Carry trade is a financial strategy that involves borrowing funds in a low-interest-rate market and investing them in a higher return market. This practice capitalizes on the interest rate differential between two markets to generate profit.
Collateral refers to a valuable asset that a borrower offers to a lender as a way to secure a loan. This asset provides security to the lender in the event the borrower defaults on the loan.
A credit limit refers to the maximum balance that a credit card issuer allows a customer to borrow on their credit card. It is a fundamental aspect of credit management and determines the extent of a cardholder's purchasing power.
A credit line, also known as a line of credit, refers to a pre-approved loan amount that a borrower can draw upon as needed and repay either immediately or over time. It is commonly used for short-term borrowing needs.
Debt financing is the process of raising capital through borrowing, typically via the issuance of bonds. It contrasts with equity financing, where capital is raised through the sale of ownership stakes in the company (stock).
A deficit occurs when expenditures surpass revenues, creating a shortfall that must be managed through measures such as borrowing or cost-cutting.
Deficit spending refers to the situation where a government's expenditures exceed its revenues, causing a shortfall that must be financed through borrowing. This tactic is often employed for economic stimulus during periods of low economic activity.
A discounted loan is a financial instrument that is offered or traded for less than its face value. It involves an initial discount from the loan's nominal amount, effectively making it cheaper for the borrower at inception.
Drawdown refers to the drawing of funds against a bank loan or other credit facility. It involves disbursing the loan amount provided by the lender to the borrower in full or in parts over a specific period.
A finance company provides various types of loans, typically at higher interest rates compared to traditional banks, often catering to ventures and individuals considered high risk.
A Home Equity Line of Credit (HELOC) is a type of home equity loan that establishes an account the borrower can draw upon as desired, with a maximum outstanding debt limit similar to a credit card.
Interest is the charge applied for borrowing a sum of money, typically expressed as a percentage of the principal loan amount. Interest calculations can vary based on whether simple or compound interest is used, influencing financial decisions significantly.
Loan Closing refers to the final step in the process of securing a loan, particularly in real estate transactions. It encompasses all activities that transpire when the borrower and lender settle the terms and conditions of the loan agreement.
A locked-in interest rate is a rate promised by a lender at the time of loan application. The promise is a legal commitment of the lender, though there may be qualifications or contingencies that allow the lender to charge a higher rate. On home loans, the lock-in is customarily provided for 1% of the amount borrowed, though often it is free of charge. However, many prospective lenders find ways to renege on commitments when interest rates rise.
Negative equity occurs when the value of an asset falls below the outstanding balance borrowed against it, often seen in property valuations affected by economic downturns.
Open-End Credit is a revolving line of credit offered to consumers by banks, savings and loans, and other lenders, allowing for repeated borrowing up to a specified limit.
An overdraft is a loan provided by a bank or building society for a customer with a cheque account, allowing the account to go into debit, up to a specified limit known as the overdraft limit.
A Revolving Charge Account is a type of credit account that allows for continuous borrowing as long as the account stays within the credit limit and minimum payments are made. It is commonly used in credit cards and lines of credit.
Revolving credit is a type of credit that does not have a fixed number of payments, allowing the borrower to reborrow money as they repay the principal.
