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A Dictionary of Finance

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Green bonds

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...

Duration: 00:29:25

Environmental finance

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...

Duration: 00:29:28

Quasi-equity, hybrids and mordern art

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...

Duration: 00:26:20

Smart city finance

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...

Duration: 00:26:35

Digital Economy and the Fourth Industrial Revolution

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...

Duration: 00:25:25

Impact Investing: Do good and make money

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.

Duration: 00:12:59

Capital adequacy and leverage ratios for dummies

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...

Duration: 00:25:12

...and the equity lived happily ever after

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...

Duration: 00:22:50

Risk, Monopoly, and a game about banking

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...

Duration: 00:28:29

Venture capital: The good kind of disruption

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...

Duration: 00:21:43

Financial engineering: Engineers without hard hats

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...

Duration: 00:23:22

Microfinance: Honey, they shrunk the loan size!

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...

Duration: 00:27:55

Finance law: ‘Yank the bank’ and other legal ploys

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’...

Duration: 00:21:20

The Secret Life of Infrastructure

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...

Duration: 00:19:28

How do you know when a swan is black?

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...

Duration: 00:24:56

“Acting reasonably”, and other legal jargon

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”,...

Duration: 00:20:34

Are you a size S, or a size M? The world of SME-s.

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...

Duration: 00:29:09

Can we interest you in inflation?

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...

Duration: 00:29:04

Unicorns really do exist

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 billion When 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 it If you like fairy stories, you’ll enjoy the work of Helmut Krämer-Eis, chief economist of the European Investment Fund....

Duration: 00:05:30

Equity and Debt

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...

Duration: 00:29:13

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