The FTSE 100; it's something we've all heard mentioned with increasing frequency as news and media focus on the economy, but do people really know what it is? An abbreviation of Financial Times Stock Exchange, the FTSE (or footsie as it's pronounced) 100 is a share index of the 100 most highly capitalised companies listed on the London Stock Exchange.

The FTSE 100 is used as a monitor of the economy, an indicator if you will. The logic being that if these companies are losing value it's a macrocosm of the country's finances as a whole. The index began on January 3 1984 with a base level of 1000 and to date the highest value reached was on December 30 1999 when the level hit 6950.6. While the values fluctuate continually, concern begins to arise when it drops below the 5000 mark.

The FTSE Index is maintained by the FTSE Group. Based in Canary Wharf, the FTSE Group also looks after the FTSE 250 Index (which indexes the values of 250 companies) with seven main groups of indices: Global Equity, Regional and Partner, Fixed Income, Real Estate, Alternative Investment, Responsible Investment and Investment Strategy. There is also a FTSE 350 Index which combines the 100 and 250 indices, the FTSE SmallCap Index and, combining them all, the FTSE All-Share Index.

The FTSE Group calculates, from offices around the globe, more than 120,000 indices that cover more than 77 countries which help investors make informed decisions. While it would be more accurate and comprehensive to use the All-Share Index, the London Stock Exchange used the FTSE 100 as its UK stock market indicator and it's the results of trading on the companies it lists that produces those numbers we cannot escape hearing on the news of an evening whenever the media needs to cast gloom on the economy.

Trading on the FTSE 100 kicks off every weekday morning from 08:00, the closing auction begins at 16:29 and the closing values are taken at 16:35. To give an idea of the figures and values involved in these 100 companies, the highest valued company on the list (based on the last trading of 2007) was Royal Dutch Shell which was valued at 134,376.32 million pounds followed by BP at 116,722.52 million and HSBC at 99,573.75 million pounds.

As previously suggested, the index serves as indicator of the country's economy as a whole. They also influence trading in other countries, such is in America on the Dow Jones index or the DAX in Germany, which, in turn, also affect investor confidence here.

While it's fair to say that for the majority of the population those values are just numbers on papers and the kind of money that a lifetime's working wouldn't accomplish, there is great significance to us all in the values of the FTSE 100. Look at the names of some of the companies listed and many will go un-recognised yet it is also made up of many household names including the major supermarket groups and a large number of retail groups.

If value in these companies dip as investors lose confidence in the economy (causing the overall FTSE100 value to drop) then the implications will affect consumers and staff either through job losses to cut costs or through increases in prices to try and recoup losses which will mean cost of living increases and leaves less money to spend on non-essentials such as, for example, chocolate. Less chocolate buying will cause companies like Cadbury (also on the FTSE100) to drop in value which in turn will cause investors to worry as the Index continues to reflect the drop in company worth and the cycle will continue: the FTSE drop will cause concern for investors in America as so many of the companies on the London Stock Exchange have crucial links to those in America and the Dow Jones will drop which will cause drops across Asia and, when trading begins the next morning in London, the shake in investor confidence will follow the path of the Sun as trading in one country closes and means people are desperate to sell up shares before the bell has sounded to begin trading in the morning in another.

The FTSE 100, when you consider the value and the solidity once associate with such wealth, is a shockingly fragile entity. Shares may close up on a Friday yet new of, say, a lull in the Chinese economy, will mean that Monday morning trading can completely eradicate the gains of the entire previous week. Accordingly, however, it can also be swayed in the opposite direction. If European governments step in and say they will not let top banks fail (which make up a large part of the FTSE 100 as nothing is more valuable than money) investors will return from hiding and their confidence will, in turn, inspire growth in other territories.

The FTSE 100 Index is easy to define though hard to explain and harder to understand. Those who do understand it make a large sum of money for doing so. A decidedly unfair amount of money, certainly. Perhaps that it is still so widely unknown in it's workings is one of the reasons that it is so vulnerable. If people were more understanding of it then heads could be cool and decisions based on logic rather than speculation which is so often detrimental. For all the lessons that seem so redundant in schools today (Jack leaves point A at 15:00 travelling at 55 mph, etc) it would surely be more valuable to the nation if the shoppers, workers and investors of tomorrow were taught about cause and effect with regards to cost of living. Time to dust off, and maybe remove a scene from, Trading Places for a class assembly on speculation.