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There are some lingual debates about naming concepts correctly so that you can understand the real concept from its given name.

I'm entering into financial markets (I'm a computer programmer who is going to analyse the financial market, in order to develop some applications), and I find it really hard to understand some basic, underlying concepts.

I feel like the nomenclature isn't correct.

For example:

  1. Why do people call something a Security? Why not something as simple as a Financial or a Monetary? Why not Financial Documents instead of Securities?
  2. What does Instrument mean? I expect the word Instrument to represent a physical tool that can be used for a specific purpose. I know that some words have different meanings, but instrument etymologically means something prepared and I can't figure out the connection between being financial and being prepared.
  3. A bond is a solid, robust connection between people. Why is it the name of a kind of financial document?

For each of these terms, I tried to find an alternative, which represents that underlying concept better:

  1. Financial instead of Security
  2. Legal Document instead of Instrument
  3. Repayment Guarantee instead of Bond

I know these terms might sound normal to you, but I do have a tough time learning them. For example, my mind doesn't accept the word phone to describe something that can make food cold (refrigerator).

I searched Google and didn't find good answers. Even this guy complains about it.

The more I read Wikipedia about financial concepts and articles, the more I get puzzled. I try to find other examples too.

Is there a good, lingual explanation for this?

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I think your question may be too broad as it stands, since you're asking a couple of questions in one (and therefore it might be better to narrow it down to a question about one specific term). That being said, it's not that they're poorly chosen; it's just that many people may not be aware of their historical basis. Keep in mind that things like bonds often emerged before or concurrently with legal financial frameworks. For example, the term "bond" originated because it bonded someone to someone else to make a payment. –  John Bensin Sep 9 '13 at 19:44
    
Legal notions like guarantees, e.g. "repayment guarantees" weren't formalized yet. Although formal guarantees existed in some form, they weren't necessarily standardized or widespread, so people wouldn't have thought "this new bond idea is simply a type of guarantee" since as a legal discipline, finance was still emerging. Incidentally, this is also why the term "debt covenant" is used: covenant was a common term for an agreement, so the terminology was applied to bonds when they were developed (as far as I know). –  John Bensin Sep 9 '13 at 19:47
    
While I had this as an answer, it makes more sense as a comment. If someone challenges your ownership, what evidence would you have? That is your security and is the point of the term. Consider the "Securities and Exchange Commission" in the U.S. as a somewhat old use of the term Security here stemming from the 1930s. –  JB King Sep 9 '13 at 20:08
    
Usually there are various stories behind how terms came to be though there is something to be said for how English can be quite interesting. "I phoned a pizza" may seem like I am actually telephoning to a pizza when in reality, the likely explanation is I'm ordering one over the telephone but it becomes common usage. You may just have to find a way to get used to terms having their meaning here though be thankful that finance isn't quite as bad as trying to differentiate between the famous/infamous or flammable/inflammable, that one would think should be opposites. –  JB King Sep 9 '13 at 20:14
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+1 About English SE. More to the point, these terms do have a specific shared meaning in the financial world. –  JAGAnalyst Sep 10 '13 at 17:44

2 Answers 2

The problem with your suggestions is they're not really working.

For one, you chose to replace 3 particular collective terms in one particular language, and which also happen to be hierarchical: a bond is a security and a security is an instrument. Why didn't you ask about Bermuda swaptions or Iron Condors? I think those could do with a slightly more insightful name.

Secondly, your suggested replacements are partly in use in the financial world for something else already: A financial (as opposed to a physical) is a cash-settled futures contract. A guarantee is a promise to a creditor to cover the failure of a debtor. I think, anyone will have a tough time to find "fresh" or "unused" but descriptive replacements for your 3 terms.

Thirdly, the financial world (mostly) isn't an advertising company that needs to invent shiny names for their products; it's more (or less, see my Iron Condor example above) a quick and practical approach, you have something that's an option on a swap, let's call it swaption, if it's an option on a future, well, you could have gone with fuption or foption but the world quickly went for future option. Like with many things, it's for the people that come up with the concept first to choose the name.

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I am also a programmer, but I know very little about finance, however a bit of investigation (via Wiktionary) leads me to draw the following conclusions:

Security:

  1. (finance) Proof of ownership of stocks, bonds or other investment instruments.
  2. (finance) Property etc. temporarily relinquished to guarantee repayment of a loan.

Both cases provide the owner with some form of security against something bad happening (either their ownership is questioned or to secure that a loan will be payed). 'Financial documents' is far too vague and could describe other things like bank statements or cheques.

Instrument:

  1. A means or agency for achieving an effect.
  2. (law) A legal document, such as a contract, deed, trust, mortgage, power, indenture, or will.

The documents in this case are used as a legally binding way to enforce (insure the carrying out of) an action. For example a will is a way of ensuring the owner's wealth is distributed as they wish after death (so the will can be said to be 'a means for achieving an effect').

Bond:

  1. (finance) A documentary obligation to pay a sum or to perform a contract; a debenture.
  2. Any constraining or cementing force or material.
  3. Moral or political duty or obligation.

Meaning 3 is the meaning used in the phrase "my word is my bond". A bond (or bind) is something that one cannot get out of (i.e. it traps someone), hence 'bond' also refers to a document that legally binds someone so that they must obey the document's conditions.


The terms are all logical when you consider the uses that you are probably less familiar with. The meanings probably do come from informal use (business men are not always as formal as one might expect), but they are all logical.

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