Bank of Finland
The central bank and national monetary authority of Finland and a member of the European System of Central Banks and the Eurosystem. Among other things, the Bank of Finland issues new euro banknotes and coins in Finland and participates in the preparation, decision-making and implementation of the monetary policy of the Eurosystem.
The mutual exchange of goods and services for other goods and services without using money as a medium of exchange. Barter generally requires a mutual need for the items being traded.
BIS (Bank for International Settlements)
BIS is a forum for international co-operation in monetary issues, monetary research centre, producer of statistics, and a kind of banker for central banks. In addition, BIS often functions as an organiser in international financial arrangements.


Central bank
Authority conducting monetary policy. Among other things, it adjusts the quantity of money in the economy as well as the interest rates or exchange rates prevailing in the markets. The position and tasks of the central banks in different countries differ considerably. The Bank of Finland is Finland’s central bank.
Consumer price index
Compiled once a month using what is called a "shopping basket". For the euro area, the so-called harmonised index of consumer prices (HICP) is used, with a statistical methodology that has been harmonised across all euro area countries.
Convergence criteria
The criteria used in assessing whether a country may adopt the euro. The criteria measure among other things, whether the relevant countries’ price development is stable and how they perform in terms of public finances, exchange rates and long-term interest rate developments.
Covered bond
Covered bond refers to a bond whose collateral is a mortgage-backed credit or general government credit registered in the bond register. Source: Government Bill (HE 42/2010) to the Parliament for an Act on Mortgage Banking.


A sustained decline in the general level of prices, e. g. in the consumer price index, over an extended period.
Deposit protection
An arrangement which protects the funds on depositors’ accounts in circumstances where the deposit bank loses its liquidity. In Finland, the deposit protection amounts to EUR 100,000. The objective of the deposit guarantee fund in Finland is to secure depositors’ clams on banks. More information on the activities of the fund is available at talletussuojarahasto.fi.
Derivatives market
The derivatives markets are the venue for trading in financial contracts whose value is based on the prices of other underlying securities. Basic types of derivatives include futures, options, swaps and interest rate forwards.
Intentional reduction of the value of a currency as opposed to other currencies. Devaluation was used to boost Finnish exports in many occasions in the latter half of the 20th century, since following devaluation, the prices of export products in foreign currencies were significantly reduced.
Draghi, Mario
President of the European Central Bank.


Economic and Financial Affairs Council. Decisions on the EU’s economic and financial issues are made at Ecofin meetings. The meetings are attended by the finance or economy ministers of the EU member states.
Economic and Monetary Union
See EMU.
Employment rate
The employment rate indicates how many per cent of the 15–64-year-old population is employed.
EMU (Economic and Monetary Union)
The objective of the EMU is to promote economic co-operation and economic development of the EU member states. The EMU was implemented gradually, and the final step was taken at the beginning of 1999 when the countries participating in the euro area adopted the common currency, the euro.
EONIA (euro overnight index average)
Weighted average interest rate on overnight loans given by euro area banks to each other.
ERM II (Exchange rate mechanism II)
Exchange rate mechanism, which is the basis co-operation between the member states of the euro area and other EU member states. ERM II provides an opportunity for EU member states outside the euro area to link their currencies with the euro with a fixed central rate.
EURIBOR (euro interbank offered rate)
Reference rate of the euro area money markets, which is determined on the basis of the interest rates at which major euro area banks offer credit to each other. Euribor is the most commonly used reference rate for housing loans in Finland. Examples of Euribor rates include the Euribor rates for 1 week, 3 months and 12 months.
Euro (€, EUR)
Common currency of the euro area adopted on 1 January 1999, initially used only as scriptural money. Euro banknotes and coins replaced the Finnish markka and other national currencies in the euro area as of 1 January 2002. As of the beginning of 2011, the euro area consists of 17 countries.
Euro area
The area that is made up of those Member States of the European Union in which the euro has been adopted as the single currency.
Group consisting of the finance ministers of the euro area member states, which discusses matters related to the euro area but does not decide on them.
European Central Bank (ECB)
Established on 1 June 1998 and located in Frankfurt am Main, Germany. The ECB is at the heart of the Eurosystem.
European System of Central Banks (ESCB)
A system comprising the ECB and the NCBs of all 27 member states of the EU.
The ECB and the NCBs of those Member States that have already adopted the euro.
Executive Board
One of the decision-making bodies of the ECB. The Executive Board comprises the President and the Vice-President of the ECB, and four other members.


Financial market
The markets where some are lending their excess funds to other parties in need of money.
Financial Supervisory Authority, FIN-FSA
Financial and insurance supervisory authority supervising among other things the operation of banks and insurance and pension institutions. The Financial Supervisory Authority is connected administratively with the Bank of Finland.
Futures contract
A contract in which one undertakes to buy or sell securities or commodities at a predetermined price on a specified future date.


General Council
One of the decision-making bodies of the European Central Bank. The General Council comprises the President and the Vice-President of the ECB and the governors of all EU National Central Banks.
Governing Council
The supreme decision-making body of the ECB. The Governing Council comprises all the members of the Executive Board of the ECB and the governors of the NCBs (national central banks) of the countries that have adopted the euro. The governors do not represent their respective countries in the Council but their own expertise.
Great Depression
The Great Depression began in the United States at the end of the 1920s. This economic recession led for example to a collapse in output and GDP and high unemployment. The effects of the Great Depression spread to almost all countries. In Finland the depression was referred to as ‘pula-aika’ (time of deprivation).
Grey economy
The grey economy refers to the part of economic activity which is allowed under the law but being pursued clandestinely vis-à-vis tax, customs and other such authorities, where social insurance is not paid which is not recorded in official statistics. It does not include illegal economic activity, such as drug production and trade or prostitution.
Gross domestic product, GDP
The value of all products and services produced in an economy. GDP is often used to indicate the standard of living in a country. Differences in the wealth of different countries are often illustrated by listing the countries in an order of gross domestic product per capital.


IMF (International Monetary Fund)
The objective of the International Monetary Fund is to promote sound economic development and stable exchange rates in its member states. Finland has been a member of the IMF since 1948.
An increase in the general level of prices, e.g. in the consumer price index, over an extended period.
Interest rate
The percentage of extra money you get back if you lend your money to someone else (or keep it in the bank) or the percentage of extra money you have to pay back if you borrow money (in addition to the loan received).


Key central bank interest rate
The central bank may have an influence on the level of market rates, such as Euribor, by adjusting the key central bank interest rate. Key central bank interest rates also used to manage the quantity of money. The most important key central bank interest rate of the Eurosystem is the interest rate on the basic refinancing operations. By adjusting this rate, the Eurosystem communicates the monetary policy stance.


Labour force
The labour force includes all persons aged 15–74 including both the employed and unemployed.
Liikanen, Erkki
Governor of the Bank of Finland.
Preparedness to pay. For example, a company’s liquidity refers to its capability to service its payments in due time.


The Finnish currency unit before the euro.
Maturity refers to the original term when or the remaining time until a financial asset becomes due.
Monetary base
In the euro area, the monetary base consists of currency (banknotes and coins) in circulation, the reserves held by counterparties with the Eurosystem and the funds deposited with the Eurosystem´s deposit facility.
Monetary policy
Monetary policy is pursued in order to achieve general economic policy objectives. Central banks are in charge of the practical implementation of monetary policy by managing the quantity of money in circulation as well as the interest rates or exchange rates prevailing in the markets. The Bank of Finland is part of the Eurosystem, whose main monetary policy objective is to maintain price stability and thus protect the purchasing power of the euro. The most important monetary policy tool in the euro area is the key central bank interest rate, which is decided by the Governing Council of the ECB.
Monetary policy transmission mechanism
The process through which monetary policy decisions affect the economy in general and the level of prices in particular.
Money market
Markets where short-term finance is sought and short-term investments are made. Money market refers for example to the markets where banks or companies obtain short-term finance directly from investors.
M1 is also known as narrow money. M1 includes the money in circulation and overnight deposits.
M2 includes M1 and term deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months.
M3 includes M2, repurchase agreements, shares/units of money market funds units and up-to-two-year maturity debt instruments.


OECD (The Organisation for Economic Co-operation and Development)
Established in 1960 as a co-operation organisation of developed industrialised countries. Finland joined the OECD in 1969.


Price stability
Maintaining price stability is the primary objective of the Eurosystem. The Governing Council of the ECB has defined price stability as a year-on-year increase in the harmonised index of consumer prices (HICP) for the euro area of below 2%. It has further clarified that within this definition it aims to maintain the annual inflation rate at below, but close to, 2% over the medium term.
Prime interest rate
Prime interest rate is banks’ own reference rate which can be used as the reference rate for both loans and deposits. In practice, the level of the prime interest rate is determined on the basis of the general market conditions and short-term outlook.


Real interest rate
The real interest rate where the influence of inflation has been deducted. In a context of high inflation, the real interest rate is considerably lower than the nominal interest rate. Correspondingly, in the context of deflation, the real interest rate is higher than the nominal interest rate.
Reference rate
The interest rate to which the interest on a loan or deposit is linked.


Stability and Growth Pact
The Stability and Growth Pact is an agreement made by the member states which have adopted the euro and which requires specific measures to maintain economic stability. Specifically, the Pact determines a maximum deficit for public finances and a medium-term goal for the stability of public finances. The Pact also includes procedures for supervising that the Pact is observed and sanctions for potential violations.
Structural unemployment
Unemployment resulting from changes in economic structures, whereby the supply and demand of labour no longer match. Structural unemployment is due to for example that employees lack suitable education or experience for vacant jobs or they live in an area where there are no vacancies.
High-risk credit or loans (such as housing loans) that have been granted to customers with weak repayment capacity. In the United States, such subprime housing loans were commonly granted to people whose payment capacity was insufficient for the repayment of the loan, which contributed to the emergence of the global financial crisis.


TARGET (Trans-European Automated Real-time Gross settlement Express Transfer system)
A payment system covering the entire EU and interlinking the national real-time gross payment systems.


Unemployment rate
The unemployment rate is the percentage share of the unemployed in the labour force. The official unemployment rate is calculated as the percentage share of the 15–74-year-old population in the labour force of the same age range.