Bull & Bear Essentials » financial slang

category: financial slang

Risk On! (What does that mean?)

This is officially wall street slang.

Risk On: When risky assets rise in price it is called “risk on”. You commonly hear on the trading desk– “There is a risk on trade in markets”. What are risky assets? They are broadly defined as stocks. However they could also include alternative assets and certain commodities.

Risk Off: When risky asset fall in price it is called “risk off”. People flee from stocks and typically economically sensitive commodities like oil. Generally during these times “safe” investment rise in value. Examples are U.S. Treasuries and recently Gold.

Wax on, Wax off….

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Tags: alternative assets, gold, risk off, risk off definition, risk on, risk on definition, U.S. Treasuries
Posted in: financial slang, financial tidbit of the day | No Comments »

What is the Big Mac Index?

The Big Mac Index is a concept related to Foreign Exchange (FX). Before we go any further: What is FX?.

It was introduced by the magazine The Economist in the 1980s. It is designed to determine if certain currencies are over or undervalued. It uses an incredibly sophisticated measuring tool — the McDonald’s Big Mac.

How is this done? Take the price of a Big Mac in one country (let’s say in the US a Big Mac is $3.5). Then divide it by the price in another country (let’s say in Canada a Big Mac is 4 Canadian Dollars). So divide 3.5/4. That equals 0.875.

Now the actual exchange rate of USD to CAD is 1.05 (it take 1.05 USD to buy 1 CAD). As of July 31, 2011. Compare this to your reading of the Big Mac Index. Since 0.875 is lower than 1.05, the Big Mac Index would say the first currency, the US Dollar, is undervalued relative to the Canadian Dollar.

Now– we just completely made up the values for a Big Mac– so don’t use this example for anything more than defining the concept.

Tags: Big Mac Index, Foreign Exchange, FX
Posted in: currency and commodities, financial slang, financial tidbit of the day | No Comments »