Glossary: BIS - The City

B

BIS: Bank for International Settlements. A club for central bankers where they can meet and tut-tut about any impending crisis and reminisce over how they made the last one worse.

Balance Sheet: An important financial report regularly issued by companies. It details, at a particular moment in time, exactly what the company owns and what it owes. It provides a breakdown of the capital structure of the company between debt and equity and analyses what its assets actually are.

Bank of England: Set up in 1694, the "Old Lady of Threadneedle Street" has responsibility for regulating the banking industry and since 1997 has set interest rates to help the government meet its inflation targets. The stock market, a notoriously short-term beast, hangs on the Bank's interest rate pronouncements.

Bankruptcy: When a company owes more than it can pay, or when its debts exceed its assets, it's bankrupt. Occasionally, this situation can exist for some time before a bank decides enough is enough and calls in its loans.

Bear: So you think that the market is headed south? You're bracing yourself for a crash or correction? You feel that shares will soon be taking a tumble? Guess what - you're a bear! Bears are investors with pessimistic outlooks, as opposed to Bulls.

Beating the Footsie: A mechanical investment strategy, based on buying large cap shares with a high dividend yield on a regular, rotational basis. Historically, it has been very successful.

Beta: A measure of share volatility. High Beta stocks tend to exhibit greater price movement.

Bid-Offer Spread: The difference between the bid price (at which the holder can sell shares) and the offer price (at which the purchaser can buy shares). On occasion this can be quite large and depends on the equity's underlying price, liquidity, volatility and a number of other factors. Many unit trusts also have a bid-offer spread and effectively this amounts to an extra exit charge when the investor sells.

Big Bang: The first big shake-up of the stock market, in October 1986. This marked the end of single capacity, in which jobbers bought and sold shares for their own account and stockbrokers acted as agents only. Afterwards brokers could hold and trade shares and many of them were wise enough to do so at the time of the 1987 crash. This was followed in 1996 by the introduction of CREST and then in 1997 by Big Bang II.

Big Bang II: October 20th 1997. The use of a computer-driven trading system (called SETS) to cut out the middlemen in share trading, who match buyers and sellers.

Blue Chip: A share in a large, safe, prestigious company. British Telecom is a blue chip, so is the Hong Kong and Shanghai Bank Corporation (HSBC). Many of the shares making up the FTSE 100 are blue chips.

Bond: A bond is essentially a loan which you, the investor or 'bondholder', agree to give to a company (or a government) for a fixed period. In return, the company pays you a fixed rate of interest. At the end of the bond's term, you then get your original investment back. In the meantime, you can sell your bond on to someone else if you wish. If interest rates generally are going up, the price of the bond will fall. Effectively, this offers new buyers a higher return on their money. Conversely, if rates are falling, bond prices rise, but the holder will still get the same interest income. Interest rates vary depending on the quality or reliability of the bond issuer. Government bonds, or gilts, for example, carry little risk and thus offer lower interest rates. Company bonds offer higher interest rates, with the riskiest companies' (or governments') bonds offering the highest of all and being called junk bonds.

Bonus issue: Or, in the USA, a stock split. Whenever a company believes that the price per share of its stock has risen to a point where investors may wrongly perceive it as "expensive", they will split the stock, reducing the price but increasing the number of shares outstanding. For instance, if Huge Fruit Plc trades at £60 a share with three million shares outstanding and decides to split its stock two-for-one, this means that each share will now trade at £30 but there will be six million shares outstanding.

Book Value: What the accountant says a business is worth. It often bears no relationship to what the owners (shareholders) think the business is worth. It is calculated by adding retained profits to the initial share capital and is a purely arithmetic calculation. It can be grossly distorted by inflation. It is 100% accurate and often totally useless as a way of valuing a business.

Broker: One who sells financial products. Be it in insurance, pensions or shares, most brokers work under compensation structures that are at direct odds with the greatest good of their clients. (Also see Independent Financial Adviser, Execution-only stockbroker, advisory stockbroker, stockbroker.)

Brother: Male sibling. See debtor.

Bull: Are your glasses rose-colored? Do you see nothing but blue skies ahead for the stock market or a particular security? Then you're a bull -- an optimistic investor -- as opposed to a Bear.

Building Society: A mutual organisation, owned by the people saving with and borrowing from it. Increasing numbers have converted to banks in recent years, paying windfall profits to the owners. See demutualisation.

C

CAC 40: French index of -- wait for it -- the forty major French companies.

Capped Rate Mortgage: The mortgage interest rate cannot go above a certain level, even if mortgage rates rise, but can fall down as rates drop. Ain't no free lunches, though, and if you want to extricate yourself from the mortgage during the capped rate period (say three or five years), you'll have to pay a redemption penalty. See Fixed Rate Mortgage.

Capital: A business's cash or property, or an investor's pile of cash.

Capital Employed: The total value of all the assets being used by the business to make money. Usually calculated as total assets less current liabilities. See Return on Capital Employed.

Capital Expenditure: What the company has to spend to stay in business and grow. If everyone else is using computers while you are using typewriters you probably haven't spent enough.

Capital Gain: You bought a share and later sold it. If you made a profit, that's your capital gain. If you lost money, it's a capital loss. If you make enough of a capital gain outside your tax-sheltered accounts (PEPs, ISAs), you'll be liable for capital gains tax (CGT). The amount of profit you can make without paying CGT is £7,100 for the 1999/2000 tax year.

Capital Gains Tax (CGT): See Capital Gain.

Cash Flow: This term gets used rather vaguely. Operating cash flow is the cash generated by the business after changes in working capital. Free cash flow is this figure less what you have to pay the taxman and the bank for the money you borrowed. Net cash flow is how much the piggy bank has changed at the end of the year.

Chief Executive: The Chief Executive is the highest executive officer in a company, rather like the captain of a ship. He or she is accountable to the company's Board of Directors and is frequently a member of that Board. The Chief Executive participates in setting strategy with the Board and other officers and is responsible for the tactics in meeting the company's goals. Known in the USA as the Chief Executive Officer or CEO.

Churn: Churning is the unconscious or conscious over-trading by an Advisory Stockbroker in a customer's account. Stockbrokers are paid on a commission on the consideration of a trade. The consideration is the number of shares traded multiplied by the price. As commissions have stabilised the only way brokers can make more money is to trade more shares. There is therefore a natural temptation to trade for the sake of it. It's illegal, but hard to prove.

The City: London's financial district, which encompasses the square mile of the old City of London, bounded on the south by the Thames, on the West by the Law Courts, on the East by the Tower of London and in the North by Islington.