A Short List of Essential Financial Acronyms

Dec 05

A Short List of Essential Financial Acronyms

The world of finance and economics can be a confusing and befuddling place for the average Joe. Whilst it was once easy to dismiss these activities as irrelevant to one’s day to day life, the banking crisis of 2008 has taught us how short sighted this attitude is.

And yet so many people are still put off by the confusing terminology and acronyms that find their way into regular news reports. It seems sometimes as if a whole new language must first be learnt just to get a basic understanding of how the financial news is reported.

Acronyms are amongst the worst offenders for putting people off as any series of letters lacks even the basic power to imply its own meaning. But help is on hand. We thought it a good idea to spread the word (literally) and get people’s knowledge in this area a bit more up to date.

Remember these words may seem to have nothing to do with your mortgage, savings account or ISA account but they represent processes, concepts and organisations that have influence over all of these things for all of us.

CPI

The Consumer Prices Index is the most common means of measuring inflation in the UK. In a nutshell it gives an overview of how expensive the cost of living is in relative terms. It does this by essentially looking at the value of a number goods and also services across the entire economy before comparing their average values to average incomes. By doing this over a period of time a picture can be built up of how much the relative price of common goods and services is changing.

ECB

Based in Frankfurt, the European Central Bank is the central bank of Europe and acts in much the same way as any national central bank would. In this way it is responsible for all monetary policy in the Eurozone as well as for printing and issuing euros.

GDP

Gross Domestic Product is the standard global measure of any nation’s economic output. GDP is the ultimate measure of an economy’s health. It can be calculated in one of three ways which we won’t go into detail in here. GDP takes into account the value of all goods and services made and sold in a country as well as that country’s imports and wages. In the UK the Office for National Statistics produces quarterly GDP figures. GDP can have a massive influence of confidence in a nation’s economy and its ability to pay its debts.

IMF

The International Monetary Fund is an organisation set up after the Second World War to help stabilise and fix the broken global payment system.  Member countries contribute money through a quota system which imbalanced economies can borrow money. Economic surveillance is an important part of the IMF’s remit. Since the 1980’s the IMF’s main role has been to supply loans to developing countries with debt problems, but more recently has also supplies loans to Greece, Ireland and Portugal.

LIBOR

LIBOR or the London Interbank Offered Rate is the perfect example of how something that can seem irrelevant and specialised can financially affect all of us when it is, in this case, fraudulently manipulated. LIBOR is the rate at which banks lend to each other and is calculated every morning based on statistics submitted by commercial banks. It can therefore have a marked influence on the interest rates offered by banks. The consequences of the LIBOR scandal, in which several banks artificially inflated or deflated their statistics, are still reverberating  today.

ONS

Formed in 1996, the Office for National Statistics is part of the UK Statistics Authority and reports economic statistics amongst other things to the UK Government. In 2007, under Labour, the ONS was freed from Government influence by the then Labour Government under the Statistics and Registration Service Act, which sought to re-establish the credibility of UK statistics. Many government policies are based on figured produced by the ONS and so its influence is huge.

TARP

The Troubled Asset Relief Programme is a term probably not used as frequently on this side of the Atlantic as it is refers to the US rescue fund set up in 2008 to stop its banks and financial institutions from collapsing (an event that would inevitably led to a second great depression).TARP is worth a terrifying $700bn and was later used to recapitalise US banks.