Finance Glossary G to Q: Plain-English Definitions

About this page

Finance is full of terms that sound simple until you have to use them. This page is a plain-English glossary for Finance Encyclopedia, covering entries such as General equilibrium, Government budget constraint, Greenium, Greenwashing, Gross financing needs, each with a short definition and a pointer to the part of the volume where it is explained.

Keep it open while you read, or use it to settle an argument about what a term really means. Every entry is written to stand on its own, with no jargon left undefined, and the part number beside it tells you where to read more. Use it as a quick reference whenever a term trips you up.

A sample of the entries (105 terms on the full page)

General equilibrium — A state in which all markets in an economy clear at once; Walras first described it as a system of simultaneous equations. (Part 9.4)

Gross financing needs — The debt falling due in a year plus that year’s deficit: the amount a government must raise from markets or reserves. (Part 3.3)

Hybrid mismatch — An arrangement that exploits a payment or entity two countries classify differently, producing a deduction in one with no matching income in the other (Part 4.5).

Impact tolerance — The maximum tolerable disruption to an important business service, measured as a length of time, set at the point of intolerable harm (Part 8.7).

Informational cascade — A situation in which people rationally follow others’ visible choices instead of their own information, so later choices reveal nothing new (Part 6.5).

Interest-to-revenue ratio — Interest paid as a share of government revenue; it shows how much of each tax dollar is already committed to past borrowing. (Part 3.3)

Investment grade — A credit rating of BBB− (Baa3 at Moody’s) or higher; many funds, insurers and indexes may hold only investment-grade debt. (Part 3.6)

Key risk indicators (KRIs) — Metrics chosen because they move before losses do, such as aged breaks, forced matches and reconciliations not performed. (Part 8.4)

Law of large numbers — The statistical result that the average outcome of many independent, similar risks settles close to its expected value, so a large pool’s claim rate is predictable even though no single policy’s is (Part 1.1).

Limits to arbitrage — The capital needs, short-selling costs and risks that stop professional traders from fully correcting mispricings (Part 6.8).

Loan-to-value ratio — A loan’s size as a share of the property’s appraised value (Part 2.4).

Loss aversion — The tendency to feel a loss more strongly than an equal gain; Tversky and Kahneman’s 1992 estimate of the ratio was 2.25 (Part 6.2).

MACRS — The Modified Accelerated Cost Recovery System, the US tax depreciation system that assigns assets to recovery classes; solar facilities under Sections 45Y and 48E are five-year property (Part 10.3).

Marginal analysis — Reasoning about the value and cost of one more unit rather than about totals or averages; introduced by Jevons, Menger and Walras in the 1870s. (Part 9.4)

Market for lemons — George Akerlof’s 1970 model in which buyers who cannot judge quality pay only for average quality, driving good products out and possibly collapsing the market. (Part 9.7)

Material assistance — Under the 2025 OBBBA, components or services from a prohibited foreign entity used in building a facility; facilities whose construction begins after December 31, 2025, lose the 45Y and 48E credits if they include material assistance beyond the permitted thresholds (Part 10.3).

Miscalibration — Forecast ranges that are too narrow, so outcomes fall outside them more often than the stated confidence implies (Part 6.4).

Myopic loss aversion — Loss aversion combined with frequent evaluation, which makes risky assets with positive expected returns feel unattractive (Part 6.6).

Natural rate of unemployment — The unemployment rate set by the real workings of the labor market, below which, Friedman and Phelps argued, inflation keeps accelerating. (Part 9.6)

Net asset value — For a REIT, its properties valued at current private-market cap rates minus its debt; shares can trade at a premium or discount to it (Part 2.3).

Nostro — “Ours”: a bank’s own account held at another bank, usually in a foreign currency. (Part 8.2)

Opportunity cost — What must be given up to produce or buy one more unit of something; in Ricardo’s example a unit of wine costs England 1.20 units of cloth. (Part 9.2)

Paris Club — An informal group of creditor governments, dating from 1956, that restructures official bilateral debt by consensus and requires comparability of treatment from other creditors. (Part 3.8)

Ponzi finance — In Minsky’s classification, a borrower whose cash flow does not cover even interest, so debt grows unless the asset can be sold at a higher price. (Part 9.5)