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The Layman's Financial Crisis Glossary

The Layman's Financial Crisis Glossary

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Limited liability

Confines an investor’s loss in a business to the amount of capital they invested. If a person invests £100,000 (about $2 millions) in a company and it goes under, they will lose only their investment and not more.

Liquidity

The liquidity of something is how easy it is to convert it into cash. Your current account, for example, is more liquid than your house.

If you needed to sell your house quickly to pay bills you would have drop the price substantially to get a sale.

Loans to deposit ratio

For financial institutions, the sum of their loans divided by the sum of their deposits.

Currently important because using other sources to fund lending is getting more expensive.

Mark-to-market

Recording the value of an asset on a daily basis according to current market prices.

So for a futures contract, what it would be worth if realised today rather than at the specified future date. Also marked-to-market.

Mortgage-backed securities

These are securities made up of mortgage debt or a collection of mortgages. Banks repackage debt from a number of mortgages which can be traded. Selling mortgages off frees up funds to lend to more homeowners. See securities.