Understanding the Nuances of Financial Jargon

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The world of finance is rife with complicated terms and technical concepts. While these terms are essential shorthand for industry participants, they can be confusing to the layperson. Financial advisers use jargon when soliciting new business or planning and executing accounts. Here is a brief look at some of the more common terms used in the industry.

“Securitization” is not synonymous with “security.” This process involves turning anything into a financial instrument that can be traded as an asset. Examples of securitized financial instruments are mortgages, car loans, insurance payments, student debt, and more. Securitization is a solution that has been used in countries like Greece during the recent economic crisis.

“Stock” and “bond” are common terms used in the world of financial investments. These terms refer to pieces of a company, which pay interest over a certain period of time. When the value of a company rises, its stock price goes up. Similarly, when a company decreases, its share price decreases. Therefore, when discussing stocks and bonds, it’s important to understand the differences between them.

Investment industry jargon can be confusing, especially to a novice investor. The terms are used as shorthand for complex concepts. For example, “MPT” stands for Modern Portfolio Theory, a complex investment strategy that aims to balance risk and performance. Other times, jargon is simply used as a synonym for a more common term. For example, financial advisors often refer to stocks as “equities” rather than the colloquial “stocks.”

Another jargon you must know is “bailout.” This term used to mean “tossing water over the side of a boat.” These days, it means “putting something valuable inside a failing institution. Other jargon used in finance include “credit,” “inflation,” and “noncore assets.”

Financial jargon can be confusing for anyone who wants to finance a business. Having a basic understanding of the terms and concepts can help you navigate the process more easily and make smarter decisions. The following list of terms can help you understand the nuances of financial jargon and move toward your goals.

AER: Annual Equivalent Rate (AER) is a general term for interest rates. AER is often found on savings accounts and a higher AER means a better return. Another important term to understand is APR, which shows how much a loan or credit card costs. The lower the APR, the better the deal.

A pension fund is an investment fund that is invested in the stock market. Its size depends on the contributions made to it and the performance of the investments. Mortgage insurance, on the other hand, protects the lender in case a borrower cannot pay off the mortgage. This insurance helps the lender in case the value of the home is lower than the amount owed to the mortgage lender. An investment trust, on the other hand, is a fund that is invested in other assets.

Another common term in financial jargon is “direct debit.” A direct debit is a method of payment that requires a lender to give permission. This method of payment is often a convenient option for those who want to avoid dealing with the hassles of handling cash. It is also safer than using cash.

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