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Last Updated: Thursday, 15 April, 2004, 16:24 GMT 17:24 UK
Financial terms E - J

What makes a bond junk? Find out in this, our E - J glossary of financial terms.

Earnings Per Share (EPS)
EPS is a good measure of a company's profitability, as it shows how many pence is being earned for every share held. It is a ratio calculated by dividing a company's net income by the current number of shares in issue, and is one of way of determining what value the shares should trade at. For example, if a company makes 10m and has 100m shares in issue, it's EPS is 10 pence.

Effective Annual Rate (EAR)
The amount of loan interest charged each year by a lender. Unlike the Annual Percentage Rate (APR) it does not include charges and fees and can therefore be misleading when it comes to calculating the cost of a loan.

Endowment
A savings and insurance plan you pay into on a regular basis, usually monthly. Money is mostly invested in stocks and shares over a fixed period. Endowments can be attractive as they could provide a cash lump sum upon maturity. However, there are many cases of shortfalls because the stock market has not performed as well as expected. The insurance part is a life insurance policy that covers payments into the investment in the event you die.

Endowment Mortgage
This is an interest-only mortgage, which should - all being well - be repaid by the proceeds of an endowment policy.

Equities
Another name for shares in a listed company.

Ethical Investment
Investments made in companies which are deemed to be responsible corporate citizens. Ethical investments tend to exclude companies involved in tobacco, gambling, arms and some mining operations.

Euro (The)
The European single currency adopted in 1999 by 11 members of the European Union.

Eurozone
The geographical and economic area including those European Union countries which have adopted the euro.

Exceptional
An accounting term used to describe large, usually one-off, costs or windfalls attributed to a company during a given reporting period. These items can have a dramatic effect on the overall profit or loss of a company.

Excess
An insurance term that refers to the amount of money a policyholder agrees to pay before their insurance company begins to pick up the tab for a claim. For example, in a car accident a policyholder might pay the first 200 of a 2,000 claim. The aim is to stop us claiming on smaller, more common, incidents.

Execution-only Broker
A stockbroker who offers no investment advice. Usually these brokers offer the cheapest means of buying or selling shares.

Exchange of Contracts
This is the first official deadline in the housebuying process. At this stage a deposit will be transferred from the buyer to the seller's solicitor and both parties become legally obligated to complete the sale. A withdrawal by the buyer will mean they lose their deposit.

Exchange Traded Fund

An exchange traded fund (ETF) is a type of tracker fund. It differs from a standard tracker fund because it is set up as a listed company, which means investors can buy and sell shares in them on the stock market through most UK stockbrokers. In a traditional tracker fund you can only trade (buy and sell) units with the company that manages the fund.

ETF share prices are listed in the financial pages under London Shares in a section entitled Exchange Traded Funds.

In America the funds are also called SPDRs, pronounced spiders, which stands for S&P Depositary Receipts.

Exclusions
Events not covered by an insurance policy. A typical example of an exclusion on a travel insurance policy is an injury arising from dangerous sports.

Exit Charge
A fee levied on the sale of an investment, typically a unit trust.

Final Salary Scheme
A company pension scheme that is worked out according to length of service and salary on retirement. They are highly valued by many people but increasingly rare.

Fixed Rate Mortgage
A mortgage that has an interest rate which does not move with market fluctuations. This means you can fix your monthly repayments in advance, helping you to plan your financial future. The fixed term can last anything from one year to 25 years. The downside is the mortgages often come with heavy fees and penalties. And, if interest rates fall, you could be locked into a high rate.

Flexible Mortgage
This is a mortgage that allows you to vary your monthly repayments. The advantage is that, if you have extra money, you can pay your mortgage off early and so reduce its cost. Also you can put payments on hold if times are lean. In exchange for this flexibility the loans usually charge more interest.

Flotation
When a company first sells its stock to the general public, through a stock market, it is said to have floated.

Friendly Societies
Mutual organisations that provide savings and life insurance plans to their members. They benefit from special tax treatment but investors can only put away very small amounts, currently 25 a month.

Freehold
When a homebuyer purchases the property and the land it is on they are said to have a freehold title. Most houses are freehold, while most flats are leasehold.

Front-end Loading
A common practice among investment and insurance companies that sees them charge the bulk of fees in the early months of a new savings plan. The advantage to them is that they get their money upfront. But for the saver it means that real returns are low and sometimes negative in the first months.

FTSE
Stands for Financial Times Stock Exchange. The FTSE UK indices are the benchmark for measuring how companies are performing in the market. The FTSE 100 Index was created in 1984 with a base of 1,000 to contain the 100 largest UK companies by market capitalisation. It is owned by the London Stock Exchange and the Financial Times.

Fully Comprehensive
A motor insurance policy that covers you for damage to your vehicle and other drivers' vehicles.

Fund of funds
A managed fund that invests in other managed funds, usually unit trusts.

Futures
These should carry health warnings... losses can be unlimited! Only for the very experienced investor, or for those without high blood pressure. A future is a contract for an investor to take delivery of a bond, commodity or share
at a specified price at a specified future date.

Gazumping
The morally questionable, but legal, practice of accepting a higher bid for a property after already accepting an offer on it. Tends to be far more common in strong housing markets.

GDP
Gross Domestic Product. GDP is usually rolled
out around Budget time. It is the grand total of all the consumer and government spending, investments and exports minus the value of imports.

Gearing
Gearing, or 'leverage', as it is called in the States, is the percentage of borrowing compared to the percentage of assets. In simpler terms, it means borrowing money, generally from a bank, in order to invest it. Investment trusts, both conventional and split capital, are able to do this because they are companies. The gearing ratio measures the percentage of capital employed that is financed by debt and long term finance. The higher the gearing, the higher the dependence on borrowings, and the higher the level of financial risk due to the increased volatility of profits.

Gilts
The name given to bonds which are issued by the UK government. They are IOUs which offer the purchaser a fixed rate of interest for a fixed period of time. At the end of the agreed period, the original loan is repaid. Many gilts are not held until maturity and a secondary market has developed in which these IOUs are bought and sold.

Globalisation
The world is shrinking thanks to advancing technology. Depending on what you read, this increasingly interconnected global marketplace is either the best or the worst thing to happen. Meetings of bodies such as G8, the International Monetary Fund and the World Bank often generate large demonstrations.

Gross
Income, such as interest, wages or dividends, before tax and other charges are removed.

Grey Market
An unofficial market in a good or service. Grey markets are particularly common in share trading where it refers to share sales not made on the official stock exchanges.

Hang Seng Index
The 33 largest companies on the Hong Kong stock market.

Hedging This is a form of insurance - you "hedge" your investment against risk. When hedging you buy two investments that will have an opposite response to market forces. So, if one rises the other will fall, leaving you in the same position.

Hedge Funds
These are funds usually used by wealthy private investor or institutions. Hedge funds are restricted by law to no more than 100 investors; the minimum contribution is typically $1m! The first hedge fund started in New York on 1 January 1949. Hedge fund managers sell stock short and trade in options of the shares they hold.

Higher-rate Income Tax
Income tax paid by higher earners. In the 2004-2005 tax year that is those earning over 31,400 a year. Higher rate tax is currently 40%.

High-Tech Stock
Technology shares reached a peak in February 2000 as the dot.coms became ever more popular, before crashing spectacularly a month later. They are a very volatile sector of the stock market. The New York-based NASDAQ and the Techmark 100 in the UK both specialise in high-tech stock.

Income Multipliers
When it comes to getting a mortgage, this is the most common way lenders work out how much you can borrow. The standard multipliers are three times a single person's salary, or two-and-a-half times a couple's joint salary. So if you were earning 20,000 a year, you could borrow 60,000 (20,000 X 3). Add your partner's salary of 20,000 and the amount you can borrow increases to 100,000 (40,000 X 2.5).

Independent Financial Adviser (IFA)
An individual or a firm that is licensed by the financial watchdog, the Financial Services Authority, to carry out the business of advising on and selling financial products. Independent financial advisers are not committed to sell any single firm's products and are obliged to give "best advice" when recommending products to clients.

Index Tracker Funds
Commonly shortened to simply tracker funds, these are investments whose returns mimic that of a nominated index, like the FTSE All-Share. They do this by maintaining the same proportion, or weighting, of shares as is present in the real index. Or by buying derivatives that mimic the chosen index. The funds are generally cheaper than managed funds, which rely on human judgement to guide investment decisions.

Individual Savings Accounts (Isas)
Isas are government approved investments that allow you to tuck away up to 7,000 a year in tax-free investments. They were Introduced in 1999 to replace Tessas and Peps.

Inflation
Remember when Mars Bars were 9p? Now they are more than 30p. That's inflation at work - people needing more money to buy less. You might think prices are going up all the time, but it's nothing compared to the hyperinflation in 1920s Germany. Money literally was not worth the paper it was printed on - it took a wheelbarrow full to buy a loaf of bread!
Ironically, banknotes from the Weimar Republic are now so rare, they are worth quite a bit!

Inheritance Tax (IHT)
The last twist of the taxman's knife. Inheritance tax is due on the value of a deceased person's estate. In the 2004-2005 tax year it is charged at a single rate of 40% but only applies to amounts over 263,000. Money left to a spouse is exempt as are gifts made more than seven years before a person dies.

Interest
The amount charged by the lender for the borrowing of a certain amount of money. How much it is depends upon the credit risk of the borrower and the current inflation rate. It can also refer to the return upon an investment.

Interest-only Mortgage
This is where monthly payments cover only the interest on a mortgage. The outstanding balance remains the same, so the borrower
needs to make additional investments to ensure the full amount can be repaid at the end of the mortgage period.

Initial Public Offering (IPO)
The first offering of a company's shares to the general public. This is known as floating on the market.

Insolvency
A company is insolvent if it doesn't have enough assets to pay its debts as they fall due. An individual is insolvent if he or she is unable to discharge his or her debts as they fall due. An insolvent company goes into administration, administrative receivership or liquidation. An insolvent person becomes
bankrupt. A company never goes bankrupt in the UK, although this term is used in the United States.

Investment Trust
A company quoted on the stock exchange which invests its shareholders money in the shares of other companies.

Junk Bonds
Like other bonds these are IOUs issued by companies. The difference being that these companies are perceived to carry a high risk of never repaying the money loaned to them. In order to persuade investors to accept this risk, the interest rates offered by junk bonds can be much higher than those offered by many other types of bonds.



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