Financial glossary
for new-age investors

Discover financial terms and learn new concepts.

Capital Market

When you hear this term you can usually just substitute the word “markets” and you’ll get the same meaning. However, technically it refers to the market for things like stock and bonds – i.e. investment instruments that are used by companies to raise capital.

Central Bank

The central bank in each currency area (e.g. the US, the eurozone) acts essentially as the “bank for the banks” – i.e. JP Morgan will deposit funds with the US Federal Reserve. Essentially, because of this relationship, the central bank can set the basic “target interest rate” (see above). That sets the base interest rate for other interest rates to be based on and when interest rates are low, the banks can then offer loans to people and companies at low interest rates – and that’s one major way a central bank affects the economy.

Collateral

An asset a borrower pledges to a lender when taking out a loan, such that, if the borrower fails to pay back the loan, the lender can sell the asset to recover the money lent out.

Commodity

Raw materials, like iron ore or copper, or a agricultural products, like wheat. Commodities are often bought and sold like financial investments by both investors and actual producers and users of the commodities.

Conglomerate

A company that owns several businesses, usually providing different services. Conglomerates tend to be large, multinational companies with a parent company that owns several subsidiaries. Examples are Proctor and Gamble and Warner Music Group.

Consumer

You! You are a consumer. And so are your friends and family. Consumers are normal people that go out and do things and buy things. “Consumer stocks” are stocks of companies that, predominantly, sell goods to consumers (for example, Proctor & Gamble, Nike or Philipp’s Morris).

Consumer Discretionary

Companies that sell goods and services that people want but don’t have to buy. Examples include restaurants as well as apparel and electronics retailers (like Nike and Apple).

Consumer Price Index

It’s best thought of as, literally, a basket of things that you can buy and services that you can pay to use. The price index assigns a weighting to each item of the basket based on its perceived importance to the typical person (so basic expenses like food and housing are usually weighted quite heavily). The cost of the basket is then tracked over time and the change is used to calculate how much prices are rising in an economy – and that’s one major measure of the economy’s “inflation rate.”

Consumer Staple

Companies that sell goods that people pretty much need. Like Procter & Gamble (which sells diapers and toothpaste) or Campbell Soup.

Covenant

It’s a condition of borrowing money from someone. So, for example, I might borrow $1million from you, but you tell me that I can only borrow a maximum of 10x my underlying profit. So, effectively, if my profit declines below $100,000 and I still have $1 million in debt, then you can take control of the company. Conversely, if my profit goes up to $500,000, then I am able to borrow up to $5 million (from you or someone else).