Financial Language: A Case Study of Lehman Brothers

Abstract

The objective of the current research was to examine the changes in financial language and social development since financial tsunami, 2008, in the context of the United States and to report on the role and use of financial language in the proliferation of financial globalization and its eventual climax in the culmination of financial tsunami. The research was undertaken from a linguistic perspective to assess the role of financial language in contributing to social developments. Examining the linguistic characteristics of the financial language was another objective of the research. The research undertook the process of secondary and desk research supported by the case study of bankruptcy of Lehman Brothers, a prominent investment banking institution in establishing the association of financial language in the development and decline of the role of innovative financial products and services in the economic boom prior to 2008 and the financial tsunami in 2008.

The study concludes that the proliferation of financial globalization was greatly helped by the development of financial language and with the expansion of financial globalization, the financial language has to undergo a process of transition. The study found the influence of several factors in the use of financial language such as familiarity with the financial system, cultural differences, general mistrust of people on the functioning of the financial institutions, differences in income and varying education levels of parties dealing with each other. The research observes that though some of the phrases and terminology of financial language have resemblance to some of the linguistic features, financial language cannot be considered a full-pledged language. Nevertheless, financial language can be considered as a global language, as it meets the requirements of a global language.

Introduction

World history has witnessed several spells of dynamic and integrated global growth. At the same time, there had been many instances where the growth spells had ended because of financial instability and geopolitical disorders. There are examples of disturbances in British and French economies because of “social, military and monetary chaos” resulting in French and the American Revolution. Even greater damages to the entire social and economic systems were caused by the aftermath of World War I and the subsequent financial crisis resulted from the Great Depression. The most recent instance was the “multi-trillion dollar US-centered securitization debacle began to unravel in June 2007” (Engdahl, 2008), resulting in a “Financial Tsunami” towards the mid to end of 2008. The worst-ever financial crisis next only to the Great Depression ravaged the world’s largest economy ripping apart all the financial control mechanisms and safeguards meant to protect the financial system in the country. “The meltdown has led to shock waves across the world, with economy after economy gasping for breath to survive this financial tsunami” (Mohanty, 2009).

Alan Greenspan, the erstwhile official of the Federal Reserve narrated the crisis as one, which occurs over 100 years, considering its large impact not only on the US economy; but also on almost all the developed and developing economies. The analysis of the previous financial disasters reveals that the great wave of financial crisis overtopped one after the other economic sectors. In the recent crisis, the financial volatility started at the first instance in the housing sector. Later the crisis extended to banking and other financial systems. Finally, it affected the real economy in its entirety. The impact of the crisis has been felt both on the private and public domains and the blow on the private sector forced them to make heavy demands on public sector finances to save the economy from collapsing. The wave of the crisis surged across the borders of developed economies including United States and stated swamping other developing economies providing substantial impediment to economic growth of all the affected nations.

The financial crisis of 2007-2008 thus is the most substantial one affecting the United States economy heavily after the Great Depression. During the first year of the crisis, it was anticipated that the crisis would be affecting the developed markets only. The dramatic economic events that took place in October 2008 made it a true global phenomenon, which enveloped both developed and emerging economies, affecting the respective financial markets substantially and resulting in slow down of the economic growth and economic recession of a high magnitude. The irony is that neither lack of proper institutional designs nor failure of macroeconomic policies caused the crisis as prescribed by the standard crisis theory (for a discussion on crisis theory see Flood & Marion, 1999); but “poor assessment of risks and less than transparent inter-linkages between financial institutions” caused by faulty financial innovations. Traditional crisis models may not have the ability to provide greater insights into the current crisis (Allen & Babus, 2008).

In the context described above, the central aim of this thesis is to examine and report on the changes in financial languages and social development since financial tsunami 2008. The setting for the thesis is United States being the originator of the crisis and the one severely hit by the crisis. Therefore study of the topic within the context of United States will provide greater insight into the changes and will do more justification to the study. Before dealing with the central focus of the study, it becomes essential to create a foundation on general history of global finance so that there will be clarity on the reading of the subsequent chapters.

This chapter is structured to have sections presenting discussions on development of global financial markets, origin, definition and development of financial language and factors influencing the use of financial language. Under this chapter, the research questions for which the study will strive to find answers will be framed based on the theoretical framework, which will be discussed in one o the sections of this chapter.

Background: General History of Global Finance

Impact of the Great Depression on Stock Market in the United States – Period 1929-1939

Bernanke (1983) argued that any disruptions to the financial system are likely to have its negative impact on the real economy, since such disruption leads to increased cost of credit intermediaries. The impact of disruptions to the banking system has been examined a number of subsequent studies Calomiris & Mason, (1997), Calomiris & Mason, (2003) and Carlson & Mitchener, (2009). Retrospectively, the stress on the financial market caused by the bank failures may be assumed to have been prevalent during the Great Depression and such stress would have added to the severity of the depression during the period. Great depression was an economic crash that rocked the Americas, which disrupted the economic activities in Europe and other developed nations of the world during the period from 1929 to 1939. Great depression existed for a longer duration and was the strongest economic shock that devastated all the advanced economies of the world.

Although the economic conditions in the United States have been affected by the impact of an economic downturn much earlier, the major collapse of New York Stock Exchange during late 1929 marks the beginning of the period of Great Depression.

“Though the U.S. economy had gone into depression six months earlier, the Great Depression may be said to have begun with a catastrophic collapse of stock-market prices on the New York Stock Exchange in October 1929. During the next three years stock prices in the United States continued to fall, until by late 1932 they had dropped to only about 20 percent of their value in 1929. Besides ruining many thousands of individual investors, this precipitous decline in the value of assets greatly strained banks and other financial institutions, particularly those holding stocks in their portfolios” (Wright, 2005).

Great depression forced a number of banks to declare insolvency. By the year 1933, 44 per cent of the banks (11,000 banks out of total 25,000) operating in the country became insolvent, wiping of the investments of millions of people into nothing. “The failure of so many banks, combined with a general and nationwide loss of confidence in the economy, led to much-reduced levels of spending and demand and hence of production, thus aggravating the downward spiral” (Lance, 2008). The after effects of failure of so many banks caused a significant reduction in the confidence on the economy, which in turn resulted in reduced consumer spending and demand for products and services. Heavy reduction in demand led to corresponding reduction in production levels, which aggravated the economic downtrend. A combined effect of all these on the economy was the output falling drastically, leading to massive unemployment in the country. In real terms, the manufacturing output in the United States had fallen to 54 per cent of its original level as of 1929 and about 12 to 15 million workers remained unemployed, which was approximately equivalent to 25-30 per cent of the eligible workforce.

The nucleus of the issue was identified as the vast discrepancy between the industrial capabilities of the nation and the capacity of the public to utilize the produced goods and services. There were spectacular improvements in the production designs at the time of World War I, which increased the production of goods and services in the United Stated, well in excess of the boundaries of the ability of the salaried people and growers of the United States to procure and consume them. The investible surplus of a majority of citizens of the country grew to a level where any prudent channelization was not possible, resulted in the savings and investments drawn into speculative activities either in realty assets or in stocks. The downfall of stock exchange can therefore be construed as the major factor, which led to the crash of the speculative stock market activities.

Aftermath of World War II on Global Financial Markets – period 1940-1945

World War II can be considered as instrumental in overcoming the ill effects of Great Depression. Governments of different nations prepared their responses to improve their economies with sophisticated systems of financial regulations. The key initiative was the Bretton Woods Agreement entered in to in the year 1944. In the conference held at Bretton Woods (New Hampshire), attended by representatives from 44 nations entered into this agreement, where the values of national currencies were fixed against United States dollars. Under this agreement, the US dollar was equated to one ounce of gold having a value of US Dollars 35. Prior to this agreement, a gold exchange standard was maintained requiring the countries maintain gold reserves equal to the value of their currencies. The objective of this arrangement was to take guard against the economic volatility affecting the countries, since the practice of backing up with gold reserve led to boom-bust models in the economies. In the area of global trading, the objective of Bretton Woods agreement is to ensure international economic stability, through the mechanism of preventing currencies jumping national borders. Another objective of the agreement was to prevent speculation in the international currency market.

Member countries signed to this treaty, concurred on maintaining the values of their respective currencies, with a smaller protection for the dollar and on keeping gold for a like amount as reserve to back up to the agreed margin. Because of this agreement, US dollar acquired the status of the benchmark for exchange rates and became the standard as it can be exchanged to gold. This agreement marked the move of the economic power from the hands of the European countries to the United States. As an initiative to restore stability in the global market place, the agreement restricted the member countries to indulge in any devaluation of their currencies to facilitate their foreign trade. Even though the policies promulgated by the Bretton Woods agreement were short lived, the agreement made United States to emerge as the global economic power. Post World War II prosperity led to enormous trading volume in the international foreign exchange market and there were massive movements of capital across geographical borders.

This prosperity led to the destabilization of the currency conversion factors set in the earlier agreement. Subsequently the need for a new system to meet the demands of this growth and to provide the platform for better global trading arose.

The meeting at Bretton Woods also proposed the establishment of the “International Monetary Fund (IMF)” and the “International Bank for Reconstruction and Development” (the World Bank). The IMF was entrusted with the responsibility to provide short-term lending to countries to manage exchange rate fluctuations and short-term trade imbalances and the World Bank would provide long-term financial assistance to countries for promoting economic development. These institutions were established with the objective of preventing the reoccurrence of another devastating economic event like the Great Depression.

“Thus, in the aftermath of World War II, the United States emerged as the great winner and the new hegemonic power in the world; more than that, despite the new challenge represented by Soviet Union, it was a kind of lighthouse illuminating the world: an example of high standards of living, technological modernity and even of democracy” (Bresser-Pereira, 2010).

Recovery and Development of Global Financial Markets – Period 1945-1955

This period marks the start of the global economic recovery and the start of the Cold War between the erstwhile Union of Soviet Socialist Republics (USSR) and the United States. The developments that took place in the attitude and actions of USSR convinced American leaders that communism posed a permanent threat to the American model of democratic and competitive capitalism. The after effects of WW II created extremely bad economic and social conditions in Europe with shortage of energy and reduced production capacity. In order to remedy the economic situation and prevent the leaning of the European countries towards communism, the Truman administration proposed the “European Recovery Program” known as the “Marshall Plan” in 1947 aimed at economic and political reconstruction of Europe. The program took off in April 1948 and ended in 1952. The offer of European Recovery Program (ERP) was made to all European countries including the USSR with the condition that their markets were to be opened to the world economy on a gradual basis. However, USSR declined the offer and forced the Eastern European countries under its control to decline the offer.

The Marshall Plan made a transfer of $ 12.5 billion to 16 European states excluding Finland and Spain but including Turkey. Major portion of the aid, which was in the form of goods like raw materials for production and wheat including a small part as dollars were transferred to the UK and France and other states received a small proportion of the total aid. The economic impact of the aid was small as the value of aid received by the nations except UK and France represented only a fraction of the GNP of the receiving states. Nevertheless, the Marshall Plan had some qualitative impact in providing (i) the needed raw materials for the European industries, (ii) food much needed by workers in key sectors like coal mining and (iii) providing confidence to the European investors, which was badly needed at that point of time.

In the post war era, the transnational oil majors entered into long-term contracts for supply of oil and promoted several joint ventures, which were interconnected with each other.

“For other industries, however, pent-up consumer demand at home, the scarcity of similar demand in war-ravaged Europe and elsewhere, the lack of convertible foreign currencies, the risks attendant upon overseas investments as illustrated by the experiences of two world wars, restrictions on remittances, and the fact that a new generation of chief executive officers with less of an entrepreneurial spirit and more of a concern with stability and predictability than many of their predecessors, all served to limit foreign investment in the years immediately after World War II” (New American Nation, 2009).

The amount of capital invested in production by transnational companies rose from $2.4 billion in 1946 to $5.71 billion in 1954; but a majority of the investments were in the form of plough back of earnings by the companies that existed. The multinational companies had to face the situation of the host governments blocking repatriation of scarce currencies. The countries blocked the repatriation for tax and other reasons, which did not have any direct relationship to the increasing demand from the consumers. There were no significant improvements in the investments made in other industries such as public utilities (New American Nation, 2009).

The US government regulations applied restrictions on the capital outflow to other countries, especially for investment in the production sector. The government in an unusual move combined overseas economic decisions with the country’s foreign policy frameworks. With the Cold War intensifying in the decade following the WW II, US government implemented policies that restricted commercial transactions and capital flows to the countries under the control of Russia. “The Export Control Acts of 1948 and 1949, for example, placed licensing restrictions on trade and technical assistance deemed harmful to national security” (New American Nation, 2009). When the Korean War (1950–1953) was in progress, the government imposed further stringent restrictions. These controls were extended to dealing in all types of goods and services with China.

However, the financial status of US Corporations was so bad that they would not have invested substantially in the countries, which were under Russian influence in the absence of these controls. The economic sanctions against the communist bloc countries contributed to aggravate the gloomy economic atmosphere in the global scenario, which acted as a restraint on the inflow of foreign capital. Even the UK was keen on entering the prospectively larger markets of China. However, the country had to delay its plans, as it did not recover fully from its economic disaster, which also affected the inflow of foreign capital into the country discouraging the investors largely.

The period that followed the WW II witnessed the presidents Truman and Eisenhower aimed at recovering the “private sector” in the European countries. The governments encouraged increased trade and direct foreign investments for speeding up the recovery. The objective of Marshall Plan, with its outlay of around $ 12.8 billion meant to fuel the recovery of the economies in Europe during 1948-1952, was considered to promote a secure association among the public and private enterprises in a combined respect. Eisenhower worked on the principle of fuelling the global economic growth by liberalization measures covering cross border trade and personal investment in the foreign countries rather than extending different forms of government-sponsored financial assistances. During the tenure of his presidency between 1953 and1961, the president made changes to his policy of “trade not aid” to one of “trade and aid”. He also shifted his focus from the Western European countries to the Third World developing economies, which according to him were more vulnerable to communist expansion. Despite his conviction on the communist expansion, he strongly believed that international commerce and foreign direct investments had a major role to play in ensuring global economic recovery, growth and move towards prosperity.

Overview on Establishment and Growth of Traditional Financial Market – Period 1955-1985

In the aftermath of the Great Depression, governments took up the responsibility of managing the economies and this situation prevailed even in developed countries. There were significant changes taking place in the global context. During the late 1960s, the balance of payments deficit of United State increased and at the same time, the financial position of European countries became stronger with increasing surplus. However, the European nations were reluctant to revalue their currencies. This situation depicted the intrinsic demerit of a global reserve system in which the national currency of one country plays a major role in the determination of exchange rates of many other currencies. Even though, the system of fixed exchange rates and capital controls were abolished, the dollar standard for other currencies was still maintained. The countries were allowed to decide whether to float their currencies or not. Major countries concurred on holding dollar reserves in the United States.

The restrictions on cross-border financial transactions were removed largely which led to an increased capital flows across countries including to developing economies. “As real interest rates were low in the period of high inflation of the 1970s, international borrowing from private sources, lending banks in particular, became an attractive external financing option for governments in many developing countries, especially middle-income countries, compared with aid flows and multilateral bank lending which were often subject to restrictive policy conditions.” Since the flow of foreign capital were influenced by economic cycles, there were significant changes in the borrowing conditions at the end of 1970s which adversely affected many of the developing countries, which ended up with debts which were unserviceable.

The debt crisis was perceived as another failure in the development effort and was considered the result of unsound fiscal management in failing to create dynamic export sectors to maintain the debt-service to export ratios within manageable limits. These events fuelled the adoption of a diametrically opposite approach with respect to global economic development. This philosophy gained prominence during 1980s and 1990s. This philosophy called for a radical change in the role of the government in managing economic development, as governments were viewed as poor managers of public finances. This approach called for the development policies to be keen on the macroeconomic stability with the functioning of more deregulated markets and private initiatives.

The private initiatives were recommended not only in productive activities but also n the provision of social services. It was considered that the market reforms would be conducive to get the appropriate prices and encourage the businesses and households to improve upon their efficiencies and invest in a better future. The market-oriented, export-led strategies helped a number of developing countries in Asia to achieve sustained and rapid economic growth during 1980s. “These development policies involved inter alia, agrarian reforms, investments in human capital, selective trade protection, directed credit and other government support for developing industrial and technological capacity while exposing firms gradually to global competition” (Department of Economic and Social Affairs, 2010).

Many of the developing countries faced the repercussions of the debt crisis and they have to resort to the financial assistance from the IMF and World Bank under the strict conditions regarding adjustments in fiscal and monetary policies of the respective government prescribed by these institutions including market-oriented policy reform measures. Trade liberalization and capital account liberalization were the key ingredients of the reform measures prescribed by IMF.

Status of Global Financial Markets after Cold War – Period 1985-1995

After the collapse of the Bretton Woods system of fixed exchange rate system, a new global financial environment emerged in different stages. The economic crisis started in the beginning of 1980s led to different structures of business organizations and the enterprises merged with each other for greater efficiency and market power. Bankruptcies were also on the rise. These revised structures in the institutions and enterprises in the financial environment resulted in the generation of a new set of financial institutions and agencies in the form of investment banks, stock and insurance broking firms and several other financial intermediaries. The emergence of these financial intermediaries made the commercial banking functions combined with the functions of the investment bankers and stock broking firms.

Even though these agencies and institutions had a powerful role to play on the emerging financial environment, they did not participate in the promotion of enterprises in the real economy. The activities of these institutions, which largely remained unregulated, focused mainly on transactions of speculative nature undertaken in the areas of commodity futures and derivatives. They were also involved in the manipulation of currency markets. There was the development of the concept of “off-shore banking” encouraging legal and illegal monetary transactions resulting large accumulation of private wealth. In the absence of proper international regulatory regime and with the financial deregulation-taking place, secret ant-social organizations entered into the management and administration of financial institutions including banks.

The 1987 Wall Street Crash

Another major incident, which shook the US economy, was the largest fall in the stock values in the New York Stock Exchange on October 19, 1987 (usually referred to as Black Monday). The drop in the stock prices overshot the collapse of the stock market in the year 1929, which marked the beginning of the Great Depression. In the Wall Street, crash took place in the year 1987; US stocks lost 22.6 percent of their value largely during the initial hour of trading on October 19, 1987. The repercussion of the plunge on Wall Street echoed through the global financial markets leading to the steep fall in the values of stocks traded in the stock markets of Europe and Asia.

The Institutional Speculator

The 1987 Wall Street crash had the effect of wiping of the weaker agencies, institutions and intermediaries from the financial system enabling only those who are strong and fit to survive in the system. The stock market crash led to a substantial concentration of financial power in the global financial environment. This major transformation in the global financial system gave rise to “institutional speculator” category of financial intermediaries. These institutions gathered the necessary power to overshadow and often undermine the genuine business interests. These institutional speculators used different and innovative financial instruments to siphon the wealth from the real economy and accumulated their personal wealth. They were in a position to determine the future of entities trading in the stock markets. Without any role to play in the development of new entities in the real economy, they possessed the strength of driving even large conglomerates into the direction of financial breakdown and ultimately to insolvency.

In 1993, the Bundesbank of Germany through its report raised an alarm that trading in derivatives could potentially “trigger chain reactions and endanger the financial system as a whole” (Chossudovsky, 2008). With his commitment to financial deregulation during early and mid 1990s, the Chairman of the US Federal Reserve Board Mr. Alan Greenspan had warned, “Legislation is not enough to prevent a repeat of the Barings crisis in a high tech World where transactions are carried out at the push of the button” (Khor, 1995). According to Greenspan “the efficiency of global financial markets, has the capability of transmitting mistakes at a far faster pace throughout the financial system in ways which were unknown a generation ago…” (Greenspan, 1997). However, there was no revelation about the unprecedented accumulation of private wealth amassed because of the mistakes occurring in these speculative transactions.

The magnitude of the speculative transactions could be understood by the increased volume of currency trading, which surpassed the global official foreign exchange reserves, which were calculated to be in excess of US$ 1200 billion. It was reported that the institutional speculators were controlling privately held foreign exchange far in excess of those held by the central banks of the countries.

Impact of Technological Development on Stock Market – Period 1995-2000

Global economy has undergone a significant transformation with the technological revolution during the mid 1990s. Innumerable innovations in computerized transaction processing, software tools, telecommunication aids and the proliferation of Internet have facilitated the creation of an information economy. Latest developments in technology have a large impact on the functioning of the stock markets in that technology enhances the information availability to the investors and ensures the growth in their wealth.

Another important occurrence during the period 1995-2000, when there was the introduction of enhance technological applications in the global financial system was the “Financial Meltdown” happened in 1997. Exactly ten years after the great crash of Wall Street, stock markets around the world plummeted because of turbulent trading in the stocks of the respective countries. The Dow Jones index registered a decline of more than 7 percent. This fall marked the “12th-worst one-day fall” in the records of the New York Stock Exchange (Chossudovsky, 2008).

With the rapid technological development happened in the entire global financial system, major stock exchanges functioning in different countries around the world are interconnected. Trading was possible “around the clock” depending on the time zone of the respective stock exchanges as all the exchanges were interconnected through instant computer link-up to record the transactions on a real time basis. Due to the availability of the technological support, the volatile trading in the US stocks on Wall Street “spilled over” into the stock exchanges of Europe and Asia. Thus, the entire financial system was infused by the volatility of the transactions in the New York Stock Exchange. Stock exchanges all over Europe sustained substantial reversals. “The Hong Kong stock exchange had crashed by 10.41 percent on the previous Thursday (“Black Thursday” October 24th) as mutual fund managers and pension funds swiftly dumped large amounts of Hong Kong blue chip stocks” (Chossudovsky, 2008). The fall in the stock values in the Hong Kong Exchange Square continued limitlessly at the opening session of trade on Monday with a 6.7 percent fall followed by a 13.7 percent decline on the next day (Chossudovsky, 2008).

Developments, Challenges and Crises of Global Financial Market covering Post 2008 Financial Tsunami Period

There were several factors responsible for the onset of the financial crisis during 2007-2008. In general the macroeconomic policies implemented in the United States and the rest of the industrially advanced nations, were the main contributing factor for the crisis. Economic policies with respect to fiscal adjustments resulted in a reduction of saving volumes in the United States. Even the country allowed a not so stringent monetary policy to be in force for a longer period. “In Japan the mix of monetary and fiscal policies distorted the global economy and financial system” (Truman, 2009).

Easy monetary policies followed by many other countries including the Asian countries contributed their part to the global meltdown. “The impressive accumulation of foreign exchange reserves by many countries also distorted the international adjustment process, including but not limited to taking some of the pressure off of the macroeconomic policies of the United States and other countries” (Truman, 2009). With the result, there were increased activities in the housing sector not only in the United States but also in many other countries coupled with increased availability of market credit resulting in steep hike in the stock values and other symptoms of unorthodox financial practices, ultimately leading to the financial Tsunami. The role of inadequate financial sector supervision and regulation has also to be taken in to consideration for the financial Tsunami.

Irrespective of the causes there are some distinguishing features of the crises that need consideration to discuss the effects and challenges the financial tsunami has created to affect the global economy.

“First, the proximate origins of the crisis were in the United States” (Truman, 2009), largely and the actions of the financial institutions functioned in the country were the main reason for the emergence of the crisis. “Second, if the largest economy in the world, whose currency and institutions are at the core of the global financial system, stops functioning, the fact that the resulting crisis becomes global should not be surprising,” (Truman, 2009). Finally, it is but natural that an economic shock when started in the financial market would first affect the real economy. Adverse impact on the real economy in turn would influence the financial market further, ultimately affecting the real economy again.

“The reduction in growth has not been limited to the advanced economies” (Truman, 2009). The reduction suffered is similar for developed countries, transition and developing countries and the countries located in Western Hemisphere. The expected fall in growth for the years 2008-2010 on an average is 11 percent for the advanced economies and 12.8 percent for other economies. Another lesson learnt from the crisis, which is broader in scope is that the globalization of trade, financial globalization and globalization in exchange of labor has united the countries largely than it was in the earlier century. The repercussion of extension of this unity is that any economic shock that influences a larger nation or cluster of nations in the global financial system will lead to some effect, mostly undesirable on the remaining nations.

Financial Language – Origin, Definition and Development

Origin of Financial Language

The origin of any language in the discipline of linguistics is referred to as “glottogony”, which implies the process of the acquisition by human beings to use a language at some point in the Stone Age or prehistoric period. However, the use of different forms of language developed with the development of culture and societies among human beings. In the modern times, the users of languages have the fascinating capability in that they can refer to different issues, which are away from the sphere of the user. This ability is related to the theory of mind or awareness where in the user of the language considers the other as being like the user himself with individual aspirations and meanings. Hauser, Chomsky, & Fitch (2002) identify six key aspects of this high-level reference process of individuals. They are (i) relatedness to the theory of mind, (ii) ability to acquire conceptual representations which may as well be nonlinguistic, relating to any object (iii) referential vocal signals, (iv) exercise of voluntary control over signal production as evidence of the intentions to communicate and (vi) number representation.

These key aspects can be taken as the origin of modern financial language. It is also interesting to study the observations of Hockett (1966) on the characteristics of a language, which he describes as necessary for dealing with the development of different languages used by human beings. In the sphere of “lexical-phonological principle” there are two important characteristics observed by Hockett (1966), which may be considered as most important and associated with the origin of financial language. They are: (i) productivity – in which people using the languages can develop and comprehend totally new and fresh messages. In this case, the new communications are developed or new phrases are invented by mixing, taking from or converting the existing messages or phrases. In this case, either new or old elements contained in the message or phrase, are assigned new meaning or the differences between meanings without any restriction and such meanings or differences in the meanings are inferred from the circumstances or context where such messages or phrases are used. (ii) Duality – this refers to the patterning of the messages or phrases. In this case, a smaller number of elements or phrases, which do not possess any meaning on their own, but are capable of distinguishing between messages, make or replace a large number of meaningful phrases. These two features aptly describe the origin of financial language.

Definition of Financial Language

There is no consensus in the literature about a forma definition for financial language. Financial language may be defined in generic terms as the language developed to describe the individual items contained in any financial transaction comprising of terms that can be used to make a document evidencing a financial transaction between parties. The financial language is used to carry out any endorsement, addition or deletion in any document pertaining to a financial transaction. Financial language can be defined as the language approved by the global financial system, used on an international basis to describe and constitute any financial transaction.

Development of Financial Language

Past five decades have seen dramatic changes in the economic policies of the governments in the advanced industrial economies, giving rise to changes in the regulatory regimes over international finance. During the 1950s, most of the world nations have been applying severe restrictions on the international financial flows. Therefore, the cross-border capital flow was negligible. However, the subsequent developments in the global financial system as enumerated in the earlier sections of this paper have given rise to wider movement of capital on an international basis. Especially with the advent of economic globalization, the flow of capital in between nations has grown tremendously.

The development of global financial system after the World War II took a faster turn when governments of different nations prepared their responses to improve their economies with sophisticated systems of financial regulations. After the entering of the Bretton Woods Agreement in the year 1944, the global financial system was developing on a continuous basis in different directions assuming different dimensions. This development gave rise to a number of new practices and documents covering such practices. There was the necessity to develop a new financial language, which covers this rapid development in the financial system. The new language had to have an international perspective, as it was required to be understood by the people belonging to different nations interacting with each other on some financial transaction or other.

The sophistication in the technological development added fuel to the development of financial language. Although English language was the medium to communicate, the development of financial language gave rise to the use of new phrases having different connotations. The key consideration for the development of a common financial language was the necessity to be international capable of being understood by the people belonging to different nations interacting with each other.

Factors influencing the Use of Financial Language

There are various factors, which influence a proper understanding and use of financial language by the people. English as the basic medium used for the communication of financial language may pose a problem in using the financial language for many non-English speaking people. Nevertheless, there are other factors like familiarity with the financial system, cultural differences, general mistrust of financial institutions, differences in income and varying education levels of parties dealing with each other may pose potential challenge for the use of financial language. Lack of understanding of the operation of the financial system and the products and services covered under the system is most likely to present a challenge to the user of the financial language. Lack of exposure to mainstream financial institutions such as banks may make the individuals strangers to the use of financial language. Dissimilar norms, attitudes, and experiences relating to financial transactions based on the cultural differences may lead to flawed use of financial language. General mistrust towards financial institutions may create an aversion among individuals to get to know the use of financial language properly.

Some earlier researches have found an association between earnings and knowledge on finance matters. Low-income earners may not have the opportunity to develop their knowledge on understanding and use of financial language and therefore income and socioeconomic status of individuals act as a barrier to use the financial language properly. Similarly, people with low education may not have proficiency in the English language, which in turn may affect their ability to understand key phrases and terms in financial language and use them in their interaction with others during any financial transactions. While studying the use of financial language from different perspectives, it becomes imperative that the influence of these factors is taken into account. This becomes important so that the relative impact of financial language in the development and functioning of different financial institutions in the global financial system and their interaction with the people, who are users of the financial language, can be understood properly. Apart from the factors mentioned above, the degree of financial openness in the wake of recent financial reforms also play a major role in the use of the financial language by the people of the respective countries. People in those countries, which are restrictive in their approach towards financial openness, are likely to be less accustomed to the use of new financial language describing the new financial products and services.

Aims, Objectives and Research Questions

The central aim of the research is to explore the evolution of financial language and examine the changes in the financial language over the period until the financial tsunami occurred in 2008. In the process of achieving this central aim, this study attempts to accomplish the following objectives.

• To study the association between finance and language in general
• To study the linguistic features of financial language
• To explore the social aspects of financial language
• To study the association between financial globalization and language transition
• To study the role of financial language as a global language
• To assess the role of financial language in causing the Financial Tsunami 2008 and the need to develop new choice of financial language

The study using the qualitative case study of the bankruptcy of Lehman Brothers and based on the secondary information and data collected from various sources will attempt to find answers for the following research questions

1. What are the reasons for the popularity and infamy of financial languages?
2. How can the discipline of finance be associated with a language? How can the different linguistic features be identified in the financial language?
3. What are the social aspects of financial language? How does financial language meet the requirements of these social aspects?
4. What is the impact of financial globalization on the daily thinking and speaking habits of people?
5. Can the financial language be identified as a global language?
6. What is the role of financial language in causing the financial tsunami of 2008?

Theoretical Framework

The theoretical framework for the current study takes shape from the review of the relevant literature on the topic of financial language. From the literature review, the origin and development of the financial language and the factors affecting the use of financial language will be ascertained. The following figure illustrated the theoretical framework that will be followed for the current research.

Structure of the Dissertation

In order to present this research report in a cohesive manner, this dissertation is structured to have different chapters. While the first chapter introduces the topic of study, it also lays down the aims and objectives of the study including the research questions. Chapter two presents a review of the relevant literature on various elements connected with financial language and its linguistic nature leading to the social aspects and the relationship of financial language and financial globalization. The purpose of this review is to enhance the knowledge of the reader on the subject under study by exploring it from different perspectives.

Chapter three contains a brief description of the research method being used for conducting the study and the chapter details the justification for using the particular method. The case study of Lehman Brothers forming part of this research is presented in chapter four. Chapter four also presents the findings of the research from the secondary sources and from the case study followed by a discussion on the findings. Chapter five deals with the association between financial language and financial language, and it deals with the transition of financial language in line with the objectives of financial globalization. Chapter six concludes the dissertation with a note on the research objectives, answers for the research questions and a summary on the conduct and findings of the research and with recommendations for further research. This chapter also details the limitations this research had to face.

Literature Review

Introduction

“An awareness of language matters to a discipline because claims to knowledge can be made only by using language. It follows that it may be impossible to separate the content of knowledge-claims from the language in which they are expressed,” (Henderson, Dudely-Evans, & Backhouse, 1993). Thus, if the nature of a language with respect to the ways, in which it is constructed, is to be investigated, it becomes essential to examine the nature and role of the language. It is also to be remembered that language cannot be understood, without reference to the social context, within which it is used. This review on the financial language will study the nature of financial language within the context in which the financial language is used.

The rapidity with which change takes place in the present day world contributes to increased complexity. The sources of change include changes in technology, changes in the competitors’ positions and changes in economic forces acting on the businesses. Changes in these areas create scope for changes in the needs and requirements of the customers (Frame, 2002, p 30). Changes also lead t increase in the volume of information that needs to be communicated among the business partners across the world. The objective of any language is to improve the communication among people. Especially with the global business environment becoming more close-knit and openly accessible by people of different culture and nations, effective business communication has become a vital necessity. Over the previous centuries, business has developed its own language and vocabulary, with the help of which people interacting with each other could communicate effectively of their business intentions.

The rapid development of information and communication technology has helped the growth of a new financial language exclusive to the conduct of business transaction on a global basis. Financial globalization has given rise to the development of a new financial language aimed at improving the communication among the trading community spread in different geographical locations. Establishing business relationship and strengthening such relationships has become easier with the use of financial language. Financial language assumes a unique position, as the language has become universal being used commonly by the investors, bankers and traders throughout the world. For example, the language relating to investments can be divided based on the type of investor, the investment advisor, the type of investment and the cash flow (Cypres, 1999, p 105).

The language has been enriched by a number of newer and technical terms, which has enhanced the utilization of the language. While the development of the financial language is considered as an improvement to global commercial and trading systems, the increased use of jargons and technical terms has made it difficult for many to understand the meaning conveyed by the language in its proper perspective. The situation has become complicated with a number of different geographical regions developing their own versions of business language. This calls for a closer look at the development of the financial language in the context of social development. The central focus of this chapter is to present a review of the relevant literature that has dealt with the development and contribution of financial language to the development and growth of business relationship on a global level.

Financial Language – a General Background

In the absence of a clear-cut definition offered by theory or past literature, for the purpose of the current work, financial language is assumed as the language used for financial reporting on an international basis. The review of the literature and the discussion will revolve around the central theme of financial reporting as the major component of financial language. The development, utilization and impact of financial reporting on the global business society will therefore substitute the development and impact of financial language in the context of social development. The discussion on the development and contribution of financial reporting will constitute a major portion of the discussion on the development of the financial language. There are other constituents of financial language, apart from the financial reporting. The review under this chapter will cover economic language and business language as the other constituents of the financial language. These constituents have also found their importance in increasing the financial literacy of the people dealing with financial language.

Financial Reporting as Part of Financial Language

Financial reporting can be considered as a subset of financial language in which, different sets or combinations of words are evolved, with the help of which the financial reports are compiled and presented for the information of different users of such reports. Financial reporting is a vitally important tool for conducting the business effectively and therefore financial reporting assumes a greater importance in the domestic and international capital market transactions (Eli, 2004).

This has made accuracy and transparency in the financial reporting has become the first priority to all the business organizations throughout the world. The necessity for integrity and transparency has created the need for a common financial reporting or financial language, which could be understood by all the users of the financial reports. In other words, people who have the necessity to have access to and use financial reports for decision making in various situations must be financial literate possessing the ability to read and interpret the financial statements in their proper perspectives. McDaniel (2002) is of the opinion that financial “literates are more likely than experts to identify concerns related to the financial reporting treatment of publicly prominent, nonrecurring financial statement items, while experts are more likely than literates to raise issues about the financial reporting treatment of low prominence, recurring items.” This statement goes to prove the impact of financial language on making people acquire the required knowledge for reading the financial reports and evaluate the performance of different companies, which is one of the central objectives of the development of the financial language.

According to Benston (2006, p 3), “the growing globalization of capital markets is the main argument for a single body of standards or a single “financial language”. As investors increasingly look beyond their borders for places to put their money, they naturally want to be able to compare the performance of companies across countries.” This has made the financial reporting as an important constituent of financial language. However, it was assumed that business entities follow the practice of making a proper and comprehensive financial reporting, until such time there had been some major disturbances in the routine financial dealings. For instance, the break down in the financial reporting led to the Asian financial crisis in late 1990s; during early 2000s there had major financial mishaps causing billions of dollars losses to investors due to unscrupulous and fraudulent financial reporting by large corporations like WorldCom, Enron and Parmalat in the United States as well as Europe. These incidents, which shook the confidence of investors on the capital market and its instruments, necessitated a complete relook in to the financial reporting to ensure transparency and integrity. This development can be equated to a complete revamping of the financial language and strengthening it to meet the new demands and expectations of the investors all over the world. Such revamping took the form of securing the international support for the establishment of a single set of internationally accepted financial reporting standards, set by the International Accounting Standards Board (IASB).

A company limited by shares has an obligation to provide financial information to certain set of users. They are the current and prospective shareholders of the company, the tax authorities and the bankers or other lenders. Haskins (2007, p 4) identifies four objectives of the financial statement represented by the annual report of a company. According to Haskins (2007), financial reports (annual report) must (i) comprise of information that has a complete compliance with all the regulations applicable to financial reporting, (ii) represent the real financial status of the organization as at the date of the reporting as well as the financial performance of the concern for the year under review, (iii) provide information that will be useful for the decision-making by the users of such financial reports and (iv) be honest in reporting the real income of the entity. The content of the annual report must be able to exhibit the actual financial soundness of the company, supported by relevant and reliable information. Haskins (2007) treats the financial reports as a special language and this language should possess the above qualities to make the financial reports presentable to the users. It is also important that people dealing with the financial statements should possess the capability to understand the financial language underlying in the financial reports so that they would be able to draw the required information from the financial statements for their decision-making purposes.

Terminology in Financial Reporting

Language used in financial reporting comprises of a number of terms, which the people dealing with the preparations of financial reports should know and be aware of the meaning of such terms. This applies to those people who are involved in supplying the information necessary for the preparation of the financial reports. These people should be able to express their views and ideas in the financial language understandable to everyone associated with the preparation of the financial reports and statements. Normally, those who are involved in the preparation and presentation of the financial statements use specific terms, which convey specific meanings in the context in which such terms are used (Roulstone and Philips, 2007).

The authors deal with the specific term of Return on Investment (ROI), which is one of the most used and important term in the financial language. There are many such terms like, internal rate of return (IRR), present value (PV), gross margin, net margin, depreciation, cost of goods sold, and profit before interest and taxes (PBIT), profit after tax (PAT), current ratio, liquidity ratios, debt equity and many other such terms, which find frequent application in the financial language used in financial reporting. These terms represent only a fraction of the terms comprised in the financial language. There are thousands of such terms, the meaning and relevance of which people working in finance discipline should be aware so that they can communicate with people in positions of authority (Routh, 2007, p 105).

Mostly people working in the finance and accounting department of any organization develop and use the terminology of the financial language. Therefore, the finance personnel are able to feel the importance of financial language, as they deal with various financial aspects of the organization like financial management, budgeting, financial report preparation, risk management, internal auditing, bank dealings, investor-related issues, and issue of share capital, awarding contracts and fixing the terms of such contracts and mergers and acquisitions. In each of these areas, they need to formulate and use a number of financial terms, which form the core of the financial language domain. Sicillano (2003, p ix) is of the opinion that the accountants and business managers often speak different languages, with the result that both do not understand the viewpoint of each other.

This stresses the need for a thorough understanding of the financial language by the non-financial managers so that a better understanding can be created between them, which will ensure the meeting of the common objective of the success of the organization for which both of them work. The finance department of a company has two distinct functions to discharge. They are (i) managing the financial resources of the company – which is essentially the finance function, and (ii) recording and reporting of all its financial transactions – which are the core function of accounting. Financial language and terms are widely used in the discharge of both of these functions. Finance department is responsible for the collection and presentation of data pertaining to the transactions of the company for the use by other organizational members as well as external stakeholders who are interested in knowing the financial status of the company. The collection and presentation involves the use of innumerable financial terms and jargon. Therefore, this thesis suggests that the finance department in the business organizations is the point of origin for the financial language.

Use of Financial Language by Financial Institutions

According to Epstein, Nach and Bragg (2009, p 31) “reporting or display considerations is concerned with what information should be provided, who should provide it, and where it should be displayed”. In fact, these reporting requirements formed the basis for the creation of the financial language and its subsequent ramifications. The reporting requirements to make the financial reports easily comprehensible to the people across different geographical locations has given rise to the emergence of a number of financial terms associated with international trading and commerce and investment activities. In respect of international commerce and investment activities, the role of banks and financial service sector institutions cannot be undermined.

The development of financial language to its present form can also be traced to banks and other investment institutions apart from the finance departments of business organizations. Among different types of businesses, banking and financial services, sector organizations need the knowledge of financial language most. McKinnon (1973) has advocated the importance of a well-developed financial system for the rapid economic growth and poverty alleviation in any country. Several other researchers in the area have endorsed this view (Levine, 1997, 2005 Tsuru, 2000; Ahmed and Bebe, 2007). There have been a number of empirical studies, which focused on the association between financial sector development and economic growth (Goldsmith, 1969; King and Levine, 1993; Levine et al 1999; Khan and Senhadji, 2000).

This called for a broad access of the banking and financial services by households and entrepreneurs. The access could be improved by the spread of banking and financial services institutions across the country, which in turn created the need for the development of a common financial language, which could be understood by all the people desirous of dealing with the banks. Banks and financial services organizations throughout the world, over the period have developed specialized financial terminology forming part of the financial language. These institutions had to depend heavily on the common understanding of the financial language for their own development. It was vital that the financial language was one that was easily comprehensible for all those who deal with the banks. Although, through the development of the financial language, banks and investment organizations could expand their presence in different geographical locations during the past century, still there are some people within the banking system, who lack a complete knowledge of all the financial terms used by the industry.

The financial system in an economy consists of financial institutions, financial and capital markets, and other infrastructural arrangements like established systems for clearing and settlement. All these components of the financial system are responsible for providing financial services required by the enterprises and consumers to conduct their businesses effectively. For an efficient functioning of the financial system, there is the need to have an efficient banking sector in place. If the banking system does not function well, there is the likelihood of financial instability in the economy. “Because banks hold financial assets of consumers and producers, and are important to economic growth, bank failures can have substantial economic costs. As well, banks are connected through a variety of networks (such as the interbank markets and payments systems), and so a shock to one bank can lead to shocks to other banks (contagion). This can greatly increase the cost of a crisis” (Dungey, 2009).

This interrelation has been the root cause for the development of a well-knit financial language, which is used in common by the banks and financial institutions to transact business among themselves as well as with their clients. When there is a common financial language used by all the banks, it promotes an optimal competitive structure for the banks, which leads to efficiency and stability. Use of common financial language necessitates the banks and other financial services institutions to maintain their service quality to retain the customers. This is obvious in the case of financial planners who advise institutional and individual investors in their investment decisions. Hirt, Block and Basu (2006, p 135) observe that it is important for the financial planners to be able to understand the needs of both types of investors. Most of the times individual investors who might not have sufficient knowledge of the financial terminology will be the clients of the planners and this increases the need for the financial planners to have a thorough knowledge of the financial language to offer appropriate investment planning to such clients.

Improper Financial Reporting and its Effects

Misuse of financial language in the form of fraudulent financial reporting in the past had given rise to several accounting scandals, auditing scams and fake financial reporting, which shook the confidence of the investing public in the entire financial system. The excesses in the misuse of financial language in the form of creative accounting practices led to the public mistrust to business. This called for the passing of the Sarbanes – Oxley Act by the US Congress in July 2002. The passing of this Act gave a new dimension to the use of financial language by the finance and accounting professionals operating in various industries. The Act provided for rigorous corporate governance rules and formulated specific expectations on the financial reporting to make them reliable and transparent.

Sarbanes – Oxley Act requires the “Chief Executive Officer” (CEO) and “Chief Financial Officer” (CFO) to certify the dependability and reliability of the financial statements of their firms. The Act also cast a duty on the external auditor to report on the reliability of the internal control system in practice in the companies. “The act made it mandatory that the CEO and CFO sign the entity’s annual financial statements and assume full personal accountability for their figures and contents,” (Chorafas, 2009). The rigorous requirements of Sarbanes – Oxley Act has necessitated firms like Citigroup, Merrill Lynch. Bear Steams and several other financial institutions who suffered huge losses in the year 2007, because of their exposure to subprime mortgage lending, to report such losses in their financial statements, which exposed the magnitude of the financial problem created by the subprime mortgage lending.

“Indeed, no better example of the Sarbanes-Oxley impact can be found than the financial reporting on the aftereffects of the 2007 crisis in the subprime mortgage market, which created a torrent of red ink and brought many of the world’s bigger banks against the wall. This was a crisis created single-handedly by the banking industry, rather than being due to an external event like sovereign bankruptcies in emerging markets,” (Chorafas, 2009).

Thus, the entire economic chaos created by the subprime mortgage lending by then financial institutions can be attributed to the misuse of financial language by such institutions. “Through their policies with subprime, “no doc,” and “Alt-As” lenders, they also practically brought to bankruptcy millions of U.S. homeowners while also spoiling the capital of their own institutions to the tune of billions of dollars,” (Chorafas, 2009).

Financial Literacy and Factors affecting Financial Literacy

Financial literacy is closely associated with financial language, as financial literacy implies the ability to understand and comprehend the financial terms with their real meaning. This section analyses the phenomenon of financial literacy and factors influencing the financial literacy. Before analyzing the factors influencing the aspects of financial literacy and factors that might contribute to develop the financial literacy, it is necessary to have a comprehensive definition of the term financial literacy. There has been a large volume of previous works, which explored the area of financial literacy (Chen & Volpe 1998; Beal & Delpachitra 2003; Worthington 2006; Danes Huddleston-Casas & Boyce 1999; Chatzky 2002). These studies embarked upon a definition of financial literacy on their own to form the basis for the preparation of a survey instrument for studying the level of financial literacy in the financial environment of the country in which the study was conducted. The definition of financial literacy provided by Vitt (2000) seems to outline the essence of financial literacy appropriately. The definition reads as

“Personal financial literacy is the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy,” Vitt (2000: p xii).

Several previous studies have focused on the evaluation of financial literacy of people who deal with financial issues regularly. For example, the findings of the Princeton Survey Research Associates International (1996) survey, revealed that 18% of the 1 001 investors surveyed did not possess the required level of financial literacy. In the United States, a study conducted among 900 college students to observe the level of their financial literacy and to study the relationship between student characteristics and financial literacy found a number of factors influencing the financial literacy of the students (Chen & Volpe 1998). The study reported that factors like the nature of course studied (whether business or non-business), gender of the students, ranks obtained in the class, age of the students and work experience influenced the financial literacy of the students. These factors can as well be deemed to influence the use of financial language.

In another study conducted in the USA by Chen and Volpe (2002) as a follow up survey among the students, the authors found that factors like ethnic background, gender of the respondents, nationality of the students, age, income and years of experience had significant influence on the financial literacy of the respondents. Study by Beal and Delpachitra (2003), among Australian students revealed that factors like gender, work experience and income level enabled the students to acquire a higher level of financial literacy. According to Murphy (2005) race, gender, age and parents educational qualification influenced the financial literacy of the university undergraduate students in the USA. A more recent survey – ANZ Survey of Adult Financial Literacy in Australia, based on the responses of about 3,500 adults, reported the influence of all the variables found in other studies on the financial literacy. In addition, factors like, saving and debt also were found to have some influence on the financial literacy of the people surveyed (ANZ & A C Nielson, 2005). Worthington (2006) found the same factors of age, occupation, education, gender, ethnicity and income level to influence the financial literacy among people. Based on the findings this thesis submits that the use of financial language will also be influenced by these factors, as financial literacy essentially involves knowledge and use of financial language.

The financial literacy or understanding of the financial language is also influenced by some human factors. Although these factors do not have any direct link with the financial language, these factors hamper the development of a thorough understanding of the language. For example, the people involved in the financial services industry coin their own terms and jargon for their understanding and use among themselves. It may not always be possible for other common people to understand the jargon, unless the people in the industry explain the meaning of such terms. According to Hisey (2010), jargon developed by the finance people is one of the main factors that influence the use of the language by others. Generally, the jargon used by the financial planners and service provides make the clients feel less confident, so that they will allow the intermediaries to handle their finances. Deliberate use of specialized and complex language and terms is one of the other tactics used by the financial planners to show their superiority in knowledge than the clients. However, in reality such behavior does not find favor with the investors, as they feel uncomfortable in conversing freely with the planners. In some cases, the clients end up seeking financial advice from other planners, with whom they feel comfortable. West and Anthony (2000) are of the opinion that the financial planners purposely use such complex financial language to elevate themselves in the eyes of the clients.

The desire of some of the people to stay within the industry also sometimes result in complicating the financial language they speak. In cases, where the investor suffers a loss, due to the bad advice of the planner, the planner in order to retain his position with the company is made to use different economic terms to make the investor believe that the loss in the investment was really due to the operation of economic factors beyond the control of the planner. Because of his/her ignorance, the investor will refrain from making a complaint about the planner’s bad decision to the company. This attitude of the planners serving in the financial services industry leads to complicating the financial language beyond the comprehension of the investors and other people.

Role of Accounting Standards in Financial Language Transition

Accounting provides a service, which is critical to any society, without which the performance of different enterprises operating in the society cannot be assessed precisely. The recent accounting frauds called in to question the very integrity of the accounting system. This thesis considers the accounting standards as one of the main constituents of the financial language. This section provides a detailed review of the accounting standards and the necessity to evolve a harmonization in the accounting standards so that a common financial language can be developed making it easier to understand the intricacies of the financial statements by people of all regions.

The economic globalization had a deep impact on the manner in which organizations conduct their businesses. Globalization has encouraged companies to expand their enterprises across different geographical borders and such expansion has created the necessity towards a cultural and business homogenization. International accounting being a service dependent on the environment in which the businesses operate has also become a subject of change. There has been a persistent demand for promoting harmonized accounting standards to ensure that the information contained in the financial reports are understood by people from different parts of the world.

Financial and accounting reports presented using various accounting standards reflect accounting diversity amongst different communities. This implies that people in different societies do not follow and understand a common financial language. According to Schroeder & Clark (1995), in the absence of understandable financial statements, investors and creditors may not be willing to invest or lend their funds. Pacter (1998) argues that it is essential that uniform accounting practices are followed in preparing the financial reports, which can be comprehended by people in the same way throughout the world. According to Anderson (1993), “An international set of accounting standards would allow a more level playing field because income statements and balance sheet ratios would become more consistent between competing companies.”

“Effective financial regulation and supervision and the legal infrastructure supporting financial transactions depend on the timely provision of understandable and reliable financial information,” (Arner, 2007, p 169). Reliable accounting and auditing standards have been at the base of the development of both financial intermediaries and a number of financial transactions concluded through them. At one point of time, there have been significant differences in the accounting practices among different nations, especially among developing and transition economies. These differences led to the position of obscuring the relative financial position of different sectors and entities operating in the same industries.

This situation can be equated to the speaking of different financial languages by different regions in the world, and as a result, people in one region could not understand the financial language of people in the other region or country. This has caused considerable difficulties in the development of a global financial sector pursuant to globalization initiatives. This is because the systems existed in different countries did not follow a meaningful similarity. Therefore, the development of adequate systems of valuation and accounting to facilitate globalization has become one of the principal requirements. It was necessary to develop appropriate systems for financial information, especially those in relation to accounting and auditing, so that financial transactions could move beyond the basis structures of collateralized or relationship-based lending by the banks and financial institutions. In addition, there was the need for credit information systems for lending and credit rating agencies.

In this context, accounting standards provided the essential means of communication for valuation of companies sought after by any investor. “An important lesson to emerge from the financial crises of the past fifteen years is the significance of transparency of information, especially financial information, for the stability and proper functioning of any financial system, whether domestic or international,” (Arner, 2007, p 171). Accounting standards can be regarded as the fundamental means of communicating reliable financial information. Therefore, accounting standards are considered crucial to ensure transparency of financial transactions. They promote common understanding of the financial language on a universal basis.

Historically accounting standards have been established by the respective nations on a national level. This led to the use of different languages for the preparation, distribution and reading of the financial statements by the preparers and users of financial statements in different regions/countries. This has also resulted in the inability to compare the financial statements, which are prepared using different standards and the users were unable to understand and translate the meaning of different information contained in the statements. The users were also unable to determine whether all the material information has been disclosed in the statements or not. From the point of view of accountants preparing the financial statements, disharmony of the accounting standards greatly disrupted the progress of securities offering at international level, listing in international stock exchanges and pursuing cross-border mergers and acquisitions. The disharmony of accounting standards was a hindrance for both the users as well as those preparing the financial statements. Such disharmony acts as an impediment to the process of internationalization of financial markets more specifically the capital markets.

A survey of the international accounting and auditing standards conducted by the Office of the Chief Accountant of the U S Securities and Exchange Commission (SEC) found a number of disparities in the standards. SEC could make two categories of the accounting systems and standards. They are “(1) countries where business finance is provided more by loans than by equity capital, where accounting rules are dominated by taxation considerations and where legal systems customarily incorporate codes with detailed rules for matters such as accounting and (2) countries in which equity sources of finance are more important, accounting measurements are not dominated by taxation considerations because tax breaks can be enjoyed independently of (the mechanism of reporting) and common law systems prevail,” (Arner, 2007, p 171). However, the study by SEC could not find one system that could be adopted at the international level.

The task of developing a common financial language by harmonizing the accounting standards is essential for financial markets in the area of securities regulation. This is because of the criticality of the association between information and stability in different securities markets of the world. On an overall observation, the financial statements prepared using different standards cannot be considered to provide any useful purpose because understanding and assimilating the information contained in such financial statements is time-consuming and difficult. The importance of developing a common financial language in the form of harmonized accounting standards can be seen from the necessity to address the deficiencies in promoting an international financial system. International Organization of Securities Commission (IOSCO) and the International Accounting Standards Board (IASB) are the organizations involved in undertaking major initiatives towards the development of harmonized accounting standards for all the nations.

The movement towards international harmonization of accounting standards gained momentum by the globalization of international stock markets and other financial markets. In addition, business organizations and capital markets throughout the world are keen on the development of a uniform and high quality accounting standards, which will enable them to stem the fear of regulatory arbitrage. They can also aim at increasing their competitiveness by a proper understanding of the financial standing of the competitors operating in alien markets. “Interestingly, the debate surrounding the collapses of Enron, WorldCom and Parmalat also appears to be focusing on certain philosophical questions such as rules-based systems (e.g. US standards) versus more judgment-based systems (e.g. UK standard and International Financial Reporting Standards [IFRS])” (Arner, 2007, p 171).

Credible accounting systems alone will be able to provide the information needed by the investors as well as other people who have an actual or potential interest in the organization. Such information is essential for evaluating the performance of the organization in the past and in estimating its future performance. The information provided by the accounting systems also help in formulating an idea about the financial strength of the organization. There are four basic needs to be served by the accounting systems. They are (i) accuracy, (ii) relevance and transparency, (iii) comprehensiveness and (iv) provision of the information in a timely and regular manner (Arner, 2007, p 172). When the financial statements are prepared and presented based on the internationally accepted accounting principles and standards, such statements can provide a best assurance for containing understandable information. Similarly, when the financial statements have been audited in accordance with internationally acceptable standards, the statements can provide the best assurance for the reliability of the information contained within such statements. Auditing mechanism, which can be considered as a part of the financial language is essential to ensure that the recommended accounting norms have been applied in the preparation and presentation of the financial statements. Such audit mechanism is also essential to control and monitor the quality of internal control systems and procedures, with the provision for both internal and external audits.

There have been few empirical studies, which focused on assessing the value of effective accounting standards. For example, study by Klapper, Laeven and Rajan (2004) found that regulations, implemented to ensure protection of investors like the accounting standards, enabled firms increased access to credit.

“Effective systems for providing information are also essential to stakeholder monitoring, with accounting standards based on principles and rules that command wide international acceptance being crucial in this regard as they facilitate the comparison of performance across countries. Rigorous accounting and auditing standards also help prevent money laundering and other financial crime, thereby supporting market integrity, an important function given the potentially disastrous impact such problems can have on both individual financial intermediaries and confidence in the financial system as a whole,” (Arner, 2007, p 173).

Sociolinguistic Consequences of Economic Globalization

Waters (1995, p 3) defines globalization as a “process in which the constraints of geography on social and cultural arrangements recede and people become increasingly aware they are receding.” Globalization has increased the necessity and ability of the people and organizations to communicate across different geographic locations distanced from each other at a rapid pace. People have started using new technologies and ideas to communicate and this has created a new attitude towards language. Language is no more regarded as the ordinary and unimportant medium of social interaction. Business houses and corporations have assigned a remarkable place to the language in regarding it as a resource to be managed actively for their sustenance and growth in the international arena.

Language has become more like a commodity with a market value and corporations have understood that a careful management of the language is necessary to derive maximum rewards (Erreygers & Jacobs, 2005, p 9). However, language as a commodity has a unique characteristic different from the other resources or commodities. Managing language implies managing of its uses as well as the interpretations made of the language by other users. In the present day’s complex business environment, although business organizations talk about managing language, what they actually do or attempt to do is to manage the linguistic behavior of the organizational members including their employees. It follows therefore that the exploitation of linguistic resources cannot be managed independently without managing the human resources associated with the using of the language. This is particularly true in the case of financial language and its use in the global scenario.

Organizations thus, are increasingly concerned in managing linguistics to augment competitive edge and the practices of organizations in managing the financial language have effects beyond the workplace as well among the potential investors in the case of financial service organizations. The efforts of these institutions in managing the language include their actions in reinforcing and spreading the ideology of language as a commodity. The institutions consider the communication skills of their employees as linguistic capital. For winning, the competition organizations develop new forms of stratification and exclusion in the labor market by training the chosen employees with new jargon and technical terms simply to show the organization’s superiority than the competitors. The organizations also try to diffuse culturally specific norms for verbal interaction to different parts of the world, where they were not present earlier (Erreygers & Jacobs, 2005, p 21).

Latest developments due to globalization have led to two distinct paradigms in sociolinguistic realm. While one of the paradigms is established, the other one is emerging. The established paradigm is the ‘sociolinguistics of distribution’ (Erreygers & Jacobs, 2005, p 22). In this case, the movement of language resources is observed to move in a horizontal and stable space and according to time. Within the allotted or available space, there are possibilities of vertical stratifications happening along the lines of class, gender, age, social status or other factors influencing the language.

The second paradigm is the ‘sociolinguistics of mobility’ (Erreygers & Jacobs, 2005, p 22). This phenomenon focuses on the language-in-motion rather than language-in-place. Sociolinguistics of mobility is affected by the interaction between various spatiotemporal frames, which can be described as scales. The assumption here is that “in an age of globalization, language patterns must be understood as patterns that are organized on different, layered (i.e. vertical rather than horizontal) scale-levels. And while a sociolinguistics of distribution is by and large concerned with ‘language’ – linguistically defined objects – a sociolinguistics of mobility is concerned with concrete resources” (Blommaert, 2010, p 124) Based on these premises, financial language can be said to be a subject of sociolinguistics of mobility rather than sociolinguistics of distribution.

Relevance of Economic Theory to Financial Language

The objective of economic theory is to outline the regularities in human interaction. “Economic theory carefully analyzes the design of social systems; language is, in part, a mechanism of communication. Economics attempts to explain social institutions as regularities deriving from the optimization of certain functions; this may be applicable to language as well” (Rubinstein, 2000). This proposition presupposes a close association between economic theory and financial language. In the discipline of economics, human beings represent the economic agents. For the economic agents language becomes a vital tool in their decision-making and in judging the reliability of information presented. This theory applies equally to financial language, as financial language has become the central tool to enable people make informed decisions about their commercial transactions or investment decisions. As a part of the mechanism of communication financial language also tries to impact, the social system in the same way economic theory does.

Financial Language Transition and Financial Tsunami

The credit crunch of 2007-2008 caused by failure of the global financial systems in the wake of the failure and bankruptcy of several banks exposed to subprime home financing has been the most significant financial crisis faced by the world after the Great Depression in the United States. The magnitude of the crisis even surpassed the banking crises that happened prior to WW I. The first year of the crisis appeared to have had its impact on the financial markets of the developed nations. However the dramatic events, which took place in October 2008 has made the crisis a truly global virtually affecting every economy in the world. Asian crisis of 1997-1998 assumed significantly smaller proportion when compared to the recent credit crunch.

“Policy responses to the credit crunch to date have instead promoted looser credit conditions, fiscal stimulus, widespread deposit guarantees, reregulation, mergers and nationalization of financial institutions. The spread of the credit crunch has not been caused by a lack of institutions or poor institutional design, or macroeconomic policy, as per standard crisis theory, see for example the overview in Flood and Marion (1999), but rather seems to have originated in poor assessment of risks and less than transparent interlinkages between financial institutions as a result of financial innovation,” (Dungey, 2009).

It is the financial innovation caused the financial tsunami, which can be claimed as the transition in the financial language. Several newer financial products emerged accompanied by several newer financial terms, understood only by the banks, investment brokers and credit rating agencies. As a result of this development the very products which were to secure the financial transactions for diversifying the risk appeared to have transformed it to liquid assets capable of being further transacted and hence became counterparty risk.

There have been widespread and dramatic changes across different financial markets and regions. Analysts identified a number of reasons for the spread of the credit crunch across different financial markets. “Common factors may lead to simply increased volatility in multiple markets (see Pericoli and Sbracia 2003; Forbes and Rigobon 2001). Trade and direct economic or financial linkages such as common banking structures, lead to the existence of spillovers or fundamentals-based contagion (Dornbusch, Claessens and Park 2000; Kaminsky and Reinhart 2000). In addition, new linkages between markets may emerge, and it is this transmission of volatility in addition to the common factor and spillover channels that is labeled contagion,” (Dungey, 2009).

This paper identifies the financial linkage of common banking structure across different regions as one of the important causes for the contagion effect. The new developments that led to a transition in the financial language that could be understood easily by the banks operating in different regions, in their greed to earn exorbitant profits was the main reason for the spread of credit crunch among countries.

Contagion effects during the previous crises between geographical markets and across different financial assets classes have been the central focus of many of the previous studies. However, there has been no study to observe the transition in the financial language and its common understanding across global markets as one of the reasons for contagion effect. It is the peculiarity of the banking system and the development of a special language that is understandable only by the people belonging to banking sector dealing in financial instruments, which led to a complex trading system on the subprime mortgage documents. The terminology and language was made so complicated that common person could ever make out how the transactions are constructed. The structure of the language was such that even analysts and federal authorities could not make out the intricacies and protect the economy from the eventuality. Only a handful of top-level executives and investment brokers developed and assimilated the true meaning of the complicated financial language involved. The credit rating agencies are the other parties who vouched for the transactions. It is still unknown even now, whether the credit rating agencies understood the real meaning of the language and analyze the transactions from their true perspectives before rating the mortgage bonds.

Role of Subprime Lending in Contributing to Financial Tsunami

The delinquencies in sub-prime mortgage loans and the number of foreclosures in the home loan market-giving rise to the need for serious economic, social and regulatory measures had a serious impact on the US economy. The credit needs of the low-income individuals are often met with ‘predatory lending’, which comprises of a number of financial practices. These changed financial practices represent the new dimensions of financial language. This kind of lending has become increasingly predominant in the rural areas. Predatory lending usually takes the form of payday loans check cashing and car title loans, which threaten the income and assets of the borrowers by the higher rate of interest and stringent repayment conditions.

The subprime mortgage market was nothing but an extension of this lending practice prevalent in the housing market. Subprime mortgage loans carried interest rates much higher than the prime loans in order to cover the additional risk exposure of the lenders in extending credit to the borrowers who had a bad loan track and were defaulters in repayments. With the increase in the subprime lending the rate of failures had also considerably increased, as most of people, who obtained the loans, were those who did not have the adequate means to repay the loans. When such failures reached a greater proportion, “investors have started scrutinizing subprime loans more carefully and, in turn, lenders have tightened underwriting standard,” (Bernanke, 2007). Banks and financial institutions undertook certain other measures including credit spreads over subprime securitizations to control the rate of delinquencies.

Although the term ‘subprime mortgage’ was used to indicate the loans offered to those borrowers whose credibility is doubtful, the term “subprime’ does not signify the character of the loan itself but characterizes the borrower meaning the borrower has a substandard credit status. The term ‘subprime’ is one of the innovative inclusions in the financial language of the Twenty-first Century. Lack of good credit history and habitual defaults in repayments make the borrowers to get into the status of subprime borrowers. Subprime mortgages were provided using several instruments like “subprime mortgages, subprime car loans, and subprime credit cards, among others”. The expansion in the sub-prime mortgage has made the home-ownership possible for those borrowers who otherwise would not have been able to qualify for any borrowing. There has been a sharp increase in the subprime mortgage in the recent years. “In 1996, subprime lenders reported $90 billion in lending. By 2004, the subprime mortgage market had grown to $401 billion” (Carsey Institute, 2006). “Last year, 13.5 percent of mortgages originated in the U.S. were subprime, according to the Mortgage Bankers Association, compared to 2.6 percent in 2000. Overall, the subprime market was $600 billion in 2006, 20 percent of the $3 trillion mortgage market, according to Inside Mortgage Finance. In 2001, subprime loans made ups just 5.6 percent of mortgage dollars” (Kratz 2007).

“For these mortgages, the rate of serious delinquencies – corresponding to mortgages in foreclosure or with payments ninety days or more overdue – rose sharply during 2006 and recently stood at about 11 percent, about double the recent low seen in mid-2005” (Bernanke, 2007)

With the increase in the subprime mortgage market, the concerns over the adverse effects of the predatory loans have also increased. Indirectly forcing borrowers to take loans with very higher rates of interest and processing and other fees than they were actually eligible and afford was one of the components of predatory lending often adopted by the lenders. “It has been estimated that as many as half of all subprime loan borrowers could in fact qualify for conventional rate mortgages” (Fannie Mae and Freddie Mac, 2004). According to the U.S. Department of Treasury guidelines issued in 2001, “Subprime borrowers typically have weakened credit histories that include payment delinquencies and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories”.

A highly automated origination system, which facilitated faster credit scoring and risk-based pricing algorithms, was instrumental for the rapid growth and consolidation of the mortgage industry (Collins, Belsky, & Case, 2005). Growing use of credit scores in mortgage lending and the creation of automated underwriting systems also helped the new origination system very well (Brueggeman & Fisher, 2004; Kendall & Fishman, 1996; Fabozzi & Modigliani, 2002). These were the obvious changes to the financial language took place during the mid to late 2000s. “The advent of risk-based pricing meant that rather than charging a single rate to all qualified borrowers, the mortgage market classified borrowers into risk buckets based on factors such as their demonstrated ability to handle debt repayment, stability of employment, extent of documentation of their financial information and the loan-to-value ratio” (Apgar & Herbert, 2005).

The way in which subprime lending transactions took place, fully explains the impact of changes in the financial language during the period. There has been a complete change in the system of originating the loans. Unlike the traditional way of originating the loans from the bank branch located in the same area, any of the three available channels – retail, correspondent or through brokers originated the loans. Retail activity resembled the traditional lending where the employees of the bank or mortgage institution reached the potential customers and complete the formalities for sanctioning the loan. Subprime lending business took place through the branch operations and sometimes institutions close the loans over telephone or over the Internet. After funding, the lender may decide to hold the retail loan in portfolio or the lender may decide to sell it to another lender or package it and sell it to another secondary market thus shifting his exposure to the buyer of the mortgage.

Credit Characteristics of Subprime Borrowers

Subprime lending had its large presence in low-income and minority groups of people, who did not have any clue of the financial language or the changes that had taken place in the use of the language. This is obvious in view of the fact that low-income households were characterized by higher credit risks and therefore were keen in using subprime financing. These geographic disparities resulted in wide variations in credit characteristics of the borrowers and variations in the types of loans granted. This also resulted in less competition from the mainstream lenders. Subprime lending is one of the classic impacts that financial language created on the social front.

Several studies assessed the credit characteristics of the subprime borrowers. Study by Avery et al (1997) reveals that poverty rates have greater association with credit scores at 25 percent, while unemployment rates account for 9 percent. Minority shares of the population have an association of 30 percent with subprime borrowing and less than 10 percent of the population over the age of 60 years is associated with credit scoring with respect to subprime borrowing.

Pennington-Cross, Yezer, & Nichols, (2000) observe that the subprime borrowers bore higher risk characteristics than the borrowers in the conventional market segments and the study indicates that the main target of subprime lending is the borrowers with high-risk rating. The study found that the Black and Asian borrowers were the most probable people using the subprime financing even after factors like risk factors, credit scores, debt levels and income levels are controlled. This study confirmed that although factors like income of the borrower, debt levels, credit history and neighborhood factors had a significant influence on the pattern of mortgage lending, race and ethnicity appeared to have a prominent place in the exposure of African Americans, Native Americans and Hispanics to subprime financing rather than having access to lower-cost prime loans.

Shopping Behavior of Subprime Borrowers

The characteristic of the mortgage market in presenting a wide range of products made it complicated even for a sophisticated borrower to evaluate the different options available in respect of mortgage loans. This was the special character infused in to the financial language by lenders and financial institutions. Literature on behavioral economics explains the differing and inconsistent time preferences of borrowers on deciding the choices regarding different mortgage options. Mortgage brokers often depend on the tendency of the borrowers to depend on shortcuts for making borrowing decisions. Using this vulnerability of the borrowers the brokers sell subprime loans or other loans, which contain terms unfavorable to the borrowers. Many borrowers, especially elderly ones and borrowers in lower income and/or minority groups often become the victims of the tactics of the aggressive brokers. It is highly likely that borrowers who go after broker-originated loans may have to pay more interest and more likely to have a loan with prepayment penalty. The borrowers in this case might not have received loans with terms, which are favorable to them and in most cases; they would not have received accurate and honest information. In essence, the borrowers did not understand or comprehend the financial language used by the lenders.

Study by Courchane, Surette, & Zorn, (2004) reports that the subprime borrowers have only a lesser knowledge about the mortgage process and therefore are less likely to find out best mortgage deals for them in terms of interest and other repayment conditions. They did not also get an option to choose among alternative mortgage terms and instruments. Guttentag (2001) argues that consumers were not in a position to be effective shoppers, because of the complexities involved in the mortgage products. This was the complexity added to the financial language itself. According to Guttentag, (2001), the price variability in mortgages was not the sole prime or subprime issue, as the way in which mortgage market functioned also contributed to such variability. Factors like complexity of the products and the tendency to change the loan terms on a daily basis affected the ability of the borrowers to make an effective comparison of the available terms of mortgage.

The number of parties and intermediaries involved in a mortgage transaction also made the shopping for the best deal by the borrower difficult. The participants included “loan officers, underwriters and processors, property appraisers and insurers, title insurers, credit reporting agencies, mortgage insurers, abstract companies, pest inspectors, and flood insurers to name a few.” In addition, the complexity of the products enabled the brokers to collude with some of these participants to skim extra money from the borrower. The documentation was another issue, which complicated the shopping by the borrower. The enormous amount of documentation associated with mortgage loan gave many opportunities to the brokers to incorporate unfavorable terms into the loan agreement without the knowledge of the borrower. These unfair practices resulted because of the development of a complicated financial language. It is highly doubtful that whether even the people belonged to the lending institutions could understand the implications of the changed financial language, leave alone the borrowers.

Adverse Consequences of Subprime Lending

The foremost effect of extending the subprime lending to less creditworthy customers was the increased foreclosures in the case of home loans as well as auto finance. This development was unintentional at the time, lending institutions considered granting of loans on a large scale to a large number of customers. However, this outcome was not surprising because most of the borrowers, who obtained the loans, were low-income group people and they were not in a position to meet the mortgage payments in time. There were also lower-wealth brokers who could not protect the mortgages by making timely mortgage payments. This led to more number of delinquencies and defaults in subprime loans.

Another side effect of the increase in subprime lending was the decline in the price levels of homes and used automobiles. This is because of the fact that much of the home loans under subprime lending were given to under-served lower-income borrowers who concentrated buying homes in lower-income neighborhoods where the housing market is more fragile with very few takers of homes either on foreclosure or on sale. This buying pattern coupled with abusive marketing and origination practices led to concentration of foreclosures resulting in a contagion effect where foreclosures above some threshold level could bring down prices in an area and stimulate a further cycle of foreclosures and decline.

Studies have proved beyond doubt the connection between increase in foreclosures and the phenomenal growth in subprime lending. Cutts & VanOrder, (2003), researchers at Freddie Mac estimated the serous delinquency rate for conventional prime loans at 0.55 percent as of mid 2002. Contrastingly, the serious delinquency rate in respect of subprime loans was at 10.44 percent, which is nearly 20 times higher than that in respect of conventional prime loans. In the case of riskier loans, the delinquency rate was at 21 percent. Subprime mortgage loans were the most default-prone mortgage segment of the home loan market. The data collected from Freddie Mac suggests that delinquencies in respect of subprime loans constituted more than 50 percent of the total seriously delinquent loans, while prime loans accounted for 25 percent of the seriously delinquent loans.

The rapid growth in the subprime lending market in extending credit to risky borrowers coupled with the changes in the economic climate pushed the level of delinquency loans at the national level to a higher level. Collins, Belsky, & Case, (2004) observe that the serious delinquency rates in subprime loans and foreclosures in the segment almost doubled between the years 1998 and 2001, only to fall off slightly after 2001. Apgar and Herbert (2005) are of the opinion that “higher foreclosures among subprime loans are a natural outgrowth of the lower credit quality that characterizes the subprime market. This effect is reinforced by the fact that collateral value in the subprime market is generally weaker” (Apgar & Herbert, 2005).

Credit Rating Agencies and Subprime Lending

It is argued that the credit rating agencies were also responsible for turning the risky house mortgages into securities, which were considered suitable for investors. Normally the investors had no means of verifying the quality of the securities, which in this case were the house mortgages. In order to determine whether a mortgage is safe lending institutions study the details of the owner of the property, the income of the owner and his/her credit history. However, in the absence of such details the investors relied on the ‘AAA’ rating given by rating agencies like Moody’s. Over the period starting from the year 1996 Moody’s and its principal competitor, Standard & Poor’s and Fitch Rating have started this business of rating the mortgage securities and the ratings by these agencies were believed by the investors as unquestionable basis for investments. For the rating agencies, it was new business and more profits. By turning the house mortgages as a source of funding, the agencies transformed mortgages – which otherwise had no means of recognition – as a strong base for writing new loans by the mortgage banks.

With the support of the ratings by the credit rating agencies the volume of such loans reached a high magnitude in the year 2006 being mortgages issued to subprime borrowers. Investment bankers and other traders sold almost the entire subprime loans by converting them into securitized pools and sold to Wall Street with heavy trading going on such securitized pools. The most important point here is that the investors had no knowledge, nor they had any means of making their judgments on the quality of these mortgages, the equity covered by the properties, and many other usual investment considerations. Al they did before investing was to rely on the credit ratings offered by the renowned rating agencies. Thus, the credit agencies have assumed a role of de-facto watchdog of the mortgage industry.

However, the credit rating agencies denied accepting the fact that they should have been more vigilant in rating these mortgages. They offered the argument that it was the mortgage holders, who have defaulted were responsible. The rating agencies added that most of the mortgage holders obtained the loans by making false claims to the financial institutions, which sanctioned the loans, originally. Nevertheless, the fact remains that the rating agencies have erred in rating the mortgages with more credible ratings. This was evident from the fact that Moody’s, Standard & Poor’s and Fitch Rating have downgraded the ratings of a large number of mortgage securities subsequent to the housing collapse. The rating agencies contend that even though it is true that the credit rating agencies did not have access to the individual loan files of all the borrowers to verify the information provided by the borrowers, the investment banks provided them with spread sheets containing data on borrowers’ credit histories based on which the ratings have been made. Hence, most of the ratings were based on the skills of the rating agencies as record keepers and on a consideration of total exposure. They argue that there were no means of verifying the credibility of each individual borrower before awarding the ratings.

Moreover, in the United States it was not possible for many classes of investors to make investments in any non-investment grade bonds. This forced the issuers to urge the rating agencies to grade various bonds covering the subprime mortgages. The rating agencies were free to charge such issuers for their rating services. This also resulted in the increase in the number of ratings given by the rating agencies. Though it was an efficient way to do business, such business has put the agencies in a conflicted position (Roger Lowenstein, 2008).

In the case of structured finances like bank loans, the situation was much worse and complicated, because few banks would come again and again to the rating agencies for grading the securities to which they are getting exposed and for such rating the banks pay hefty fees to the rating agencies like for example Moody’s. However, the banks will only pay the fees when the agency offers the rating as desired by the banks. In case of strained relationship with Moody’s for example, the client bank can try its luck with the competitor Standard & Poor’s for getting the desired rating. This practice was described as ‘ratings shopping’. This was another factor, which determined the role of credit rating agencies in the sub-prime mortgage crisis.

Changes in Investor Behavior after Financial Tsunami

The financial tsunami has caused numerous changes in the behavior of the investors in respect of their risk tolerance. This implies that although, they have not learnt the impact of changes in the financial language in its entirety, they were able to assess the financial losses such changes could cause to their investments. They have trained them to adjust their risk tolerance limits to go in line with the changes occurring in the financial markets. The investors have started following the changes in the financial language and the implications of such changes on their personal investments. Rapid developments in the information and communication technology and the proliferation of Internet have enabled the investors to draw as much information as necessary to make suitable adjustments in their investments and risk exposure along with market changes.

The investors tend to undertake risk adjustment increasingly whenever there the asset prices increase. In case the risk becomes larger than the risk-bearing ability of the investors, they would start adjusting their investment portfolios with the objective of reducing the risk. Such actions by the investors will lead to similar adjustments in the entire investment market. Therefore, the investment risk tolerance of the individual investor is most likely to have a great impact on the entire investment market and they are interrelated. There are many demographic, psychological and sociological factors identified by the literature and research studies, which are the determinants of risk tolerance limits of the investors. “A prospect theory indicated that the individual investment decisions are affected by past experience and thought thus, the determinants of risk tolerance is very important related to the behavioural finance arena” Yuen & Chen, 2009). This paper argues that such demographic, psychological and sociological factors influenced the individual investors to under the financial language in its true perspective. Only when the investors are able to understand the changes in the financial language, they will be able to make suitable adjustments in their risk tolerance limits. Because of the losses caused, the incident of financial tsunami has enhanced the ability of the individual investor to understand the financial language in a better way. The enhanced transparency requirements in financial reporting has in fact, supported the ability of the investor in their increased understanding of the financial language.

Previous research studies focusing on risk tolerance of investors, suggest that there are various demographic, psychological and sociological factors, which determine the risk tolerance of the individual investors. These factors include age, gender, education level, and marital status, number of dependents, wealth and income. Financial planners usually consider these factors for evaluating the risk tolerance of their customers. For example, Lehman bondholders have been evaluated wrongly about their risk tolerance, which led to considerable disturbance to the company as well as the investors. The mismatch between the supply of investment products and the demand through inefficient evaluation of the customers are the main reason for such financial disturbances. According to this paper, the financial intermediaries do not understand the financial language underlying the investment products properly and as a result they are not in a position to explain the intricacies and the risks involved in the financial products to the customers. There is another set of financial intermediaries, who possess a thorough understanding of the financial language; but do not take the trouble to explain the underlying risks to the investors, with the view to enhance their revenue and earnings.

Development of Alternative Investments

A further development in the financial language is the “alternative investments”, since the investors were shaky in investing the traditional form of investments, in view of the increased risks, especially after the incidence of financial tsunami in 2008, the alternative investments were given a relook. This section details the development of financial language in the direction of alternative investments.

It is interesting to note that the institutional investors had to face issues relating to ‘Liability Driven Investment’, ‘Alpha Transportation’ and the role of alternative investment in the asset allocation (Sequier, 2006). These topics have come into the fore due to the changing institutional landscape in the recent past. The exposure of the institutions to these newer ideas is primarily due to two reasons.

1. The combination of lower interest rates and below average equity performance that prevailed in the start of this century has created a number of bona fide funding issues for a large number of pension funds. This was the result of the mismatch between the risk exposure of the liabilities of these funds and their relative assets. This has also caused a number of countries altering their regulatory positions with respect to valuation of liabilities, which ultimately had the impact on the investment and asset portfolio of these funds relative to their liabilities. In order to integrate into this new regulatory regime the pension assets had to be deconstructed into a hedging portfolio. This separation of assets is the root cause for the development of the concepts of ‘liability driven investments’. Performance enhancement objectives of these investment requirements led to ‘alpha transportation techniques’ and an enhanced role of the alternative investments.
2. Another change occurred during this period is the significant development of the alternative investments. The rapid growth of the private equity sector and the hedging fund industry has opened up a number of performance sources that is available to the investors to choose. The strong development in these sectors coupled with lower rates of interest and poor performance of the equity market led to considerable increase in demand to the alternative investment strategies. (Sequier, 2006)

The asset allocation framework has to adapt necessarily to this new context. It has also been observed that the traditional way of separating the strategic asset allocation to manage the beta from the tactical asset allocation (this method uses the concept of generating alpha within an asset class) was found to be ineffective to handle the new investment opportunities which are spread over various asset class. In addition, the traditional basis cannot address the strategic role of alternative investments within an institutional portfolio. It is important that alternative investments be to be used only as opportunistic positions as they do not offer any exposure to traditional betas (Sequier, 2006). These developments in the investment scenario led to the development of new terminologies and expressions, which completely changed the scope and content of financial language in the start of this century.

Alternative investments in general are those investments, which are a departure from the traditional form of investments. A traditional investment on the other hand includes an investment strategy or asset class, which is mainstream and in most of the cases, the asset is traded in major exchanges of the world. Examples of traditional assets include “equities, including large-cap domestic stocks, small-cap domestic stocks, international developed country stocks, real estate and emerging markets stocks”. It may be remembered that sometimes back ‘Real Estate Investment Trusts’ (REITS) and international bonds and equities were considered as alternative investments. However, with the advent of globalization and increased use of internet there has been tremendous improvement in the investor sophistication.

This improvement in sophistication has enabled the investors to invest more in early forms of alternative investments like REITs. As such, the early class of alternative investments has become mainstream investments in due course of time. With the new class of assets gaining recognition from large number of investors, and more researches made available, many new investors started looking for alternative investments to make extra earnings. Another impact of the increase in the number of investors was the decline in the profits for large fund managers to some extent, which made them to look for more profitable alternative investment avenues. With every new find of such investment strategies, they are added to alternative investments. This has also added the scope of financial language further to include new investment terms covering the alternative investments.

Objectives of Alternative Investments

In general, the investors resort to alternative investments with three-fold objectives. They are (i) to attempt to diversify an investment portfolio by engaging innovative investment strategies, (ii) to aim for higher than normal returns that they can expect from other forms of investments and (iii) to reduce the volatility and risk in the investment portfolio through low or negative correlation of returns with traditional asset class or by correlating returns within inflation. One major source of attraction that may be associated with alternative investments is the complexity in their nature, which makes it difficult for the investors to analyze the potential risks and benefits thoroughly. This again is the complexity created in the financial language, by the inventors of the new financial investment products.

This results in market inefficiencies, which are exploited by firms having the mindset and willingness to employ time and efforts to undertake the required research to bring out a financial asset that is acceptable as an alternative investment. Diversification thus is the primary benefit that the alternative investments extend to the investors in comparison with the traditional class of assets. Many of the alternative investment strategies are embedded with extremely low correlation to the price movements in the more traditional forms of financial securities. Under such circumstances when the financial markets remain overvalued, from the overall risk perspective, maintaining a portfolio, the returns of which are independent of the financial market can really be enticing. While there are abundant, opportunities available for making higher returns with the alternative investments, such investments are looked at favorably even from the angle of risk control and diversification. However, the understanding of the underlying risks by the individual investor remained difficult due to the complexities in the financial language associated with the investment assets.

Forms of Alternative Investments

Although newer investment strategies and products are developed and introduced in the market every now and then the following are some of the common types of alternative investments recognized by the financial investment community. Even though these investment strategies fall under the general category of alternative investments, each one of them possesses unique characteristic features. A general description of these different forms of alternative investments is appended, just to enhance the knowledge on the financial language associated with these alternative investments and the discussion is more academic in the direction of the role of financial language in alternative investments.

Hedge Funds

Hedge funds do not fall under a particular alternative investment strategy since the funds constitute different investment vehicles employed to by many types of non-traditional investing strategy. Hedge funds have the flexibility to invest in any asset class they wish. The hedge funds have the limitation from their own creativity and the willingness of the investors to part with their money with the confidence placed on the funds. Hedge funds usually take the form of limited partnership interests and the hedging funds sell these interests to qualified investors. Therefore, these funds enjoy only a limited flexibility. They remain largely unregulated which is quite contrasting to the operations of the mutual funds. (IIM Calcutta)

Private Equity

This investment strategy involves a kind of equity investment in non-public companies. Although this alternative investment is practiced in many different ways, buyouts and venture capital are the most important forms of investment adopted by this strategy. Buyouts take place when the investors indulge in purchasing all or a part of a firm exclusively with the intention of reselling in the future with a profit margin. Leveraged Buyout (LBO) is one of the important variant of this investment strategy where the debt to equity is very low and the success of such deals is largely dependent on the capabilities of the management team to create value for the firms. Venture capital is another large variant of this alternative investment strategy, which involves investing in the companies that are in the start up or early stages but with a high potential for growth. (IIM Calcutta)

Other Types of Alternative Investments

There are other types of alternative investments like commodities, direct real estate, arbitrage strategies, market neutral, managed futures, global macro, distressed securities, fund of funds and the like with each one of them having its own characteristics in terms of associated risks and returns. (IIM Calcutta)

Role of Alternative Investments in Financial Crisis

Recent crisis in the financial sector in the United States as well as in other parts of the world including Europe clearly prompts a reassessment of some of the principles and practices in the policymaking with respect to the financial sector. Such changes could result in further crucial changes in the structure and oversight of the financial system worldwide. Abundant liquidity that existed for a longer period and the prevalence of lower interest rates are the important causes that led to global search for higher yield and under-pricing of risk by the investors.

The longer duration of the liquidity that was available with the financial institutions and other investors in general, rising asset prices especially the real estate prices and continued lower rates of interest amidst international financial integration and innovation has resulted in serious global macroeconomic imbalances. Bates, Kahle and Stulz (2007) have documented the enormity of cash in the hands of non-finance firms just before the beginning of economic downurn. According to the authors “the net debt ratio (debt minus cash, divided by assets) exhibits a sharp secular decrease and most of this decrease in net debt is explained by the increase in cash holdings. The fall in net debt is so dramatic that average net debt for U.S. firms is negative in 2004. In other words, on average, firms could have paid off their debt with their cash holdings” (Tong and Wei, 2008).

Consequently, the US current account deficit had swelled with capital inflows from Asian and oil producing nations. In addition there was a general trend of global search for higher yield and this led to the underestimating the risk factors in the alternative investment opportunities. Regulators on the other hand took policy decisions that either facilitated the imbalances or were ineffective in some cases to be a proper response for the adverse impact of the imbalances.

The abundant liquidity resulted in a rapid expansion of credit both in developed as well as emerging nations. Mortgage financing was found to be one of the high growth areas not only in the United States but also in many other countries, which contributed to a bubble in the real estate prices. (World Bank)

Financial innovations in the form of alternative investment strategies have created systematic vulnerability in different ways. Best fitting example is the growth of the mortgage market, which took the form of ‘originate and distribute’ – implying the creation of mortgages for selling them in the market. Innovations in the structured finance and credit derivatives overwhelmingly supported this model. In addition, there existed an active secondary market for the mortgage related securities. The most serious part of the crisis was the interconnection of both regulated and unregulated financial institutions through over the counters (OTC) markets. In fact, these institutions because of the interconnections had established bilateral clearing and settlement arrangements. (World Bank)

On the other hand, the favorable macro economic conditions that existed like the enhanced competition, advancement in technological standards and rising asset prices prompted the financial institutions to focus down-market. In order to maximize their earnings the financial institutions indulged in practices like lowering “credit underwriting” standards, engaging in riskier trading activities with security mismatches and relying excessively on quantitative risk models. To meet these objectives the financial institutions also practiced the wrong principle of funding long-term investments using short-term instruments. (World Bank)

All these factors have created complacency among the capital market investors. With the result, they failed to employ adequate monitoring of the risks and proper reexamination of their investment portfolios. The slowdown and the subsequent decline in the US home prices since the year 2005 led to the unraveling of the “highly leveraged and unsound lending” practices that have been built over the period. These weaknesses in the lending practices were brought to light first in the subprime lending. The other market segments such as prime mortgage loans, commercial real estate, leveraged loans etc were subsequently subjected to the brunt of the financial crisis.

According to Bloomberg (June 2008) the total write-offs since January 2007 because of financial crisis stood at $ 245 billion with much more to follow. Dr. Jeffrey R. Bohn (2008) identifies the following factors as responsible for the creation of the subprime crisis. They are : (i) Faulty risk assessment systems (VaR), (ii) flawed ‘originate and distribute’ business model, (iii) ineffective credit rating given by the rating agencies, (iv) lax regulators who failed to anticipate the repercussions, (v) manipulative bankers who used the faulty systems to their advantage, (vi) fraudulent brokers taking the borrowers and lenders for a ride, (vii) mark-to-market accounting practice, (viii) greedy borrowers interested in getting free finance, (ix) greedy lenders interested in only higher returns, (x) faulty market structure, (xi) weakly structured finance, (xii) complications created by the derivatives and (xiii) lax monetary policy that proved ineffective to monitor the financial sector. Thus, the crisis has been found to be the culmination of several factors, some of which are interrelated to each other. This thesis relates these causes mainly to the lack of understanding of the complexity of underlying financial language, by a majority of investors and the failure of the financial intermediaries, who were thorough with the financial language to make the investors understand the associated risks.

Methodology

Introduction

The objective of this chapter is to describe the methodology adopted for meeting the aims and objectives of this study. “In the discussion of the selection of a problem suggests valuable criteria: (1) novelty of the problem, (2) investigator’s interest in the problem, (3) practical value of the research to the investigator, (4) worker’s special qualification, (5) availability of the data, (6) cost of investigation, and (7) time required for the investigation,”(Watkins (1994) quoted by Reyes, (2004); Burn and Grove, (2005). While considering all these aspects one of the most important issue in conducting the social research is to find a way of getting the focus on the different aspects like the problem statement, conceptualizing the theory and choosing the research design. “Focus provides the integration of seeming diversity of the elements of the process from the presentation of the problem to the scope of research, conceptual framework, related literature, instrumentation, appropriate statistical methods to be used as well as the design and methodology used,” (Reyes, 2004, p 3).

Denzin and Lincoln (1998) state the researcher is independent to engage any research approach, so long as the method engaged enables him to complete the research and achieve its objectives. However, it is essential that the researcher consider the nature of the research inquiry and the variables that have an impact on the research process. The researcher has to evaluate the appropriateness of the methodology as to its ability to find plausible answers to the research questions within the broad context of the nature and scope of the research issue. For the current research on Changes in Financial Language and Social Development since Financial Tsunami 2008 in the Context of United States, considering the research issue under study, a qualitative method of case study approaches is adopted. This chapter presents a description of the research method and discusses the salience, merits and demerits of the method adopted. The research also draws information from financial reports and news and discusses the use of financial terminology in the development of financial language.

Data Collection

According to Marshall and Rossman (1995), the qualitative research is based on collection of data from different sources and the data already collected forms the basis for reporting the findings of the study and making recommendations. Yin (1984) identified different sources like “archival records, direct observations, interviews, and observation of the participants,” which can be used in conducting qualitative research. Quantitative research uses tools like surveys for data collection. The data collection methods for the current research include information retrieval from archival records, and other documents for completing the research. The quality of data collected determines the validity and reliability of the research findings. Thus, “qualitative modes of data analysis provide ways of discerning, examining, comparing and contrasting, and interpreting meaningful patterns or themes. Meaningfulness is determined by the particular goals and objectives of the project at hand.” (Boojihawon, 2006)

Any of the following data collection methods can be used in following the case study research approach. They are; “(i) documents, (ii) archival records, (iii) interviews, (iv) direct observation, (v) participant observation and (vi) artifacts.” Either the researcher can use a single or a combination of these or other methods for data collection and the selection of data collection method rely on the nature of research proposed to be undertaken.

There are only few tenets, which define the mission of data collection. Each research study has to use a data collection method, which fits into the research methodology chosen by the researcher. The goals of both quantitative and qualitative research studies are to make the most of responses from the participants and to enhance the accuracy of the results to the maximum extent possible. Taylor-Powell & Renner (2003) explain that qualitative data consists of words, expression and observation as compared to quantitative data that consists of numbers. Analysis of qualitative data requires creativity, discipline and systematic approach. They further illustrates that there is no single way to analyze the qualitative data; however, the basic approach is to use ‘content analysis.’

Financial Reports

The purpose of accounting is to provide information, which can be used in making meaningful business and economic decisions. Because of this fundamental nature of accounting, it is commonly known as the language of business. Over the past decades, there is a rapid growth of geographical dispersion of businesses by establishing manufacturing and other facilities in different nations across the globe. This has necessitated the evolution of international accounting practices. With the increased flow of capital, goods and services across geographical borders, there is the increased probability of parties belonging to different nations entering into transactions with each other (Saudagaran, 2004).

From a decision-making perspective, it is imperative that these parties connected with each other obtain necessary information and data. Usually this information requirement is met in an accounting language that is different in the context of each setting. There are varied levels of information required to meet different purposes. With the insistence of consolidated financial statements by the Generally Accepted Accounting Principles (GAAP), in the context of multinational companies this information requirement has been met to some extent. However there are several issues still remain unsolved and these issues have an impact on the collection and interpretation of data and information from the consolidated accounts of multinational companies.

Saudagaran & Diga (1997) point out that financial reporting in emerging capital markets is dependent on three important elements. The first is the availability of sufficient, well-timed and ample information. The second requirement is that the accounting statements are prepared based on valid accounting principles and they are made in accordance with the particular financial reporting needs. The third element is that the user should be able to compare the financial performance of the entities. In order to enable a proper comparison, suitable accounting policies need to be evolved. These accounting policies help preparing the financial statements of entities as well as understanding the need for providing comprehensive financial information. In this connection, consolidation of financial statement is expected to satisfy these three basic elements needed for the emergence of sound financial markets. According to Fletcher (2002), “national standard setters, securities regulators, multinational corporations, audit firms, and also investors will have the same goal of using one set of high quality international accounting standards. Hensen (2003) points to the harmonization of accounting standards for ensuring long-term global financial stability, creating international capital markets, and ensuring full transparency” (Zarb & Pagiavlas, 2003)..

Prior studies report several outcomes of diverse financial reporting practices, which led to the consolidation of financial statements. Lack of harmonization in reporting policies and wide differences in disclosure levels has severe impact on a firm’s decision to list in a foreign stock exchange (Saudagaran, 2004; Saudagaran & Biddle, 1992, 1995; Cheung & Lee, 1995). Diversity in reporting practices limit the accessibility of financial information of the users and hence adversely influence capital market decisions such as geographic spread of investments, types of securities selected and information processing costs (Choi & Levich, 1991).

These aspects relating to financial reports make them the important base for the development of financial language. This study will analyze different types of financial reports to evaluate their contribution to the development of financial language.

Financial Terminology

Financial terminology is an important element in the financial language and its development. There have been several new developments, which have taken place in the financial terminology, which enriches the vocabulary of the financial language. Bankers and financial institutions develop almost all the new financial terminology and they only invariably understand the real meaning of the financial terminology. This study argues that lack of knowledge of the correct and comprehensive meaning of several financial terms by the retail investors representing the common people is the main reason for the financial tsunami of 2008, as the bankers and financial service providers did not care to explain the real meaning of several financial terms. Through the case study of Lehman Brothers, this study will attempt to prove this point.

Financial News

Financial news is the main source of information to all the stakeholders who deal with the financial and capital markets. Up to date financial news is the foundation on which the global financial market is built and therefore the contribution of financial news to the development of financial language cannot be ignored. Financial news disseminate information on a variety of issues like movements of stock prices, happenings in the corporate circles, periodic financial results of companies and news relating to mergers and acquisitions, which are vital for the smooth functioning of the capital markets in any economy. Since financial news deal with a number of financial issues, they become the important source for the development of new financial terminology and thus for the proliferation of financial language on a global basis.

With the advancement in information and communication technology, the spreading of financial news to different geographical locations has been made easy and this adds to the rapid development of the financial language. Use of Internet and other communication equipments and media enable business houses and financial institutions to convey the latest happenings in their business environments to the knowledge of all stakeholders almost instantaneously. Statutory requirements of publication of quarterly and half-yearly financial results form part of the financial news, which enhances the knowledge base of the investors to make meaningful decisions on their investments.

Apart from the company events and periodic financial results, financial news also carry a number of scholarly articles on different issue relating to financial management and reporting. These contributions help to enhance the knowledge. This study will draw information from such scholarly articles contained in the financial news to augment the quality of the findings of the research and the value of the research report.

Methodology

In recent years, the roles of descriptive and qualitative research methodologies, which include case studies, participant observation, informant and respondent interviewing and document analysis have been emphasized and pursued (Scapens, 1990). In these approaches, the researcher is required to have closer involvement with the organizations under study. Based on detailed examination of the organizations concerned, research findings are described instead of being prescribed.

One qualitative method, which seems to offer solution to the current research, is the case study approach. In contrast to simplistic and superficial findings of the quantitative method, case study provides the opportunity for the research to develop better theories about changes in financial langeuge, which are based on real world financial practices. In addition, case study allows the flexibility to be interpretative of the findings. The research for example, is not restricted to the researcher’s original theory, but most often is encouraged to come up with new theoretical discoveries.

Case study has been used as a research tool by a number of researches. “Case study is an ideal methodology when a holistic, in-depth investigation is needed” (Feagin et al. 1991). Different exploratory studies in the discipline of social studies have made use of case study method for collecting relatable information about the topics researched. Following case study method as the research tool facilitates the researcher to follow well -developed techniques to meet the requirements of data collection for any kind of investigation. “Whether the study is experimental or quasi-experimental, the data collection and analysis methods are known to hide some details,” (Stake, 1995). However, case study method has the unique capability of retrieving additional information from different perspectives drawn using multiple source of data.

There are varying kinds of case studies, which can be engaged for conducting studies in different settings. There are exploratory case studies, explanatory case studies and descriptive case studies. Stake (1995) took note of other forms of case studies. Intrinsic case study is one in which the researcher has a concern in the case being studied. Instrumental case study enables the researcher to explore additional information than that is understandable to the normal observer. Collective case study is concerned with the study of a group of cases. Case study method cannot be construed as sampling research. However, in order to derive optimum benefit from the cases study, the researcher has to select the appropriate case. Case study as a research tool has often faced the criticism because of its lacking in the ability to provide for generalization of the findings. It is a common condemnation of case study method that the findings cannot be applied widely in actual situations. Yin (1984) has answered the criticism by offering a well made out explanation on the distinction between “analytic generalization” and “statistical generalization”. “In analytic generalization, previously developed theory is used as a template against which to compare the empirical results of the case study” (Yin, 1984).

Yin has led the way in making the case study as one of the prominent methods of conducting social research. After Yin (1984), a number of professionals and academics have provided new insights into case study method and made it to become one of the preferred research tools in social researches. Case study becomes an attractive research tool because of its ability to study the research issue in natural surroundings, which is the core element of any qualitative research. This capability makes case study a practicable research tool.

It is possible for the researcher to investigate the character and intricacy of the research issue and its influence by evolving relevant research questions on the topic. Research issues and topics in respect of which researches have been conducted previously can be subjected to new research using case study method. There is no inclusive and precise definition of case study evolved by the literature. However, a definition of case study can be arrived based on the characteristics drawn from multiple research methods used to investigate research issues in their natural surroundings. For conducting a research, the case study method employs different data collection methods to retrieve information from multiple sources constituted by individuals or clusters of units.

In some instances, case study substitutes an empirical enquiry. The case study enquiry deals with an existing happening within its actual life setting and location. Case study depends on different sources of data and makes use of existing related sources to form authoritative decisions on different research issues. Anderson (1993) finds case study facilitating a widespread assessment of related realities and focuses on the reasons and impacts of social events. The essence of case study method is to distinguish between the expected actions and the actual happenings in respect of those plans. “Case studies become particularly useful where one needs to understand some particular problem or situation in great-depth, and where one can identify cases rich in information.” (Noor, 2008)

Before the researcher decides to use the case study method, he has to consider several factors, which have an impact of the use of the method on the research process. Case study becomes an appropriate method in respect of research on current social issues or events, which happens in natural surroundings. Studies on social issues can adopt case study to derive maximum value and support the findings, especially in cases the researchers is unable to find supportive theoretical base for the study. However, case study cannot be considered appropriate in cases, which comprise of a number of variables to be controlled to conduct the study. The nature of the study, therefore determines the selection of case study as the appropriate research method, rather than the perception of the researcher to make use of the method.

There have been different criticisms levelled against the character and usefulness of case study as a research tool. One of the major weaknesses identified with case study is the lack of scientific firmness and dependability. This results in case study losing the capability to facilitate generalization of the findings of different studies. However, case study method can be considered as reliable for arriving a complete and relative perspective of the research issue or a sequence of social issues under scrutiny. Since case study employs the examination of multiple sources connected with the research proceedings, it is able to provide a holistic view of the research issue. Yin (1984) identified the ability of case study to make generalizations, when the researcher evaluates the results from numerous case studies. This comparison would enable the researcher to find some general patterns of events or forms of replication in the process of the social issue under study.

Considering the merits of case study method this research will employ case study of Lehman Brothers to evaluate the changes in the financial language and its role in the financial tsunami of 2008.

Results and Discussion

Results

Choice of Financial Language after Financial Tsunami 2008

Financial markets have developed substantially based on the reforms undertaken on a long-term basis aimed at increasing market efficiency and at meeting varied consumer choices. These reforms had consequential benefits for both the individuals and different economies. The financial literacy initiatives have been aimed at providing the consumers the knowledge and skills to enable them to take advantage of the increased opportunities and choices offered by the financial markets, which are more sophisticated. With the increase in ageing population and the enlarged government initiatives for providing retirement benefits to the citizens have increased the flow of consumer savings. These initiatives have resulted in significant flow of consumer savings to different financial service products. Combined with the increased financial literacy the consumers have been enabled to take informed financial decisions. This signifies increased exposure to the modern financial language leading to more competent, confident and engaged consumers of financial services. “More broadly, they can drive competition and market efficiency, reduce costs for businesses and create the potential for reduced regulatory intervention” (Australian Government, 2008).

In order that the consumers are able to achieve these benefits, the consumers need to have the ability to make informed judgments. The consumers should also be able to take effective decisions regarding the management of their investments. The individual abilities, attitudes, understanding, behavior, needs and preferences provides for an extension of the challenges of enabling the consumers to have the necessary motivation, knowledge and skills which helps them to make informed choices in dealing with the financial markets and its products. The increase in the market capacity and number of financial service products just before the financial tsunami, 2008 has enlarged the scope of the task for the governments and other financial literacy service providers broader and challenging than simply providing comprehensive and well-intentioned resources for just making investment decisions. This has given rise to the use of new financial language by not only the bankers and financial service providers but also most of the consumers pursuing their investments in varied financial service products.

The US subprime mortgage was the main cause for the global financial crisis, which started in the spring of 2006. There were several big institutions in banking and investments in the US financial market files for bankruptcy protection (Mizen, 2008). According to Goodhart (2008), the reason for the crisis was the mis-pricing of the risk, the newly developed financial structure, the poor judgment and performance of credit rating agencies and insufficient liquidity in the financial markets. Mizen (2008) found other reasons like exceptional “macrostability, the global savings glut, and financial innovation in mortgage-backed securities” for the global financial crisis. Raynes and Zweig (2009) observe that the financial crisis could be resolved by undertaking a proper valuation of the securities. Wallace (2009) argues that the economic crisis in the US was not caused by fair value accounting practices, which provide for better monitoring of the institutions and reasons other than the fair valuation of securities have caused the financial crisis.

The previous Asian financial crisis and the financial tsunami 2008 both happened mainly not because of simple monetary issues, or subprime mortgage problems or any other form of credit crunch but mainly to the spread of contagion effects caused by financial globalization. Secondly when the crises occurred, key financial indicators such as “exchange rates, stock prices, short-term interest rates, asset prices, number of business bankruptcies and collapse of several financial institutions produced very rapid deteriorations in the host countries.” However, there were some differences between the crises in which the speed and the extent to which the nucleus spread to the rest of the countries in the world.

The financial tsunami has significant implications for financial institutions, companies, investors and governments. In the context of flow of funds, the important implication for the banks and the financial institutions is the centrality of the role of financial intermediaries. The financial tsunami has revealed the fact that there is the need for a stable source of funding for all the banks including commercial and investment banks. It is important for the banks to maintain adequate capital ratios so that they can avoid liquidity and solvency risks. The main implication of the financial crisis for the companies is that they should tighten their executive compensation and corporate governance measures. As far as the investors are concerned there are three significant implications – first is that high returns always involves high risks and high risk does not always guarantee high returns on the investments. Secondly, the investors should understand the risks of high gearing and avoid such higher levels of gearing. This is true especially during a volatile market condition. The third implication is that the investors should understand the importance of portfolio diversification and investing in the government bonds. The governments should understand the implications of extensive risks associated with financial innovations and the likelihood of financial bubbles. Secondly, the governments should be cautious about the excessive uncertainties and risks resulting from over-speculation.

The US subprime mortgage losses caused by inappropriate use of financial derivatives and instruments triggered and enlarged the recent financial crisis. The improper use took the route of securitization of US mortgage agencies converted into mortgage-backed securities for sale in the market as has happened with the government institutions Fannie Mae and Freddie Mac. The sale was pursued by the investment banks using their financial engineering technology to make a repacking of the securities and to trade them further in the market. This has led to the development of completely new financial terms forming part of the latest financial language. Looking back at the events of the financial crisis it appears that all the financial institutions irrespective of their sizes were connected and affected by too much speculation ignorance of risk control.

Further, modern investment banking business is largely dependent on dealing in financial derivatives, which are characterized by leverage effects. By using the leverage effects, the investors were able to enlarge their risks easily and profits by providing for a small amount of margin to trade in different types of securities. High leveraging ratio on the other hand made the investment banks heavily dependent on financing. However, during the credit crunch, the balance sheets of the investment banks worsened dramatically, making the rating agencies lowering their credit rating. This resulted in significant increase of financing costs. The large five investment banks on Wall Street – Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs and Morgan Stanley – exhibited this trend before the financial crisis (Bloomberg, 2008).

The above discussion illustrates that the financial language in practice immediately before and during the financial crisis had been completely new comprising of various terms describing the financial derivatives and instruments used by the investment banks. There has been a spurt in the innovation leading to newer financial terms, incorporating the terminology covering the securitization of the mortgaged loans and it appears that this terminology was never understood clearly by all the links in the investment chain including the large investment bankers. This is obvious from the failure of Lehman Brothers, the case study of which organization forms part of the next section of this chapter.

The financial language in the period after the financial tsunami appears to have completely disregarded the terminology covering the areas of securitization, subprime mortgage, securitization and mortgage-backed securities developed immediately before and during the financial tsunami. The terms in financial language denoting the transactions covering these areas appear to have lost their significance completely in that no financial institutions dare to make use of these terms in the period after the financial crisis. The banks and financial institution have reverted to the use of financial language, which was in practice before the start of the financial crisis in the year 2006. The banks and financial institutions have reverted to cautious dealing in financial service products focusing more on asset backed lending like housing and vehicle loans directly to the owners of the asset. In fact, most of the banks shifted the focus to consumer loans where the risk is spread even though the margins are less. This has necessitated the banks and the financial institutions to use the old and more familiar financial language than using the recent complex language.

Lehman Brothers – an Overview

Lehman Brothers Inc was the fourth largest investment bank in the world, which filed for bankruptcy during September 2008. The company started as a small dry goods store in the year 1844 grew to one of the leading investment banks in the US. Lehman Brothers had a strong position in dealing in fixed-income products. Later on, it diversified into other areas of finance such as investment banking and investment and asset management.

Just prior to 2007, Lehman Brothers was making considerable proportion of their earnings from the business of issuing securitized assets like mortgage loans. When the collapse of the US subprime mortgage industry started, it resulted in a large-scale credit crisis. It also led to increase in mortgage default rates, which in turn led to disappearance of the demand for these securities. This situation has made Lehman to face a situation of having billions of dollars worth of depreciating securities in its balance sheet. This has made the company to take up large write-offs and write-downs. Finally, the efforts of the company to shed its risky assets proved futile. The investors liquidated stocks of Lehman Brothers in the stock market on the consideration that Lehman might not be able to transact its business as it did before.

On September 2, 2008, the state-owned Korean Development Bank confirmed its proposed move to buy 25% of the stakes in Lehman Brothers. However, the deal did not go through. In the following weekend, Lehman Brothers put up itself for sale. An urgent meeting of the officials of Wall Street conducted by the US Federal Reserve urged them to extend necessary financial help to Lehman Brothers. “Bank of America (BAC) and Barclays (BCS)” being the contenders for the stocks of Lehman Brothers backed out on the refusal of the federal government to consider writing off the future liabilities of the company against government revenue. At the final stage, Lehman Brothers had no prospective buyers. Therefore, the company chose to file for bankruptcy protection under Chapter 11 on the September 15, 2008. With the filing of bankruptcy, the long history of the company came to an end. The petition filed by Lehman Brothers was the largest bankruptcy filing on record.

There were several reasons for the fall of Lehman Brothers. During the years 2003 and 2004, when the housing boom in the United States was in the peak, Lehman acquired five companies engaged in the business of mortgage lending. The acquisition of these companies first appeared prescient with the company earning record revenues from its real estate business. The business of the company in realty assets helped the company to record high revenue growth of 56% in the capital markets within a period of two years between 2004 and 2006. This business growth was a record considering the growth of other entities in the same sector. In the year 2006, Lehman securitized $ 1.46 billion of mortgages, which accounted for a 10% increase over the previous year. “Lehman reported record profits every year from 2005 to 2007. In 2007, the firm reported net income of a record $4.2 billion on revenue of $19.3 billion” (Investopedia, 2010).

During the month of February 2007, the stock price of Lehman Brothers reached a record high of $ 86.18. This gave the company a market capitalization of $ 60 billion. “However, by the first quarter of 2007, cracks in the U.S. housing market were already becoming apparent as defaults on subprime mortgages rose to a seven-year high” (Investopedia, 2010). “On 14 March 2007, one day after the firm’s stock had its biggest one-day drop in five years on concerns that rising defaults would affect Lehman’s profitability, the firm reported record revenues and profit for the first fiscal quarter” (Teng, 2010). The CFO of the company reported that the company has taken care of the rising risks posed by the increased home delinquencies. He further reported that the rise in the delinquencies would have little impact on the profitability of Lehman Brothers. The CFO also reported that he did not anticipate the problem of subprime market affecting the rest of the housing market or affecting the US economy.

The share prices of Lehman dropped drastically during mid 2007, when two of the hedge funds operated by Bear Stearns failed. During August 2007, the company reduced 2500 jobs in its investment segment and closed its BNC operations. The company also announced the closure of many other offices in three states. “Even as the correction in the U.S. housing market gained momentum, Lehman continued to be a major player in the mortgage market” (Investopedia, 2010). In 2007, the company underwrote high volume of mortgage-backed securities than has been done by any other firm. The company accumulated $ 85 billion portfolio, which was equivalent to four times the equity of the shareholders. “In the fourth quarter of 2007, Lehman’s stock rebounded, as global equity markets reached new highs and prices for fixed-income assets staged a temporary rebound. However, the firm did not take the opportunity to trim its massive mortgage portfolio, which in retrospect, would turn out to be its last chance” (Investopedia, 2010).

“Hurtling Toward Failure Lehman’s high degree of leverage – the ratio of total assets to shareholders equity – was 31 in 2007, and its huge portfolio of mortgage securities made it increasingly vulnerable to deteriorating market conditions” (Ritholtz, 2010). “On 17 March 2008, following the near-collapse of Bear Stearns, the second largest underwriter of mortgage-backed securities, Lehmans share price fell 48%” (Teng, 2010). “Confidence in the company returned to some extent in April, after it raised $4 billion through an issue of preferred stock that was convertible into Lehman shares at a 32% premium to its price at the time” (Investopedia, 2010). However, with the skepticism of the hedge fund managers, about the valuation of the mortgage portfolio, the stock prices of the company continued to fall.

During June 2008, the company reported a loss of $ 2.8 billion out of its operations for the second three months period. The company reported that it had raised another $ 6 billion from the investors. The company announced that it had raised its liquidity pool to an estimated $ 45 billion reducing its exposure to residential and commercial mortgages by 20% and cutting down the leverage factor of 32 to almost 25. However, none of these efforts proved useful and ultimately the company filed for bankruptcy protection under Chapter 11 in September 2008.

Reasons for the Popularity and Infamy of Financial Language

The financial globalization caused by the economic globalization resulted in increased cross-border investments and increased standards of living among the people of host countries. With the availability of more investible funds, people started looking out for new avenues of investments. This has made them be acquainted with the new and innovative financial service products and services with the objective of earning higher rates of returns for their investments. This made a more number of people to get access to financial newspapers and magazines to find better investment propositions. Consequently, their knowledge on the financial language enlarged leading to increased popularity of the financial language.

The corporations with their proposed expansions in different nations needed funds to supplement their extended activities. Internally generated funds were not sufficient for the firms to finance all of its proposed expenditures. “In these situations the corporation may find it necessary to attract large amounts of financial capital externally or otherwise forego projects that are forecast to be profitable” (Keown, 2004). This has made the corporations introduce newer types of securities against which they could generate the necessary funds and this has caused the financial language to gain popularity.

“Glancing through the financial newspapers, magazines and other publications related to investing and trading, you noticed large advertisements of success stories of people becoming millionaires through trading options” (The Investor Portal, 2008). This would have induced many other people to invest their funds in derivatives and other types of derivative securities. This has helped increasing the popularity of financial language largely. The financial terms connected with the investment transactions seem so familiar and people often feel that they have heard these terms before but could not just recall where they have heard them because of their preoccupation with other things they have been doing. The commonness of advertisements in financial publications has been the main reason for the increase of the popularity of the financial language.

The proliferation of Internet and advancement in information and communication technology is one of the important reasons for the financial language gaining popularity among the people. Technological advancements have enabled people to have access to various financial service products from the comfort of their homes and/or offices. This has increased the awareness of the people about the newer financial terms developed before the financial tsunami of 2008. The best example of this can be seen in the proliferation of subprime housing and vehicle financing which have attracted many a number of people. Irrespective of the level of education or occupation, people became familiar with financial terms like mortgage and all other associated terms with mortgage loans offered by different financial institutions. Advertisements in the Internet have played a significant part in extending the knowledge of the people on the availability of easy finances through mortgage loans were instrumental in enhancing the popularity of the financial language through the period of early 2000s.

The mushroom growth of the financial intermediaries during the period before the financial crisis of 2008 was another major reason for making the financial language more popular. Talking to any financial planner, one may find the use of several financial terms including mortgage and diversified investments in different types of securities. Since the income of the financial intermediaries was closely associated with the promotion of the financial service products they were motivated to talk as many number of people as possible about the products and services they were handling. During the sales talks, they had to use the financial language necessarily for promoting different types of products and services. This has made the financial language gain more popularity among the people. With the innovation of more new products and services and with increase in the number of institutions dealing with these types of products there has been growing number of financial intermediaries like investment banks and their agents approaching the people with different investment options. The increase in the number of insurance products and their sales among the people is a classic example for the increased popularity of the financial language during the recent periods.

“At common law infamy was an individual’s legal status that resulted from having been convicted of a particularly reprehensible crime, rendering him or her incompetent as a witness at a trial. Infamy by statute in certain jurisdictions produces other legal disabilities and is sometimes described as civil death,” (The Free Dictionary). This section describes the status of infamy of the financial language immediately after the financial tsunami, 2008. “September 15, 2008 will live in financial infamy as the day Lehman Brothers went bankrupt and kicked the financial crisis into high gear,” (Dougherty, 2010). However, “when the French bank BNP Paribas announced it would suspend withdrawals from funds linked to the U.S. subprime mortgage market” (Dougherty, 2010), with immediate effect, the liquidity from the financial system evaporated at a rapid rate. The banks were pondering on the extent of the likely losses on mortgage-related transactions. “Credit markets deteriorated, making it hard for even the most creditworthy borrowers to get loans” (Dougherty, 2010). The failures of financial institutions like “Bear Stearns, Fannie/Freddie” and Lehman followed. This was the start of the infamy of the financial language.

The situation of the popularity of the financial language turned the opposite direction immediately after the financial crisis when scores of investors lost their hard-earned funds invested in mortgage-backed and other securities. The chaotic financial situation of several financial institutions and the bankruptcy of major investment banks like Lehman Brothers created an aversion among the people on the new financial products and services and it led to the infamy of the financial language. The financial newspapers and media also were responsible for creating the infamy of the financial language in the same way they created popularity for the financial language. Presenting a number of articles and true stories of failed financial institutions and banks the media has created an impression among the public that investment in any kind of new financial services products is risky and therefore people have become more cautious in channelizing their investible funds. The newer and innovative financial products have been considered as riskier which added to the infamy of the new terminology of the financial language.

Association between Finance and Language

There is a close association between finance and language. This is because of the qualitative nature of some of the financial information. While most of the financial information can be expressed numerically in quantitative terms, there is some information, which can be presented only on qualitative terms. Financial language uses some qualitative tools for processing the qualitative information and data and presents them in readable form to the users of financial information. “While quantitative data is easily identifiable in prices of stocks, historical time-series of share, bonds, inflation, interest rate and all sort of relevant numerical data Qualitative data is more difficult to define,” (Advanced Financial Systems Research). “Quantitative data can be easily used in mathematical or statistical equations, which does not normally apply to qualitative data. Qualitative data, instead, is data that is difficult, if not impossible, to express in a numeric format” (Advanced Financial Systems Research). For instance, data regarding market information, rumors, and market fears on adverse movements in the financial markets, recommendations of brokers, news on mergers, acquisitions and takeovers represent qualitative date needing the use of specific financial language to make the information available to the investors and other people in need of such information.

“A sentence such as: there are rumors of a possible takeover of Apple, the troubled computer manufacturer represents an information which is extremely relevant to the financial operators, since it will probably immediately cause a marked movement in the quotation of Apple’s shares as well as those of the possible buyers. However, taking it into account in a mathematical/statistical equation would be extremely difficult, if not impossible” (Advanced Financial Systems Research).

These kinds of information have significant impact on the expectations of the market players and therefore become important.

“The way in which the operators are influenced depends on how an operator perceives the information. Even if, in theory, it could be possible to produce a complete econometric model which takes into account all possible variables and expected behaviors of the players, the complexity of the financial world makes it impossible to produce such a model which would anyway be extremely expensive in terms of the computing-power necessary. A similar situation can be found in macro-economics. The advanced econometric macroeconomics models employed by the central banks often fail to predict the development of the economical cycles, crisis and expansions. Only very few macroeconomic relations (e.g. interest-rate/investments) are actually widely used and effects of a change in one of the variable is easily predictable” (Advanced Financial Systems Research).

It is observed that it is more difficult to process qualitative data than to process the quantitative information.

“Therefore, while all sorts of quantitative financial tools are nowadays available on the market, very little progress has been done in the processing of qualitative information, which is usually left to the financial operators. Natural Language Processing as general support tool The goal of Natural Language Processing as general support tool is to summarize, reduce or categorize the input qualitative data, rather than produce any analysis directly related to the actions that will be taken by the operators as a result of their decision-making process. Therefore, the emphasis is to provide the financial operator with information, which is a summary of the most important data, rather than actually trying to suggest the action to be taken. Similarly, the Natural Language Processing tool can tell the operator that the main underlying event of a particular group of news is, for example, about a probable increase in the inflation rate, but the interpretation of the results is left to the operator” (Advanced Financial Systems Research).

Linguistic Features of Financial Language

“In another broad sense, language is made of words and words form chains of sentences”. A person may understand what the words mean and he/she may have the expertise to use the words in different combinations to present meaningful ideas and expressions.

“However, one may or may not be able to express the rules of those combinations – the grammar. But as a user of a language, one can recognize when a group of words makes sense and when it does not. This knowledge of the system makes it possible for one to make sense of the particular combination of words that a text provides” (Langues, 2010).

One has to understand and apply this knowledge of the system of language represented by its meanings and forms before he could make an effective use of the language. “An individual may experience a story or a poem that one reads differently than the next individual. This is because a reader brings what he reads to his own background and belief as well as his own knowledge and each one imparts one’s own meaning into what one reads,” (ATNL, 2010). However, there are certain linguistic features that govern the meanings of different words in a language. These features govern the meanings an individual wants to express. Attentiveness to language in understanding the intricacies of the language helps “one to anchor on specific linguistic analysis within the text to focus on linguistic features such as distinctive word orders, choices of vocabulary, patterns of sound and rhythm, and complexities of meaning” (ATNL, 2010). Financial language encompasses all the linguistic features and the goal of this section is to identify the linguistic features of financial language and its understanding by the people using the financial language.

Phonological Feature

Phonology in a language is “a particular characteristic which distinguishes one distinctive sound unit of a language from another or one group of sounds from another group” (Richards, Platt & Platt, 1992 p 114). The term refers to “a minimal contrastive unit recognized by some linguists as a means of explaining how the sound system of languages is organized. Distinctive features may be seen either as part of the definition of phoneme (Prague School) or as an alternative to the notion of the phoneme” (Crystal, 1991, p. 109). Phonology as a branch of linguistics thus is related to phonetics. Phonetics studies the manner of organizing and using the speech sounds in natural languages. “Phonetics deals with the smallest chunks of language, yet it is in connection with other linguistic disciplines like morphology, because adding morphemes may change the meaning of words and their pronunciation, frequently following patterns,” (Wisniewski, 2007b).

Phonetics is connected with both syntax and semantics. When it is connected with syntax, a word in a sentence “can be pronounced differently with a shifted phrasal stress and with changed intonation” to connote different meaning. “Similarly, this branch of linguistics is connected with semantics because of intonation constraints” (Salhi, 2005).

“While phonetics studies the production and perception of the speech sounds, phonology is more interested in the abstract, that is mental aspects of these sounds” (Salhi, 2005). “It inquiries into and describes the patterns of sounds and sound types which native speakers acquire intuitively,” (Wisniewski, 2007b). Phonology also deals with phonemes of a language. “Phoneme is the smallest meaningful sound in the human language,” (Wisniewski, 2007b). “Yet it is not identical with the sound itself, it is rather a theoretical representation without mentioning its position in a syllable, word, or phrase” (Salhi, 2005). Phonemes have the feature of contrasiveness, which ensures that phonemes are identified in a sentence or word. Phonemes are present in all languages.

“Apart from analyzing the phonemes of a language, clusters and syllables, phonology also deals with the processes that occur in everyday, fluent speech” (Salhi, 2005). “Assimilation is a process in which certain sounds copy the characteristics of another, adjacent sound. Elision is a process in which some sounds, or even syllables are omitted and not pronounced at all, although in other situations they are normally uttered. Elision occurs not because of laziness of speakers, but to make the pronunciation more fluent,” (Wisniewski, 2007b).

The financial language contains all the phonological features in its spoken form. Since the texts and documents created in the financial language are contractual in nature, the phonological features do not have any effect in the financial language. The financial language used during the conversation with the clients and customers create phonological process of elision to make the pronunciation of some of the phrases contained in different clauses clearly understandable to the customers. There is place for a number of phonemes in the financial language while conversing with each other about any financial transaction, although the parties do not attach much importance to the phonemes but to the real meaning of the words and ideas conveyed.

Voicing, tongue-height and lip-rounding are some of the phonological features. These features are identified through “an analysis of vowels and consonants in terms of a set of additive components within a single phonetic framework” (Crystal, 1992, p. 300). Phonological features are categorized into four groups. The groups relate to “places of articulation, types of stricture, the oral/nasal process, and laryngeal activity”.

Lexical Feature

Lexicology is a branch of linguistics that deals with the science of words. The basic objective of lexicology is to present a “systematic description of vocabulary” with respect to “origin, development and current use”. Lexicology is concerned with different words, groups of words and phraselogical units, which are comprised in words. Every language has a “vocabulary” or “lexicon” which forms a specific part of the grammar associated with the language and which guides the use of a more accurate term. The “lexicogrammar” is the other part, which consists of a large network of choices through which the language construes it meanings.

“The sum total of all the words of a language forms the vocabulary or lexical system of a language” (Central Institute of Indian Languages, 2008). Every word in a language has its own identity. However, each word is related to other words in a paradigmatic or syntagmatic way. “The paradigmatic relations are based on the interdependence of words within the lexical system. The syntagmatic relations show the relation of words in the patterns of arrangement. In other words, the vocabulary of a language is not a chaos of diversified phenomena but consists of elements which, though independent, are related in some way. A word has a particular meaning, it has a particular group of sounds, and a particular grammatical function,” (Central Institute of Indian Languages, 2008). This makes a word “a semantic, phonological and grammatical unit”. “In lexicology the word is studied as a part of the system” (Central Institute of Indian Languages, 2008). It studies

“the patterns of semantic relationship of words as also their phonological, morphological and contextual behaviour. Words undergo constant change in their form and meaning and lexicology studies the vocabulary of a language in terms of its origin, development and current use. The study of the interrelationship of lexical units is done in terms of the contrasts and similarities existing between them (Central Institute of Indian Languages, 2008).

Generally, the words do not occur in isolation. “As a word does not occur in isolation, lexicology studies it with its combinative possibilities” (Central Institute of Indian Languages, 2008). Lexical feature is the combinative capability of a word and it represents the qualities of phrasalogical units contained in a sentence.

“Like general linguistics, of which lexicology is a branch, lexicology can be both historical and descriptive, the former dealing with the origin and development of the form and meaning of the lexical units in a particular languages across time and the latter studying the vocabulary of a language as a system at a particular point of time. But there are many areas in lexicology, where one cannot be studied in isolation, without regard to the other. They are, thus, interdependent,” (Central Institute of Indian Languages, 2008)

Since the financial language contains mostly English words in its vocabulary, the lexical features that the English language possess automatically apply to the words and phrases in financial language. Lexicology as applied to English language applies to financial language also. Thus the origin, development and current use of words used in the financial language can be studied using the lexical branch of linguistics.

Syntactic Feature

Syntax is the branch of linguistics, which studies the structure of a sentence and ordering of its elements.

“The word syntax itself derives from Greek words meaning ‘together’ or ‘arrangement’, but also the modern syntactic tradition and investigations have their roots in the findings of ancient Greeks. One of such ‘traditional’ tasks of linguists dealing with syntax was to describe the organization of the parts of a sentence, however, with the development of this branch of linguistics , and especially in contemporary inquiries the scope of interest has widened” (Wisniekwski, 2007a).

However, with the passage of time, the scope of the study by syntax has improved. Traditionally, the concept of a sentence is to describe the full formulation of an idea. Nevertheless, there are hundreds of examples where the thoughts are expressed in a language even without having been developed as full sentences. Based on this premise, there were two different approaches emerged in defining the sentences.

“That is why two different approaches to defining sentences have emerged: notional which characterizes a sentence as an expression of a single idea, and formal focusing on the manners of constructing sentences, and patterns within them. However, sentences made with the use of such rules would always have similar word order, therefore another set of rules, called transformational rules , was introduced to enable more flexibility and to explain how statements can be transformed into questions, or negations” (Wisniekwski, 2007a).

“As a consequence of the differences in the approaches a division of sentences on the basis of their complexity was created. And thus sentences are either major, or minor. Major sentences are those, which can be modified or analyzed further into patterns of elements. They are further subdivided into simple sentences, which consist of only one clause, or multiple sentences consisting of two or more clauses. On the other hand, minor sentences cannot be broken down into patterns of elements, because they use ‘abnormal’ patterns, in that they do not follow the rules of grammar” (Wisniekwski, 2007a).

The syntactic features of linguistics have helped the development of financial language largely. New sentences and expressions revealing the intentions of the parties to financial transactions were subjected to the syntactic rules and sentences in the documents evidencing the transactions were formed to convey the intended meaning by making them conform to syntactic rules. Several clauses contained in the application forms for mutual funds and for making investments on behalf of clients have been designed anew and in all such cases it was ensured that the language used conforms to the linguistic requirements so that they convey the intentions of the parties clearly and precisely. The financial language contains major, minor and multiple sentences containing one or more clauses included in the financial documents.

Semantic Feature

“Semantics is the study of meanings of words, phrases and sentences” (Slideshare). Semantics is classified in to (i) Lexical semantics covering words and meaning relationship among words and (ii) Phrasal/sentimental semantics covering syntactic units larger than a word. There are three types of semantic analysis, in which semantic features reflect words as ‘containers’. Semantic features represent “syntactically right” sentences “but semantically odd”. This relates to the conceptual components of the words included in the sentences. Semantic features include semantic properties, which are the components of meaning of a word and the meaning as collection of properties/features typically with two possible values in the negative or positive side.

Semantics “does not analyze the intended speaker meaning, or what words denote on a given occasion, but the objective, conventional meaning” (Wisniekwski, 2007b). On the contrary, semantics analyzes the objective or conventional meaning conveyed by the text or words. “Additionally, it is concerned with the conceptual meaning and not the associative meaning” (Wisniekwski, 2007b). The conceptual meaning is what is denoted factually by a word. Semantics does not consider the idea any word brings along with it whether positive or negative. “The meaning of words is analyzed in several different ways in order to account for as many aspects of meaning as possible” (Wisniekwski, 2007b). These include semantic features, semantic roles and hyponymy. Homophones and metonymy are also included under the study of semantics (Yule, 1996).

Semantic features undertake the analysis of the words contained in a text “in terms of their semantic features that is basic elements, which enable the differentiation of meaning of words” (Wisniekwski, 2007b). For example, the semantic features of an insurance policy determine the risks covered by the particular policy in a given context. The financial language contained in the insurance policy thus satisfies the requirements of semantic features.

Stylistic Feature

Stylistics is described as the study of language used in different contexts. The contexts may include linguistic or situational ones.

“Yet, it seems that due to the complex history and variety of investigated issues of this study it is difficult to state precisely what stylistics is, and to mark clear boundaries between it and other branches of linguistics which deal with text analysis. What has been the primary interest of stylistics for years is the analysis of the type, fluctuation, or the reason for choosing a given style as in any language a single thought can be expressed in a number of ways depending on connotations, or desired result that the message is to produce” (Wisniekwski, 2007).

“Therefore, according to Kamil, stylistics is concerned with the examination of grammar, lexis, semantics, as well as phonological properties and discursive devices” Umsurabaya, 2010).

It is also associated with the discursive devices.

“Moreover, stylistics examines oral and written texts in order to determine crucial characteristic linguistic properties, structures and patterns influencing perception of the texts. Thus, it can be said that this branch of linguistics is related to discourse analysis, in particular critical discourse analysis, and pragmatics. Owing to the fact that at the beginning of the development of this study the major part of the stylistic investigation was concerned with the analysis of literary texts it is sometimes called literary linguistics, or literary stylistics. Nowadays, however, linguists study various kinds of texts, such as manuals, recipes, as well as novels and advertisements. In addition to that, in the recent years so called amedia-discourses’ such as films, news reports, song lyrics and political speeches have all been within the scope of interest of stylistics. Each text scrutinized by stylistics can be viewed from different angles and as fulfilling at least a few functions. Thus, it is said that texts have interpersonal function, ideational function and textual function,” (Wisniewski, 2007).

While describing a specific function of a text, a number of different issues are considered. Interpersonal function is concerned with the relationship that the text is likely to establish among the different parties, who would receive the text. The analysis includes of the personal or impersonal pronouns used in the text apart from the tone and mood of the statement. “In describing the ideational function linguists are usually concerned with the means of representing the reality by the text, the way the participants are represented, as well as the arrangement of information in clauses and sentences” (Umsurabaya, 2010). It is concerned with “the way the participants are represented, as well as the arrangement of information in clauses and sentences” (Wisniewski, 2007). “The textual function is the reference of sentences forwards and backwards which makes the text cohesive and coherent, but also other discursive devices such as ellipsis, repetition, anaphora are studied” (Wisniewski, 2007). In addition to the discursive devices, the effectiveness of the chosen stylistic properties also forms part of the elements under study when a text is analyzed stylistically. The purpose of analyzing the textual function is to determine the suitability of the text to the perceived function or contribution of the text to the overall interpretation of the information intended to be conveyed by the text.

Considering all the aspects of stylistic feature, a mortgage document can be cited as the best example from the financial language to meet the requirements of stylistic features. A mortgage document based on the text contained therein meets the interpersonal, ideational and textual function of the stylistic feature of linguistics. For that matter, all the documents, which are created by the financial services industry to sell their products and services including insurance products meet the stylistic features of linguistics. The text contained in all these documents are intended to create interpersonal relations among the parties concerned and they ideally exhibit the ways in which the parties to a financial contract are represented. These qualities satisfy the interpersonal and ideational functions under stylistic feature. The texts contained in the financial documents are drafted in such a way that the their suitability to the perceived function of establishing a binding contract in between the parties is achieved and the text’s contribution to the overall interpretation is established without doubt. Therefore, the texts contained in the documents meet the textual function under stylistic feature. The financial language therefore, can be said to meet the stylistics features under the study of linguistics.

Social Aspects of Financial Language

Financial language has serious implications on several social aspects like, employment and income distribution, need for social insurance, provision and maintenance of healthcare, improving financial literacy and on education. It is essential to consider the impact of the developments in financial language on these various social aspects, as it affects the style and standard of living of common person in the society.

The latest developments in financial language had no doubt increased the employment opportunities because of the proliferation of innovative financial products and services that were offered by various financial institutions. The demand for people specialized in business oriented subjects to contribute to the growth in the business relating to the financial products and services. These people were required in various echelons at the corporations and their employment had significantly changed the income distribution in the society. Tangible improvements in the standard of living of certain sections of the society who were associated with financial services institutions were the order of the day, immediately prior to the financial crisis of 2008. The developments in the financial service industry led to simultaneous developments in financial language and development of financial language contributed to new developments in information and communication technology (IT), with the IT companies indulging in creation of new software applications to meet the needs of the financial services industry. The increase in the workload of IT companies also created new employment opportunities, which can be considered the direct result of the development of financial language.

On the social insurance side there was significant impact created towards the development of newer financial terms leading to further development of the financial language. This development can be attributed to the creation of innovative insurance products, which combined insurance with investments. Examples may be found in the several unit-linked insurance plans which were offered to the people, who wanted to ensure that their money spent on insurance makes some returns apart from covering the risk of their lives. The new insurance products also covered some of the healthcare aspects in the form of hospitalization and medical care policies. Apart from the insurance policies, creation of healthcare facilities in the form of hospitals to be created in corporate set ups demanding raising of additional capital by issue of different types of financial instruments had its effect on the development of financial language.

There was the need to use new financial terms in augmenting the financial resources for the creation of healthcare facilities in corporate forms. In general, the development of financial language has influenced the financial literacy of the society. The proliferation in the housing mortgages and the increase in the number of people who opted to get financial assistance for purchase of houses and vehicles through subprime lending is a solid example of the social aspect of financial language in the pre-crisis period. Financial language was influenced by the development in the field of education. Increase in the number and types of courses offered in the realm of financial management and the increased opportunities for the graduates from the business schools with specialization in finance demonstrate the severe impact of financial language on the social aspect of education.

Financial Language – Economic and Cultural Gateway to a Society

Development of financial language is an important aspect in the concept of globalization. Globalization is the common term that denotes the spread and connectedness of different aspects like production, communication and technologies across different destinations in the world. “That spread has involved the interlacing of economic and cultural activities” (Yanxing, 2010). According to Anthony Giddens (1990: 64) globalization is “the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa” (Smith & Doyle, 2002).

“Rather confusingly, ‘globalization’ is also used by some to refer to the efforts of the International Monetary Fund (IMF), the World Bank and others to create a global free market for goods and services” (Smith & Doyle, 2002). “Globalization in the sense of connectivity in economic and cultural life across the world, has been going for centuries” (Yanxing, 2010). However, the recent economic globalization to which financial aspects of international transaction forms the basis, has given a new thrust to the interconnection among social and cultural activities. For instance, the expansion of their business by multinational corporations in other geographical locations gives rise to exchange of economic and social activities in the host nations. Nevertheless, financial objective of enhancing their revenues and earnings is the main driver for these companies to expand in other countries.

Such financial objectives give rise to the development of newer terms and practices thereby contributing to the development of the financial language. People in the host nations are expected to understand and react to the new financial language the multinationals speak and teach. The financial language development emerging because of globalization makes the society in different host nations understand and adopt themselves to the new realm of financial transactions involved in the transfer of capital and the import of materials and technology. The staff of the banks and financial institutions in the importing countries is exposed to dealing with the industrially advanced countries and this enhances their knowledge of the financial language.

Globalization also increases the travel opportunities of the people in one country to various other countries. During such travel, people learn to adopt themselves to the banking and trading practices of other countries, which essentially involves use of international financial language. At the same time, people traveling to other countries are exposed to the culture of the foreign nations. Therefore, it can be interpreted that the financial language acts as the economic and cultural gateway to a society. “The speed of communication and exchange, the complexity and size of the networks involved, and the sheer volume of trade, interaction and risk give what we now label as ‘globalization’ a peculiar force” (Smith & Doyle, 2002). Financial language drives this peculiar force and the force acts as the gateway to economic and cultural factors of a society.

Role of Financial Language in the Daily Life of People

Assessment of the role of financial language in the daily life of people requires a comprehensive understanding of the ways in which people use money and access to the formal financial system. It also depends on the nature of the relationship between peoples’ levels of financial competence and the wellbeing of their households. The literature, which addresses the relationship between the ability to manage money, and the impact of this ability or lack of ability on wellbeing of the people, is fragmented. Financial literacy is one of the topics of relevance in most of the countries of the world. Especially in developing countries, the extent of banking services provided even though shows a growing trend, is found to be quite low. The main reason is the lack of information and education on issues connected with individual finances. Improving the financial capabilities of people have remained a prominent issue in more mature markets, where the consumers are over-solicited by different commercial offers. The customers in this case are somehow lost when it comes to the question of making decisions and choosing the right type of financial product or service. This shows the reduced role of financial language in the day to day life of people.

However, financial competence of the people in general is increasing rapidly across many of the societies in the world. This is evident from the fact that subsistence lifestyles have become progressively monetized. Even at the most basic levels, it has become essential that households must find financial resources for providing education to their children and for meeting the medical expenses of the family members. Changing lifestyle and increased consumerism has brought an increased imperative to engage with the money economy continuously and successfully too.

“Increased engagement with the money economy generates an increased requirement to engage with the formal financial sector. Households must be able to access the payments system, to keep surplus cash safe and accessible, and to access affordable and reliable credit services. Unfortunately increasing monetisation also brings increased exposure to ever more sophisticated financial scams. Households, which cannot differentiate between legitimate and fraudulent financial opportunities are very vulnerable” (UNCDF, 2008).

In today’s society, the households in which the person making the financial decisions are found to be typically more functionally literate being used to the common financial language and terms and are more likely to have financial knowledge and skills to exhibit more knowledgeable financial behaviors. These households because of their having taken some kind of financial assistance from the banks remain exposed to basic banking and to different financial terms, which form part of their daily life.

An unprecedented increase in the population partaking in some form of stock market investment and the increased ratio of households who have purchased a personal computer naturally have a close association with the financial language in their daily life. The personal computer has been reinvented as a communication device by means of the Internet. “The Internet is already a studied conflation of work and leisure, priceless freedom and commerce” (Martin, 2002). Internet has played a significant role in introducing the financial language to the households, which use some of the financial language terminology in their day-to-day lives. The use of money, extension of credit or the state of indebtedness of an individual has made it possible for a person to purchase something or produce something, which is not currently within his means. This financial stretching is aided through the information conveyed by the Internet and this has become the basis for exposing people to financial language on a daily basis. “But finance is also the industry that organizes these activities and introduces its own innovations in product lines and services so that the possessive relations between persons and things are dissolved and reassembled” (Martin, 2002). The reassembling by the finance industry has contributed to the development of the financial language and has made it a part of the daily life of many people.

Financial connections between people were forged when there was reassignment of the ownership of commodities and properties, such as the bundling of individual actions to acquire homes into mortgage-backed securities. These activities had the effect of transcending the immediacies of place and physically bounded community into more finance oriented societies ad individuals. The usefulness of the commodities involved were determined based on their ability to get exchanged further, which increased the need to understand the financial intricacies of the transaction implying the increased use of financial language. In order to find the market for the commodities, it became important to identify the potential demand and promote the demand if there is no demand existing. It also called for redrafting of the legislation and increased use of financial terms and transactions. Financialization under such circumstances, acted to integrate markets, which were separate. This could be seen from the increased banking activities for business and consumers, introduction of financial products and services and new markets for insurance and real estate. This situation has made people from all walks of life to accept risks into their homes and in their daily life which were hitherto the domain of the finance professionals. This also gave rise to a situation where people could make rational decisions with perfect access to information and the rules for how to conduct their financial affairs signifying the increased use of financial language in their daily lives.

Role of Financial Language in Financial Policies and Systems

“Technological advances, new electronic distribution channels and the integration of the financial markets have increased the range of financial products and services available to consumers. However, for many individuals the products are inherently too complex and they find it difficult to assess their risks and future returns. Products such as shares, fixed-income or traditional mutual funds are in general fairly well accepted by investors. Although this does not mean that their special features are really well understood, at least there is a general idea of the risks involved in each case. Compared with these, the new products such as structured instruments, hedge funds or reverse mortgages present serious difficulties for the general public to understand, and these may be translated into expectations that are not matched by the reality of the products” (Yubero, 2009).

Therefore, if financial innovations are to be effective and useful to the society, the government should frame financial policies and systems taking into account the customer needs. The use of financial language in formulating the policies cannot be undermined. The financial policies of the government should ensure the optimal allocation of capital in the economy. For meeting this objective, the government needs complete information on the state of the financial market including the products and services offered by it. The government is obligated to support the financial sector development by providing an appropriate policy framework, which makes the financial institutions and intermediaries function effectively and ensure macroeconomic stability.

This approach of the government to stabilize the economy defines the role of the government through the market functioning in a proper way. Since asymmetry of information is the main reason for the malfunctioning of the financial markets in any economy the government should provide adequate tools and take the necessary precautions to reduce any asymmetry of information. This calls for a clear understanding by the policymakers of the use of financial language and its place in the conduct of the financial market. Without a thorough knowledge of the current financial language developments, the policymakers may not be able to understand the intricacies of the functioning of the financial markets.

“Understanding the nature of liquidity in this sense leads us to the importance of financial intermediaries in a financial system built around capital markets, and the critical role played by monetary policy in regulating credit supply” (Adrian and Shin, 2008). The functioning of the domestic capital market assumes a significant position in regulating the money supply. Traditionally only banks were the predominant suppliers of credit. Over the period, market-based institutions has increasing supplanted the role of the banks and these institutions developed new and innovative financial products and services affecting the liquidity of the market. The introduction of new products and services enhanced the vocabulary of the financial language.

In order to understand the interactions of these new products and services and their impact on the market liquidity the government and the policymakers had to have an increased knowledge and understanding of the newer financial terms forming part of the financial language. New policy guidelines and legislations had to take into account the regulation of the marketing of these products and services, which increased the necessity of the policymakers to have a tight grip on the financial language and its latest ramifications. For example, in the beginning of the financial crisis of 2008, the policymakers have to have a thorough understanding of the issuance and trading of asset-backed securities and its impact on the capital markets to formulate the policies to contain the adverse impact of the financial crisis.

On certain occasions, the government in its efforts to assess the financial market development may find that the imperfections observed in the credit market may dissuade the financial institutions to direct capital to the most efficient projects and thus affecting the social welfare objectives of the government.

“To eliminate these frictions and to reduce their adverse impact the government should take interventionist approach, which consists of the use of such tools as subsidized loans or government credit guarantees for particular sectors of the economy, restrictions imposed on the amount of the credit (credit quotas) or the level of interest rates (interest floors and caps) set by private financial institutions, and government ownership of financial institutions.” (Cizkowicz & Rybinski, 2010).

Even under these circumstances, there is an increased role of financial language to help the government to collect the required information for decision-making and formulation of appropriate policies. These situations call for a thorough and expert knowledge on understanding the financial language and its latest developments to ensure proper response meeting the exigencies of the market conditions.

Role of Financial Language in Certain Career Development

From a sociological perspective career is the term, which is structural in nature meaning a succession or related jobs. The definition further indicates that these jobs are arranged in a hierarchy of prestige through which an individual progresses in an ordered or more or less predictable sequence (Garavan, 1996). The definition of the term career from the psychological discipline identifies career as the sequence of an individual’s work-related activities, behaviors and the attitudes, values and aspiration connected therewith. These aspects relating to the work span over the period of one’s life (Hall, 1986; Garavan 1996; Adamson, 1997).

The world of careers is undergoing lot of changes. The demand of jobs changes frequently because of advancements and innovations in technological and administrative fields. The innovations in administrative realm often lead to a change in the nature of a job to incorporate different types of activities and skills and perhaps a wide variety of them (Arnold, 2004). There are some important concepts occurring in the modern day studies relating to the career realities. First is the “boundaryless” career introduced by DeFillipi & Arthur (1994) and second is the “protean” career presented by Hall (1996). The “boundaryless” career includes short-termism and involves a new version of employability. In this form of career, the individual rather than the organization takes an active role in managing his own career. The individual does not opt to take a passive role waiting for opportunities. The “protean” career has an individualized approach. In this approach, it is claimed that individuals are responsible for their careers. The unique human resource qualities of the individuals are based on continuous learning and growth in his endeavor to pursue his career goals.

Just as the innovations in technological and administrative fields have given rise to these two new realities in career, advancements in financial language has led to the creation of certain new career development opportunities to those who have mastered the financial language developments. For instance, the positions of investment managers and fund managers came into being just a decade before. These positions were offered to those individuals who graduated from famous business schools specializing in finance discipline. Masters in Business Administration (MBA) degree holders with specialization in various finance disciplines were also provided with lucrative career options in the financial institutions. Just before the financial crisis of 2008, these jobs were providing fabulous compensation and benefits to those candidates who mastered the financial language. These professionals occupied enviable positions in investment banks and private equity providers. Mutual fund houses also employed these individuals with handsome compensation.

The specialized nature of the financial language helped individuals to access lower position in the marketing and servicing of financial products and services. There were a number of employment opportunities created by the financial service industry encouraging the individuals to develop relevant financial knowledge and skills to pursue the career in the financial service industry. For instance, marketing of various insurance products, involving an understanding of the developments in the financial language in this area provided a number of career options to individuals having a flair for financial service oriented careers.

There is the third type of career, which is known as the “intelligent” career, which was also promoted by the developments in financial language. This type involves development of three essential qualities of “ways of knowing” – knowing why, how and whom. This knowledge represents the individual assets of motivation, skill and relationships. Individuals who could assimilate excellent knowledge in financial language and develop the “intelligent” career requirements simultaneously could find themselves in the higher echelons of corporate entities assisting the top management in raising necessary capital by identifying the particular sources and financial instruments for augmenting the financial resources of the corporate entities. These individuals could find lucrative positions in consultant organizations and high-ranking investment banks. Private equity and hedge fund organizations are the other employers who recognized and offered better career options to persons having skills in understanding the new developments in financial language.

Response of Financial Language to Some Social Issues

The demographic changes that have taken place over the recent periods have led the world to face major economic and social challenges. After the World War II, many of the OECD countries had a boom in the birth rate until the mid 1960s. There has been a sustained fall in birth rate after this period and the birth rate has remained constant until recently. In addition, there has been a significant increase in the life expectancy of the people, as compared to that in the last two centuries. This will result in inversion of the population pyramid in the next 15 to 20 years on a global basis. Although, there might be variations in the pattern of aging across different countries, the increase in the dependency rate (dependency rate is represented by the percentage of population of 65 or over as compared with the people who are eligible to work based on their ages) would remain common to all the countries.

The changes in the demographic structure leading to inversion in the population pyramid, raises number of social issues. It will have a major effect on the social protection systems, especially in respect of pensions in terms of guaranteeing the medium and long-term sustainability of the payment of pensions in the context of the aging population. Generally the reforms in the pension schemes involve an overall reduction in the pension benefits payable. It is also likely to result in the payment of reduced levels of pension as measured against the amount of wages earned by the aging population. Under these circumstances, it becomes imperative that the aging people should be encouraged to save and plan financially for their retirement life. “Although the challenge of an ageing population for public pension systems has been widely publicized, it is also true that not everyone knows its causes and the alternatives available to address the problem.”

The aging population can decide on the various alternatives for saving to meet the requirements of retired life. In general taking a decision in this context is a complex issue. Deciding on the particular saving plan requires a thorough knowledge of the basic principles on finding how their own finances can be planned to provide maximum and safe returns. “For this reason, the financial culture of the population has to be improved, particularly in terms of its knowledge of the social security and pensions system, and of the instruments available for retirement savings.” A basic knowledge of the financial language will be of great help in solving this major social issue. By acquiring extended knowledge on different aspects of financial knowledge, the aged people can plan their retirement savings plan in an efficient way so that they can maximize their earnings during the retirement period.

It is a fact that there is a high degree of correlation between the knowledge of financial language and the socio-economic status of individuals. Individuals lacking knowledge of financial language will find it difficult to manage their personal financial situation, giving rise to different social issues. Studies conducted in the past reveal that a larger part of the population are unable to evaluate the financial risks they are exposed to as they have difficulties in understanding and assimilating the necessary financial information to plan their personal finances. One of the social issues identified is that because of lack of knowledge in financial language, many of the people are not able to plan their finances, and with the result, they are more likely to get into debts and will face serious difficulties when there are changes in their personal circumstances. For instance, when an individual becomes unemployed suddenly, he may not be able to manage his life if he does not plan his personal finances efficiently and for this, he needs at least basic knowledge of financial language.

Language Transition in the Era of Financial Globalization

“The constituent properties of human language – its mediums of transmission, its micro and macro-structure, the mechanisms that process it, the manner in which it is used to convey messages – all entail independent, or partially independent, developments of physical, mental and/or social configurations. Each such development can be conceptualized in terms of a transition.”

A transition in language may be sudden or it may take place in a gradual phase. One major event may cause a transition as a major consequence for the species. It may also be a culmination of many unimportant and small changes, which ultimately have a combined effect. This chapter presents some of the issues connected with language transition in the era of financial globalization.

A Common Code of Complicated Financial Issues

The evolution of a language in its entirety must be construed as a complex event – sequence. Dynamics of change is instrumental for driving this sequence. This makes us remember that there was no planning for such evolution and transition. It is important that one should not impose upon themselves a strong impression of their retrospective standpoint. It is difficult to comprehend the number of times one or another component of any language has nearly emerged or emerged for a brief time and faded out. “When effective language-like systems emerge in these trials, each is micro-pattern arising, after many iterations, out of a soup of random and semi-random events.”

Transition is an iterative process, which has some basic qualities. The concept of transition is viral in the sense that it spreads rapidly among people and pops up in places where such transition is not expected. Transition is an open source model, which is taken ownership of and shaped by people. It is made available freely to all the people. Another important quality of transition is that it organizes itself. It is not controlled centrally. It is something, which people make their own, without any limitations. The best feature of transition is that it is always inherently positive and focused towards finding solutions to the issues. It does not campaign against things. It sets out a positive vision of a world, which is bounded by its own limitations. Transition is also iterative in the sense that it continuously learns from its success and failures. It tries to redefine itself by researching on the aspects that are working and that are not. Transition offers a clear explanation of the point, where humanity can find itself and this explanation is based on the best of the sciences that is available to be used in such research. Transition possesses the character of being sensitive to place and scale, with the result, it takes a different look, depending on the context it visits. In its intricate quality, transition tries to provide a sense that the present is a historic opportunity for doing some extraordinary and most important thing.

“Transition words are essentially a mechanism used to alter the flow of text in context with the information provided. The use of transition words changes active text flow into a different functional context. This is sometimes referred to as altering the mindset of the flow of thought within a piece of text. A typical use of transition words is to go from a narrative state to use an example in context with the narrative. transition words may be used for illustration, contrast, addition of information, time, space, comparison, emphasis and details” (Examplesof.com).

Financial globalization has led to significant transition in language, especially the English language, as English has been the common link bridging communities together. The process of globalization is moving faster than it was moving traditionally. Although, the process is slow because of the recent economic crisis it may not stall in the future and will keep moving. Therefore, it was necessary that the language had to undergo the process of transition. In the process of language transition, there is bound to be some distortion between cultures and regional understanding of the context. However, the current trend is to incorporate more foreign words in the target language texts. The language transition may take place by adopting the foreign word without adding any explanation or by adopting the foreign words with an extensive explanation associated with the word. The transition may take place “Rewriting the text to make it more comprehensible to the target-language audience” (Mizani, 2003). The purpose of language transition is to make the text read more fluently and to make the text remain more exotic and more foreign. The transition helps the target texts get a more comprehensive image of the source culture.

There has been no much literature developed around language transition and financial globalization. “This is understandable in that globalisation is generally used in a business context, but it is desirable to look at globalisation from different perspectives” (Wiersema, 2005), and it is the central focus of this section. Although, English as a language has more affiliation with the financial globalization, “other languages have also benefited from globalisation, in that, literatures of other cultures and languages have found a wider audience. Very little has actually been publishedIn the literature that is about available on globalisation and translation studiesvery little has actually been published” (Wiersema, 2005).

In the realm of language transition, telecommunication, business and financial terms are the most significantly affected terms. Impact of language transition in lesser-known cultures because of financial globalization is very minimal. Therefore, this field has potentially large opportunity for further exploration and research. “In our globalised world, translation is the key to understanding and learning foreign cultures” (Wiersema, 2005). Financial globalization is closely associated to English being a lingua franca. This is because English is used at all the conferences and is the main language used in all the media of communication and is used as the language for generating innovations in the information and communication technology field. World communication has been able to experience new trends and reach new dimensions because of the use of English as common language.

Financial globalization has been linked to several translation studies and on the ways the language has become independent during the 1980s. Financial globalization is place in the context of developments in the field of economics, science, technology and society, which led to speeding the process of transition in English to become more a language affected by financial globalization. Financial “globalisation and technology are very helpful to translators in that translators have more access to online information, such as dictionaries of lesser-known languages” (Wiersema, 2005). This has enabled business and common people to find out the equivalent word in the domestic language as against the English word used in financial transactions. Internet has been particularly useful in helping people understand the foreign element in the business contracts and other documents. This has enabled the financial language transit in a manner in cases where the target text is challenging, the user could write the financial language in a more “foregienizing/exoticising” manner.

Another area where financial globalization has an impact on language transition is the field of advertising. International financial services businesses have attempted to language transition to make the target languages rich with financial terms so that they would be able to expand their business domain successfully.

Financial Globalization and Translation

In the context of globalization, translation has become an important aspect, because it had an enormous impact on the lives and cultures of people across the globe. It has affected the work and lives of the translators, as translation has become an important tool in enhancing the understanding between people of different cultures and regions. Translation has made people understand the financial developments about which they are not traditionally familiar. Because of the past trend in financial globalization, “the translator no longer has the absolute need to always find a translation of a term in the target language if this would make the target-language text lose credibility,” (Khutyz, 2005).

“If transfer, i.e., translation changes the contents of the text from familiarity to foreignness, then the new approach in translation (keeping more foreign elements in the target text) may be a solution to avoid that, especially because globalisation decreases the element of foreignness: a text no longer becomes more foreign or less familiar by introducing foreign words in a target text. In a modern global context we can bringtake more and more foreign elements into a target text, and thus keep more of the source text in the translation, i.e., create a target text that is less foreign tofor the source culture” (Wiersema, 2005).

This implies that globalization has helped the creation of a large text, which is less foreign to the source culture.

Impact of Financial Globalization on the Daily Thinking and Speaking Habits of People

Globalization has become one of the most popular issues frequently used by people. The earlier part of this study observed that economic and financial globalization has contributed to the creation of a state of frictionless capitalism. “The process of globalisation entails that there is

interconnection of sovereign nations through trade and capital flows; harmonization of economy rules that govern relationship among these sovereign nation; creating structures to support and facilitate interdependent and creating a global market place” (Okogbule, 2008). The continued access to Internet has improved the understanding and perceptions of the people about the financial transactions they enter into with people belonging to different cultures. With the variety of trade agreements that countries have entered into among themselves, and the liberalizations in the telecommunication sector, there is the increased exposure of the people towards corporate culture and proliferation in the medium of communication has helped people improve their knowledge and skills in dealing with their financial transactions on a global basis. The impact of globalization on the thinking and speaking habits of the people has been tremendous.

The financial globalization has influenced the people to change their ways of living and adapt themselves to innovative ways of thinking and speaking. Since financial globalization has helped opening up of the economies and knowledge to be used freely to enter global market and use its forces, people have enlarged their knowledge to think out of the way and achieve their financial goals. In order to gain the ability to make use of such global forces, people have to learn new ways of thinking and speaking. According to Friday (2002), irrespective the nature of their economies, their level of knowledge and development and their respective position in the global economy, the countries must practice a common set of economic policies. These economic policies have the tendency to change the ways in which people approach their financial goals and policies by changing the ways of thinking on their dealings with people in other regions. The developments in financial language changed the thinking abilities of people and their ability to express their intentions. The operations of transnational companies and multinational companies in different economies have also made people to think differently in terms of their financial transactions and dealings with people of different regions and countries.

English as the main contributor to the development of financial language has undermined the importance of other regional and local languages to some extent. However, the transition that has taken place in the language domain of different countries and comprehensive translations made into respective native languages has enabled people to improve their knowledge and speaking pattern and ability. Financial globalization has contributed to the increasing importance of English in the context of different nations and their people. Advertisements about financial products and services have a large role to play in the enhancement of the vocabulary of the people in the financial language domain. The success of the financial language is evidenced by the increased capital flow between countries across geographical borders. Global communication facilitated by different technological media has not only flattened the cultural terrain among people, but has also sharpened the comprehension of them to speak and think differently.

Language forms an important element in the cultures of different countries across the world. In the globalization context, it is necessary to under the subtlety in the regional differences while using a common language. For example, a single word may provide different meanings in two different settings. In many instances, non-verbal communications also play a major role in conveying intentions. Inside the boundaries of a specific language, one can often find different forms even in the local usage of the same language. We can say that the differences between English used in the United States, United Kingdom and Australia are less as compared to the regional dialects of Spanish and German languages.

It is not possible to use Idioms, which involve figures of speech to convey the same meaning in different languages, as the cultures differ in different countries. “Neologisms” is a relatively new concept entered into the realm of language. This concept involves words, which are technology or society oriented. “With the proliferation of computer technology, for example, the idea of an “add-on” became widely known. It may take longer for such terms to “diffuse” into other regions of the world” Perener, 1999). In those regions of the world, where English is the predominant language of teaching and learning in schools, the emphasis is making students proficient in grammar and the specialty of English rather than focusing on making them better in using terminology in vogue. Therefore, in these regions, the chances for understanding the concept of neologisms are remote. However, financial globalization has made a breakthrough in this respect in making people belonging to different regions, think and speak language, using terms, which are not in their normal vocabulary.

One most common issue with the language is that “Because of differences in values, assumptions, and language structure, it is not possible to meaningfully translate “word-for-word” from one language to another” (Perner, 1999). There must be place for “unspoken understandings” and assumptions of different nature while attempting to translate financial terms and issues from one language to the other. In fact, this is one of the reasons, that financial language has made people from different cultures and regions to think and talk differently from their natural source. As there may be differences in the meaning of the words people had in mind, and what they mean, when translated literally, people have to provide for new thinking on coining terms to represent the intended meanings in their own languages.

There is another issue connected with the financial language that has made people think and talk differently from their own ways. “Differences in cultural values result in different preferred methods of speech. In American English, where the individual is assumed to be more in control of his or her destiny than is the case in many other cultures, there is a preference for the active tense (e.g., I wrote the marketing plan) as opposed to the passive (e.g., The marketing plan was written by me)” (Perner, 1999a). Similar analogy applies to the use of financial language by people of different countries, where they use different methods of speech. This is one of the special features of financial language, which adapts itself to the regional preferences of methods of speech, yet understood by people living in different regions across the globe. In number of instances global financial service providers have created equivalent local words for easy understanding by the target customer groups. This has not only enabled them to enhance their sales, but also has increased the vocabulary of the target regional people. Examples may be found in a variety of insurance products, which have been converted to meet the needs of people of different regions and which have made the local people to assimilate the meaning of the new terminology used in the products and put them into use.

There is large potential for misunderstanding in translations. This has led to the refining of the financial language to represent the correct meanings to the local people, by adapting equivalent words by using “decentering” method, where multiple translators are used. “Because of the potential for misunderstandings in translations, it is dangerous to rely on a translation from one language to another made by one person” (Perner, 1999a). The process of “decentering” takes the following form.

“The text is first translated by one translator—say, from German to Mandarin Chinese. A second translator, who does not know what the original German text said, will then translate back to German from Mandarin Chinese translation. The text is then compared. If the meaning is not similar, a third translator, keeping in mind this feedback, will then translate from German to Mandarin. The process is continued until the translated meaning appears to be satisfactory,” (Perner, 1999).

This type of precision engaged in translation has enabled people understand the intricacies of financial transactions in their true perspectives and such precision enabled them to use the appropriate words in their own language indicating the proper meaning in the context. For practicing to use the newer and appropriate business terms and to use the financial language to their advantage people have started thinking and speaking differently. Comprehensive translations of the terms of several financial transactions has helped people improve their thinking and speaking capabilities. Globalization has

“resulted in the introduction of policies armed at eliminating all obstacles of the “free” exercise of economic activity across boundaries including trade liberalization, the deregulation of production, the labour market and the market of goods and services and the implementation of regional and international agreements” (Muyale-Manenji, 1998).

All these counter effects of globalization has inculcated the necessity on people to learn

to think and speak having different perceptions and way of expressing themselves.

Association between Financial Globalization and Language Transition

In the context of financial globalization, three observations can be made. First is the “networks, connectivities and interactions” include and depends upon specific forms of communication, which meet the requirements of transnational interaction. The communication flows include the flows of representation and narratives. Secondly, it is necessary to differentiate between the language of globalization and the processes and tendencies of globalization. Third, language also contributes to creating and shaping actual processes of globalization; however, in intricate and dependent ways. There are different claims, which can be made in respect of language as a facet of financial globalization. It can represent globalization by disseminating information about it and make people understand the meaning of it. On the other hand, language also can misrepresent globalization by providing a confusing and misleading impression about it.

Language can be used in a rhetorical manner for projecting a specific view of globalization. This projection can justify or legitimize the actions, policies and strategies of specific social agencies and agents. Language in the context of financial globalization has the ability to facilitate the constitution, dissemination and reproduction of ideologies, which can also be seen as a type of mystification. However, it has a “crucial systemic function in sustaining a particular form of globalization and the (unequal and unjust) power relations which are built into it.” Language can also generate imaginary pictures of how the world will act within strategies for change. It also will help the operationalization of transforming the imaginary pictures into realties representing actual forms of globalization. However, the existing literature does not describe the function of language as a systematic approach to theorizing and analyzing it as a facet of globalization.

Financial Language as a Global Language

A language attains a true global status when it is recognized as having a special role to perform. There are various conditions, which a language must satisfy to become a global language. One of the conditions is that it must be used as a medium of communication in the communities of different regions and countries. English, as a language illustrates the role of a global language as it has gained a special status in more than seventy countries. There are other reasons such as “historical tradition, political expediency and the desire for commercial, cultural or technological contact.” Out of these conditions, financial language satisfies the condition of desire for commercial contact, which makes it a global language. Even though, the language has gained the required recognition, the presence may vary largely, depending on to the extent to which it is supported by people and businesses in different countries. In this respect financial language seems to have gained a overwhelming support from all the communities across the globe. The presence of financial language has been enhanced by the availability of several media like books, compact discs, computer and telecommunication systems in most of the countries. The advancement in information and communication technology is another important element in the furtherance of the importance and recognition of financial language.

The high levels of fluency demonstrated by a wide range of speakers add to the global nature of a language. From this perspective, the fluency exhibited by people of different regions provides financial language the character of global language. Simply because a large number of people speak a language, it does not become a global language. What is important is the nature of speakers who speak the language. “There is the closest of links between language dominance and economic, technological and cultural power, too, and this relationship will become increasingly clear as the history of English is told.” No language can achieve the status of a global language and recognized as a medium of communication, without a strong power-base of whatever nature.

“Language has no independent existence, living in some sort of mystical space apart from the people who speak it. Language exists only in the brains and mouths and ears and hands and eyes of its users. When they succeed, on the international stage, their language succeeds. When they fail, their language fails,” (Oracle, 2010).

This is what has happened in the case of financial language. Prior to the financial crisis, when the users of financial language succeeded in proliferating the financial products and services, the financial language succeeded as a global language. When the world economies were struck by the economic crisis, the number of people speaking the financial language came down showing a decline in the position of financial language from its position as the global language. There can be no denial of the fact that a language may have certain specific properties, which make it internationally appealing. The vocabulary, structural aspects, and familiarity might provide a language its cosmopolitan character and make it a global language. However, these expected qualities of a language are incidental and the presence of these qualities need to be weighed against the linguistic features of the language. An earlier part of this research report dealt with the linguistic features of financial language and the discussion showed the superiority of financial language to be accepted as a global language.

“A language does not become a global language because of its intrinsic structural properties, or because of the size of its vocabulary, or because it has been a vehicle of a great literature in the past, or because it was once associated with a great culture or religion. These are all factors, which can motivate someone to learn a language of course but none of them alone, or in combination can ensure a language’s world spread.”

It is true that the presence of these factors cannot even guarantee the survival of a language as has happened in the case of Latin., which satisfied most of these parameters. It is also a fact that inconvenient structural properties do not stop a language gaining international prominence and becoming a global language. This has been proved in the case of financial language. Any language, which is at the center of an explosion of any international activity would suddenly become recognized as a global language. For instance, “during the twentieth century, this world presence was maintained and promoted almost single-handedly through the economic supremacy of the new American superpower. Economics replaced politics as the chief driving force.” The language behind the US Dollar was English and English gained supremacy as a global language. The same analogy applies to financial language, which has gained its global status recently.

There is the need for a global language, when the communities, where there are many languages in contact, begin to trade with each other they have to communicate with each other by using a language to be a lingua franca or a “common language.” In some instances, the indigenous language of the most powerful ethnic group in the area becomes the lingua franca.

However, in many instances, a language is recognized as the common language from outside the community because of the “political, economic, or religious influence of a foreign power.” This situation has changed when there was a need for a single lingua franca by millions of individual contacts being made daily over the globe. The physical and electronic mobility have provided the necessary support for growth in the international contacts, which ultimately led to the economic and financial globalization.

“There are no precedents in human history for what happens to languages in such circumstances of rapid change. There has never been a time when so many nations were needing to talk to each other so much. There has never been a time when so many people wished to travel to so many places. There has never been such a strain placed on the conventional resources of translating and interpreting. Never has the need for more widespread bilingualism been greater, to ease the burden placed on the professional few. And never has there been a more urgent need for a global language.”

Financial language could meet all these requirements and thus had become a global language.

Conclusion and Implications for Further Research

The objective of this chapter is to present few concluding remarks, which summarizes the findings of the current research on the changes in financial language and social development since financial tsunami 2008 in the context of the United States. This chapter also presents a discussion on the research process and on the research objectives and questions. This concluding chapter describes some of the limitations, which impeded the progress of the research and this chapter suggests some areas where further research can be conducted to enhance the knowledge on the topic under study.

Introduction

The development of financial language has been greatly facilitated by the advancement in the information and communication technology. Traditionally English has been accorded the status of the global language and has been recognized as the medium of communication among countries across the globe. However, the proliferation of financial products and services, through the action of the financial intermediaries has made the financial language to gain supremacy over English as the global language. The need to have a lingua franca accepted by the nations for trading and communicating with each other has provided the common financial language the status of a global language. People across the world started learning and speaking the financial language merely out of necessity to deal on an international basis. However, this situation changed as an aftermath of the 2008 financial tsunami, which had proved several assumptions of the financial and trading community wrong and reduced the power and reputation of financial language largely. In this context, this research was undertaken to examine the changes in financial language and social development since financial tsunami 2008 in the context of the United States.

The study observed that a number of factors influence the comprehension, understanding and use of financial language by the people. One of the factors is the inability of the non-English speaking communities to use financial language, which essentially uses English language as the basic medium of communication. Other factors such as lack of familiarity with the financial systems, cultural differences, lack of trust on the dealings of the financial institutions, varying income education levels of people generally act as potential deterrents for enhanced use of financial language. The study observed that lack of proper understanding of the operation of the financial system and the products and services covered under the system is the major challenge for the proliferation of the financial language.

Development and use of financial language by people is largely hampered by lack of exposure to mainstream financial institutions such as banks. There is flawed use of the financial language because of factors like dissimilar norms, attitudes, and experiences relating to financial transactions based on the cultural differences among people dealing with each other. One of the findings of the study is that there is general mistrust towards financial institutions creating an aversion among individuals, which prohibit people from getting to know the proper use of financial language. In fact, this has been one of the major factors, which hindered the progress of financial language in the post-economic crisis scenario.

The findings of some of the earlier research reveal a close association between income level of the people and their knowledge on financial transactions and related issues. This research reiterates this finding by asserting that low-income earners lack the opportunity to develop a comprehensive knowledge about the power and use of financial language. Therefore, income and socioeconomic status of individuals act as a barrier for using the financial language. Lower educational level is another major factor, which acts to limit the use of financial language by large sections of the communities. This is because of the fact that financial language uses English as the medium of communication and people who lack education may not be able to understand the intricacies of financial language and use it proficiently. Because people lack education, they are unable to acquire the knowledge to use key phrases and terms forming part of financial language.

The current study evaluated the use of financial language from different perspectives by taking into account the influence of these factors. Such an analysis was considered important to assess the relative impact of financial language in the proliferation of different financial products and services in the global financial system and their popularity among the people. The study observed that apart from the factors mentioned above, the degree of financial openness in the wake of recent financial reforms also had a major to play in the rapid development of financial language immediately before the financial crisis. It was found that people in the countries, which were not very keen in bringing large-scale financial reforms, were less accustomed to the use of new financial language, which underlined the use of new financial products and services.

The following sections present a discussion on the findings of the research in so far they relate to the research objectives and questions and on the research process.

Discussion on Research Objectives and Questions

The central aim of the research was to explore the evolution of financial language and to examine the changes in the financial language over the period until the financial tsunami occurred in 2008.

The study traced the evolution of financial language to its present form through the development of investment banks and other financial institutions along with the development of innovative financial services and products. As pointed out by McKinnon (1973), banking institutions have made significant contribution to the development of the financial language, apart from contributing to economic growth. The study has drawn from the previous research and empirical studies to elucidate the development of financial language through the period until the financial tsunami, 2008 (Levine et al 1999; Khan and Senhadji, 2000). The increased access to financial services by the businesses and households has necessitated the evolution of a common financial language, which could be understood by the people desirous of dealing with the financial institutions. Banking and investment institutions throughout the globe have

developed special financial terminology, which enlarged the scope and content of the financial language. The financial terminology formed part of the financial language. The important aspect of financial language is that the banks and financial institutions have to depend on the common understanding of the financial language by the majority of the people, for their own development and progress. Therefore, these institutions have made the financial language easily comprehensible to all the people who deal with them. However, it cannot be affirmed that most of the people using the financial language could master the language to understand its full implication and effects.

In the absence of a clear-cut definition on the scope and content of financial language, the study assumed financial reporting as a significant aspect in the development and use of the language. There have been number of developments in the transparency and uniformity in the financial reporting, which had enriched the vocabulary financial language to improve the global application of the language. The study observed that the proliferation of financial language and the expansion of the banking system were complementary to each other and both developed rapidly until the onset of financial tsunami in 2008.

The entire financial system consisting of the domestic and international capital markets, stock exchanges operating in different economies, major investment banks and commercial banks have contributed to their own development by helping the financial language acquire greater significance even among lower strata of people. The study observed one peculiarity with the development of the financial language in which mostly the executives, selling financial products and services to common people mastered the financial language. A well-maintained interconnection with global banking institutions in the form of interbank settlement systems has helped the development of the financial language in a more comprehensive way, which eased the difficulties in transacting businesses by the banking institutions among themselves.

Over the period, the financial language was exposed to significant changes because of the development of innovative financial products like house mortgages and other connected products, which were the main reason for the occurrence of financial tsunami in 2008. The evolution of new derivative products also changed the boundaries of financial language. There were significant changes in the documentation and in the method of transacting by banks and investment banks, which brought considerable changes in the context and application of the financial language. Several new words and phrases were added to the financial language to make it rich and meet the current needs of the parties dealing with each other. Just before the financial tsunami, the financial language took a completely new dimension and role in meeting the needs of the bankers as well as the customers dealing with them. The study observed that the development was so rapid and of high magnitude that even many of the people working in the banking institutions could not cope up with the rapidity in the development of the financial language. The advancement in information and communication technology helped these changes to take shape.

The study observed the financial planners as the most important contributors to the development of the financial language to its present position. The financial planners were responsible for advising the institutional and individual investors to channelize their investment in the most profitable way and to meet the objective the financial planners had to understand the expectations of the investors and the availability of various investment options. In many cases, they have to be innovative to find different investment products. In fact, the financial planners were the people who were more conversant with the financial language than any other people do. The review of the literature observed that since the individual investors lacked expert knowledge of financial language and its related terminology, they always look at the financial planners to guide them in their investments (Hirt, Block and Basu 2006). This enlarged the role of financial planners in making use of financial language largely.

The next objective of the study was to examine the relationship between finance and language in general and to study the linguistic features of financial language. In this respect, the study explored the linguistic aspects of financial language and reported on the phonological, lexical, syntactic, semantic and stylistic features of the financial language. Examples of these aspects as they are found in the financial language were a part of this research report. This research however, has not found any significant association of financial language with these linguistic features, except that there are some instances of the usage of the financial language, which resembles these features. Therefore, the researcher is of the opinion that financial language cannot be compared with any other language as far as these linguistic features are concerned.

The study attempted to meet the objective of exploring the social aspects of financial language. It has been observed that financial language had and still has serious implications on different social aspects, which are connected with the daily lives of a large contingent of people throughout the world. There have been instances where financial language has contributed to an equitable distribution of income and employment. At one point of time, before the financial tsunami of 2008, the financial services industry was at its peak offering employment opportunities to millions of educated people. This study has identified the growth in employment in the industry to be closely associated with the development of financial language. Another important area where the financial language helped improving the lives of individuals was the insurance sector, which not only provided for many avenues of investment linked insurance coverage, but also provided employment opportunities to a number of people selling these products and services.

Studying the association between financial globalization and transition in financial language was the next objective of the research. Financial globalization essentially underlines an effective transnational interaction for achieving its objectives. This could be accomplished only developing a medium of communication, which is not only understandable but also flexible enough to accommodate the changes as may be required by the changes in economic conditions in the states, which deal with each other. Financial globalization embarked on use of financial language as the efficient medium of communication. Along with the changes in the scope and magnitude of financial globalization during the early 2000s, financial language had to undergo rigorous transition in its application to international financial transactions. The study finds that transition in financial language was found to be useful in disseminating information about financial globalization. This research has observed that financial language in the context of financial globalization had the ability to facilitate the constitution, dissemination and reproduction of ideologies, which can also be seen as a type of mystification and this was the direct result of the transition in the financial language due to its excessive use just before the financial tsunami of 2008.

Assessing the role of financial language in causing the Financial Tsunami 2008 and the need to develop new choice of financial language, was yet another objective of the current research. From the review of the available literature on the causes of the financial tsunami, 2008, number of factors has been found to have caused the financial tsunami in 2008. Lack of stringent control on the macroeconomic policies and easy availability of credit were the main causes for financial tsunami in addition to increased activities in the housing sector not only in the United States but also in many other countries. The increased availability of market credit increased the investible surplus in the hands of the people. With a view to increase the investment opportunities, the financial services industry introduced several innovative products and services, increasing the transition and enhanced use of financial language. This study points out that lack of knowledge of the changed financial language has been responsible for a large number of people to lose their houses and savings. This study finds the excessive use of financial language, which could not be mastered by many of the people, has been one of the causes of financial tsunami. The study therefore suggests evolving a new financial language, which is simple and comprehensible to common people to avoid the recurrence of the financial tsunami of 2008.

The study used the qualitative case study of the bankruptcy of Lehman Brothers and the secondary information and data collected from various sources attempted to find answers for several research questions. The first question was on the reasons for the popularity and infamy of financial language. The study found that the commonness of advertisements in financial publications has been the main reason for the increase of the popularity of the financial language.

The proliferation of Internet and advancement in information and communication technology was another important reason for the financial language gaining popularity among the people. The mushroom growth of the financial intermediaries during the period before the financial crisis of 2008 was another major reason for making the financial language more popular. The situation of the popularity of the financial language turned the opposite direction immediately after the financial crisis. The financial newspapers and media also were responsible for creating the infamy of the financial language in the same way they created popularity for the financial language. The study finds that the newer and innovative financial products, which were riskier added to the infamy of the new terminology of the financial language.

The research could find that to some extent the discipline of finance could be associated with a language. On the question of whether the different linguistic features be identified in the financial language, the research answers although there is some resemblance of some of the financial terminology and phrases to different linguistic features, it cannot be said that financial language is composed of the linguistic features in their true sense, which makes it a complete language by itself.

On the question of the impact of financial globalization on the daily thinking and speaking habits of people the research finds that from the proliferation of different types of financial products and services on a global basis, the financial globalization has affected the thinking and speaking habits of the people only to a certain extent. The research has substantiated that the financial language be identified as a global language, since it meets all the requirements of a global language. Any language, which creates an international fervor and is the cause of the international explosion of an event can be regarded as a global language. Since financial language has been one of the main enablers of financial globalization, it can be construed as a global language.

Discussion on the Research Process

The current research on “changes in financial language and social development since financial tsunami 2008 in the context of United States” was a research in the linguistics discipline undertaken to assess the role and influence of financial language in the proliferation of financial globalization and the eventual financial tsunami in 2008. Being a secondary and desk research, it involved referring to a number of professional publications including journal articles, research publications and other professional presentations. There were several books, which were found useful in conducting the research effectively. In fact, most part of the research could be progressed using the valuable information gathered from different academic and professional sources. The initial progress of the research was slow because of the fact that, it was necessary to define the boundaries, scope and content of the research inquiry on financial language.

In the absence of any structured definition or outline on financial language, it took some time to gain the momentum of the research. After the initial formation of the ideas on the scope and direction of the research topic, the progress was satisfactory enough. However, there were few occasions, where the research was slowed, especially in establishing the linguistic features of financial language. Although there were enough resources to draw information on different linguistic features, it was difficult to establish the association between financial language and the linguistic features discussed within this research report. Similarly drawing and presenting coherent information on the history and evolution of financial language also made the progress of the research suffer significantly. There were no enough resources available which could provide authentic information on the origin of financial language.

The research process involved the case study of Lehman Brothers and the downfall of the institution. Establishing the association between the bankruptcy of the company and the role of financial language in the bankruptcy of the company was one of the difficult tasks undertaken in the process of current research. It required considerable professional and analytical skill to establish the association and still there were some questions, which remained unanswered about the connection of financial language with the total process of the bankruptcy of the company and its connection with financial language.

Nevertheless, the progress of the research as far as the case study was not difficult, because the researcher could find number of resources from which the basic information and data required for the case study could be drawn. The case study of Lehman Brothers provided the researcher a deep insight into the operations of investment institutions and the lacuna therein, which has been the major cause for huge financial losses suffered by millions of people and business houses throughout the world. The ill-effects of the greedy financial transactions are still lingering in number of world economies, preventing them from the adverse impact of recovering from the financial tsunami of 2008. The process of research has clearly established the role and responsibility of financial language and its use in the debacle caused by the financial tsunami.

Overall, the research process was not only interesting but also was informative adding to the knowledge of the researchers in the areas of both linguistics and finance. There were number of new concepts and ideas in the financial discipline, which came to the knowledge of the researcher, about which the researcher did not possess sufficient exposure earlier. The research process enabled the researcher to develop the analytical skill, as there was the need to read, understand and assimilate information from many sources and to categorize the information collected based on the relevance of the content for inclusion in the research report. As such, the researcher had to scan through number of literary and academic works and establish the relative use in drawing up the research report. This has enhanced the analytical ability of the researcher.

There were instances, where the researcher could find information, which need to be understood from different perspectives so that it can make it significant contribution to the research. Had the researcher not applied an extended knowledge and skill, in understanding the intricate meaning of such works, it would have resulted in the loss of considerable amount of time and efforts resulting in a delay in the progress of the research. The researcher has to acknowledge the valuable support provided by the academic supervisor in the progress of the research, right from the stage of identifying the areas where the research needs to extend. The planning done with the help of the supervisor enabled the researcher to focus her attention on specific areas relevant to the study. The guidance and assistance of the supervisor and several other professionals who helped the researcher to pursue this research successfully cannot be forgotten.

Conclusion

There are some definite conclusions, which have been reached from the findings of this research. Although the research could not establish precise source for the origin for the financial language or an exhaustive definition of the term, it has found out the development of financial language was significantly helped by the development of financial institutions and their efforts in developing new and innovative financial products and services during the period before financial tsunami in 2008. The study found the influence of several factor in the use of financial language such as familiarity with the financial system, cultural differences, general mistrust of people on the functioning of the financial institutions, differences in income and varying education levels of parties dealing with each other. This study assumed that financial reporting as an aspect of financial language and efforts taken to improve the transparency and uniformity of the financial reporting on a global basis has helped financial language to shape itself to become a global language.

Another conclusion that could be drawn from this research is that lack of knowledge among the common people about the vocabulary of financial language and its use was one of the causes of the financial tsunami, which affected large number of people across the globe financially. Indeed financial language was helpful for the proliferation of financial globalization and extending its benefits to people in all the countries. With the expansion of financial globalization, the financial language had to undergo significant transition, to keep pace with the growing scope and magnitude of financial globalization. Financial globalization could use the financial language as a flexible medium of communication of its concept and ideologies to the people.

The research also found that financial language could not attain the status of a full pledged language with all its linguistic features, as the language is just a bundle of many phrases. Any reference to financial language can imply referring to the development of the use of new financial terminology added to the use of financial transactions on an international level. While the financial language gained its prominence and popularity during the period before the financial tsunami, with large number of people using it, the language became infamous just after the financial tsunami caused considerable damages to individuals’ and organizations’ financial status. This study concludes that the risk attached to the innovative financial products and services, which was another cause of financial tsunami caused the downfall in the use of financial language as an aftermath of financial tsunami.

Since the development of the financial services industry had significant impact on several social aspects, the study concludes that financial language can be said to be responsible for influencing several social aspects like income and employment distribution and increased provision of healthcare. Although, no direct link can be established between the proliferation of financial language and changes in the social life of the people, the development in the language has indirectly helped people acquire different skills and improve upon their income and standard of living. The study concludes that financial language possesses all requirements to regard it as a global language, as any language, which is at the center of an explosion of any international activity would suddenly become recognized as a global language

Research Limitations

One of the major limitations of the research is the lack of previous research in the area from where the researcher could draw theoretical concepts and ideas to develop further. In the absence of prior research, the researcher had to assume certain direction and scope of the research, which could always lead to a debate on the question of relevance. The research has been a novel idea in the field of linguistics and the lack of resources has impeded the progress of research on several occasions. Another serious limitation of the research is that the researcher has to make several assumptions on the scope, content and role of financial language in the absence of proper definition of financial language and its various facets. This might have affected the central focus of the study in some of the areas of discussion. However, the researcher has tried to overcome this limitation by referring to number of works in the finance discipline to improve the validity of the research.

The vastness of the subject though has been helpful in making this sizeable work possible, also posed as a limitation, as the researcher could not balance the focus on several aspects of financial language. It is the feeling of the researcher that this limitation has put the research off the course in certain areas. For instance, the discussion on financial reporting and its role and scope in the financial language cannot be convincingly supported, though there is relevance to some extent. The research however has dwelled on financial reporting in one of the sections to add substance to the research. The research suffered a serious limitation in identifying the linguistic features of financial language, where there was no enough guidance in the form of previous work or any other relevant study. This limitation is quite serious since the research has a linguistic focus rather than a focus on the finance discipline.

Further Areas for Research

The current research identifies a few other areas where further research can be undertaken to add to the existing knowledge. The association of financial literacy and the understanding of financial language is an interesting area of study. There are several factors, which influence the financial literacy and it would be interesting to study whether improved financial literacy adds to the understanding of the financial language by the people. Study of developments in the application of financial language to instances of financial contracts and documentation over a specific period will prove the real growth of the financial language during the period under study. There can be an elaboration in the form of an empirical study on the social impact of financial language in a specific setting during a specific period. This study may look into the increased employment opportunities in the financial services sector of a country during specific period or the growth in the business of investment banks during the period.

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