Financial terms and economic concepts are regularly lobbed at the public, often burying the much more important ”bigger picture” issue in industry jargon.
The business and financial media are particularly guilty of this, though large corporates can be just as bad when communicating their business to the wider public.
Sadly, the workings of this world can be remarkably relevant, even interesting, to the average person. But they are effectively locked out by alienating and pompous language.
With this in mind, it does not hurt to have a guide into this universe of arcane terminology or a dictionary of finance — in this case The South African Dictionary of Finance by Rudy Wuite (Pan Macmillan, sponsored by Absa Capital).
But how does one review a dictionary? The answer of course lies in comparative literature — or dictionaries of the same ilk and how they communicate financial terms.
The Oxford Dictionary of Finance and Banking (2008), and the Longman Dictionary of Financial Terms, published in conjunction with the Financial Times (FT), Business Day and the Financial Mail (2007) are comparison tools.
Definitions compared include hedge, derivatives, current account, capital gains tax and withholding tax.
The SA Dictionary of Finance is a weighty tome — the largest of the three. It is, declares the jacket cover, aimed at anyone who may be interested in finance — from the average investor (so you or me) to the corporate manager to the student of finance and banking.
The Oxford Dictionary, says its cover pitch, is aimed at students or professionals in the trade.
The Longman Dictionary is without a sales pitch. It is slim, black and discreet, with the signature pink pages of the FT.
To get a feel for the definitions we begin with the explanation of hedge.
The SA Dictionary of Finance states: ”A transaction or an investment position designed to mitigate risk of other financial exposures. For example, a manufacturer may conclude a contract to sell a product for delivery over the next six months. If the price of the raw materials fluctuates and the manufacturer does not have enough stock, an open position will result. The open position can be hedged by buying raw material though a futures contract and matching certainty of income with expenditure. It is possible to reduce vulnerability substantially by hedging.”
We are then advised to ”Also see futures contract, open position”.
The Oxford says almost exactly the same thing but there are a few additional sentences and words that make the concept easier to understand.
”A transaction or a position designed to mitigate risk of other financial exposures. For example, a manufacturer may contract to sell a large quantity of a product for delivery over the next six months. If the product depends on a raw material that fluctuates in price and if the manufacturer does not have sufficient quantities of the raw material in stock, an open position will result. This open position can be hedged by buying the raw material required on a futures contract; if it has to be paid for in foreign currency the manufacturer’s currency needs can be hedged by buying that foreign currency forward or on an option. Operations of this type do not offer total protection because the prices of spot goods and futures do not always move together, but it is possible to reduce the vulnerability of an open position substantially by hedging.”
It should be noted that words such as spot goods, option and futures contract are neatly asterisked — indicating that they too have definitions included.
The Longman, however, explains the act of hedging rather than defines the financial position. In a far simpler way it succeeds in explaining why people hedge and what it is: ”A strategy aimed at minimising or eliminating risk, normally involving positions in two different markets, with one offsetting the other. Derivatives — futures and options — are widely used for hedging purposes because they can protect an investor against changes in the spot value of an underlying asset or currency.”
With many of the other examples the SA Dictionary of Finance similarly fails to keep terms accessible. In addition it includes complex economic concepts, with their working formulas, equations and graphs (see entries like ”normal or Gaussian distribution”), that only the most sophisticated financier might need. In aiming at so many potential users it only succeeds in complicating things rather than simplifying them.
What it does have going for it is that it includes recent and relevant definitions for things such as the nefarious ”credit default swap” — a financial instrument that has helped turn the world into the current financial basket case it is.
Similarly it has the added advantage of being locally specific — so entities such as the JSE have their own entry.
As a business journalist who regularly tackles terms that are both difficult to understand and difficult to communicate, this resource would be the last on my list of three.
