Jargon Buster

Ever wonder why economists seem to be talking about a veritable zoo when they give the lowdown on the latest in the markets? We lift the lid on the definitions of this perplexing economic terminology.

Dove

In the case of monetary policy, a dove is an individual who believes that low interest rates should be maintained. They maintain that low interest rates encourage growth within economies as they increase consumer borrowing demand and boost consumer spending.

Sustained low interest rates can cause notable increases in inflation, but doves believe that this negative effect is minimal in the grand scheme of things.

Doves are in favour of quantitative easing, considering it a means of stimulating an economy.

Adjective: dovish

Hawk

The opposite of a dove. These individuals are pro high interest rates as they see them as a means of controlling inflation. They are less concerned with economic growth.

Hawks are opposed to quantitative easing as they believe that it distorts asset markets.

Adjective: hawkish

Bull

A bull is an individual (or more specifically an investor) who believes that a certain market, industry or security will rise in value. A bull will purchase assets presuming that they will rise in value, and can consequently be sold at a later date for a higher price.

Adjective: bullish

Example: Dollar bull

A Dollar bull is a speculator or investor who believes that the US Dollar is going in a positive direction and will rise in value in comparison to other currencies. For them, it is complete and utter madness to bet against the US economy and USD.

Bear

The opposite of a bull. Bears believe that a certain market, industry or security will decrease in value. Generally negative about a given market, security or asset (as opposed to a bull’s overwhelming optimism), bears will try to profit from falling prices.

Adjective: bearish

Quantitative Easing (Q.E.)

A monetary policy that increases money supplies and lowers interest rates. In this policy central banks purchase securities from the market (or government securities like bonds). This inundates financial institutions with capital, thereby increasing the money supply with the aim of promoting lending and increasing liquidity.

Currency War

A currency war is a scenario in which several countries deliberately attempt to weaken the value of their own currencies, thereby stimulating their respective economies. Quantitative easing and lowering interest rates can be used to decrease the value of currencies.

This is also known as “competitive devaluation”.

Long

This is the buying of a currency, stock or commodity in the belief that it will increase in value.

This is also known as “long position”.

Short

This is the selling of a borrowed currency, stock or commodity in the belief that it will decrease in value. For example, if an investor sold a borrowed currency on the market, the currency would eventually need to be returned. The investor does this by buying back the currency. If the currency has decreased in value, the investor buys it back for less than it was sold, consequently making a profit.

This is also known as “short position”.

Market Sentiment

This is the prevailing attitude of investors toward a particular market or security. The activities and changes in security price in a market communicate its sentiment e.g. increasing prices reveal a bullish sentiment.

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