What is an APR? What does it mean to hedge? What is a structured product? Our A, B, C of financial terminology can help you make sense of money matters.
account: a financial product where money is paid in and taken out of. For example, your current account is where your salary is paid into and you drawn money out to meet living costs.
accountant: a qualified expert who reviews accounts and assists in tax planning and other financial affairs.
AED: the international currency code and common abbreviation for the United Arab Emirates dirham.
air miles: a popular loyalty programme among financial services providers in the Middle East. Consumers build up points for regularly using their credit card or current account, which they can exchange for subsidised flights.
alternative investment: an investment in an asset class other than the four traditional asset classes – equities, property, bonds and cash. Examples could be wine or art.
amortized loan: a loan in which the monthly repayments are applied first towards reducing the interest, and any remaining sum towards the principal balance. As the loan is paid off, a progressively larger portion of the payment goes towards repaying the actual sum borrowed.
annual percentage rate (APR): an interest rate averaged out over one year.
appraisal: a written justification of the price paid for a property, primarily based on an inspection of the home and an analysis of sales of similar properties nearby.
asset: something that can be owned, bought or sold.
asset class: a type of investment. Equities, property, bonds, cash, commodities and art are all asset classes.
balance: the total amount in an account or owed on a credit card, for example.
balance sheet: a summary of what an organisation owns and owes.
bear market: a market of slow growth or decline. In general, a market that has dropped 20% or more is said to be a bear market. Bear sentiment (or to be bearish) is negative. The opposite is a bull market or to be bullish.
bill: a statement of the amount of money due to be paid to a person or business in exchange for products or services.
bonds: effectively an IOU, where you lend an organisation money in the understanding that it will repay it with interest. The word 'bond' literally means ‘promise’. Bonds are deemed one of the safest asset classes.
borrow: to obtain money from someone to use in the present, with the intention of paying it back in the future.
bounced cheque: a cheque the bank returns unpaid because the account did not contain enough money to cover it. This is a crime in some Arab countries and is punishable by imprisonment.
broker: an agent tasked with finding you the best deal on the market. Brokers can be numerated in either fees from their customers or commission from tied product providers.
budget: a plan of how much to spend and what it will be spent on.
bull market: a rising market. Bull sentiment (or to be bullish) is positive. The opposite is a bear market or to be bearish.
commodities: a type of asset class or investment, in tangible, traded goods, such as coffee, sugar, metals, water and oil.
compound interest: effectively, interest charged or paid on top of interest. With a bank account, interest is paid on the principal balance and any interest earned so far; with a loan, interest is charged on entire outstanding amount, so the principal balance and interest levied.
contract: a written binding agreement.
cost price: see wholesale price.
credit: money borrowed from an organisation, most commonly to be repaid with interest. Another term for debt.
credit balance: having more in an account than you owe.
credit card: plastic card that allows you to buy goods and withdraw cash on credit. Credit cards charge varying interest rates.
credit rating: an assessment and ranking of your credit eligibility, based on your demographic profile and credit history. There are no central agencies offering this independent service in the Arab world, although consumer and business credit rating services look set to evolve.
dollar: US currency that the dirham (AED) and many other international currencies are pegged to.
debit: money taken from an account once a payment has been made from it.
debt: money owed as a result of borrowing.
debt management: using debt to efficient, long-term advantage.
debt counselling: the practice of reviewing debt with an expert to work out the most efficient means of repaying it and clearing the balance. In the absence of consumer groups in the UAE, Mashreq bank offers this service to its customers.
default: when a borrower breaches the terms of the loan agreement. Lenders in most markets will consider a payment that is outstanding 60 days after it is due in default (also termed a non-performing loan), but in some Gulf countries banks work to a 90-day deadline.
deposit: money paid up-front to secure the purchase of an item ahead of full payment.
direct debit: the automatic debit of an agreed sum from a designated bank account, usually on a certain date every month. Commonly called a standing order.
discount: to offer something at a reduced price.
diversification: the spread of assets in a portfolio. The greater the diversification, the lower the risk.
down payment: a partial payment made at the time of the purchase of property, with the balance to be repaid as stated in the purchase agreement.
escrow: an item of value, money or documents deposited with a third party to be delivered upon the fulfilment of a condition.
equity: the portion of an asset that does not have a loan secured against it. An equity is also a share or stock, with the term equities referring to stock market-related investments.
exchange traded fund: a mutual fund that can be bought and sold freely on a stock exchange in the same way that equities can be.
executor: an individual named in a will to settle an estate.
fund: see mutual fund
fund of funds: a mutual fund that invests in other mutual funds to gain from the expertise of various managers and increase diversification.
fund supermarket/ platform: an online portal that gives access to a universe of funds from different fund management groups.
entrepreneur: someone who starts his or her own business to meet a need he or she has identified.
fee: the price charged for goods or services.
finance charge: the fees lenders charge for the use of their money, including interest and application fees.
fixed costs/ expenses: payments whereby the amount stays the same over a period of time, for example mortgage repayments.
fixed rate: an interest rate that is fixed for a set period. With a mortgage, you might agree a fixed rate for one year, after which it might revert to a variable rate.
foreign exchange (FX): dealings in multiple currencies.
forward contract: a derivative product that involves a bet on the future value of something.
gilt: a government bond. These are deemed the safest of bonds, as governments are unlikely to default on their debt.
gross: the total sum before deductions.
hedge fund: a mutual fund that aims to make money in bull and bear markets. These buy equities and also short sell – a bet that makes money when a price falls. Generally deemed investments for sophisticated investors, they are designed to perform in all market conditions, but have suffered alongside other investments in the recent downturn.
hedge: to bet against something to help to reduce risk.
income: money received, most commonly from employment.
inflation: the increase in the cost of living. Inflation in the Gulf region has been high in recent years.
instalment loan: a loan that is paid back in several payments, or instalments, rather than all at once.
interest: an amount received or charged for depositing or borrowing money.
interest-only: a type of payment schedule where each payment repays the interest obligation only; the principal balance usually then becomes due at the end of the loan term as a balloon payment.
interest rate: the percentage that you will make on your deposit or have to pay on your loan amount.
invest: to preserve or grow capital.
investment: money put in an asset class with the aim of preserving or growing capital.
investment return: the amount of money made by an investment, usually expressed as a percentage of that investment.
life insurance: a policy that pays out after you die. This is often taken out to make sure mortgage repayments and dependents could be supported in the event of the breadwinner's death.
Lipper: an agency that rates quality and performance of mutual funds.
leverage: a general term for any technique used to multiply gains and losses. Common ways to attain leverage are borrowing money and using derivatives.
loyalty programme: a scheme that rewards you for using the service being promoted.
lump sum: a single payment with no further payments due.
minimum payment: the least amount of money a creditor expects you to repay.
Morning Star: an agency that rates quality and performance of mutual funds.
mortgage: a home finance loan secured against the property.
mutual fund: money pooled from more than one investor (retail and institutional) to be invested by an expert for a return. The fund manager earns a percentage of the sum invested.
national bonds: A UAE scheme that invests money in the country and dishes out cash prizes from weekly draws.
negative equity: When you owe more than something is worth. If your outstanding mortgage is more than the value of your property, for example, you are said to be in negative equity.
non-performing loan: see default.
pension: a fund in which you save for retirement. As a generally rule, everyone should save a third of their age, as a percentage of their income.
portfolio: a collection of assets or investments.
premium: an insurance term for the amount charged, usually monthly, for a certain level of cover.
principal balance: the amount you borrow or deposit. This excludes any interest charged or paid.
profit: the money left over after paying bills and expenses.
revolving credit: an open-ended loan arrangement, such as a credit card, that allows you to borrow and repay money on an ongoing basis.
return on investment (ROI): money made in relation to money invested.
risk: the possibility of losing money. Your attitude and aversion to investment risk changes through your life: the nearer to retirement you get, the lower your risk appetite is likely to be. Every investment decision should involve an analysis of the risks involved.
risk management: the practice of assessing risk and tailoring your portfolio accordingly.
risk premium: the difference between the guaranteed return and the possible return on an investment.
Shariah: Islamic law. Shariah-compliant products and services adhere to Islamic principles. A key one of these is that the charging or payment of interest is prohibited.
short sell: a bet that makes money when a price falls.
simple interest: interest that is paid on the principal balance only.
socially responsible investment (SRI): investing while avoiding certain companies and sectors, such as the arms trade, alcohol or animal testing.
standing order: see direct debit.
store card: a store-specific credit card. These usually charge higher rates of interest than credit cards, but offer loyalty programmes.
structured product: an product that aims to protect capital using derivatives, but gives only a percentage of investment returns.
swift code: the international country code for your bank, necessary for international bank-to-bank transfers.
takaful: insurance according to Shariah principles.
term: the length during which a product is valid or runs for.
tithe: giving 10%, or the first part of your income, to charity.
transfer: any movement of funds from one place to another.
variable rate: an interest rate that is able to change.
wholesale price: what the manufacturer charges the retailer. This varies with supply and demand and the quantity ordered. Also known as cost price.
yield: the amount of interest an investment produces, expressed as a percentage of the investment.
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