- Industry: Economy; Printing & publishing
- Number of terms: 15233
- Number of blossaries: 1
- Company Profile:
Regulations governing the minimum amount of reserves that a bank must hold against deposits.
Industry:Economy
Money in the hand, available to be used to meet planned future payments or if some other need arises. Firms may put their reserves in a bank, as a deposit. For a bank, reserves are those deposits it retains rather than lending them out.
Industry:Economy
When you buy an asset you become exposed to a bundle of different risks. Many of these risks are not unique to the asset you own but reflect broader possibilities, such as that the stock market average will rise or fall, that interest rates will be cut or increased, or that the growth rate will change in an entire economy or industry. Residual risk, also known as alpha, is what is left after you take out all the other shared risk exposures. Exposure to this risk can be reduced by diversification. Contrast with systematic risk.
Industry:Economy
The chance of things not turning out as expected. Risk taking lies at the heart of capitalism and is responsible for a large part of the growth of an economy. In general, economists assume that people are willing to be exposed to increased risks only if, on average, they can expect to earn higher returns than if they had less exposure to risk. How much higher these expected returns need to be depends partly on the probability of an undesirable outcome and partly on whether the risk taker is risk averse, risk neutral or risk seeking. During the second half of the 20th century, economists greatly improved their understanding of risk and developed theories of risk management, which suggest when it makes sense to use insurance, diversification or hedging to change risk exposures. In financial markets the most commonly used measure of risk is the volatility (or standard deviation) of the price of, or more appropriately the total returns on, an asset. Often added to the risk profile are other statistical measures such as skewness and the possibility of extreme changes on rare occasions. (See stress testing, scenario analysis and value at risk. )
Industry:Economy
The process of bearing the risk you want to bear, and minimizing your exposure to the risk you do not want. This can be done in several ways: not doing things that carry a particular risk; hedging; diversification; and buying insurance.
Industry:Economy
Someone who is insensitive to risk. Risk-neutral investors are indifferent between an investment with a certain outcome and a risky investment with the same expected returns but an uncertain outcome. Such people are few and far between.
Industry:Economy
Any income that is not spent. Ultimately, savings are the source of investment in an economy, although domestic savings may be supplemented by capital from foreign savers or themselves be invested abroad. In an economic sense, savings include purchases of shares or other financial securities. However, many official measures of a country’s savings ratio--total savings expressed as a percentage of total income--leave out such financial transactions. At times when the demand for financial securities is unusually high, this can give a misleading impression of how much saving is taking place. How much individuals save varies significantly among different age groups (see life-cycle hypothesis) and nationalities. Everywhere, people of all ages save more as their income rises. The supply of savings rises when interest rates rise; a rise in interest rates causes demand for funds to invest to fall; a rise in demand for investment funds may cause interest rates, and thus the cost of capital, to rise. The level of savings is also influenced by changes in wealth (see wealth effect) and by taxation policies.
Industry:Economy
The cost of finding what you want. The economic cost of buying something is not simply the price you pay. Finding what you want and ensuring that it is competitively priced can be expensive, be it the financial cost of physically getting to a marketplace or the opportunity cost of time spent fact-finding. Search costs mean that people often take decisions without all the relevant information, which can result in inefficiency. Technological changes such as the internet may sharply reduce search costs, and thus lead to more efficient decision making.
Industry:Economy
A market in second-hand financial instruments. Bonds and shares are first sold in the primary market, for instance, through an initial public offering. After that, their new owners often sell them in the secondary market. The existence of liquid secondary markets can encourage people to buy in the primary market, as they know they are likely to be able to sell easily should they wish.
Industry:Economy
Financial contracts, such as bonds, shares or derivatives, that grant the owner a stake in an asset. Such securities account for most of what is traded in the financial markets.
Industry:Economy
