Financial Economics Vocabulary

profiting from price differences in different markets

“Arbitrage opportunities disappear quickly in efficient markets.”

Origin: French arbitrage `arbitration`, from arbitrer `to judge`

the ease of converting an asset to cash without loss

“Real estate has lower liquidity than stocks.”

Origin: Latin liquidus `fluid`, from liquere `to be fluid`

using borrowed money to amplify potential returns

“High leverage increases both risk and potential reward.”

Origin: From lever (Latin levare `to raise`)

an investment to offset potential losses

“Airlines hedge against fuel price increases.”

Origin: Old English hecg `hedge, fence`

a financial instrument whose value derives from an underlying asset

“Options and futures are common derivatives.”

Origin: Latin derivare `to draw off`, from de- + rivus `stream`

the return on an investment, usually expressed as a percentage

“Bond yields rose as prices fell.”

Origin: Old English gieldan `to pay`

the degree of variation in trading prices over time

“Market volatility spiked during the crisis.”

Origin: Latin volatilis `fleeting`, from volare `to fly`

a collection of investments held by an individual or institution

“Diversifying your portfolio reduces risk.”

Origin: Italian portafoglio `case for carrying papers`

wealth used to generate more wealth

“The startup raised capital from venture investors.”

Origin: Latin capitalis `of the head`, from caput `head`

anything of value owned by an individual or entity

“Real estate is a major asset class.”

Origin: Old French asez `enough`, from Latin ad satis `to sufficiency`