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, 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.
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.
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.
Income, such as interest, wages or dividends, before tax and other charges are removed.
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.
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.
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%.
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.
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.
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.
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.
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.
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.
A company quoted on the stock exchange which invests its shareholders money in the shares of other companies.
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.