E-L

The Investment Research Partnership

E-L


E F G H I J K L
Economic Cycle	The course an economy conventionally takes as economic growth fluctuates over time. Also known as the Business Cycle.

Economic Growth	The growth of GDP or GNP expressed in real terms usually over the course of a calender year. Often used as a barometer of an economy's health.

Economies of Scale	The resulting reduction in a firm's unit costs as the firm's productive capacity and output increases. Economies of scale are maximized and unit costs minimised at the Minimum Efficient Scale ( MES) on a firm's long term average total cost (LTATC) curve. Beyond this point diseconomies of scale set in.

Effective Rate	The annualised compound rate of interest applied to a cash deposit. Also known as the Annual Equivalent Rate (AER).

Efficient Frontier	A convex curve used in Modern Portfolio Theory that represents those efficient portfolios that offer the maximum expected return for any given level of risk.

EGM	Extraordinary General Meeting -a company meeting, other than an AGM, at which matters that urgently require a special resolution are put to the company's shareholders.

Emerging market	A small stock market in a newly industrialised or Third World country that is likely to become more significant on the world stage. Also a market for an embryonic industry which is expected to grow rapidly such as biotechnology.

EMU	*European Monetary Union* - the creation of a single European currency, the euro, and the European Central Bank (ECB), which sets monetary policy across the eurozone. Currently, 12 of the European Union's (EU) 15 members participate in EMU.

Enhanced scrip dividend	A tax efficient alternative form of dividend, whereby a shareholder receives an enhanced number of shares instead of a cash dividend.

EPS	*Earnings per share* - net profits divided by number of outstanding ordinary shares.

Equity	The part of a company's capital which confers equal share of the company's ownership and equal share of the company's risks.

Eurobond	A bond issued in the Euromarkets, effectively outside any one national boundary. May be denominated in any currency, and usually of medium or long-term maturity. Interest is paid gross to investors on submission of the relevant coupon.

Euronext	The Paris, Amsterdam and Brussels stock and derivatives exchange.

Exchange Rate	The price of one currency in terms of another.

Exchange Traded Funds	ETFs are a hybrid of a share and a pooled index fund. They are traded on a stock exchange like a single share throughout the day. They have the advantage of providing instant diversification like a fund by tracking an index. The performance of ETFs closely matches that of the relevant underlying index. Clearing and settlement of ETFs is dealt with like any other share and can be bought and sold through any stockbroker.

Ex-Dividend	The period during which the purchase of shares or bonds (on which a Dividend or Coupon payment has been declared) does not entitle the new holder to this next dividend or interest payment.

Exercise Price	The price at which the right conferred by an Option can be exercised by the holder against the writer.

Execution-only agreement	An agreement for a broker to deal without giving any advice.

Ex-Rights	The period during which the purchase of a company's shares does not entitle the new shareholder to participate in a rights issue announced by the issuing company. Shares are usually traded ex-rights on or within a few days of the company making the rights issue announcement.

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Fixed interest	Refers to bonds or loans where the annual or six monthly coupon and the maturity date are determined at the time of the bond's issue.

Flat Rate	The annual simple rate of interest applied to a cash deposit.

Flotation	The public offering of a security on a market or recognized stock exchange.

Floating Rate Notes	Notes Debt securities issued with a coupon periodically referred to a benchmark interest rate.

Forward	A derivatives contract that creates a legally binding obligation between two parties for one to buy and the other to sell a pre specified amount of an asset at a pre specified price o a pre specified future date. As individually negotiated contracts forwards are not traded on a derivatives exchange.

Forward Exchange Rate	An exchange rate set today, embodied in a forward contract, that will apply to a foreign exchange transaction at some pre specified point in the future.

Forward Rate	The implied annual compound rate of interest that links one spot rate to another assuming no interest payments are made over the investment period.

Free float	The proportion of a quoted equity that can be freely traded within a stock market. A strategic corporate holding will reduce this proportion and so reduce the liquidity of the shares.

FSA	*The Financial Services Authority* - the single statutory regulatory body overseeing most financial service providers in the UK .

FT indices	The UK 's first stock market index was published in 1935 by the Financial News, later absorbed by the Financial Times. It was then known as the Thirty-Share Index. This index was not a good long-term measure of portfolio performance and in 1962 the FT introduced the FT-Actuaries Share Index with 800 constituent shares to remedy the defect. A range of FTSE Actuaries share indices are now produced by the FT in conjunction with the Faculty and Institute of Actuaries .

FTSE 100 Share Index	Popularly known as ‘Footsie'; this index of the largest 100 UK shares by market capitalisation began life in 1984 with the benchmark value of 1000 to fill the need for a constantly updated index. Until then the FT index was updated once an hour.

FTSE 250 index	This UK index of the companies ranking just below the FTSE 100 in market capitalisation was introduced in 1992. The constituent companies sometimes perform quite distinctly from the larger often more international FTSE 100 companies.

Full Listing	Those UK public limited companies (plcs) admitted to the London Stock Exchange's (LSE) official list. Companies seeking a full listing on the LSE must satisfy the UK Listing Authority's (UKLA) stringent listing requirements and continuing obligations once listed.

Futures	An obligation to buy or sell a standard quantity of a specified asset on a fixed date at a price agreed today.

Future Value	The accumulated value of a sum of money invested today at a known rate of interest over a specific term.

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GDP	*Gross Domestic Product* - a measure of the level of activity within an economy. More precisely, GDP is the total market value of all final goods and services produced domestically in an economy typically during a calender year.

Gearing	The ratio of a company's debts normally expressed as a percentage of the ordinary shareholders' entitlement to the company's net assets (the debt-equity ratio). Thus low gearing implies a company's debts are moderate when viewed in the context of ordinary shareholder's funds.

Geometric Mean	A measure of central tendency established by taking both the nth root of the product (multiplication) of n values.

Gilts	UK bond issues made by “Her Majesty the Queen in the right of the United Kingdom ”. Called “Gilt-Edged Securities” because the original certificates were edged in Gilt. As UK Government bonds they are the benchmark for all sterling bond markets.

GNP	*Gross National Product -* GDP at market prices plus net property income generated from overseas economies by UK factors of production.

GRY	*Gross Redemption Yield* - the annual compound return from holding a bond to maturity taking into account both interest payments and any capital gain or loss at maturity. Also known as Yield to maturity (YTM).

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Hedging	Hedging A technique employed to reduce the impact of adverse price movements in financial assets held.

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IFA	Independent Financial Advisor - A financial advisor who is now tied to the products of any one product provider and is duty bound to give clients best advice. IFAs must establish the financial planning needs of their clients through a personal fact find and satisfy these needs with the most appropriate products offered in the market place.

IMA	Investment Managers Association - the newly formed trade association for the UK institutional and retail investment funds industry. The IMA was formed in February 2002 as a result of AUTIF and FMA merging.

IMRO	Investment Management Regulatory Organisation - a self regulatory organisation which is now part of the FSA.

Index	A single number that summarises the collective movement of certain variables at a point in time in relation to their average value on a base date or a single variable in elation to its base date value.

Index-linked gilt	A gilt, whose coupon and redemption price is linked to changes in inflation

Inflation	The rate of change in the general price level or the erosion in the purchasing power of money.

Investment Trust	A closed ended fund, listed on the London Stock Exchange, which invests primarily in a diversified portfolio of the shares and securities of other companies.

IPO	*Initial Price Offering* - a new issue of ordinary shares whether made by a offer for sale, an offer for subscription or a placing. Also known as New Issue.

IRR	*Internal Rate of Return -* A calculation of yield by which appropriate consideration is made of the current capital value and par value, the length of investment maturity and the effect of any cash flow (e.g. coupons) accruing until maturity. The resultant percentage is a compound annual yield which is one method of estimating investment return.

Irredeemable Security	A security issued without a pre specified redemption, or maturity, date.

ISA (or Isa)	*Individual Savings Accounts* - were introduced in the UK in April 1999 to replace the Personal Equity Plan and Tessa. An ISA is a tax-efficient way to save and invest. It is not an investment but a tax-advantaged “wrapper” used to hold a wide range of savings and investment products. With an ISA, the income and gains from savings and investment are free of personal taxes on maturity or withdrawal.

Issuing House	An institution that facilitates the issue of securities.

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Jensen's Alpha	The return from a security or a portfolio in excess of a risk adjusted benchmark return. Also known as Alpha.

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Key features	A statement of the management charges and objectives of an investment.

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LCH	*London Cleaning House* - the institution acts as central counter party to all trades executed on member exchanges.

LIBID	*London Inter bank Bid Rate* - a benchmark money market interest rate used by banks on Eurocurrency deposits. This would be the international rate that banks lend to other banks.

LIBOR	*London Inter bank Offered Rate* - a benchmark money market interest rate.

LIFFE	London International Financial Futures and Options Exchange.

Liquidity	The ease with which security can be converted into cash. Liquidity is determined by the amount of two-way trade conducted in a security. It also describes that amount of an investor's financial resources held in cash.

Loan Stock	A corporate bond issue in the domestic bond market without any underlying collateral or security.

Long Position	The position following the purchase of a security or buying a derivative.

LSE	London Stock Exchange - the UK market for listing and trading domestic and international securities.

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