What do you do when an economy is struggling? If you’re a policymaker, a politician, or a central banker, you develop a stimulus package. That’s the term we examine in today’s episode. It’s the inside story of one of the biggest stimulus packages in history, to find out how it was set up, how it worked and what kind of results it got. The inside story of the European Fund for Strategic Investments. Hosted on Acast. See acast.com/privacy for more information.

Listen to our new podcast - Monster Under the Bed! Hosted on Acast. See acast.com/privacy for more information.

In this week’s episode of ‘A Dictionary of Finance’ podcast by the European Investment Bank we talk about the intersection of the private and the public sector in development finance. Specifically, we talk about how the public investment and development banks make projects bankable for the private sector.And make themselves obsolete in the process!As Aglaé Touchard-Le Drian, investment officer with EIB’s Global Energy Efficiency and Renewable Energy Fund (GEEREF), puts it rather more eloquently: “Ultimately, our goal would be to disappear and projects would be financed locally by local investors.”“But,” Aglaé adds, “that is not the case today.”This is why public finance institutions put effort into de-risking projects, taking on the bulk of the risk, blending the loans and investments with some grant money to make sure it takes off, as well as providing advice and technical assistance, and so much more.Just so that the private sector can step in and reap the rewards, right? Why would we do that?Gunter Fischer, also an investment officer with GEEREF, reminds us that the public banks do this only in situations where otherwise there wouldn’t have been private investment at all—and consequently the project would simply not have been realized.Another benefit for the public sector is that capital can be preserved and the financing can be recycled for other projects, unlike when grants and subsidies are made, Touchard-Le Drian reminds us.In the end, the private sector does take over. Many investors who initially invested with the EIB are now willing to invest in similar geographies and sectors on their own, having had a positive experience, Fischer says.We dare you to give it a listen and not be convinced! We also dare you to give it a listen and not want to rate us with five stars on iTunes, give us a glowing review, and subscribe to future episodes. Hosted on Acast. See acast.com/privacy for more information.

You—yes you—have been the subject of a KYC examination. No, not by your doctor. By your bank.KYC stands for Know Your Customer, Know Your Client or (in the case of a bank) Know Your Counterparty. It is the initial process by which a bank ensures that its client is not involved in money laundering or other activities that are illegal or could damage the bank’s reputation.If you’ve ever opened a bank account, the information you had to hand over to the bank was part of its “Know Your Customer,” or KYC, process. It was designed to make sure that you wouldn’t use your account for money laundering or financing terrorism.But you wouldn’t do anything like that, would you?Still it’s vital for banks to screen a client or counterparty (the institutions or people who’ll be on the other end of a loan) with a thorough KYC process, says Virginie Marc, head of the European Investment Bank’s KYC unit on the podcast.On the podcast you’ll also learn:Money laundering takes the proceeds of a crime and puts them into the financial system so that they can’t be traced to the crime any more.Financing terrorism often uses illegal sources of funds and launders them.AML-CFT refers to Anti-Money Laundering/Combatting the Financing of Terrorism controls employed by banks and other institutions.Virginie lays out the four steps of the KYC process:Identify and verify the identity of the counterpart or clientIdentify and verify the identity of the beneficial owner of that client, i.e. who is ultimately behind the clientEstablish the purpose of the business relationship, finding out what the client will do with the loan and how it will be paid backMonitor the KYC file, updating it with any change in the client’s shareholders or other information, asking for new documents and data, and continually checking who the client really is.Tweet us @EIBMatt or @AllarTankler. We love to hear about any other questions you’d like us to pose about financial issues.Subscribe to ‘A Dictionary of Finance’ podcast via the iPhone podcast app, Stitcher or Spotify. Please do rate the podcast on those platforms, too. Hosted on Acast. See acast.com/privacy for more information.

Learn about the social and business reasons for the “technical assistance” that helps companies and public institutions make their projects bankable.Technical assistance helps make projects bankable by preparing documents, carrying out studies, examining financing alternatives and assisting with contracts, among other things. The aim is to prepare a project to deliver on the purposes for which it was originally conceived.The European Commission finances technical assistance programmes to help participants in a range of business sectors. A Dictionary of Finance podcast called on experts from two of these technical assistance programmes to explain how they work.“Technical assistance is about helping beneficiaries,” says Mark Mawhinney, head of division for the European Investment Advisory Hub. The Hub provides technical assistance under the Investment Plan for Europe and is a partnership between the Commission and the European Investment Bank.The Hub aims to help fill markets gaps. As Mark explains, a market gap occurs when the private sector is not actively engaging in a particular area, because of a lack of demand or some economic structural problem.Reinhard Six, senior engineer in the European Investment Bank’s Energy Efficiency and Small-scale Energy Projects division, does a lot of his work under the umbrella of another joint EIB/Commission programme called European Local Energy Assistance (ELENA). For example, that includes energy audits, which are different from the kinds of audits we talked about in our episode on the balance sheet.An energy audit looks at the energy performance of a building by assessing its technical systems, such as the boiler. It recommends measures to improve the energy efficiency of the building by, for example, replacing the windows.Tweet us @EIBMatt or @AllarTankler. We’d love to hear questions you’d like us to pose about financial issues and your ideas for the subjects of future episodes.Subscribe to ‘A Dictionary of Finance’ podcast via the iPhone podcast app, Stitcher or Spotify. Please rate the podcast on those platforms, too. Hosted on Acast. See acast.com/privacy for more information.

Completely by coincidence, the April 1 episode of ‘A Dictionary of Finance’ podcast by the European Investment Bank starts with a comedy sketch acted by Ildiko Buruts, head of the contract reviews and amendments unit, and Christian Kyster, head of the loan administration unit at the Bank. For your listening pleasure, they present a hilarious anecdote about the back office!We invited Christian and Ildiko out of the back office for about 25 minutes or so to tell us about what goes on there.Christian delivers a stunning analogy between the back office of a bank and the kitchen of a restaurant. If a diner wants his steak tartare with mayo and marshmallows, what does the waiter/waitress do? He or she goes to the kitchen to figure out if such a dish can be served. That’s exactly what the back office of a bank does, figuring out how the deal proposed by the front-office can be carried out.Sticking with culinary vibes, we also discuss how a decrease of plain vanilla financial products means more work for the back office, because back office staff have to figure out how to hook up tailor-made financial solutions to the various back office systems that are needed to make it happen. Hosted on Acast. See acast.com/privacy for more information.

If you were anything like us, you imagined the treasury being something like Uncle Scrooge’s pool of coins in Duck Tales, into which he would dive regularly (and, mysteriously, not causing himself any injuries). You might be surprised to find out the ultimate goal of the treasury is to end every day with zero in cash.This is especially impressive given the amounts of money that passes through the treasury of a bank. The European Investment Bank’s treasury last year settled EUR 8.5 trillion! While our total lending volume for the group was “only” EUR 78 billion.Francisco Castro Gutierrez, head of the treasury back-office at the EIB, explains that this is due to the different “wheel sizes” of the treasury, the borrowing, and the lending operations of the bank. The average maturity of our treasury operations is 3 months, compared to 7-8 years for our borrowing, and closer to 10 years for our lending. All the money keeps going round and round in the treasury. You need fast fingers to keep verifying and validating all those transactions – almost as fast as if you were playing flamenco guitar!Francisco, who just so happens to play the flamenco guitar, explains to us what the back-office, the middle-office and the front-office do in the treasury department. This includes reconciliation of accounts, claim processing, funding the short positions, squaring at the end of the day, and a lot more – which you will learn about in this episode.You will also find out:Why you should be a morning-person if you want to work in the treasury back officeThat, in the future, you will need people to control robots in the back office: to make sure that the algorithms don’t go crazy.How all transactions are verified and validated by three pairs of eyes (known as the “six eyes rule.”Credit for the flamenco music on the podcast goes to: http://www.purple-planet.com Hosted on Acast. See acast.com/privacy for more information.

A fund of funds gives investors a diverse portfolio and gives fund managers long-term capital to invest.There are three phases to the lifetime of a fund of funds:Fundraising, which takes 12 to 18 monthsThe investment period, where the fund makes new investments over the course of about five yearsThe divestment period, during which the fund exits its investments, takes its profits and returns the money to its investors.So A Dictionary of Finance got three experts on funds of funds from the European Investment Bank to come on the podcast and explain all this and more. They were all pretty good fun.Listen to the podcast to find out:What it means to subscribe to a fund. (It’s harder than subscribing to this podcast on iTunes, Spotify, or YouTube. You should definitely subscribe to A Dictionary of Finance right now, but we can’t recommend whether you should subscribe to a fund of funds. It’s not for everyone.)What you’re committing to do when you subscribe to a fund of funds. Turns out, you don’t give the fund manager your money right away. But when the manager calls for your money to finance an investment, you'd better have it or the consequences are dire.Why diversification is an advantage of funds of funds. What’s a limited partnership? An agreement to commit a specific amount of capital to a fund—and no more than that amount. That’s the “limited” part of the limited partnership.Subscribe to ‘A Dictionary of Finance’ podcast and get a new episode on your phone every week. Subscribe and listen on iTunes, Spotify, or YouTube.Let us know what you think or what you’d like to hear more about on the podcast. You’ll find us on Twitter at @EIBMatt or @AllarTankler. Hosted on Acast. See acast.com/privacy for more information.

It is pretty obvious that you can empower women by providing more financing for female entrepreneurs, and financing technology that makes banking services accessible to women in remote places. Or by investing in the care economy, services for child and elderly care, where women carry typically the larger burden.What may be less evident is that financing parking spaces, roads and public transport may have a gender impact. Even in France, 90% of women have experienced sexual harassment using public transport, so it’s important that new trains have dedicated compartments for women. It’s important that parking garages are well lit. When road engineers choose bridges for pedestrians, rather than underpasses, they’ve done something that makes the road a safer environment for women.Eleni Kyrou and Julia Chambers are social development specialist working in the safeguards and quality management department of the European Investment Bank. On A Dictionary of Finance podcast this week they explain how finance can have an impact on gender equality, the EIB’s strategy for gender equality and women’s economic empowerment, and much more. Hosted on Acast. See acast.com/privacy for more information.

If you like Italian mineral water, maybe you’d also enjoy an Italian hydrobond. It won’t rehydrate you or go nicely with a fettucine Alfredo, but it might be a good long-term investment and it will keep water prices under control for the consumer. “It’s a sexy name for something quite plain,” says Thomas van Gilst, head of water security and resilience at the European Investment Bank. “The idea was to make a product that institutional investors would want to buy.”Thomas and colleague Patricia Castellarnau, an economist, tell the story of the creation of the hydrobond on A Dictionary of Finance podcast. It all started with a group of small Italian water companies and the financial crisis.The companies needed to invest for the long-term in expensive water infrastructure. But because of the financial crisis and because they were relatively small companies banks would only lend to them for the short-term.That was a problem. If the companies took those short-term loans, they would have to increase charges to their customers to pay back the money quickly, rather than spreading the cost over many years.So the EIB figured out a way to help.By packaging the smaller companies’ notes into a single, bigger bond, the deal attracted institutional investors, such as pension funds, which otherwise wouldn’t have financed the water companies.Thomas and Patricia have worked on hydrobonds that support EUR 500 million of investment so far, with deals signed in the last four years. “If the companies hadn’t done this, it would’ve taken much longer to implement their investment programmes,” says Patricia.On the podcast, Thomas also fills us in on the economic implications of lack of water security. He points out that 90% of economic activity stops within a couple of days if there’s no access to water.How long could you stay at work without water? On the podcast we decided we’d head home after about half an hour without lubrication. Let us know on Twitter if you could last longer. Tweet us @EIBMatt or @AllarTankler. We’d also love to hear other questions you’d like us to pose about financial issues. Hosted on Acast. See acast.com/privacy for more information.

Did you know that, most likely, you are a beneficiary of structured finance? So before you go bashing opaque financing structures that you think caused the financial crisis a decade ago, please make sure you know what you are talking about – or at least give this episode a listen.Milena Messori, head of division for EIB’s intermediated finance for micro-, small- and medium-sized enterprises and Karen Cannenterre, structured finance officer within that same division, explain to us how structured finance has allowed banks to provide mortgages to a much broader range of people. They do so, basically, by selling those mortgages on to investors who are interested in taking a risk with people like you and us. So a hedge fund might be willing to even risk it with Allar’s mortgage. And every conservative pension fund would naturally buy a piece of ever-dependable Matt’s mortgage.This is one example of structured finance: structuring financing based on the risk-appetite of different types of investors, and thus bringing more investors, more money into the capital market.It is also an example of securitization: making something that you can’t invest in (Matt’s mortgage with a bank) into a security that you could invest in.It might also be an example of a synthetic securitization: in case Matt’s bank has not created a special purpose vehicle (a separate company) to dump off mortgages to, and has simply signed a contract specifying which mortgages are up for grabs for a given investor – that is considered a synthetically structured deal.And it is also an example of an asset-backed security: because the security (the bond the bank issues) the investor is buying is backed by Matt’s apartment.If then someone buys up a subordinated security in that tranche of mortgages, and Matt defaults on his mortgage… never mind, he wouldn’t do that. If then Allar defaults on his mortgage, and it turns out the housing market is going through a downturn (hasn’t ever happened in Luxembourg, but who knows, right) and the asset – the apartment – does not cover the loan value anymore, the subordinated security owner takes that loss, saving all the other investors. This is what is called a first loss piece – a riskier, and thus potentially also more rewarding, piece of the financing. It functions as a credit enhancement to the tranche, and potentially to the company selling a package of assets, and is another example of structured finance.   Hosted on Acast. See acast.com/privacy for more information.

This would not be a complete Dictionary of Finance if we did not reference at least once Gordon Gekko’s famous line “Greed is good” from the 1987 movie “Wall Street”. So here goes:Over the past four years or so, central banks have been trying to set a greedy example to commercial banks, hoping greed is contagious and will infect them all in turn. How so?Remember that in one of our first episodes we learned about interest rates – how and why they are set? In this week’s episode we find out what happened when the central banks dialed the interest rates down to negative territory – essentially charging a bank if that bank wanted to deposit money at the central bank overnight.That’s greedy, right? The idea behind it was to make commercial banks greedy too—to get them to lend the money to companies instead. The hope was they would try to make money, instead of just paying to keep it in the central bank’s deposit.Marcello Graziuso, liquidity portfolio manager in the European Investment Bank’s treasury department, explains why the controversial policy has essentially worked.He also discusses how real interest rates (the nominal interest rate you may see advertised by a bank minus the current inflation rate) were often negative anyway.He explains the relationship between negative interest rates and devaluation of a currency and how that would typically have a positive effect on a country’s exports.And he helps us understand how simultaneously lowering interest rates, ‘printing money’ (also called quantitative easing) and buying up safer sovereign assets by central banks forced more investment into somewhat riskier assets.“Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind,” Gekko says in the movie. And to paraphrase him just a little: “Greed, you mark my words, will save that malfunctioning corporation called Europe. Thank you very much.” Well, listen to the podcast to see if you agree with that. Hosted on Acast. See acast.com/privacy for more information.

Wow, what a week this has been! Since Sunday, when our first episode on Bitcoin went live, the value of Bitcoin has come down from around USD 8000 to below USD 6000 and back up to almost past USD 8500 again. You may dismiss this as yet further proof of how unhinged cryptocurrencies are, the week has been pretty crazy for various assets, so don’t go jumping to conclusions yet—at least, not until you’ve given a listen to our follow-up episode that answers the question what you can and cannot do with Bitcoin and other cryptocurrencies.If you’re asking yourself what else could we possibly tell you about virtual currencies after our exhaustive episode last week, wait till you hear about CryptoKitties. It is a game, where users breed and trade digital cats.“CryptoKitties are … bred by spending Ether tokens on smart contracts that use two base cats to create a new one. Each resulting cat is unique and persistent,” news site The Verge reported dryly recently. Which means that unlike Tamagotchi, the cat doesn’t die if you don’t digitally feed it. It will continue to represent the investment in virtual currency that you put into it. That’s the store of value, in feline form. (Ether tokens, by the way, are cryptocurrency, too.)But with the 25% daily price fluctuations in virtual currencies, do they really store value? Markus Willms, who works on systems and data management in the European Investment Bank’s Finance directorate, proposes some explanations for the extreme volatility of Bitcoin.One is the feedback loop, in which people who sell a large amount in Bitcoins will have an outsize influence on the market, because of limited liquidity. Media coverage is also a factor (as is our podcast, surely).Markus also discusses possible regulation of these currencies, the possibility of central banks issuing virtual currencies, and virtual currencies that are actually pegged to real-world currencies.He goes on to tell us why currently Bitcoin is not well suited to actually help you buy a cup of coffee. That’s because it is more like digital gold, which you wouldn’t use at Starbucks, either. Gold, however, is a useful way to store value. And Bitcoin could be, too (if it, indeed, stored all its value for longer than one of our A Dictionary of Finance episodes).Finally, you won’t want to miss our eternal idealist Matt asking the million Bitcoin question: Is this good for the world? Hosted on Acast. See acast.com/privacy for more information.

Bitcoin has been all over the financial press throughout the past year or so, thanks to huge volatility (an investment of USD 100 into Bitcoin would have been worth over USD 6.5 million in December, but has since lost half of its value) so we thought we need to try to be able to sound like we know something. Just in case the topic should come up during dinner conversations.Let’s make one thing clear immediately. The European Investment Bank does not lend in any virtual currency, it does not raise funds in virtual currency, it does not mine Bitcoin, and it hasn’t invested in virtual currency-related businesses. But we do have a guy who knows a lot about it. We invited Markus Willms from the EIB’s Finance directorate’s systems and data management division into A Dictionary of Finance’s studio to explain things. According to Markus,BOLDBitcoin isA peer-to-peer networkA platformAnd a cryptocurrency, meeting the three criteria for a currency: 1) medium of exchange (allowing Bitcoin owners to use it for goods and services), 2) a store of value, and 3) a unit of account-keeping. Markus explains how Bitcoin was the first to solve the issue of how to avoid counterfeiting a digital currency, or how to avoid the “double-spend problem,” in which a single unit of value is spent twice (or even more).We also find out how Bitcoin uses something from the real, non-virtual world (electricity) and converts that into a digital, virtual form (a cryptocurrency) by requiring a lot of computing power to do a multitude of calculations or guesses to verify transactions. We then learn about:BOLDBlockchain, also known as a distributed ledger, which is a way data may be organized and distributed over a network.This week’s A Dictionary of Finance podcast also explainsthe hash-function (something Markus describes as a hopper or a funnel, with variable-length input, fixed-length output)miningthe proof-of-work algorithmand several other concepts related to Bitcoin.In fact, there is so much to talk about here, we will have another episode on Bitcoin next week! Hosted on Acast. See acast.com/privacy for more information.

In concessional finance, loans have more advantageous terms than usual, to support a development objectiveImpact finance funds financially sustainable projects that have difficulty finding finance because of some perceived riskHeike Ruettgers, head of development and impact finance at the European Investment Bank, joins us on this week’s A Dictionary of Finance podcast to explain these two terms, which are key to development finance.Heike points out that concessional finance differs from traditional aid, in that as it’s a loan “the money comes back. That therefore allows you to reuse the funds for further projects. You can recycle and recommit the funds for other projects.”That, she explains, makes “things happen that otherwise wouldn’t happen.”Concessional finance uses public money to “crowd in” private finance by providing a cushion for the losses of private investors. Impact financeConcessional finance makes projects financially sustainable. Impact finance backs projects that are already financially sustainable—they just can’t find anyone to finance them, because they are in countries or sectors perceived as risky.EIB economists Nina Fenton and Claudio Cali work in impact finance. Both came to A Dictionary of Finance to talk about impact finance, as well as microfinance. Says Nina, “Impact finance doesn’t provide money cheaper, as concessional finance does. But it provides money that otherwise wouldn’t be there at all.”Get new episodes like this every week, when you subscribe to A Dictionary of Finance in the iTunes podcast app or on other podcast platforms like Stitcher. You can also listen on Spotify. We’d love to hear from you with suggestions for future podcast topics. Tweet them to us at @EIBMatt or @AllarTankler.  Hosted on Acast. See acast.com/privacy for more information.

The corporate balance sheet explained—from the reason companies make one, down to the obscure terms that appear on it. If you’ve ever mixed up your left and right, you could just as easily mix up your assets and liabilities. One of them goes on the left-hand side of the balance sheet, while the other goes on the right. Which one goes where?Okay, the assets are on the left. But you’ll find this and many other details of the corporate balance sheet explained in this week’s podcast.Marius Cara, who works in the Finance Directorate of the European Investment Bank, explains the balance sheet and the terms you’ll find on it. That includes:Cash accounting, where you wait until the money comes in before recording the transactionAccruals accounting, which makes it possible for you to record a transaction as soon as you know the money will be paid to you, but before you receive the cashAccounts receivable, which are assets because they are things you’re expecting to receiveAccounts payable, which are things you’ll have to pay and are therefore liabilities.Get lots of little tips from Marius, who has even been an auditor in a war zone. For example, how do you pronounce GAAP? The answer is, just like the word “gap.” It stands for the US accounting rules called Generally Accepted Accounting Principles. So we’ve already saved you the embarrassment of calling them “gaap rules,” as if you were some kind of bleating lamb. You’re welcome.On the podcast, you’ll also discover that Allar is an asset. (That’s not because of his incisive questioning or his charming smile. It’s just because he shows up for work here at the European Investment Bank. For all companies, employees are recorded as assets.)Get new episodes like this every week, when you subscribe to A Dictionary of Finance in the iTunes podcast app or on other podcast platforms like Stitcher. We’d love to hear from you with suggestions for future podcast topics. Tweet them to us at @EIBMatt or @AllarTankler. Hosted on Acast. See acast.com/privacy for more information.

If you’ve wondered what a naked short sale is, here is the long and short of a practice that’s often looked at askance by financial traders: short selling. Sandeep Dhawan came on A Dictionary of Finance podcast to talk about shorts. He explained how naked short sales work, as well as how covered shorts work, and mentioned that short sales are often seen as somewhat immoral, even though they are legal.“Shorting should be natural activity,” says Sandeep, who works in the Treasury Department of the European Investment Bank. “There is no law that says assets only go up. Expressing a view, long or short, should be equally legitimate. But for some reason shorting is looked upon askance.”He gets into the details of how naked short sales work, too, because of the opportunity to take advantage of the time between an agreed transaction and the actual exchange of payments, which can be up to a week.In a naked short, he says, “I don’t have to give you anything. All I’ve done is entered into a contract that you buy the asset off me at today’s price. In two days, when it drops, for example, I buy it back, and seven days later we settle up the original transaction. I didn’t even need to borrow the security to make good on my settlements.”Get new episodes like this every week, when you subscribe to A Dictionary of Finance in the iTunes podcast app or on other podcast platforms like Stitcher. We’d love to hear from you with suggestions for future podcast topics. Tweet them to us at @EIBMatt or @AllarTankler. Hosted on Acast. See acast.com/privacy for more information.

Equity and bond markets collectively are known as the capital markets. The capital markets are mechanisms for raising capital, transforming savings productively into investments, so that companies can produce goods and services for the economy.We get the low-down on how the capital markets work, in a discussion that lays out exactly how technology has changed the traditional image of a bunch of traders yelling at each other on the floor of a stock exchange.Sandeep Dhawan came on A Dictionary of Finance podcast to talk about capital markets and how they work. He took us back to seventeenth-century Amsterdam to early stock exchanges and then right up to date with his explanation of “virtual exchanges,” where all the business is transacted over computer servers.“There is a good argument to be made that an open pit or open outcry system with a whole bunch of loud and aggressive people yelling at each other is such a visceral way of trading that it gives people a better idea of what’s going on in markets than a screen flashing in front of you,” says Sandeep, who works in the Treasury Department of the European Investment Bank.“But that argument is not made very much anymore. Markets now are global. Demand is global. These things needed to spread out to enable transactions to happen all across the globe, rather than in one particular location.”Sandeep explains how equity and bond markets operate in one of our broader episodes on the podcast.He also tells us the difference between capital markets and money markets (mainly it’s to do with money markets representing financial instruments that help finance liquidity for periods shorter than a year, while capital markets offer longer-term instruments.)He also gives us details of:Over-the-counter trading (for bespoke deals between private counterparts) compared to open outcry (the aggressive guys shouting in the trading pit)The phrase “too big to fail,” which is usually used for banks and insurance companies, but is now sometimes applied to hedge fundsHow capital markets are regulated, laying out the process from securities law and its enforcement by securities regulators, as well as the oversight provided by stock exchanges.Get new episodes like this every week, when you subscribe to A Dictionary of Finance in the iTunes podcast app or on other podcast platforms like Stitcher. We’d love to hear from you with suggestions for future podcast topics. Tweet them to us at @EIBMatt or @AllarTankler. Hosted on Acast. See acast.com/privacy for more information.

Collateral is more than just a fairly good Tom Cruise movie. It’s also a Jamie Foxx movie… Actually, what we’re really talking about on our podcast this week is financial collateral. This kind of collateral has become more and more important since the financial crisis, because it reduces the risk to lenders that they’ll never get their money back.Peter Balaz came on the podcast A Dictionary of Finance to talk about how the use of collateral—and the markets that have grown around it—have expanded since the crisis in 2009.“Everyone became much more aware of collateral at that time,” says Peter, who works in the treasury department of the European Investment Bank. “The difference between secured and unsecured loans started to grow and it started to become less stable. Banks became more aware of the financial risks.”As well as explaining bank collateral, Peter also explained a range of related financial terms. Check out the podcast to discover, among other things:what is the difference between secured and unsecured loanshow does beneficial ownership workand what is a repo (apart from another movie, a very good one this time, starring Harry Dean Stanton and Emilio Estevez) Hosted on Acast. See acast.com/privacy for more information.

We asked two experts, How do economists use economic models? The answer: to project current data into the future. Lots and lots of data.Economic models help economists understand how things work by reflecting things that can’t be observed directly and by projecting forwardNatacha Valla and Georg Weiers came on the podcast to talk about how economists use models—as well as to give us specific examples of how the European Investment Bank used a model to figure out the impact of the billions of euros it lends each year.Economic models are “a little bit like Lego,” says Georg, a senior economist at the EU bank. “Each model includes certain elements and components and behavioural assumptions and economic equations. You’re not reinventing the wheel each time. You’re adapting the wheel to the circumstances you need it for.”Natacha, head of policy and strategy in the Bank’s economics department, says that “economists need to simplify the world. A model is a way to simplify things.”How? One way, she says, is to “use the regularities of the past to infer what will happen in the future.” In other words, you can count how many people are unemployed now, for example. But you’ll need a model to estimate how many will be unemployed next year.When Georg was asked to model the future impact of the EIB’s lending, he turned to a model called RHOMOLO. With his computer solving 1.1 million equations simultaneously, he got that job done. Here’s what he found out.By 2020, the EIB Group’s loans approved under the Investment Plan for Europe before the end of 2016 will:support EUR 161 billion of investmentadd 0.7 percent to EU GDPadd 690,000 jobsBy 2020, overall investment approved by the EIB Group within the EU in 2015-2016:support EUR 544 billion of investmentadd 2.3 percent to GDPadd 2.25 million jobsLucky he didn't have to do that in his head. Hosted on Acast. See acast.com/privacy for more information.

Investment has been neglected in Europe since the financial crisis a decade ago, according to the European Investment Bank’s annual Investment Survey. But what effect does that really have? To answer that, first we back up and ask: What is investment? Why does it need to keep increasing?Investment is the acquisition of goods that are used in the production of other goods and services. Those goods and services are used to produce something in the future.Still, the definition of investment and its role needs to change, says Debora Revoltella, the EIB’s chief economist, on the podcast. That’s a result of the drop in investment over the last decade. “One message we have for Europe,’’ Debora says, “is that we should have a new narrative stating the importance of infrastructure, reprioritizing it in political terms. There are long-term consequences to neglecting infrastructure.”On A Dictionary of Finance Debora and two of her colleagues tell us all about investment. They do this by:Explaining some key terms, like market gap and market failureDetailing the results of their annual and exhaustive survey of Europe’s investment climate.Debora came to the studio with Atanas Kolev and Philipp-Bastian Brutscher, who led the investment report team. They told us that Europe’s economy is on the mend, with investment growing at a rate of 3.2%, beating the average growth rate of about 2.75% before the European economic crisis in 2009.But infrastructure investment has fallen to 1.8% of EU gross domestic product, down from 2.2% in 2009. That undermines long-term economic potential, they tell us.You’ll also learn about some of the barriers faced by new, innovative companies—and how big institutions need to help them, so that Europe can keep up with the US and other competitors. Hosted on Acast. See acast.com/privacy for more information.

Climate change is a vital issue for the future of the world, and climate finance is key to confronting it.You get the lowdown on this supremely important subject on the European Investment Bank’s podcast A Dictionary of Finance this week. We interview Nancy Saich, senior technical advisor in the EIB’s Environment, Climate and Social Office, and Martin Berg, investment officer in the Infrastructure Funds and Climate Action division of the Bank.Nancy starts with definitions of climate terms, including:Mitigation: addressing emissions of carbon dioxide and other greenhouse gases to reduce, avoid or sequester them (sequestering is usually done by planting trees, which absorb the carbon dioxide)Adaptation: adapting to the effects of climate change, such as extreme storms or rises in sea levelMartin puts today’s climate finance in a historical context, sketching the changes in approach to climate action that preceded the 2015 Paris agreement.We’ll also talk about how much climate action you can do in developing countries for USD 100 billion a year—and whether it’s enough. Hosted on Acast. See acast.com/privacy for more information.

Green bonds ensure that an investment addresses climate change, the degradation of environmental systems, or biodiversity loss.When Aldo Romani developed the first Climate Awareness Bond ten years ago for the European Investment Bank, he wanted small investors to be able to participate, so a commitment of as little as EUR 100 could buy a piece of that issue. Now the green bond market is USD 200 billion and it has “captured investors’ imaginations,” Aldo explains on A Dictionary of Finance podcast.This episode of the podcast lays out the need for these investments, as well as demonstrating how they allow an investor to know that her money is going to a “green” project and to be able to measure its impact. That impact reporting, says Nancy Saich, senior technical advisor in the EIB’s Environment, Climate and Social Office, has been key to the recent exponential growth of the green bond market.Aldo, who’s a managerial advisor in the EIB’s capital markets department, notes that new issuers have come into the market as it has grown. While multilateral development banks like the EIB were the main issuers of green bonds at the start, now sovereign issuers such as France have recently brought their own green bonds to the market.Nancy points out that green bonds have a big role to play in meeting the goal of the Paris agreement of 2015. That accord called for climate action investment of USD 100 billion each year in developing nations by 2020. By leveraging green bonds to help meet this target, Nancy says, there’s an extra impetus to find the actual climate action projects on the ground for the money to be invested in.The green bond market’s expansion is such that, Aldo predicts, it could ultimately meet the USD 100 billion annual target all by itself.  Hosted on Acast. See acast.com/privacy for more information.

How to turn nature from a charity case into a sustainable asset class.Environmental finance uses financial tools for the good of the environment, working to determine the right price for the use of environmental resources and who should pay for them What if we extended our outlook from the next quarterly results to the next few centuries? We would most likely find that the true cost of natural resources used in various commercial activities is not represented in most cost-benefit analyses of business plans.Which is why, unlike commercial banks, the European Investment Bank carries out separate assessments of potential projects to make sure the real, long-term impact on the environment is mitigated or at least that compensation is made for it.Besides introducing safeguards for projects that might not involve the environment, the bank also finances projects that have a positive environmental impact at the heart of their plans, such as conservation. One recent example is Rewilding Europe, a program that capitalizes on the commercial value of the natural environment by organizing safari tours, providing cabins for nature photography enthusiasts and offering other services that could generate cash to be reinvested into projects that protect pristine ecosystems.But such financing is not just about the wild outdoors: environmental finance can also involve investment in the decontamination of a polluted industrial site in a city so it can be used for a real estate project. Taking care of the urban environment has surprising upsides – with increased urbanization, there will be more space available for nature to flourish outside of those cities.Environmental finance tries to tackle difficult questions, such as who owns natural assets, how to measure social, economic and financial returns on those assets, and who should own those returns. We also learn how environmental finance relates to climate finance, and we are told that the ‘blue economy’ is not always green. Hosted on Acast. See acast.com/privacy for more information.

Quasi-equity and hybrids raise financing for different kinds of companies without diluting their equity holders. How does that work?Quasi-equity is a contingent and participating loan, meaning that its profits are contingent on the success of the company and that it participates in the risk and the potential upside.A corporate hybrid bond has characteristics of equity and debt, so that some of the bond can be accounted for as equity on the company’s balance sheet, keeping its credit ratings stable even as it raises more money in the debt.Says Hristo Stoykov, head of growth capital and innovation finance at the European Investment Bank, “Quasi-equity is like modern art. You have to look from different angles and everybody sees a different thing.”Hristo explains why a company would use quasi-equity, which he also calls “venture debt.” A company that has shown its product works and that people are interested in it needs to scale-up. But if it sells equity, it will dilute the ownership of its founders and it might find banks reluctant to lend because it lacks a credit history. Quasi-equity bears the same risk as equity without diluting the founders, and therefore pays off more like equity than traditional debt.The EIB is one of the few players in the quasi-equity market alongside Silicon Valley Bank and Kreos Capital.Pilar Solano joins Hristo on the podcast. She’s head of infrastructure new products and special transactions at the EIB. She points out that quasi-equity is a kind of hybrid. Her team uses a different form of hybrid to lend to big utilities. It’s called a corporate hybrid bond.A corporate hybrid bond can be traded or privately placed. It has characteristics of equity and debt, so some of the bond can appear as equity on the company’s balance sheet. That’s useful to big utilities, because ratings agencies will allow them to raise the debt they need for their massive operational expenditures while keeping their ratings stable.Subscribe to A Dictionary of Finance in the iTunes podcast app or on other podcast platforms like Stitcher. Allar and Matt would love to hear from you with suggestions for future podcast topics. Tweet them at @EIBMatt and @AllarTankler. Hosted on Acast. See acast.com/privacy for more information.

Smart city finance is based on an integrated smart city plan, in which a range of technological innovations are used to create a better city to live in. At least, that’s what smart city finance should be about. Sometimes cities think they’re smart, because they’re using lots of technology. But they aren’t truly smart until they create an overall vision for the smart city.Smart cities go beyond the “wired city” or “intelligent city” by including a comprehensive plan, says the European Investment Bank’s urban division head Gerry Muscat, explaining this buzzword of urban planning to the listeners of A Dictionary of Finance.The guests on this week’s podcast also helped us to understand some terms that come up when talking about smart cities. Emily Smith, financial instruments advisor at the Bank, says that:sustainable development is economic development that doesn’t deplete natural resourcesa brownfield site is land that has already been used and is now perhaps a polluted former industrial plota greenfield site is land that currently hasn’t been built upon, such as agricultural land.Manuel Duenas, head of public sector lending for the Czech Republic, Hungary and Slovakia at the EIB, notes that financing tools for smart cities aren’t necessarily so different from the instruments used for other loans. “The investment must simply be thought through and use all available technology to integrate it” into a framework that’s good for all the citizens, Manuel says.We hear about smart city finance for the Polish city of Krakow and a financial instrument that allowed a series of investments in Manchester to make EU and national grant money go much further.There’s also good news for small towns: you don’t have to be big to be smart. Find out why when Gerry talks about the EIB’s partnership with Belfius Bank of Belgium. Hosted on Acast. See acast.com/privacy for more information.

  The DIGITAL ECONOMY consists of all the transactions carried out over digital infrastructure or using digital technologies, including e-commerce. In fact, anything with an “e-” in front of it is part of the digital economy. It’s not just Facebook and Amazon, but even traditional companies that are part of the digital economy. The FOURTH INDUSTRIAL REVOLUTION represents the shift in business to an increasingly digital form of operations.     Swedish company Assa Abloy was a traditional firm making locks. As you would expect, that put it in competition with other locksmith firms. But we hear on the latest episode of A Dictionary of Finance from Liisa Raasakka, a European Investment Bank loan officer, that the company is expanding into digital technology, creating competition with all kinds of other businesses. This is one of the ways the digital economy is changing how business is done. Liisa and Harald Gruber, who heads the EIB’s digital economy division, debate these changes in an episode that ranges from the boardrooms of Europe (like Nordic media giant Bonnier) to the dorm rooms of Harvard (Facebook). Liisa notes that bankers must now figure out how to assess loans to companies whose assets are in “intangibles,” like software. Meanwhile Harald gets excited about the opportunities for mobile banking in Africa, where “fintech” makes banking—and economic opportunity—available to people in areas previously unreachable by traditional companies. We also delve into some acronyms from Liisa’s curriculum vitae: The EBRD is the European Bank for Reconstruction and Development, a multilateral development bank focused on former Eastern bloc countries. The NIB is the Nordic Investment Bank. It’s an international financial institution founded by the Nordic countries (tweet us if you can tell us ALL the Nordic countries—it’s a bit of a trick question!) and joined a decade ago by the Baltic states (tweet us if you know which those are—Allar will be impressed as he’s from one of them.) The IFC is the International Finance Corp. It’s part of the World Bank Group and aims to encourage private sector investment in development. Subscribe to A Dictionary of Finance from the European Investment Bank in the iTunes podcast app or on other podcast platforms like Stitcher. Allar and Matt would love to hear from you with suggestions for future podcast topics. Tweet them at @EIBMatt and @AllarTankler. &... Hosted on Acast. See acast.com/privacy for more information.

If you wanted your money to help society, you used to be limited to giving it to charity or refusing to invest in “sin” businesses, like gambling. But companies are figuring out ways to make good deeds profitable with an investment approach called impact investing. Allar and Matt are joined on the podcast by Uli Grabenwarter of the European Investment Fund, who explains how considering the benefit a company has on society can actually be profitable. Hosted on Acast. See acast.com/privacy for more information.

Ahh, Switzerland – the land of cheese, chocolate, and… banking regulation? While you may not associate the alpine nation with strict rules on financial institutions, if you come across speakers of Financese, you will hear about the Basel committee.From what we gather, the Basel rules have become the agreed way of doing things. What things, you might ask? Risk management things mostly: measuring capital adequacy, leverage ratios, etc.To help us sort out everything, we are joined once again on ‘A Dictionary of Finance’ podcast by Vincent Thunus. You may recall he was on our show a few weeks ago to play a banking game that he developed to teach high school students about credit risk, liquidity risk, and other risks. Disclosing, measuring, and maintaining capital adequacy and leverage ratios are some of the tools used to mitigate these risks. Hosted on Acast. See acast.com/privacy for more information.

On this week’s episode of ‘A Dictionary of Finance’, Matt and Allar learn about credit stories and equity stories. As it turns out, these stories are a little different from your average bedtime fare – in fact, it is critical that bankers and other financiers not fall asleep while you tell them your story! We find out that (we’re simplifying here) pension fund managers are more likely to enjoy a story beginning with “Once upon a time…”, while angel investors, not surprisingly, would much rather go for “In a not too distant future, in a galaxy not so far away…” Paulina Brzezicka and Alberto Casorati, our guests this week, are advisors in the Innovation Finance Advisory Division at the European Investment Bank. They help their clients develop their stories. They also explain the multiples method for calculating the value of an enterprise, based on its EBITDA. (And if that last sentence confused you, you do need to listen to this episode). Hosted on Acast. See acast.com/privacy for more information.

Do not pass Go. Do not collect $200. And do not play Monopoly, if you want to learn about finance. Instead, play a game that Vincent Thunus, head of regulation and best banking practice at the European Investment Bank developed to teach interested high-school students in Luxembourg about what kinds of risks banks (and thereby, its shareholders and clients) may face, and what banks need to do to manage those risks.So we invited two other colleagues, Sophie and Chris, to sit down with us and Vincent to play the game with us, and make it very plain to us what is credit risk, liquidity risk, interest rate risk, foreign exchange rate risk, and other risks. Hosted on Acast. See acast.com/privacy for more information.

A Dictionary of Finance discovers that venture capitalists aim to make their money through innovative companies that ‘disrupt’ the way things have been done before.Venture capital is risk capital that finances innovation. Risk capital is used to finance innovative companies that a typical bank would think too risky.If you want to set up a bakery, your local bank will probably be able to predict whether it will be a success or not. If it’s a yes, they’ll lend you the money to rent a store and equipment and to pay workers. That’s because bakers have been making bread and pastries for centuries.But what happens when you go to a bank with a new idea that might make a lot of money or might fall flat? The bank will probably focus on the possibility of losing its money and say, No.Instead, you’ll have to take that idea to a venture capitalist. A venture capitalist funds “disruptive” businesses whose outcome can’t be easily predicted.Allar and Matt are joined on the podcast by Uli Grabenwarter of the European Investment Fund. Uli explains how elephants (and Latin translation classes) got him on the road to entrepreneurship.Uli talks about venture capital, risk capital and entrepreneurship. He helps us define:Seed funding. The first capital that goes into a company, when a venture capitalist makes a bet on a company. The funds are used to develop a prototype business model or to create some market evidence that there’s traction in your idea.Mezzanine capital comes at a fairly late stage in the development of a company when it’s almost ready to get loans from banks. Mezzanine provides funding without diluting the ownership of the founding team. It comes from a venture capitalist, from specialist mezzanine funds, or private equity funds.Finally Uli tells us how venture capitalists get out of their investments. Hosted on Acast. See acast.com/privacy for more information.

Financial engineers don’t wear hard hats, even though some of the stuff they figure out is so complicated it might at first feel like a punch in the head. Don’t worry. Our expert explains how financial engineers work, in terms that anyone can understand.Financial engineering is the application of mathematics to financial questions, typically using computer models.Thomas Ribarits, who heads the European Investment Bank’s financial engineering division, explains what financial engineers do. It’s a complicated subject, though Thomas boils down option pricing to a level where he says someone with high school maths could understand it. In fact, he says, it’s all about common sense.Thomas also solves a little dispute over the price of coffee between Allar and Matt on A Dictionary of Finance. Hosted on Acast. See acast.com/privacy for more information.

In this episode of ‘A Dictionary of Finance’ podcast we invited Per-Erik Eriksson, head of inclusive finance at the European Investment Fund, and Hannah Siedek, impact microfinance investment officer at the European Investment Bank, to explain to us what microfinance is. We hear stories from sub-Saharan Africa, where Hannah used to work, about borrowers who, barefoot, would be intimidated by the freezing cold, air-conditioned buildings of traditional banks, and wouldn’t dare to go in. But who then go to a microcredit provider, buy a few cases of beer and start a bar, and in the end take a loan worth several-thousand euros to expand to a second bar, already creating a couple of jobs. Stories about how microfinance is making a difference. We also hear about why microcredit costs so much. An annualized interest rate of 25%?! High time governments put a cap on that… Or is it? Hosted on Acast. See acast.com/privacy for more information.

We invited European Investment Bank lawyers Maria Cerrato, Tom Nguyen, Kinga Soltész and Matthias Brzezinski together again to reveal some of the legal ruses used when things don’t quite go as planned. We learn what harmless-sounding phrases like ‘to the best of my knowledge after due inquiry’ really mean. And what ‘the data room’ is - a place, typically, with no natural light, a place in which no-one really wants to end up. We find out how to ‘yank the bank’ and what a ‘drop dead clause’ is. But, as it turns out, there is poetry in all this legal darkness. There are ‘midnight clauses’ and ‘insolvency waterfalls’, cascading down from an ‘insolvency pool’ like a blessing to (some of) the creditors. Tune in and let us light your way! Hosted on Acast. See acast.com/privacy for more information.

A PPP is a public-private partnership. It delivers long-term infrastructure through the private sector. The public sector pays, but only when the infrastructure is available to the public and maintained to the standard set out in the contract.Gabriel García Márquez, the great Colombian writer, said that everyone has three lives: a public life, a private life, and a secret life. The same is true of infrastructure. This episode is about the secret life of infrastructure, because we’re talking about the thing that connects the public life of infrastructure to its private life. Namely, public-private partnerships.It’s important to know about PPPs, as these partnerships are called, because it’s quite likely that your local or regional government is involved in them and you as a citizen should know what’s being done with these assets.Allar and Matt are joined on the podcast by Stuart Broom, who works at the European PPP Expertise Centre.Stuart explains that a PPP gives the public sector—your local government, for example—the capacity to monitor the private sector managers of its infrastructure and to have clarity about how much it will cost over a period of 25 or 30 years.He also lays out how PPPs work in managing schools, hospitals, toll roads, public buildings, or “availability-based” roads, and gives some insights into how successful they have been. Hosted on Acast. See acast.com/privacy for more information.

An event that carries risk can generate harm or a loss. A certain level of risk has to be accepted by, for example, a bank, in order to generate profit. Risk is calculated by assessing the probability that a borrower will default on its repayments.Did you ever take a calculated risk? Whether you were at the top of a ski slope or invading Yakutsk in a game of “Risk,” you probably have done so. But can you really calculate risk? This episode is about how banks and other financial players tot up their risks—and guard against potential losses.In fact we’ll learn that there are a lot of different kinds of risk. They have very specific names, like credit risk and liquidity risk. But don’t worry. The European Investment Bank’s experts will define them all for you. The podcast will also tell you what a black swan is…To talk about risk, we turned to two senior EIB managers. Luigi Armeli is in the Transactions Management and Restructuring directorate, while Giancarlo Sardelli works in the Risk Management directorate. Here are a few of the subjects these clever fellows touched upon in the podcast:The risk appetite of a bank, says Luigi, represents the boundaries of the risk the bank is willing to take as part of its ongoing business.Exposure is the credit that a bank has lent to a given counterparty, as it appears on the bank’s balance sheet. This does not coincide exactly with what the bank risks losing in the case of a default. Normally a bank wouldn’t expect to lose the full exposure in the event of a default, Luigi explains.How complicated is the maths involved in all this? To estimate risk involves mathematical modelling, though calculated risks aren’t only about maths. Giancarlo tells us common sense is just as important to a risk manager, as well as knowledge of law, accounting and other fields.A black swan is a risk that is highly unlikely or almost impossible—until it happens. Where does the phrase come from? For centuries swans were thought only to be white. Black swans were considered an impossibility—until they were discovered in Australia. When a black swan event happens, it has disastrous financial consequences.Liquidity risk is the capacity at any time to ensure the funding of the portfolio of assets on your balance sheet.Credit risk represents the likelihood of getting back money a bank has lent. Hosted on Acast. See acast.com/privacy for more information.

First: a shout-out to our 7 listeners in Mongolia! Our statistics show we really do have listeners all over the world, and we’re very excited about each one.In this week’s episode, we went on a quest to find the most incredible sounding legal terms that we hear lawyers use in the European Investment Bank, and challenged the lawyers to explain them in a way that wouldn’t make one snooze at a garden party.For example, we will help you understand what the Latin phrases “mutatis mutandis”, “ipsa loquitur”, “pari passu” and “in rem security” mean. No, really, you will. And it is not just Latin, either: you’ll also find out what is “snooze, you lose”, and the definition of the innocent-sounding “reservation of rights” which, it turns out, can actually be quite frightening.And if you think all this legal jargon is completely unnecessary, and that people should just act reasonably, beware: we found out that “acting reasonably” is, in fact, a very complicated legal term! So: don’t say it, unless you’ve listened to this episode, and actually mean it.Competing to provide the most exciting legal term (and its explanation) possible were:Kinga Soltész, counsel in the EIB’s Czech Republic, Slovakia, and Eastern Neighbours division.Matthias Brzezinski, counsel in the Austria and Germany legal unit of the EIB.Maria José Cerrato Sánchez, senior counsel for the EIB’s Spain and Portugal legal division.and Tom Nguyen, counsel in the UK and Ireland unit of the EIB’s legal directorate. Hosted on Acast. See acast.com/privacy for more information.

We’ve all learned about economies of scale in school (and if you were absent that day, this podcast will provide a quick recap on this, as well). So why is everyone talking about financing the small guys, the SME-s, instead? And it’s not just talk either: the European Investment Bank Group is investing a lot of money in SME’s. In this episode of A Dictionary of Finance podcast, Matt and Allar challenged EIB Group’s top SME specialists, Helmut Kraemer-Eis and Pedro Eiras Antunes, and found out that 99.8% of enterprises in Europe are, in fact, SME’s. And that they provide employment to 91 million people! They also ask what is collateral, who are angel investors, and many other questions - so you never have to. Hosted on Acast. See acast.com/privacy for more information.

Interest rates—you’ve certainly paid them. But why did you pay the particular interest rate you had to pay? Who figures that out, and how? That calculation is related to a lot of other stuff. To the inflation rate—whatever that is. To economic growth—however that comes about. Maybe even to the employment rate—don’t even get me started on the Phillips Curve, which is supposed to show the relationship between unemployment and inflation.If you too don’t know quite what this all means, Allar and Matt are here to help. On A Dictionary of Finance podcast, they get together with two of the European Investment Bank’s top economists to explain inflation, interest rates, growth and employment.Natacha Valla is the head of the Policy and Strategy Division in the Economics Department at the European Investment Bank and Markus Berndt heads Operational Strategy and Business Development at the EIB. They have a couple of PhDs between them and have worked at central banks, international financial organisations, and top consulting services. Now, they are at your service on A Dictionary of Finance. Hosted on Acast. See acast.com/privacy for more information.

Allar and Matt uncover the imaginative names for fast-growing new companies, from unicorns to gazelles, dragons and…cockroaches.A unicorn is a privately held company with a valuation of more than USD 1 billionWhen a company sells shares to the public, it’s called a dragon if it’s worth more than the entire size of the venture capital fund that first invested in itIf you like fairy stories, you’ll enjoy the work of Helmut Krämer-Eis, chief economist of the European Investment Fund. You probably don’t associate finance with fairy stories, but Helmut points out in this episode of A Dictionary of Finance that investors have turned to mythical creatures to describe flourishing new companies.Perhaps when you risk your money with an investment, you need to believe in the company just as much as a five-year-old child listening to a story of flying horses needs to believe in magic? In any case, Helmut explains what kinds of companies can be called a dragon or a unicorn, as well as a gazelle. Allar weighs in with the definition of a cockroach company…There are 170 unicorns around the world and 21 in Europe. Of those, 10 have been supported by financing from the European Investment Fund, which provides financing to small and medium-sized companies and is part of the European Investment Bank Group. Hosted on Acast. See acast.com/privacy for more information.

Allar and Matt examine the two main ways companies raise money: equity and debt. You'll hear an awful lot about a fictional hairdresser and discover that Allar is really keen on free stuff. But, look, don't worry, the main thing is to learn about equity and debt. So here you go:Equity is often described as “shares,” because you own a share of a company. Potentially you risk all you paid for it, but you also have “unlimited upside”—the better the company performs, the more you can get in return.Debt is a fixed obligation—often it’s called a “bond”—that pays a set interest rate and returns your initial investment at the end of a specific period of time. No matter how well the company performs, you won’t get more money back. Unless the company goes bankrupt, you also won’t get less money back.The episode includes:How to figure out the value of a share based on the value of the company.Shares don’t exist anymore as pieces of paper. They are dematerialized.Companies sell shares to get money to invest in making the company bigger or more profitable.All sorts of institutions and people invest in shares. Banks, pension funds—and individuals.If a company has a “credible cash flow,” a bank may be willing to take the risk of loaning money. Then the company takes on debt.How start-up companies can use equity and debt, and we learn how credit ratings work. ...Then there's the bit where we learn that Allar is a cheap date. Hosted on Acast. See acast.com/privacy for more information.

What do you think of when you hear the word "Bank?" A basketball bank shot by Michael Jordan? The Bank station on the London Underground where the announcer calls out “Mind the Gap,” or a game of Monopoly? Okay, you probably think of the place where you keep your money. But could you really say what banks do? Banks are central to the economy and to politics. You can’t understand any important political debate unless you know what banks do and how they fit into the overall economy. On A Dictionary of Finance, Allar and Matt talk to experts about what banks are and what they do--in a simple way that’s easy to understand. Hosted on Acast. See acast.com/privacy for more information.