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FINANCIAL
GLOSSARY : B
B Share
B shares receive
shares as a from of income, instead of dividends and are therefore attractive
to investors who have to pay a high rate of income tax.
Balance
sheet
The balance sheet
forms part of a company's annual report and accounts. It is a summary
of the company's assets, liabilities and shareholders funds.
Bank base
rate
The bank base rate
is set by the Bank of England and determines the cost of borrowing money.
This base rate is used by commercial banks as a reference point when
setting their own base rates. An increase in the base rate will increase
the rates for mortgages and loans. However, savers will receive higher
interest rates on their savings.
Bargain
Term used for a
share transaction.
Basis point
A hundredth of one
per cent (0.01 per cent).
Bear market
This is when there
is a widespread decline in security prices. Bears believe that share
prices will fall. They sell securities which they do not at present
own, in the hope that they can buy them at a lower price later once
the price has fallen
Beta
This is a measure
of market risk. It determines how volatile a share price is (ie how
much a share tends to rise and fall over a period). The beta measures
the distance between the high points and the low points, so the higher
a share's beta, the more volatile it is. If you're investing for the
long term, volatility doesn't matter much. However, if you're a short-term
speculator, a highly volatile share can offer big rewards but also big
potential losses if your timing is off.
Bid/Offer
spread
The offer price
is what you pay if you want to buy an investment and the bid price is
what you get when you want to sell. The difference between the offer
price and the bid price is known as the spread. The size of the spread
depends on the sales, management and marketing costs of the investment,
and the amount of profit margin built in by the market maker.
Big Bang
The deregulation
of the London Stock Market that took place in October 1986, when the
London Stock Exchange went fully electronic.
Blue chip
Large and creditworthy
company.
Bond
A bond is a long
term debt. This a loan to a company or government in return for a fixed
level of income (coupon) and a guaranteed return of the investment at
the end of the bond's life (known as 'the maturity date'). There is
a range of different bond types available, offering different dates
to maturity. The advantage of bonds over shares is that bondholders
are ahead of shareholders in receiving payment if the underlying company
goes bust. Although the maturity price ( redemption price) and income
level is fixed, the market prices of bonds can rise and fall just like
shares. Prices of the bond are determined greatly by interest rates
and inflation forecasts. For example if inflation is likely to increase,
the fixed income will be worth much less as time goes by therefore,
the price paid for the bonds in the open market will be less to compensate
for this. Overall, the long-term return on bonds is lower than that
achieved by shares but, bonds are useful for boosting income in retirement.
Bonus issue
A free issue of
extra shares to shareholders by a company. This is often done when the
share price has risen so high that they become too expensive to buy
for the smaller investors.This is also known as a 'scrip' or 'capitalisation'
issue.
Book value
This is an accounting
term. The book value of a company is determined by adding up all of
the company's assets and then deducting all of its debt and liabilities.
The Book value of a company's assets or securites may have little relationship
to the market value of the company.
Bridging
loan
A short term loan
to provide temporary financing until more permanent financing is arranged.
It is often used by purchasers of a property who need funds for a limited
period of time e.g. until they sell their existing home.
Broker
Short for stockbroker,
but can refer to any intermediary selling financial products.
Bull market
Widespread rise
in security prices. A 'bull' investor believes that share prices will
rise. They buy securities in the hope that they will be able to sell
them at a profit later once the price has risen
Buy-back
A company may buy
back its own shares in order to reduce the overall number of shares
available on the market.This will usually have the effect of increasing
the share price.
Buy-out
This is when a company's
management team buys all the company's shares and thereby takes complete
control of the company. This is called a management buy-out (MBO).There
are several variants of a MBO.
Leverage buyout
-These occur where the purchase price is beyond the financial resources
of the managers and the bulk of the acquistion is financed by loan
capital provided by other investors.
Employee buyout
- Similar to the above but all employees are offered a stake in the
new business.
