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A central bank provides financial and banking services for a country's government and commercial banks. It implements the government's monetary policy, as well, by changing interest rates.

The main functions of a central bank are:

to manage the government's accounts;
to accept deposits from and grant loans to the commercial banks;
to issue bank notes;
to manage the public debt;
to manage the exchange rate where necessary;
to influence the interest rate structure and control the money supply;
to hold the country's reserves of gold and foreign currency;
to manage dealings with other central banks;
to act as a lender of last resort to the banking system.

Clearing house (futures)

The clearing house of a futures exchange becomes the counterparty to both buyer and seller of a futures contract, greatly reducing counterparty risk. Other functions include supervising the deliveries made against futures contracts and maintaining the margin accounts.

Closing purchase transaction

A transaction in which a bank which has underwritten an option buys back an identical option, thus extinguishing its liability.

Chicago Mercantile Exchange (CME)

A futures exchange. In 1976, the CME started trading foreign currency contracts. Contracts on short term interest rate products were launched from 1976 to 1981. Options on futures contracts were initiated in the 1980s. In 1993 the CME introduced rolling spot currency futures contracts. Today the CME is the world's leading exchange for short-term interest rate and currency products.

Compound options

These are options on options. They are the American-style right to buy or sell European-style options.

Convergence trades

Convergence trades are designed to take advantage of the changing conditions of European economic and monetary union. Monetary union should reduce spreads between the bond yields of participating nations, since there is no longer any currency risk or inflation risk in holding different countries' government bonds. The only risk that remains is credit risk. If one believes Greece will be allowed into the euro, it makes sense to buy Greek bonds -- as yields will have to fall towards eurozone levels, with a consequent rise in price.

Convertible bond

A bond that is convertible into another instrument, sometimes another type of bond but more commonly into company shares at a fixed price. This usually represents a premium over the current share price. Because of this inducement, the bond can carry a lower coupon. The option to convert usually lasts the life of the bond but borrowers often reserve the right to call (sell) the bond earlier than the maturity of the bond if the share price reaches up to, say, 150% of the conversion price. This protects them from offering shares at the lower fixed price should the market price suddenly surge.

Correlation

A statistical measure referring to the relationship between two or more variables (events, occurrences etc.). A correlation between two variables suggests some causal relationship between these variables.

Coupon

The annual or semi-annual interest paid on a bond expressed as a percentage of the face value. A coupon is usually fixed for the life of the security. It also describes the detachable certificate entitling the bearer to payment of the interest. A security which pays interest at predetermined intervals is known as coupon-bearing.

Coupon pass

The process by which the Federal Reserve buys bonds direct from the government, at an auction. Designed to attract investors in anticipation of continued price rises. The market loves them.

Credit rating

Overall creditworthiness of a borrower. The two main rating agencies are Moody's and Standard & Poor's. A top (triple-A) rating means that there is thought to be almost no risk of the borrower failing to pay interest and principal. As the rating falls, the perceived risk grows. Other rating agencies include: Duff and Phelps, Fitch, IBCA, Japanese Bond Research Institute, Japanese Credit Rating, Mikuni, Nippon Investor Service.

Credit risk

Exposure to loss resulting from a default on a payment.

Cross-rate

The exchange rate between two currencies excluding the US dollar eg Deutschmark/French franc. Note that Deutschmark/French franc = US dollar/French franc ÷ US dollar/Deutschmark.

Currency

The type of money that a country uses. It can be traded for other currencies on the foreign exchange market, so each currency has a value relative to another. If one US dollar can buy 1.55 Deutschmarks, then one Deutschmark can buy 0.65 US dollars.

Debt

Money owed by a government or company to its creditors. Debt is a general term for bonds and other securities which can be traded on the open market. It will usually pay interest to the person holding it. A bond has a date of maturity, when the issuer agrees to buy it back. An example is the US 30-year Treasury bond.

Delivery/non-delivery

Some futures contracts involve physical delivery of the commodity at the delivery date, while others involve cash settlement of the difference between spot and delivery prices. The former is common for commodity contracts, the latter for stock index contracts.

Derivatives

Instruments derived from existing instruments in the cash market. Comprising a whole range of futures, options and swaps trade on futures/options exchanges and over-the-counter. These instruments, often used within a portfolio of holdings, allow investors to hedge. They are often complex and therefore customized, in the case of OTC transactions, for the individual investor. Have become increasingly popular owing to their off-balance-sheet status.

Diffusion index

Particularly important in Japan. A blanket term referring to any aggregate compiled from numerous components/indicators. Used to determine the past (lagging), present (coincident) and future (leading) stages of the business cycle. Our analysts have put strong cases that the leading index is just a proxy of the coincident index and so not a good indicator of the future. However, it remains important if people treat it as a good indicator: like technical analysis, there are those who suggest that people's perceptions of its importance are self-fulfilling. One can't afford to ignore anything that moves markets, if only on the back of spurious reasoning.
A diffusion index is a measure of the percentage of expansive components/indicators (such as retail sales or consumption) in the economy. 50 is boom-or-bust line: above 50 implies growth.

Discount (vb)

To price in. If a market discounts, say, an interest rate hike of 0.50%, then prices have moved anticipating the rate rise. So we would not expect prices to move on news of a hike of 0.50%: only on a rise of greater or less than the 50 basis points the market discounted.

Discount

An amount paid below the normal price level. In the money markets it is the action of buying financial paper at less than par value. Opposite of premium.

Discount rate

The floor rate which a central bank charges member banks for provision of funds.

Dove (doveish)

Someone, typically a central banker, perceived as more concerned with employment and growth than inflation, and therefore prone to easing interest rates. Opposite to hawk (hawkish).

DTB (Deutsche Terminboerse)

The German futures and options exchange based in Frankfurt. The first fully electronic (totally computer-based with no actual trading floor) exchange to be introduced in Germany. Contracts are traded on government bonds, the Dax index and standard equity options.

Dual currency issues

Bonds issued in one currency which pay interest in another. Principal is repaid at maturity in the original currency.
Particularly popular amongst Japanese investors in their current low-interest rate environment: they buy yen bonds with coupons in Australian or New Zealand dollars to increase their yield.
An increase in dual currency issues will boost the Aussie and Kiwi dollars while hurting the yen, as issuers must buy the foreign currencies to meet their interest payments.
Reverse dual currency issues, a new trend designed in 1995 for an even higher yield, pay interest in the original currency but repay the principal in a different currency.

Economic and monetary union (Emu)

The irrevocable fixing of exchange rates between member currencies and their replacement by a single European currency, the euro.
The UK, Sweden, Denmark and Greece may join the 11 participating countries.

Emu

See economic and monetary union

Equity

(1) An interest in an asset, e.g. the part ownership of a house or company.
(2) Usually refers to a share, also known as a stock, in a company. Ownership of shares in a company confers the right to a slice of the profits, in the form of dividends, as well as a vote at company meetings. But the value of the company's shares can go down as well as up, and there is no guarantee of payment if the company runs into difficulties. Shares/stocks are traded on equity or stock markets, whose performance is measured by indices which look at the average share price of a collection of top companies. The leading markets are as follows, with their indices in parentheses: New York (Dow Jones industrial average); London (FTSE-100 share index); Tokyo (Nikkei-225 share average).

Eurobond

A bond issued in a Eurocurrency (which may, of course, be non-European). It is sold to international investors by a group of international banks in any currency outside the borrower's domestic market. Eurobonds themselves have no domestic market. The Eurobond market is genuinely international, with borrowers and investors coming from all over the world. The Eurobond market is now one of the largest markets for raising money, being much larger, for instance, than the UK stock exchange.

Eurocurrency

A Eurocurrency is a currency held in any country other than its country of origin. For example, dollars deposited in a bank in Switzerland are Eurodollars, yen deposited in Germany are Euroyen, etc. Eurocurrency is used for lending and borrowing and the eurocurrency market often provides a cheap and convenient form of liquidity for the financing of international trade and investment. The main borrowers and lenders are the commercial banks, large companies and the central banks. By raising funds in Eurocurrencies it is possible to secure more favourable terms and rates of interest, and sometimes to avoid domestic regulations and taxation. Many of the deposits and loans are made on a short-term basis, but increasing use is being made of medium-term loans, particularly through the raising of Eurobonds. This has to some extent replaced the syndicated loan market, in which banks lend money as a group in order to share the risk.

European style option

The style of option exercisable only on expiry. So the important price for the holder of a European-style option is not the spot price but the forward price.

Euroyen contract

A three-month interest rate futures contract (not a contract to buy or sell Euroyen).

Euroyen

See Eurocurrency.

Exchange rate

The price of one currency quoted in units of another.
The order of precedence is as follows: sterling, Australian dollar, New Zealand dollar, US dollar, Ecu, Deutschmark, Swiss franc, most other currencies, yen, lira. Whichever currency comes first on the list comes first in the cross rate. Therefore �/$ (so many dollars to the pound), but $/Dm (so many Deutschmarks to the dollar).

Exercise notice

A formal notification that the holder of an option wishes to exercise it by buying or selling the underlying stock at the exercise price.

Exercise price (strike price)

The price at which an option may be exercised.

Expiry date

The last day on which the holder of an option can exercise his right to buy or sell the underlying security.

Exposure

The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices.

Foreign exchange centres

London is the largest centre of foreign exchange trading. New York, Tokyo, Singapore, Zurich and Hong Kong are also important.

Foreign exchange market

Market where currencies are traded internationally. About a trillion (million million) dollars-worth of foreign exchange is traded globally every day, making forex larger than all bond markets put together. Currency markets exist in the form of spot, forward, futures and options markets. Foreign exchange transactions are made up of:

Trade flows Only 5% to 10% of total forex transactions. Imports usually need to be paid for in the currency of the country from which they originate. Exports are usually paid for in one's own currency. A trade deficit therefore causes a currency to depreciate.
Flow-ons Created when a large trade is split up into several smaller trades.
Capital flows Cross-border investment.
Speculation Short-term investment based on expected currency movements. This accounts for the lion's share of forex market volume.

Forex

See Foreign exchange market

Forward Rate Agreement (FRA)

An interest rate derivative allowing investors and borrowers to set the interest rate on a short-term investment or loan in the future. So a company might agree to borrow money for six months in three months' time, at a rate determined today. A buyer of an FRA is protecting against an increase in rates, a seller against a decrease.

Futures

Exchange-traded contracts. They are firm agreements to deliver (or take delivery of) a standardized amount of something on a certain date at a predetermined price. Futures exist in currencies, money market deposits, bonds, shares and commodities. The Chicago Board of Trade's Treasury bond future is the world's most actively-traded derivative contract. The Chicago Mercantile Exchange's Eurodollar contract has the world's largest open interest.

Gearing

Gearing measures the amount of cash spent purchasing an option or a futures contract, compared to the actual value of the underlying position. The gearing is the ratio of the size of the position to the amount spent on it: so the less one spends on a given position, the higher the gearing. Also known as leverage.

Hawk (hawkish)

Someone, typically a central banker, perceived as especially inflation-averse, and therefore prone to raising interest rates. Opposite of dove (doveish).

Hedge funds

Highly-leveraged, aggressively-managed investment funds, typically backed by a small number of wealthy individual investors. Also known as total return funds, because they are not benchmarked: they are only interested in their total return on capital.
Hedge funds tend to make large investments in markets aimed at maximizing returns from short-term movements and also make full use of derivatives. Hedge funds and other purely speculative bodies are particularly important to the working of the financial markets because they can be completely in or out of a certain market, and thus can make a huge difference to price. For example, hedge funds were the key drivers behind the bond market boom of 1993, when prices rose sharply and yields narrowed to all-time lows.

Hedging

A strategy used to offset market risk, whereby one position protects another.

Index

An index shows how the value of similar things changes over time. So the retail price index compares one month's UK retail prices with the preceding month's. Stock market indices may go by other names. So the Dow Jones industrial average measures the value of 30 leading US stocks from day to day.

In-the-money option

A term describing an option which has a reasonable difference between strike and spot for American style options, or strike and forward for European style options. The person who bought the option is in the money; the person who underwrote it would have done better not doing so.

Inflation

A condition of rising prices (including wages, which are labour prices). Inflation is the great enemy of the bond market, since the fixed coupon and principal are worth less in real terms if prices rise. This explains why bond prices tend to fall on the news of strong data releases within an economy.

Institutional investors

Organizations such as pension funds, investment trusts and insurance companies that invest in the financial markets. These are the long-term investors in markets, more likely to hold on to assets than the retail sector or speculative bodies such as hedge funds.

Intrinsic value

The value of an option if it were to expire immediately with the underlying stock at its current price.

Instrument

A legal document which formalises a contractual relationship. The most common type of instrument is an unconditional order to promise to pay an amount of money. This is transferable from one person to another, and hence can be traded.

Leading/lagging indicators

Leading and lagging indicators are separated by time. A leading indicator suggests what is about to happen, whereas a lagging indicator confirms what has already happened. So there is a lead-lag relationship between, say, business sentiment surveys and industrial production. A positive survey suggests production will go up, whereas increased production follows on from a positive survey.

Lender of last resort

The central bank's role in lending to banks which face large withdrawals of funds. This is done in order to prevent the bank's failure.

Leverage

See gearing.

Liffe

Pronounced "life". London International Financial Futures and Options Exchange opened in September 1982. It provides a European market for financial futures and, since 1985, for financial options. In 1992 Liffe merged with the LTOM (London Traded Options Market). Contracts include futures and options on government bonds, short term interest rates and the FTSE 100 index. Bunds, Euro-Deutschmarks (three-month Deutschmark interest rate futures), long gilts, short sterling (Libor) and other futures such as OATs and Euro-Swiss are all traded on the Liffe exchange.

Liquidity

The more liquid a security or market is, the more like cash it is. Sometimes used simply to mean cash, as in: "the central bank bought bonds to provide liquidity to the market". Also means:

Low bid-offer spreads. Cash has a zero bid-offer spread: it can be bought and sold for the same amount. Securities all have a difference between the amount they can be bought for and the amount they can be sold for. The smaller the difference, the greater the security's liquidity.
Ability to liquidate a security. How easy it is to sell a security and turn it into cash.
Ability to conduct large trades in a security without affecting the price.

Lombard rate

Ceiling rate charged by German and Swiss central banks for overnight borrowing. This rate is used to penalise banks which have left themselves short of funds.

Long/short

To go long is to buy a security or currency; to go short is to sell it. Because most institutional investors have benchmarks, they have at least a little of most securities. So generally going long/short is the same as going overweight/underweight.
In foreign exchange, to go long dollar/mark is to buy dollars and sell Deutschmarks.
Unlike institutional investors, hedge funds tend not to have balanced portfolios. So if a hedge fund goes short, it will generally be selling securities it doesn't own, in the hope that they will fall in price.

Long bond

The most recently issued 30-year US Treasury bond.

Matif

Marche � Terme International de France, the Paris financial futures exchange, opened in 1986. Its development and success has contributed significantly to the increased liquidity of the French government bond market. One third of its members are foreign. Contracts include the three-month Pibor (Paris Inter Bank Offered Rate) future and option, the Long Term Notional Government Bond future and option, and the Cac-40 stock index future.

Maturity

The date on which repayment of the principal is made. The end of a bond's life.

Mid-Atlantic option

This is a type of option whose life begins as an American style option and midway through its duration converts to a European style option.

Monetary policy

A central bank's management of a country's money supply. Economic theory underlying monetary policy suggests that controlling the growth of the amount of money in the economy is the key to controlling prices and therefore inflation. However, central banks' monetary capability is severely limited by global money movements. This forces them to use the indirect tool of exchange rate manipulation.

Money market

A money market brings together lenders and borrowers of short-term money (up to 12 months). There is no single money market interest rate; most countries' money markets have interest rates for varying lengths of time, from overnight to twelve months. The most widely quoted rates, however, tend to be the overnight rate and the three-month rate. These rates reflect the return one receives for lending one's money overnight, usually in the form of cash deposits, or for three months, usually in the form of a tradeable security.

New York Stock Exchange

The largest and most influential stock market in the world. The NYSE is self-regulated but overseen by the Securities and Exchange Commission, which seeks to ensures fair and open trading and prevent insider trading. On the NYSE the key indices are: The Dow Jones Industrial Average (Dow), a 30-share index; Standard & Poor's 500 (S&P-500); Nasdaq Composite Index; and Russell-2000. The NYSE's rival is the American Exchange, which is rarely quoted or referred to for price indications.

Off balance sheet

Derivatives do not have to show on an institution's balance sheet, which has made them increasingly attractive. They do, however, raise capital adequacy problems.

Open interest

The number of outstanding contracts for a given future which are not offset by an opposing futures transaction or fulfilled by delivery. In most cases, the open interest is measured on a daily basis. Reflects the degree of liquidity in a contract.

Option

An option gives the buyer (holder) the right but not the obligation to buy (call) or sell (put) a specified financial instrument (the underlying) at a fixed price (strike) before or on a certain date in the future (expiry). The seller (writer) of an option has the obligation to sell or buy.
Options can be traded over-the-counter (OTC) or on exchanges. Exchange-traded options are standardized contracts on specified underlying instruments in multiples of standard amounts with predetermined strike prices and with standard maturities. OTC options are generally negotiated individually between the writer (usually a bank) and the holder as to the underlying instrument, amount, strike price, exercise rights and expiry. Some OTC options are written to correspond to exchange-traded instruments in strike price and expiry although generally not in amount.

Options on futures

Options on futures were invented as a result of the lack of liquidity in cash/spot markets of certain assets. A good example is the gold market where there are no options on physical gold.

Ordinary share

A share which grants the investor voting rights in that company and the right to receive a dividend.

Out-of-the money option

An option that has no intrinsic value.

Over-the-counter (OTC) market

A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor. These markets have not been very popular. They were never part of the Stock Exchange since they were seen as "unofficial". Each OTC firm operates a market in the shares of a restricted list of (generally small and little-known) companies. Sometimes the dealer simply puts would-be buyers and sellers together but does not take a position in the shares himself. These days OTC trading is seen as "consumer-friendly," meaning that it is interested in getting the buyer and seller the best possible price. Some see this as what share-trading is all about. However, market makers, many of whom create market movements purposefully, feel they are being elbowed out by OTC, and that speculation, arbitrage and "smart-trading" are undermined by the new market.

Overnight rate

Interest rate charged on overnight loans. Also referred to as the call rate or the unconditional call rate. Together with the three month rate, the overnight rate is the most commonly expressed measure of money market rates. It is indicative of the immediate return available on funds, but may also reflect purely temporary factors and is thus a poor guide to long-term investment.

Overweight/underweight

The decision to buy more of a share: over and above its value in proportion to the benchmark. For instance, if BP shares constitute 2% of the value of the FTSE-100 then 2% of a FTSE-benchmarked portfolio should be made up of BP shares. If one decides to fill 10% of one's portfolio with BP shares, then one is overweight BP. Underweight is the opposite.

Paper

Another term for security.

Par

The price at which a share or bond is issued. An asset is said to be above par if its price on the market is greater than the par value. It is below par if the price falls below. Gilts are always repaid at par (usually £100).

Passive Management

Leaving one's share holdings to follow the market's movements. If the market benchmark grows 10% on the year, then the value of one's share portfolio should grow by 10%. Historically, benchmarking produces virtually identical returns over time to active management while avoiding most of the risk.

Perpetual bond

Floating rate note which has no final maturity. For this privilege, the borrower pays a higher margin over a relevant base interest rate. As it will never be repaid, the note assumes some of the characteristics of an equity issue.

Primary market

The primary market is for placing new bond issues and shares. Any subsequent resale or purchase is handled on the secondary market.

Put option

An option giving the owner the right to sell the underlying asset at (or within) a specified time for a specified price.

Refunding

The release by the Fed of large amounts of new securities onto the bond market, usually every quarter. The securities are normally divided up according to their maturity terms (three-, 10-, and 30- year bonds), and issued to the market over several days.

Repo rate

Interest rate at which central bank will lend against government paper collateral.

Repurchase agreement (repo)

Agreement between a seller and a buyer, usually of government securities, whereby the seller agrees to buy back the securities at an agreed price and time. As such they are short-term collateralised loans.

Retail investors

Private investors using their own savings to buy assets in the financial markets. The retail sectors are particularly well-established in the Swiss and German bond markets, as the middle classes there have benefited from low inflation. The retail market is also large in US domestic bonds. By contrast, there is less of a retail sector in the UK bond market: fewer private individuals buy bonds since the British have a more structured pensions system. The retail sector is one part of the financial community, along with the institutional sector, hedge funds and speculators, and market traders.

Return

The amount gained as a result of an investment. The return is made up of capital gains (from price changes) and yield (a fixed amount expressed as a percentage). See risk; risk/return.

Reverse dual currency issues

See Dual currency issues

Ripple effect

The effect on the yield curve of a change in short-term interest rates. Typically the yield curve moves in the same direction, with a larger move at short maturities and smaller at longer maturities. The yield curve may move in the opposite direction if, say, the market perceives a short-term interest rate cut as leading to higher future inflation and therefore bids up long-term rates.

Risk

The degree of uncertainty associated with an investment. An example of a high-risk investment is currency market speculation. The main elements that contribute to the riskiness of an investment are volatility, liquidity and leverage. All things being equal, a high degree of volatility and leverage makes an investment more risky. An illiquid market, where buyers are not always matched by sellers, also increases risk -- investors can be left holding an asset that is falling in price. See return; risk/return.

Risk/return

The relationship between the risk and return on an investment. Usually, the more risk you are prepared to take, the higher the return you can expect. Depositing your money in a bank is safe and therefore a low return is regarded as sufficient. Investing in stock market exposes you to more risk (from capital losses) and so investors will expect a higher return. See risk; return.

Roll over

Generally, the periodic renewal of a loan, re-priced at current market rates. However, it is regularly used in futures market jargon. When, say, a September futures contract is about to expire, an investor is presented with three choices. He or she can either take delivery, close out or roll over.

Secondary Market

The buying and selling of previously-issued securities involving non-primary dealers such as traders and brokers. Secondary markets can take place on a regulated exchange or over-the-counter.

Security

A financial asset that may be sold. The term security can be used to define shares, government stocks, debentures, bonds, unit trusts and rights to money lent or deposited. A security can also refer to an asset or assets a lender has recourse to if a borrower defaults on loan repayments.

Short selling

The selling of instruments which are not held in anticipation of a fall in prices. The action of buying back to cover the short position is known as short-covering.

Short sterling (futures)

A three-month interest rate futures contract (not a currency trade). The market's vehicle for speculating on UK interest rate changes.

Speculation

The act of taking a long or short position in the market in anticipation of a favourable move, which should result in a gain when the position is covered. Speculation is good for a market (in that it contributes to it working efficiently) and is not pejorative in the financial world.

Spot

Spot refers to the physical instrument, as distinguished from the futures. A spot dealer specializes in the trading of currencies in the spot market. A spot market's trades deliver and settle two working days ahead (sometimes called a cash market). The spot price is today's market price of a currency.

Spread

The difference between two prices or interest rates being compared; for instance, December and March futures contracts, Italian and German bond yields.

Squeeze

Pressure upwards on price owing to a temporary shortage in the market. A squeeze is often engineered by canny foreign exchange traders. Knowing that delivery of a large amount of foreign currency is due, supply will be restricted, forcing the buyer to pay a higher price to fulfill the obligation. Since this usually happens for a limited time, and at little or no notice, it is often called a short squeeze.

Stability pact (properly the EU growth and stability pact)

The stability pact is designed to oblige euro members to keep strict budgetary discipline after monetary union begins. It includes fines for states whose budget deficit exceeds a certain proportion of GDP. But exceptions can be made when countries are suffering from recession. If their GDP falls between 0.75% and 2% during the course of one year, politicians can decide whether or not to exact fines.
Why should one country choose to fine another, when it could experience similar difficulties at a later date? That's the main criticism of the stability pact.

Stagflation

Rising prices and minimal or negative economic growth.

Stock

US for share. In the UK, stock mainly refers to gilt-edged bonds (government stock).

Stock market headline indices (Asia Pacific)

Japan: The Nikkei-225 share average is the headline index of the Tokyo stock market. It measures the average share price of the top 225 companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.
Hong Kong: The Hang Seng share index is the headline index of the Hong Kong stock market. It measures the average share price of the top 33 companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.
Thailand: The Stock Exchange of Thailand Index (Seti) is the headline index of the Bangkok stock market. It measures the average share price of the top companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.
South Korea: The Korea Composite Stock Price Index (Kospi) is the headline index of the Seoul stock market. It measures the average share price of companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.
Taiwan: The Taiwan Stock Exchange Weighted Stock Index is the headline index of the Taiwanese stock market. It measures the average share price of the top companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.
Malaysia: The headline index is the Kuala Lumpur Stock Exchange Composite Index. It measures the average share price of 86 companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.
Singapore: The Straits Times Industrial Share Price Index is the headline index of the Singapore stock market. It measures the average share price of the top companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.
Australia: The headline index is the Australian Stock Exchange All-Ordinaries Share Price Index. It measures the average share price of the top companies on a weighted basis, so that the movement in the share price of a large company has more of an effect than that of a medium-sized one.

The financial instrument which is the subject of a futures contract or an option.

Volatility

The degree of movement in an underlying asset around a moving average over a given period of time. Usually expressed as an annualized standard deviation percentage rate.
Also refers to the absolute total change in price over a period of time. For example, a currency that moves from 1.4500 directly to close at 1.4600 has a volatility of 0.01, or 1%. A currency moving from 1.4500 to 1.4540 then down to 1.4480 and ending at 1.4530 has a volatility of 0.004 + 0.006 + 0.005 = 0.015, or 1.5%.

Warrant

A type of security attached to a bond that has a separate life and value. A warrant allows the investor to purchase ordinary shares at a fixed price over a period of time (years) or to perpetuity. The price of the shares is usually higher than the market price at the time of issue. A warrant is freely transferable and can be traded separately.

Weak-holders

Investors looking for short-term profit from their assets and so more likely to sell in response to actual or expected price movements. Usually to be found amongst the speculative and trading sectors.

Yield curve

A diagram showing relationship between yields and maturities for a set of similar securities. The short end of the curve (with short maturities) tends to be influenced by central bank policy and key rate movements, while the long end is more affected by economic fundamentals such as growth and inflation.

Zero coupon bond

A bond which pays no coupon and is therefore issued at a deep discount to face value. The difference between the issue and redemption prices creates a large capital gain which boosts the yield to market levels. As it does not pay a coupon, investors do not run the risk of reinvesting interest paid at a lower rate if interest rates fall during the life of the bond. In the US Treasury securities market the only zero coupon bond is the Treasury bill.