Capital Gains Tax (CGT) Capital Gains Tax (CGT) is a tax levied on the profit made from selling assets like stocks, property, or valuable items. In the UK, individuals have an annual CGT allowance, and gains above this threshold are taxed at rates that depend on the type of asset and the taxpayer’s income level. CGT is a major consideration for investors, as effective tax planning can reduce CGT liability.
Call Option A call option is a financial contract that gives the holder the right, but not the obligation, to buy a stock or other asset at a specified price within a set period. In the UK, call options are popular among traders looking to capitalise on potential price increases, as they provide exposure to price gains with limited downside risk.
Collective Investment Scheme (CIS) A Collective Investment Scheme (CIS) is a pooled investment vehicle, like a unit trust or OEIC, where multiple investors contribute funds that are managed collectively. In the UK, CISs are regulated by the FCA and offer diversified exposure to various asset classes, making them popular among retail investors seeking professional management and risk spreading.
Convertible Bond A convertible bond is a bond that can be converted into a specified number of shares of the issuing company. In the UK, convertible bonds offer investors a fixed income through interest payments while allowing them to benefit from any future increase in the company’s stock price, making them attractive for both income and growth.
Custodian A custodian is a financial institution that holds and safeguards securities and assets on behalf of investors. In the UK, custodians are often banks or specialised firms, responsible for ensuring that clients’ assets are securely stored and accurately recorded. Custodians provide an essential service for investment funds and pension schemes, ensuring regulatory compliance and protecting assets from fraud.
Corporate Bond A corporate bond is a debt security issued by a company to raise capital. UK investors buy corporate bonds for steady income, as they typically pay higher interest rates than government bonds (gilts) due to increased risk. Corporate bonds can be issued by blue-chip companies with high credit ratings or by high-yield issuers, often referred to as junk bonds.
Covenant A covenant is a clause in a loan or bond agreement that specifies certain actions the issuer must or must not take. In the UK, covenants are common in corporate bonds, protecting bondholders by setting limits on debt levels, dividend payments, or asset sales. Breaching a covenant can trigger penalties or lead to the early repayment of the bond.
Coupon Rate The coupon rate is the annual interest rate paid by a bond’s issuer to its holders, expressed as a percentage of the bond’s face value. UK investors consider the coupon rate when evaluating bonds, as higher coupon rates provide greater income, though they can also mean higher risk. Government gilts typically have lower coupon rates than corporate bonds due to lower risk.
Capital Allowance Capital allowance is a form of tax relief for UK businesses on certain capital expenditures, such as equipment, machinery, and vehicles. These allowances reduce the taxable profits of businesses, making them important for tax planning. Investors consider capital allowances in sectors with high capital expenditure, such as manufacturing, as they can significantly impact a company’s net income.
Cumulative Preference Shares Cumulative preference shares are a type of preferred stock where unpaid dividends accumulate and must be paid before any dividends are distributed to common shareholders. In the UK, these shares appeal to income-focused investors, as they provide greater security for dividend payments, ensuring that shareholders eventually receive all owed dividends.
Credit Default Swap (CDS) A Credit Default Swap (CDS) is a financial derivative that provides protection against the default of a bond or loan. In the UK, CDS contracts allow investors to hedge credit risk by paying a premium to transfer the risk of default to another party. CDSs are widely used by institutional investors to manage exposure to high-risk corporate or government debt.
Closed-End Fund A closed-end fund is an investment fund with a fixed number of shares that are traded on an exchange. In the UK, closed-end funds, known as investment trusts, are popular for their ability to leverage, invest in illiquid assets, and trade at premiums or discounts to NAV. Closed-end funds can offer stable dividends and portfolio diversity but can be more volatile than open-ended funds.
Cyclical Stock A cyclical stock is one that tends to perform well during economic upswings and poorly during downturns. In the UK, cyclical stocks are common in sectors like retail, automotive, and construction, where demand fluctuates with the economy. Investors buy cyclical stocks to capitalise on economic growth, but these stocks can be risky in recessions.
Cost of Capital Cost of capital is the rate of return a company must earn on its investments to satisfy its investors and creditors. In the UK, companies with lower costs of capital are considered more financially efficient, as they can finance growth projects at a lower expense. Investors use the cost of capital to assess whether a company can generate returns above its financing costs.
Commodity Futures Commodity futures are contracts to buy or sell a commodity at a predetermined price at a future date. In the UK, commodity futures are used for both hedging and speculation, especially in agricultural products, metals, and energy. Investors can gain exposure to price movements in commodities without physically owning them, making futures an appealing alternative to direct investment.
Capital Structure Capital structure refers to the mix of a company’s debt and equity used to finance its operations and growth. UK investors examine a company’s capital structure to understand its risk and potential for growth, with higher debt ratios indicating leverage, which can amplify both gains and losses. Balancing debt and equity is key for financial health and investor confidence.
Cash Flow Statement A cash flow statement is a financial document that shows the inflows and outflows of cash within a company over a specific period. In the UK, investors rely on cash flow statements to assess a company’s liquidity and ability to generate cash to cover expenses, pay dividends, and fund growth. Positive cash flow is generally a sign of strong financial health.
Capital Expenditure (CapEx) Capital Expenditure (CapEx) refers to funds used by a company to acquire or upgrade physical assets, such as property, plants, or equipment. In the UK, CapEx is essential for companies in capital-intensive industries like energy or telecommunications. Investors view CapEx as an indicator of future growth potential, as it often reflects a company’s commitment to expansion or modernisation.
Collateralised Loan Obligation (CLO) A Collateralised Loan Obligation (CLO) is a security backed by a pool of loans, typically high-yield corporate loans. In the UK, CLOs are used by investors seeking higher yields, though they carry increased credit risk. CLOs diversify exposure across multiple borrowers, making them attractive to investors looking for income with diversification benefits.
Compound Interest Compound interest is interest calculated on the initial principal as well as on accumulated interest from previous periods. In the UK, compound interest is a powerful concept for long-term investors, as it allows their investments to grow exponentially over time. Compounding is widely used in savings accounts, investments, and pensions to maximise returns.
Contrarian Investing Contrarian investing is a strategy where investors go against prevailing market trends, buying when others are selling and vice versa. In the UK, contrarians seek undervalued stocks that may be temporarily out of favour, betting on a turnaround. This approach requires patience and confidence, as it often involves investing in sectors or companies facing short-term challenges.
Cross-Listing Cross-listing is the listing of a company’s shares on multiple stock exchanges. Some UK companies are cross-listed on exchanges like the New York Stock Exchange (NYSE), allowing them to access a larger investor base. Cross-listing can increase liquidity and global exposure but may involve higher regulatory compliance costs.
Current Ratio The current ratio measures a company’s ability to pay its short-term liabilities with its short-term assets. In the UK, the current ratio is widely used by investors to gauge a company’s liquidity. A higher ratio suggests strong short-term financial health, while a lower ratio may indicate potential cash flow issues.
Corporate Governance Corporate governance refers to the set of rules, practices, and processes by which a company is directed and controlled. In the UK, good corporate governance is essential for ensuring accountability, transparency, and fairness in corporate conduct. Investors value companies with strong governance, as it often correlates with better management and lower risk of malpractice.
CAGR (Compound Annual Growth Rate) Compound Annual Growth Rate (CAGR) is the annual growth rate of an investment over a specific period, taking compounding into account. In the UK, CAGR is a standard metric for evaluating long-term investment performance, as it provides a smoothed annual growth rate that accounts for fluctuations, making it ideal for comparing investments of different durations.
Credit Spread Credit spread is the difference in yield between two bonds of similar maturity but different credit quality, usually between a corporate bond and a government bond (like a gilt) in the UK. The credit spread reflects the additional risk taken by investing in corporate debt rather than government debt, with wider spreads indicating greater perceived risk.
Capital Account The capital account is a part of a country’s balance of payments, recording all transactions related to foreign investment and ownership of assets. In the UK, the capital account tracks inflows and outflows associated with acquisitions, investments, and loans, influencing the value of the British pound and investor sentiment regarding the UK economy.
Currency Peg A currency peg is when a country’s currency is fixed to another major currency, such as the British pound pegged to the US dollar. While the UK does not have a pegged currency, UK investors watch pegs in other countries as they can affect international trade dynamics and exchange rates, impacting UK businesses with foreign exposure.
Cyclical Unemployment Cyclical unemployment refers to job losses caused by economic downturns or recessions. In the UK, cyclical unemployment rises during economic slowdowns, particularly affecting industries sensitive to consumer demand, such as retail and manufacturing. Investors monitor cyclical unemployment as it can impact consumer spending and overall economic health.
Commercial Paper Commercial paper is a short-term, unsecured debt instrument issued by corporations to meet immediate financing needs. In the UK, commercial paper is commonly used by large companies as a low-cost alternative to bank loans, offering short-term liquidity. Investors buy commercial paper for its relatively low risk and predictable returns.
Chancellor of the Exchequer The Chancellor of the Exchequer is the UK government official responsible for economic and financial matters, including fiscal policy and public spending. The Chancellor’s policies have a significant impact on taxation, public investment, and overall economic performance, making their announcements closely watched by investors and the financial markets.
Current Yield Current yield is the annual income from an investment, such as interest or dividends, divided by the current price of the investment. In the UK, bond investors use current yield to assess the attractiveness of a bond relative to its market price, helping them determine income generation potential without considering price appreciation or depreciation.
Circuit Breaker A circuit breaker is a temporary halt in trading on an exchange, activated when prices fall or rise too quickly. In the UK, circuit breakers are used to prevent extreme volatility and provide time for investors to make informed decisions. These mechanisms are particularly useful during market crashes, where they help to restore order by pausing trading.
Collateral Collateral is an asset pledged by a borrower to secure a loan, reducing risk for the lender. In the UK, mortgages and secured loans often require collateral, such as property or shares. If the borrower defaults, the lender can claim the collateral to recoup losses, making it a key aspect of secured lending.
Capital Intensive A capital-intensive business requires significant investment in physical assets like machinery, equipment, and facilities to operate. In the UK, capital-intensive industries, such as energy and manufacturing, face high initial costs, impacting cash flow and profitability. Investors often evaluate capital intensity to understand a company’s long-term growth and reinvestment requirements.
Crowdfunding Crowdfunding is a method of raising capital by pooling small investments from a large number of people, often via online platforms. In the UK, crowdfunding is popular for startups, creative projects, and small businesses looking to raise funds without traditional bank loans. Investors in crowdfunding projects may receive equity, rewards, or interest payments.
Clearing House A clearing house is a financial institution that acts as an intermediary in financial transactions, ensuring the trade’s settlement between buyer and seller. In the UK, clearing houses such as LCH Ltd provide stability and reduce counterparty risk by guaranteeing the trade, crucial for derivatives and large transactions in the London Stock Exchange.
Cash Equivalents Cash equivalents are short-term, highly liquid investments that can be quickly converted to cash with minimal risk of value loss. In the UK, common cash equivalents include Treasury bills and money market funds. Investors keep cash equivalents in their portfolios as a safety net, providing liquidity during market volatility or economic uncertainty.
Corporate Action A corporate action is an event initiated by a company that impacts its shareholders, such as dividends, mergers, and stock splits. In the UK, corporate actions are important for investors, as they can affect the value of shares, trigger tax implications, and change shareholder rights. Investors track these events closely to manage their holdings effectively.
Capital Market The capital market is a financial market where buyers and sellers trade securities, including stocks and bonds, to raise long-term capital. In the UK, the London Stock Exchange serves as a primary capital market, facilitating the flow of capital between investors and corporations. Capital markets are essential for economic growth and investment opportunities.
Capital Gains Capital gains are the profits realised when an asset is sold for more than its purchase price. In the UK, capital gains are subject to Capital Gains Tax (CGT) when they exceed an annual tax-free allowance. Investors manage capital gains through strategic selling and tax planning to minimise their CGT liability.
Credit Rating A credit rating is an evaluation of a company’s or government’s ability to repay debt. In the UK, credit ratings assigned by agencies like Moody’s and Fitch are crucial for investors, as they reflect the financial stability of borrowers and affect the cost of borrowing. High ratings indicate lower risk, while lower ratings suggest higher risk and borrowing costs.
Convertible Preference Shares Convertible preference shares are preferred shares that can be converted into common shares at a predetermined rate. In the UK, these shares offer investors a fixed dividend with the option to convert if the company’s stock performs well, combining income and growth potential. They are popular in companies with fluctuating earnings.
Current Account Deficit A current account deficit occurs when a country imports more goods and services than it exports. In the UK, a current account deficit is common and can impact the British pound’s value. Investors monitor the deficit as a high imbalance can indicate economic issues, potentially leading to currency devaluation and affecting international investments.
Cash ISA A Cash ISA (Individual Savings Account) is a tax-free savings account available to UK residents. Interest earned in a Cash ISA is free from income tax, making it a popular choice for conservative investors seeking tax efficiency. Cash ISAs offer safe, low-yield returns and are protected by the Financial Services Compensation Scheme (FSCS) up to certain limits.
Common Equity Tier 1 (CET1) Ratio Common Equity Tier 1 (CET1) ratio is a measure of a bank’s core equity capital compared with its total risk-weighted assets. In the UK, CET1 ratios are used to assess banks’ financial stability, as a higher CET1 ratio indicates stronger capital reserves, reducing the risk of insolvency during economic downturns.
Commercial Property Commercial property refers to real estate used for business purposes, such as offices, retail, and industrial buildings. In the UK, commercial property investment provides rental income and potential capital appreciation. This asset class is popular with investors seeking diversification and protection against inflation but may involve significant capital and long holding periods.
CPI (Consumer Price Index) The Consumer Price Index (CPI) measures changes in the price of a basket of goods and services, representing inflation. In the UK, CPI is a key economic indicator affecting monetary policy, wages, and pensions. Investors monitor CPI to assess inflation risks, which can erode purchasing power and affect the real returns on investments.
Corporate Tax Corporate tax is a tax imposed on a company’s profits. In the UK, corporate tax rates are periodically reviewed by the government and impact net profits and dividends available to shareholders. Investors factor in corporate tax rates when evaluating investment returns, as higher taxes can reduce after-tax earnings and dividend yields.
Capital Market Line (CML) The Capital Market Line (CML) is a graphical representation of the risk-return trade-off for efficient portfolios, starting from the risk-free rate to the market portfolio. In the UK, the CML is used by investors to visualise optimal portfolios that combine low-risk assets with higher-risk assets to achieve desired returns without unnecessary risk.
Callable Bond A callable bond is a bond that the issuer can redeem before its maturity date at a specified call price. In the UK, callable bonds are used by corporations and governments to allow flexibility in managing debt. They provide higher yields to compensate investors for the risk of early redemption, which can result in reinvestment at lower rates if the bond is called.
Capital Markets Union (CMU) The Capital Markets Union (CMU) is a European Union initiative to harmonise capital markets across member states. Although the UK is no longer an EU member, the CMU affects UK investors with exposure to EU markets. It aims to improve access to finance for businesses and reduce barriers in cross-border investments, potentially benefiting UK-based firms operating in Europe.
Convertible Debenture A convertible debenture is a type of long-term debt that can be converted into shares of the issuing company. In the UK, convertible debentures provide fixed interest payments with the option to convert to equity, appealing to investors seeking income with the potential for capital appreciation if the stock price rises.
Credit Default Risk Credit default risk is the possibility that a borrower will fail to meet its debt obligations. In the UK, credit default risk is particularly important for corporate bond investors, as it affects the likelihood of receiving timely interest and principal payments. Investors often monitor credit ratings to assess and manage default risk.
Cumulative Voting Cumulative voting is a voting system used in corporate governance where shareholders can allocate their votes across multiple board candidates. In the UK, cumulative voting is uncommon but allows minority shareholders greater influence, as they can concentrate votes on a particular candidate to improve their chances of election.
Cash Reserve Ratio (CRR) The Cash Reserve Ratio (CRR) is the minimum cash reserve banks are required to hold, as a percentage of customer deposits. In the UK, CRR policies set by the Bank of England ensure liquidity in the banking system, reducing the risk of bank insolvency during financial crises, thereby protecting depositors and maintaining market confidence.
Custodian Bank A custodian bank is a financial institution that safeguards and manages assets for individuals, funds, and corporations. In the UK, custodian banks play a key role in the financial system, handling trade settlements, safekeeping securities, and ensuring regulatory compliance for funds and institutional investors.
Concentration Risk Concentration risk occurs when a portfolio has significant exposure to a single asset, sector, or geographic region, increasing vulnerability to adverse events. UK investors manage concentration risk by diversifying across various assets and sectors, reducing the impact of potential losses from one concentrated investment.
Consolidated Financial Statements Consolidated financial statements combine the financial data of a parent company and its subsidiaries into a single report. In the UK, companies with multiple subsidiaries produce consolidated statements, giving investors a complete view of financial performance across the entire corporate group, rather than individual subsidiaries.
Cost-Benefit Analysis (CBA) Cost-Benefit Analysis (CBA) is a financial evaluation tool that compares the costs and benefits of a project or investment. In the UK, CBA is widely used for investment decisions and public policy, helping investors and government officials to determine if the benefits of an initiative justify the costs.
Capital Controls Capital controls are measures taken by governments to regulate the flow of foreign capital in and out of a country. While the UK generally promotes free capital movement, other countries’ capital controls affect UK investors with international holdings, influencing foreign exchange rates and limiting certain investments.
Certificate of Deposit (CD) A Certificate of Deposit (CD) is a short-term deposit instrument issued by banks that pays a fixed interest rate. In the UK, CDs are popular with conservative investors seeking stable returns over a set period. CDs are FDIC-insured and provide predictable income but usually offer lower returns than stocks or corporate bonds.
Covered Call A covered call is an options strategy where an investor holds a stock and sells a call option on the same stock. In the UK, covered calls are used to generate additional income from a stockholding by collecting the option premium. This strategy is commonly used in relatively stable or moderately bullish markets.
Cash Ratio The cash ratio is a measure of a company’s liquidity, calculated by dividing cash and cash equivalents by current liabilities. In the UK, investors use the cash ratio to assess a company’s ability to meet short-term obligations. A high cash ratio indicates strong liquidity, though it may also suggest that a company isn’t reinvesting capital effectively.
Closed-Ended Investment Company (CEIC) A Closed-Ended Investment Company (CEIC) is a type of investment trust with a fixed number of shares that are traded on an exchange. In the UK, CEICs are popular for investing in illiquid assets or niche markets, as they do not have to accommodate daily inflows and outflows of capital, which can improve long-term stability.
Carried Interest Carried interest is the share of profits earned by private equity or hedge fund managers as part of their compensation. In the UK, carried interest is treated as capital gains, rather than income, providing tax advantages for fund managers. It incentivises performance, as managers only earn carried interest if the fund performs well.
Cumulative Return Cumulative return measures the total change in value of an investment over a set period, expressed as a percentage. UK investors use cumulative return to assess overall performance, particularly for long-term holdings, as it shows the compounded effect of capital gains, dividends, and interest over time.
Commodity ETF (Exchange-Traded Fund) A commodity ETF is a fund that invests in physical commodities, futures, or commodity-related stocks. In the UK, commodity ETFs provide investors with exposure to raw materials like gold, oil, or agricultural products without needing to own the physical asset, allowing for diversification and hedging against inflation.
Contango Contango is a market condition where the futures price of a commodity is higher than the spot price. In the UK, contango often occurs in commodities markets when there is a cost to carry, such as storage or insurance, associated with holding the commodity. Investors trading commodity futures monitor contango as it can affect the profitability of their positions.
Common Stock Equivalent (CSE) Common Stock Equivalent (CSE) refers to securities, such as options or convertible bonds, that can be converted into common stock. In the UK, companies often issue CSEs to attract investors by offering potential for conversion to equity, allowing investors to benefit from price appreciation of the underlying stock.
Cash Flow Yield Cash flow yield is the cash flow generated by an investment, expressed as a percentage of its price. UK investors use cash flow yield to assess an asset’s ability to generate cash, particularly in real estate and private equity investments. A high cash flow yield is attractive as it indicates strong income potential relative to the investment’s cost.
Circuit Breaker Halt A circuit breaker halt is a temporary suspension of trading, activated when a stock or market index experiences a rapid price drop. In the UK, circuit breakers are used on exchanges like the London Stock Exchange to prevent panic selling, allowing investors to reassess market conditions before trading resumes.
Covenant Lite Loan A covenant lite loan is a type of loan with fewer restrictions or covenants, providing more flexibility to the borrower. In the UK, covenant lite loans are more common in leveraged finance, where borrowers with strong credit profiles negotiate fewer restrictions. While attractive for companies, these loans can present higher risks for lenders.
Consolidated Omnibus Budget Reconciliation Act (COBRA) Although COBRA is a US law, it is relevant for UK investors with interests in the American market. COBRA requires employers to provide continued health insurance to employees after termination, impacting employee benefits expenses in US-based UK companies. Investors monitor such costs as they can affect profitability and share price.
Callable Preferred Stock Callable preferred stock is a type of preferred share that the issuing company can redeem after a certain date. In the UK, callable preferred shares provide companies with the flexibility to buy back shares if interest rates drop, reducing dividend expenses. For investors, callable preferred stock offers steady dividends but carries the risk of early redemption.
Credit Rating Agency A credit rating agency evaluates the creditworthiness of borrowers, such as corporations or governments. In the UK, agencies like Moody’s, S&P, and Fitch issue ratings that impact borrowing costs and investor confidence. Higher ratings indicate lower risk, while lower ratings signal higher default risk, influencing bond prices and yields.
Cash Surrender Value Cash surrender value is the amount an insurance policyholder receives if they cancel their policy before maturity. In the UK, cash surrender values are relevant in life insurance policies, as they provide a cash option if the policyholder no longer wishes to continue the policy. This amount reflects the policy’s accumulated cash value minus any surrender charges.
Cumulative Dividend A cumulative dividend is a feature of preferred shares where unpaid dividends accumulate and must be paid before any dividends are given to common shareholders. In the UK, cumulative dividends provide more security for income-focused investors, ensuring they receive all owed dividends even if the company skips payments in certain years.
Collateralised Debt Obligation (CDO) A Collateralised Debt Obligation (CDO) is a complex financial product backed by a pool of loans or debt instruments. In the UK, CDOs are used by institutional investors seeking higher yields, though they carry considerable risk. CDOs became infamous during the 2008 financial crisis, as their complexity often masked the underlying credit risk.
Cross Currency Swap A cross currency swap is a derivative contract where two parties exchange principal and interest payments in different currencies. In the UK, cross currency swaps are used by multinational corporations to manage foreign exchange risk. They allow companies to secure financing in one currency while managing exposure to fluctuations in another.
Capital Employed Capital employed refers to the total capital used for a company’s operations, including equity and debt. In the UK, investors use this metric to assess a company’s profitability by measuring returns relative to capital employed. A high return on capital employed (ROCE) indicates efficient use of resources and strong operational performance.
Churn Rate Churn rate is the percentage of customers who stop using a company’s product or service within a given period. In the UK, churn rate is important for subscription-based businesses, as it reflects customer retention and service quality. High churn rates can signal customer dissatisfaction, while low churn rates indicate loyalty and stable revenue.
Currency Forward A currency forward is a contract to exchange one currency for another at a predetermined rate on a future date. In the UK, currency forwards are used to hedge against exchange rate fluctuations, particularly by exporters and importers. These contracts allow businesses to lock in exchange rates, providing certainty for future cash flows.
Capital Appreciation Capital appreciation is the increase in the value of an asset over time, driven by factors such as market demand, economic growth, and company performance. In the UK, capital appreciation is a key goal for growth investors, as it contributes to total returns when assets are sold at a profit. Stocks and real estate are popular assets for capital appreciation.
Cost of Goods Sold (COGS) Cost of Goods Sold (COGS) is the direct cost of producing goods sold by a company, including materials and labour. In the UK, COGS is deducted from revenue to calculate gross profit, making it a critical metric for evaluating profitability. Investors monitor COGS to understand production efficiency and cost management within a business.
Central Securities Depository (CSD) A Central Securities Depository (CSD) is an organisation that holds securities and facilitates the clearing and settlement of trades. In the UK, CSDs, like Euroclear UK & Ireland, streamline the trading process, reduce counterparty risk, and enable efficient securities transactions, supporting liquidity and stability in financial markets.
Capital Markets Authority (CMA) The Capital Markets Authority (CMA) is a regulatory agency that oversees capital markets, though the term often refers to authorities outside the UK. However, the UK’s equivalent role is carried out by the Financial Conduct Authority (FCA), which regulates financial markets and protects investors by enforcing rules and ensuring transparency.
Cash Conversion Cycle (CCC) The cash conversion cycle (CCC) is a metric that measures the time taken for a company to convert its investments in inventory into cash. In the UK, a shorter CCC indicates efficient management of working capital, which is crucial for liquidity. Investors use CCC to assess operational efficiency, especially in manufacturing and retail sectors.
Callable Security A callable security is an investment that the issuer can redeem before maturity. In the UK, callable bonds and preferred shares offer issuers the flexibility to reduce interest costs if rates fall, but this feature exposes investors to reinvestment risk. Callable securities typically offer higher yields to compensate for this risk.
Certificate of Incorporation A certificate of incorporation is an official document that certifies the formation of a company. In the UK, companies must be registered with Companies House to obtain a certificate of incorporation, which grants them legal recognition and allows them to engage in business activities. This certificate is essential for establishing a company’s legal identity.
Conduit Issuer A conduit issuer is an entity created to issue securities on behalf of another company or organisation, often for tax or regulatory reasons. In the UK, conduit issuers are used in structured finance to raise capital while separating liabilities. This structure can enhance flexibility for the parent company, but investors should consider any risks associated with the conduit.
Capped Index A capped index limits the weight of any single stock to prevent concentration risk. In the UK, capped indices, such as the FTSE 100 Capped Index, are used by index funds and ETFs to maintain diversified exposure without over-reliance on a few large companies. This approach helps manage risk and reduce the impact of individual stock volatility.
Cost-Push Inflation Cost-push inflation occurs when rising production costs lead to increased prices for goods and services. In the UK, cost-push inflation is often caused by factors like wage hikes or higher raw material prices. Investors monitor inflation trends, as high inflation can reduce purchasing power and impact investment returns, especially in bonds and fixed-income securities.
Contract for Difference (CFD) A Contract for Difference (CFD) is a derivative that allows investors to speculate on price movements without owning the underlying asset. In the UK, CFDs are popular for short-term trading in stocks, commodities, and forex. CFDs provide leverage, enabling magnified gains, but also come with significant risk of amplified losses.
Compounding Compounding is the process where investment returns are reinvested, generating additional earnings over time. In the UK, compounding is central to long-term investment strategies, particularly in pensions and savings accounts, as it accelerates growth by reinvesting dividends, interest, and capital gains, maximising total returns.
Coupon Bond A coupon bond is a bond that pays regular interest, known as coupons, until maturity, at which point the face value is repaid. In the UK, coupon bonds are a common fixed-income investment, providing predictable income streams. Government gilts and corporate bonds are examples of coupon bonds, appealing to income-focused investors.
Convertible Security A convertible security is a financial instrument, such as a bond or preferred share, that can be converted into a predetermined number of common shares. In the UK, convertible securities offer investors the security of fixed income with the potential for capital appreciation if the company’s stock price rises, appealing to both income and growth investors.
Currency Risk Currency risk, also known as exchange rate risk, is the risk of loss due to fluctuations in currency exchange rates. In the UK, investors with international assets are exposed to currency risk, as changes in the value of the British pound affect the returns on foreign investments. Currency hedging is often used to mitigate this risk.
Credit Rating Migration Credit rating migration refers to changes in the credit rating of a bond or issuer over time. In the UK, investors monitor rating migrations to assess credit risk, as upgrades signal reduced risk, while downgrades indicate increased risk. Rating migrations can impact bond yields, prices, and overall portfolio risk management.
Crown Jewel Defence The crown jewel defence is a strategy used by companies to avoid hostile takeovers by selling off key assets, making the company less attractive to the acquirer. In the UK, this tactic is employed by targeted firms to protect themselves from unwanted acquisitions, though it can also reduce shareholder value if the assets sold are crucial to the business’s long-term growth.
