Interest Payable
The City people are a cautious lot; they like the reassurance of knowing that, if interest rates were to rise suddenly, a business can still comfortably pay its interest bill to whomever it owes money. The higher this number, the more analysts and future potential lenders will rest easy and relax (see Asset Cover, Dividend Cover).
Interest Rate
Governments or central banks set a country’s national interest rate. The level they fix it at affects how much the banks and building societies charge for borrowing money and conversely, what they will pay for cash deposited with them. In the United Kingdom, the government has handed the responsibility of interest rate setting to the Bank of England.
Interest rates are used to try to control the economy’s growth. If it looks as though growth is steaming ahead too fast, the government or central bank will raise rates to dampen down the economy and prevent it overheating. If the government has gone too far, ie, raised rates too high, it stalls the economy too much and things grind to a halt rather suddenly: this is recession. So then the government panics and brings interest rates down again. It’s rather clumsy, but probably one of the more effective methods of trying to control the vagaries of a free market economy (see Bank of England, Base Rate, Boom/Bust, Central Bank).
International Monetary Fund
Along with the World Bank, this is also a super-large monetary fund that acts as a buffer to prevent countries that look in danger of going belly up from doing so. How does it do this? By lending them money, usually with strict performance and reform criteria, while they pull themselves up out of their short-term difficulties.
In the Money
‘We’re in the money!’ is not an altogether inaccurate description of this one. Back to the world of options, where the thrill of making money is somewhat akin to a day at Newmarket racecourse. When you buy a call or put option (see Derivatives – Options), you pay a small sum of money to secure the right to buy or sell shares at a fixed price at some point in the future. If, in the meantime, the shares in which you own the option are trading at a higher price than the price you originally fixed it at, then the option is ‘in the money’. It means that if, for instance, you were to exercise your right to buy those shares at this predetermined option price, you would instantly make a profit if you chose to sell them in the market immediately afterwards. The exact converse is true when your options are ‘out of the money’ (see At the Money, Out of the Money).
Investment
The general, loose term we use to describe the action of putting, ie, investing, our hard-earned cash into things that we have carefully researched and hope will grow in value over a period of time. It is not punting on the options market, or buying shares, bonds or whatever today, with a view to making a quick killing tomorrow. That’s trading territory and falls under the high-risk tag of speculation, not investment (see Long-Term Investment, Short-Term Investment, Trader).
Investment Bank
Also called merchant banks or, less commonly, issuing houses, these banks are not run-of-the-mill retail banks that cater to the likes of you and me. They offer a range of specialist services to companies or institutional investors. The corporate broking department offers companies advice and help on how to raise money via the Stock Exchange. Advice is given on many levels, including whether it is reckoned appropriate for companies to gain a Stock Exchange quotation at their particular stage in development. If a company does elect to issue its shares through a particular investment bank, it (the bank) will offer those shares to its institutional clients. Small investors like you and I rarely get the benefit of a ‘hot’ juicy new issue (see New Issue). However, we benefit indirectly, because those hot issues end up in our pension funds, life assurance funds, etc.
The M&A department (short for Mergers & Acquisitions) within an investment bank is usually the most lucrative part of its business. The guys who populate this world are corporate financiers. They spend their time advising companies what bits of their businesses they should be getting rid of, as well as types of business to be on the lookout for when they are expanding. When a bid or acquisition is successful, the fees can be stratospheric. Of course, you have to remember that for every successful deal, there are many that fail (see Corporate Finance, Due Diligence, Mergers & Acquisitions).
Investment Management Association – IMA
This is a trade body that represents all the professional fund management groups, which in turn are its members. If you’re considering buying unit trusts with your money (see Unit Trust), there are an awful lot of them to choose from. With over 1,500 on offer, it would be astonishing if you weren’t confused. The IMA has some useful fact sheets and guides that will give you a clearer idea of what’s what. The next thing you’ll want to know is how these unit trusts stack up against each other. There are two sources you can consult if you’ve decided to put your money into pooled investments like this: monthly magazine, Money Management, which lists the unit trust pop charts, ie, the best and worst, and Micropal, which provides detailed fund performance statistics.
Investment Trust
The name is a bit confusing, because this is not a trust. An investment trust (IT) is actually a company whose shares are freely traded on the stock market in the same way as BP, Sainsbury’s or Vodafone shares. An IT does pretty much everything a company can, such as borrow money to buy assets, and issue long-term bonds and debentures. It only has a fixed amount of shares in issue, which makes it a closed-end fund (see Closed-End Funds, Open-End Funds).
A unit trust, by contrast, has constant cash inflows and outflows as investors pour money into it or make redemptions, ie, withdraw their money out of it. You just put your money into a unit trust and you become the proud owner of units in it. Investing in an IT means you are buying shares in a company that owns shares in other companies. A key factor that makes an IT attractive or unattractive is the value of its assets, or net asset value per share in City-speak (see Net Asset Value per Share). Many ITs trade at discounts to their net asset values, so they can be interesting investments. However, just because an IT is looking ‘cheap’ doesn’t automatically mean that it is sexy and must be bought at once. As ITs can sometimes borrow very heavily, this type of investment is potentially much higher risk than a unit trust, which is not allowed to do so (see Association of Investment Trust Companies).
Invisibles
This means things people pay for that you cannot see. Examples are services such as banking, shipping and tourism, which provide a country with revenue. As these are intangible services, ie, you cannot touch or feel them, they’ve been given the inspired title of invisibles! Other invisibles are intellectual property; examples are royalties from television rights or movies. The more invisibles a country exports, the more money (revenue) it gets paid into its current account.
Issue
Not a nasty reaction to the excessive pollen and pollution in the air. It is the general word that means the sale of shares or bonds to the investment community, which includes fund management groups, pension funds and life assurance companies, as well as private individuals like you and me (see Investment Bank, New Issue).
