FTSE 100 (Footsie)
Definition
The FTSE 100, colloquially known as the Footsie, is an index measuring the stock performance of 100 prominent, market capitalization-weighted companies listed on the London Stock Exchange. It serves as a key indicator of the health of the UK corporate sector and is one of the most widely followed stock indices worldwide.
Examples
- Royal Dutch Shell: An oil and gas company consistently part of the FTSE 100.
- HSBC Holdings: One of the most significant financial institutions globally, regularly featuring in the FTSE 100.
- Unilever: A multinational consumer goods company, known for brands like Dove and Magnum, prominent in the FTSE 100.
Frequently Asked Questions (FAQs)
What does FTSE stand for?
FTSE stands for “Financial Times Stock Exchange.”
How is the FTSE 100 calculated?
The FTSE 100 is calculated using free-float market capitalization, which measures the market value of all shares available to investors.
What type of companies make up the FTSE 100?
The index includes blue-chip companies, which are large, well-established, and financially sound companies with a reputation for reliability and quality.
What is the significance of the FTSE 100?
The index is crucial for investors and policy-makers as it provides a benchmark for evaluating the UK stock market and broader economy.
How often is the FTSE 100 updated?
The index is reviewed quarterly, during which companies may be added or removed based on their market capitalization.
Related Terms
- Market Capitalization: The total market value of a company’s outstanding shares of stock. Market capitalization is calculated by multiplying the current market price of one share by the total number of shares outstanding.
- Blue-chip Stocks: High-quality, financially sound companies with a history of reliable performance, widely seen as a safe investment.
- London Stock Exchange (LSE): The primary stock exchange in the United Kingdom and one of the oldest exchanges in the world.
- FTSE All-Share Index: A broader market index that includes all eligible companies listed on the London Stock Exchange’s main market.
Online References
Suggested Books for Further Studies
- “The Financial Times Guide to Investing: The Definitive Companion to Investment and the Financial Markets” by Glen Arnold.
- “Uncorporate Identity” by Metahaven.
- “The Intelligent Investor” by Benjamin Graham.
- “Security Analysis” by Benjamin Graham and David Dodd.
Fundamentals of FTSE 100: Finance Basics Quiz
### What does the FTSE 100 index measure?
- [ ] The performance of 100 technology companies globally.
- [ ] The performance of 100 companies on the New York Stock Exchange.
- [x] The performance of 100 large, market-cap weighted companies listed on the London Stock Exchange.
- [ ] The performance of 100 small-cap companies in the UK.
> **Explanation:** The FTSE 100 measures the performance of 100 prominent, market-capitalized companies listed on the London Stock Exchange.
### How often is the composition of the FTSE 100 index reviewed?
- [ ] Monthly
- [ ] Annually
- [x] Quarterly
- [ ] Biannually
> **Explanation:** The FTSE 100 index is reviewed quarterly to ensure it includes the largest companies by market capitalization on the London Stock Exchange.
### Which of the following companies is likely included in the FTSE 100?
- [x] HSBC Holdings
- [ ] Amazon
- [ ] General Electric
- [ ] Tencent
> **Explanation:** HSBC Holdings, a prominent UK bank, is likely included in the FTSE 100, unlike Amazon (US), General Electric (US), and Tencent (China).
### Which stock exchange is associated with the FTSE 100 index?
- [x] London Stock Exchange
- [ ] New York Stock Exchange
- [ ] Tokyo Stock Exchange
- [ ] Shanghai Stock Exchange
> **Explanation:** The FTSE 100 index is associated with the London Stock Exchange (LSE).
### What is the primary criterion for a company's inclusion in the FTSE 100?
- [x] Market capitalization
- [ ] Revenue
- [ ] Number of employees
- [ ] Profitability
> **Explanation:** Eligibility for the FTSE 100 is primarily based on the market capitalization of companies.
### What type of stocks are included in the FTSE 100?
- [x] Blue-chip stocks
- [ ] Penny stocks
- [ ] Start-up stocks
- [ ] Small-cap stocks
> **Explanation:** The FTSE 100 comprises blue-chip stocks, which are large, financially robust companies.
### If a company's stock rises sharply, what is the likely impact on the FTSE 100?
- [x] The index value will likely increase.
- [ ] There will be no change in the index value.
- [ ] The index value will likely fall.
- [ ] The stock will be removed from the index.
> **Explanation:** A sharp rise in a constituent company's stock price can increase the overall value of the FTSE 100 index.
### Which organization calculates and manages the FTSE 100 index?
- [ ] The Bank of England
- [x] FTSE Group (FTSE Russell)
- [ ] The International Monetary Fund (IMF)
- [ ] The World Bank
> **Explanation:** The FTSE Group (FTSE Russell) is responsible for calculating and managing the FTSE 100 index.
### Why is the FTSE 100 index significant for investors?
- [ ] It tracks global currency trends.
- [ ] It only includes technology stocks.
- [x] It provides a benchmark for the UK's top-performing companies.
- [ ] It includes companies from all G7 nations.
> **Explanation:** The FTSE 100 index is a critical benchmark for the performance of the UK's most prominent companies across various sectors.
### Can the FTSE 100 index influence economic policies?
- [x] Yes, as it reflects economic conditions.
- [ ] No, it only affects individual companies.
- [ ] Yes, but only at a microeconomic level.
- [ ] No, because stock markets do not relate to economic policies.
> **Explanation:** The FTSE 100 can influence economic policies since it reflects broader economic conditions through the performance of leading companies.
Thank you for exploring the intricacies of the FTSE 100 and testing your knowledge through our detailed quiz. Harness this information to bolster your understanding of global financial markets.
