FTSE 100

Definition

The FTSE 100, or Financial Times Stock Exchange 100 Index, is a stock market index that represents the 100 largest companies listed on the London Stock Exchange based on market capitalization. It serves as a key indicator of the performance of the UK stock market and reflects the overall health of the economy, as these companies are influential in various sectors such as finance, healthcare, and consumer goods.

5 Must Know Facts For Your Next Test

1. The FTSE 100 was launched in January 1984 and is managed by the FTSE Group, which is a subsidiary of the London Stock Exchange Group.
2. The index is weighted by free float market capitalization, meaning that only shares available for trading are included in calculating each company's weight in the index.
3. Some of the most recognized companies on the FTSE 100 include BP, Unilever, and HSBC, representing significant sectors of the UK economy.
4. The FTSE 100 is updated in real-time during trading hours, allowing investors to track its movements and make informed decisions.
5. Changes in the FTSE 100 can be influenced by various factors, including economic data releases, political events, and global market trends.

Review Questions

• How does the FTSE 100 serve as an indicator of economic performance in the UK?
  • The FTSE 100 acts as a barometer for the UK economy because it includes the largest companies that are publicly traded on the London Stock Exchange. The performance of this index reflects investor sentiment and economic conditions, as rising stock prices generally indicate confidence in economic growth while falling prices can signal economic challenges. Therefore, analysts often look to the FTSE 100 to gauge overall economic trends.
• Discuss the significance of free float market capitalization in determining the composition of the FTSE 100.
  • Free float market capitalization is crucial for determining a company's weight in the FTSE 100 because it only considers shares that are available for public trading. This approach prevents larger companies from being disproportionately represented due to insider holdings. As a result, it allows for a more accurate reflection of market dynamics and ensures that changes in stock prices truly represent investor sentiment.
• Evaluate how global economic events impact the FTSE 100 and its constituent companies.
  • Global economic events can significantly impact the FTSE 100 due to its diverse range of multinational companies that operate across various markets. For instance, changes in oil prices can heavily influence energy companies like BP, while geopolitical tensions may affect financial services firms. As these events unfold, they can lead to fluctuations in stock prices and overall market sentiment, making it essential for investors to stay informed about both local and international developments that could affect this index.

Related terms

Market Capitalization: The total market value of a company's outstanding shares, calculated by multiplying the share price by the number of shares.

London Stock Exchange: One of the oldest and largest stock exchanges in the world, where shares of publicly traded companies in the UK are bought and sold.

Index Fund: A type of mutual fund or exchange-traded fund (ETF) that aims to replicate the performance of a specific index, such as the FTSE 100.