Write about money, and you cannot entirely avoid technical terms. The simplest terms and concepts need to be dealt with at the outset. They will crop up time and again.
Fundamental to all financial markets is the idea of earning a return on money. Money has to work for its owner. Here – ignoring for the moment some of the tax complications that crop up in practice – are some of the ways it can do so:
• You deposit £1,000 with a bank which pays you, say, 5 per cent a year interest. In other words, your £1,000 of capital earns you £50 a year, which is the return on your money. When you want your £1,000 back you get £1,000, plus any accumulated interest, not more nor less. Provided your bank or building society does not go bust, your £1,000 of capital is not at risk, except from inflation which may reduce its purchasing power each year.
• You buy gold bullion to a value of £1,000 because you think the price of gold will rise. If, say, the price of gold has risen by 20 per cent after a year, you can sell your gold for £1,200. You have made a profit or a capital gain of £200 on your capital outlay of £1,000. In other words, you have a return of 20 per cent on your money. If the price of gold fails to move, you’ve earned nothing because commodities like gold do not pay interest.
• You use your £1,000 to buy securities that are traded on a stockmarket. Usually these will be government bonds (known as gilt-edged securities or gilts in the UK) or ordinary shares in a company. The first almost always provide an income; the second normally do. Traditional gilt-edged securities pay a fixed rate of interest. Ordinary shares in companies normally pay a dividend from the profits the company earns. If the company’s profits rise, the dividend is likely to be increased. But there is no guarantee that there will be a dividend at all. If the company makes losses or runs short of cash, it may have to cease paying a dividend.
But when you buy securities that are traded on a stockmarket, the return on your £1,000 is not limited to the interest or dividends you receive. The prices of these securities in the stockmarket will also rise and fall, and your original £1,000 investment accordingly becomes worth more or less. So you are taking the risk of capital gains or capital losses.
Suppose you buy £1,000 worth of ordinary shares which pay you an annual dividend of £30 a year. You are getting a return, or dividend yield, of 3 per cent a year on your investment (£30 as a percentage of £1,000). If after a year the market value of your £1,000 of shares has risen to £1,070, you can sell them for a capital gain of £70 (or a 7 per cent profit on your original outlay). Thus your overall return over the year (before tax) consisted of the £30 income and the £70 capital gain: a total of £100, or a 10 per cent overall return on your original £1,000 investment.
Investors are generally prepared to accept much lower initial yields on shares than on fixed-interest stocks because they expect the income (and, in consequence, the capital value of the shares) to rise in the future. Most investors in ordinary shares are seeking capital gains at least as much as income. Note that if you are buying a security, you are taking the risk that the price may fall, whether it is a government bond or a share. But with the government bond the income is at least guaranteed by the government. With the share there is a second layer of risk: the company may not earn sufficient profits or have sufficient cash to pay a dividend.
• Finally, you can put the £1,000 directly to work in a business you run. Since this option does not initially involve the financial markets, we’ll ignore it.
To summarize: money can be deposited to produce an income, it can be used to buy commodities or goods which are expected to rise in value but may not (including your own home), or it can be invested directly or indirectly in stockmarket securities which normally produce an income but show capital gains or losses as well. There are many variations on each of these themes. But keep the principles in mind and the variations fall into place.
For each type of investment and for many of their derivatives there is a market. There is a market in money in London. It is not a physical marketplace: dealings take place over the telephone, and the price a borrower pays for the use of money is the interest rate. There is a market in currencies: the foreign exchange or forex market. There are markets in commodities. And there are markets in government bonds and company shares: the main domestic market here is the London Stock Exchange. Much of what you read in the financial press concerns these markets, their movements and the investments that are dealt on them.
The important point is that no market is entirely independent of the others. The linking factor is the cost of money (or the return an investor can get on money, which is the other side of the same coin). If interest rates rise or fall there is likely to be a ripple of movement through all the financial markets.
This is the most important single mechanism in the financial sphere and it lies behind a great deal of what is written in the financial press: from discussion of mortgage rates to reasons for movements in the gilt-edged securities market. Money will gravitate to where it earns the best return, commensurate with the risk the investor is prepared to take and the length of time for which he can tie up his money. As a general rule:
• The more money you have to invest, the higher the return you can expect.
• The longer you are prepared to tie your money up, the higher the return you can expect.
• The more risk you are prepared to take, the higher the return you can expect if all goes well.
Note, however, that the main factors influencing short-term interest rates are not always the same as those affecting long-term ones, though the two will interact (see below). Press comment should make it clear what type of interest rate it is primarily referring to.
To match investors’ different needs, there is a whole range of different returns available across the financial system. Interest rates can move rapidly, and any real cases we take can be quickly outdated. So we are safer sticking with hypothetical examples. At a particular time an investor might, say, be prepared to accept a return of 4 per cent or less on money he deposited with a bank for a short time and might need in a hurry. The low interest rate is the price of safety and convenience. At the same time he might expect to get 5 per cent if he were prepared to lock up his money by lending it for a year. And if he were prepared to take the chance of capital gain or loss by buying a gilt-edged security in the stockmarket, he might expect a return of, say, 6.5 per cent.
But these and other returns available to investors would rise and fall with changes in the cost of money in Britain and abroad. What causes these changes is a different matter. Sufficient for the moment to note that there are times when money is cheap (interest rates are low) and times when it is expensive (interest rates are high).
Suppose interest rates rise. The investor who was content with 4 per cent for money he could put his hands on quickly would expect a higher return to match the interest rates being offered elsewhere. So the rate for short-term deposits might rise to 5 per cent. Likewise, the investor who considers tucking his money away for a year would no longer be content with 5 per cent. He’ll only be prepared to lend his money for a year if he’s offered, say, 6 per cent. So anyone wanting to borrow money for a year has to offer the higher rate to lenders.
The precise rates are not important to the argument. The essential fact is that when one interest rate moves significantly, most other rates will usually move in the same direction. There will still be a differential between the rate the investor gets if he deposits his money for a few weeks and the rate he gets for locking it up for a year, though the size of the differential may change. But both rates will usually move up if interest rates generally are rising.
There is often, however, a difference in the behaviour of short-term and long-term interest rates. The government may manipulate short-term interest rates to achieve particular economic objectives. Rates might be forced up, for example, to damp down economic activity if the economy is overheating or to support the value of the currency if it shows signs of undesired weakness. Longer term interest rates – the yield on a bond with a ten-year life, say – are influenced more by investors’ expectations of inflation in the long run. If investors consider inflation is on a long-term falling trend, you could have the situation where long-term bond yields are well below the interest rates for short-term money, which are being held deliberately high to prevent a runaway boom.
There is one other concept we need to introduce at this stage: the opportunity cost of money. Look at it like this. Suppose you could invest your money perfectly safely with a bank for a year at a fixed rate of interest of 5 per cent. The £100 you invest will have grown to £105 after a year with the interest added in (again, we are ignoring tax). If you decide to do something different with your money, you are losing the opportunity to earn this perfectly safe 5 per cent. Thus 5 per cent is your opportunity cost of money, and it makes sense to use your money in other ways only if you think you could earn a better return than 5 per cent. If you buy a painting for £100 as an investment with the hope of selling it at a profit after a year, it makes sense only if you reckon you can sell it for more than £105. If you think of investing in a manufacturing process, you would need to be aiming for a return above (and in practice considerably above) 5 per cent. Changes in interest rates alter the opportunity cost of money and have profound effects on a vast range of investment decisions.
Figure 1.1 How yields compare How yields on different types of investment influence each other. The heavy line provides a measure of short-term interest rates, represented by UK clearing banks’ base rate. The second line gives a measure of longer-term rates with the yield on 10-year government bonds. And the bottom line shows the dividend yield on the ordinary shares in the FT 30 Share Index. Sometimes short-term interest rates are higher and sometimes long-term rates are higher, depending on economic and political circumstances. But, overall, it is clear how returns on different investments affect each other and follow broadly similar trends. Source: Datastream.
An allied concept is the time value of money. If you can earn 5 per cent interest, £1 today could be invested to grow to £1.05 in a year with the interest added in. That £1.05 could then be invested for a further year at 5 per cent interest and would grow to £1.103. And so on. Thus we could say that, at a compound interest rate (see glossary) of 5 per cent, £1.103 receivable in two years’ time is worth the same as £1 today because £1 today would grow to £1.103 after two years. Another way of putting it is that, again at a 5 per cent interest rate, £1.103 is the future value after two years of £1 today. Or, looking at it the other way round, £1 is the present value of £1.103 that is receivable in two years.
In other words, even if we forget about inflation, money receivable in the future is worth less than the same amount of money today. At a 5 per cent rate of interest (or 5 per cent discount rate) the present value of £1 that is receivable in one year is £0.952, because £0.952 is the amount in today’s money that would grow to £1 in a year’s time at 5 per cent interest. At a 10 per cent discount rate, the present value of £1 that is receivable in one year is only £0.909. And so on.
Essentially, most investment is a matter of paying a lump sum today in return for the right to receive a sum or series of sums in the future. So, if somebody says that he will give you £1 in a year’s time, what could you afford to pay for that right today? If you expect a 5 per cent return on your money you would discount at 5 per cent and find that you could afford to pay £0.952. If you expect a 10 per cent return, you would discount at 10 per cent and find you could only afford to pay £0.909. Calculations such as these – at a considerably more complex level and applied to a whole series of future receipts – lie at the root of much investment figuring. The important aspect, for our purposes, is that they illustrate the effect of interest rate movements on many types of investment. As interest rates rise and the returns that investors expect also rise, so (all else being equal) the price that they can afford to pay for a given investment will fall.
We can see an aspect of this process at work in the bond markets. A change in interest rates has important implications for the stock-market prices of bonds that pay a fixed rate of interest: fixed-interest securities, of which the traditional gilt-edged securities issued by the government are the most familiar, though companies also issue fixed-interest bonds. It works like this.
Gilt-edged securities, which are also known as government stocks or government bonds, are a form of IOU (I owe you) or promissory note issued by the government when it needs to borrow money. The government undertakes to pay so much a year in interest to the people who put up the money and who get the IOU in exchange. Normally the government agrees to repay (redeem) the stock at some date in the future, but to illustrate the interest rate mechanism it is easiest initially to take an irredeemable or undated stock which does not have to be repaid. The original investors who lend the money to the government by buying the IOUs do not, however, have to hold on to them indefinitely. They can sell them to other investors, who then become entitled to receive the interest from the government.
Suppose the government needs to borrow money at a time when investors would expect a 6.5 per cent yield on a gilt-edged security. The government has to offer £6.50 a year interest for every £100 it borrows. The investor is prepared to pay £100 for the right to receive £6.50 a year interest, because this represents a 6.5 per cent return on his outlay.
Then suppose that interest rates rise to the point where an investor would expect a 7 per cent return if he bought a gilt-edged security. He will no longer pay £100 for the right to £6.50 a year in income. He will only be prepared to pay a price that gives him a 7 per cent return on his outlay. The ‘right’ price in this case is around £93, because if he pays only £93 for the right to receive £6.50 a year in income, he is getting a 7 per cent return on his investment (6.50 as a percentage of 93). So, in the stockmarket the price of the irredeemable gilt-edged security that pays £6.50 a year interest would have to fall to around £93 before investors would be prepared to buy it. The original investor who paid £100 thus sees the value of his investment fall because of the rise in interest rates. Conversely, the value of his investment would have risen if interest rates had fallen.
This is one reason why there is so much comment in the financial press on the outlook for interest rates. Higher interest rates mean higher borrowing costs for companies and individuals. They also mean losses for existing investors in fixed-interest bonds.
In practice, the movement in stockmarket prices is slightly more complex than this would suggest and there is another vital principle to grasp. Stockmarkets always look ahead and discount future events, or what investors expect these events to be. Prices of stocks in the bond markets don’t fall or rise simply in response to actual changes in interest rates. If investors think interest rates are going to rise in the near future, they will probably start selling fixed-interest stocks. So there will be more sellers than buyers and the market price will begin to fall before the adjustment in general interest rates actually takes place. Likewise, investors will begin buying fixed-interest stocks if they think interest rates are going to come down, so that they have a profit by the time the interest rate cut has taken place and market prices have adjusted upwards to reflect the new lower interest rates. Making profits in the stockmarkets is all about guessing better (or faster) than the next man or woman.
Reports in the press tend to say ‘the market did this’ or ‘the market expected good news on the economic front’, as if the market were a single living entity with a single conscious mind. This is not, of course, the case. To understand reports of market behaviour you have to bear in mind the way the market works.
A market is simply a mechanism which allows individuals or organizations to trade with each other. It may be a physical marketplace – a trading floor – where buyers and sellers or their representatives can meet and buy and sell face to face. Or it may simply be a network of buyers and sellers who deal with each other over the telephone or computer screen. The principle is much the same.
In either type of market, the buyers and sellers (or the brokers acting as their agents) may deal direct with each other or they may deal through a middleman known as a marketmaker. If they deal direct, each would-be buyer has to find a corresponding would-be seller. John Smith who wants to sell must locate Tom Jones who wants to buy. If there is a marketmaker, John Smith will sell instead to the marketmaker, who buys on his own account (acts as a principal) in the hope that he will later be able to find a Tom Jones to whom he can sell at a profit. Marketmakers make a book in shares or bonds. They are prepared to buy shares in the hope of finding somebody to sell to or sell shares (which they may not even have) in the expectation of finding somebody from whom they can buy to balance their books. Either way, they make their living on the difference between the prices at which they buy and sell. Marketmakers (in practice there will normally be a number of them competing with each other) lend liquidity – fluidity – to a market. A potential buyer can always buy without needing to wait until he can find a potential seller; securities can readily be turned into cash. The London Stock Exchange traditionally operated a trading system incorporating marketmakers. But the system is now in the process of change, at least for the shares of the largest companies.
The market price of a security (or anything else) reflects a balance between the views of all the possible buyers and sellers in the particular market. This is what commentators really mean when they say ‘the market thought …’. They are describing the dominant view among those operating in the market. An example helps to show how this operates on security prices.
Suppose a security (it could be the government bond we looked at earlier) stands in the market at a price of £90. This is the last price at which it changed hands. Suppose there are only ten such securities in existence. But the price has been moving down, and even at £90 there are seven investors who think it is too expensive and would like to sell, and only three who would be prepared to buy. If £90 remained the price, only three sellers could find buyers and there would be an unsatisfied desire to sell.
Suppose the price is £89 instead. At this level one of the previous sellers decides the security is no longer expensive and he may as well hold on, while another investor decides it would be worth buying at this lower price. There are now only six sellers and four buyers. Still no balance.
Now suppose the price is £88. Another potential seller changes his mind if he can only get £88, while another investor reckons it is now attractive and emerges as a potential buyer at this lower price. There are now five sellers and five buyers so all would-be buyers can buy and all would-be sellers can sell. Thus at £88 the price has reached an equilibrium which holds good until something happens to persuade some of the investors to change their view again.
If there are marketmakers operating in the market, they will probably have moved their quoted price down from £90 to £88 – the price at which they can balance their books by matching buyers and sellers. Though their operations are in practice more complex (see Chapters 6 and 7a) and they also quote a spread between the price at which they are prepared to sell and the one at which they will buy, the principle holds good. Prices will move towards the point where there is equilibrium between buyers and sellers at a given time.
This principle operates in all markets, not just the markets in securities. In the money markets, banks will need to adjust the interest rates they offer and charge until they have the right balance between those who are prepared to lend to them and those who want to borrow. Building societies need to adjust the rates they pay to savers and charge to borrowers so that they keep a balance between the money coming in and the amount going out as mortgage loans. In the foreign exchange markets the value of the pound will need to find a level at which there is a balance between those who want to buy pounds and those who want to sell. Free markets in commodities, in gold bullion and in office accommodation in the City of London are affected by the same interaction of sellers and takers.
Fixed-interest securities and ordinary shares are the main stock-in-trade of the securities markets and the London Stock Exchange is the main domestic securities market. By buying one or the other, investors are helping – directly or indirectly – to provide the finance that government or industry needs. Why do we say ‘directly or indirectly’? Because the stockmarket is two markets in one: a primary market and a secondary market.
A primary market is one in which the government, companies or other bodies can sell new securities to investors to raise cash. A secondary market is a market in which the investors can buy and sell these securities among each other, and one market serves both functions. The buying and selling in the secondary market does not directly affect the finances of government or companies. But if investors did not know they could buy and sell securities in the secondary market they might well be reluctant to put up cash for the government or companies by buying securities in the primary market when they were first issued. And the prices established by the buying and selling by investors in the secondary market help to determine the price that government and companies will receive next time they need to sell further securities for cash in the primary market. In this way secondary market prices determine the price a company has to pay to raise new money. A reasonably liquid secondary market is normally considered vital for a healthy primary market.
Another facet of interest rates: at a time of volatile exchange rates between different currencies, the interaction between interest rates and the value of currencies (or parities) dominates much financial comment. Investment is increasingly international, and in their search for the best returns investors look not simply at the different options available in their own country but at the relative attractiveness of different countries as a haven for funds.
If Britain offers higher interest rates than, say, the United States or Switzerland, international investors may be tempted to invest in Britain. This means they will need to exchange whatever currency they hold into pounds sterling in order to make deposits or buy securities in Britain. They will therefore be buying pounds on the foreign exchange market. If the buying of pounds exceeds any selling taking place, the value of the pound (the price of the pound in terms of other currencies) is likely to rise.
Interest rates are by no means the only factor affecting the value of a currency. And the overall return a foreign investor receives when he invests in Britain depends not only on the yield his money can earn but on the movement in the pound itself. If the pound rises against his own currency he makes a profit on the movement in the pound. If it falls, he makes a loss. So his total return is a combination of the yield he can get by investing in Britain and the profit or loss he makes on the currency.
Whatever the level of interest rates in Britain, overseas investors will not invest if they expect the currency itself will fall sharply for other reasons. But interest rates are still an important weapon the government can use in defending the currency by attracting investors to buy pounds to invest in Britain.
Now look at some of the effects of a rise in interest rates across the financial system. In describing these effects different newspapers will highlight different aspects, according to where their readers’ interests lie.
Higher interest rates probably mean:
• an increase in borrowing costs for industry, meaning that profits for many companies will be lower than they would otherwise have been and that companies may be less keen to borrow money to invest in new projects
• a rise in the opportunity cost of holding non-yielding assets such as gold or commodities (it becomes theoretically more expensive to own them because, at higher interest rates, you lose more by not taking the opportunity of earning interest on your money)
• higher monthly mortgage payments for homebuyers, soaking up more of their available income and leaving them less to spend
• more expensive overdrafts and personal loans, and higher credit card interest rates, possibly causing consumers to spend less
• a fall in the value of gilt-edged securities or other fixed-interest bonds on the stockmarket, unless investors think the rise in interest rates is very temporary or unless prices have already fallen in anticipation
• a possible fall in the value of ordinary shares on the stockmarket (though the mechanism here is more complicated than with the gilt-edged market – see below)
• an increase in the returns that investors and savers can expect to earn on their money
• a strengthening (all else being equal) in the value of the pound sterling, as overseas investors buy pounds to invest in Britain and get the advantage of the higher returns from depositing money in Britain or buying sterling bonds.
In the popular press it is the effects on the individual, and particularly the homebuyer, that are likely to make the headlines: ‘Mortgage costs to rocket’. The quality press will probably mention the effect on mortgages, too. In a country where many people used to derive their main sense of economic security from selling their houses to each other at ever-rising prices, nobody is going to ignore the housebuyer. But the more serious papers will also be analysing the effects on sterling, industry, the stockmarket and on the outlook for economic growth. In the Financial Times, which regularly covers virtually every financial market, the ripple effects will spread to most corners of the paper.
Much of the day-to-day comment in the financial press is concerned with the securities markets and the investments that are traded in them. And so far we have talked mainly of the bond market (the market in long-term debt: particularly the gilt-edged market in which the government’s own debt is traded). But this leads to another fundamental concept: the difference between debt and equity.
Established companies usually generate part of the money they need from the profits they retain in the business. But, ignoring for the moment these internally generated funds, a company can raise money in a number of different ways. These are the main ones.
First, it can simply borrow money from a bank or elsewhere. Normally the money has to be paid back in due course, and meantime interest has to be paid to the original lender. The interest may be at a variable or floating rate: it rises or falls with changes in the general level of interest rates in the country. Or it may be at a fixed rate, in which case the interest rate remains the same for the life of the loan.
Second, the company can issue a loan in the form of a security. In other words, it creates an IOU and offers it to investors in return for cash, in the same way as the government does in the gilt-edged market. Normally the company agrees to repay – redeem – this loan at some future point. But the loan can usually be traded in the stockmarket in the same way as a gilt-edged security. The investor who originally put up the money does not have to hold on to his IOU until it is repaid. If he wants the money sooner, he sells the IOU to somebody else. He may get less for it than he paid, or he may sell it at a profit. The company simply pays interest to whomever owns the IOU when interest is due, and eventually repays the money it originally borrowed to the person who owns the IOU on the redemption date.
These loans may pay a fixed rate of interest or a floating rate. If they pay a fixed rate, they are very similar to a fixed-rate government bond. The rate of interest is known as the coupon and for convenience it is expressed as a percentage of the nominal, par or face value, which in Britain is taken to be a unit of £100, as with a government stock. The loans issued by companies go under various names such as loan stock, industrial debenture or bond. The value of fixed-interest loans is affected by movements in interest rates, but the health and standing of the company also plays a part. The company has to earn the profits to pay the interest and repay the capital, whereas with a gilt-edged security these payments are guaranteed by the government (see Chapter 13).
Third, a company may raise money by creating new ordinary shares and selling them for cash. This is quite different in principle from issuing a loan or borrowing from a bank, because ordinary shares – also known as equity – are not a debt of the company. They do not normally have to be repaid. The owner of a share becomes part-owner of the company. In return for putting up his money, he shares in the risks and rewards of the company’s operations: hence the term risk capital. He is entitled to a share of everything the company owns, after allowing for its debts, and to a share of the profits it earns. If its profits increase he can normally expect higher dividends – income payments – on his shares.
A share is also a security of the company and can normally be bought and sold in the same way as a loan stock. In the same way, its price in the market depends on the interplay of buyers and sellers, not on the price at which it was originally issued or on its nominal or par value (see Chapter 6). An investor who wants his money back simply sells the share to somebody else; whether he gets more or less than he paid originally depends on what the market price has done in the interim. If profits of the company rise, it will probably pay higher dividends and – all else being equal – the value of the shares will normally rise. If the company gets into trouble, the owners of the shares or shareholders are the last people to get any money back. All of the loans and other debts have to be repaid first.
Investors will generally accept a lower initial yield on shares than on fixed-interest securities because they expect their income and the capital value of the shares to rise. Take the earlier example of shares that could be bought at a price that offered a 3 per cent yield but which rose in value by 7 per cent over the year. The overall return to a buyer would have been 10 per cent. This is attractive relative to the 6.5 per cent return we assumed that he could get at the time on gilt-edged securities. The additional 3.5 percentage points allow for the risk element in the ordinary shares.
But investors do not know in advance what return they will get from ordinary shares. Even the 3 per cent dividend yield could fall if the company had to cut its dividend. And if it cut its dividend, the value of the shares in the stockmarket would almost certainly fall, too. Hence investing in shares involves a judgement about a company’s prospects and its ability to earn the profits out of which the dividends will be paid.
However, share values may be affected by movements in interest rates as well. Let us take an extreme example and assume that prices of gilt-edged stocks fall so sharply that the yields on the stocks rise to 10 per cent. Investors would now almost certainly want a higher overall return than 10 per cent on ordinary shares to allow for the risk element. In the short run, the only way shares can offer a higher yield is if their prices fall in the market (you pay a lower price to receive the same dividend, so the yield to a buyer has risen), and this would probably happen. But the prices of shares in individual companies are also affected by the profits outlook for the company. In the very long run the return from shares will depend on the profits the company earns or is capable of earning, but in the shorter run, movements in interest rates can have an impact. A large proportion of the press’s financial coverage concerns the profits companies earn and the profits they are likely to earn in the future.
One final word about markets. We can describe dispassionately how they operate and the main forces at work. This is not always how they present themselves in the short run to those who operate in them or those who comment on their day-to-day behaviour. Markets are moved by tips and rumours, by frenetic temporary enthusiasms and by devastating panics. They are creatures of mood and can sometimes be manipulated. Their enthusiasms and panics are frequently self-feeding, losing all contact with the underlying realities: the fundamentals.
Markets are a vital mechanism between investors with money and governments and companies that need money to put to work. But the average dealer in a City firm may rarely think about his function as a cog in this essential economic process. His business is dealing in shares and he has a gut feeling that share prices are due to rise, so he buys. He will usually find a reason afterwards for what he did. Do not take too seriously all of the reasons for market behaviour you find reported in the financial pages. Market professionals earn their bread from movements one way or another. If no logical reason for movement exists, they are quite capable of inventing one.
The financial institutions that make up the City of London provide the main mechanisms for distributing the flows of money. In the next chapter we look at the sources of money, the markets that distribute the money and the people you will meet in the financial pages who operate in these markets.
There is a fair range of information on the investment basics available from different websites, though it tends to focus more on investment products than the principles themselves. Much of this is found on the personal finance sites, but try as well the share-ownership promotion organization ProShare at www.proshare.org.uk/ for some very basic fact sheets on stockmarket investment. More detail on sites with educational content is given in Chapter 23.