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Glossary - Termes financial

Asymmetric shocks

Transitory imbalance between two regions arising from a sharp change in economic conditions. For example, the collapse of the steel industry resulted in unemployment blackspots in steel-producing regions.

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Balance of payments

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The Bank of International Settlements (BIS)

Established on 17 May 1930, the BIS is the world's oldest international financial organisation. Its head office is in Basel. It fosters international monetary and financial cooperation and serves as a bank for central banks*. Its objectives are promoting monetary and financial stability Hereto, it serves as:

  • a forum to promote discussion and policy analysis among central banks and within the international financial community
  • a centre for economic and monetary research
  • a prime counterparty for central banks in their financial transactions
  • agent or trustee in connection with international financial operations

 

See also : www.bis.org/about/index.htm

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Bretton Woods

At Bretton Woods (New Hampshire) a conference was held in July 1944 laying down the bases of the international monetary system which remained in force until 1971.  The system was based on rates of exchange fixed around the dollar, convertible into gold.  It was monitored by the IFM, and the World Bank had to make payments to poor countries. The conference discarded the proposals of John Maynard Keynes (UK), who suggested the creation of an international currency (Bancor) issued by an international bank.  The Bretton Woods conference achieved most of its aims in the medium term, but the limited nature of the reforms proposed,  making the international monetary system dependent on the balance of payments situation of the United States, could only mean postponing the problem for the longer term.

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Buying rate

Exchange rate at which banks purchase a currency. Central bank purchases to support a currency are also at this rate.

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Central exchange rate (also called "pivotal rate")

Exchange rate normally situated mid-way between the buying and the selling rates.

Central bank


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Clearing

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The community method and the intergovernmental method.







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Continuous Linked Settlements (CLS)

CLS is an organisation set up by the major international banks in order to facilitate money exchanges amongst themselves.  Technically the CLS is a bank rgulated by the American Federal Reserve Board.  The CLS has 56 members and 711 institutions which participate in the system. In 2007 the CLS operated in 15 currencies.

en.wikipedia.org/wiki/Continuous_linked_settlement

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Convertibility

The capability of a currency to exchanged against gold or another currency. In 1971, the abandonment of dollar convertibility against gold marked the start of a period of monetary instability which led Europeans to create their own monetary system.

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Credit system

Credit is the exchange of a good (money, for instance) made currently available against the promise of settlement later.  So there is credit every time the things supplied by two parties are disassociated in time.  The time factor is crucial because of the risks that it implies and the possible loss of the intrinsic value of the good exchanged.  The mutual credit system is a collection of banks or financial institutions which provide credit to each other on a mutual basis.

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Currency

Any means of foreign payment; most often, synonymous with foreign money.

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Euro- and euro

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European Payment Council (EPC)

The EPC was created in 2002.  This inter-bank body brings together some fifty banks of the European Union, in addition to three professional banking organizations (the European cooperative banks group, the European banking federation, and the European group of savings institutions).

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Exchange rate



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Executive prerogative

Any right conferred upon the executive authority of a country such as, for example, the right to coin money. It follows that all matters relating to money are the responsability of powers beyond the influence of ordinary citizens who, as a result, take little interest in monetary affairs or consider them wholly bound the decisions taken by the relevant authorities.

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Fiduciary money

Banknotes and coins. Their values depends upon continued confidence in the issuer, usually a central bank.

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Financing through intermediaries

These are loans granted by banks which collect deposits and issue bonds.  This type of financing is one of the two ways by which the economy finances its development.  The other way is through direct recourse to the capital markets.

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Floating of currencies

Currency floating occurs when there are no restrictions on exchange rate fluctuations. In such a situation, fixed exchange rates, tunnels and snakes are abandoned. A distinction can be made between strong currencies wich appreciate in relation to others, and weak currencies, wich depreciate on a regular basis. Daily variations in exchange rates cab be considerable. These fluctuations, and even more so, alignment or currencies, are considered a hindrance to international trade. Misalignements happen when, for some reason or another, official axchange rates do not reflect the actual strength of a currency in terms of the competitivity of the economy it represents. Acurrency is defined as stable in external terms, when variations in its exchange rate against the principlal international reference currencies remain limited.

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Fluctuation tunnel



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Gini Coefficient

 (see  Lorenz Curve)

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Gross Domestic Product (GDP)

Gulf Stream

Hegemony

The supremacy of a State or nation within a system.  The term is used in the world of finance, when those participating in a monetary system seek the supremacy of one single country or one single central bank to guarantee its equilibrium.

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Inflation

Intergovernmental

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Intergovernmental Conference (IGC)


europa.eu/scadplus/glossary/intergovernmental_conference_fr.htm

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International Monetary Fund (IMF)

Created at Bretton Woods*, the objective of he IMF (located in Washington D.C.) was until 1970, the stabilisation of exchange rates and the convertibility of currencies*. The IMF has become a permanent forum for the exchange of views where problems that could affect the international monetary system are resolved through consultation among member countries thereby avoiding persistent disputes. TO increase international monetary reserves, the IMF issues Special Drawing Rights (SDR)*. These are international units of account which have, however, never acquired the monetary character of the ecu. Conscious of the numerous problems still outstanding, the participants in the Bretton Woods

See also : www.imf.org/external/index.htm

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Issuers of notes and coin

Institutions whose entire capital is held by the state which accords the the sole right to issue legal money: notes and coin. Generally, these institutions are central banks.

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Legal tender

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Lender of last ressort

Role played by the central bank when its lends to banks to increase their liquidity or, exceptionally, to prevent a snowballing series of  bankruptcies in the sector.

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Liquidity

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Lisbon Strategy

A strategy elaborated by the member states during the European summit in Lisbon in March 2000, in view to making the European Union  the most competitive and dynamic knowledge economy in the world by 2010, capable of a long-term economic growth

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Lorenz Curve

Let us suppose that the family units in a population were classed in deciles (1st: bottom 10%, 2nd: : next 10% etc., up to 10th : top 10%)  in order of revenue, as shown in the table below:
(?? on my screen the numbers are broken: eg. 14 = 1 with a 4 underneath)

 

Deciles

a

b

c

d

e

f

g

h

i

j

Total

Revenue

1

3

4

6

6

7

9

14

20

30

100

Cumulative Revenue

1

4

8

14

20

27

36

50

70

100

330

Cumulative Revenue under perfect equality

10

20

30

40

50

60

70

80

90

100

550

Cumulative Revenue under perfect inequality

0

0

0

0

0

0

0

0

0

100

100

 The second line of the table indicates the global revenue for each decile, from the lowest (1) to the highest (30).  The third line indicates the cumulative revenues: 1 for the first decile, 4 (1+3) for the first two deciles,  8 (1+3+4) for the first three, etc.  It follows that, for the 10 deciles the cumulative revenue is equal to the revenue of the whole population = 100.  The second last line shows us what would be if the distribution of income were pefectly equal.  The last line shows the contrary situation (total inequality) where the 10% richest have all the revenue, leaving none for the remaining 90%.



The more the Lorenz curve approaches the diagonal of the square, the more the distribution of revenue is egalitarian.  The contrary is also true: the more the curve deviates from the diagonal the more the distribution is one of inequality.  This situation can be expressed with a single number, called the Gini coefficient, which is obtained by measuring the area between the Lorenz curve and the diagonal as a fraction of the total area under the diagonal.  This is, in fact, the sum of the gap between the cumulative revenue for each decile (the  3rd  line) and the points representing perfect equality  (4th line) divided by the total of the third line.  The value of the Gini coefficient is 0 in the case of perfect equality and 1 in the case of perfect equality.

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Margin of fluctuation

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The Marshall Plan

en.wikipedia.org./wiki/Marshall_Plan

www.oecd.org/document/10/0,2340,en_2649_201185_1876938_1_1_1_1,00.html

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Means of payment

 

The chosen method, defined by law or by custom, for making payment for goods or for settling debts. Normally, the chosen method is money, but other methods are used from time to time.

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Monetary reform



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Monetary Snake

National debt

Total national debt arising from the accumulation of public sector deficits over the years.

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Overdraft

A credit that a bank grants to a client authorizing him to overdraw his account for an agreed amount of period of time.

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Parity

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Pivotal rate

Also central rate: usually midway between the selling and buying rates*.

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Prejudicial Question

This is an issue where a court, where cannot pass a judgment, but on which it should postpone its judgment, until it has been judged within another jurisdiction.  The European Court of Justice cannot consider cases until all the matter has been considered by all relevant national institutions.

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Protectionism

Commercial policy that gives preference to national goods and services over imports, and achieved through customs tariffs or other administrative barriers.

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Public sector deficit

Difference between public receipts and expenditure. Generally expressed as a % of GDP.

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Purchasing Power Parity

This term refers to the rate of exchange which equalises the purchasing power in two countries.  Comodities in the first country, expressed in the local currency, then converted at the parity rate of exchange, will give the same price as the corresponding goods in the second country.

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Qualified majority

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Reserve funds

Each bank must maintain at the central bank a sum proportional to deposits received or credits granted. Reserves also comprise gold or foreign currency held by the central bank, in every State to meet foreign payment obligations.

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The Schengen Area

The Shengen convention  envisaged the suppression of identity checking at the borders between signatory countries. A territory without borders was thus created.  This territory is commonly called the Shengen Area, after the town of Shengen in Luxembourg, where the agreement was signed in June 1985.  The countries which form the Shengen Area are (as of 2007) in order of joining: the Federal Republic of Germany, Belgium, France, Luxembourg, the Netherlands, Italy, Spain, Portugal, Greece, Austria, Denmark, Finland, Iceland, Norway, Sweden, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Czech Republic, Slovakia, Slovenia, and Switzerland.

fr.wikipedia.org/wiki/Convention_de_Schengen

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Scriptural money or book-currency

Money which allows transfers between accounts by simple act of signature : credits cards, cheques, or bank payement orders etc. This is money wich is payable in the short-term.

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Seigniorage


  

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Selling rate

Exchange rate which banks sell a currency. Central bank sales to limit currency appreciation are also at this rate.

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Settlement

Special Drawing Rights (SDR)

The SDR constitute a reference currency for the International Monetary Fund* .  Created in 1960 to act as a complement to the international reserves of the member states, which till then had been restricted to gold or to the USD.  The SDR were created with a value of  0.888671 grams of gold, which was the same amount as for the USD before 1971.


It should be noted that the European basket currency was created in 1975 with a value equivalent to 1 SDR.  At present the SDR is composed of the USD, EUR, GBP and the JPY.  Its composition is reviewed every five years.

www.imf.org/external/np/exr/facts/fre/sdrf.htm

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Store of value

Accumulating wealth or savings. Can be hoarded (under the mattress) or invested to gain interest (savings accounts). Banks play an important redistributive role, transferring surpluses built up through saving to those able to create wealth via investment projects.

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Structural Adjustment

A radical change in the type of management of a society aimed at reducing the role of the public sector to the benefit of its private counterpart, which is presumed to be more efficient.  They are necessary for States incapable of balancing their public finances and whose debts become excessive. They are recognised as having had a negative social impact in the past inasmuch as they have led to a reduction in public expenditure on social services such as education and health

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Subsidiarity Principle



According the European interpretation of this principle, the Community does not act, except when it can act more effectively than the member states, in order to achieve an objective, that is to say, when action by the member states is insufficient, or when the added value of community action is apparent.

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System of mutual credit

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Tunnel of fluctuation

For the currencies which take part, the tunnel determines limits currencies may fluctuate. Central banks must buy a currency wich is too weak or sell a currency wich is too strong in the foreign exchange markets to maintain the rates within the limits.

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Unit of account

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Value of a currency

Because money is a specific form of asset, it has a value. The value of money is established relative to that of other goods rises: it is represented by a certain purchasing power. If the price of goods rises, it is because the value of money declines: with the same unit of money, one can buy less. The change in the value of a monetary unit is represented in indexes showing price movements, i.e. inflation. The stability of a currency determines its capacity to maintain its value in relation to the price of goods, but also in relation to other currencies.

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