Do you know how a derivative works? Do you know what pension funds are and how they differ from investment funds? And what share volatility means?
It is sometimes said that the world of finance has many secrets that it guards closely. In reality, it is less complicated than its language would seem. Here, in ten simple videos are the key words to better understand the world of finance.
The key words of the world of finance
In finance, risk is the uncertainty linked to the future value of an activity, financial instrument or any investment in general.
Gross Domestic Product (GDP) represents the overall value of final goods and services produced in a country within a period of time, usually a year. GDP can also be described as an indicator of the wealth or living standards in a country.
The yield of an activity is the total monetary income return, including capital earnings or losses, expressed as a percentage of its cost.
Government bonds or sovereign bonds are issued by national governments to finance balance deficits. They vary mainly according to duration, indexing and the form of interest (fixed rate, variable, zero coupon, etc..).
Solvency is the ability of a company to meet its long-term financial obligations. It is essential to staying in business as it asserts a company’s ability to continue operations into the foreseeable future.
Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index.
Interest rate is the amount charged by a lender to a borrower for the use of assets, it is expressed as a percentage of the principal.
Financial derivatives are contracts that derive their value from the performance of an “underlying asset”. These underlying assets can be of a financial nature (such as shares, interest rates and exchange rates) or commodities (such as coffee, cocoa, gold, oil, etc.).
A mutual fund is an investment vehicle made up of a pool of moneys collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets.
A pension fund is an investment scheme into which members pay contributions in order to build up a lump sum to provide them with an income during retirement.