Global Banking and Finance
Global Banking and Finance

Annuities: “These are contracts between individual investors and insurance companies, where investors agree to pay an allocated amount of premium and at the end of a pre-determined fixed term, the insurer will guarantee a series of payments to the insured party.”1

Bonds: certificate issued by a government or company representing a promise by the bond issuer to pay the bondholder interest in addition to the principal amount of the bond after a specified period of time. For example, a 10-year bond purchased today costs $35. When you “redeem” or cash in the bond after ten years, the issuer repays the $35 principal plus interest at a rate established when the bond was issued.

Capital flow: “The movement of money for the purpose of investment, trade or business production. Capital flows occur within corporations in the form of investment capital and capital spending on operations and research & development. On a larger scale, governments direct capital flows from tax receipts into programs and operations, and through trade with other nations and currencies. Individual investors direct savings and investment capital into securities like stocks, bonds and mutual funds.” Read more:

Capital markets: A financial market that works as a conduit for demand and supply of debt and equity capital. It channels the money provided by savers and depository institutions (banks, credit unions, insurance companies, etc.) to borrowers and investees through a variety of financial instruments (bonds, notes, shares) called securities.

A capital market is not a compact unit, but a highly decentralized system made up of three major parts: (1) stock market, (2) bond market, and (3) money market. It also works as an exchange for trading existing claims on capital in the form of shares.” Read more:

Certificate of Deposit: “Certificates of deposit (or CDs) are issued by banks and credit unions. They usually have a fixed term and fixed interest rate.”2 A person may go to bank and buy a CD instead of putting his or her funds in a savings account because the rate of return is often higher. On the other side, the CD often has a set term so the person cannot cash in the CD before the term expires without risking a penalty. This makes it less “liquid” (easy to buy/sell/trade) than a traditional bank account.

Commodity Market: “A physical or virtual marketplace for buying, selling and trading raw or primary products…Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.).” Read more:

Equity: “The term’s meaning depends very much on the context. In finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner’s equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company.” Read more:

Financial assets: “An asset that derives value because of a contractual claim. Stocks, bonds, bank deposits, and the like are all examples of financial assets.” Read more:

Financial Globalization: “The integration of global markets by the reduction trade barriers, improved communication, foreign direct investment, and other means” Read more:

Financial markets: “Broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade.” Read more:

Floating Exchange Rate: “A country’s exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies. Thus, floating exchange rates change freely and are determined by trading in the forex market. This is in contrast to a “fixed exchange rate” regime.” Read more:

Foreign Exchange Market: “The market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world.” Read more:

Hedging: “A risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities” “In effect, hedging is a transfer of risk without buying insurance policies.” Read more:

Insurance Markets: buying and selling of insurance

Inflation: “A sustained, rapid increase in prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency. It has its worst effect on the fixed-wage earners, and is a disincentive to save.” Read more:

International Monetary Fund: The IMF is an international organization of 185 member countries, established in 1947 to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment.

Letter of Credit: “A written commitment to pay, by a buyer’s or importer’s bank (called the issuing bank) to the seller’s or exporter’s bank (called the accepting bank, negotiating bank, or paying bank).

A letter of credit guarantees payment of a specified sum in a specified currency, provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe… Letters of credit are formal trade instruments and are used usually where the seller is unwilling to extend credit to the buyer. In effect, a letter of credit substitutes the creditworthiness of a bank for the creditworthiness of the buyer. Thus, the international banking system acts as an intermediary between far flung exporters and importers.” Read more:

Liquidity: “The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.” Read more:

Mutual Funds:  Professionally managed financial instruments that may include a mix of stocks, bonds and other products. Investors may choose to buy a mutual fund instead of a stock or a bond because it may give a higher rate of return with less risk because there are multiple products contributed the worth of the fund.

Trade Liberalization: elimination of government barriers to trade of goods and services

Pegged Currency: “A method of stabilizing a country’s currency by fixing its exchange rate to that of another country” Read more:

Security: “An instrument representing ownership (stocks), a debt agreement (bonds) or the rights to ownership (derivatives).” From

Speculation: “The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain. With speculation, the risk of loss is more than offset by the possibility of a huge gain; otherwise, there would be very little motivation to speculate. While it is often confused with gambling, the key difference is that speculation is generally tantamount to taking a calculated risk and is not dependent on pure chance, whereas gambling depends on totally random outcomes or chance.” Read more:

Stocks: A certificate issued by a corporation that represents partial ownership of the corporation (equity). Different kinds of stock confer different rights and responsibilities on the stockholder, including the right to receive dividends and the ability to participate in corporate decision-making. An investor (person/company/government/etc.) buys stock shares. The investor buys the stock for a certain quoted price and hopes that the company improves and the stock price becomes higher.  Investors like to buy low and sell high, so buy when the company is not doing that great, but sell when it is doing really great and make a profit. 

1  “Financial Products” (n.d.). Retrieved from:
2  Ibd.