Financial Dictionary

Glossary of economic and financial terms

This A to Z guide of economic and financial terms will tell you everything you need to know about banking.

Every term has been verified by our experts in investing, accounts for individuals and businesses, salary accounts, mortgages, payment cards and other financial products, and they are all explained in clear, concise language to help you understand them.

We have included the most common concepts that are widely used in digital and printed documents about financial products, such as contracts, clauses, terms and conditions, appendices, etc.

A

Active Management

The objective of this management system is to produce better returns for the managed portfolio than the market average by using independent criteria based on the manager's information and experience in selecting investments. It is the opposite of passive management which simply mirrors a market index.

Alpha (á)

Alpha is the best variable for measuring the performance of an investment fund manager. It measures the trading capabilities and skills of the manager and their team. This coefficient measures the performance or behaviour of an investment (positive or negative) compared to its benchmark index; in other words, it is the extra return obtained by the fund, after its fees.

Appraisal

Appraisal involves assigning a value to an object through a document prepared by an expert, establishing the value of the asset based on specific characteristics and a range of applicable variables.

The criteria and methodology for performing appraisals are subject to regulations. These regulations also establish which professionals are qualified to perform them.

APR

The APR for a bank loan means the Annual Percentage Rate, also known as the Annual Effective Rate. This is a widely used term in the financial world. It is defined using a formula with the following variables:

  • The nominal interest rate.
  • The fees.
  • The repayment period for the loan.

Asset allocation

Asset Allocation is defined as the distribution of assets in a portfolio or diversification of shares according to the chosen combination of assets, products or markets, risk and geographic area, to improve the return of the assets or control the risk of the assets. This allocation is made using both the bottom up and the top down analysis.

ATMs

An ATM (automatic teller machine) is a machine you can use for various banking transactions at any time of day, any day of the week, without involving any bank employees.

How do ATMs work?

You must identify yourself with your card and PIN to use an ATM. The card can be inserted into the slot or tapped against the contactless reader that most ATMs now have. Once you have been identified, you can start using your bank account. The screen displays all the transactions offered by the ATM, in a simple and very intuitive way.