Glossary

A Latin term meaning ‘from the start’.

In the futures or options markets, an abandon occurs when an option with no intrinsic value is allowed to lapse on expiry. In other words, the option's value is reduced to zero.

When one party "accepts" a bill by signing his name after the word "accepted", this indicates an intention to honour the bill when it matures. At this point the bill becomes a promissory note. The word also refers to bankers' acceptances, if the bank "accepts" the bill.

These are institutions which specialise in the "acceptance" or guaranteeing of bills of exchange. Merchant banks in some cases are also acceptance houses.

An unexpected, unintentional and unfortunate event outside of your control.

This refers to all forms of credit extended by the Reserve Bank to the banking sector, discount houses, central government and sometimes even foreign governments.

A method of recording monetary transactions (including the valuation and re-valuation of assets) in a company. Using various different accounting techniques, the user can establish whether a company is profitable or not, the extent of assets and liabilities, how well it uses its capital, whether management are getting a good enough return on this capital, how much money came into the business, how much went out during the year, and so on.

A set of financial statements cover a definite accounting period, usually one calendar year or, if interim statements, six months. This period need not be from January to December, and is often from March to February. The financial statements would refer to all the monetary transactions during that period.

This is money owed to the company, also known as debtors and is a current asset. Although the company has not yet received the money, it can represent the amount as a current asset as it is due and receivable.

This is money owed by the company, also known as creditors and is reflected in the balance sheet as a current liability. Although the company may not have paid the money out yet, it must make provision for the payment since it will have to pay the amount in the near future.

See accounts due.

This measures the average time it takes to collect accounts receivable (or debtors). This is an important ratio - if it takes a long time to collect debtors the company could find itself in cash flow problems. It is arrived at by first calculating the average daily turnover figure (if annual turnover is R500 000, divide this by the number of days in the year, 365, to give a daily turnover figure of R1 370 to arrive at a collection period of 21.9 days. This means it takes almost 22 days, on average, to collect accounts receivable. This figure should be compared from one year to the next to make sure the collection period is not getting longer.

These are expenses which have been incurred but not yet paid. This appears under current liabilities in the balance sheet. For example, if an insurance premium is paid once every six months in arrears and the accounting period ends on the third month, this expense must be reflected at the end of the third month as if it had already been paid, when in fact it will only be paid at the end of the sixth month.

When buying or selling a bond or other fixed interest securities, the interest accrues every six months in arrears - if the bond is sold five months after the last interest pay out, the buyer must pay for the five months of accrued interest. This interest which would have been paid to the seller had he held onto the bond for another month, so he must be compensated for this "loss". The sales price of the bond takes into consideration the accrued interest built up during the period of ownership of the seller.

This is money which has been earned but not yet received. It appears under current assets in the balance sheet. So if a company sells a product on credit, this is income earned but not received - or accrued revenue. See also debtors.

When the volumes traded in a share start to pick up while the share price moves sideways or upwards, this is known as an accumulation phase. It indicates that the share is moving into stronger hands - after a period of accumulation, the supply of shares will be exceeded by the demand and this may send the share price shooting rapidly upwards.

A ratio for determining the ability of a company to pay short-term obligations out of incoming revenue. Current assets less stock (from the balance sheet) expressed as a ratio of current liabilities. Stock is excluded from this ratio because it is assumed to be the least liquid of the current assets - stock cannot be converted into cash as quickly as say, debtors, so it is fair to exclude this from the acid test ratio when determining the solvency of the company. There is also a current ratio which is then compared with current liabilities to arrive at a ratio, which is a measure of solvency. Also called the quick ratio.

Where one company acquires a majority or substantial shareholding in another.

Shares where substantial volumes have been traded on any one day are said to be active. Where there are large volumes traded in a share with little or no movement in price, the share is said to be over-active.

These are ratios which guide management in the most efficient use of the company's current assets. They include the inventory turnover ratio and the accounts receivable collection period ratio.

These are a series of indices or indicators which monitor the general trend of share market prices in the different market sectors of the JSE. There are a large number of such indices on the stock market, covering the gold, industrial and other sectors. The formulae for calculating the indices, which have been developed by the Actuarial Society of South Africa, give the important shares in a sector a certain weighting in proportion to their market capitalisations. These indices are not the same as simple indices such as the Dow Jones which takes the daily price of 30 leading stocks on the New York Stock Exchange, adds them up and divides by 30 to arrive at a new index value. (There is no system of weighting with this index.)

American Depository Receipt, which is a mechanism by which foreign shares are traded in the USA. Shares are registered into a nominee name that in turn issues transferable ADRs in respect of its underlying holding.

This is a graph which is calculated by subtracting the number of shares that went up in price on any one day by the number of shares which went down in price. It is used to show the overall trend in the market and is a good barometer of market sentiment. See also net advance/decline.

Banking terminology for loans. A bank lending at an interest rate of 15% may have to pay 13% to raise that money, so it makes a margin of 2%.

The gold price is fixed in London each afternoon by a number of bullion houses, on consensus, after open market testing of gold price levels.

The amount of profit left after tax has been deducted.

See Annual General Meeting

Abbreviation for asset-liability committee. These are in-house committees appointed by banks to manage interest rate risk. The ALCO ensures that the bank's cash and reserve requirements are adequate and that the maturities and various classes of assets and liabilities are adjusted to maintain profitability while interest rates fluctuate and economic conditions change.

An index which reflects the general trend in gold share prices. It is calculated by giving a certain weighting to gold shares in proportion to their market capitalisations, and monitoring the price movements in those shares. Only certain gold shares are used in the calculation of this index.

In the bond market, the cost and the accrued interest of a bond expressed as a percentage of the nominal value.

When a company issues a prospectus with a view to listing the shares on the stock exchange, investors apply for shares. Whether they are "allocated" all the shares they apply for depends on how many times the issue was over-subscribed, or the allocation policy of the company.

Companies with a large debtors book (i.e. amounts owing) frequently make an allowance for bad debts - debts which are owed but are unlikely to ever be collected. Banks usually make a generous allowance for bad debts, since a certain proportion of their loans, based on historical experience, will never be recovered.

The excess return on a security or fund relative to the return of its benchmark index. For example, a positive alpha of 2.0 means the security outperformed its relevant benchmark index by 2.0%. Correspondingly, if the same alpha was negative, the security would have underperformed its benchmark by 2.0%.

Alternative exchange is, as the name suggests, a separate group of stocks that are not listed on the JSE main board. AltX stocks include small enterprises seeking to raise capital for business development and expansion. By definition, AltX stocks are innovative and entrepreneurial companies that represent both real value and real risk. AltX companies only require 10% of their stock to be available for trading, which means liquidity is a limiting factor. They also have less onerous financial reporting obligations. AltX stocks are only recommended for experienced traders.

See ADR

This is an option which can be exercised at any time up to the strike date. See also European option.

See depreciation.

Benefits that supplement or add to your main insurance benefit but that result from the same action.

This is a meeting of shareholders and directors of a company, required by law at least once a year. Directors must present the financial statements to shareholders who in turn may vote on various issues (such as a change of management) in accordance with the number of shares they hold. Where large numbers of small investors own companies it can be difficult to co-ordinate voting to remove management or change company policy.

The fee that is charged for managing a fund. The fee may be fixed (unrelated to fund performance), performance-based (linked to fund performance and a benchmark) or a combination of the two. The fixed fee can also be known as the ‘base fee’.

The amount by which your insurance premium goes up each year.

In terms of the Companies Act a company must produce a set of annual financial statements, known as an Annual Report, comprising the company balance sheet, income statement, cash flow statement, directors' report and the auditors' report, spelling out the accounting policies used in its compilation as well as the auditors' verification that the financial statements fairly present the position of the company.

There a company has a trading period shorter or longer than a year for whatever reason - usually when the financial year-end is changed - the profit figure, together with all other relevant financial information, must be annualised. So a company which posts a R2.5 million profit over a nine-month period would have achieved an annualised profit of R3.3 million. This figure of R3.3 million is arrived at by extrapolating the profit of R2.5 million over the remaining three months of the year. The calculation is: R2.5 million divided by nine (months), multiplied by 12 months. If this profit of R2.5 million were achieved over a 16-month period, we would have to divide R2.5 million by 16 and multiply the result by 12 (giving us an annualised profit of R1.875 million). Annualising profit figures allows us to compare one full year's results with the next.

Where payments from an investment are made in equal instalments at pre-determined periods during the year.

This is where net income is allocated or appropriated for various specific purposes, such as a transfer to non-distributable reserves or for dividends.

Where shares or other forms of tradable paper are traded concurrently in different markets and certain discrepancies between different markets appear arbitrage dealers will step in to exploit the situation. For example, if copper traded at 60 US cents a pound in London and 68 cents in New York, an arbitrage dealer could both sell copper in New York on the basis that it is too highly priced relative to elsewhere, and buy copper in London, on the basis that it is under-priced (using different currencies), and so the gap between the two copper prices would narrow. In this way, the world markets very quickly fall into line with each other.

This is a document which is required in terms of the Companies Act before a company can commence operating. It details the directors, their responsibilities, shareholdings and other matters of an internal nature.

Is the calculation of a loss for tax purposes, after giving due consideration to tax allowances. A loss made in one year can be written off in another year when a profit is made. For example, if Company A makes a loss of R50 000 in year 1 and a profit of R100 000 in year 2, it can write off the tax loss of year 1 against the profit of year 2, (R100 000 - R50 000 - R50 000). Companies with large assessed losses are sometimes targets for a takeover by companies making large profits and paying high taxes - this allows them to write-off the assessed tax loss against their own profits.

The process of allocating a fund’s holdings among different types of assets, such as stocks, bonds, property and cash, to meet the fund’s investment policy over time.

This is the capital raised by the issue of shares, plus all the accumulated profits of the company which were not distributed as dividends.

Where the asset value of a company is more than the market price of its shares, an asset stripper may be tempted to purchase all the shares and sell off the assets, making a profit on the difference between the cost of the shares and the sale price of the assets.

A company's assets can be classified into various types of assets for purposes of analysis. For example, the ratio of fixed assets to total assets indicates how capital-intensive the company is, stock to total assets indicates what proportion of working capital is tied up in stock, debtors to total assets indicates whether a company needs to tighten its credit management, and so on. These ratios are important from a bank's point of view when assessing whether or not to extend credit to a company. The bank will also want to know what the cash reserves of the company are in relation to total assets, and any intangible asset (such as brand names) is generally excluded from the asset side of the balance sheet in order to assess the liquidation value of the company.

Where two parties agree to swap the assets which they own. Under the latest exchange control regulations, the CIS manager companies can invest up to 35% of retail assets under management in foreign assets. This applies at an institutional level, not on a fund level. Asset-swap funds are an effortless way to diversify offshore. You do not have to apply for foreign allowance clearance and your application does not have to be approved by the South African Reserve Bank. You get all the benefits of investing globally and dealing with a South African institution without having to physically take your money offshore. There are no limits to the amount that can be invested offshore via an asset swap; however, your investment must be repatriated to SA in the future.

This is a ratio used in management accounting which indicates the efficiency of the assets used in an operation in generating revenue. It is generally calculated as total assets divided by turnover. A higher ratio indicates more efficient use of company assets. It can be used to compare one year's performance with the next, or, one company with another. The ratios vary from one industry to another. A low ratio indicates poor utilisation of assets and it this persists, management may decide to sell the assets.

These are possessions such as buildings, machinery, furniture (tangible assets) or even trademarks and goodwill (intangible assets) which an auditor must value and reflect in the financial statements. Assets are paid for out of the capital or liabilities of the company and therefore belong to the shareholders.

This is where one company has a substantial holding (usually more than 20% but less than 50%) in another - if the holding company held more than 50% of the shares, the "owned" company would be a subsidiary.

An order given to a broker to purchase or sell shares at the best available price.

A price equivalent to the nominal value of a bond or other form of security. For example, a bond which was originally issued at R1 million and is sold at this price two years later for the same price, is said to have been sold "at par".

In the options market, an option will start to reap a profit when the strike price of the option is approximately equal to the current market price of the underlying contract. At this point it is said to be "at the money". See also away from the money.

This is the profit available for distribution to shareholders. It is the profit of the company after tax; extraordinary items and preference dividends have been deducted. In a group with numerous subsidiaries, attributable profit would include the above deductions, but outside shareholders' interests would also have to be deducted.

This term generally refers to the process of scrutinising and verifying a company's financial records by an and certified "auditor" (accountant). The audit is carried out in accordance with accepted auditing principles. Financial transactions are examined for possible contraventions of the law and the auditor then gives his or her opinion of the state of the company financial record-keeping.

This is simply a report by the auditors, included in the annual report, indicating that figures represented in the report fairly present the financial position of the company over the reporting period. The auditors' report may also be accompanied by a statement qualifying the auditors' assessment of the financial position of the company, where certain information is difficult to quantify or estimate.

Authorised capital is the amount of capital the company is legally allowed to raise by the sale of shares to the public - once the shares are exchanged for cash they become issued shares. A company generally does not issue all of its authorised capital at one time. The balance between authorised and issued capital is a reserve of unissued shares.

An individual who has permission to act on someone else's behalf. In the context of FAIS, this is an individual or entity who has permission to act as a FAIS representative.

The amount by which your insurance premium goes up each year automatically.

Ore which can be mined, as opposed to ore which is not available for mining, for reasons of safety - for example, where the ore forms part of the roof or a supporting pillar underground.

Income tax is applied on a sliding scale, the percentage rate of tax increasing with income. For example, a person earning R150 000 a year in South Africa may be taxed at the rate of 18% on R140 000 of that income and at the rate of 25% on the excess over R140 001 (i.e. R9000).So the tax would be calculated as follows:R140 000 @ 18% = R25 200R9 000 @ 25% = R 2 250Total tax payable = R27 450Average tax rate = 18.03%Marginal tax rate is 18%The average tax rate is different to the marginal tax rate. The marginal tax rate in the above example is 18%, since this is the rate applied to all additional income, although the average tax rate was 18.03%.

See out-of-the-money.

The rate at which bankers' acceptances are issued, discounted or traded by the holder or bearer before the specified date for redemption. This is known as discounting. A bank discounts BA's in return for which it charges a fee. The BA rate is a key rate to watch - a fall in the BA rate means banks are charging less for discounting or issuing BAs, which encourages the issue of short term lending instruments, so more money is injected into the economy. The BA rate is a leading indicator of the direction in which short term interest rates are tending, as it represents the wholesale borrowing and lending rates on bank-endorsed business in the economy.

In the futures market, this occurs when the spot price is higher than the futures price. This is a result of a squeeze in the market (i.e. a shortage of a commodity, currency, etc.). Spot prices are usually lower than futures prices.

Debtors which were previously regarded as bad debts but which have subsequently been recovered.

These are debts owed to a company which cannot be collected and are never paid. The furniture business, which relies heavily on credit sales, experiences a rise in bad debts during times of recession or high interest rates, when finance is harder to come by.

This determines whether the inflow of money to the country is balanced by the outflow. Countries aim to have a balance of payments surplus, meaning that more funds flowed into the country over a certain period than flowed out. The inflow of funds is from export sales, foreign investors, income from overseas investment, while the outflow is from import payments, repayment of debt, interest payments to foreign investors, etc. See also current account and capital account.

This forms part of the balance of payments calculation, but refers only to the difference between the value of exports as against imports.

A financial statement which sets out to balance the assets and liabilities of a company at a specific date. They MUST balance. Most companies no longer refer to assets and liabilities in the balance sheet - you will generally find the Sources of Capital listing where the source of funds used in operating the business (from the issue of shares, long term loans, undistributed reserves and deferred taxation) against the Employment of Capital showing where that capital was spent (buildings, machinery, stock, debtors less creditors and other current liabilities). Representing a balance sheet under the headings Sources and Employment of Capital is merely another way of displaying the assets and liabilities of a company.

Institutional investors (such as the unit trusts) regard a balanced portfolio as one with funds spread over the major sectors of the JSE. A balanced portfolio can also be achieved by structuring it in much the same way as the JSE Overall index is structured. This ensures that the portfolio will perform in line with that of the index, but this is a defensive strategy and will not lead to superior portfolio performance. One achieves a superior performance by a strategy of concentration which gives a heavier weighting to those sectors of the market likely to perform best.

An institution which accepts deposits of money from small investors or large companies, and lends this out again to borrowers who are charged interest for this privilege. Depositors receive interest for leaving their money with the bank. Banks have broadened their scope and now deal in foreign exchange, broking, investment advice and a whole range of other services. Commercial banks are those banks where most private individuals keep their funds - these banks deal with small investors. Merchant banks originated when merchants lacked sufficient capital to finance their trade so groups of them put their funds together for this purpose (so that ships could be purchased, exports paid for, etc.). Today, merchant banks specialise in putting together complicated financial deals - they generally have smaller capital bases than commercial banks so a large part of their revenue is derived from fee-earning services such as administered mutual funds, investment advice, arbitrage or putting large borrowers in touch with lenders. Commercial banks derive most of their income from lending money.

The equivalent of our Reserve Bank. A lender of last resort to UK banks. It controls and regulates the monetary activities in the UK.

A form of short-term lending between two parties, that is endorsed (guaranteed) by a bank or in which the bank is the principal. These are usually in the form of promissory notes whereby the issuer "promises" to pay a fixed sum of money at a future specified date, or receives a lesser amount thereby giving the lender a fixed return.

This occurs where a company's liabilities exceed its assets, usually brought about because it is unable to pay its creditors. The company may voluntarily declare itself bankrupt or a creditor may apply to place the company in liquidation. A court may decide to place the company under judicial management if there is a fair chance of salvaging the company through tighter credit control and more efficient management.

This act governs the commercial life of the banking sector.

One million rand nominal value of a bond.

A graphic representation of a share or other security where each day is depicted as a bar, the top of which extends to the high of the day's trade, the bottom to the low of the day's trade and a tick on the bar to represent the day's close.

Non-precious metals. The base metals include copper, aluminium, nickel, zinc and lead. These are traded on commodity futures and forward markets in London and New York.

A large furry animal with sharp teeth and claws. In the financial markets a bear is an investor who believes market prices (for shares, bonds etc.) are going to fall. A bear trend is a downward trend.

The sale of shares which the investor does not yet own. If an investor believes the market is going to drop he can make a profit (if his reading of the market is correct) by selling shares as if he owned them when in fact he doesn't. To execute a bear sale, you must inform your broker in writing that you intend to do so and deposit a cheque with him for the value of the bear sale. At the same time you must nominate a period during which you undertake to deliver the shares and so conclude the bear sale. Someone doing a bear sale anticipates that a share price will drop - if the share price rises and so goes against him the broker will call on the bear seller to deposit more cash (or margin) with him (which earns interest all the while) to cover the current market value of the shares. Assuming the share price drops after short-selling the shares, the short (or bear) seller must buy shares at some point within his nominated period to deliver to his broker and so conclude the deal. At this point he will collect a cheque for the difference between the short sale price and the price at which he bought the shares.

When a large number of investors short sell a share in anticipation that the price will drop but the price continues to rise, the bears will have to buy very quickly into the market to cover their positions. The longer they delay, the higher the price may go and the bigger the potential loss on the bear sale. This is a bear squeeze.

Shares which indicate the general trend of the share market as a whole.

A benchmark is a point of reference by which the performance of a fund can be measured.

A form of volatility or risk analysis which calculates the elasticity of a share price relative to the market. Shares with a high propensity to change price (i.e. volatile shares) have a high beta, or risk. For example, some shares shed 70% to 80% of their market prices after the stock market crash of 1987 - when the market is in a trough, shares with a high beta are likely to give a higher return than those with a low beta because the upside potential is that much greater. Other shares only lost 20% to 30% of their market prices after the crash - these have a low beta, or a lower propensity to rise when the market is in a trough, because the amplitude of previous price movement is low. A beta coefficient greater than 1 indicates the particular share being analysed is more volatile than its sector index (or the overall market index if this is used for comparison), and a coefficient less than 1 indicates a share whose price movements are less volatile than the sector index.

A price which is higher than an investor's bid or lower than his offer.

The bid price is the price a buyer is willing to pay for a share or security.

A short-term instrument (about three months) which pays interest to the holder and can be traded. Some bills do not pay interest but are issued at a discount to their face value. In other words the face value of the bill may be R1 000, but instead of charging interest on this at the rate of say 10%, an institution will issue the bill for say R910, (known as discounting), collecting the difference between R1000 and R910 as its fee.

A means of trade payment used by companies to finance themselves. They pay a fee to an acceptance house which accepts or guarantees the bill; if undertaken by a bank it becomes a banker’s acceptance. They then present the bill to a discount house which pays them money in advance on the strength of the bill at a discount to its face value. This is also known as a bankers' acceptance or commercial bill.

In South Africa, black chip stocks refers to companies who are majority owned by individuals of native African descent.

An illegal market for anything from soap to currencies, gold and diamonds. Black markets usually arise where governments interfere in the free market forces. For instance, the price of bread in some East European countries was fixed by government at a low price in the past. But there was simply not enough for everybody - queues formed outside bread shops and most people went home empty-handed when supply ran out. So a black market arose where those with money could pay above the government price but be sure of getting the bread they needed. Similarly, where third world governments fix the level of their currency against the dollar or sterling, free market forces are not allowed to find the true exchange rate and black markets inevitably spring up where buyers and sellers can get together and bid for foreign currency. See fixed exchange rates.

During the 1960s as a result of political strife, there was an attempt among investors and emigrants to ship their capital out of the country. The government introduced the "blocked rand" to prevent a wholescale withdrawal of funds from the country which would prejudice the country's foreign exchange reserves. These blocked rand accounts can be used to buy shares and various other types of investment, can be spent while on holidays to this country, but cannot be transferred out of the country.

A good quality company, with competent management of a proven track record and one that consistently improves its dividends, year after year. Implied in the term blue chip is that the company has been around a long time and has consistently made good profits.

The directors of a company elected by shareholders are referred to as a "board". It is their responsibility to "direct" the affairs of the company. The directors of a company would not consult shareholders when appointing a managing director since it is assumed that the directors act in the best interests of the shareholders. If shareholders strongly object to the appointment of a particular person as managing director or director they could vote him out at a general meeting.

A financial instrument issued by a government, company or a semi-government body (such as Eskom or the Post Office) which allows these entities to borrow money from investors to finance their operations and activities. The borrower (issuer) of the bond promises to pay the lender (investor) a specified interest rate or coupon for a fixed period (duration) and where the investor may redeem the face value of the bond at maturity.

An option, such as a put or call option, which allows the holder to buy or sell a bond at a pre-determined price within a certain period. It is a means of hedging against volatile fluctuations in the bond market. See also put option and call option.

This is the value of an asset as recorded in a company's books, as distinct from its market value. If land was bought 20 years ago for R2 million, this is the book value of the asset. Today the land may be worth R10 million on the open market but the books may still record the value of the asset at R2 million. A revaluation of the land would increase the value of the asset 5 times - the book value would now be R10 million and the additional amount would be entered into the non-distributable reserves in the balance sheet.

When a broker buys and sells the same share on behalf of two or more clients. The order must be put through a member of another broking firm to ensure the deal is fair to all concerned.

A commonly used management term referring to after-tax income. In strategic planning the term refers to the desired or end result of a plan.

This is a form of analysis which assesses the prospects for a company or group of companies, and then looks at the sector, the industry and the economy. This is micro analysis, attempting to discern trends in the industry and the economy by looking first at individual companies. Its opposite is the top-down approach.

A French word originally meaning a foreign currency market but now broadened to mean any market where securities are traded.

A point at which a company makes neither a profit nor a loss. Its income is just sufficient to cover its costs. Obviously a company exists to make profits for the shareholders and it must try and do better than just break even. But management likes to know what level of sales is needed to break even before profits are made.

In technical analysis, a break-out occurs when a graph has been moving sideways and suddenly moves out of the trend, either up or down.

An international conference was held in a place called Bretton Woods, in New Hampshire in 1944, at which the world's major currencies were pegged at fixed rates to the dollar. It was at this conference that the United States dollar became the backbone of the world financial system - it became convertible into gold at a fixed rate. This fixed exchange rate system lasted into the early 1970s but broke down as the dollar lacked the strength to support the system and America became embroiled in a costly war with Vietnam. The system assumed that if one country developed a current account deficit it would adjust its domestic policies until the deficit rectified itself. Because of increasing balance of payments deficits in the US, the world foreign exchange markets became overloaded with dollars and the system collapsed. The Bretton Woods system has been replaced by floating exchange rates. The World Bank and International Monetary Fund (IMF) were established at Bretton Woods to help in the regulation of domestic economies. It is interesting to note that while the fixed exchange rate is today considered unworkable by many economists, developed countries enjoyed a very high degree of prosperity and wealth creation during the currency of the system outlined above. Inflation was low and growth high. An increasing number of economists advocate a return to a modified version of Bretton Woods as a panacea for the world economy.

This is a loan made to a borrower for a brief period in expectation of a longer-term loan being granted or the funds being received from another source in the near future. The bridging loan is usually only granted where there is some guarantee that a longer-term loan will be granted, thereby retiring the bridging loan. This method of lending allows projects which require urgent financing to get underway more or less immediately while the longer-term loan is being processed.

Those who buy and sell shares on behalf of investors at the JSE, in return for a commission.

The commission a broker charges for buying and selling securities.

This note confirms with the buyer or seller of shares that he bought or sold such and such a share a t a certain price, including the costs involved and the amount owing or due.

A term referring to small participants in the bond market that are not banks, discount houses or stockbrokers who "job" (i.e. buy and sell stock on a short-term basis in order to make a profit) the market for their own account.

A plan of activities developed by individuals, companies or governments in terms of revenues and expenses. The plan will spell out the assets and liabilities involved as well as the aims and goals of the budget. A government budget, for example, estimates the expected receipts from taxation, customs and excise (including other sources of government revenue) and then allocates that revenue in various ways: defence, education, salaries, etc. In the process, the government will indicate the specific goals of the budget.

A load of rubbish. Also a type of four-legged animal with horns. In the finance markets it means an investor who believes shares are about to rise. A bull trend, therefore, is one that is upwards.

Usually refers to gold in bar form, without any process of beneficiation (such as jewellery). Can also apply to any other precious metal such as silver and platinum in bar form.

The expansion and contraction of business activity over a period of months or years as measured by economic indicators such as employment figures, money supply, growth in gross national product and so on.

A business day is any day other than a Saturday, Sunday or South African public holiday.

Insurance that covers a business and its assets to protect itself against possible losses.

A line, which if intersected upwards on an oscillator would generate a buy signal. A buy line on an overbought/oversold indicator is a straight line which would intersect the bottoms of the graph as regularly as possible below the zero line on the graph.

Money which is placed in a special bank account, earning interest, but which can be withdrawn usually at 24 hours’ notice. The rate of interest earned on such an account is known as the call rate. Call rates on deposits are usually lower than that offered on 3, 6, 9 and 12 months' deposits.

This is a right, but not an obligation, which may be purchased, entitling the buyer to acquire securities or futures at a pre-determined price up to a pre-determined date. In the bond market a purchaser of one of these options assumes that interest rates will drop. Call options are available for periods ranging anywhere from overnight to several months. A call option of say, three months, 10 points away from the money means that the option holder can exercise his right to buy a bond any time within three months at a pre-determined price - interest rates must move down 0.1 percent (or 10 points as this is referred to in the bonds market) before the holder starts to make profits. The downside potential of a call option is the amount of money paid for the option. The holder cannot lose more than this amount but his upside potential is very highly geared. In the share market these options are called warrants. Institutions are the biggest traders in bonds options because it allows them to hedge their risks. If one is unsure which way interest rates will go one can take both a call and a put option. A put option holder assumes that interest rates will go up and it gives him the right to sell a bond at a pre-determined price. Holding both put and call options is a common feature of bond option trading and is known as straddling.

See call.

Capital expenditure (abbreviated form).

Money supplied by the shareholders is referred to as capital. This is used for the purchase of assets which will assist in the generation of income. But shareholders are not the only source of capital - long-term loans are also considered capital, as is deferred taxation and undistributed profits.

A country's balance of payments is made up of a capital account and a current account. Both accounts monitor the flow of funds into and out of a country. The capital account records the sale and purchase of assets, such as shares in an overseas company, an overseas factory, or any form of physical asset or securities which involves the flow of money into and out of a country. The current account records trade payments, tourist expenditure, interest payments and dividends (both into and out of a country). So a South African investor buying shares in Tokyo (pre-supposing Reserve Bank approval to send the money out of the country) would result in a debit on the capital account while the receipt of dividends on those shares is a credit on the current account.

It is the monetary value of a bank loan or that part of total monetary value when purchasing a bond, which excludes the monetary value of the accrued interest and is arrived at by taking the total monetary value less the accrued interest.

The difference between the purchase price of a share or security and its current market value. Once the share is sold it becomes a capital profit.

This usually refers to assets used in the production of items for resale - examples are buildings and machinery. It does not include stock for resale.

Generally refers to expenditure on the mines, such as investing in new shafts, machinery, etc. A high level of capex means lower dividends for shareholders since the capex must come out of retained profits. It may also mean that the mine is gearing up for higher production in the years to come. Shareholders like to see a certain amount of capex as this represents a re-investment in the company which hopefully results in greater profitability in the future. It need not refer to expenditure on capital equipment for mining exclusively - any expenditure on long-term assets is considered capital expenditure.

The creation of capital, by the issuing of shares or other means. The term is generally used to describe the tendency in a country to raise capital for the pursuit of enterprise and the generation of profit for the providers of the capital, i.e. the shareholders.

A type of tax levied on capital gains incurred by natural persons and corporations from the sale of property or an investment.

When the price/value of a capital asset or investment such as property, land or a security increases. The gain is not realised until the asset is sold. A realisable profit will be made if the asset or investment is then sold, which will most likely trigger Capital Gains Tax (CGT). Inflation and currency movements can affect capital gain.

The capital market has no physical location. Capital market refers to any market used to raise capital, encompassing listed equity markets, fixed interest markets and unlisted securities markets. In SA, the term has become synonymous with the bond market, where the debt issues of the Government and public sector are both issued and subsequently traded. It is separated into the primary market where new issues are floated and the secondary market where they are subsequently traded.

When a share is bought for R10 each and sold a year later for R15, the difference is the capital gain (i.e.R5) as opposed to the interest which accrues while the share is being held. If a house is bought for R50 000 and sold ten years later for R100 000, the capital gain is R50 000.

A large construction or development project, usually, requiring millions of rands in capital. The term usually applies to the construction of power stations, bridges, dams, etc.

The precise manner in which a company finances its operations, encompassing both debt and equity. This may be by means of the issue of 10 million ordinary shares at 100 cents each, 500 000 preference shares at 2 000 cents each and 1 million debentures at 100 cents each attracting interest at the rate of 10% a year. This is the company's capital structure - these are some of the different types of securities issued by it to raise capital.

When a company wishes to pay shareholders a dividend, but for tax or cashflow reasons would prefer not to pay it out in cash, it will issue more shares to existing shareholders out of its undistributed reserves. This means that shareholders will end up owning more shares (without having to buy them) and will receive dividends on these new shares together with the old ones. This is usually done where a company's share issue is small and the shares too thinly traded or if the company wishes to protect its cashflow.

This is the process of reducing expected future profits in a company to net present value. This is also known as discounting future earnings into present money.

The idea or philosophy of conducting business for profit and the further accumulation of capital, with ownership vested in the private sector. Marxists see history as a struggle between capitalism and communism where, supposedly, the latter will triumph.

When an investment fund is closed to new investment. Both SA domiciled and offshore funds may be capped when they get to big. A capped fund usually does not affect existing debit order clients. South African domiciled funds in the Global category depend on asset swap capacity of the management company i.e. when the limit is reached; the fund is forced to turn away new investments.

Insurance that covers your motor vehicle/car against theft or damage as a result of an accident.

The value to which your car is covered by your car insurance policy in the event of a claim.

A measure of weight for diamonds, one carat being equal to 200 milligrams. It is also a measure of fineness for gold used by the jewellery trade. Pure gold is 24 carats; an alloy of three-quarters gold plus one-quarter base metal is 18 carats.

The lending of money (usually by a bank) to an investor against the security of listed securities.

When a group of companies whose combined production of a particular product is sufficient to dominate the industry, band together and agree to manipulate prices in their favour, this is known as a cartel. OPEC (the Organisation of Oil Producing and Exporting Countries) is one such cartel. They agree to limit their production to certain quotas so as to push up the price of oil. In most countries this is illegal because it is an infringement of fair trading practises. International cartels like OPEC are virtually impossible to prevent.

Money, the most liquid instrument in a financial system. Less liquid are shares, bonds, bills of exchange, land and other forms of monetary instruments.

Cash flow measures the amount of cash available to a business. There are generally two measures of cash flow, gross cash flow and net cash flow. Gross cash flow is group taxed profits plus depreciation plus deferred tax less preference dividends. The reason depreciation and deferred tax are added back to the profit figure is that these are provisions for payment but they were not actually paid to anyone. Net cash flow is gross cash flow less ordinary dividends.

The proportion of a bank's liabilities which it considers prudent to keep in the form of cash. When a depositor leaves money with a bank this is reflected in the bank's books as a liability since it will have to repay this money at some future date. Conversely, a loan is reflected in their books as an asset since it will have to be paid back to the bank at some future date. Not everyone wants to withdraw their money at the same time so the bank can lend a portion of its deposits out again.

This was once a sector on the JSE but has since been disbanded. Companies listed in this sector had only cash or near cash as their only asset. Often the companies operated with no offices or employees, but using the administrative facilities of another operating company. They have a specific time period in which to acquire cash before their listing is terminated. If they do find assets this is normally termed a reverse listing.

This, as the name implies, is a measure of cash compared to current liabilities. It indicates the ability of a company to meet short-term obligations out of its existing cash resources. It is a measure of the liquidity of a company.

A technical analysis term for a break-out followed by a reversal in the trend, either up or down. Also known as a false break-out.

This is an announcement appearing in the newspaper by company management, advising shareholders and investors to exercise caution in dealing with the company's shares. It usually appears when the company is involved in takeover negotiations with another company. Since the negotiations could materially affect the value of the shares, management try to prevent wild speculation which could force the share price either up or down. There is also the fact that in order to finance the deal, management may intend to pay for the acquisition by means of its shares, and when the market price is fluctuating wildly it hampers agreement as to the true value of the shares. Some companies request a suspension of trade in its shares for a few days to enable an agreement to be reached (where this agreement hinges on the market value of its shares).

Short-term interest-bearing deposits in a bank for which a bearer certificate is issued. There are also negotiable certificates of deposit and now liquid certificates of deposit.

Clearing House Automated Payment Systems, an electronic system for settling accounts between banks in the United Kingdom.

A means of preventing fraud within a securities firm. One part of the firm may not pass on information to another if it is against a client's interest.

A person who makes a claim to receive benefits.

In insurance, this is a claim against loss, fire, theft or damage, made by a policyholder against the company.

A period in which there are no claims.

In the insurance industry, this is one of the key ratios to monitor. It is total claims to net premium income. By watching this ratio, the analyst can determine whether the insurance company is facing increasing claims from policyholders in relation to its premium income.

In the bond or futures market, this refers to all the options to buy or sell a particular contract. For example, all call options (giving the holder the right to buy a bond or futures contract at a particular price before a specified date) on the Eskom 168 stocks are of the same "class of options".

The cost of a bond expressed as a percentage of the nominal value excluding accrued interest. See also nominal value.

The Pension Funds Amendment Act (2007) introduced this principle for the treatment of retirement fund benefits in terms of members and their ex-spouses when the parties dissolve their marriage. In the past, the portion of a member’s pension benefit payable to a former spouse as part of a divorce settlement was only paid when the member spouse left the Fund. According to the new rule amendments, former spouses will now be able to receive their share of the pension interest soon after the divorce has been completed, either in cash or as a transfer to another pension fund.

In gold mining, for example, minute particles of gold accumulate in the reduction plant - the process of reclaiming these is called a clean-up.

Banks which are part of the clearing system and which were formed to reduce the number of inter-bank payments.

In the share, bonds and futures markets all purchases and sales are matched so that ownership can pass to the buyer without undue delay. This "matching" process is undertaken by a Clearing House. In the process the financial integrity of all transactions are assured.

The last price at which a security is traded.

This is a type of company covered by the Close Corporations Act of 1985. It has limited liability, does not require the submission of audited income statements to the Receiver of Revenue and is very easy to set up. A private company, in contrast, is very complex from a legal point of view.

The time that trading stops on the JSE.

This is the last price at which a transaction took place on any day and is the most important of the prices shown in the newspapers' share price page since it is the most recent.

This is where an option, for example, that was purchased sometime in the past, is sold, thereby concluding the transaction, be that at a profit or a loss. It also applies where an option is purchased, having been sold some time in the past.

This is a scheme where members of the public are invited to invest in a portfolio, and in terms of which two or more investors contribute money and hold a participatory interest in a portfolio of the scheme through shares, units or any other form of participatory interest. The investors share the risk and the benefit of investment in proportion to their participatory interest as determined in the trust deed. These schemes are commonly called to ‘unit trusts’ or ‘funds’.

Where a number of dominant companies in an industry get together and agree to fix prices, or share the market, this is collusion. It is against the interests of the consumer since prices are fixed at a high level so as to boost the profits of the companies. It is the specific task of the Competitions Board to prevent this kind of practice. Cement producers in South Africa have in the past been accused of collusion.

This applies mainly in the futures market where a put and a call option on the same underlying contract are taken out at the same time, so that no matter which direction the market takes, the position is hedged. This is also known as straddling in the bond options market.

The date from which you're covered under your insurance policy. Also known as a start date.

Banks which receive a large proportion of their funds from small depositors. This money is then re-lent to borrowers. Commercial banks issue cheques and concentrate heavily on the retail side of banking (i.e. accepting small deposits) by offering attractive incentives to small depositors.

See bill of exchange.

Insurance that covers a business or commercial entity and its assets against possible losses.

This is a fee paid to a salesman or company who sells a product on behalf of another party, or passes on the name of a potential buyer of some product and this eventually results in a sale.

In the insurance industry, this is the ratio of commissions paid to premium income. It indicates how much is being paid to salesmen or other parties for the generation of premium income.

A physical commodity, be it wheat, corn, gold, platinum, orange juice etc., which is traded on commodities futures markets around the world. The major commodity markets are Chicago, New York and London, where a wide range of commodities can be bought and sold at pre-determined prices, months ahead of delivery. A commodity can also refer to a product with no or very little pricing power or brand awareness. For example: paper - consumers do not really care which paper they use, a paper manufacturer therefore has no pricing power. This is in contrast to a product such as Coke which has a loyal consumer base that will buy no other product. Therefore Coke has more power in raising its prices.

These are contracts where sellers of various commodities agree to deliver a certain quantity on a certain date and at a pre-determined price. The contracts are usually for periods lasting less than 12 months. The contract may then be traded on a futures market, if the holder wants to realise a profit or limit his loss.

See ordinary shares. This term is more commonly applied in the United States.

The philosophy that all wealth in a country or economy should be collectively owned by the workers. The philosophy postulates an egalitarian, classless society with everyone working for the good of all. Implicit in this theory is the idea that capitalism be overthrown since the primary drive behind capitalism is profit and the accumulation of capital. The philosophy was the work of Karl Marx, Hegel and others - it assumes that any profit made from the sale of a commodity is the rightful property of the workers. Therefore profit is achieved at the expense of labour. See also Marx and Marxism.

One who espouses communism.

This act governs the commercial life of the country. The Act does not apply to close corporations (which are governed by the Close Corporations Act). The Companies Act spells out certain minimum requirements of companies, such as the issue of financial statements each year, a copy of which must be sent to shareholders so that they are kept properly informed of the company's activities. It spells out the responsibilities of management to shareholders, lays down strict rules as to the use of capital and requires the managing director to issue a report each year on the company’s future outlook as well as recounting the year gone by. The Act also requires the holding of an annual general meeting where shareholders can put questions to management.

A company can be defined as "an artificial being, invisible, intangible and existing only in contemplation of law". It is a legal entity carrying out some form of commercial enterprise, usually, and is quite distinct from the persons who own it. Its liabilities are limited to the amount of capital invested by the shareholders and these shares may be transferred or sold without affecting the company's existence. The law states that once capital has been paid into the company it may not again be paid out to shareholders unless all prior claims and creditors have been repaid. Company decisions are made by the board of directors on behalf of the shareholders. A company usually exists for the benefit of shareholders, and seeks to make a profit by undertaking some form of commercial enterprise.

A Government-appointed board with the task of investigating monopolistic, collusive and unfair practises in the economy.

As opposed to simple interest, compound interest adds the simple interest paid on an investment in any one period to the capital amount and in the following period calculates interest on the total amount. For example, if we deposit R1 000 with a bank at an interest rate of 10%, the simple interest paid every year will be R100. To compound the interest rate we must add the R100 interest to the original amount of R1 000 in year 2 (making a total of R1 100). Interest at the rate of 10% is calculated on R1 100, which is equivalent to R110. In year 3 this amount is added to R1 100 for purposes of compounding the interest rate.

Insurance that gives maximum protection for your vehicle by covering you against damage incurred in an accident, fire or natural disaster. It also provides cover for theft, criminal damage and third party vehicle damage or injury.

Institutional investors (such as the unit trusts) who try to perform better than the JSE Overall index will place a heavier weighting of funds in those sectors of the market that will, in their opinion, perform best. This is a more aggressive investment strategy than trying to achieve a balanced portfolio (where the portfolio manager structures a portfolio in much the same way as the JSE Overall index is structured). A balanced portfolio ensures that the portfolio will merely keep in line with the performance of the JSE Overall index.

A technical analysis or charting term. When a buy signal is received from one chart, the technical analyst looks at other charting techniques to confirm the original signal. Where two or more signals confirm the buy signal, this strengthens the probability of making the correct investment decision. For example, when a share price graph breaks above a 50-day moving average, this may be a buy signal. The technical analyst may also then look at the momentum indicator to confirm the original signal. The idea is to minimise risk, or the chances of making the wrong decision. This is opposed to non-confirmation, where two or more signals do not agree and send out confusing signals.

In technical analysis, after a period of rising prices, a certain amount of profit-taking (i.e. selling) occurs on the part of speculators, causing the price to drop slightly before the next wave of buying forces the price higher. At this point the price tends to oscillate within fairly narrow boundaries. The same applies when a share price drops - speculators will perceive value in buying the share, forcing the price temporarily higher, before it drops again (perhaps rallying a second or third time). These areas of oscillation are called congestion areas. A bull trend or a bear trend is generally accompanied by congestion areas.

In mining, this refers to areas of rock eroded by water into pebbles of various sizes, cemented together by overlying rock and heat. It also refers to companies with many subsidiaries and associates in different types of business.

Loss or damage that is a consequence of other loss or damage. For example, if your geyser bursts and your wooden floors are damaged, this damage will be seen as consequential loss.

The cost, or the amount paid for something. If 500 shares in Company ABC cost R6 000 that is the consideration.

Where a holding company owns more than 50% of another company, this is known as a subsidiary. The Companies Act requires that the holding company consolidates the financial statements of the subsidiary, with its own, to show the holding company's shareholders, the size of assets they control and how much income the group as a whole produced. If the holding company owns 70% of the subsidiary, 30% of the income earned by the subsidiary is attributable to outside shareholders. This must also be specified (i.e. the income attributable to outside shareholders) in the income statement - in the balance sheet the outside shareholders' interest must be indicated to show what level of assets and liabilities are controlled by the minority shareholders.

This is more commonly called the inflation index. It is a basket of goods commonly purchased by households - the price of this basket of goods is monitored on a regular basis and a certain weighting is given to the more important items, such as petrol and bread, and from this we can determine the rate and level of price increases in general.

A measure of the change in the price of a standardised basket of goods and services that are consumed by South African households.

In the futures market, this is where the price for a futures contract is higher than the spot price. In other words, normal market conditions. Futures contract prices go up and down more or less in line with interest rates. Under normal market conditions, the futures price will be higher than the spot price. See also backwardation.

A futures contract between two parties which states that one party must cash settle the difference between the current value of the underlying instrument and its value on the specified future date in the agreed upon contract. If the difference is opposite to that stated in the contract i.e. a short contract (which bargains on a price decrease), instead of a long contract (which bargains on an increase in price), then the payment must be made in the opposite direction.

An attempt to determine on scientific grounds when to buy a share (or commodity) at the point where majority opinion seems to be against this investment. When a share is declining in price, the majority of investors would seem to be bearish - when a few investors perceive value in the share they will buy in and reverse the slide. Getting in at the bottom and out at the top is the key to success in the share market and the theory of contrary opinion is an attempt to do this.

The shareholder, be it an individual or company, who owns more than 50% of the shares in a subsidiary and therefore controls that company. A major shareholder can exercise effective control with less than 50%, if the spread of shareholders prevents the major shareholder's position from being overtaken.

A bond that is convertible into shares at a predetermined conversion price at certain points in the bond's lifetime. This gives the bondholder the benefit of a fixed income in the form of coupon payments as well as the possibility of making a profit with an increase in the company's share price.

Preference shares which receive a fixed interest rate each year may also be convertible at a certain date into ordinary shares. At this point they would not be entitled to a fixed dividend, but would share in the profits on the same basis as all other ordinary shareholders. You also get convertible debentures, which are loan stock convertible (either compulsorily or voluntarily) into ordinary shares at a certain future date. If these securities are voluntarily convertible, it allows the investor to see whether the company is profitable or not before deciding to convert to ordinary shares. From a company's point of view, debentures are long-term loans but if these are converted after a few years they become equity as opposed to debt and this has the effect of strengthening the balance sheet.

Where a commodity, share or any other security is held in large quantity by a single person or group to the extent that the person or group can seriously influence the price.

Insurance that covers your business assets such as buildings, tools, plants, machinery, contents and stock from fire, theft, burglary, flooding, subsidence and other such risks.

Financing and corporate activities usually carried out by merchant banks, which include the structuring of mergers, acquisitions, new stock exchange listings, rights issues, corporate restructuring, share splits, management buy-outs, etc.

When a market is in a primary bull trend, a temporary downward move in price would be a correction. The bull trend would resume in due course.

Correlation is a statistical measure of the degree of how two variables move together. Correlation coefficient ranges between -1 and +1. A perfect positive correlation of +1 means that two securities move in exactly the same direction, while a perfect negative correlation of -1 means that two securities move in exact opposite directions. A correlation of zero indicates no relationship in movement between variables, thus zero correlation.

In its broadest sense, the price paid for something, or its exchange value.

A branch of accounting that deals with the measurement of unit costs so as to arrive at a selling price for a product or service.

In banking, this is the cost of raising money to lend to borrowers. In order to attract three-month deposits a bank may have to pay interest of 12% a year. This money may be lent out again at 15%. This gives the bank a margin of 3%. Its cost of funds is 12%. In a period of declining interest rates the bank will lend at fixed rates and borrow at variable rates in order to benefit from a declining cost of funds, which will give it a bigger margin. The reverse is true in a period of rising interest rates - the bank will borrow at fixed interest rates and lend at variable rates so as to take advantage of a potential widening in the margin. Also in corporate finance, it refers to the cost of the capital funds employed; it includes the interest and dividends paid on the different types of funds.

This is the cost of producing an item for sale. It can also be the cost of purchasing an item for resale. The selling price less the cost of sales is gross profit.

Another word for share, often used by brokers.

The interest payable on a bond, so called because in the past when the payment date arrived, the owner had to send off a coupon in order to receive the interest due.

Securities in the possession of a broking member held against funds advanced.

This is where the writer of an option is in possession of the shares on which the option has been written. If Mr Jones owns 2 000 shares in Company A and sells 1 000 call options on these shares (giving the option buyer the right to buy 1 000 shares in Company A at a pre-determined price) and the price rises, resulting in the option holder exercising the option to buy, Mr Jones is able to deliver the 1 000 shares, keeping the remaining 1 000 shares for himself.

An accounting entry. In double entry accounting each transaction is recorded twice, once as a credit and once as a debit. When a company buys stationary for R100, it must debit an account called "stationary" and credit an account called "cash". The credit entry in the accounts reflects the giving part of the transaction while the debit reflects the receiving part (the stationary).

The risk associated when a bond issuer or borrower defaults and are unable to pay principal or interest payments when due.

Or Accounts Payable)

The period between the declaration of the dividend and the last day to register is known as "cum div". If the shares are held on the last day to register then the owner is entitled to receive a dividend, but if they are sold, the new owner becomes entitled to the dividend. After the last day to register, the share becomes "ex div".

In the bond market, the price paid for the bond is inclusive of interest earned to date but not paid (since interest is paid every six months in arrears). This is opposite to ex interest which is the price of the bond with interest due excluded.

These are preference shares where the dividend accumulates in the event of the company being unable to pay out the dividends because it did not make a profit in any one year. In the following year, assuming the company resumes making a profit, the cumulative pref shareholders must be paid out the dividend arrears and the current dividend before ordinary shareholders receive anything.

Essentially, currency future contracts allow traders to benefit from the movement in the currency futures rate between several major international currencies. Currency traders can also buy and sell currency pairs in order to obtain "long" or "short" exposure - in other words make money while the currency exchange rates move up or down. This happens automatically when the investor decides to either buy Dollar and sell Rand - or buy Rand and sell Dollar. The Johannesburg Stock Exchange (JSE) introduced currency future contracts during 2007 to allow local traders the ability to gain exposure to foreign currency movements relative to the Rand without affecting their offshore allowance.

The risk of potential losses due to adverse changes in exchange rates.

(i) Also known as a cheque account in a bank. Money deposited in a current account attracts a small rate of interest because money is continually being deposited and withdrawn from it.(ii) The Current Account is also a term used to describe the value of imports relative to exports on the balance of payments, which measures the movement of money into and out of a country. It also includes tourist expenditure, dividends and interest. See also capital account.

This is a balance sheet entry referring to assets which have a high liquidity (can be turned into cash quickly). Specifically, these are cash in the bank, debtors and stock. There are other assets such as plant and buildings which cannot be turned into cash as quickly but these are not current assets. The reason we isolate current assets from other assets is that we want to see what proportion of assets can be quickly converted into cash - we do this by subtracting the current liabilities from the current assets - if there is a surplus then the company is solvent.

These are liabilities (i.e. monies owing) which must be met within the next 12 months. For reasons of conservatism we must make provision for paying these bills now. They include creditors, overdraft, taxation, dividends and loans of a short-term nature. A company's current assets should always be more than its current liabilities.

This is defined as the ratio of current assets to current liabilities. This determines the liquidity of the company. It tells the analyst whether the short-term obligations of the company can be paid out of its short-terms assets. If current assets exceed current liabilities then the company is solvent, but if they are less than current liabilities it has a serious cash flow problem. This does not mean that they must close down operations, but a continued cash flow problem could lead to insolvency. This cash flow problem could be improved by spreading the interest on overdraft payments or the tax bill over more years (which would reduce current liabilities) and calling in debtors more quickly (which would increase current assets). A stricter measure of liquidity is the acid test ratio which excludes stocks from current assets on the grounds that these are the least liquid of the current assets, taking the longest time to convert into cash.

A duty imposed by the government on all imported goods, as opposed to an excise duty which is charged on all goods produced and consumed in the same country.

The economy, the stock market and shares all move in cycles. Some cycles are short, others are long. Some last a few days, others a few years and within the bigger cycles there are smaller cycles. Technical analysis attempts to predict these cycles by extrapolating historical trends into the future.

The date on which a dividend is declared. Between this date and the last day to register, the share is "cum dividend".

The amount by which the share price moved compared to the previous day.

Another word for a broker, it may be a company or an individual who buys and sells shares, options, securities, currencies or commodities in the market. See also share dealer.

These are the three costs incurred when buying and selling shares. They are brokerage, marketable securities tax (or MST), and VAT. Marketable securities tax applies only to purchase transactions.

A type of unsecured debt instrument backed only by a company's creditworthiness and reputation and not by any physical assets or collateral. Debentures are usually long-term instruments issued by governments or companies to raise funding. Like other types of bonds, debentures are documented by an agreement called an indenture, which stipulates the general agreement between the issuer and the investor buying the debenture. The indenture usually specifies the interest rate, maturity date, convertibility, etc. for the debt instrument.

An accounting entry. In double entry accounting there are always two sides to a transaction, the giving and the receiving part. If a company buys a typewriter for R800 cash, it must credit an account called "cash" (reflecting the giving part of the transaction) and credit an account called "typewriter" (reflecting the receiving part of the transaction).

A generic term used to describe the increasing inability of some third world countries to repay foreign loans. The debt crisis applies particularly to certain Latin American, African and East European countries.

Borrowing from banks and other financial institutions. In times of high inflation, companies can borrow at fixed rates and repay in money which rapidly reduces in value. Provided the return on the debt is sufficient to meet the repayments, debt financing is a quick way to expand a business.

This measures the ratio of equity to company debt. What we are looking at here is the amount of capital supplied by shareholders as against the funds borrowed from banks (or elsewhere), since these are the two main sources of funds available to companies. Equity refers to the amount of capital put in by shareholders plus retained profits - this is also known as shareholders' funds. If a company has equity of R2 million and borrowings of R4 million, then its debt/equity ratio is 4:2, or 200%. This is also expressed as gearing - the company would be 200% geared, meaning that borrowings are twice as much as equity. This is a very dangerous situation for any company because the bank could foreclose its operations by calling in the loan. It is an important ratio to monitor on an annual basis with companies. Debt/equity should never by more than 1:1. Other debt ratios which are commonly used are total debt/total assets and long-term debt/capital employed and interest cover.

See accounts due.

This is a ratio used to determine the efficiency of debt collection in a company. It is calculated by taking the debtors figure, multiplying it by 365 (the number of days in the period) and dividing it by the turnover for the same period. This gives the number of days' turnover held by debtors which would be better employed in the company in the form of cash. A high debtors' collection period also increases the chances of bad debts, where money owed is never paid. In periods of high interest rates and economic recession, bad debts traditionally increase.

On a national level, this is the process of setting up administrative and industrial centres away from the major centres. On a corporate level, it is the delegation of power to lower levels of management.

See Date of Declaration.

An amount the insurer will take off before your insurance policy covers the rest of your claim. Also known as a deductible.

Where a borrower from a bank, or a debtor, fails to meet interest or instalment payments. This is then classified as a bad debt.

Stable shares, not subject to cyclical swings. Generally the food sector is considered a defensive investment because the natural growth in population and the economy ensures a growth in food company profits.

A defensive strategy in investment terms is placing equal percentages of funds in all the major sectors of the JSE, or structuring the portfolio along the lines the JSE Overall index is structured. This ensures that the portfolio will perform in line with that of the index, but no better. This is also called a balanced portfolio. A more concentrated portfolio would have heavier weighting of funds in those sectors of the market likely to perform best - this increases the risk of the portfolio but also the possibility of achieving a superior return.

A liability where payment is due at some time in the future, although the benefits of that liability may have already been expended.

These are shares which are only issued some years into the future. When calculating earnings per share, a dilution of earnings occurs because we must include these deferred shares in the EPS calculation so that there is no sudden drop in the EPS when the deferred are issued.

This is the tax that would have been payable in the current year but for certain tax allowances such as the initial allowance on machinery, and will become payable should the value of the tax allowance be recovered on disposing of the machinery. It is a long-term liability in the company balance sheet and forms part of the capital employed. This is distinct from tax which must be paid this year which is a current liability.

Where the Government borrows money from the private sector to cover any shortfall in its budget this is a deficit and the concept is known as deficit spending. The Government finances its budget deficits (that part of the money it needs each year not collected in the form of taxes and duties) by issuing bonds and Treasury Bills.

A general decline in the level of prices as opposed to inflation which is a general increase in the level of prices. Disinflation is a reduction in the rate of price increases. Deflation is brought about by a contraction of money supply in a country, so that less money chases the same amount of goods and services.

The process of removing a share from the JSE boards. Once a share is delisted it may not be traded or "quoted". This usually occurs when a listed company is liquidated or where 100% of the issued shares are bought by another company. Where the parent company owns 100% of the shares it will not be willing to sell these shares again on the market so it will request the JSE to delist the shares.

(i) when an investor makes a bear sale, where he sells shares he does not yet own, he must undertake to supply the shares on a specified delivery date, or before.(iii) The date when a futures contract holder takes delivery of the commodity or currency at a price agreed upon at the time the contract was taken out. In actual fact, only about 2% of futures contracts result in the physical delivery of a commodity or currency. Most contracts are paper transactions and are closed off before delivery.

This term is mainly used in the futures market to describe the ratio by which the value of an option appreciates or depreciates in relation to the price fluctuations of the underlying contract.

An accounting term which allows for the write-down in the value of a company's assets. It allows a company to make provision for the replacement of its assets over the expected life of those assets. For example, a machine which cost R50 000 and is expected to last 5 years would be depreciated over 5 years, or at a rate of R10 000 a year. Depreciation is considered an expense and is deducted from profit so that at the end of the 5 years, the company has allocated enough resources to pay for a new machine (assuming the old one has a book value of nothing, which is not generally the case). This is better than dipping into profits after year 5 for R50 000 (assuming the price of these machine have not gone up in the meantime) to buy a new one. Depreciation spreads the load over the appropriate period. There are basically two methods of depreciating assets: the straight-line method (where the value of the asset is written off in equal amounts over its expected life), and the reducing balance method (where the asset is heavily depreciated in the early years and less heavily in the later years).

The removal of laws which could impede the growth of business. This applies particularly to fire, health and safety laws, which are often so onerous on small business that they can never afford to comply with the laws, and so never get off the ground. There is a strong move in South Africa to follow the example set by Taiwan, and deregulate the economy by removing these laws so as to foster the growth of small business.

A collective term for futures, options and any other tradable instrument whose intrinsic value is "derived" from the underlying value of shares, commodities or bonds.

A term usually applied to currencies which means simply a one-off loss in value of the currency. Governments sometimes devalue their currency to improve the competitiveness of their exports in terms of foreign currencies and so improve their balance of trade and balance of payments figures. Devaluing the currency has the effect of making exports cheaper overseas and making imports more expensive (since the currency is now worth less when converted to other currencies). Devaluation is more frequently carried out in third world countries where the currency is not allowed to float or find its true market value.

This is the junior board of the JSE. The creation of this market was an attempt to encourage the growth of smaller businesses by helping them raise capital through the JSE. The listing requirements for a company going onto the DCM are less onerous than for the main board. It also allows the investing public a chance to participate in rapidly expanding companies.

Where a company has deferred shares (which are only issued some years into the future) it is a common policy to include these shares as if they were presently in issue when calculating earnings a share. The effect of this practise is to dilute the earnings per share figure.

These are costs which can be charged directly to the manufacture of a product, such as direct labour, materials, product advertising, transport, and so on. Other costs are not so easy to apportion, such as head office expenses, stationery, etc. - these are called indirect costs.

A form of graph used by technical analysts which resembles an overbought/oversold oscillator. It is calculated by taking two moving averages of a share price graph (one long moving average and one short) and making the long moving average the horizontal zero line. The short moving average is then measured for deviation above and below the long moving average. The vertical scale measures the percentage deviation of the short-term moving average above or below the long-term moving average.

This is not a law, but often immediate changes need to be made to the financial system, and this is done by means of a directive. For example, when the government wants to plug loopholes in the tax legislation it often does so by means of directives before this becomes law.

Someone elected by the shareholders of the company to act on their behalf. They must exercise their fiduciary duty to act in the best interests of the company at all times but do not have to be shareholders in the company. There must be a minimum of 2 directors in terms of the Companies Act.

This is required by the Companies Act. The directors must report certain features of the previous year's trading, such as any changes in the fixed assets, profitability, the nature of the company's business, the subsidiary holdings, dividends, etc. The purpose is to give the shareholders a clear picture of changes and the way the company is being managed.

Companies must disclose certain information about their operations in the financial statements so that nothing of substance is withheld from shareholders. Disclosure is aimed at preventing fraudulent activities amongst companies and keeping shareholders fully informed about the financial affairs of the company.

Where the market price of a share is below its net asset value (the value of total assets less liabilities divided by the number of ordinary shares in issue) the share is said to be at a "discount" to its net asset value. A discount is the opposite of premium.

This is the rate which is used to calculate the net present value of shares, options, and futures contracts which expire sometime in the future. It is also the rate at which a broker borrows from a bank against stock purchases.

This term refers to refinancing facilities made available to the discount houses and the banking sector by the Reserve Bank. Specifically, these facilities include the rediscounting of treasury bills, bankers' acceptances and Land Bank bills at the bank rate and overnight loans to the banking sector.

A mathematical formula for translating future earnings into present day money.

(i) The practise of issuing securities at less than their face value. Rather than receiving payment in the form of interest, the holder profits from the difference between the price of the discounted security and its face value. So instead of issuing a security for R100 at 10% interest a year, it could be issued at R91 for redemption one year later, the issuing house keeping the difference between R100 and R91 for itself (while the borrower pays back the full R100). The effect is more or less the same as if the R91 were lent at 10% interest a year. This is where discount houses come into being - they will discount debts owed to banks and other institutions by paying them out the full amount owed at a discount.(ii) When a share starts to rise, a re-rating is occurring in the market. Some favourable news about that particular company has reached the market and shareholders anticipate higher dividends. But these higher dividends may only start to flow in a few years' time. What is happening here is that shareholders are discounting the future flow of dividends and earnings into the present share price. See also net present value.(iii) A reduction in the purchase prices of an invoice.

This is an account held by a stockbroker or portfolio manager on behalf of a client, whereby the broker is free to invest the client's capital as he sees fit, without reference to the client. This is different to a non-discretionary account where the broker or portfolio manager must consult the client each time he buys or sells shares.

A reduction in the rate of price increases, as opposed to deflation which is a general decline in the level of prices, brought on by a reduction in the money supply in a country.

A cumbersome term for the grey market. This is where borrowers by-pass the banking system and borrow directly from other companies or investment institutions. This has the effect of taking business away from the banks. It occurs at times when interest rates quoted by banks are higher than that obtainable elsewhere in the grey market. See also reinter mediation.

This has become associated with the withdrawal of foreign funds from a country. Actually anybody who sells his shares is disinvesting since it is the direct opposite of investment.

This appears in the balance sheet under capital employed. Unlike capital, which may NOT be distributed to shareholders in the form of dividends, distributable reserves may be paid out as dividends since the figure is made up out of the accumulated profits of previous years. The capital, distributable reserves and on-distributable reserves make up the shareholders' funds. (Non-distributable reserves arise out of the revaluation of assets such as land).

This is where shares move from strong hands into weaker hands. It could be followed by a drop in the share price.

Where a company spreads its risk by splitting its investment over a wider area, this is diversification. So if one operation fails, there are others to support it. Institutional investors are at pains to ensure their portfolios are well diversified, as a means of limiting risk.

Whereas bank deposits attract interest, shares attract dividends. Dividends are paid out of company profits - but not all profits are generally paid out unless we are dealing with a mine whose life span is very short and it requires no further capital for expansion of the mine. Some of the profits of a company are retained - these go into distributable reserves (which appears in the balance sheet) and forms part of the equity of the company. This practise of retaining some profit obviates the need to raise further capital through the issue of shares.

The number of times the dividend can be divided into earnings. Many companies have a dividend policy of covering dividends, say, 3 times. This means that they will pay out one-third of the profits as dividends and retain the rest.

To ensure that dividends continue to flow to shareholders, even in lean years, some companies have a dividend equalisation reserve into which a certain amount of profit is paid each year.

Companies often have a dividend policy to pay out maybe 33% of the profits in dividends, or even 50%. To make a share more attractive, a management may move from a dividend policy of covering dividends, say, three times to say, two times. (See dividend cover).

Dividend stripping is buying shares purely for the dividend and then selling the shares after the last day to register.

This is the dividend expressed as a percentage of the current market price. The formula is the last 12 months dividends divided by the current market price and the result is multiplied by 100. For example, Company A paid out a total dividend last year of 15 cents and the shares are currently trading at 300 cents. The dividend yield is 15 divided by 300 multiplied by 100, in other words 5%. The dividend used in the calculation of the dividend yield is usually the last one paid out, in which case we are talking about historical dividend yields. In the case of a new company which has just been listed on the stock exchange there is no historical dividend with which to calculate so the projected dividend is used. In this case we are talking about a projected (or future) dividend yield. A 5% historical dividend yield is preferable to a 5% future (or forward) dividend yield.

The country or jurisdiction where someone, or something, is resident and subject to that area’s laws.

A Latin term meaning the address where you agree to accept notices and legal processes, for example documents and summonses.

Where a share price bottoms out, rises and falls to the previous bottom, this is a double bottom. A substantial rise after the double bottom would give a buy signal.

A means of accounting whereby each transaction is entered twice into the books. This makes sense when you consider that when you buy a typewriter for R800 you have both acquired a typewriter and paid out R800. You would debit an account called "Typewriter" and credit an account called "Bank" (if you paid by cheque - if you paid by cash you would credit an account called "cash"). The paying out is a credit and the receiving is a debit. So the typewriter was received, you debit its account. Cash was paid out, you credit the bank account.

See combination.

Where a share price peaks, drops and starts rising again to the previous peak this is a double top. If it rises above the previous peak this is a buy signal, but if drops substantially below this level, it is a sell signal.

An index of 30 top companies in New York. It is not a weighted index, simply an average of the daily share price movements of these companies. It is used as a primary indicator of the New York Stock Exchange, American investor sentiment and American economic conditions generally.

The likelihood of a share (or any other traded security) falling further. If downside potential is limited then there is little likelihood of the share falling further. The opposite is upside potential.

Duration measures the number of years in which a bond investor will receive future interest and principal payments discounted in the present value. It is a useful measure that helps investors determine the amount of risk bonds carry. Bonds with a high duration carry more risk and therefore have higher volatility than bonds which carries lower durations.

After-tax profits.

After-tax profits, less preference dividends and profits attributable to outside shareholders, but before extraordinary items, divided by the number of ordinary shares in issue.

Earnings a share as a percentage of the current share price. It indicates the profits achieved in the last financial year as a percentage of the share price.

The use of mathematical models to assess the economic outlook for a country and the world.

The period that an asset is productive, before obsolescence sets in, or breakdowns render it inefficient. Although a machine may still be perfectly operational, newer technology may come into vogue and in a competitive industry, companies are forced to replace old machines to improve the cost per unit and production time.

These are trends, measured by economic indicators, which show whether an economy is on an uptrend or downtrend and which areas of the economy are growing or declining.

When a company expands production, the cost of producing each unit drops, and this is known as economies of scale. The whole economy can benefit because if one big producer can drop costs, others must follow to remain competitive and this keeps costs down.

The word is used to describe the aggregate of industrial, retail, agricultural and mining activities of a country. Economic activity is measured by indicators - spending indicators, interest rates, balance of payments, gross domestic profit, are all indicators of economic activity. The economy is the sum of all commercial transactions and we use indicators to determine where money is coming from and where it is being spent.

A theory developed by Ralph Nelson Elliot, which states that markets follow repetitive cycles or patterns, where each pattern moves up or down in 5 phases - the first stage is up, followed by a correction (stage 2), stage 3 is up again followed by 4 (down) and 5 (up). This is a 5 stage bull market which is followed by a 3 stage bear market: stage 6 is down, followed by 7 (up) and 8 (down). These phases tend to occur in whether one is looking at the long-term picture or the minute-to-minute picture according to Elliot Wave theorists.

A product wrapper which provides medium- to long-term savings or capital accumulation upon maturity. It is ideal for investors who fall in the highest marginal tax rate due to the lower tax on interest and capital gains applicable. An Endowment has a minimum statutory five year investment period that provides a further incentive to save and gives the option of taking regular tax-free income once the investment has matured. Maturity benefit is not guaranteed, but determined by the performance of the underlying assets.

It is called equity because the shareholders participate in the risks as well as the profits of the business and all ordinary shareholders have the same rights as all others in proportion to their shareholding.

The raising of funds through the issue of shares.

The product provides a member with a regular income and possibility of capital growth. The income payment is not guaranteed, but based on a percentage of the market value of the investment account (between 2.5 and 17.5% per year). Income is reviewable on the investment anniversary date each year and is based on the market value in the investment account at that date. At death, the market value is transferred to the deceased estate or beneficiaries (if nominated). Contributions: (Portfolio selection does NOT have to be Regulation 28 compliant). Only single premium contributions, no recurring contributions, compulsory money only, no own contributions accepted. Source: Registered Retirement Funds (Pension and Provident), Retirement Annuities, Preservation Funds (Pension or Provident). Additional contributions may be accepted ONLY when the contribution is received from one of the above mentioned funds or Living Annuity funds transferring from other platforms.

A tax levied by the fiscus on the assets of a deceased person. The tax is levied before the assets are distributed to the heirs.

A bond issued in a different currency than the currency of the country in which it is issued. A eurodollar bond that is denominated in U.S dollars and issued in China by a South African company would be an example of a eurobond. The South African company in this example could issue eurodollar bonds in any country other than the U.S.

Currency traded in the Euromarket e.g. Eurodollar, Eurosterling, Eurodollars would be all dollars held outside the United States.

All United States Dollars outside the United States.

A European financial market for currencies and securities.

A short-term security (less than a year) issued in the Euromarket. Under a Euronote facility, a bank agrees to buy or to underwrite a borrower's Euronote programme for a given period of years.

An option that can only be exercised on the strike date. See also American option.

In the bond market, the price paid for a bond with interest due deducted. Its opposite is cum dividend which is the price of the bond with interest due added on.

The day after the last day to register for a rights issue. After this date people buying the shares are not entitled to the rights issue. After the last day to register for the rights issue, the nil paid letters or NPLs (which are the shareholder's rights to the new share issue and which in themselves have some value) are listed on the stock exchange and can be traded. If the shareholder wishes to partake in the rights issue, he must be in possession of some NPLs and pay for the new shares.

The amount you are responsible for paying when the cost of loss or damage is more than the amount your insurance policy covers.

An extra amount you pay each month that allows you to pay no excess, or a lower excess.

A means of control exercised by the Reserve Bank to prevent a flight of money from the country. Exchange control is done by means of regulations limiting the amount of money that an emigrant, holidaymaker, or businessman can export from the country, other than for the purchase of goods.

When one currency is traded for another, the rate of conversion is known as the exchange rate. For example, let us assume that US $1.00 can be bought in SA for R7.11 - this is the exchange rate.

Exchange traded funds are similar to unit trusts in that investors invest in a group or basket of holdings rather than a single share or bond. Like unit trusts, exchange traded funds are open ended which means that there are no fixed amount of units in a fund. Exchange traded funds are designed to track a wide range of instruments, including actively managed growth portfolios and fixed interest portfolios. There are also exchange traded funds that track optimum mixed asset-type portfolios. Even though an ETF is passively managed, shares in the respective funds can be actively traded intra-day. ETFs are listed on a stock exchange and offer the same benefits as share trading. This means your investments will always be valued at prevailing market prices and can be redeemed at any time. In addition, ETFs dividends and interest can be automatically reinvested.

While ETNs share some characteristics with ETFs they differ in structure. Both have low market entry barriers and allow you to track index-based commodity prices on the JSE. However, ETNs are debt instruments and not equity instruments. It follows that investors do not own the underlying commodities, and therefore do not receive dividends. An ETN is an unsecured senior debt note issued by a bank or financial institution. The underwriting institution has an obligation to pay the holder of the JSE listed ETN security a return linked to the performance of the underlying asset, security or benchmark. The Johannesburg Stock Exchange defines an exchange traded note as ‘a contractual obligation made by an issuer to pay the holder a return which may be linked to, for example, an interest rate, the performance of one or more shares, an index, an exchange rate or a commodity.’

Exchange traded products are investment vehicles that derive their prices from other instruments and which trade intra-day on a national stock exchange. In South Africa, the first exchange traded product, an exchange traded fund, was launched on the Johannesburg Stock Exchange in 2000 and the first exchange traded note was launched in 2010. In general terms, exchange traded products aim to replicate the performance of a specific index or to comply with a prescribed investment mandate. They are generally open-ended investment vehicles, the securities of which are listed and traded on national stock exchanges. Exchange traded products include exchange traded funds and exchange traded notes.

This is a government-imposed duty on all goods manufactured and consumed in the same country (excise means to "take or cut out").

A loss or risk that an insurance policy does not cover.

To exercise an option means that the option holder will use the right to buy or sell the underlying security on which the option is written on at the predetermined strike price. The option holder will then notify the writer or seller who are obligated to buy or sell the underlying asset to the holder based on predetermined terms agreed.

Se strike price.

The share market could be said to be driven by the expectations of shares. A share price rises on favourable expectations, usually of a jump in profits at some future time - there is no guarantee that these expectations will ever be satisfied but if investor information is correct, the price will rise, and that is why investors make decisions to buy or sell a share.

The belief that long-term interest rates express investors' views on the likely level of future short-term interest rates. So, if investors expect short-term interest rates to rise, they will demand a higher interest rate for investing long-term.

This is a key economic indicator. It is calculated by taking all private sector expenditure in a country, adding to it all government and semi-government expenditure (by ESCOM, SATS etc.) and including all domestic investment by businesses on plant, buildings etc.

An accounting term used to describe the costs associated with the day-to-day normal operations of the business. It does not include purchases of assets such as machines. Expenses include such things as rent, electricity, stationery, raw materials, transport, etc.

In the insurance industry, this is the ratio of expenses to net premium income. In the banking industry this is the ratio of expenses to income. By monitoring this ratio the analyst can determine whether expenses are increasing or decreasing in relation to income on an annual basis.

A technical analysis term whereby moving average values are given a certain weighting, by means of a mathematical formula, so that the most recent periods are given more importance than more distant periods. The resulting exponential moving average line differs from a normal moving average line in that the graph will tend to move closer to the price graph and so give earlier signals.

Certain tax allowances to companies designed to encourage exports. These allowances and incentives are subject to change from time to time.

A portfolio of only one share would have a high exposure to risk. If that company failed, the entire portfolio would sink. The object of portfolio management is to limit risk or exposure by including a number of shares so that if one failed, the effect on the overall portfolio would be limited because there are other shares that would not fail.

When a factory guarantee ends, you can pay extended warranty to prolong your guarantee.

Where a company which is normally engaged in the manufacture of soap, but in one year sells a piece of land for a handsome profit, this is an extraordinary item. The profit from the sale of land will usually be posted to a distributable reserve in the balance sheet. By definition, an extraordinary item must be infrequent and unusual in its nature. In calculating headline earnings per share, extraordinary items are deducted from the net income figure.

Another term for the nominal value of a bond or other security.

These are companies or more often divisions within banks that provide a credit collection service and short-term finance on the strength of the borrower's debtor's book. The factoring company usually undertakes to administer and collect the value of the outstanding debtors. As the debtors pay, the advance is repaid and new invoices are factored, and an advance made. The factoring company charges a fee plus interest on any advances for this service.

Financial Advisory and Intermediary Services (FAIS). An body that resolve disputes between financial services providers and their clients in a fair, informal, economical and efficient way.

When a share price has been moving sideways and then appears to break decisively out of this trend (either up or down) but falls back into this sideways trend within a few days, this is a false break. It usually signifies that the share price is losing momentum. A break-out also occurs after a period of congestion. If the overall trend in price has been up, accompanied by periods of congestion, and a false upward break-out occurs from one of these periods of congestion, this often indicates a weakening of the trend and a possible turnaround in price. Similarly, in a falling market, a false downwards break-out would indicate a turnaround in the price trend.

The equivalent of our Reserve Bank in the United States. It wields overall monetary control in the United States. The Fed, like any other Reserve Bank, can control the level of the dollar by buying surplus dollars in the market (reducing supply and pushing the value of the dollar up by exacerbating unsatisfied demand) or by selling dollars and so forcing the value down. It is also a lender of last resort to banks and in this way controls the level of interest rates that banks charge to borrowers. By forcing interest rates up or down (it can only do this within a narrow band as the market place generally dictates its needs for finance) it can put a squeeze on credit and so doing, can stifle or encourage economic growth.

In banking, these are sources of banking not related to the lending of money. Also known as off balance sheet activities, since it requires no increase in the assets or liabilities of the bank. It is income earned from arranging takeovers, new listings, mergers, acquisitions, barter trade, investment advice, project finance and activities of this nature.

Two subsidiaries which are controlled or where the parent company has more than 50% of the shares are said to be fellow subsidiaries.

Money which has no precious metal backing. Paper currency. Nearly all currencies are fiat currencies and their existence depends on the confidence of the people who use them.

This is a series of numbers arrived at by adding 1 and 2 and then adding the sum of these to the previous number, and then repeating the procedure.For example: 1 + 2 = 3, 2 + 3 = 5, 3 + 5 = 8, 5 + 8 = 13, 8 + 13 = 21, 13 + 21 = 34, 21 + 34 = 55, and so on. This is a so-called ""natural"" series of numbers used in the Elliot Wave theory (there are 5 phases in a bull cycle and 3 phases in a bear cycle - both of these are Fibonacci numbers).

The Financial Intelligence Centre Act (FICA) requires that clients provide certain documentation for the purposes of verification of identification, and proof of residential address.

An administrator, trustee or executor has a fiduciary responsibility to act on behalf of clients or members of the public in the very best faith.

Taking the initial letters of these words to make the word FIFO. It is an accounting principle that assumes that the first stock produced is the first to be sold. This is important when valuing stock at the end of a financial year. Its opposite is LIFO - Last In First Out - this assumes the last item produced was the first to be sold. Depending on which method is used can make a big difference to the stock item on a balance sheet. Since stock is a current asset it can also distort the asset situation in a company's financial statements. Most companies use FIFO, and it is important to remain consistent, whatever method is used.

An unpleasant thing when one is on the receiving end. It is a notice sent out by companies, usually after several previous notices, giving a "final reminder" that money is owed and must be paid within, say, 10 day, or the lawyers will be called in to take legal action.

Institutions that specialise in funding instalment credit agreements as well as trade finance.

A representative of an authorised FSP, who is authorised to provide advice and/or intermediary services and has been appointed in such capacity by the policyholder.

An American term for leverage or gearing (the proportion of funds in the form of debt).

An entity authorised by the Financial Services Board to provide financial services to clients in the form of advice and/or intermediary services.

In terms of the Companies Act, a company may declare its yearend at any time, but it must produce a set of financial statements for the benefit of shareholders within three months of the yearend. It must also hold an annual general meeting of the shareholders within six months of the yearend. The yearend can be changed.

A troy ounce of 99.5% or more pure gold (the rest being silver). The standard monetary gold bar is normally 403 fine ounces.

Where salary increases are in line with the rate of inflation (about 15%) the purchasing power of money remains unchanged; yet taxpayers find themselves moving into progressively higher tax brackets because of their inflation-related pay rises, so a larger proportion of their income goes to the taxman, leaving them worse off, in real terms, than before.

Tax policy. All matters relating to the taxation of private individuals and companies in a country fall under the umbrella of fiscal policy. This falls under the control of the Ministry of Finance.

The Treasury where tax receipts are controlled and monitored. It falls under the Ministry of Finance.

These assets are in use in a business over a number of years, such as machinery, buildings and vehicles. They do not vary, directly with the number of units manufactured.

Costs which remain the same regardless of the amount of business done. These include salaries, lights, rent, stationery and so on. As opposed to variable costs, such as raw materials, commissions, packaging etc., which vary according to the number of sales.

Preference shares receive a fixed dividend, usually a percentage of the par (or issue) price of the shares. So if the prefs were issued at R2 each with a 10% dividend, shareholders would receive 20 cents each year - this is a fixed dividend.

Currencies whose values against each other are fixed, and not allowed to float. Fixed exchange rates only vary against each other in times of crisis or when one currency revalues or devalues. Fixed exchange rates generally do not last long because market forces are not allowed to find the true value of the currency. For example, the Tanzanian government fixed the value of the Tanzanian shilling against the US dollar at a totally unrealistic level (so as to favour its import needs). No-one was willing to trade with it at these unrealistic exchange rates, so a black market arose, where traders and individuals would offer fair market values for the currency.

Any investment yielding a fixed return such as bonds, debentures, bank deposits etc.

Any security which receives fixed interest over the life of the security is known as a fixed interest security. Examples are bonds and debentures.

The fixed amount set by the insurer that you pay each month in exchange for insurance cover.

The same as fixed costs.

In the bonds market this is the interest earned per annum expressed as a percentage of the clean price (which is the market price of the bond excluding accrued interest). Interest is paid on bonds twice a year in arrears. So if a bond is bought four months after the last interest was paid out, the seller loses out on the four months of interest he has accrued since the last payment, since the new owner will receive all the interest due for a period of six months. When working out the sale price of the bond, the accrued interest foregone by the seller is recovered in the sale price. But to calculate the flat yield this accrued interest must again be deducted from the calculation.

This term is applied in the banking sector to describe a situation where the return on short-term investments is the same as that on long-term investments. This situation can be problematic for banks since it generally tries to anticipate interest rate movements in order to correctly match its assets and liabilities. An incorrect matching can place profits under pressure. A positive yield curve occurs when the return on long-term investments is higher than that on short-term investments. To maximise profits the bank will borrow short-term (at the cheaper rate) and lend it out long-term (at a higher charge). A negative yield curve occurs when short-term investments earn a higher return than long-term investments. In such a situation, the bank will borrow long-term money (at the cheaper rate) and lend it out short-term (at the higher rate). Banks must continually attempt to correctly match its assets and liabilities in order to maximise profits, which is why a flat yield curve presents a problem to the banks, since long-term and short-term interest rates may move either way.

Another term for listing a company on the stock exchange. So called because, once listed, the value or market capitalisation of the company is determined by the market, which is comprised of buyers and sellers - this value moves up and down in accordance with market sentiment, much as a boat floating in water.

This is the rate which applies when buyers and sellers of a currency (usually the banks or the Reserve Bank) agree on a price for that currency. If the dollar on any one day is worth R7.25, this is what South African holders of rands are willing to pay for dollars. Floating exchange rates are exchange rates which are allowed to find their true market value, as opposed to fixed exchange rates.

When a company wants to raise more capital it can issue more shares in what is known as a rights issue. Existing shareholders are invited to subscribe for more shares at a fixed price (usually below the current market price of the shares to make the rights issue attractive) on a certain date. The company then issues nil paid letters (NPLs) - the shareholder can renounce his rights if he does not want to buy the shares. The NPLs are listed briefly on the stock exchange and are traded like shares. Those shareholders that do not want to participate in the rights issue can sell their NPLs to others who do want the new shares. If the shareholder decides to go ahead and buy the new shares, he is said to be following (or exercising) his rights.

A bank "forecloses" on a borrower by calling in the loan when it perceives the risk of default is too great. If a company cannot repay a loan, the company will be liquidated, the assets sold off, and the bank will attempt to recoup as much of its loan as it can.

All currencies other than that of one's own country. The exchange of one currency for another at the quoted forex rate.

All foreign exchange holdings and gold reserves in a country (or held abroad). The Reserve Bank is the custodian of these reserves. This gives the Reserve Bank greater control over the economic and trading affairs of the country. Most of SA's reserves are in the form of gold bullion and coins, valued at 90% of the average of the last 10 London fixings. The balance is made up of foreign currency holdings, usually denominated in US dollars.

Raising money by selling a company's invoices.

When a company is newly listed on the stock exchange (i.e. less than a year), it has no historical dividend information, so it must reflect its projected or forward dividend yield as a percentage of the current market price of the share. Most dividend yields are historical (i.e. the historical dividend as a percentage of the current market price of the share). When looking at dividend yields in the daily newspaper, there is no indication as to whether the yield is forward or historical. Obviously, a forward dividend is only a promise at this stage (although newly-listed companies tend to conservatively estimate next year's dividend), so it should be regarded less enthusiastically than an historical dividend yield, a calculation which is based on a dividend that has already been paid out.

A contract to protect oneself against swings in foreign exchange rates if undertaking to deliver payment in a foreign currency at some date in the future.

Market in which currencies, commodities and securities are traded months or years ahead. See also futures market.

In the futures market a supplier of a commodity, currency or security can sell supply at a price agreed upon today, where delivery will take place sometime in the future. This is done by means of a futures contract. It is a method of reducing risk for suppliers, since they know at exactly what price they can sell their future (or forward) production, thereby locking in costs. This is also called a hedge.

This is the statement required to register a close corporation.

An agreement to fix a lender's or borrower's interest rate in advance. No capital is exchanged, only the amount by which the agreed rate differs from the eventual market rate.

Where companies allow shareholders to reinvest dividends in return for more shares, this may result in less than a full share being allocated. This is a fractional share. In such a case, management usually waits until the reinvested dividends are sufficient to issue a full share.

A special type of business agreement, whereby a franchisor allows a franchisee to use the company name, trademarks, technical data, recipes, etc., in return for royalty payments, usually calculated as a percentage of sales in the franchised operation. Modern franchise agreements also include training and central stock supplies for the franchisee as well as national or regional advertising.

An American economist and originator of the monetarist school of economics which argues that money supply in an economy must be controlled to prevent inflation. See monetarist.

A bond which pays an interest rate that varies in line with market rates.

Where portfolio managers, insurance houses, and unit trusts deduct charges such as administrative and brokerage fees from the initial deposit.

The Financial Services Board (FSB) is an institution established by statute to oversee the South African Non-Banking Financial Services Industry in the public interest. Its vision is to promote and maintain a sound financial investment environment in South Africa.

The Financial Times 30 index, the equivalent of the Dow Jones - it plots the share prices of 30 leading shares on the London Stock Exchange.

Fully informing shareholders and the public at large of the financial position of the company in the company financial statements. Some companies follow a policy of "limited disclosure", often failing to reveal the extent of company reserves or other such vital information from the public. This hampers the task of the analyst in assessing the true financial position of the company.

An economic principle that all workers in an economy have employment. This is a central thesis behind John Maynard Keynes's "The General Theory of Employment, Interest and Money" (1936) - Keynes argued that by fiscal (tax) and monetary (regulation of money supply) policy, the Government should aim for full employment. He advocated more Government control in the economy - this was inevitably inflationary, but the "Keynesian Revolution" was largely responsible for the huge rise in the prosperity of developed countries after the war, for the very reason that it emphasised the creation of new jobs.

This is a variation on the earnings per share calculation that assumes all convertible securities (such as convertible debentures and convertible preference shares - which may be compulsorily or voluntarily converted into ordinary shares at some future date) have already been converted. The idea behind this is that if conversion is to take place 3 years hence, this will have a sudden and deleterious effect on the EPS calculation when conversion occurs - therefore, the conversion should, in the interests of conservatism, be assumed to have already occurred.

A fund is a portfolio of assets (like equities, bonds, cash, listed property etc.) in which investors can buy units. A fund is a collective investment that enables you to pool your money with other investors who have similar investment objectives.

A fund may offer more than one ‘class’ of units to investors. Each class represents a similar interest in the unit trust’s portfolio, but has different fees and expenses and may be available to different types of investors.

See portfolio manager.

The rules, approved and monitored by regulatory authorities, which govern how people enter and exit a fund as well as the management and operation of a fund.

A method of investment analysis that entails the forecasting of market movements and determining a security's intrinsic value by examining various economic, financial and both qualitative and quantitative factors. This is the more traditional approach to share market analysis, whereas technical analysis attempts to establish price patterns using historical data and therefore determine the likely future trend, assuming these price patterns will repeat themselves.

Those factors which are likely to influence a company's profitability, such as management, costs, economic factors, weather, labour, supplies, transport and so on.

In the futures market, the term fungible applies when the same contract, with exactly the same features, is traded on different futures exchanges. It means that a contract traded on one exchange can be exactly off-set by the same transaction on another exchange.

The value of an investment at some future date, assuming a constant annual rate of return, when this growth is compounded.

A contract to buy or sell a commodity, currency or security at some future date at a fixed price. This contract gives predictability to suppliers since they know in advance what price they will receive for their future production (or currency or security). The purchase of the futures contract can sell that contract in futures market to a speculator who need not be interested in taking delivery of the commodity, currency or security, but who intends to make a quick profit by purchasing and holding the contract for a short time. See also futures market.

A market in which commodities, shares, securities or currencies are bought and sold months ahead of delivery date. The futures market gives stability and predictability to trading in these commodities, as well as currencies and securities since sellers and buyers agree on the price months or years ahead of delivery. In the case of agricultural commodities, for example, it allows farmers to know what crops to plant and what prices they will receive, so they can cost it out beforehand. As with equities and bonds, a futures contract can be traded - this is done in a futures market by speculators who have no intention of taking delivery of the commodity or currency. Gold mines frequently sell their future gold production on the futures market to hedge against wild swings in the gold price.

This is the price of a particular futures contract, determined by open competition between buyers and sellers, as is the case in the stock market.

In the futures market, this is the ratio by which the delta or hedge risk ratio changes relative to the ratio of the underlying contract.

Or leverage. The ratio between a company's debt and its equity. This is also known as the debt/equity ratio. See debt/equity.

An agreement among a large number of trading nations, including South Africa, not to impose trade barriers or import levies. The idea is to promote the free flow of trade between countries.

A meeting of the shareholders of a company, called by the directors, usually once a year after the annual financial statements have been published. Shareholders can vote on issues raised at the meeting and ask the directors questions about the company. These meetings can occur more frequently. A special general meeting may be called if there is something for which shareholder approval is needed, such as a takeover or merger = shareholders can vote by proxy (i.e. send someone in their place).

Where a company becomes a majority shareholder in another company by buying a major portion of shares from one of the existing shareholders, usually at a special price (so that control of the company changes), it must make the same offer to the minority shareholders. This is known as a "general offer".

Another name for a bond, gilts are issued by the British government and is considered as a security that carries little risk. The name originates from UK government bond certificates which had glided or gilt edges.

Where one party, call him Mr Jones, wants to buy a bond but does not have the money, an intermediary (such as a bank) arranges for an investor to put up the money. The investor buys the bond and agrees to sell it to Mr Jones at some future date when Mr Jones has sufficient cash. The investor ends up owning the bond for a short period of time and earning interest on the bond during that period.

Enacted in response to the collapse of the banking system during the Great Depression, the Glass-Steagall Act, or Banking Act of 1933, prohibited commercial banks from engaging in investment banking businesses, such as the trading or underwriting of securities. It established the FDIC, which insured commercial bank deposits, but it also divided the banking industry into two distinct areas: the banks, who took in deposits and made loans, and the brokers, which engaged in the riskier parts of the capital markets. Glass-Steagall was changed in 1999 with the passage of the Gramm-Leach-Bliley Act, which relaxed many of the restrictions on commercial banking activities.

See long position

The process of listing the shares of a company on the stock exchange.

See bear or short sale.

A precious metal, which used to be the basis of most currencies in the world. Gold is a store of value. Its price fluctuates on world markets in accordance with supply and demand. Demand increases when inflation is high in the major world economies, (which devalues paper currencies) or when there is political strife or despondency about the value of paper currencies.

A "standard" in operation until 1971 whereby gold was interchangeable with the US dollar at the rate of $35 an ounce. A system of fixed exchange rates was in operation at the same time. This economic era was associated with low inflation and high growth. "Floating exchange rates" and a floating gold price, which arose after 1971, have been associated with high inflation.

Payment made to an employee of a rival firm to entice him or her to transfer.

When one buys a company, one does not simply buy the assets of that company. It has an established reputation, perhaps a brand name and a client base built up over many years - this cannot be easily valued since it is an "intangible asset" and is referred to in accounting terminology as goodwill. One generally pays a substantial premium for goodwill when buying a company. In accounting terms, it is the excess of the cost over the net book value of assets acquired.

An American stock market analyst who devised the On Balance Volume method of technical analysis. The main idea behind this approach to share analysis is that a rise in volume always precedes a rise in price. See also On Balance Volume.

A term derived from “blue chips”, which refers to those stocks in top companies who are consistently profitable and who are considered as industry leaders, a green chip stock refers to companies whose main business is to promote the environment. These companies generally focus on areas such as recycling, pollution reduction and alternative energy.

This is where companies perform the role of the banking sector by lending to each other. This tends to proliferate when banks' lending rates are high and cash-rich companies are willing to lend at lower rates. Often various commercial conditions are attached to the loan. It also occurs in large groups, whereby one company with surplus cash will lend to another.

Goods that come from an unauthorised or unofficial supplier.

Group taxed profits plus depreciation and deferred tax less preference dividends. Gross cash flow shows the actual amount of money in the control of the company (this is different to the net income or net profit) since we previously deducted depreciation and deferred tax whereas these have not yet been paid out - they are merely provisions for payment and until the company pays them out, the cash remains available for use within the company. Preference dividends are deducted because these have to be paid out of profits regardless of anything else.

This is a key economic indicator in an economy. It indicates the scale of spending on goods and services in the economy.

This is a statistic provided by Central Statistic Services on the level of investment in building and construction projects - JSE sectors which are likely to be affected by GDFI are building, engineering, steel and electronics. It is a major indicator of economic performance, reflecting confidence in the economic future and growth of the country since its consequences are, by definition, of a permanent or semi-permanent nature.

The total value of goods and services produced in a country, excluding invisibles (such as income or dividends earned abroad by South Africans).

Total sales (or turnover) less cost of sales (the cost of production or purchase). Gross profit less operating expenses is net income.

This is a key indicator of economic performance in an economy. It is the total value of goods and services produced in a country including invisibles (money earned abroad by South Africans such as dividends, income, and it also includes tourism).

Gross income as a percentage of turnover. This ratio indicates the profitability of the company - the ratio can be used to compare one year's profitability with the next, or one company in an industry with another.

The return which an investor will receive on a gilt, allowing for both capital appreciation on redemption and interest, as a percentage of the bond's price.

Refers to a holding company together with all its subsidiaries and associate companies.

The profit of the holding company plus the attributable profit of the subsidiaries after tax and the minority share of the profit have been deducted. Shareholders in the holding company want to know how much profit the entire group made, not just the holding company.

A term used to describe a share or sector's ability to expand in the future. The IT sector is considered to have good growth potential because of the efficiencies inherent in high technology.

Not yet blue chip shares, but these are highly regarded shares with excellent growth potential, for example, many of the IT shares could be considered growth shares. These are shares with little earnings history but with strong future earnings potential.

Tangible commodities, such as sugar, wheat, copper or gold, as opposed to paper securities such as shares and options.

A charting formation which, as the name implies, looks like a "head" flanked by two "shoulder". A rising share price is followed by a fall in price; there follows a second rise in price above that of the first shoulder, followed by a fall, and lastly a third recovery in prices, usually to the level of the first shoulder but not as high as the head, followed - usually - by a bear trend. This formation signifies the end of a Bull Run and is a sell signal.

The futures market is a hedge against uncertainty. It enables producers to plan ahead by locking themselves into a contract to deliver a certain commodity at a future date and at a fixed price. There are also hedges against inflation - these would be shares or any form of security which appreciate faster than the rate of inflation. One can hedge against the depreciation of the rand, if one is an importer or exporter, by taking forward cover (i.e. undertaking to deal in foreign currencies at a fixed exchange rate). A hedge is commonly regarded as a financial aid.

A hedge fund is an aggressively managed investment fund that uses advanced trading methods such as short-selling, swaps, arbitrage and derivatives with the aim to generate absolute returns. Hedge funds usually require a high minimum initial investment and are therefore open to limited number of investors.

See delta ratio.

See gamma ratio.

The process whereby an investor or institution buys or sells a financial instrument in order to offset the risk that the price of another financial instrument will rise or fall. For example, an investor holding a large portfolio of gold shares, might short sell a gold share if he thought that gold shares were in for a temporary correction - he may not want to sell his portfolio of gold shares because he views it as a long-term hold but he wants to offset the effect of a temporary correction in gold shares by making a quick profit from a short sale.

A German philosopher who developed the theory of dialecticism, which was in turn developed by Karl Marxinto dialectical materialism. Dialecticism is the idea that all stages of evolution in history and life are the result of conflict between a thesis and an antithesis, or one force and another, resulting in the triumph of one force. Hegel was a major protagonist in the philosophical development of socialism and communism. See also Marx.

The highest price at which a security traded on any one day.

The cost of an item or asset with no reference to the current market price. A number of institutions value their investments at historical cost rather than current market price because volatile fluctuations in the value of these investments (such as occurred after the October 1987 stock market crash) result in a sharp movements in the market value. If they were recorded at market value, the balance sheet would reflect the volatile movements of the market value of the investments.

This is the previous year's dividend as a percentage of the current market price. However, where a company is newly listed on the stock exchange, there is no historical dividend, so the projected dividend for the present year is used in the calculation of the dividend yield. This is known as a future or forward dividend yield. An historical dividend yield of 5% is better than a forward dividend yield of 5%, since it is calculated on a dividend which has already been paid out, while the forward dividend is only an estimate of future payment.

The company that owns more than 50% of a subsidiary is the holding company, since it has control of the subsidiary.

Insurance that covers your household goods against loss, damage or theft.

This is the required rate of return on an investment. It is alternatively defined as the "minimum rate of return" required to maintain the market value of a company. A drop-off in the hurdle rate would result in a drop in the market price of the company (i.e. the share price).

Lack of cash. A company with a large proportion of current assets in the form of stock or debtors could be regarded as illiquid, since these assets will only be available in the form of cash at some future date.

International Monetary Fund, an organisation set up under the auspices of the World Bank to aid countries with balance of payments problems and policy advice. Countries can borrow special drawing rights (or SDRs) from the IMF where they face serious economic problems. In more recent times the IMF has attached stringent economic requirements to borrower nations - it often insists that the borrower devalue its currency, cut government spending before it will lend money. It has 186 member countries.

A strategy that ensures that any changes in interest rates would have no effect on the value of a portfolio. The strategy involves matching the duration of assets and liabilities and so minimising the impact of interest rate changes on the portfolio's net worth.

As opposed to perfect markets (where there are a large number of buyers and sellers for a homogeneous product, no monopolies or oligopolies and all participants in the market have free access to information), imperfect markets exist where the market is dominated by one or a few producers. Collusion on price and inefficiencies are characteristic of this type of market.

All revenue, from whatever source, received by a company, is income.

This is an item appearing on income statements reflecting income from any operation that has been discontinued during the reporting period or, in some cases, are due to be discontinued shortly after the reporting period. The income from this source is segregated from "continuing operations" to allow for fair comparison of one year's income with another's, excluding operations which have ceased to contribute to the bottom line.

This is a financial statement required in terms of the Companies Act. A company must produce an income statement showing all revenue (turnover) less the various expenses it incurred to produce that income, to arrive at operating income. From this is deducted tax and dividends and any retained profit is posted to the general reserve in the balance sheet where all the retained profits from previous years are accumulated. The income statement expresses the amount of money that came in during the reporting period and the amount that went out. From this we determine the profit for the year. The balance sheet on the other hand indicates the value of assets and liabilities at a specific point in time.

Insurance to cover someone's legal responsibility.

An average for a particular market sector. For example, the JSE All Gold index is a weighted average of most of the gold shares listed on the JSE. The weighting is determined by the market capitalisation of the shares. If one wanted to know which market sector was doing the best one need only look at the various JSE indices. The Dow Jones and Financial Times indices are indicators of the New York and London stock exchanges respectively. Some indices, such as the Dow Jones, are not weighted - they are calculated by simply taking the average of the share price movements of the shares in the index.

This is an option which can be bought or sold in a futures market, and which is based on movements in a particular index, such as the JSE All Gold index.

Index Tracking is a process where the portfolio or fund manager seeks to track the performance of a stock market index by buying stock in the same proportion represented by their weighting in the index. Investing in an index fund is a form of passive investing.

As opposed to direct costs, these are costs which cannot be directly charged to a manufactured product. Examples of indirect costs are head office expenses, factory overheads, and so on. Examples of direct costs are direct labour, product advertising, materials, and so on.

A decline in the purchasing power of money, caused by an increase in the money supply in a country where that increase is not matched by an increase in the gross national product which is a measure of the value of goods and services produced in a country. Where there is more money in circulation not backed up by an increase in the value of goods and services, it means more money is available to purchase the same quantity of goods and service. Following the laws of supply and demand, this increases demand where supply is more or less constant, forcing prices up. This increase in the money supply is often a deliberate move by government to stimulate economic activity in a country - it puts more money in the hands of people who, hopefully will consume more.

Inflation targeting puts price stability as the primary objective of monetary policy, and the inflation target provides what is known as the nominal anchor for monetary policy. Monetary policy works in part by influencing inflation expectations and this is where the importance of inflation targeting come in, Because it clearly specifies the inflation objective and a clear commitment to achieving this objective, it can help to anchor the public's inflation expectations, thereby improving planning for the economy, as well as providing an anchor for expectations of future inflation to influence price and wage setting. The South African Reserve Bank has set the inflation target between 3-6%.

The amount of money determined by the clearing house on the basis specified by the JSE and held in respect of the aggregate position of a member or a client.

Information not generally accessible to most investors. It is information about the future of a company, who it is taking over, what the levels of profits are before a public announcement is made, etc. The buying or selling of shares with this information is illegal and is known as insider trading.

One who trades using inside or privileged information, an illegal practice in most markets around the world. In the United States, an insider is defined more specifically as a corporate director, officer or shareholder with more than 10% of the shares in a company with knowledge that is used for unfair personal gain which may harm others. The term insider now encompasses relatives of shareholders, directors or officers, or any other person who takes advantage of inside information.

Although this is an illegal practice on the JSE or any other market, it is probably done every day but no-one has ever been prosecuted for it in South Africa. There have been a few successful prosecutions in the USA in recent years for insider trading, the most famous being the US $100 million fine and prison sentence imposed on Ivan Boesky in 1987. Insider trading arises from someone who buys shares on the market using privileged information which gives him an unfair advantage in the market. You will generally notice a big jump in the volumes traded in a particular share prior to an announcement of a takeover, merger, or something of that nature which could materially affect the share price. This is an indicator of "insiders" buying into a share with foreknowledge of events which will lead to a substantial jump in future profits for that company.

This occurs when a company is unable to meet its obligations out of incoming revenue and cash reserves. The company may voluntarily apply to place itself under liquidation, or this may be forced on it by a creditor. (See also bankruptcy).

Refers to organisations as opposed to private investors. These are the big share market investors: the unit trusts, pension funds, life assurers and so on.

A third party agent that finds insurance quotes and insurance on behalf of others.

All the insurance policies in one policyholder's name.

The predicted cost of an insurance policy.

An asset that is not solid such as a brand name, goodwill or patent, as opposed to a tangible asset such as a building or machine, which can be touched.

A payment made in return for the use of money. Interest is actually the cost of money to a bank since that is what the bank must pay for attracting depositors. The amount of interest paid is known as the interest rate and this moves up or down in accordance with the supply and demand for money in an economy. Where there are plenty of depositors and few people wanting to borrow money, interest rates will drop - the banks will want to discourage further deposits and at the same time attract borrowers by making it cheap for them to borrow. Conversely, when there is a shortage of money and high demand for lending, rates will rise (this is indicative of an economic boom) to attract depositors.

This indicates the ability of a company to service its borrowings. It is the number of times interest paid is covered by pre-interest profit (it is calculated by taking profit before taxation and adding back interest and dividing this by the interest paid).

The rate charged for borrowing money (or depositing it with a bank). There are many interest rates which indicate the general level of supply and demand for money: the Reserve Bank discount (repo) rate, which is the rate charged to banks by the Reserve Bank, the BA rate (or bankers' acceptances rate) which is the rate at which banks discount short-term loans (usually 3 months), prime lending rate which is the rate charged to borrowers who are highly regarded by the bank.

A dividend paid out six months into the financial year. Many companies prefer to pay an interim and a final dividend, making a total dividend for the year. Some prefer to pay just one dividend at the end of the year.

In terms of the Companies Act a company must produce an interim report within three months after the end of its financial half-year, indicating the level of profit (or loss) after tax, changes which will affect its operation, its proposed interim dividend and any changes to its accounting methods.

This is a rate of return which discounts the projected future dividends of a share expressed in today's values. One would compare the IRR of one investment with a number of others prior to making a long-term decision to buy or not.

A worldwide market in shares, often traded outside the stock exchanges.

See IMF.

An option is said to be in-the-money when the price of the option's underlying instrument is above the strike or exercise price for a call option and below the strike price for a put option. In the bond market, for example, the call option gives the holder the right to acquire a bond at a pre-determined price within a certain period - if the option is "in the money", the option itself can be sold for a profit. Similarly, a put option, which gives the holder the right to sell a bond (or other form of tradable paper) at a set price, is said to be in the money if its strike price is above the current market price of the bond.

The real value of something. For example, a Krugerrand usually trades at a premium to its intrinsic value. A one ounce KR has an intrinsic value equal to the price of gold per ounce, but the coin is usually bought at a premium to this price. In the futures market, the profit that would be realised if an option were exercised is the intrinsic value of that option.

Refers to raw materials, work-in-progress and finished goods and forms part of the current assets of a company.

This measures the speed with which stock is sold (or turned over). It is calculated by dividing turnover (or sales) by average stock. If turnover is R200 000 and average stock is valued at R50 000 then inventory turnover is 4 times (R200 000 divided by R50 000 equals 4 times). It would be more accurate to divide average stock into the cost of sales (since turnover includes a margin for profit which may vary from year to year) but cost of sales are seldom disclosed in the financial statements.

See negative yield curve.

A holding of shares or other securities. A company is required to show its investments, which are determined to be those shares held or loans granted where these do not constitute a controlling interest in another company. Listed investments are valued at cost with a note as to market value, while unlisted investments are normally valued by directors.

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This item appears on the income statements of insurance companies and other large groups with sizeable investments. It reflects the amount of dividends received from shares and interest from bonds and deposits.

The investment policy of a fund is recorded in the fund’s deed and stipulates the goals of the fund and how it will achieve those goals by investing in various asset classes.

This is a sector on the JSE. Companies in this sector do not undertake any manufacturing operation; they merely invest in the shares of other companies (listed or unlisted). They are similar to unit trusts or mutual funds in that the public can buy the shares of an investment trust company and participate in a managed portfolio. There are a limited number of shares available unlike a unit trust where there is no limit to the amount of money the public can pour into the fund.

A flimsy excuse for your inaction to repair and possibly improve your own share portfolio. It is much the same kind of ailment investors suffer when they buy shares at the height of the bull market, and then stick grimly to the shares as prices tumble to their nadir. These victims are described as stale bulls. Sometimes the illness is terminal.

This is the "invisible" flow of funds into an out of a country and forms part of the balance of payments. This includes dividends, interest and tourism - which are sources of income from which there is no "visible" exchange.

This is the way shares are sold by a company. A prospectus, spelling out the type of operations to be undertaken, how the capital raised from the share issue will be spent, projected earnings and dividends for the coming financial year, who the directors are etc., is sent to prospective investors inviting them to subscribe for an allocation of shares.

A company has authorised and issued capital - once it has issued a prospectus and received money from the investing public it must issue shares to the public. Authorised share capital is not important when looking at a company's capital structure, only the issued share capital is. This is the amount of capital it actually received from the public. A company usually has more authorised capital than issued capital.

Under the old London Stock Exchange system a client placed an order to buy shares with a broker who then passed the order onto a jobber who did the actual buying and selling of shares. The jobber was not allowed to deal directly with outside clients, except through a broker. There were jobbing firms and broking firms. This has fallen away with the Big Bang and jobbers have been absorbed into broking firms. In South Africa we commonly refer to investors who buy and sell shares on a very short-term, speculative basis as jobbers.

Buying for resale in the immediate future in the hope of making a profit.

An accounting method for the input and recordkeeping of transactions.

Johannesburg Stock Exchange, the only stock exchange in South Africa, where shares are bought and sold.

This is a company which ensures that client's funds are safeguarded when the client has authorised a broker to manage a portfolio on his behalf.

Where a company is experiencing cash flow problems and cannot pay its creditors, rather than go into liquidation and wind up the operations completely, it can apply to be placed under judicial management by a court. A creditor can also apply to place the debtor company in judicial management. In this case, the existing management are replaced to see if the company can be salvaged from liquidation. Many companies have been saved in this way, since credit lines are renegotiated and overheads slashed to improve cash flow.

This is another word for the Development Capital Market (or DCM). It is called the junior board because the companies listed here are smaller than those on the main board and because of the less stringent listing requirements of the DCM.

Also called high yield bonds or speculative bonds are bonds which are rated below investment grade by the major rating agencies. They are known as junk bonds due to the higher risk in default they carry when compared to investment grade bonds; however, junk bonds pay a higher yield than investment grade bonds. Junk bonds carry a rating of Ba and lower by Moody's, BB+ and lower by Fitch and BB+ and lower by Standard & Poor's.

A person or entity who can enter into a contract.

On a bar chart, each bar is made up of the day's high, low and close, the top of the bar being the high, the bottom the low and the close being represented by a tick on the bar. In a bear trend the close tends to be near the bottom of the bar (i.e. the close is near the day's low) and in a bull trend the close is near the day's high (or at the top of the bar). In a bull market, for example, a key reversal occurs when there has been a sustained upward trend in price, with the closes grouping near the top of the day's trading range - on one day the trading range is wider than normal but the close moves towards the bottom of the bar (instead of the top), indicating a possible reversal in trend. The opposite happens in a bear market. The closes group towards the bottom of the bar, then on one day the trading range widens with the close rising to the top of the bar, indicating a possible reversal in the bear trend.

John Maynard Keynes, a famous British economist in the early 20th century, who put forward the idea that full employment, could only be achieved through government intervention in the form of monetary and fiscal policy. This economic theory is known as Keynesian economics. See also Keynesian Revolution, full employment and monetarist.

Keynes's idea that Government should control monetary and fiscal policy in an effort to bring about full employment gained momentum after the Second World War. It marked the end of an era where classical economists believed an economy should be self-regulating. Through fiscal and monetary policy, demand could be constricted or expanded to meet aggregate supply. He was one of the few economists who were able to put his ideas into practice. His economic theories are largely responsible for the post-war boom in developed countries. The Keynesian approach has since been challenged by monetarists who argue that an increase in money supply produces inflation - the root of all economic evil - and so erodes the value of money at home while making exports less competitive abroad - for this reason, money supply must be strictly controlled.

A Russian economist who propounded the theory that economic cycles occur every 50 years. The problem with the theory is that there is insufficient history to support it and historical information is sometimes unreliable. His theory is known as the Kondratieff Wave.

This is a curve which illustrates the principle that when tax rates are increased beyond a certain point, revenue to the fiscus actually declines. In theory, a tax rate of 100% would produce no income for the fiscus (since there is none left for individuals to spend on themselves, they would not bother to earn income) just as a tax rate of 0% would produce no income. By dropping tax rates below that certain critical point, revenue to the fiscus increased since individuals and companies employ less of their time trying to avoid (or evade) tax altogether. This principle was employed with considerable success by the Reagan administration.

The idea, or philosophy, of removing all controls in an economy. Adherents of this philosophy believe the economy is a self-regulating mechanism driven by the enlightened self-interest of entrepreneurs, financiers and those who participate in it for the creation of wealth.

The ending of a policy because certain conditions have not been met, for example if premiums have not been paid.

Generally defined or understood as the top 40 shares on the JSE, as measured by market capitalization. Large Cap stocks are usually the safest companies to invest in as they have an audited profit history of the preceding three years. In addition, Large Cap companies must have at least 20% of their stocks available to the public to trade. Large Cap stocks are usually the most expensive stocks for sale but also have the highest liquidity. The performances of the top 40 shares are tracked by an index, the FTSE JSE Top 40 Index.

After a dividend has been declared, management decide on a last day to register to qualify for dividends. The person owning the shares on this date qualifies for dividends. If the shares are sold the day before the last day to register, the new owner qualifies for the shares.

A method of acquiring the use of an asset over a period of time, paying for the use in instalments.

A book showing all transactions in a company, in the form of debits and credits.

Insurance that covers the cost of any civil, labour or criminal cases in which you are involved.

A legal person. Refers to a company - the law recognises a company as a legal person, separate from the shareholders and management. The liability of the shareholders is limited to the amount of capital they have invested in the company.

One of the roles performed by the Reserve Bank is that of lender of last resort. Because banks must balance their assets and liabilities on a daily basis, they frequently have to borrow to do this. If they cannot borrow from other banks, they can always go to the Reserve Bank. The Reserve Bank influences the level of interest rates in an economy by raising or lowering its bank (repo) rate or minimum lending rate.

A letter of undertaking from a bank, whereby the bank undertakes to pay for goods purchased by a client upon delivery or shipment. It really means the client is "good" for the value of the transaction.

In speculative terms, the opportunity for a large profit at a small cost. It implies high risk. Leverage is also a technical term for the ratio of a firm's debt to its equity.

Where one company is bought out by another with borrowed funds with the acquired company's assets used as collateral for the loan, or using the acquiring company's assets as collateral.

The amounts of money or other responsibilities that a person or organisation owes.

This is an amount owed by a company. Long-term liabilities refer to loans and debentures which will not be repaid in one year. Share capital is also a liability since it is the property of the shareholders, not the company. Current liabilities refer to bank overdrafts, creditors and accounts payable - these are all the liabilities which must be paid within the year. Liabilities are the means by which a company finances its operations.

Insurance that protects an individual or business from liability for injury, negligence or malpractice.

Responsible.

One who believes in the removal of all restrictions from the economic and political life of a country. One who espouses liberty in all respects. From an economic point of view libertarians generally do not favour regulations (such as fire, health and safety laws) as these are too onerous for small emergent businesses to comply with. All forms of Government control, such as price and wage control, should be removed to allow the economy to regulate itself.

London Interbank Bid Rate. The rate at which a bank in the United Kingdom is prepared to borrow from another.

London Interbank Offered Rate. The rate at which a bank in the United Kingdom is prepared to lend to another bank.

London International Financial Futures Exchange, a market for trading financial futures and options.

A form of saving whereby an individual invests with an assurance company a small monthly premium in return for a much larger sum later on.

Companies that develop, manages and markets life assurance and insurance policies. A portion of clients' funds are invested in the stock exchange. Life companies in SA include Liberty Life, Sanlam and Old Mutual, some of the biggest owners of shares on the JSE.

A scheme whereby individuals pay a premium to a company which guarantees to pay their dependants a lump sum in the event of death. It differs from life assurance in that money is only paid on the death of the person insured.

A concept in company law whereby the liabilities of the shareholders of a company are limited to the amount of capital they put into the company. Should the company be liquidated, creditors have no claim on the personal or other assets of the shareholders of that company.

A graph showing the price of a share, bond or other security.

investment companies that offer investors access to collective investment schemes (across a number of different management companies). Investors benefit from being able to manage a single portfolio across a number of companies. Extra costs are usually incurred for this convenience.

In banking, these are amounts which banks are obliged, by law, to maintain in the form of liquid assets.

Assets in the form of cash or near cash. In terms of existing regulations, banks and institutions must hold a proportion of their funds in the form of prescribed assets and liquid assets.

When a company is unable to meet its liabilities, creditors may apply to have the company liquidated, whereby the assets of the company will be sold off so that creditors and all prior claims on the company can be met. Whatever is left after all claims on the company have been met is repaid to the shareholders. A company is usually only liquidated after a prolonged cash flow crisis and shareholders seldom receive much in the way of compensation.

Cash, money. The term specifically refers to the speed and ease with which an asset can be turned into cash. Cash is obviously the most liquid asset. A life assurance policy, or a building is not very liquid. Companies must manage their cash flows to make sure they are liquid enough to pay short-term expenses out of incoming cash.

These are ratios which measure a company's ability to pay its current liabilities out of current assets. The most commonly used ratios are the current ratio, quick or acid test ratio and the stock to working capital ratio.

The risk that an investor might be unable to close out a deal or position at a specific time period due to insufficient market volume or the absence of willing counter parties.

The principle that investors will demand a greater reward for investing their money for a longer period. Thus long-term deposits with a bank should attract high interest rates, while call money attracts a lower rate.

Shares which are listed or quoted on the JSE are those which can be traded by stockbrokers on behalf of their clients. In order to be allowed to list a company on the JSE it must satisfy the requirements of the Stock Exchange Control Act and the rules of the JSE Committee. The rules governing listed companies are strict and are largely aimed to protect minority shareholders from fraudulent activity on the part of majority shareholders or directors of the company.

A network of insurers in London. It is not a single company as is commonly believed. It is a large number of insurance syndicates responsible for insuring a large proportion of the world's ships, as well as other interests. Because the risks involved are enormous, syndicates reinsure with other syndicates to spread their risk to a single disaster.

Where one party lends money to another in return for an agreed upon rate of interest. Unlike shares, loans may not be traded. Debentures, which are long-term loans, may be traded on the JSE.

These are loans which may be traded on the JSE or on the bonds market. An investor who buys loan stock such as debentures receives interest, not dividends. Unlike ordinary shares, the company must pay the interest on debentures whether it can afford to or not. Bonds are also generally known as loan stock since it is a form of lending by the Government and semi-Government bodies. Bonds attract interest and must be repaid by the Government (or whoever the issuer was) at some time in the future, so it would be quite correct to call them loan stock.

To buy and hold any security in the hope that its value will rise, in which case a capital profit will be made. Alternatively, it is the purchase of the right to buy (i.e. a call option) a security in the hope that the call option itself will reap a profit. Similarly, one may buy the future right to buy a commodity or security (i.e. a futures contract) in the hope that prices will rise whereupon the futures contract becomes more valuable.

Bonds which have more than 10 years to run to maturity.

This is a ratio of long-term debt in a company to the total capital employed. Banks are particularly interested in this one before they approve further lending - they want to know how much of the capital employed in the company is in the form of long-term debt. If it is too high then they might refuse further lending.

This is a term which covers both life insurance and life assurance companies as opposed to short-term insurers (which insure against fire, theft, accident etc.). These are also called life companies. They receive income in the form of premiums from policyholders, some of which are recurring, some which are one-off. Clients' funds are invested in the stock market, property and bonds (insurers must invest 53% of their funds in prescribed assets, which are primarily bonds). So long-term insurers have another source of income - investment income. Profits in a long-term insurance company are estimates based on actuarial valuation of the risks that have been underwritten, as well as the assets used to underwrite that risk. These estimates, while accurate, are not audited.

See long-term loan.

This is referred to on a balance sheet as a Source of Capital. This is a loan which need only be repaid over a number of years. It is one of the sources of funding available to a company. It does not include overdrafts and other forms of short-term lending (such as bankers' acceptances) which are current liabilities i.e. they must be repaid within 12 months. Included in long-term loans are other long-term liabilities such as debentures which need only be repaid several years down the road. Short-term loans are those which must repaid within a year. Companies with a high ratio of short-term lending to total lending could find themselves under cash flow pressure since a large part of their borrowings must be repaid in the current year. Long-term loans are therefore preferable from a cash flow point of view, all things being equal.

The opposite of a profit. Where expenses exceed revenue over a certain period. Continued losses might result in a company going into liquidation or being taken over by another company.

This is sometimes seen on an income statement and is an extraordinary item. It usually arises where an asset such as land has been sold at a loss and this is then deducted from the income received from normal operations. If a profit were made on the sale of a piece of land, this would be added on after the operating income had been indicated. The reason this is regarded as an extraordinary item is that the buying and selling of land is not part of the normal business of a company and it must therefore be separately indicated. If a loss were made on the sale of land, the balance sheet would also have to be adjusted - the appropriate amount would be deducted from the non-distributable reserves.

Each day, traded shares have a high, low and a close. The high is the highest price the shares traded at on the day, the low is the lowest price that day and the close is the last price the shares traded at before the close of trade.

A study of the forces affecting the national economy and the interaction of these forces with each other. It looks at the economy as a whole rather than any single component. The opposite would be micro economics which is the study of the supply and demand for a product.

A company's first dividend payment as a listed company is referred to as a "maiden dividend".

This is where most of the companies on the JSE are listed, as opposed to the Development Capital Market (DCM). The listing requirements of the main board are more stringent than that of the DCM. The DCM is sometimes referred to as the junior board.

Where a company or a person holds more than 50% of the shares in another company then they have control of the subsidiary. In terms of the Companies Act, any shareholder that acquires a majority shareholding in another company when there is a change of control must also make the same offer to minorities as was made to seller from whom they acquired the majority shareholding. This is to protect minorities from fraud on the part of directors and majority shareholders.

Buying or selling shares, or other securities, regardless of the market conditions, to be a buyer and seller of a security at the same time.

A measure of money supply. It is the simplest measure of money supply and refers only to all the notes and coins in circulation in an economy.

A measure of money supply. It includes all notes and coins in circulation as well as all cheque account deposits held in the private sector.

This is M1 plus all other forms of private sector deposit accounts held with commercial banks and discount houses.

This is the broadest definition of money supply and the one most commonly used. It is M2 plus all deposits held by the private sector in banks, building societies and the Post Office, including foreign currency accounts.

Clients can leave capital in the care of a stockbroker who will invest in equities for them with the object of earning as high a rate of return as possible on the capital while minimising the risks. There are basically two kinds of managed accounts: discretionary, where the brokers invest the capital as he sees fit, without prior consultation with the client and non-discretionary, where the broker must consult with the client before buying or selling shares.

There are a number of portfolio managers who are not part of a stockbroking firm. These include the mutual funds, unit trusts, investment trusts and so on. The public are invited to leave their capital in the hands of a portfolio manager who will invest in equities with the aim of earning as high rate of return as possible on the capital, while minimising the risks.

This is a system of accounting which provides management with the tools it needs to make decisions. Management Accounts involves the use of ratios to look at profitability, gearing, return on capital, liquidity and numerous other areas where the financial performance of the company can be measured.

This is the company that is appointed by the Trustees to manage the assets in a fund in line with the fund’s investment policy for the benefit of its investors. In the case of the PSG funds, the MANCO is PSG Collective Investments Limited.

Permission to act on behalf of the policy holder.

(i) this has many different definitions, but in accounting it generally refers to the operating margin (gross or net)(ii) In a bear sale the seller is required to deposit a cheque with his broker for the sale price of the shares. If the share price, instead of falling, rises, the broker will call in margin from the seller to cover the difference between the original deposit and the current market price.(iii) In the futures markets, margin is a deposit the trader must leave with his broker in order to open a ""position"".(iv) In stockbroking terms margin means the amount the client lends from his stockbroker and uses to buy shares.

A call made upon a person with a futures contract or an investor undertaking a bear sale to deposit more cash with the broker if the market moves against the investor or if the margin requirements are changed.

In banking, this is the difference between the cost of raising funds and the rate at which it is lent out again. For example, if a bank lends R10 000 at a fixed rate of 15% for a year, and it raises this money at a cost of 13% for the same period, its margin is 2%. If banks perceive that interest rates are due to fall, they will try to lend money at a fixed rate (say 15%) while borrowing at market-related variable rates. If they are correct and rates do fall, the average cost of funds in such a situation may be 12%, giving the bank a margin of 3%.

The additional cost incurred in producing additional units of a particular product. According to economic theory, marginal costs should decrease as the volume of production increases due to economies of scale.

This is a high-cost mine. Marginal mines can increase profits many times when the gold price is rising, but often sink into a loss situation when the gold price falls.

If the top marginal rate of tax is 45% for amounts over R50 000 this means that any earnings above R50 000 will be taxed at 45%. Income earned above a certain level attracts a higher marginal tax rate. See also average tax rate.

See capital appreciation.

This is the value the market places on a company. It is simply the current share price multiplied by the number of shares in issue. So let us say that Company X's shares are trading at 300 cents and there are 2.5 million shares in issue. Its market capitalisation - that amount we would have to pay if we wanted to buy 100% of the shares - would be 2.5 million x 300 cents = R7.5 million. Where a company's market capitalisation is below its net worth (the value of its assets less its liabilities) then it becomes ripe for a takeover. It means a company with the ready cash can buy its assets at below their quoted book values.

(i) The current rate at which money can be borrowed from a bank.(ii) See yield to redemption.

Also known as Systematic Risk. Risk inherent in a particular market (i.e. the SA equity market, US bond market or the local property market). This is the risk that the value of a security or an investment might fall due to adverse changes in the market such as movements in share price, changes in interest rates and currencies or any economic factors that might directly or indirectly affect the value of an investment.

This is a tax which is charged whenever shares are bought (not when they are sold).

Prime mover behind the doctrine of communism which propounds that capitalism (that is, ownership of capital and the pursuit of business for profit) is an exploitative system and that profits derived under such an economic system are done so at the expense of the workers. Observing the incipient industrial conglomerates of Germany and Britain, Marx saw the growth of capitalism as working against the proletariat. The owners of capital, motivated by profit, swallowed up smaller capitalists - their strength grew by accumulation while the working classes became more and more emaciated, economically-speaking (the rich get richer and the poor get poorer). Expanding George Friedrich Hegel's dialectical system, Marx developed the philosophy of dialectical materialism, where he saw each phase in the development of history arising out of the conflict of two opposing forces, with only one side triumphant. The bourgeoisie had replaced the feudal society and, as Marx saw it, the proletariat or working classes were poised to seize economic and political power from the bourgeoisie. The revolution would occur in three phases: seizure of political of power, a "dictatorship of the proletariat" to prevent counter-revolution, and thirdly, the decline of the state and the emergence of a classless society where all citizens share in the economic prosperity of the land and factories. Marx believed workers could manage the factories on a rotation basis (these skills being easily acquired). He said before his death "I am not a Marxist" although his theories have spawned millions of devout followers. Two main works outline the theories of communism, the "Communist Manifesto" written in strident, almost apocalyptic prose, and "Das Kapital", describing the economic basis for communism. He lived most of his life in abject poverty, supported mainly by his friend and mentor, Hegel.

The economic and political philosophy developed by Karl Marx. See Marx.

One who espouses the theories of Karl Marx. See Marxism and Marx.

The date when a bond is repaid by the issuer. This is also called the redemption date. It is the date when the nominal value of the bond is repaid in full. In the intervening years, between the issue of the bond and its redemption, the bond holder would, of course, have received interest.

A summary of the various classes of assets and liabilities grouped according to their maturity dates, drawn up regularly by banks as part of their interest rate risk management.

Insurance taken out to cover potential loss or damage as a result of mechanical breakdown. Examples include a broken fan belt or a seized gearbox.

This usually applies to bonds which mature in three to ten years.

Medium Cap Stocks fall outside the FTSE JSE Top 40 Index and refers to the next 60 stocks on the JSE All Share Index. Medium sized companies generally have a market capitalization of between R5 billion and R20 billion. Medium Cap stocks include companies with established trading histories and verifiable track records but they are not as well researched as Large Cap Stocks. While Medium Cap stocks have can offer the same development opportunities of Small Caps and the relative steadiness of Large Caps, liquidity, the ability to buy and sell quickly can be an issue and investors cannot assume a quick exit.

In terms of the Companies Act this document must be drawn up at the founding of a company, spelling out the company's name, its main business, types of share capital and various other statutory requirements.

These are banks or divisions of banks which specialise in wholesale borrowing and lending transactions as well as fee-based financial services, corporate finance (mergers, takeovers, acquisitions, rights issues, stock exchange listings, etc.), project finance (the structure and finance of special projects), factoring, trusts and portfolio management. In addition, merchant banks operate in the money and capital markets on behalf of clients and for their own account. Merchant banks do not have huge pools of funds to lend out again, such as the commercial banks have, so they rely heavily on fee-earning services. They are often highly innovative at structuring complicated financial deals.

Where two companies merge into one. Usually both companies have large assets and complementary businesses which can benefit from rationalising some of the operations so as to avoid duplication and so reduce costs. A takeover occurs usually when one company swallows a competitor and so reduces the market. This need not always be the case, as a company farming chickens, for example, can be taken over by an engineering firm.

This is the study of the simply supply and demand for a product. Typically, it is an assessment of the economic outlook for a product, industry, sector or company in isolation from the rest of the world. Macroeconomics is a study of the economic prospects for the country as a whole, or the world economy. A micro economic analysis could also be achieved by attempting to assess the outlook for a particular industry (and then the economy) by first looking at an individual company or product.

These are the minimum requirements a company must be able to satisfy in order to obtain a listing on the JSE. Satisfying these requirements does not automatically guarantee that the JSE Committee will grant a listing - company directors' experience and track record, competition, viability and other aspects of the business are examined in detail in order to protect shareholders from unsound or fly-by-night operations.

A company which holds shares in mining companies. It does not carry out the mining itself. They often carry out mineral exploration.

A holding company for a number of mines, for example, Anglo American.

where a holding company owns, say 70% of the share in a subsidiary, the other 30% belongs to the minority shareholders since the majority shareholding is in the hands of the holding company. The Companies Act requires that holding companies consolidate their financial statements (show the assets and liabilities of the subsidiary together with those of the holding company), but obviously only 70% of the assets and liabilities of the subsidiary belong to the holding company. So where accounts are consolidated, the financial statements must reflect what proportion of assets and liabilities belong to the minorities. This might appear as "Minority Shareholders' Interest" or "Outside Shareholders' Interest" or words to this effect.

This is a type of graph which shows the rate of acceleration or deceleration in a share price over a pre-selected period. When a share price rises, it does not do so at the same speed all the time. Just like a car, it starts off slowly, picks up speed (at which point the momentum graph would start to rise sharply), then before the peak it slows down, stops and starts falling, again, slowly at first and then faster. This is represented on a graph by having a vertical line and horizontal scale showing the percentage changes in price. If we choose a 40-day period over which to compare price movements, when the momentum graph is at 0, the share price is exactly the same as it was 40 days before. When it rises to 20 on the horizontal scale, the share price is 20% higher than it was 40 days ago. Similarly, when it falls to -20, the share price is 20% below its level of 40 days age. The momentum indicator may peak at 20 and start to fall back towards the 0-line. This does not mean the share price is falling, only that it is increasing less rapidly. Usually, when the momentum indicator starts falling back towards 0, it is a sell signal.

A school of thought among economists that argues for the modification of the economy via increases or decreases in the money supply. The monetarists believe that economic growth, employment levels, inflation, etc., can be controlled by controlling the money supply. Monetarism as an economic philosophy has been reasonably successful in returning various developed economies to high growth rates and low inflation. When the money supply in an economy is increased this results in more money chasing the same amount of goods and services, and so prices will inevitably rise. Another way in increase prices is by accelerating the velocity with which money changes hands, but this is considered to be more or less constant. This school of thought was developed by American economist, Milton Friedman. It is a characteristic of third world Governments to increase money supply by printing more notes (known as theM0 measure of money supply). A more common way of increasing money supply in developed countries is to increase the lending capacity of banks (the M3 measure of money supply). There are broadly two schools of thought on the matter in economics: the Keynesian and the monetarist approach.

This is the policy of the Government, through the Reserve Bank, towards the expansion or contraction of money supply. There are various ways the Reserve Bank can influence the money supply in an economy. Since it is a leader of last resort it can raise the rate at which it is prepared to lend to the banks (known as the Bank rate) which forces the banks to raise their prime lending rates, or increase the cash reserve requirements (or cash ratio) of the banks, which automatically reduces the banks' ability to lend to the public. It can also use moral suasion - a means whereby banks are called upon to reduce lending in the greater interests of the country as a whole. These are a few of the methods available to the Reserve Bank and therefore the Government to control money supply and this is known as monetary policy.

These are brokers who work in the money market, linking lenders and borrowers in return for a commission. The amounts of money involved are large and the commissions paid can be as small as 0.02%.

These are instruments dealt with by the money market. They include treasury bills, negotiable certificates of deposit, bill of exchange, bridging bonds issued by municipal and public corporations, short-dated bonds and other similar instruments - they do not include promissory notes which are not bank endorsed.

These are instruments dealt with by the money market. They include treasury bills, negotiable certificates of deposit, bill of exchange, bridging bonds issued by municipal and public corporations, short-dated gilts and semi-gilts and other similar instruments - they do not include promissory notes which are not bank endorsed.

This refers to all forms of money in an economy. Although there are various measures of money supply (M0, M1, M2 and M3), money supply generally refers to all notes and coins in circulation, all private bank deposits and accounts, and all foreign currency accounts in the country. The Reserve Bank can increase the money supply in an economy by printing more notes, by forcing interest rates up so as to encourage saving which increases the banks' ability to lend, or by reducing the cash ratio of the banks which allows them to lend more with the same amount of deposits. Using the same methods in reverse, the money supply can be contracted.

Money lent overnight to the discount houses and banks. It can be recalled on a daily basis.

Where one producer controls the market for a product or service. These are unpopular in most countries as they generally result in higher prices, poor quality and slovenly service (although not necessarily) - since there is no competition, the monopoly can push the price up as it sees fit.

Moral hazard is a situation where a person or a company will take on unusual risk due to an incentive that allows them to put their own interests first. For example, a person driving a car might be less careful to avoid an accident than if they were not insured.

An economic term used to describe the efforts of the Reserve Bank to regulate banking activity by using persuasion with the banks, rather than monetary policy.

The gold price is fixed twice a day in London, once in the morning at 10h30 and once in the afternoon at 15h30. A number of bullion houses decide on a price for gold which satisfies all buyers and sellers at that time. This price is known as the "fix".

When a house buyer gets a loan from a bank to cover the purchase of the property, the bank or building society will hold a bond over that property in the event of the house buyer defaulting with the repayments. If the house buyer does not pay the instalments due on the bond the lending institution may revoke the bond and sell the house.

An acknowledgement for money lent to a company against security of property, bearing a fixed or variable annual rate of interest.

Insurance for private or business motor vehicles.

Insurance that covers your motorcycle against theft or damage as the result of an accident.

A method of smoothing a share price graph and extracting buy and sell signals from charts. It is a tool of the technical analyst and he must first decide what period he wants to calculate the moving average over, 20 days is considered relatively short-term, 50 or 60 days medium-term and 90 days or more long term. The analyst would use the share prices going back as far as he felt it was important to do so - assume he was working with a 20 day moving average, he would take the prices of the first 20 days, add them up and divide by 20 to arrive at the average price for the first 20 days. The result is plotted alongside day 20 on the chart. Then the analyst crosses off the share price for the first day and adds in day 21 (so he is still only working with a 20 day history), adds the prices up and divides by 20 to arrive at a new average which is plotted alongside day 21. Then day 2 is crossed off and day 22 added in, and so the process continues. When the share price crosses upwards through the moving average line this is often considered a buy signal - when it crosses downwards it may be considered a sell signal. There are also multiple moving averages, where two different moving averages of different periods (for example 20 and 50 day moving average lines) are plotted on the same share. Where the shorter term moving average crosses up through the longer term moving average line, this is often considered a buy signal, and when it crosses down, this may be a sell signal. Using multiple moving averages smooths out the share price information and often gives a better picture of the overall trend in price.

See moving average.

Also known as a unit trust, this is a managed portfolio where the public can invest in securities by placing their capital (either in a lump sum or in monthly instalments) with the mutual fund. These are managed by experienced teams of analysts and fund managers who select which securities to buy. Assets can include shares, bonds or other financial instruments.

This is a current asset which can be converted into cash relatively quickly. It includes debtors, short-term deposits with the bank and other forms of assets which can be quickly converted to cash.

If you put yourself in danger unnecessarily.

It may happen that short-term interest rates are higher than long-term deposits. Therefore, the interest received declines with the length of years of the deposit, giving a negative yield curve.

These arise when any party makes a deposit with a bank for periods varying from 30 to 360 days. NCD's are usually issued for periods of 30, 60, 90, 180 or 360 days. A bank will issue an NCD to the depositor for the amount of the deposit plus interest. The NCD can then be negotiated (i.e. discounted) by the holder should they require funds prior to the date of withdrawal. This gives the holder flexibility if he has committed to leave money with the bank for a fixed period. NCD's must be purchased from a bank - they allow the holder to use the money in the fixed deposit for other purposes before the date of withdrawal, should this money be needed before then.

The amount that is left over after expenses or deductions have been made.

This is a comparison of the number of shares that moved up in a day against those that moved down. It indicates the general direction of the market. If more shares moved up in price than down, then the market is rising in general. This information can be graphed, in which case it would be called an advance/decline line.

The net asset value or net worth of a share is calculated by taking the net assets and dividing it by the number of shares in issue. In calculating net assets, goodwill should be excluded, since if the company were to be liquidated, goodwill would be worth little or nothing. An easier way to calculate this is to take the ordinary shareholder funds and divide them by the number of shares in issue. The result is the same as taking net assets and dividing by the number of shares. There are different methods of calculating NAV and this should be clearly spelt out in the balance sheet. When the net worth or net asset value of a share is below the market price of the share, the company may become a target for a take-over by a predator, since the net realisable profit from the sale of the company's assets should exceed the market price for the company. Buying a company whose net worth per ordinary share is below the market price of the shares to sell off the assets and pocket the difference is known as asset stripping.

This is the excess of assets in a company over its liabilities.

This is gross cash flow (group-taxed profits plus depreciation and deferred tax less preference dividends) less ordinary dividends. The reason for looking at net cash flow is to see what money actually flowed into and out of the company during the reporting period. Since depreciation and deferred tax are only provisions for payment, but have not actually left the company yet, they are added back in to the profit figure to see how much cash the company has in it's control. Since preference and ordinary dividends have to be paid out of profits, they must be deducted.

This is the excess of current assets over current liabilities. A company's current assets should always exceed its current liabilities, which means that it can pay its immediate liabilities out of incoming cash.

Where current liabilities exceed current assets, the company must pay out more immediate liabilities than it has incoming cash, and is therefore technically insolvent. It can either borrow more from the bank if it can, or grant less credit to debtors so that money arrives in more quickly, and seek better credit terms from suppliers for itself, so that it has to pay out money less quickly.

See net income.

After net operating income we deduct tax and interest to arrive at net income. Also called net earnings or net profit, it must not include extraordinary items, transfers to reserves and dividends. It is the profit left after all expenses, tax and other claims on the company have been met.

This is turnover (or total revenue) less expenses. It is the profit figure of the company before making deductions for dividends, tax, extraordinary items and transfers to reserve accounts (on the balance sheet). Once all these other items have been deducted we arrive at retained income which becomes part of the capital of the company and is added to the retained income of previous years and appears under shareholders' funds in the balance sheet.

A mathematical formula for reducing future profits into present money. When an investor buys a share which he intends holding for 10 years or more, he can work out what the expected future dividends will be and translate that back into present money in order to determine what price he should pay for that share. See also discounting.

See net income.

This is a ratio which measures the profitability of a company in relation to its turnover. It is net income divided by turnover. If net income is R50 000 and turnover is R5 million, the net profit margin is 1%. A net profit margin of 1% is poor (although it is better than a loss!). Companies should strive to increase the profit in relation to the turnover.

This occurs when an asset, such as land or machinery, is sold for a profit (or loss). Since this is not part of the normal business of the company it is an extraordinary profit and must be differentiated in the income statement from the operating profit (which is the profit from normal business, but before dividends, tax and transfers to balance sheet reserves).

See net asset value.

This occurs when a new company is listed on the stock exchange and the public are permitted to trade in its shares.

A method of valuing stock based on the replacement cost of existing stock as distinct from historical cost. This method is more commonly used as a means of valuing stock in inflationary times in order to fairly represent the increase in the money value of the stock.

When a company holds a rights issue (i.e. invites existing shareholders to subscribe for more shares in the company as a means of raising extra capital) it does so by issuing NPL's to the present shareholders. These are renounceable (i.e. need not be taken up) - the NPL's entitle the holder to buy more share in the company on a certain date at a pre-determined price, which is usually below the market value of the existing shares to make them more attractive. The NPL's are listed on the JSE for a brief period (about a month) and they can be traded like shares. Those existing shareholders who do not want to take up their rights (known as "following their rights") to buy more shares at a pre-determined price, may sell the NPL's on the JSE. The purchaser of the NPL's now acquires the right to buy the additional shares in the company at the pre-determined price. When the shares go ex-rights (the day after the last day to register for the rights issue), the NPL holders may, if they wish, pay for the new shares after which they are traded in the normal way on the open market.

See nominal value.

Also known as the coupon rate - this is the interest payable on the nominal value of the bond, which is the price at which the gilt was first issued.

When a bond is first issued (usually in units of R1 million), this is the nominal value. It is later traded in the bond market at a price, which varies according to the level of interest rates, but the nominal value does not change. When the bond is repaid, the amount the bond holder receives is also referred to as the nominal value (since it is the same value that was originally issued that is repaid). It is called "nominal value" or "nominal price" because, after issue, the nominal price has little influence on the market price, this being decided by interest rates. Also called maturity value or redemption value.