Financial terms you should know

03 Nov, 2019 - 00:11 0 Views

The Sunday Mail

Binary Options: Are a type of high risk financial instrument used to speculate on future market movement. A binary option is tied to an underlying asset such as a stock, an index, a currency pair or a commodity.

It is the market movements of the underlying financial asset that dictates whether a binary option matures in the money or not. A binary option has two possible outcomes. You lose your entire investment or you make a large profit. Often 80 percent or more.

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Gearing: Is a term that tells you if a company is leveraged or not. It compares the company net debt to its equity capital. This shows you how much debt the company has taken on to leverage higher growth.

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Pro Forma Invoice: A type of invoice that is send from one company to another. A Pro Forma invoice is sent before any goods are sent out and it is a way to guarantee that the company gets paid for products it sells to another company. This is especially common if the buyer has financial problems and when the two companies lack prior relationship.

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Preference shares: A type of shares that give the holder special benefits compared to other stockholders. The benefits can vary between different types of preferred shares. A common benefit assigned to preferred shares is that the holder is guaranteed a fixed dividend each year.

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Unsecured loan: Is a loan where the loan taker does not provide the loan giver with any security when he borrows money. This type of loan usually carries a higher interest rate than secured loans and you probably know them better by pay-day loan, personal loan and credit card. This is due to the fact that unsecured loans are associated with a higher risk for the bank than secured loan such as auto loans and mortgages.

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Annual Percentage Rate: The business finance term and definition APR represents the yearly real cost of a loan including all interest and fees. The total amount of interest to be paid is based on the original amount loaned, or the principal, and is represented in percentage form.

When shopping for the right loan for your small business, you should know the APR for the loan in question. This figure can be very helpful in comparing one financial tool with another since it represents the actual cost of borrowing.

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Appraisal: Just like your real estate appraisal when buying a house, an appraisal is a professional opinion of market value.

When closing a loan for your small business, you will probably need one or more of the three types of appraisals: real estate, equipment, and business value.

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Accrual Basis: The accrual basis of accounting is an accounting method of recording income when it is actually earned and expenses when they actually occur.

Accrual basis accounting is the most common approach used by larger businesses to record and maintain financial transactions.

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Accruals: A business finance term and definition referring to expenses that have been incurred, but have not yet been recorded in the business books. Wages and payroll taxes are common examples.

 

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