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Economic Terms

0-9   A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Basle Committee

Is a committee of banking supervisory authorities with the goal to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. Through this committee the capital adequacy requirements known as BASLE were introduced to ensure a uniformity across all banks in terms of the capital backing which was required, in light of the globalised financial world now in place.


BASLE II

The second capital accord to be introduced by the Basle Committee to correct and ensure that the capital adequacy requirements for banks was financially and robust enough. This was proposed in 2004 and was implemented fully by 2008 and the main difference was it ensured that banks had a higher capital charge imposed on them if they prescirbed a loan to a small company compared to a large company like Apple. This will be replaced by BASLE III in 2023.

 


BASLE III

Is the third capital accord to be introduced by the Basle Committee in 2013 and will be fully phased in by 2023. This once agin built on the foundations of BASLE II and will impose tougher capital and leverage restrictions on banks, raising the level of Tier 1 capital a bank should hold to 13.5%


Benefits

The utility or pleasure that individuals experience by consuming a good or service.


Billion

1,000 x 1m

Black market

A secondary market where cash transactions take place "off the books" to side step price controls and excessive indirect taxes or to supply goods that are prohibited. A black market may also emerge where supply is deficient and consumers that acquire the goods are encouraged to re-sell the goods at a far higher price.

 

 

 


Bond

A bond is a contract the facilitates a large loan. It will set out the terms of the loan including the interest rate (coupon), repayment date (redemption) Corporate bonds relate to loans made to businesses while government bonds relate to loans made to governments.  

Wealthy individuals can invest in bonds to directly lend money to governments and big businesses. Individuals that have saved money will usually pool their savings in investment or pension funds that then invest in corporate or government bonds. The total value of debt in UK corporate and government bonds is enormous exceeds £2 trillion i.e. 2m x £1m.

Bonds are usually used to borrow very large amounts of money when it is more convenient and cost effective for an organisation to borrow from the market as a whole rather than from individual banks.


Bond par value

Also known as the principal. Is the amount of money that a bondholder will receive once a bond reaches its maturity date.


Bond Yield

The yield on a bond is the annual coupon payment expressed as a percentage of the market price of the bond.

It illustrates the percentage of the coupon payment the investor is being rewarded with relative to the value of the bond. Higher bond yields illustrate that the investor will receive a large fraction of the value of their bond realtively early on. Bond yields have an inverse relationship with the market price of the bond as well as interest rates and can be calculated using the formula below:

 

 


Boom

A period of economic activity characterised by an increase in the rate of real output growth and increasing inflation.

As the diagram below illustrates this rise in economic activity will eventually lead to output being pushed above the full employment level, which is unsustainable. Therefore this is what causes inflationary pressures to be introduced to reign in the boom.


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