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.
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