The third part of our financial dictionary focuses on a few more terms which you will want to know the meaning of should you be considering entering the market.

Narrow Market

When a market is subject to low liquidity and wide spreads and the trading is very light it is known as a narrow market. This small amount of activity often leads to large scale, unpredictable increasing and decreasing in prices.

Offer

One of the most important terms of all, as it is the basis of the whole market. The offer comes when a seller is willing to sell a at a certain price. If an offer is accepted then the agreement is bound by law.

Parity Ratio

This refers to a warrant’s intrinsic value. Also sometimes known as “moneyness.”

Quote

This is the bid or offer price of a security at any given time in a market though, it should be noted, it is not necessarily the same as the price at which the security will eventually be purchased.

Rally

When a trading range either falls or breaks and an upturn ensues in either the share or the market’s performance this is known as a rally.

Samurai Bond

When a bond is issued by a foreign borrower in Japan it is known as a Samurai Bond. Though it will come in Yen it can be purchased by a non-Japanese investor.

Tangible Assets

The assets owned by a company or individual which are physical – i.e. machinery, property, etc.

Umbrella Fund

This second instalment continues our guide to trading slang, terms and language for those new to the markets.

Early Retirement

This is offered by many companies to certain employees, allowing them to retire before their official pensionable age under the condition of a reduced pension.

Face Amount

This is the value of a note, bond or other security as printed on the document. Prices in the market will always increase or decrease along with performance but maturity on the face amount is payable. Also known as face value.

Price Gap

A price gap occurs when a stock opens above or below the close of the day before. This often occurs in the London market due to large amounts of US trading after close.

Haircut

Another funny market phrase, this time referring to the difference between market value and the value ascribed to collateral used in a repo transaction.

In The Money

This is one you will have probably heard before: it basically refers to options and warrants which hold positive intrinsic value.

Japanese Candlestick Chart

Technical analysts will be familiar with this charting technique which measures the range of the day's prices, the opening prices, closing prices and how much or how little the market moved during the session.

Kangaroos

A slang term (with obvious etymology) for Australian shares. Mainly these will be shares in mining, tobacco and land companies.

Last Trading Day

In futures and options trading this refers to the last day for trading in a contract for a particular month. Outstanding payments at this time must be settled with a cash or asset delivery.

Macaroni Defence

If you are intending to work as a trader or even just want to know more about the markets, you will need to learn some lingo first. Even if you have a great eye for up and coming companies, you will be lost in a sea of slang and shop talk if you don’t get some knowledge about how trader’s talk. This four part guide will give you the meaning behind many of the most common financial terms.

Abandoned Option

This refers to an option which has neither been sold nor exercised and is now lapsed into expiry.

Backwardation

One of those trading terms that sounds terribly made up but is actually an important thing to know. This refers to a condition where a price is lower in the distant delivery months than in the near delivery months and, thus, exists only in the futures market. Essentially the spot price of the item exceeds the futures price. Can also be called an inverted market.

Call

The term call can be split into two main definitions: firstly it can refer to a demand from a company for its shareholders to pay an instalment on unpaid or partly paid shares. Secondly, it can refer to a demand by the bank for the full repayment of a credit product on which the borrower has not met the initial agreement conditions.

Dawn Raid

With so much speculation now focused on the future of the single currency in the Eurozone and whether or not it is sustainable into the future, it seems a good time to consider the Euro’s history, particularly its early years. While talk of switching to a single continent wide currency had been circulating for many years, the first time the Euro was really put into real action was in the Maastricht Treaty of 1992. The treaty limited participation to states with a budget deficit of less than 3% of their GDP, a debt ratio of less than 60% of GDP, a generally low level of inflation and interest rates in and around that of the EU average. Though initially these were strict regiments, as the Eurozone progressed they became less and less stringent and many blame the flouting of these rules (particularly the first two) as contributing to the current crisis.

Germain Pirlot, a Belgian former teacher, is the man who coined the term “Euro” for the new currency after he suggested the handle in a letter to then President of the European Commission, Jacques Santer on 4 August 1995.

As all the Eurozone nations had currencies of their own, the exchange rate was individual to each country. Here is a list of the first Eurozone nations and how their former currencies related to the new single currency.

Austria (Schilling) Rate (to 1 Euro): 13.7603 Belgium (Franc) 40.3399 Holland (Guilder) 2.20371 Finland (Markka) 5.94573 France (Franc) 6.55957 Germany (Mark) 1.95583 Ireland (Pound) 0.787564 Italy (Lira) 1,936.27 Luxembourg (Franc) 40.3399 Portugal (Escudo) 200.482 Spain (Peseta) 166.386 Greece (Drachma) 340.75 Slovenia (Tolar) 239.64 Cyprus (Pound) 0.585274 Malta (Lira) 0.4293 Slovakia (Koruna) 30.126 Estonia (Kroon) 15.6466

The Euro is a single European currency. The Eurozone or euro area is an economic and monetary union of 17 EU member states that have adopted the euro as their common currency and sole legal tender. The members that are in the Eurozone are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malt, the Netherlands, Portugal, Slovakia, Slovenia and Spain. The Euro was introduced in 1999, but it only came as a currency in 2002.

The advantages of a single currency are:

- Create a true single market; - Remove the need to exchange currencies and pay commission; - Costs of export and imports would not be influenced by the whims of the exchange rates and currency speculators; - Companies could plan with some certainty; - Economic decisions by member countries would be determined by economic rigours of ensuring low inflation, rather than short-term political considerations of winning elections.

Disadvantages of a single currency:

- Member countries lose sovereignty: - Participating countries lose the power to determine interest rates and possibly taxation rates as a strong European Central Bank has to do this for Europe as a whole; - Individual countries will be unable to make decisions on interest rates and economic expansion or contraction in the interest of their own nation; - The economies of the participating countries must be synchronized. Therefore, inflation, unemployment and borrowing should be at similar levels; - The economic cycles of the participating countries should be similar, in recession or boom. - To succeed the currency must be strong and able to withstand foreign currency speculators from outside.

Neoliberalism's influence in the post-Cold War period was reflected in the increasing proliferation of free trade agreements and organizations such as NAFTA, APEC and the WTO and international organizations such as the G8, the IMF and the World Bank. The premise of neoliberalism is that free trade maximizes economic growth and generates competition which will encourage the most efficient use of resources, people and capital. This is the dominant ideology in negotiations which pushes towards further liberalisation of the market and frames trade agreements.

Through the loans, IMF has encouraged fast track capitalism, as liberalisation of the financial sector. This has been done through a wide scope of measures which include anti-inflation policies, financial deregulation and free markets that become not just the accepted norm for the rich world but the recipe imposed on developing countries. If the latter did not follow the rule, then the IMF funds would be cut.

When the economic recession hit the heart of the free-market capitalism, the notion of neoliberalism as the norm by supremacy was challenged. Financial liberalisation led to riskier markets, a realisation the Indian government had already made. India and other countries refused to implement the neoliberal orthodoxy completely and kept some control over the growth of credit. This decision, for instance, has helped India avoid the financial booms and busts of the international market.

The World Trade Organisation (WTO) is an organisation for trade opening and deals with the global rules of trade between nations. It is conceived as a platform for governments to negotiate trade agreements and settle trade disputes. The WTO operates a system of trade rules and serves as the place where member governments try to solve the trade problems they face with each other.

Located in Geneva, Switzerland, the WTO was established in January 1995 by the Uruguay Round negotiations (1986-94). 155 countries compose its membership. It serves many functions such as administering WTO trade agreements, forum for trade negotiations, handling trade disputes, monitoring national trade policies, technical assistance and training for developing countries and cooperation with other international organisations. In the present, the WTO is the host to new negotiations, under the “Doha Development Agenda” launched in 2001.

The WTO has helped to open markets for trade where countries have faced trade barriers and wanted them lowered. Conversely, in some circumstances, the organisation's rules support maintaining trade barriers, for instance, when it is necessary to protect consumers or to prevent the spread of disease.

At its core are the WTO agreements, negotiated and signed by the majority of world's trading nations. These agreements provide the legal ground rules for international commerce. These documents are basically contacts binding governments to keep their trade policies within agreed limits. Even though these documents are negotiated and signed by governments, the aim is to help producers of goods and services, exporters, and importers conduct their business, at the time it allows governments to meet social and environmental objectives.

The prevailing function of WTO is to ensure that trade flows as smoothly and freely as possible, which means removing obstacles for free trade. It works as a guarantee to meet the agreements of world trade liberalisation. Trade relations often involve conflicting interests. Agreements often need interpreting. The way to settle these differences is through some neutral procedure based on an agreed legal foundation. That is the aim of the dispute settlement process written into the WTO agreements.

Overreaching regulations enforced by international organisations increasingly constrain developing countries in their national development strategies. Specifically, Robert Wade, professor of Political Economy and Development in London School of Economics, has argued that the agreements which came out of the Uruguay Round limit the development policy options of developing country governments.

Three big agreements came out of the Uruguay Round negotiations: one in investment measures (TRIMS), another in trade in services (GATS) and the third one is on intellectual property rights (TRIPS). According to Wade, the first two limit the authority of developing country governments to constrain the choices of companies operating in their territory, while the third requires the governments to enforce rigorous property rights of foreign (generally Western firms).

The agreements make widely illegal many of the industrial policy instruments used in the successful East Asian developers to encourage their own industrial and technological capacities. As well, they tend to prolong and ensure the position of Western countries at the top of the world hierarchy of wealth.

These regulations restrict the scope within which developing countries can manoeuvre. They limit the options of developing country governments to constrain the actions of companies operating or expecting to operate within their borders. Actually, these regulations are devised to expand the options of developed country firms to enter and exit markets more easily, with fewer restrictions and obligations. As a result, there is a lack of accountability of these companies to the state government where they operate.

Developed country governments are driving this proliferation of international market-opening using multilateral economic organisations, international treaties and bilateral agreements. International agreements have legitimised a level of intrusion into the economics of developing countries. At the same time, wealthy countries have not improved market access for developing countries. Besides, developed country tariff rise in sectors of interest to developing country exporters limits their export growth. In sum, there is an imposed limitation that restricts the scope within which developing countries can manoeuvre.

Massive industrial production, cheap labour and top-notch industrial advance have made Chinese products and services increasingly competitive in the global market as they offer world-class quality at a cheaper price. “Chinese companies are really capable of winning the global market,” said David Revell from Imagemakers, a British design company. The Beijing 2008 Olympic Games graphic design service supplier impressed global viewers with animated graphics beamed on a giant rolling scroll at the opening ceremony. “In terms of computer graphics, the advantages of Chinese companies are their high efficiency and quality,” he added.

In fact it is a leading Chinese creative group of digital and visual services, Crystal CG the one that has been appointed as the digital imaging services supplier for the London Olympics. Founded in Beijing in 1995, Crystal CG established its international headquarters in London two years ago, and has opened offices in Hong Kong, Dubai, Singapore and Los Angeles.

Crystal CG is not the only Chinese firm that is expanding its influence to the global market. Beijing Culture Development Co Ltd (Honav) and LLK Design both have made London their foundation for the international market. Actually, Honav beat 42 bidders in 2008 to get the franchise rights of the London Olympics badges.

The strong manufacturing industry of China has supported the development of LKK. Many companies' products have to be manufactured in China after design; on the contrary, LKK has the experience of manufacturing and understands the industry chain.

Explanations of how the world fell into recession on the Internet are extremely common. Explanations which attempt to explain it in a language that children (or indeed young adults . . . or indeed, actual adults) can understand are relatively few and far between. So that you don't have to spend three years getting an economics degree to understand it, we've prepared a handy guide, which aims to be clear and fun as well as informative.

We'll start with our banker (think of the Monopoly Man from the board game if it helps). He knows that he can lend to Postman Pat, because Pat is a good postman who earns lots of money which he can use to pay back Mr Banker. Unfortunately, Mr Banker then makes a mistake in lending to someone like Dennis the Menace, who has no intention of paying back the cash. But that's fine, because Mr Banker has a plan – “If he doesn't pay up, I'll just take his house! Perfect!” And then, he has an even better idea – by packaging up the bad debt as good debt, he can sell it on and pretend it's a good investment. And so he does just that, selling the debt to people like Montgomery Burns (“Excellent!”) and Basil Brush (“Outstanding, viewers! Haha!”)

And now the world is full of bad debt and good debt, going from hand to hand, paw to paw, like a giant game of ‘pass the parcel'. And suddenly, the music stops (or, if you know what you're talking about, the sub-prime market in America collapses). And everyone opens their parcels to find either good debt or bad debt. Obviously, Basil's debt was bad debt (“Ahahahaha! Boom! Boom!”) And now Basil wants his money back from Mr Burns (“Release the hounds!”), who wants it back off the Monopoly Man. But the Monopoly Man is still trying to extract money from Dennis, who has spent it all on a skateboard and various pranks against his schoolmaster. “Fine,” says the Monopoly Man. “I'll take your house.” And then he speeds away in his little silver car.