EconomicTerminology

Amortisation: The running down or payment of a loan by instalments.

Appreciation: A rise in the value of an asset and the opposite of depreciation. When the value of a currency rises relative to another, it appreciates.

Arbitrage: Buying an asset in one market and simultaneously selling an identical asset in another market at a higher price.

Balance of payments: The total of all the money coming into a country from abroad less all of the money going out of the country during the same period.

Bankruptcy: When a court judges that a debtor is unable to make the payments owed to a creditor.

Barter: Paying for goods or services with other goods or services, instead of with money.

Basel 1 and 2: An attempt to reduce the number of bank failures by tying a bank's capital adequacy ratio to the riskiness of the loans it makes.

Basis point: One one-hundredth of a percentage point. Small movements in the interest rate, the exchange rate and bond yields are often described in terms of basis points. If interest is increased from 5.75% to 6%, it has risen by 25 basis points.

Behavioural economics: A branch of economics that concentrates on explaining the economic decisions people make in practice, especially when these conflict with what conventional economic theory predicts they will do. Behaviourists try to augment or replace traditional ideas of economic rationality (homo economicus) with decision-making models borrowed from psychology.

Beta: Part of an economic theory for valuing financial securities and calculating the cost of capital, known as the capital asset pricing model, beta measures the sensitivity of the price of a particular asset to changes in the market as a whole.

Bond: A bond is an interest-bearing security issued by governments, companies and some other organisations. Bonds are an alternative way for the issuer to raise capital to selling shares or taking out a bank loan. Like shares in listed companies, once they have been issued bonds may be traded on the open market.

Bretton woods: A conference held at Bretton Woods, New Hampshire, in 1944, which designed the structure of the international monetary system after the second world war and set up the IMF and the World Bank.

Bubble: When the price of an asset rises far higher than can be explained by fundamentals, such as the income likely to derive from holding the asset.

Budget: An annual procedure to decide how much public spending there should be in the year ahead and what mix of taxation, charging for services and borrowing should finance it.