A financial climate glossary

'Credit crunch' seems the most popular name for the current global market crisis, which has released a massive and potentially confusing tide of financial 'jargon' into our newspapers and onto our TV and computer screens. Here, courtesy of the BBC, we've put together a quick reference guide to help you understand some of the more common terms you're likely to hear.

Assets

Things that have earning power or some other value to their owner

Fixed assets

(also known as long-term assets) are things that have a useful life of more than one year, for example buildings and machinery; there are also intangible fixed assets, like the good reputation of a company or brand.

Current assets

The things that can easily be turned into cash and are expected to be sold or used up in the near future.

Bear market

In a bear market, prices are falling and investors, anticipating losses, tend to sell. This can create a self-sustaining downward spiral.

Bull market

A bull market is one in which prices are generally rising and investor confidence is high.

Correction

A short-term drop in stock market prices. The term comes from the notion that, when this happens, overpriced stocks are returning back to their "correct" values.

Credit crunch

The situation created when banks hugely reduced their lending to each other because they were uncertain about how much money they had. This in turn resulted in more expensive loans and mortgages for ordinary people.

Deflation

The downward price movement of goods and services.

Equity

In a business, equity is how much all of the shares put together are worth. In a house, your equity is the amount your house is worth minus the amount of mortgage debt that is outstanding on it.

Inflation

The upward price movement of goods and services.

Investment bank

Investment banks provide financial services for governments, companies or extremely rich individuals. They differ from commercial banks where you have your savings or your mortgage.

Leveraging

Leveraging, or gearing, means using debt to supplement investment. The more you borrow on top of the funds (or equity) you already have, the more highly leveraged you are. Leveraging can maximise both gains and losses.

Deleveraging

Means reducing the amount you are borrowing.

LIBOR

This stands for London Inter Bank Offered Rate. The rate at which banks lend money to each other. One reason why banks don't always react immediately to changes in the Bank of England rate at the moment, is that the real cost of any money they borrow is determined by the Libor rate.

Liquidity

The liquidity of something is how easy it is to convert it into cash. Your current account, for example, is more liquid than your house. If you needed to sell your house quickly to pay bills you would have drop the price substantially to get a sale.

Loans to deposit ratio

For financial institutions, the sum of their loans divided by the sum of their deposits. Currently important because using other sources to fund lending is getting more expensive.

Negative equity

Refers to a situation in which the value of your house is below the amount of the mortgage that still has to be paid off.

Recession

A period of negative economic growth. In most parts of the world a recession is technically defined as two consecutive quarters of negative economic growth - when real output falls. In the United States, a larger number of factors are taken into account, like job creation and manufacturing activity. However, this means that a US recession can usually only be defined when it is already over.

Stagflation

The dreaded combination of inflation and stagnation - an economy that is not growing while prices continue to rise.

Sub-prime mortgages

These carry a higher risk to the lender (and therefore tend to be at higher interest rates) because they are offered to people who have had financial problems or who have low or unpredictable incomes.

Tier 1 capital

A calculation of the strength of a bank in terms of its capital, defined by the Basel Accords, typically comprising ordinary shares, disclosed reserves, retained earnings and some preference shares.

Toxic debts

Debts that are very unlikely to be recovered from borrowers. Most lenders expect that some customers cannot repay; toxic debt describes a whole package of loans where it is now unlikely that it will be repaid.