available cash. For example, if an unexpected bill comes in there is no chance of being able to pay it on time since there is no available cash flow. It is important to have savings and to pay bills on time for both individuals and businesses, but having a certain amount of cash readily available is vital to the continued success of both (see separate entry on budgeting).
Circulation – this word is used to describe the amount of available money which is in use at any one time. This covers both coins and banknotes. If they are in use, they are in circulation. Once they reach the end of their natural lifespan (or if a particular coin or banknote becomes obsolete) they will be taken out of circulation, which means they are returned to the mint where they were made and destroyed, or sometimes turned back into new coins and banknotes.
Coin dealer – a coin dealer is someone who buys and sells coins for a living. More specifically, they deal in valuable coins of all kinds. These may be relatively recent specimens released as part of a commemorative set, or they may be ancient coins which are centuries old. Some dealers specialise in a specific area of coin collecting, often because they have an interest in one area or a great amount of knowledge about it.
Coinage – coinage is the term given to all the coins made for use by the people of a country. As such it describes all the different denominations of coins, as well as special issues such as commemorative coins or those which aren’t designed to be used in general circulation. Ancient coins are also called by the collective term coinage, whose history stretches back for hundreds and hundreds of years.
Commemorative coins – these are a particular type and style of coin which are released for general purchase. They are usually struck to commemorate a notable date, an anniversary or perhaps a particular person or event that is about to occur or which has occurred in the past. While some commemorative coins find their way into general circulation and are used in just the same way as other types of currency are, others are made with the express purpose of being added to coin collections. They may be struck in pure gold or silver as well, which makes them much more expensive.
Commodity money – this is a form of money which has an intrinsic value. No currency in general use today is deemed to be commodity money; we rely instead on fiat currency (see separate entry). Commodity money, as its name would suggest, is supported by a particular commodity. The most well known commodity that has been used in the past is gold, and was responsible for the Gold Standard which was in use until only a few decades ago. Other commodities can be used as well however, such as silver. In ancient times shells, corn and wheat were used as commodities with which people could trade with others to get what they themselves wanted.
Compound interest – thanks to the principle of compound interest you can make even more money on your savings than you would otherwise. It is basically the practice of making money on your interest as well as the original amount you saved. For example, let’s say you put £100 in a savings account that will pay you £5 interest every year. After the first year you earn £5 in interest, but after the second year – provided you keep the original amount of money in there as well as the interest – you will get 5% of £105. That amounts to £5.25, which is earned by the effect of compound interest. The more money you can put into the account and the longer you can leave it there, the more interest you will earn as a result.
Counterfeit – a counterfeit is a forged banknote. While there might seem to be a lot of attention paid to them they actually only account for a minute percentage of the banknotes in circulation in most countries. This is partly due to the sophisticated methods used to prevent forgeries from occurring. Watermarks, metallic strips and lots of other techniques make it more difficult to produce a fake banknote that will fool people. Counterfeiters (the people who make fake banknotes) have to try and get round these measures to produce an even better forgery than they have done before, and as such their skills tend to get better just as the preventative measures improve.
CPI – this is an acronym for the consumer price index. This is an indicator of what various items cost at that point in time. This is checked on a regular basis and the same typical items are used each time so as to give an accurate picture of how prices are increasing in line with the previous set of figures. Each country will have a separate set of figures created – usually every month – to see how prices in that particular country are performing.
Crash – this relates to a stock market crash, which is the worst thing that can happen to any stock market. The crash refers to the fact that the market has tumbled, losing a vast amount of its value in a matter of hours. This can lead to disastrous effects throughout the country it happens in, and they can also spread to other areas of the world. If a huge number of investors decide to sell their shares at the same time, this can result in a stock market crash. The last major crash was in 1987. It is also the case that they tend to follow a period of huge optimism, and thus tend to reset the balance somewhat – albeit in a very extreme way.
Currency – this is quite simply a means of exchange between one person or company and another. Currencies are decided upon and created by a government, who needs to get the balance right when it comes to printing banknotes and making coins. If they make too many it can devalue the currency and cause major problems for that country’s economy and standing.
Currency converter - this is a tool which allows you to convert one currency into another of your choice, simply by entering in the amount of money you wish to convert. It doesn’t allow for any charges you would actually pay to convert the money in reality however, so you should bear this in mind when you are working out your figures. There are plenty of online currency converters that are free to use; the most well known and frequently used one among them is Xe.com. Converters can be useful if you deal in the stock exchange, want to know how much your holiday money converts into, or you are paid online in a currency other than your own.
Currency sign – every currency has a sign to indicate which currency it is when an amount is written down. For example the British pound uses the £ symbol, and the Euro uses a symbol which looks a little like a capital C with two horizontal lines going through the middle of it. The dollar sign is represented by the symbol $, but it is often preceded by the initial letters of the country which uses it, since it is used in more than one location. So American dollars are often written as US$, Australian dollars are seen as AUS$ and Canadian dollars are represented by the symbol CA$. This helps to avoid any confusion, especially in the stock market.
Decimalisation – this refers to the process of changing a currency so that its sub units (the cents in a dollar for example or the pennies in a pound) add up to a hundred for every single main unit. So one Euro is made up from a hundred cents; similarly a single dollar comprises a hundred cents. A British pound contains a hundred pennies, whereas before decimalisation it contained two hundred and forty. Decimalisation made it easier to work out how much of a particular currency you had, and more importantly it made it easier to compare one currency to another. Apart from a couple of rare exceptions, every country in the world now uses the decimal system.
Deflation – the polar opposite of inflation (see separate entry). Deflation means that prices in general will go down, and although this might seem to be a good thing at first, continued deflation can be disastrous for an economy and a country. It can and has led to recessions and many people losing their jobs, which is why maintaining a steady balance between deflation and inflation is essential to maintaining a good economy.
Denarius – this was a common type of coin used in ancient Roman times. It was made from silver and had one of the longest histories of any coin issued in ancient times. Its name is still around today in a slightly changed form; the dinar is used in Algeria and Tunisia among other places.
Denomination – this is the word given to a particular value of currency. For example a currency may have six different types of banknote, each depicting a different amount of money. It would therefore be said that there are six different denominations of notes available. Every currency has a different number of denominations, depending on which coins and banknotes are the most useful and are still in circulation. It is not uncommon to get rid of the lowest denominations of banknote and more often coins as inflation makes them virtually redundant.
Depreciation – this is what occurs when a currency loses its value. This can be due to any number of reasons. For example, the currency state of the economy in America is one of the reasons why the dollar has depreciated somewhat. Depreciation can lead to big losses on the stock market and it also affects the value of things. If your own currency is the dollar and you want to turn it into Euros for your annual holiday, you will get less Euros for your money now because of depreciation than you would have got some time ago. If you want a better deal you will have to wait until the dollar regains some of its strength.
Digital currency – this is becoming more widespread with the advent of the internet. A digital currency is one which doesn’t actually exist in any real form. It is merely numbers and amounts which we make transactions with online. It may also be used to describe payments made via credit and debit cards, since no actual money changes hands in these instances either. There are also a number of digital currencies available online which allow people to exchange their own currency for a digitally existing one, and pay other people who accept that currency with it. The best known of these is eGold, which is actually a type of commodity money. This is because it is backed by gold reserves.
Dollar – the primary currency of the United States of America, with variations also used in Canada, Australia and New Zealand primarily. Ironically the word dollar actually has European roots, since it comes from the word ‘thaler’, the name given to a silver coin made in Bohemia some five centuries ago. Spanish dollars came into existence in the 1700s, and when the Americans finally decided on their own currency they used the name dollar.
Dow Jones Index – often referred to simply as the Dow Jones, this is the American equivalent of the FTSE 100 Index (see separate entry) and the Nikkei 225 Index (see separate entry). It lists the top one hundred performing companies in the United States and just like the other two indexes it is updated regularly. The name Dow Jones refers to a big publishing company that is actually responsible for publishing the Wall Street Journal, so it has its finger on the pulse of what is going on in the financial world. The name is an amalgamation of two surnames – Charles Dow and Edward Jones were two of the people who originally created the company more than a century ago.
Euro – the European single currency which has done away with more than a dozen different currencies since it became legal tender and replaced them all in 2002. Many people were highly sceptical of the Euro but it has proved itself remarkably well on the world stage. It has even threatened the dollar by providing a strong challenge to take over as the world’s top reserve currency, and many people think that it will succeed in doing so in the next few years. While the Euro is not yet used over the whole of Europe, it has proved to be a success in general and may yet be adopted by more countries.
European Central Bank – this was created to oversee everything to do with the introduction of the Euro and how it affected the countries that adopted it rather than keep their own currency. It celebrates its first decade in existence in 2008 and is housed in Frankfurt in Germany. Just as with any other major bank in a country, it decides what the interest rates should be, affecting every single country in the so-called Eurozone. It is also the only place that makes and distributes the banknotes which form part of the Euro currency.
Exchange rate – this is the mechanism by which we can compare one currency to another. The exchange rate varies on a minute by minute basis, depending on how well a country’s economy is doing and a number of other factors as well. So for example if you want to swap your British pound for American dollars, you might get more money for it today than you would tomorrow, or vice versa. There are a number of internet sites that will calculate the current exchange rate for you if you enter the amount of the currency you want to exchange with the name of the currency you want to exchange it for.
Fiat currency – this is a type of currency that has no real value other than what is written on the face of the coins or banknotes used. Fiat money generally operates on a system of trust and nothing else. In reality it is not worth anything. Every country in the world currently uses fiat money as its system of exchange, although there has been a lot of discussion about whether it would be wise to go back to using currencies that are backed by gold and will therefore never become wildly devalued.
Fictional currency – this is a currency which doesn’t exist in the real world. Fictional currencies are often created for the purpose of a book or film, to indicate a world which is usually set in the future or in outer space. A good example of a generic fictional currency is that of credits, used in many a novel and programme. But just as in the real world, fictional currencies are used to underpin the way that world works, and they have a value which relates directly to the cost of the various goods and services which can be bought. However there tends to be only one currency in these cases, rather than a mixture of different ones as we have now.
Finance – this word is used to describe many different areas of money. If you work in a financial position you will be involved with money in some way, but this may cover any one of a number of roles. Finance generally refers to the modern world of money however, rather than the ancient monetary systems that were in use. Money markets are also of financial interest, as they largely dictate the value of money as it is exchanged between people and countries.
Fixed interest rate – loans and mortgages come with an interest rate attached to them, which can be one of two types. If it is a fixed interest rate, this means you will be paying the same amount of interest for a specified length of time. For example, you might be paying 5.25% interest every year for five years until the original loan is paid off. Fixed interest rates tend to be higher than variable interest rates (see separate entry) but they are more secure since it doesn’t matter if the interest rate in general goes up as your rate will remain the same.
Float – when a company decides to issue shares so that people can buy a share in that business, it ‘floats’ on the stock market. The term also refers to the number of shares which can be bought and sold on that market. The more shares which are available to float on the stock exchange, the more stable and reliable the shares tend to be.
Forex – this word is an amalgamation of the phrase foreign exchange. It refers specifically to the practice of exchanging currencies rather than any other type of commodity or stocks and shares. If someone deals in the Forex markets they basically try to buy and sell currencies in the hope of making some money by doing so. In this sense Forex trading is a very specific type of trading, and some people who get involved in Forex gain enough knowledge to become experts at it.
Franc – the franc was the currency of France up until 2002, when the country ditched it in favour of the brand new Euro. Its roots go way back to 1360, so it had a long history before it finally met its maker. It was divided into one hundred centimes once it adopted the decimal system in 1960 – six hundred years after it was first introduced.
FTSE 100 Index – this is essentially a list of one hundred companies that represent the most valuable companies on the London Stock Exchange. It may surprise you to know that the FTSE 100 (to give it its shortened name) only came into being in 1984. Many people imagine it has been around for much longer than that. While you are not likely to make a lot of money by buying and selling shares in the top one hundred companies in the index – simply because they tend to be established and very stable – it is a good place to start buying shares since you are not likely to lose a lot of money in doing so.
Gold Standard – this was a monetary system that used to be used quite regularly in different countries of the world. A currency which conforms to the Gold Standard is essentially a commodity currency, since it is backed by a commodity – in this case gold. Over the past few decades every currency in the world which was on the Gold Standard decided to come off it, and revert to using a fiat currency instead. There is more talk now of returning to it since currencies which are pegged to the Gold Standard tend to be more stable than ones which aren’t. The current situation with the fragility of the dollar has led to discussion about doing this, although if it does happen it will be some time before it actually comes to fruition.
Historical exchange rates – these are rates which were in effect at a fixed point in history. Some websites provide historical exchange rates to help people work out how much a certain currency was worth in the past. This can be useful for a number of reasons, and Forex (foreign exchange) traders in particular use it to help them work out how a currency has performed over recent weeks and months. To find out how much a currency was worth in the past, you need to enter the amount and the name of the currency as normal, together with the date or dates that you need information for. You can normally search back at least twelve years or more to find the information you need.
Hyperinflation – this is a more dramatic version of inflation, and it can cause a lot of damage to a country’s economy and way of living. Two main things characterise hyperinflation; firstly it is a form of inflation that occurs in a very short space of time, and secondly it is very high – much higher than inflation in a country should go even over the space of a few years. This causes major problems with that country’s currency, because it effectively becomes devalued and is worth very little. For example hyperinflation in Britain may result in a load of bread costing something like £10 or £20. Many countries that have undergone hyperinflation end up having to have their currency re-valued in order to start getting back on their feet again. While hyperinflation can occur very quickly when it gets out of control, it can take some time for the country affected to get back on an even keel again.
Inflation – this is the term given to the ever increasing price of goods and services. Inflation occurs naturally due to a number of factors, and it means that your money will stretch further this year than it will next year. Inflation has resulted in a number of low value coins and sometimes even banknotes being taken out of circulation at various points in many countries, since they are effectively no longer worth anything. One example is the tiny half penny coin in Britain, which was taken out of circulation in 1984, much to the relief of the nation, which didn’t like it one bit.
Interest rate – this applies to both borrowed and saved money. Banks make money from the interest rates they set on money that is borrowed from them, for example. The rate is expressed as a percentage which is then applied to the overall amount you have borrowed. So if you borrow a sum of money at 5%, you will effectively pay £5 in interest for every £100 you borrow. The amount you actually pay in interest may vary depending on whether the rate is fixed or variable however (see separate entries).
ISO Code – this is a four digit code which relates to a specific currency. Each currency has its own unique number that is recognised in all the countries around the world. ISO stands for the International Organisation for Standardisation – thus using the initial letters in the wrong order. The code also incorporates three letters which refer to the main country which uses the particular currency and also to the actual money. So Great Britain’s pound is represented as GBP. If a currency is got rid of – as happened with several currencies when the Euro came to life back in 2002 – those defunct currencies still retain their ISO code. This can be useful if anyone wants information on a particular exchange rate that occurred several years before the Euro replaced the old currencies.
Lender – this term is used to describe anyone who lends money to someone else. It usually applies to large organisations such as banks and building societies. It can refer to a simple cash loan, a mortgage to buy a property with, or any other kind of item or amount which is lent to someone else.
Liabilities – this is a word that can be applied to the financial situation of both an individual and a company. Liabilities are things which you have to pay for and therefore you cannot count them as proper assets. For example let’s say you are working out the net worth of your business and you have recently bought two new computers which are not yet paid for. You would have to include these among your liabilities. If however you had paid for them in full as soon as you got them, they could then be counted as assets.
Liquid assets – when we are talking about a company’s liquid assets, we are referring to the amount of cash that company has available in its various accounts. The term also refers to the amount of assets the company has which it could sell very quickly, thus turning them into cash. These can be anything so long as the company is able to liquidate them very quickly.
Lock in – this phrase is another way of promoting a fixed interest rate (see separate entry). If a bank offers to lock in the interest rate on a loan for a certain length of time, they are basically saying that they will not change that interest rate at any point during that time. You are effectively ‘locked in’ and are secure in the knowledge that it cannot rise.
London Bullion Market – this is a market set up specifically to trade gold and silver. This isn’t a market in which the average person can become involved; rather it is limited to major banks and other organisations which are capable of trading large amounts of these precious metals.
London Stock Exchange – this is the location in the capital where shares are bought and sold on a daily basis. According to their website over six hundred thousand trades are made each and every day. The LSE, as it is sometimes referred to, is one of the world’s best known stock exchanges, and has a history which stretches back over three centuries.
Mark – the mark is the shortened term given to the now defunct German currency, the deutsche mark. The Germans got rid of the mark in favour of the Euro back in 2002. While the deutsche mark was not one of the world’s biggest reserve currencies (see separate entry) it was still one of the world’s strongest, particularly in its later years. It did however go through a number of changes in its long history, especially in the 20th century. Other variations of the mark have been used in other countries as well.
Mint – a mint is the location where coins are made for distribution among the countries which use them. One mint may make coins for several different countries and not just the country it is located in. A mint has to be authorised by the government of that country to produce coins, and it will also usually produce commemorative sets, gift sets and other items related to coinage which will be of interest to the coin collector. For example as well as producing coins for general circulation it may also produce those same coins as gold and silver proof sets, which are understandably far more expensive and sometimes go into thousands of pounds to buy.
Monetary system – a monetary system is a mechanism that drives a particular country. It comprises a specific currency which is used in that country and also includes an economic system which is designed to keep the country functioning and competitive on the world stage.
Money magic – this is a term often used to describe the wide range of magic tricks which can be done with either coins or banknotes. Money magic has been around for decades and its charm lies in the fact that it can be done as a close up trick, right in front of the magician’s audience. Money has always been a fascination for everyone, so to see it used in such a way always intrigues and delights.
Money supply – this is the term given to the amount of money that is in circulation in a particular country. This is controlled by the government of that country and has to be carefully balanced so as not to devalue the currency itself. If too much money is released into circulation this is exactly what will happen – and indeed this has happened in history in the past. This is one problem associated with fiat currencies (see separate entry) since they can literally be made in infinite amounts.
Moneygami – this is a twist on the art of paper folding more commonly known as origami. Moneygami uses banknotes instead of paper and as such it can be harder to do more complex designs since most standard origami shapes start with a square piece of paper. Moneygami does take advantage of the fact that banknotes all have pictures of people on them however, and tends to incorporate these people into the finished design. This makes the finished result very entertaining.
Monopoly – apart from being the name of a famous board game based around the concept of buying and selling property, this word also refers to the situation in which a person or company has the sole right to sell something. If they have a monopoly on selling stock from a particular company for example, they can charge whatever amount they wish to anyone wanting to buy that stock. This can drive the price up much higher than it would go if there were several people or companies selling the same thing. Without a monopoly the prices tend to go down as everyone tries to get more sales by selling something more cheaply.
Net profit – in business terms, a net profit is the total amount of profit a company or business has made after all its relevant deductions have been taken off. A business will generally have a record of income and a record of expenditure; the net profit is arrived at by subtracting the expenditure from the income.
Nikkei – this is the name given to the Japanese equivalent of the FTSE 100 Index (see separate entry) and the Dow Jones Index (see separate entry). It reveals the cream of the crop in Japanese stocks and thus identifies the top companies which your money would be the safest to invest in. It is sometimes referred to as the Nikkei 225 Index, because it consists of the top two hundred and twenty five top performing companies in Japan. In the year 2010 it will celebrate sixty years since it was first created.
Non decimal currency – this is very rare now, although there are still one or two countries in the world that conform to this type of currency. Basically it defines a currency which does not use the decimal way of dividing its subunits; so instead of the currency being divided into a hundred parts, it can be divided into any other number – for example the pre decimal pound was divided into two hundred and forty parts.
Numismatics – this is generally regarded as the science and study of coins. Some definitions of this word also include banknotes and other monetary items in the description, since these are also money and numismatics is usually seen to refer to money as a whole. There are many different branches of numismatics, and no two numismatists (the people who study numismatics for pleasure or a living) will likely be involved in the same area. Some are coin collectors, while others sell coins for a living and perhaps even value them. Still others concentrate on areas such as forgeries.
Online banking – this is a relatively new phenomenon which is rapidly growing in popularity. It refers to the practice of managing your bank accounts (both current and savings accounts) online rather than having to visit your bank all the time. There are plenty of advantages to doing this, not least the fact that it is effectively open right round the clock, including Christmas Day. It is much quicker and easier to set up a bill payment online than it is to visit your bank or phone up and wait to be served. The key aspect to remember however is to make sure your computer and connection to the internet is secure.
Panic buying – this can happen from time to time in the stock market (see separate entry). Panic buying is when a large amount of people suddenly start buying the shares of a particular company in response to the news that those shares may be about to shoot up in value. People then rush to buy as many as they can in the hope of making a good profit.
Panic selling – this is the opposite to panic buying (see separate entry). If you are holding shares in a particular company and you suddenly find that company is experiencing problems that cause its share price to start going down, you may be tempted to rush out and sell your shares before you start losing money on them. This is an understandable reaction to what could be bad news, but if enough people sell their shares it could cause further problems for that company.
Paper money – this is another term given to banknotes. There is evidence of paper money existing in the eighth or ninth century in China, so it has been around for longer than you might think. Banknotes are more prone to being forged than coins, since they are invariably worth much more money. Various security measures are now incorporated into modern day paper money to ensure it is as copy free as possible. Despite the name, paper money isn’t always made of paper – American banknotes are made of cotton, and polymer banknotes (which last longer) are also now becoming more common.
Penny shares – these may seem to be a great idea for the small time investor to get involved with the stock market, but in reality that is far from the truth. A penny share is generally priced at less than $1 a share, or around 50p in UK money. It can be much lower than this however. This means you can buy a lot of shares for your money, but they are extremely risky and unless you have a lot of knowledge about what to look for and how to buy and sell them you would be best advised to steer clear and concentrate on more reliable – if more expensive – shares in well known companies instead.
Personal debt – this is the amount of money which an individual owes in total. This can include credit card debts, an overdraft, loans and a mortgage. All these are then added together to calculate the person’s total personal debt. If the amount is very large (excluding the mortgage, which is slightly different as it lasts over a much longer period of time and should be budgeted for accordingly) then it may be wise to take steps towards reducing the amount of personal debt someone has. This can increase the chances of being considered for a loan in the future.
PIN – this acronym stands for Personal Identification Number and it is a four digit number that you type into the keypad when you withdraw cash from a cashpoint. It is also part of the Chip and PIN system which has now been introduced into the UK as a way to help prevent card fraud and tighten security. When you pay for something in a shop using a credit or debit card you put your card into a card reader and enter your PIN number rather than signing your name. Provided you keep your PIN fully secure you will be far less likely to be the victim of fraud by using this method.
Polymer banknotes – these are a new type of banknote which has only come into being in the last few years or so. Polymer is a type of plastic which is much harder wearing than the usual paper or cotton mix used for banknotes. There are disadvantages though – polymer acts in much the same way as other types of plastic and is therefore quite hard to fold. This means it can be more difficult to tuck the notes away in your pocket or wallet. However because of their much longer lifespan they have replaced standard notes in several countries in the world, and look set to replace more still in the future.
Pound – the currency of the United Kingdom. It has its roots going way back into Anglo-Saxon times, and it is there that we can see why the pre-decimal pound consisted of 240 pennies. Coins back then were often made by weight, and it was that number that weighed a pound, which is where the currency’s name came from. The pound was decimalised in 1971 and remains as the country’s currency, resisting the suggestion that it should be ditched in favour of the Euro. Many of the country’s citizens are heavily opposed to getting rid of the pound, perhaps owing to its long history. It now remains as one of the world’s oldest currencies still in use.
QUID – this is the acronym for the Quasi Universal Intergalactic Denomination. It is a modern currency designed to be used by humans in space. It doesn’t look anything like any coins you may previously have seen; rather it looks like a small pebble. It comes in five different denominations and has been designed to be suitable for space travel, which our existing earthbound currencies are not. This is one of the best cases of a currency which has been designed specifically to be used in a certain situation or region. It has also been given a basic exchange rate with other earthbound currencies. A quid is also another name and colloquialism for the British pound.
Reserve currency – this is the name given to a currency that is available in such large quantities that many of the world’s main banks hold a huge amount of it in reserve. It can then exchange that currency for another currency if it should need to. The key aspect of a reserve currency is that each country will hold the strongest foreign currency available in its reserves. It won’t hold its own currency for obvious reasons. The main reserve currency of the world is currently the dollar, but due to its relative instability this position is starting to look threatened by the Euro. Many people believe the Euro will in time become the world’s top reserve currency, and it is certainly true that no currency holds the position for ever. The pound sterling was the top choice before the dollar toppled it some decades ago.
Right of coinage – this term is more often used to describe the period of time in history when more people had the right to make their own coins. Different types of coinage were present in different regions of the same country back in those days, which meant that many currencies became very unstable as more people decided to coin their own. As time went on, the right of coinage was given to less people and nowadays it is only the mints and those organisations which make money for the governments of each country that are allowed by law to make coins and banknotes for general use.
Royal Mint – this is the organisation which is responsible for creating all the legal tender coinage which is used in the United Kingdom. Not everyone realises however that the Royal Mint also makes coins for many other countries throughout the world that don’t have access to their own mints. The Royal Mint also makes a number of commemorative releases each year, and while some of these are intended for general circulation other ones are meant only for coin collectors.
Shares – if a company is floated on the stock exchange, its assets are divided up into shares which people can then buy. Each share represents a portion of that company and as such you would be the owner of a small part of that company. If the shares go up in value and you sell them at a higher price than you paid for them, you would make a profit. Nothing is certain though and if you buy shares and then find they go down in value you are often better off holding onto them until they go back up again. The old adage ‘buy low, sell high’ is easy to say and much less easy to do.
Shaving – this is a procedure which people use to perform on coins in ancient times. Coins back then were often made from gold or silver, and were therefore worth a lot more than our coins are today. Because coins used to be uneven in size and shape anyway (although still remaining basically round) people used to literally shave a little of the precious metal off from the sides without it being noticeable. This allowed them to start creating a small stash of precious metal which they could sell at a later date. They were quite literally making money from nothing. This was of course illegal, and is one of the reasons why later coin designs were made to include a design around the edges, so it would be obvious if anyone tried to shave off a little of the gold or silver.
Single Global Currency Association – this is a small organisation that is determined to encourage the citizens of the world to switch over to one unified currency, rather than relying on some two hundred separate ones as we do at the moment. The association is presided over by Morrison Bonpasse, and he aims to succeed in his quest for a single currency by the year 2024, according to the latest information on the website. At the moment a poll conducted on the site shows that the majority of people are split equally between being strongly for or strongly against a single global currency.
Sort code – this is a six digit code which is linked to all bank and building society accounts in the United Kingdom. Its main purpose is to identify a particular branch of a bank, and so every branch will have its own unique six digit number to identify it. The sort code will usually appear on the bottom of each cheque in a cheque book, as well as on any bank cards that are associated with accounts at each branch.
Sterling – this is the name that the British pound is also known by. It derives from the fact that the pound used to refer to the same name in weight; two hundred and forty silver pennies weighed a pound, and a ‘pound sterling’ referred to sterling silver itself. It has stuck with the currency right through to the current day, even though no silver is now used in any of the coins – let alone the bronze coloured penny – and there are now of course a hundred pennies to the pound, thanks to the effect of decimalisation.
Stock broker – some people buy and sell shares on their own, purely because they feel they have enough knowledge to be able to do so without help. But this doesn’t apply to everyone. Most people who want to buy and sell shares need some assistance and this is provided by stock brokers, who buy and sell the shares according to the instructions of their clients. A stock broker is also able to advise their clients when to sell and buy particular shares, although this is always just given as advice and is not done without the say so of the investor.
Stock market – this is a place in which you can buy and sell shares belonging to a particular company or group of companies. These shares are known as parts of a company’s stock, and are therefore traded on the market in the hope of realising a profit. You may also buy shares in a particular company and hold them until such time as you believe you can sell them to make a profit. A stock market is also sometimes known as a stock exchange. The most famous examples are Wall Street in America (see entry on Wall Street) and the London Stock Exchange (see separate entry).
Sub unit – this is the term given to what a particular currency is made up of. So for example the pound is made up from one hundred pence; the Euro is made up from one hundred cents; and the yen is made up from one hundred sen. Sometimes the sub unit will fall into disuse; this happens most often because of rising inflation, which renders the sub unit useless, and the people carry on using the main unit of currency instead.
Tax – this is a charge everyone pays on their income. Tax is usually structured on different levels, so each person will pay a different amount depending on how much they are earning. In the UK most people are also taxed on their savings, which essentially means that you are taxed twice since that income has already been taxed before you receive it. Self employed people are responsible for paying their own taxes and will therefore receive their income before they pay any tax.
Treasury – this is the term given to a government building where the money of that particular country is kept. As you might assume, the word treasury derives from the word treasure, and that is what used to be kept in the ancient versions of our modern treasuries. Nowadays we tend to keep money rather than jewels and gold, and the role of a treasury has changed somewhat. If you think of a nation’s treasury as being something like a huge bank, you will be on the right track. The money that a country has is kept there and whenever the citizens of that country pay money to their government for taxes it will be added to the reserves. This is then used to pay out for essential services and goods that the government needs for the country as a whole.
Variable interest rate – if you take out a loan or mortgage with a variable interest rate, this means it can change whenever the issuing party wants to change it. This might mean it goes up or down depending on what the interest rate in general does. A variable rate deal will usually be lower than a fixed rate deal, but you are at the mercy of the interest rates in general. If they go up your variable rate is very likely to go the same way, and you could end up paying more in interest than if you had gone for the fixed interest rate deal.
Wall Street – this is the term often used to describe the New York Stock Exchange, which is located on Wall Street itself. The street name is synonymous with the financial district and indeed the Great Crash of 1929 is known widely as the Wall Street Crash. This occurred when the prices of shares dropped sharply and continually after a long period of successful trading that many thought would eventually have to come to an end. Wall Street is also used to describe other financial businesses (as a ‘Wall Street business’) even though they may be located in another street entirely.
Wampum – this is one of the earliest forms of money and was used by the American Indians. Wampum is made out of shells, usually whelks or clams. Wampum comes in two colours, white and purple; the white is the most common shell and is therefore not deemed to be worth as much as the purple one, which is less common. Wampum was made into beads which each had a hole in them, so that they could be strung together and worn around the neck. Wampum is still made today, although it isn’t used as money any more.
Working capital – this is a term which applies to a business and its assets. While a lot of the value of a company may be tied up in assets of all kinds, the working capital of a business refers to the amount of money that business has available to pay bills and buy stock. It could also be referred to as a float. The working capital of a business is extremely important because it can keep a business going from day to day. It is perfectly possible for a business to be highly valued on paper and yet fold due to lack of money – purely because that money is not readily available as working capital.
Yen – the yen is the currency used in Japan. It is also one of the most popular currencies involved in currency trading, partly due to its relative stability and also to the sheer amount that is available to be used. The yen has two subunits, the sen and the rin. There are six coins which are in common use, two of which have holes through the middle and hark back to ancient times when people used to keep coins on a piece of string and hang them around their neck.