ISM GLOSSARY OF FINANCIAL TERMS

 

A
  Fifth letter of a NASDAQ stock symbol specifying Class A shares.
 
Abandonment option
  The option of terminating an investment earlier than originally planned.
 
Abnormal returns
  The component of the return that is not due to systematic influences (market wide influences). In other words, abnormal returns are above those predicted by the market movement alone. Related: excess returns.
 
ABO
  See: Accumulated Benefit Obligation
 
Absolute priority
  Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full before junior creditors receive any payment.
 
Absorbed
  Used in context of general equities. Securities are absorbed as long as there are corresponding orders to buy and sell. The market has reached the absorption point when further assimilation is impossible without an adjustment in price. See: sell the book.
 
Accelerated cost recovery system (ACRS)
  Schedule of depreciation rates allowed for tax purposes.
 
Accelerated depreciation
  Any depreciation method that produces larger deductions for depreciation in the early years of a assets life. Accelerated cost recovery system (A.C.R.S.), which is a depreciation schedule allowed for tax purposes, is one such example.
 
Accounting earnings
  Earnings of a firm as reported on its income statement.
 
Accounting exposure
  The change in the value of a firms foreign currency denominated accounts due to a change in exchange rates.
 
Accounting insolvency
  Total liabilities exceed total assets. A firm with a negative net worth is insolvent on the books.
 
Accounting liquidity
  The ease and quickness with which assets can be converted to cash.
 
Accounts payable
  Money owed to suppliers.
 
Accounts receivable
  Money owed by customers.
 
Accounts receivable turnover
  The ratio of net credit sales to average accounts receivable, a measure of how quickly customers pay their bills.
 
Accretion (of a discount)
  In portfolio accounting, a straight-line accumulation of capital gains on a discount bond in anticipation of receipt of par at maturity.
 
Accrual bond
  A bond on which interest accrues, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.
 
Accrued interest
  Mainly applies to convertible securities. Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bonds price plus accrued interest, calculated by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder receives $40 in coupon payments per bond semi-annually and sells the bond one quarter of the way into the coupon period, the buyer pays the seller $10 as the latters proportion of interest earned.)
 
Accumulated Benefit Obligation (ABO)
  An approximate measure of the liability of a pension plan in the event of a termination at the date the calculation is performed. Related: projected benefit obligation.
 
ACH
  See: Automated Clearing House
 
Acid-test ratio
  Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.
 
Acquiree
  A firm that is being acquired.
 
Acquirer
  A firm or individual that is acquiring something.
 
Acquisition
  When a firm buys another firm.
 
Acquisition of assets
  A merger or consolidation in which an acquirer purchases the selling firms assets.
 
Acquisition of stock
  A merger or consolidation in which an acquirer purchases the acquirees stock.
 
ACRS
  See: Accelerated cost recovery system
 
Active
  A market in which there is frequent trading.
 
Active portfolio strategy
  A strategy that uses available information and forecasting techniques to seek a better performance versus a portfolio that is simply diversified broadly. Related: passive portfolio strategy.
 
Act of state doctrine
  This doctrine says that a nation is sovereign within its own borders and its domestic actions may not be questioned in the courts of another nation.
 
Actual market
  Used in context of general equities. Firm market. Antithesis of subject market.
 
Actuals
  The physical commodity underlying a futures contract. Cash commodity, physical.
 
ACU
  See: Asian currency units
 
A-D
  Refers to Advance-Decline. Measurement of the number of issues trading above their previous closing prices less the number trading below their previous closing prices over a particular period. As a technical measure of market breadth, the steepness of the A-D line graphically shows whether a strong bull or bear market is underway.
 
Additional hedge
  A protection against borrower fallout risk in the mortgage pipeline.
 
Adjustable rate
  Mainly applies to convertible securities. Refers to interest rate or dividend which is adjusted periodically, usually based on a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars which limit the adjustment.
 
Adjustable rate mortgage (ARM)
  A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment rate caps.
 
Adjustable rate preferred stock (ARPS)
  Publicly traded issues that may becollateralized by mortgages and M.B.S.s.
 
Adjusted present value (APV)
  The net present value analysis of an asset if financed solely by equity (present value of un-levered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leveraged buy-out.
 
Administrative pricing rules
  IRS rules used to allocate income on export sales to a foreign sales corporation.
 
ADR
  See: American Depository Receipt
 
ADR Fees
  Fees associated with the creating or releasing of A.D.R.s from ordinary shares, charged by the commercial banks with correspondent banks in the international sites.
 
ADR Ratio
  The number of ordinary shares into which an A.D.R. can be converted.
 
ADS
  See: American Depository Share
 
Advance commitment
  A promise to sell an asset before the seller has lined up purchase of the asset. This seller can offset risk by purchasing a futures contract to approximately fix the sales price.
 
Adverse selection
  A situation in which market participation is a negative signal.
 
AEX
  See: Amsterdam Exchange
 
Affirmative covenant
  A bond covenant that specifies certain actions the firm must take.
 
AFM
  See: Amman Financial Market
 
After-tax profit margin
  The ratio of net income to net sales.
 
After-tax real rate of return
  The after-tax rate of return minus the inflation rate.
 
Agencies
  See: Federal agency securities.
 
Agency
  Used in context of general equities. Act of buying or selling for the account and risk of a customer. Generally, an agent, or broker, acts as intermediary between buyer and seller, taking no financial risk personally or as a firm, and charging a commission for the service. The broker represents a customer buyer/seller to a customer seller/buyer and does not act as principal for the firms own trading account. Antithesis of principal. See: dealer.
 
Agency bank
  A form of organization commonly used by foreign banks to enter the U.S. market. An agency bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank. It is also the financial institution that issues A.D.R.s to the general market.
 
Agency basis
  A means of compensating the broker of a program trade solely on the basis of commission established through bids submitted by various brokerage firms.
 
Agency costs
  The incremental costs of having an agent make decisions for a principal.
 
Agency incentive arrangement
  A means of compensating the broker of a program trade using benchmark prices for issues to be traded in determining commissions or fees.
 
Agency pass-throughs
  Mortgage pass-through securities whose principal and interest payments are guaranteed by government agencies, such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association(Fannie Mae).
 
Agency problem
  Conflicts of interest among stockholders, bondholders, and managers.
 
Agency theory
  The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of another person, a principal.
 
Agent
  The decision-maker in a principal-agent relationship.
 
Aggregation
  Process in corporate financial planning whereby the smaller investment proposals of each of the firms operational units are aggregated and effectively treated as a whole.
 
Aggressively
  Used in context of general equities. For a customer it means working to buy or sell ones stock, with an emphasis on execution over price. For a trader it means acting in a way that puts the firms capital at higher risk through paying a higher price, selling cheaper, or making a larger short sale or purchase than the trader would under normal circumstances.
 
Aging schedule
  A table of accounts receivable broken down into age categories (such as 0-30 days, 30-60 days, and 60-90 days), which is used to determine if customer payments are keeping close to schedule.
 
Ahead of itself
  Used in context of general equities. Refers to equities that are overbought or oversold on a fundamental basis.
 
Ahead of you
  Used for listed equity securities. At the same price but entered ahead of your order/interest, usually referring to the specialists book. See: behind, matched orders, priority, stock ahead.
 
AIBD
  Association of International Bond Dealers
 
AIMR Performance Presentation Standards Implementation Committee
  The Association for Investment Management and Research (AIMRs) Performance Presentation Standards Implementation Committee is charged with the responsibility to interpret, revise and update the AIMR Performance Presentation Standards (AIMR-PPS(TM) for portfolio performance presentations.
 
All equity rate
  The discount rate that reflects only the business risks of a project, distinct from the effects of financing.
 
All-in cost
  Total costs, explicit and implicit.
 
All or none order (AON)
  Used in context of general equities. A limited price order which is to be executed in its entirety or not at all (no partial transaction), and thus is testing the strength/conviction of the counterparty. Unlike an F.O.K. order, an A.O.N. order is not to be treated as cancelled if not executed as soon as it is represented in the trading crowd, but instead remains alive until executed or cancelled. The making of all or none bids or offers in stocks is prohibited and the making of all or none bids or offers in bonds is subject to the restrictions of Rule 61. A.O.N. orders are not shown on the specialists book because they can not be traded in pieces. Antithesis of any-part-of order. See: F.O.K. order.
 
All-or-none underwriting
  An arrangement whereby a security issue is canceled if the underwriter is unable to re-sell the entire issue.
 
Alpha
  Measure of risk adjusted performance. An alpha is usually generated by regressing the security or mutual funds excess return on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 23% and the short-term interest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The expected return given the risk is 2x9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also know as Jensen Index. Related: Risk adjusted return.
 
Alternative mortgage instruments
  Variations of mortgage instruments such as adjustable-rate and variable-rate mortgages, graduated-payment mortgages,0 reverse-annuity mortgages, and several seldom-used variations.
 
Alternative order
  Used in context of general equities. Order giving a broker a choice between two courses of action either to buy or sell, never both. Execution of one course automatically eliminates the other. An example is a combination buy limit/buy stop order, wherein the buy limit is below the current market and the buy stop is above. If the order is for one unit of trading when one part of the order is executed on the occurrence of one alternative, the order on the other alternative is to be treated as cancelled. If the order is for an amount larger than one unit of trading, the number of units executed determine the amount of the alternative order to be treated as cancelled. Either-or order.
 
American Depository Receipts (ADRs)
  Certificates issued by a U.S. depositary bank, representing foreignshares held by the bank, usually by a branch or correspondent in the country of issue. One A.D.R. may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the A.D.R.s are sponsored, the corporation provides financial information and other assistance to the bank and may subsidize the administration of the A.D.R.s. Unsponsored A.D.R.s do not receive such assistance. A.D.R.s carry the same currency, political and economic risks as the underlying foreign share. Arbitrage keeps the prices of A.D.R.s and underlying foreign shares, adjusted for the SDR/ordinary ration essentially equal. American depository shares(A.D.S.s) are a similar form of certification.
 
American depository share (ADS)
  Foreign stock issued in the U.S. and registered in the A.D.R. system.
 
American option
  An option that may be exercised at any time up to and including the expiration date. Related: European option
 
American shares
  Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign issuer. The certificates represent claims to foreign equities.
 
American Stock Exchange (AMEX)
  Stock exchange with the third largest volume of trading in the U.S. Located at 86 Trinity Place in downtown Manhattan. The bulk of trading on A.M.E.X. consists of index options (computer technology index, institutional index, major market index) and shares of small to medium-size companies is predominant. Recently merged with N.A.S.D.A.Q. See: Curb.
 
American-style option
  An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.
 
AMEX
  See: American Stock Exchange
 
Amman Financial Market (AFM)
  Established in 1976, the A.F.M. is the only stock exchange in Jordan.
 
Amortization
  The repayment of a loan by installments.
 
Amortization factor
  The pool factor implied by the scheduled amortization assuming no prepayemts.
 
Amortizing interest rate swap
  Swap in which the principal or notional amount rises (falls) as interest rates rise (decline).
 
Amsterdam Exchanges (AEX)
  Exchange that comprises the A.E.X.-Effectenbeurs, the A.E.X.-Optiebeurs (formerly the European Options Exchange or E.O.E.) and the A.E.X.-Agrarische Termijnmarkt. A.E.X.-Data Services is the operating company responsible for the dissemination of data from the Amsterdam Exchanges via its integrated Mercury 2000 system.
 
AMTEL
  Used in context of general equities. In-house message system entered and displayed through Quotron A page.
 
Analyst
  Employee of a brokerage or fund management house who studies companies and makes buy-and-sell recommendations on stocks of these companies. Most specialize in a specific industry.
 
Angels
  Individuals providing venture capital.
 
Announcement date
  Date on which particular news concerning a given company is announced to the public. Used in event studies, which researchers use to evaluate the economic impact of events of interest.
 
Annual effective yield
  See: annual percentage yield.
 
Annual fund operating expenses
  For investment companies, the management fee and other expenses, including the expenses for maintaining shareholder records, providing shareholders with financial statements, and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are also included.
 
Annualized gain
  If stock X appreciates 1.5% in one month, the annualized gain for that stock over a twelve month period is 12*1.5% = 18%. Compounded over the twelve month period, the gain is (1.015)^12 -1 = 19.6%.
 
Annualized holding period return
  The annual rate of return that when compounded t times, generates the same t-period holding return as actually occurred from period 1 to period t.
 
Annual percentage rate (APR)
  The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an A.P.R. of 20%.
 
Annual percentage yield (APY)
  The effective, or true, annual rate of return. The A.P.Y. is the rate actually earned or paid in one year, taking into account the affect of compounding. The A.P.Y. is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an A.P.Y. of 12.68% (1.01^12 -1).
 
Annual rate of return
  There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (A.P.R.). The annual percentage yield annual percentage yield (A.P.Y.), described above, is used to include the affect of compounding interest.
 
Annuity
  A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
 
Annuity due
  An annuity with n payments, wherein the first payment is made at time t = 0 and the last payment is made at time t = n - 1.
 
Annuity factor
  Present value of $1 paid for each of t periods.
 
Annuity in arrears
  An annuity with a first payment one full period hence, rather than immediately.
 
Anticipation
  Arrangements whereby customers who pay before the final date may be entitled to deduct a normal rate of interest.
 
Antidilutive effect
  Result of a transaction that increases earnings per common share (e.g. by decreasing the number of shares outstanding).
 
Any-or-all bid
  Often used in risk arbitrage. Takeover bid where the acquirer offers to pay a set price for all outstanding shares of the target company, or any part thereof; contrasts with two tier bid.
 
Any-part-of order
  Used in context of general equities. Order to buy or sell a quantity of stock in pieces if necessary. Antithesis of an all-or-none order (A.O.N.).
 
AON
  See: All or none order
 
AOS
  See: Automated Order System
 
Appraisal ratio
  The signal-to-noise ratio of an analysts forecasts. The ratio of alpha to residual standard deviation.
 
Appraisal rights
  A right of shareholders in a merger to demand the payment of a fair price for their shares, as determined independently.
 
Appropriation request
  Formal request for funds for capital investment project.
 
APR
  See: Annual Percentage Rate
 
APT
  See: Arbitrage Pricing Theory
 
APT
  See: Automated Pit Trading
 
APV
  See: Adjusted Present Value
 
APY
  See: Annual Percentage Yield
 
Arbitrage
  The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist. However, arbitrage opportunities are often precluded because of transactions costs.
 
Arbitrage Pricing Theory (APT)
  An alternative model to the capital asset pricing model developed by Stephen Ross and based purely on arbitrage arguments. The A.P.T. implies that there are multiple risk factors that need to be taken into account when calculating risk adjusted performance or alpha.
 
Arbitrageur
  Often used in risk arbitrage. One who profits from the differences in price when the same, or extremely similar, security, currency, or commodity is traded on two or more markets. He does so by simultaneously purchasing and selling these securities to take advantage of pricing differentials (spreads) created by market conditions. See: risk arbitrage, convertible arbitrage, index arbitrage, and international arbitrage.
 
Are you open
  Used in context of general equities. Can a new customer still participate on opposing side of the trade from that which the first customer initiated?, thus inquiring as to whether or not any portion of that trade is still available (i.e., If asking customer on buy side, is there stock still available from the block sold by the initial customer?). See: open.
 
Arithmetic average (mean) rate of return
  Arithmetic mean return.
 
Arithmetic mean return
  An average of the subperiod returns, calculated by summing the subperiod returns and dividing by the number of subperiods.
 
ARM
  See: Adjustable rate mortgage
 
Arms index
  Also known as a trading index (TRIN)= (number of advancing issues)/(number of declining issues)(Total up volume )/(total down volume). An advance/decline market indicator. Less than 1.0 indicates bearish demand, while above 1.0 is bullish. The index often is smoothed with a simple moving average.
 
Arms length price
  The price at which a willing buyer and a willing unrelated seller would freely agree to transact.
 
Around us
  Used in context of general equities. See: away from us.
 
ARPS
  See: Adjustable rate preferred stock
 
ARPS
  See: Auction rate preferred stock
 
ARR
  See: Average rate of return
 
Articles of incorporation
  Legal document establishing a corporation and its structure and purpose.
 
Asian currency units (ACUs)
  Dollar deposits held in Singapore or other Asian centers.
 
Asian option
  Option based on the average price of the underlying assets during the life of the option.
 
Ask
  This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buy shares of stock; also called the offer price.
 
Asked price
  Used in context of general equities. Price at which a security or commodity is offered for sale on an exchange or in the O.T.C. Market.
 
Asked to bid/offer
  Used in context of general equities. Usually a seller (buyer) looking to aggressively sell (buy) stock, usually asking for a capital commitment from an investment bank.
 
Asset
  Any possession that has value in an exchange.
 
Asset/equity ratio
  The ratio of total assets to stockholder equity.
 
Asset/liability management
  Also called surplus management, the task of managing the funds of a financial institution to accomplish the two goals of a financial institution: (1) to earn an adequate return on funds invested and (2) to maintain a comfortable surplus of assets beyond liabilities.
 
Asset activity ratios
  Ratios that measure how effectively the firm is managing its assets.
 
Asset allocation decision
  The decision regarding how an institutions funds should be distributed among the major classes of assets in which it may invest.
 
Asset-backed security
  A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate.
 
Asset-based financing
  Methods of financing in which lenders and equity investors look principally to the cash flow from a particular asset or set of assets for a return on, and the return of, their financing.
 
Asset classes
  Categories of assets, such as stocks, bonds, real estate and foreign securities.
 
Asset-coverage test
  A bond indenture restriction that permits additional borrowing on if the ratio of assets to debt does not fall below a specified minimum.
 
Asset for asset swap
  Creditors exchange the debt of one defaulting borrower for the debt of another defaulting borrower.
 
Asset pricing model
  A model for determining the required or expected rate of return on an asset. Related: Capital asset pricing model and arbitrage pricing theory.
 
Assets
  A firms productive resources.
 
Assets requirements
  A common element of a financial plan that describes projected capital spending and the proposed uses of net working capital.
 
Asset substitution
  Occurs when a firm invests in assets that are riskier than those that the debtholders expected.
 
Asset substitution problem
  Arises when the stockholders substitute riskier assets for the firms existing assets and expropriate value from the debtholders.
 
Asset swap
  An interest rate swap used to alter the cash flow characteristics of an institutions assets in order to provide a better match with its liabilities.
 
Asset turnover
  The ratio of net sales to total assets.
 
Assignment
  The receipt of an exercise notice by an options writer that requires the writer to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.
 
ASX
  See: Australian Stock Exchange
 
Asymmetric information
  Information that is known to some people but not to other people.
 
Asymmetric taxes
  A situation wherein participants in a transaction have different net tax rates.
 
Asymmetric volatility
  Phenomenon that volatility is higher in down market than in up markets
 
Asymmetry
  A lack of equivalence between two things, such as the unequal tax treatment of interest expense and dividend payments.
 
At/for
  Used in context of general equities. Paramount terms used to differentiate an offering (offer stock at) and bid (bid for stock), respectively. In an offering, the trading syntax followed is Quantity-at-Price; however, in a bid, the syntax followed is Price-for-Quantity.
 
At the bell
  Used in context of general equities. At the opening or close.
 
At the figure
  Used in context of general equities. At the whole integer price (excluding the fraction) closest to the side of the market (bid/ask) being discussed. At the full.
 
At the full
  Used in context of general equities. At the figure.
 
At-the-money
  An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.
 
At the opening order
  Used in context of general equities. Market order or limited price order which is to be executed at the opening (and corresponding price) of the stock or not at all, and any such order or the portion thereof not so executed is to be treated as cancelled.
 
Attribute bias
  The tendency of stocks preferred by the dividend discount model to share certain equity attributes such as low price-earnings ratios, high dividend yield, high book-value ratio or membership in a particular industry sector.
 
Auction markets
  Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange.
 
Auction rate preferred stock (ARPS)
  Floating rate preferred stock, the dividend on which is adjusted every seven weeks through a Dutch auction.
 
Auditors report
  A section of an annual report containing the auditors opinion about the veracity of the financial statements.
 
Australian Stock Exchange (ASX)
  Established in 1987 following the amalgamation of the six independent stock exchanges operating in the Australian State capitals. The A.S.X. is the tenth largest stock exchange in the world on the basis of domestic capitalization.
 
Autex
  Used in context of general equities. Video communication network through which brokerage houses alert institutional investors of their desire to transact block business (a purchase or sale) in a given security. Indications transmit small, medium, and large sizes only, with occasional limits mentioned. Supers are messages with specific size and price included. Both indications and supers can only be seen by customers (institutional subscribers to Autex). Trade recaps, advertised block trades entered by the dealer/subscribers, are also displayed, but can be seen by both institutions and dealers. See: expunge, size.
 
Authorized shares
  Number of shares authorized for issuance by a firms corporate charter.
 
Autocorrelation
  The correlation of a variable with itself over successive time intervals. Sometimes called serial correlation
 
Automated Clearing House (ACH)
  A collection of 32 regional electronic interbank networks used to process transactions electronically with a guaranteed one-day bank collection float.
 
Automated Order System (AOS)
  Investment banks computerized order-entry system which sends single order entries to D.O.T. (Odd-Lot) or to investment banks floor brokers on the exchange. (Round lot, G.T.C. orders)
 
Automated Pit Trading (APT)
  Introduced in 1989, A.P.T. is the L.I.F.F.E. screen-based trading system that replicates the open outcry method of trading on screen. A.P.T. is used to extend the trading day for the major futures contracts as well as to provide a daytime trading environment for non-floor trading products.
 
Automatic stay
  The restricting of liability holders from collection efforts related to collateral seizure. Automatically imposed when a firm files for bankruptcy under Chapter 11.
 
Autoquote
  Autoquote indicative prices are generated for many of the financial options contracts traded at LIFFE using standard mathematical models as derived by Black and Scholes and Cox-Ross-Rubenstein. Autoquote calculates prices for all series by processing variables captured in real-time from other systems and trading members each time the underlying price changes. Autoquotes indicate where a series may trade given the current level of the underlying instrument.
 
Autoregressive
  Using past data or variable of interest to predict future values of the same variable.
 
Availability float
  Checks deposited by a company that have not yet been cleared.
 
Available on the way in
  Used in context of general equities. Stock is available to new customer as trade initiated by another customer is about to be consummated (on the exchange floor). Usually said to an inquiring salesman. See: open.
 
Average
  An arithmetic mean return of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIAs stocks, and divides the results by a predetermined number, the divisor.
 
Average (across-day) measures
  An estimation of price that uses the average or representative price of a large number of trades.
 
Average accounting return
  The average project earnings after taxes and depreciation divided by the average book value of the investment during its life.
 
Average age of accounts receivable
  The weighted-average age of all of the firms outstanding invoices.
 
Average collection period, or days receivables
  The ratio of accounts receivables to sales, or the total amount of credit extended per dollar of daily sales (average AR/sales * 365).
 
Average cost of capital
  A firms required payout to the bondholders and to the stockholders expressed as a percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total required cost of capital by the total amount of contributed capital.
 
Average life
  Also referred to as the weighted-average life (W.A.L.). The average number of years that each dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal paydowns.
 
Average maturity
  The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life.
 
Average rate of return (ARR)
  The ratio of the average cash inflow to the amount invested.
 
Average tax rate
  Taxes as a fraction of income; total taxes divided by total taxable income.
 
Away
  A trade, quote, or market that does not originate with the dealer in question, e.g., the bid is 98-10 away from me.
 
Away from the market
  Used in context of general equities. Out of line with the inside market at this point in time, such as when a bid on a limit order is lower or the offer price is higher than the current market price for the security; held by the specialist for later execution unless F.O.K. Antithesis of in-line.
 
Away from us
  Used in context of general equities. Involving a competing broker/dealer. Trading away from us signifies that stock was being bought and/or sold with institutions using other trading firms. Markets away signify that the bid or offering being quoted is from another firm, but the Investment bank may be getting a preference call.
 
Away from you
  Used for listed equity securities. See: outside of you.
 
Axe to grind
  Used in context of general equities. Involvement in a security, whether through a position, order, or inquiry.
 

B
  Fifth letter of a NASDAQ stock symbol specifying that it is the Class B shares of the company.
 
Back away
  Used in the context of general equities. To withdraw from a previously declared interest, indication, or transaction; broker-dealers failure, as a market maker in a given security, to make good on a bid/offer for the minimum quantity.
 
Backed in
  Used in the context of general equities. Scenario whereby unanticipated events allow for a purchase at a discount or a sale at a premium.
 
Back-end loan fund
  A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from 4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a designated time, such as one year. The commission decreases the longer the investor holds the shares. The formal name for the back-end load is the contingent deferred sales charge, or C.D.S.C.
 
Back fee
  The fee paid on the extension date if the buyer wishes to continue the option.
 
Back office
  Brokerage house clerical operations that support, but do not include, the trading of stocks and other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory compliance.
 
Back on the shelf
  Used in the context of general equities. Permanently cancelled order/interest in a stock by a customer. See: take a powder.
 
Back-to-back financing
  An intercompany loan channeled through a bank.
 
Back-to-back loan
  A loan in which two companies in separate countries borrow each others currency for a specific time period and repay the others currency at an agreed upon maturity.
 
Back-up
  (1) When bond yields rise and prices fall, the market is said to back-up. (2) When an investor swaps out of one security into another of shorter current maturity, he/she is said to back up.
 
Back up the truck
  Used in the context of general equities. Prepare for a very large buyer.
 
Backwardation
  A market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month. This situation may occur when the costs of storing the product until eventual delivery are effectively subtracted from the price today. The opposite of contango.
 
Bai-kai
  Mainly applies to international equities. Two-sided market picture, in Japanese terminology.
 
Baker Plan
  A plan by former U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased financing from the World Bank and continued lending from commercial banks.
 
Balanced fund
  An investment company that invests in stocks and bonds. The same as a balanced mutual fund.
 
Balanced mutual fund
  This is a fund that buys common stock, preferred stock and bonds. The same as a balanced fund.
 
Balance of payments
  A statistical compilation formulated by a sovereign nation of all economic transactions between residents of that nation and residents of all other nations during a stipulated period of time, usually a calendar year.
 
Balance of trade
  Net flow of goods (exports minus imports) between countries.
 
Balance sheet
  Also called the statement of financial condition, it is a summary of a company's assets,liabilities, and owners equity.
 
Balance sheet exposure
  See: accounting exposure.
 
Balance sheet identity
  Total Assets = Total Liabilities + Total Stockholders Equity
 
Balloon maturity
  Any large principal payment due at maturity for a bond or loan with or without a sinking fund requirement.
 
BAN
  See: Bank anticipation notes
 
Bank anticipation notes (BAN)
  Notes issued by states and municipalities to obtain interim financing for projects that will eventually be funded long term through the sale of a bond issue.
 
Bank collection float
  The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payers bank.
 
Bank discount basis
  A convention used for quoting bids and offers for Treasury bills in terms of annualized yield, based on a 360-day year.
 
Bank draft
  A draft addressed to a bank.
 
Bankers Acceptance
  A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts to face value in the secondary market. These instruments have been a popular investment for money market funds. They are commonly used in international transactions.
 
Bank for International Settlements (BIS)
  An international bank headquartered in Basel, Switzerland, which serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it now monitors and collects data on international banking activity and promulgates rules concerning international bank regulation.
 
Bank line
  Line of credit granted by a bank to a customer.
 
Bankruptcy
  State of being unable to pay debts. Thus, the ownership of the firms assets is transferred from the stockholders to the bondholders.
 
Bankruptcy cost view
  The argument that expected indirect and direct bankruptcy costs offset the other benefits from leverage so that the optimal amount of leverage is less than 100% debt financing.
 
Bankruptcy risk
  The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
 
Bankruptcy view
  The argument that expected bankruptcy costs preclude firms from being financed entirely with debt.
 
Bank wire
  A computer message system linking major banks. It is used not for effecting payments, but as a mechanism to advise the receiving bank of some action that has occurred, e.g. the payment by a customer of funds into that banks account.
 
Bar
  Slang for one million dollars.
 
Barbell strategy
  A fixed income strategy in which the maturities of the securities included in the portfolio are concentrated at two extremes.
 
Bargain hunter
  Used in the context of general equities. Purchaser who is extremely selective in the price sought on a transaction.
 
Bargain-purchase-price option
  Gives the lessee the option to purchase the asset at a price below fair market-value when the lease expires.
 
BARRAs performance analysis (PERFAN)
  A method developed by BARRA, a consulting firm in Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to evaluate their money managers performances.
 
Barrier options
  Option contracts with trigger points that, when crossed, automatically generate buying or selling of other options. These are exotic options.
 
Base currency
  Mainly applies to international equities. Currency in which gains/losses from operating an international portfolio are measured.
 
Base interest rate
  Related: Benchmark interest rate.
 
Base probability of loss
  The probability of not achieving a portfolio expected return. Related: Value at risk.
 
Basic balance
  In a balance of payments, the basic balance is the net balance of the combination of the current account and the capital account.
 
Basic business strategies
  Key strategies a firm intends to pursue in carrying out its business plan.
 
Basic IRR rule
  Accept the project if IRR is greater than the discount rate; reject the project if it is lower than the discount rate. It is wise to also consider Net Present Value for project evaluation.
 
Basis
  Regarding a futures contract, the difference between the cash price and the futures price observed in the market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.
 
Basis point
  In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis points greater than an interest rate of 4.5%.
 
Basis price
  Price expressed in terms of yield to maturity or annual rate of return.
 
Basis risk
  The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for price risk.
 
Basket
  Applies to derivative products. Group of stocks that is formed with the intention of either being bought or sold all at once, usually to perform index arbitrage or a hedging program.
 
Basket options
  Packages that involve the exchange of more than two currencies against a base currency at expiration. The basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange for a base currency, either at the prevailing Forex market rate or at a prearranged rate of exchange. A basket option is generally used by multinational corporations with multicurrency cash flows since it is generally cheaper to buy an option on a basket of currencies than to buy individual options on each of the currencies that make up the basket.
 
Basket trades
  Related: Program trades.
 
Bear
  An investor who believes a stock or the overall market will decline. A bear market is a prolonged period of falling stock prices, usually by 20% or more. Related: bull.
 
Bearer bond
  Bonds that are not registered on the books of the issuer. Such bonds are held in physical form by the owner, who receives interest payments by physically detaching coupons from the bond certificate and delivering them to the paying agent.
 
Bearer share
  Mainly applies to international equities. Security not registered on the books of the issuing corporation and thus payable to whoever possesses the shares. Negotiable without endorsement and transferred by delivery, thus avoiding some of the administrative hassles associated with ordinary shares. Dividends are payable upon presentation of dividend coupons, which are dated or numbered.
 
Bear hug
  Often used in risk arbitrage. Hostile takeover attempt in which the acquirer offers an exceptionally large premium over the market-value of the acquirees share so as to as to squeeze (hug) the target into acceptance.
 
Bear market
  Any market in which prices are in a declining trend. For a prolonged period, usually falling by 20% or more.
 
Bear raid
  Used in the context of general equities. Attempt by investors to opportunistically move the price of a stock by selling large numbers of shares short. These investors pocket the difference between the initial price and the new, lower price after this maneuver. This technique is illegal under S.E.C rules, which stipulate that every short sale must be on an uptick.
 
Bear spread
  Applies to derivative products. Strategy in the options market designed to take advantage of a fall in the price of asecurity or commodity, usually executed by buying a combination of calls and puts on the same security at different strike prices in order to profit as the securitys price falls.
 
Beating the gun
  Used in the context of general equities. Gaining an advantageous price in a trade through a quick response to market developments.
 
Before-tax profit margin
  The ratio of net income before taxes to net sales.
 
Beggar-thy-neighbor
  An international trade policy of competitive devaluations and increased protective barriers where one country seeks to gain at the expense of its trading partners.
 
Beggar-thy-neighbor devaluation
  A devaluation that is designed to cheapen a nations currency and thereby increase its exports at the expense of other countries. Devaluation can also reduce a nations imports. Such devaluations often lead to trade wars.
 
Behind
  Used for listed equity securities. At the same price but entered after your order/interest, such as on the specialists book. Antithesis of ahead of you.
 
Bellwether issues
  Related: Benchmark issues.
 
Benchmark
  The performance of a predetermined set of securities, used for comparison purposes. Such sets may be based on published indexes or may be customized to suit an investment strategy.
 
Benchmark error
  Use of an inappropriate proxy for the true market portfolio.
 
Benchmark interest rate
  Also called the base interest rate, it is the minimum interest rate investors will demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on a comparable-maturity Treasury security that was most recently issued (on-the-run).
 
Benchmark issues
  Also called on-the-run or current coupon issues or bellwether issues. In the secondary market, it is the most recently auctioned Treasury issues for each maturity.
 
Beneath
  Used for listed equity securities. 1) Behind; 2) Lower in price.
 
Beneficial ownership
  Often used in risk arbitrage. Person who enjoys the benefits of ownership even though title is in another name. (Abused through the illegal use of a parking violation.)
 
Best-efforts sale
  A method of securities distribution/underwriting in which the securities firm agrees to sell as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm holding any unsold shares in its own account if necessary).
 
Best-interests-of-creditors test
  The requirement that a claim holder voting against a plan of reorganization must receive at least as much as he would have if the debtor were liquidated.
 
Beta
  The measure of a funds or stocks risk in relation to the market, or an alternative benchmark. A beta of 1.5 means that a stocks excess return is expected to move 1.5 times the market excess returns. E.g. if market excess return is 10% then we expect, on average, the stock return to be 15%. Beta is referred to as an index of the systematic risk due to general market conditions that cannot be diversified away.
 
Beta equation
  The beta of a fund is determined as follows: Regress excess returns of stock y on excess returns of the market. The slope coefficient is beta. Define n as number of observation numbers.
 
Beta equation (Stocks)
  The beta of a stock is determined as follows:
 
Biased expectations theories
  Related: pure expectations theory.
 
Bid
  This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically speaking, this is the available price at which an investor can sell shares of stock. Related: Ask , offer.
 
Bid-asked spread
  The difference between the bid and asked prices.
 
Bid away
  Refers to over-the-counter trading. Bid from another dealer exists at the same (listed) or higher (O.T.C.) price.
 
Bidder
  A firm or person that wants to buy a firm or security.
 
Bidding buyer
  Used in the context of general equities. Non-aggressive buyer who prefers to patiently await a natural seller in the hope of paying a lower price.
 
Bidding through the market
  Used in the context of general equities. Aggressive willingness to purchase a security at a premium to the inside market. Contrast with bidding buyer.
 
Bid wanted
  Used in the context of general equities. Announcement that a holder of securities wants to sell and will entertain bids.
 
Big Bang
  The term applied to the liberalization in 1986 of the London Stock Exchange (L.S.E.) in which trading was automated with the use of computers.
 
Big Board
  A nickname for the New York Stock Exchange (N.Y.S.E.). Also known as The Exchange. More than 2,000 common and preferred stocks are traded. Founded in 1792, the N.Y.S.E. is the oldest exchange in the United States, and the largest. It is located on Wall Street in New York City.
 
Big picture
  Used in the context of general equities. To highlight trading interest due to the size of the trade (i.e., Two-way size).
 
Bill of exchange
  General term for a document demanding payment.
 
Bill of lading
  A contract between an exporter and a transportation company in which the latter agrees to transport the goods under specified conditions which limit its liability. It is the exporters receipt for the goods as well as proof that goods have been or will be received.
 
Binomial option pricing model
  An option pricing model in which the underlying asset can assume on only two possible, discrete values in the next time period for each value that it can take on in the preceding time period.
 
BIS
  See: Bank for International Settlements
 
Black market
  An illegal market.
 
Black-Scholes option-pricing model
  A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return. Invented by Fischer Black and Myron Scholes in 1973.
 
Blanket inventory lien
  A secured loan that gives the lender a lien against all the borrowers inventories.
 
Block
  Large quantity of stock or large dollar amount of bonds held or traded. As a rule of thumb, 10,000 sharesor more of stock and $200,000 or more worth of bonds would be described as a block.
 
Block call
  Used in the context of general equities. Conference meeting during which customer indications and orders, along with the traders own buy/sell preferences, are highlighted to the entire organization. See block list.
 
Blocked currency
  A currency that is not freely convertible to other currencies due to exchange controls.
 
Block house
  Brokerage firms that help to find potential buyers or sellers of large block trades.
 
Block list
  Used in the context of general equities. Listing of stock the investment bank is looking for (wants to buy) or in touch with (want to sell) at the beginning of the day, whether on an agency or principal basis. Input on the previous days trading, objectives for the coming trading session, and information throughout the trading day is received from O.T.C., international arbitrage, listed, and convertible traders, for review and discussion during a block call.
 
Block trade
  A large trading order, defined on the New York Stock Exchange as an order that consists of 10,000 shares of a given stock or a total market-value of $200,000 or more.
 
Block trader
  A dealer who will take a position in the block transactions to accommodate customer buyers and sellers of blocks. See dealer, market maker, principal.
 
Block voting
  A group of shareholders banding together to vote their shares in a single block.
 
Blow-off top
  A steep and rapid increase in price followed by a steep and rapid drop. This is an indicator seen in charts and used in technical analysis of stock price and market trends.
 
Blue-chip company
  Used in the context of general equities. Large and creditworthy company. Company renowned for the quality and wide acceptance of its products or services, and for its ability to make money and pay dividends. Gilt-edged security.
 
Blue-sky laws
  State laws covering the issue and trading of securities.
 
Bogey
  The return an investment manager is compared to for performance evaluation.
 
Boilerplate
  Standard terms and conditions.
 
Bolt
  Used for listed equity securities. Block trading version of colt.
 
Bond
  Bonds are debt and are issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.
 
Bond agreement
  A contract for privately placed debt.
 
Bond covenant
  A contractual provision in a bond indenture. A positive covenant requires certain actions, and a negative covenant limits certain actions.
 
Bond-equivalent basis
  The method used for computing the bond-equivalent yield.
 
Bond equivalent yield
  Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.
 
Bond-equivalent yield
  The annualized yield to maturity computed by doubling the semiannual yield.
 
Bondholder
  The firm often has stockholders and bondholders. In a liquidation, the bondholders have first priority.
 
Bond indenture
  The contract that sets forth the promises of a corporate bond issuer and the rights of investors.
 
Bond indexing
  Designing a bond portfolio so that its performance will match the performance of some bond index.
 
BONDPAR
  A system that monitors and evaluates the performance of a fixed-income portfolio, as well as the individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the managers control--such as the interest rate environment and client-imposed duration policy constraints--and those that the management process contributes to, such as interest rate management, sector/quality allocations, and individual bond selection.
 
Bond points
  A conventional unit of measure for bond prices set at $1 and equivalent to 1% of the $100 face value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.
 
Bond value
  With respect to convertible bonds, the value the security would have if it were not convertible apart from the conversion option.
 
Boning
  Charging a lot more for an asset than its worth.
 
Book
  A banker or traders positions.
 
Book cash
  A firms cash balance as reported in its financial statements. Also called ledger cash.
 
Book-entry securities
  The Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the Fed in the names of member banks, which in turn keep records of the securities they own as well as those they are holding for customers. In the case of other securities where a book-entry has developed, engraved securities do exist somewhere in many cases. These securities do not move from holder to holder but are usually kept in a central clearinghouse or by another agent.
 
Book profit
  The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.
 
Book runner
  The managing underwriter for a new issue. The book runner maintains the book of securities sold.
 
Book to bill
  Used in the context of general equities. High technology industrys demand to supply ratio of orders on a firms book to number of orders filled. Measures if companies have more orders than they can deliver (>1), equal amounts (=1), or less (<1). This monthly figure is of major interest to investors/ traders in the high technology sector.
 
Book value
  A company's book value is its total assets minus intangible assets and liabilities, such as debt. A company's book value might be more or less than its market value.
 
Book value per share
  The ratio of stockholder equity to the average number of common shares. Book value per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation (and not necessarily market valuation).
 
Bootstrapping
  A process of creating a theoretical spot rate curve using one yield projection as the basis for the yield of the next maturity.
 
Borrow
  To obtain or receive money on loan with the promise or understanding that it will be repaid.
 
Borrower fallout
  In the mortgage pipeline, the risk that prospective borrowers of loans committed to be closed will elect to withdraw from the contract.
 
Bottom-up equity management style
  A management style that de-emphasizes the significance of economic and market cycles, focusing instead on the analysis of individual stocks.
 
Bought deal
  security issue where one or two underwriters buy the entire issue.
 
Bourse
  A term of French origin used to refer to stock markets.
 
Box
  Used in the context of general equities. Quotation machine or battery march.
 
Bracket
  A term signifying the extent of an underwriters commitment in a new issue, e.g., major bracket or minor bracket.
 
Brady bonds
  Bonds issued by emerging countries under a debt reduction plan.
 
Branch
  An operation in a foreign country incorporated in the home country.
 
Breadth of the market
  Used in the context of general equities. Percentage of stocks participating in a particular market move. Technical analysts say there was significant breadth if 2/3 of the stocks listed on an exchange moved in the same direction during a trading session. See: A/D line.
 
Break
  A rapid and sharp price decline. Related: Crash
 
Break-even analysis
  An analysis of the level of sales at which a project would make zero profit.
 
Break-even lease payment
  The lease payment at which a party to a prospective lease is indifferent between entering and not entering into the lease arrangement.
 
Break-even payment rate
  The prepayment rate of an MBS coupon that will produce the same CFY as that of a predetermined benchmark MBS coupon. Used to identify for coupons higher than the benchmark coupon the prepayment rate that will produce the same CFY as that of the benchmark coupon; and for coupons lower than the benchmark coupon the lowest prepayment rate that will do so.
 
Break-even tax rate
  The tax rate at which a party to a prospective transaction is indifferent between entering into and not entering into the transaction.
 
Break-even time
  Related: Premium payback period.
 
Breakout
  A rise in a securitys price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing move in the same direction. Can be used by technical analysts as a buy or sell indicator.
 
Break price
  Used in the context of general equities. Change ones offering or bid prices to move to a more realistic, tight level where execution is more feasible. Often done to trim ones position, thus breaking price from where the trades occurred (if long, break price downward 1/8 a point or more).
 
Breeden, Douglas T
  Inventor of one of the foundational asset pricing models in finance, the consumption based capital asset pricing model. Duke University professor and Chairman of Smith Breeden Associates.
 
Bretton Woods Agreement
  An agreement signed by the original United Nations members in 1944 that established the International Monetary Fund (I.M.F.) and the post-World War II international monetary system of fixed exchange rates.
 
Bridge financing
  Interim financing of one sort or another used to solidify a position until more permanent financing is arranged.
 
Bring it out
  Used in the context of general equities. Make stock available for sale to indicated buyers.
 
British clearers
  The large clearing banks that dominate deposit taking and short-term lending in the domestic sterling market.
 
Broken up
  Used for listed equity securities. Prevented from executing a trade (committed to upstairs) due to exchange priority rules excluding ones order (i.e., Higher bid/lower offer on floor, market order must be satisfied).
 
Broker
  An individual who is paid a commission for executing customer orders. Either a floor broker who executes orders on the floor of the exchange, or an upstairs broker who handles retail customers and their orders. Person who acts as an intermediary between a buyer and seller, usually charging a commission. A broker who specializes in stocks, bonds, commodities, or options acts as agent and must be registered with the exchange where the securities are traded. Antithesis of dealer.
 
Brokered market
  A market where an intermediary offers search services to buyers and sellers.
 
Broker loan rate
  Related: Call money rate.
 
Bubble theory
  Security prices sometimes move wildly above their true values until the bubble bursts.
 
Buck
  Slang for one million dollars.
 
Buck investor
  An investor who knows the market will rise over the next 30+ years, using time as his greatest asset. Related: Bull and Bear
 
Buck market
  Any 30+ year market where prices will be in an upward trend, where time is the greatest asset. Related: Bull and Bear
 
Budget
  A detailed schedule of financial activity, such as an advertising budget, a sales budget, or a capital budget.
 
Budget deficit
  The amount by which government spending exceeds government revenues.
 
Build a book
  Used in the context of general equities. Develop customer orders to gather demand/supply in order to make a bid or an offer.
 
Builder buydown loan
  A mortgage loan on newly developed property that the builder subsidizes during the early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).
 
Bull
  An investor who thinks the market will rise. Related: bear.
 
Bull-bear bond
  Bond whose principal repayment is linked to the price of another security. The bonds are issued in two tranches: in the first tranche repayment increases with the price of the other security, and in the second tranche repayment decreases with the price of the other security.
 
Bull CD, Bear CD
  A bull CD pays its holder a specified percentage of the increase in return on a specified market index while guaranteeing a minimum rate of return. A bear CD pays the holder a fraction of any fall in a given market index.
 
Bulldog bond
  Foreign bond issue made in London.
 
Bulldog market
  The foreign market in the United Kingdom.
 
Bullet contract
  A guaranteed investment contract purchased with a single (one-shot) premium. Related: Window contract.
 
Bullet loan
  A bank term loan that calls for no amortization.
 
Bullet strategy
  A fixed income strategy in which a portfolio is constructed so that the maturities of its securities are highly concentrated at one point on the yield curve.
 
Bullish, bearish
  Words used to describe investor attitudes. Bullish refers to an optimistic outlook while bearish means a pessimistic outlook.
 
Bull market
  Any market in which prices are in an upward trend.
 
Bull spread
  A spread strategy in which an investor buys an out-of-the-money put option, financing it by selling an out-of-the money call option on the same underlying security.
 
Bundling, unbundling
  A trend allowing creation of securities either by combining primitive and derivative securities into one composite hybrid or by separating returns on an asset into classes.
 
Business cycle
  Repetitive cycles of economic expansion and recession. The official peaks and troughs of the U.S. cycle are determined by the National Bureau of Economic Research in Cambridge, MA.
 
Business failure
  A business that has terminated with a loss to creditors.
 
Business risk
  The risk that the cash flow of an issuer will be impaired because of adverse economic conditions, making it difficult for the issuer to meet its operating expenses.
 
Busted convertible
  Related: Fixed-income equivalent. Mainly applies to convertible securities. Convertible bond selling essentially as a straight bond. Assuming the issuer is money good, or will continue to meet credit obligations, such issues can be highly attractive since the price virtually makes no allowance for the bonds call on the common stock; however, such issues usually carry high premiums.
 
Butterfly shift
  A non-parallel shift in the yield curve involving the height of the curve.
 
Butterfly spread
  Applies to derivative products. Complex option strategy that involves selling two calls and buying two calls on the same or different markets, with several maturity dates. One of the options has a higher exercise price and the other has a lower exercise price than the other two options. The payoff diagram resembles the shape of a butterfly.
 
Buy
  To purchase an asset; taking a long position.
 
Buy-and-hold strategy
  A passive investment strategy with no active buying and selling of stocks from the time the portfolio is created until the end of the investment horizon.
 
Buy-back
  Another term for a repo.
 
Buydowns
  Mortgages in which monthly payments consist of principal and interest. During the early part of the loan positions of these payments are provided by a third party to reduce the borrowers monthly payments.
 
Buyers/sellers on balance
  Used for listed equity securities. Indicates that at a given point in time (usually before the opening of a stock/market or at expiration time), there are more buyers/sellers in the marketplace, usually with market orders. See: imblance of orders.
 
Buy in
  To cover, offset or close out a short position. Related: evening up, liquidation.
 
Buying the index
  Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the same return.
 
Buy limit order
  A conditional trading order that indicates a security may be purchased only at the designated price or lower. Related: Sell limit order.
 
Buy minus order
  Used in the context of general equities. Rare market or limit order to buy a stated amount of a stock provided that the price to be obtained is not higher than the last sale if the last sale was a minus or zero-minus tick, and is not higher than the last sale minus the minimum fractional change in the stock if the last sale was a plus or zero-plus tick. (if limit, then the buy cannot occur above the limit, regardless of tick.)
 
Buy on close
  To buy at the end of the trading session at a price within the closing range.
 
Buy on margin
  A transaction in which an investor borrows to buy additional shares, using the shares themselves as collateral.
 
Buy on opening
  To buy at the beginning of a trading session at a price within the opening range.
 
Buyout
  Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is done with borrowed money.
 
Buy-side analyst
  A financial analyst employed by a non-brokerage firm, typically one of the larger money management firms that purchase securities on their own accounts.
 
Buy them back
  Used for listed equity securities. Cover my short position that resulted from my print.


C
  Fifth letter of a NASDAQ stock symbol specifying that it is exempt from NASDAQ listing requirements for a temporary period of time.
 
Cable
  Exchange rate between British pounds sterling and the U.S.$.
 
Calendar
  List of new issues scheduled to come to market shortly.
 
Calendar effect
  The tendency of stocks to perform differently at different times, including such anomalies as the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.
 
Calendar spread
  Applies to derivative products. Bull spread in which there is a simultaneous purchase and sale of options of the same class at different strike prices, but with the same expiration date.
 
Call
  An option that gives the right to buy the underlying futures contract.
 
Callable
  Mainly applies to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. Bonds are usually called when interest rates fall so significantly that the issuer can save money by floating new bonds at lower rates.
 
Call an option
  To exercise a call option.
 
Call date
  A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.
 
Called away
  Convertibles: redeemed before maturity.
Option: Call or put option exercised against the stockholder.
Sale: Delivery required on a short sale.
 
Call money rate
  Also called the broker loan rate , the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge.
 
Call option
  An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.
 
Call premium
  Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.
 
Call price
  The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.
 
Call protection
  A feature of some callable bonds that establishes an initial period when the bonds may not be called.
 
Call provision
  An embedded option granting a bond issuer the right to buy back all or part of the issue prior to maturity.
 
Call risk
  The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
 
Call swaption
  A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating rate payer.
 
Canadian agencies
  agency banks established by Canadian Banks in the U.S.
 
Canadian Dealing Network (CDN)
  The organized O.T.C. market of Canada. Formerly known as the Canadian Over-the counter Automated Trading System (COATS), the C.D.N. became a subsidiary of the Toronto Stock Exchange in 1991.
 
Canadian Exchange Group (CEG)
  The C.E.G. is an association between the Toronto Stock Exchange, the Montreal Exchange, the Vancouver Stock Exchange, the Alberta Stock Exchange and the Winnipeg Stock Exchange for the purpose of providing Canadian market data to customers outside Canada.
 
Cancel
  Used in the context of general equities. Void an order to buy or sell from 1) the floor, or 2) the trader/salesmans scope. In Autex, the indication still remains on record as having once been placed unless it is expunged.
 
Can get $xxx
  Refers to over-the-counter trading. I have a buyer who will pay $xxx for the stock ; usually a standard markdown (1/8) from $xxx is applied to this price in bidding the seller for his stock. Antithesis of cost me.
 
Cannot compete
  Used in the context of general equities. Cannot accommodate customers (i.e., compete with other market-makers) at that price level, often due to not having a natural opposite side of the trade.
 
Cannot complete
  Used in the context of general equities. Inability to finish an order on a principal or agency basis given prevailing price instructions and/or market conditions.
 
Cap
  An upper limit on the interest rate on a floating-rate note (F.R.N.) or an adjustable rate mortgage (A.R.M.).
 
Capital
  Money invested in a firm.
 
Capital account
  Net result of public and private international investment and lending activities.
 
Capital allocation decision
  Allocation of invested funds between risk-free assets and the risky portfolio.
 
Capital asset pricing model (CAPM)
  An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The C.A.P.M. asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The C.A.P.M. says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium.
 
Capital budget
  A firms set of planned capital expenditures.
 
Capital budgeting
  The process of choosing the firms long-term capital assets.
 
Capital expenditures
  Amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.
 
Capital flight
  The transfer of capital abroad in response to fears of political risk.
 
Capital gain
  When a stock is sold for a profit, its the difference between the net sales price of securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.
 
Capital gains yield
  The price change portion of a stocks return.
 
Capitalization
  The debt and/or equity mix that funds a firms assets.
 
Capitalization method
  A method of constructing a replicating portfolio in which the manager purchases a number of the largest-capitalized names in the stock index in proportion to their capitalization.
 
Capitalization ratios
  Also called financial leverage ratios, these ratios compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow.
 
Capitalization table
  A table showing the capitalization of a firm, which typically includes the amount of capital obtained from each source - long-term debt and common equity - and the respective capitalization ratios.
 
Capitalized
  Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives greater than one year.
 
Capitalized interest
  Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time.
 
Capital lease
  A lease obligation that has to be capitalized on the balance sheet.
 
Capital loss
  The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
 
Capital market
  The market for trading long-term debt instruments (those that mature in more than one year).
 
Capital market efficiency
  Reflects the relative amount of wealth wasted in making transactions. An efficient capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.
 
Capital market imperfections view
  The view that issuing debt is generally valuable but that the firms optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of asymmetric information, asymmetric taxes, and transaction costs.
 
Capital market line (CML)
  The line defined by every combination of the risk-free asset and the market portfolio. The line represents the extra risk premium you get for taking an extra risk. Defined by the Capital Asset Pricing Model.
 
Capital rationing
  Placing one or more limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on parts of, and/or the entirety of, the capital budget.
 
Capital stock
  Stock authorized by a firms charter and having par value, stated value, or no par value. The number and value of issued shares are usually shown, together with the number of shares authorized, in the capital accounts section of the balance sheet. See: Common stock
 
Capital structure
  The makeup of the liabilities and stockholders equity side of the balance sheet, especially the ratio of debt to equity and the mixture of short and long maturities.
 
Capital surplus
  Amounts of directly contributed equity capital in excess of the par value.
 
CAPM
  See: Capital asset pricing model
 
Car
  A loose quantity term sometimes used to describe the amount of a commodity underlying one commodity contract; e.g., a car of bellies. Derived from the fact that quantities of the product specified in a contract used to correspond closely to the capacity of a railroad car.
 
CARDs
  See: Certificates of Amortized Revolving Debt
 
Carry
  Related:net financing cost.
 
Carrying costs
  Costs that increase with increases in the level of investment in current assets.
 
Carrying value
  Book value.
 
CARs
  See: Certificates of Automobile Receivables
 
Cash
  The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Bankers Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.
 
Cash & carry
  Applies to derivative products. Combination of a long position in a stock/index/commodity and short position in the underlying future, whereby a cost of carry exists on the long position.
 
Cash and equivalents
  The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Bankers Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.
 
Cash budget
  A forecasted summary of a firms expected cash inflows and cash outflows as well as its expected cash and loan balances.
 
Cash commodity
  The actual physical commodity, as distinguished from a futures contract.
 
Cash conversion cycle
  The length of time between a firms purchase of inventory and the receipt of cash from accounts receivable.
 
Cash cow
  A company that pays out most of its earnings per share to stockholders as dividends. Or, a company or division of a company that generates a steady and significant amount of free cash flow.
 
Cash cycle
  In general, the time between cash disbursement and cash collection. In net working capital management, it can be thought of as the operating cycle less the accounts payable payment period.
 
Cash deficiency agreement
  An agreement to invest cash in a project to the extent required to cover any cash deficiency the project may experience.
 
Cash delivery
  The provision of some futures contracts that requires not delivery of underlying assets but settlement according to the cash value of the asset.
 
Cash discount
  An incentive offered to purchasers of a firms product for payment within a specified time period, such as ten days.
 
Cash dividend
  A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.
 
Cash equivalent
  A short-term security that is sufficiently liquid that it may be considered the financial equivalent of cash.
 
Cash-equivalent items
  Temporary investments of currently excess cash in short-term, high-quality securities such as treasury bills and Bankers Acceptances.
 
Cash flow
  In investments, it represents earnings before depreciation, amortization and non-cash charges. Sometimes called cash earnings. Cash flow from operations (called funds from operations) by real estate and other investment trusts is important because it indicates the ability to pay dividends.
 
Cash flow after interest and taxes
  Net income plus depreciation.
 
Cash-flow break-even point
  The point below which the firm will need either to obtain additional financing or to liquidate some of its assets to meet its fixed costs.
 
Cash flow coverage ratio
  The number of times that financial obligations (for interest, principal payments, preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental payments, and depreciation.
 
Cash flow from operations
  A firms net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net income.
 
Cash flow matching
  Also called dedicating a portfolio, this is an alternative to multiperiod immunization in which the manager matches the maturity of each element in the liability stream, working backward from the last liability to assure all required cash flows.
 
Cash flow per common share
  Cash flow from operations minus preferred stock dividends, divided by the number of common shares outstanding.
 
Cash flow time-line
  Line depicting the operating activities and cash flows for a firm over a particular period.
 
Cash management bill
  Very short maturity bills that the Treasury occasionally sells because its cash balances are down and it needs money for a few days.
 
Cash markets
  Also called spot markets, these are markets that involve the immediate delivery of a security or instrument. Related: Derivative markets.
 
Cash offer
  Often used in risk arbitrage. Proposal, either hostile or friendly, to acquire a target company through the payment of cash for the stock of the target. Compare to exchange offer.
 
Cashout
  Refers to a situation where a firm runs out of cash and cannot readily sell marketable securities.
 
Cash plus convertible
  Mainly applies to convertible securities. Convertible bond which requires cash payment upon conversion.
 
Cash price
  Applies to derivative products. See: Spot price.
 
Cash ratio
  The proportion of a firms assets held as cash.
 
Cash sale/settlement
  Used in the context of general equities. Transaction in which the contract is settled on the same day as the trade date, or next day if the trade is after 2:30 p.m. E.S.T. And the parties agree to this procedure. Often settled in this way because a party is strapped for cash and cannot wait until the regular, five business day, settlement. See: Settlement date.
 
Cash settlement contracts
  Futures contracts, such as stock index futures, that settle for cash, not involving the delivery of the underlying.
 
Cash-surrender value
  The amount an insurance company will pay if the policyholder ends a whole life insurance policy.
 
Cash transaction
  A transaction where exchange is immediate, as contrasted to a forward contract, which calls for future delivery of an asset at an agreed-upon price.
 
CBOE
  See: Chicago Board Options Exchange
 
CD
  See: Certificate of deposit
 
CDN
  See: Canadian Dealing Network
 
CEC
  See: Commodities Exchange Center
 
CEDEL
  A centralized clearing system for Eurobonds.
 
CEG
  See: Canadian Exchange Group
 
Certainty equivalent
  An amount that would be accepted in lieu of a chance to receive a possibly higher, but uncertain, amount.
 
Certificate of deposit (CD)
  Also called a time deposit, this is a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited. A C.D. bears a maturity date and a specified interest rate, and can be issued in any denomination. The duration can be up to five years.
 
Certificates of Amortized Revolving Debt (CARDs)
  Pass-through securities backed by credit card receivables.
 
Certificates of Automobile Receivables (CARs)
  Pass-through securities backed by automobile receivables.
 
CFAT
  See: Cash flow after taxes
 
CFAT
  Cash flow after taxes.
 
CFC
  See: Controlled foreign corporation
 
CFTC
  See: Commodity Futures Trading Commission
 
Changes in Financial Position
  Sources of funds internally provided from operations that alter a company's cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.
 
CHAP
  See: Clearing House Automated Payments System
 
Characteristic line
  The market model applied to a single security. i.e. a regression of security returns or the benchmark return. The slope of the line is a securitys beta.
 
Chartists
  Related: technical analysts.
 
Cheapest to deliver issue
  The acceptable Treasury security with the highest implied repo rate; the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.
 
CHESS
  See: Clearing House Electronic Subregister System
 
Chicago Board Options Exchange (CBOE)
  A securities exchange created in the early 1970s for the public trading of standardized option contracts. Locale where the trading of stock options, foreign currency options, and index options (S&P 100, 500, and 0.T.C. 250 index) is predominant.
 
Chicago Mercantile Exchange (CME)
  A not-for-profit corporation owned by its members. Its primary functions are to provide a location for trading futures and options, collect and disseminate market information, maintain a clearing mechanism and enforce trading rules. Applies to derivative products. A locale where the trading of futures (O.T.C. 250 industrial stock price index, S& P 100 and 500 index) and futures options (S&P 500 stock index) is predominant.
 
Chinese hedge
  Mainly applies to convertible securities. Trading hedge in which one is short the convertible and long the underlying common, hoping that the convertibles premium will contract. Antithesis of set up.
 
Chinese wall
  Communication barrier between financiers (investment bankers) and traders. This barrier is erected to prevent the sharing of inside information that bankers are likely to have.
 
CHIPS
  See: Clearing House Interbank Payments System
 
Choice market
  Mainly applies to international equities. Locked market in London terminology.
 
Churning
  Excessive trading of a clients account in order to increase the brokers commissions.
 
Circle
  Underwriters, actual or potential, often seek out and circle investor interest in a new issue before final pricing. The customer circled basically made a commitment to purchase the issue if it comes at an agreed-upon price. If the actual price is other than that stipulated, the customer supposedly has first offer at the actual price.
 
Circus swap
  A fixed rate currency swap against floating U.S. dollar L.I.B.O.R. payments.
 
Claimant
  A party to an explicit or implicit contract.
 
Claim dilution
  A reduction in the likelihood one or more of the firms claimants will be fully repaid, including time value of money considerations.
 
Class
  Applies to derivative products. Options of the same type - put or call - with the same underlying security. See: series.
 
Clean
  Used in the context of general equities. Block trade that matches buy or sell orders/interests, sparing the block trader any inventory risk (no net position and hence none available for additional customers). Natural. Antithesis of open.
 
Clean opinion
  An auditors opinion reflecting an unqualified acceptance of a company's financial statements.
 
Clean price
  Bond price excluding accrued interest.
 
Clean up
  Used in the context of general equities. Purchase/sale of all the remaining supply/demand of/for stock, or the last piece of a block, in a trade -- leaving a net zero position.
 
Clean your skirts
  Used in the context of general equities. Make all of your obligated calls ; checking with all prior obligations in a security. Often preceded by subject to.
 
Clear
  A trade is settled out by the seller delivering securities and the buyer delivering funds in proper form. A trade that does not clear is said to fail. Comparison of the details of a transaction between broker/dealers prior to settlement; final exchange of securities for cash on delivery.
 
Clear a position
  To eliminate a long or short position, leaving no ownership or obligation.
 
Clearinghouse
  An adjunct to a futures exchange through which transactions executed on its floor are settled by a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate financing of the entire operation.
 
Clearing House Automated Payments System (CHAPS)
  A computerized clearing system for sterling funds that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the clearing companies within the structure of the Association for Payment Clearing Services (A.P.A.C.S.).
 
Clearing House Electronic Subregister System (CHESS)
  C.H.E.S.S. is the automatic transfer and settlement system for the majority of Australian Stock Exchange (A.S.X.) listed securities.
 
Clearing House Interbank Payments System (CHIPS)
  An international wire transfer system for high-value payments operated by a group of major banks.
 
Clearing member
  A member firm of a clearing house. Each clearing member must also be a member of the exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of a non-clearing member must be registered with, and eventually settled through, a clearing member.
 
Clientele effect
  The grouping of investors who have a preference that the firm follow a particular financing policy, such as the amount of leverage it uses.
 
Close, the
  The period at the end of the trading session. Sometimes used to refer to closing price. Related: Opening, the.
 
Close a position
  Used in the context of general equities. Eliminate an investment from ones portfolio, by either selling a long position or covering a short position.
 
Closed-end fund
  An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Related: Open-end fund.
 
Closed-end mortgage
  Mortgage against which no additional debt may be issued.
 
Closely held company
  A company who has a small group of controling shareholders. In contrast, a widely-held firm has many shareholders. It is difficult or impossible to wage a proxy battle for any closely-held firm.
 
Closing purchase
  A transaction in which the purchasers intention is to reduce or eliminate a short position in a stock, or in a given series of options.
 
Closing range
  Also known as the range. The high and low prices, or bids and offers, recorded during the period designated as the official close. Related: settlement price.
 
Closing sale
  A transaction in which the sellers intention is to reduce or eliminate a long position in a stock, or a given series of options.
 
Closing transaction
  Applies to derivative products. Buy or sell transaction that eliminates an existing position (selling a long option or buying back a short option). Antithesis of opening transaction.
 
Cluster analysis
  A statistical technique that identifies clusters of stocks whose returns are highly correlated within each cluster and relatively uncorrelated between clusters. Cluster analysis has identified groupings such as growth, cyclical, stable and energy stocks.
 
CME
  See: Chicago Mercantile Exchange
 
CML
  See: Capital market line
 
CMO
  See: Collateralized mortgage obligation
 
Coefficient of determination
  A measure of the goodness of fit of the relationship between the dependent and independent variables in a regression analysis; for instance, the percentage of variation in the return of an asset explained by the market portfolio return. Also known as R-squared.
 
Coffee, Sugar & Cocoa Exchange (CS&CE)
  The New York-based commodity exchange trading futures and options on softs. The CS&CE shares the trading floor at the Commodities Exchange Center.
 
Coinsurance effect
  Refers to the fact that the merger of two firms decreases the probability of default on either firms debt.
 
Collar
  An upper and lower limit on the interest rate on a floating-rate note (F.R.N.) or an adjustable rate mortgage (A.R.M.).
 
Collateral
  Asset than can be repossessed if a borrower defaults.
 
Collateralized mortgage obligation (CMO)
  A security backed by a pool of pass-through rates , structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus. Related: mortgage pass-through security.
 
Collateral trust bonds
  A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.
 
Collection float
  The negative float that is created between the time when you deposit a check in your account and the time when funds are made available.
 
Collection fractions
  The percentage of a given months sales collected during the month of sale and each month following the month of sale.
 
Collection policy
  Procedures followed by a firm in attempting to collect accounts receivables.
 
Collective wisdom
  The combination of all of the individual opinions about a stocks or securitys value.
 
Colt (Continuous on-line trading system)
  Computerized O.T.C. traders-assistance system that provides for trade entry and position monitoring, among other functions.
 
Comanger
  A bank that ranks just below a lead manager in a syndicated Eurocredit or international bond issue. Comanagers may assist the lead manger bank in the pricing and issue of the instrument.
 
Combination
  Applies to derivative products. Arrangement of options involving two long or two short positions with different expiration dates or strike (exercise) prices. See: straddle.
 
Combination matching
  Also called horizon matching, a variation of multiperiod immunization and cash flow matching in which a portfolio is created that is always duration matched and also cash-matched in the first few years.
 
Combination strategy
  A strategy in which a put and call with the same strike price and expiration are either both bought or both sold. Related: straddle
 
Come in
  Used in the context of general equities. Fall in price.
 
Comeout, the
  Used in the context of general equities. The opening. Antithesis of the Close.
 
Come out of the trade
  Used in the context of general equities. Traders resulting position in a security from executing a trade (or the expectations thereof). Antithesis of going into the trade.
 
COMEX
  A division of the New York Mercantile Exchange (N.Y.M.E.X.). Formerly known as the Commodity Exchange, COMEX is the leading U.S. market for metals futures and options trading.
 
Commercial draft
  Demand for payment.
 
Commercial paper
  Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.
 
Commercial risk
  The risk that a foreign debtor will be unable to pay its debts because of business events, such as bankruptcy.
 
Commission
  The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or their dollar value. In 1975, deregulation led to the creation of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a full staff of analysts who follow specific industries. Discount brokers simply execute a clients order -- and usually do not offer an opinion on a stock. Also known as a round-turn.
 
Commission broker
  A broker on the floor of an exchange who acts as agent for a particular brokerage house and buys and sells stocks for the brokerage house on a commission basis.
 
Commission house
  A firm which buys and sells futures contracts for customer accounts. Related: futures commission merchant, omnibus account.
 
Commitment
  A trader is said to have a commitment when he assumes the obligation to accept or make delivery on a futures contract. Related: Open interest.
 
Commitment fee
  A fee paid to a commercial bank in return for its legal commitment to lend funds that have not yet been advanced. Often used in risk arbitrage. Payment to institutional investors in the U.K. (pension funds and life insurance companies) by the lead underwriter of a takeover that takes place when the underwriter provides the target company's shareholders with a cash alternative for a target company's shares in exchange for the bidding companies shares. The payment is typically 0.5% for the first 30 days, 1.25% for each week thereafter and a final 0.75% acceptance payment when the takeover is completed.
 
Committee on Uniform Securities Identification Procedures (CUSIP)
  Committee that assigns identifying numbers and codes for all securities. These C.U.S.I.P. numbers and symbols are used when recording all buy or sell orders.
 
Commodities Exchange Center (CEC)
  The location of five New York futures exchanges: Commodity Exchange, Inc. (COMEX), the New York Mercantile Exchange (NYMEX), the New York Cotton Exchange, the Coffee, Sugar and Cocoa Exchange (CSC), and the New York futures Exchange (NYFE).
 
Commodity Futures Trading Commission (CFTC)
  Applies to derivative products. Commodity futures trading commission is an agency created by Congress in 1974 to regulate exchange trading in futures.
 
Common-base-year analysis
  The representing of accounting information over multiple years as percentages of amounts in an initial year.
 
Common code
  A nine digit identification code issued jointly by CEDEL and Euroclear. As of January 1991 common codes replaced the earlier separate CEDEL and Euroclear codes.
 
Common market
  An agreement between two or more countries that permits the free movement of capital and labor as well as goods and services.
 
Common shares
  In general, there are two types of shares, common and preferred stock. The common shares usually entitle the shareholders to vote at shareholders meetings. The common shares have a discretionary dividend.
 
Common-size analysis
  The representing of balance sheet items as percentages of assets and of income statement items as percentages of sales.
 
Common size statement
  A statement in which all items are expressed as a percentage of a base figure, useful for purposes of analyzing trends and the changing relationship between financial statement items. For example, all items in each years income statement could be presented as a percentage of net sales.
 
Common stock
  These are securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Used in the context of general equities.) units of ownership of a public corporation with junior status to the claims of secured/unsecured creditors, bond and preferred shareholders in the event of liquidation.
 
Common stock/other equity
  Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders equity.
 
Common stock equivalent
  A convertible security that is traded like an equity issue because the optioned common stock is trading high.
 
Common stock market
  The market for trading equities, not including preferred stock.
 
Common stock ratios
  Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity (book value per share) of a firm.
 
Company, the
  Used for listed equity securities and refers to over-the-counter trading. Public-traded corporation involved in the corporate repurchase of its shares.
 
Company-specific risk
  Related: Unsystematic risk
 
Comparative credit analysis
  A method of analysis in which a firm is compared to others that have a desired target debt rating in order to infer an appropriate financial ratio target.
 
Comparison universe
  The collection of money managers of similar investment style used for assessing relative performance of a portfolio manager.
 
Compensating balance
  An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided.
 
Competence
  Sufficient ability or fitness for ones needs. Possessing the necessary abilities to be qualified to achieve a certain goal or complete a project.
 
Competition
  Intra- or intermarket rivalry between businesses trying to obtain a larger piece of the same market share.
 
Competition ahead
  Often used in risk arbitrage. Situation whereby another O.T.C. market-maker has transacted with Investment bank at the stated market level (without being faded) before the present bid/offer has been made. For example, if bear steams hits a Investment bank bid and we subsequently go down an eighth, followed by an offering being received by Investment bank at this previously transacted price, Competition was aheadof Investment banks.
 
Competitive bidding
  A securities offering process in which securities firms submit competing bids to the issuer for the securities the issuer wishes to sell.
 
Competitive offering
  An offering of securities through competitive bidding.
 
Complete
  Used in the context of general equities. Fill.
 
Complete capital market
  A market in which there is a distinct marketable security for each and every possible outcome.
 
Complete portfolio
  The entire portfolio, including risky and risk-free assets.
 
Completion bonding
  Insurance that a construction contract will be successfully completed.
 
Completion risk
  The risk that a project will not be brought into operation successfully.
 
Completion undertaking
  An undertaking either (1) to complete a project such that it meets certain specified performance criteria on or before a certain specified date or (2) to repay project debt if the completion test cannot be met.
 
Composition
  Voluntary arrangement to restructure a firms debt, under which payment is reduced.
 
Compounding
  The process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period.
 
Compounding frequency
  The number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4.
 
Compounding period
  The length of the time period (for example, a quarter in the case of quarterly compounding) that elapses before interest compounds.
 
Compound interest
  Interest paid on previously earned interest as well as on the principal.
 
Compound option
  Option on an option.
 
Comprehensive due diligence investigation
  The investigation of a firms business in conjunction with a securities offering to determine whether the firms business and financial situation and its prospects are adequately disclosed in the prospectus for the offering.
 
Concentration account
  A single centralized account into which funds collected at regional locations (lockboxes) are transferred.
 
Concentration services
  Movement of cash from different lockbox locations into a single concentration account from which disbursements and investments are made.
 
Concession agreement
  An understanding between a company and the host government that specifies the rules under which the company can operate locally.
 
Conditional call
  Mainly applies to convertible securities. Circumstances under which a company can effect an earlier call, usually stated as percentage of a stocks trading price during a particular period, such as 140% of the exercise price during a 40-day trading span.
 
Conditional sales contracts
  Similar to equipment trust certificates except that the lender is either the equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional sales contract.
 
Condor
  Applies to derivative products. Option strategy consisting of both puts and calls at different strike prices that capitalizes on a narrow range of volatility. The payoff diagram takes the shape of a bird.
 
Confidence indicator
  A measure of investors faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.
 
Confidence letter
  Often used in risk arbitrage. Statement by an investment bank that it is highly confident that the financing for its client/acquirers takeover can and will be obtained.
 
Confidence level
  The degree of assurance that a specified failure rate is not exceeded.
 
Confirmation
  The written statement that follows any trade in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc.
 
Confirm me out
  Used for listed equity securities. Go to the floor and check with the specialist or floor broker that my previously active order has been cancelled and was not executed. One does not have to honor any trade reported after given a firm out.
 
Conflict between bondholders and stockholders
  These two groups may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective covenants work to resolve these conflicts.
 
Conglomerate
  A firm engaged in two or more unrelated businesses.
 
Conglomerate merger
  A merger involving two or more firms that are in unrelated businesses.
 
Consensus forecast
  The mean of all financial analysts forecasts for a company.
 
Consol
  A government bond with no maturity . Popular in Great Britain. The formula for valuing these bonds is simple. The consol payment divided by yield to maturity is the price of the bond.
 
Consolidation
  The combining of two or more firms to form an entirely new entity.
 
Consortium banks
  A merchant banking subsidiary set up by several banks that may or may not be of the same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.
 
Constant-growth model
  Also called the Gordon-Shapiro model, an application of the dividend discount model which assumes (1) a fixed growth rate for future dividends and (2) a single discount rate.
 
Consumer credit
  Credit granted by a firm to consumers for the purchase of goods or services. Also called retail credit.
 
Consumer Price Index
  The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of U.S. inflation. The U.S.Department of Labor publishes the CPI very month.
 
Contagion
  Excess correlation of equity or bond returns. For example, under usual conditions we might observe a certain level of correlation of market returns. A period of contagion would be associated with much higher than expected correlation. Some examples might be the conjectured contagion in East Asian markets beginning in July 1997 when the Thai currency devalued or the impact across many emerging markets to the Russian default. Contagion is difficult to identify because you need some sort of measure of the expected correlation. It is complicated because correlations are known to change through time, for example, see Erb, Harvey and Viskantas article in the 1994 Financial Analysts Journal. In periods of negative returns, correlations (and volatility) is known to increase. So what might appear to be excessive may not be contagion.
 
Contango
  A market condition in which futures prices are higher in the distant delivery months.
 
Contingency order
  Used in the context of general equities. Order to buy one security, if the trader can sell another, usually given that certain price limits or conditions reach a certain level. Swap, switch order.
 
Contingent claim
  A claim that can be made only if one or more specified outcomes occur.
 
Contingent deferred sales charge (CDSC)
  The formal name for the load of a back-end load fund.
 
Contingent immunization
  An arrangement in which the money manager pursues an active bond portfolio strategy until an adverse investment experience drives the then-available potential return down to the safety-net level. When that point is reached, the money manager is obligated to pursue an immunization strategy to lock in the safety-net level return.
 
Contingent pension liability
  Under ERISA, the firm is liable to the plan participants for up to 39% of the net worth of the firm.
 
Continuous compounding
  The process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned continuously, and at each instant, the interest that accrues immediately begins earning interest on itself.
 
Continuous random variable
  A random value that can take any fractional value within specified ranges, as contrasted with a discrete variable.
 
Contract
  A term of reference describing a unit of trading for a financial or commodity future. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange.
 
Contract month
  The month in which futures contracts may be satisfied by making or accepting a delivery. Also called value managers, those who assemble portfolios with relatively lower betas, lower price-book and P/E ratios and higher dividend yields, seeing value where others do not.
 
Contramarket stock
  Used in the context of general equities. Stock that will fight the grain/trend of the market as whole, such as a commodities-related stock or one in an industry out of favor with investors in a bull market.
 
Contribution margin
  The difference between variable revenue and variable cost.
 
Control
  50% of the outstanding votes plus one vote.
 
Controlled disbursement
  A service that provides for a single presentation of checks each day (typically in the early part of the day).
 
Controlled foreign corporation (CFC)
  A foreign corporation whose voting stock is more than 50% owned by U.S. stockholders, each of whom owns at least 10% of the voting power.
 
Controller
  The corporate manager responsible for the firms accounting activities.
 
Convenience yield
  The extra advantage that firms derive from holding the commodity rather than the future.
 
Conventional mortgage
  A loan based on the credit of the borrower and on the collateral for the mortgage.
 
Conventional pass-throughs
  Also called private-label pass-throughs, any mortgage pass-through security not guaranteed by government agencies. Compare agency pass-throughs.
 
Conventional project
  A project with a negative initial cash flow (cash outflow), which is expected to be followed by one or more future positive cash flows (cash inflows).
 
Convention statement
  An annual statement filed by a life insurance company in each state where it does business in compliance with that states regulations. The statement and supporting documents show, among other things, the assets, liabilities, and surplus of the reporting company.
 
Convergence
  The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of time value. But as the contract nears expiration, and time value decreases, the futures price and the cash price converge.
 
Conversion factors
  Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury Bond futures contract.
 
Conversion parity/value
  Mainly applies to convertible securities. Common stock price at which a convertible bond can become exchangeable for common shares of equal value; value of a convertible bond based solely on the market value of the underlying equity. Par value + conversion ratio. See bond value, investment value, parity.
 
Conversion parity price
  Related: Market conversion price.
 
Conversion premium
  The percentage by which the conversion price of a convertible security exceeds the prevailing common stock price at the time the convertible security is issued.
 
Conversion price
  Mainly applies to convertible securities. Dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock, as announced when the convertible is issued.
 
Conversion ratio
  Mainly applies to convertible securities. Relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred share when the conversion takes place. It is determined at the time of issue and is expressed either as a ratio or as a conversion price from which the ratio can be figured by dividing the par value of the convertible by the conversion price.
 
Conversion value
  Also called parity value, the value of a convertible security if it is converted immediately.
 
Convertibility
  The degree of freedom to exchange a currency without government restrictions or controls.
 
Convertible 100
  Mainly applies to convertible securities. Goldman Sachs index of the 100 convertibles of greatest institutional importance. Weighted by issue size, it measures the performance of its components against that of their underlying common stock and against other broad market indices as well.
 
Convertible arbitrage
  Mainly applies to convertible securities. A practice, usually of buying a convertible bond and shorting a percentage of the equivalent underlying common shares to create a positive cash flow position (with expected returns above the riskless rate) in a static environment and capital appreciation should the convertibles premium expand. This form of investing is far from riskless and requires constant monitoring. See: Chinese hedge and set up.
 
Convertible bond
  Mainly applies to convertible securities. General debt obligation of a corporation which can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.
 
Convertible eurobond
  A eurobond that can be converted into another asset, often through exercise of attached warrants.
 
Convertible exchangeable
  Convertible preferred stock that may be exchanged, at the issuers option, into convertible bonds that have the same conversion features as the convertible preferred stock.
 
Convertible preferred
  Mainly applies to convertible securities. Similar to convertible bond except represents equity in the corporation. Divided income is not a pre-tax income item for the issuing corporation, but holding institutions are entitled to an 85% exclusion of dividends.
 
Convertible preferred stock
  Preferred stock that can be converted into common stock at the option of the holder.
 
Convertible price
  The contractually specified price per share at which a convertible security can be converted into shares of common stock.
 
Convertible security
  A security that can be converted into common stock at the option of the security holder, includes convertible bonds and convertible preferred stock.
 
Converts
  Mainly applies to convertible securities. System that permits monitoring of the convertibles marketplace through a personal computer.
 
Convex
  Bowed, as in the shape of a curve. Usually referring to the price/required yield relationship for option-free bonds.
 
Convexity
  A convex curve is one where you draw a straight line connecting the end points and the curve falls below the straight line. If the curve is above, it is known as concave.
 
Core competency
  Primary area of competence. Narrowly defined fields or tasks at which a company or business excels. Primary areas of specialty.
 
Cornering the market
  Used in the context of general equities. (illegal) Purchasing a security or commodity in such volume that control over its price is achieved (e.g., Unhappy news for a short seller, who would have to pay an inflated price to cover).
 
Corporate acquisition
  The acquisition of one firm by another firm.
 
Corporate bonds
  Debt obligations issued by corporations.
 
Corporate charter
  A legal document creating a corporation.
 
Corporate finance
  One of the three areas of the discipline of finance. It deals with the operation of the firm (both the investment decision and the financing decision) from that firms point of view.
 
Corporate financial management
  The application of financial principals within a corporation to create and maintain value through decision making and proper resource management.
 
Corporate financial planning
  Financial planning conducted by a firm that encompasses preparation of both long-and short-term financial plans.
 
Corporate processing float
  The time that elapses between receipt of payment from a customer and the depositing of the customers check in the firms bank account; the time required to process customer payments.
 
Corporate repurchase
  Used in the context of general equities. Active buying by a corporation of its own stock in the marketplace. Reasons for doing so include putting unused cash to use, raising E.P.S., creating support for their stock price, increasing internal control (shark repellant), stock for E.S.O.P. or pension plans. Subject to rules, such as that buying must be on a zero minus or a minus tick, after the opening and before 3:30 p.m.
 
Corporate taxable equivalent
  Rate of return required on a par bond to produce the same after-tax yield to maturity that the quoted premium or discount bond would generate.
 
Corporate tax view
  The argument that double (corporate and individual) taxation of equity returns makes debt a cheaper financing method.
 
Corporation
  A legal person that is separate and distinct from its owners. A corporation is allowed to own assets, incur liabilities, and sell securities, among other things.
 
Correction
  Used in the context of general equities. Reverse movement, usually downward, in the price of an individual stock, bond, commodity, or index. If prices have been rising on the market as a whole, then fall dramatically, this is know as a correction within an upward trend. Antithesis of a technical rally. See: dip, break.
 
Correlation
  Applies to derivative products. Statistical measure of the degree to which the movements of two variables (stock/option/convertible prices or returns) are related. See: Correlation coefficient.
 
Correlation coefficient
  A standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the standard deviations of two variables.
 
Cost-benefit ratio
  The net present value of an investment divided by the investments initial cost. Also called the profitability index.
 
Cost company arrangement
  Arrangement whereby the shareholders of a project receive output free of charge but agree to pay all operating and financing charges of the project.
 
cost me
  Refers to over-the-counter trading. The price I must pay to obtain the securities you wish to buy is [$] usually, a standard markup (1/8) is then applied for resale to this buyer. Antithesis of can get.
 
Cost of capital
  The required return for a capital budgeting project.
 
Cost of carry
  Used in the context of general equities. Out-of-pocket costs incurred while an investor has an investment position, examples include interest on long positions in margin account, dividend lost on short margin positions, and incidental expenses. Related: Net financing cost.
 
Cost-of-carry market
  Applies to derivative products. Futures contracts trade in a cost-of-carry market when the underlying commodity can be stored, insured, and converted into the future easily and inexpensively. Arbitrageurs, because of the ease of switching from the spot commodity to futures, will keep these markets in line with prevailing interest rates.
 
Cost of equity
  The required rate of return for an investment of 100% equity.
 
Cost of funds
  Interest rate associated with borrowing money.
 
Cost of lease financing
  A leases internal rate of return.
 
Cost of limited partner capital
  The discount rate that equates the after-tax inflows with outflows for capital raised from limited partners.
 
Counterparties
  The parties to an interest rate swap.
 
Counterpart items
  In the balance of payments, counterpart items are analogous to unrequited transfers in the current account. They arise because the double-entry system in balance of payments accounting and refer to adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs, and revaluation of the various components of total reserves.
 
Counterparty
  Party on the other side of a trade or transaction.
 
Counterparty risk
  The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.
 
Counter trade
  The exchange of goods for other goods rather than for cash; barter.
 
Country beta
  Covariance of a national economys rate of return and the rate of return the world economy divided by the variance of the world economy.
 
Country economic risk
  Developments in a national economy that can affect the outcome of an international financial transaction.
 
Country financial risk
  Centers around the ability of a national economy to generate enough foreign exchange to meet payments of interest and principal on its foreign debt.
 
Country risk
  General level of political, financial and economic uncertainty in a country affecting the value of loans or investments in that country.
 
Country selection
  A type of active international management that measures the contribution to performance attributable to investing in the better-performing stock markets of the world.
 
Coupon
  The periodic interest payment made to the bondholders during the life of the bond.
 
Coupon equivalent yield
  True interest cost expressed on the basis of a 365-day year.
 
Coupon payments
  A bonds interest payments.
 
Coupon rate
  In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.
 
Covariance
  A statistical measure of the degree to which random variables move together. A positive covariance implies that one variable is above (below) its mean value when the other variable is above (below) its mean value.
 
Covenants
  Provisions in a bond indenture or preferred stock agreement that require the bond or preferred stock issuer to take certain specified actions (affirmative covenants) or to refrain from taking certain specified actions (negative covenants).
 
Cover
  The purchase of a contract to offset a previously established short position.
 
Coverage initiated
  Usually refers to the fact that analysts begin following a particular security. This usually happens when a security become sufficiently large to warrant attention by the investment community.
 
Coverage ratios
  Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.
 
Covered call
  A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.
 
Covered call writing strategy
  A strategy that involves writing a call option on securities that the investor owns in his or her portfolio. See: covered or hedge option strategies.
 
Covered interest arbitrage
  A portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges his resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.
 
Covered option
  Applies to derivative products. Option position that is offset by an equal and opposite position in the underlying security. Antithesis of naked option.
 
Covered or hedge option strategies
  Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying. Related: naked strategies
 
Covered Put
  A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the option writers risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writers risk is more limited than it would be on an uncovered or naked put option.
 
Cramdown
  The ability of the bankruptcy court to confirm a plan of reorganization over the objections of some classes of creditors.
 
Crash
  Dramatic loss in market value. The last great crash was in 1929. Some refer to October 1987 as a crash but the market return was positive.
 
Crawling peg
  An automatic system for revising the exchange rate. It involves establishing a par value around which the rate can vary up to a given percent. The par value is revised regularly according to a formula determined by the authorities.
 
Credible signal
  A signal that provides accurate information; a signal that can be distinguish among senders.
 
Credit
  Money loaned.
 
Credit analysis
  The process of analyzing information on companies and bond issues in order to estimate the ability of the issuer to live up to its future contractual obligations. Related: default risk
 
Credit enhancement
  Purchase of the financial guarantee of a large insurance company to raise funds.
 
Crediting rate
  The interest rate offered on an investment type insurance policy.
 
Creditor
  Lender of money.
 
Credit period
  The length of time for which the customer is granted credit.
 
Credit risk
  The risk that an issuer of debt securities or a borrower may default on his obligations, or that the payment may not be made on a negotiable instrument. Related: Default risk
 
Credit scoring
  A statistical technique wherein several financial characteristics are combined to form a single score to represent a customers credit worthiness.
 
Credit spread
  Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a credit spread. Antithesis of a debit spread Related: Quality spread.
 
CREST
  CREST is CrestCos real-time settlement system for UK and Irish shares and other corporate securities. From 1999, CrestCo will also take ownership of government bond and money markets settlement in the UK.
 
Cross
  Used for listed equity securities. Securities transaction in which the same broker acts as agent for both sides of the trade; a legal practice only if the broker first offers the securities publicly at a price higher than the bid.
 
Cross-border risk
  Refers to the volatility of returns on international investments caused by events associated with a particular country as opposed to events associated solely with a particular economic or financial agent.
 
Cross default
  A provision under which default on one debt obligation triggers default on another debt obligation.
 
Crossed market
  Used in the context of general equities. Market condition whereby the inside market consists of a highest bid price that is higher than the lowest offer price. See: Overlap the market
 
Cross hedging
  The practice of hedging with a futures contract that is different from the underlying being hedged. Applies to derivative products. Use of a hedging instrument different from the security being hedged. Hedging instruments are usually selected with the highest price correlation to the underlying.
 
Cross holdings
  One corporation holds shares in another firm. One needs to allow for cross holdings when aggregating capitalizations of firms. Ignoring cross holdings leads to double counting
 
Crossover rate
  The return at which two alternative projects have the same net present value.
 
Cross rates
  The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency. Mainly applies to international equities. Foreign exchange rate between two currencies other than the U.S. Dollar, the currency into which most currencies are usually quoted.
 
Cross-sectional approach
  A statistical methodology applied to a set of firms at a particular point in time.
 
Cross-share holdings
  Often used in risk arbitrage. Corporations or governments equity share ownership in another corporations shares.
 
Crowd trading
  Used for listed equity securities. Group of exchange members with a defined area of function tending to congregate around a trading post pending execution of orders. Includes specialists, floor traders, odd-lot dealers, and other brokers as well as smaller groups with specialized functions. See: priority.
 
Crown jewel
  A particularly profitable or otherwise particularly valuable corporate unit or asset of a firm. Often used in risk arbitrage. The most desirable entities within a diversified corporation as measured by asset value, earning power and business prospects; in takeover attempts, they typically are the main objective of the acquirer and may be sold by a takeover target to make the rest of the company less attractive. See scorched earth policy.
 
CTA
  See: Cumulative Translation Adjustment
 
Cum dividend
  With dividend. Used in the context of general equities. With dividend; said of a stock whose buyer is eligible to receive a declared dividend. Stocks are usually cum dividend for trades made on or before the fifth trading day preceding the record date, when the register of eligible holders is closed for that dividend period. Antithesis of ex-dividend.
 
Cum rights
  With rights.
 
Cumulative abnormal return (CAR)
  Sum of the differences between the expected return on a stock and the actual return that comes from the release of news to the market.
 
Cumulative dividend feature
  A requirement that any missed preferred or preference stock dividends be paid in full before any common dividend payment is made.
 
Cumulative preferred stock
  Preferred stock whose dividends accrue, should the issuer not make timely dividend payments. Related: Non-cumulative preferred stock.
 
Cumulative probability distribution
  A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on.
 
Cumulative Translation Adjustment (CTA) account
  An entry in a translated balance sheet in which gains and/or losses from translation have been accumulated over a period of years. The C.T.A. account is required under the FASB No. 52 rule.
 
Cumulative voting
  A system of voting for directors of a corporation in which shareholders total number of votes is equal to his number of shares held times the number of candidates.
 
Curb, the
  Used for listed equity securities. American Stock Exchange (A.M.E.X.).
 
Currency
  Money.
 
Currency arbitrage
  Taking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market.
 
Currency basket
  The value of a portfolio of specific amounts of individual currencies, used as the basis for setting the market value of another currency. It is also referred to as a currency cocktail.
 
Currency future
  A financial future contract for the delivery of a specified foreign currency.
 
Currency hedge
  Mainly applies to international equities. Hedging technique to guard against foreign exchange fluctuations (i.e., short Euro l00 mm when holding a long position of Euro l00 mm in stocks).
 
Currency option
  An option to buy or sell a foreign currency.
 
Currency overvaluation
  Mainly applies to international equities. 1) Consideration that a currency is overvalued if private demand for the currency at the going exchange rate is less than total private supply (i.e., Central banks are buying up the difference, supporting the value of the currency through foreign exchange intervention); 2) Currency value exceeding purchasing power parity.
 
Currency risk
  Related: Exchange rate risk
 
Currency risk sharing
  An agreement by the parties to a transaction to share the currency risk associated with the transaction. The arrangement involves a customized hedge contract embedded in the underlying transaction.
 
Currency selection
  Asset allocation in which the investor chooses among investments denominated in different currencies.
 
Currency swap
  An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency.
 
Current/noncurrent method
  Under this currency translation method, all of a foreign subsidiarys current assets and liabilities are translated into home currency at the current exchange rate while noncurrent assets and liabilities are translated at the historical exchange rate that is, the rate in effect at the time the asset was acquired or the liability incurred.
 
Current account
  Net flow of goods, services, and unilateral transactions (gifts) between countries.
 
Current assets
  Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.
 
Current coupon
  A bond selling at or close to par, that is, a bond with a coupon close to the yields currently offered on new bonds of a similar maturity and credit risk.
 
Current-coupon issues
  Related: Benchmark issues
 
Current issue
  In Treasury securities, the most recently auctioned issue. Trading is more active in current issues than in off-the-run issues.
 
Current liabilities
  Amount owed for salaries, interest, accounts payable and other debts due within 1 year.
 
Current maturity
  Current time to maturity on an outstanding debt instrument.
 
Current rate method
  Under this currency translation method, all foreign currency balance-sheet and income statement items are translated at the current exchange rate.
 
Current ratio
  Indicator of short-term debt paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.
 
Current yield
  For bonds or notes, the coupon rate divided by the market price of the bond.
 
Cushion bonds
  High-coupon bonds that sell at only at a moderate premium because they are callable at a price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable downside protection in a falling market.
 
CUSIP
  See: Committee on Uniform Securities Identification Procedures
 
Custodial fees
  Fees charged by an institution that holds securities in safekeeping for an investor.
 
Custodian bank
  Mainly applies to international equities. Bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client. See: Depository Trust Company (D.T.C.)
 
Customary payout ratios
  A range of payout ratios that is typical based on an analysis of comparable firms.
 
Customer picking prices
  Used in the context of general equities.
General: Customer is firm on price and has set the price(s) at which he wishes to transact the security. Thus, the trader is not attempting to properly price the trade or get one side a better price.
Missing a print: Customer has asked us toprint to satisfy because he has missed a print.
O.T.C.: Stock is trading away due to a customer asking for better prices.
Swap: Customer has selected the prices to be used in executing a swap.
 
Customized benchmarks
  A benchmark that is designed to meet a clients requirements and long-term objectives.
 
Customs union
  An agreement by two or more countries to erect a common external tariff and to abolish restrictions on trade among members.
 
Cyclical stock
  Used in the context of general equities. Stock that tends to rise quickly when the economy turns up and fall quickly when the economy turns down. Examples are housing, automobiles, and paper.
 

D
  Fifth letter of a NASDAQ stock symbol specifying that it is a new issue, such as the result of a reverse split.
 
Daily price limit
  The maximum that many commodities, futures and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract.
 
Date of payment
  Date dividend checks are mailed.
 
Date of record
  Date on which holders of record in a firms stock ledger are designated as the recipients of either dividends or stock rights.
 
Dates convention
  Treating cash flows as being received on exact dates - date 0, date 1, and so forth - as opposed to the end-of-year convention.
 
Day around order
  Used in the context of general equities. Day order that supersedes (cancels and replaces) the previous order by altering the size or price limit of that previous order.
 
Day order
  Used in the context of general equities. Request from a customer to either buy or sell stock, which, if not cancelled or executed the day it is placed, automatically expires. All orders are day orders unless otherwise specified. Traders often make calls before the opening to check for renewals.
 
Days in receivables
  Average collection period.
 
Days sales in inventory ratio
  The average number of days worth of sales that is held in inventory.
 
Days sales outstanding
  Average collection period.
 
Day trading
  Refers to establishing and liquidating the same position or positions within one days trading.
 
DCF
  See: Discounted Cash Flows
 
DDM
  See: Discounted Dividend Model
 
Dead cat bounce
  A small upmove in a bear market.
 
Dealer
  An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). Used in the context of general equities. Individual or firm acting as a principal in a securities transaction. Principals are market makers in securities, and thus trade for their own account and risk. Antithesis of broker. See: agency.
 
Dealer loan
  Overnight, collateralized loan made to a dealer financing his position by borrowing from a money market bank.
 
Dealer market
  A market where traders specializing in particular commodities buy and sell assets for their own accounts.
 
Dealer options
  Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.
 
Deal stock
  Often used in risk arbitrage. Stock subject to merger or acquisition, either publicly announced or rumored.
 
Debenture bond
  An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral trust bonds.
 
Debit spread
  Applies to derivative products. Difference in the value of two options, when the value of the one bought exceeds the value of the one sold. One buys a debit spread. Antithesis of a credit spread.
 
Debt
  Money borrowed.
 
Debt/equity ratio
  Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholder equity.
 
Debt capacity
  Ability to borrow. The amount a firm can borrow up to the point where the firm value no longer increases.
 
Debt displacement
  The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be forced to cut back on borrowing.
 
Debtholder
  See: bondholder.
 
Debt instrument
  An asset requiring fixed dollar payments, such as a government or corporate bond.
 
Debt leverage
  The amplification of the return earned on equity when an investment or firm is financed partially with borrowed money.
 
Debt limitation
  A bond covenant that restricts in some way the firms ability to incur additional indebtedness.
 
Debt market
  The market for trading debt instruments.
 
Debtor in possession
  A firm that is continuing to operate under Chapter 11 bankruptcy process.
 
Debtor-in-possession financing
  New debt obtained by a firm during the Chapter 11 bankruptcy process.
 
Debt ratio
  Total debt divided by total assets.
 
Debt relief
  Reducing the principal and/or interest payments on L.D.C. loans.
 
Debt securities
  IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and other instruments.
 
Debt service
  Interest payment plus repayments of principal to creditors, that is, retirement of debt.
 
Debt-service coverage ratio
  Earnings before interest and income taxes plus one-third rental charges, divided by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one minus the tax rate.
 
Debt service parity approach
  An analysis wherein the alternatives under consideration will provide the firm with the exact same schedule of after-tax debt payments (including both interest and principal).
 
Debt swap
  A set of transactions (also called a debt-equity swap) in which a firm buys a countrys dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity.
 
Decile rank
  Performance over time, rated on a scale of 1-10. 1 indicates that a mutual funds return was in the top 10% of funds being compared, while 3 means the return was in the top 30%. Objective Rank compares all funds in the same investment strategy category. All Rank compares all funds.
 
Decision tree
  Method of representing alternative sequential decisions and the possible outcomes from these decisions.
 
Declaration date
  The date on which a firms directors meet and announce the date and amount of the next dividend.
 
Dedicated capital
  Total par value (number of shares issued, multiplied by the par value of each share). Also called dedicated value.
 
Dedicating a portfolio
  Related: cash flow matching.
 
Dedication strategy
  Refers to multi-period cash flow matching.
 
Deductive reasoning
  The use of general fact to provide accurate information about a specific situation.
 
Deed of trust
  See: Indenture.
 
Deep-discount bond
  A bond issued with a very low coupon or no coupon and selling at a price far below par value. When the bond has no coupon, it is called a zero coupon bond.
 
De facto
  Existing in actual fact although not by official recognition.
 
Default
  Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.
 
Default premium
  A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.
 
Default risk
  Also referred to as credit risk (as gauged by commercial rating companies), the risk that an issuer of a bond may be unable to make timely principal and interest payments.
 
Defeasance
  Practice whereby the borrower sets aside cash or bonds sufficient to service the borrowers debt. Both the borrowers debt and the offsetting cash or bonds are removed from the balance sheet.
 
Deferred-annuities
  Tax-advantaged life insurance product. Deferred annuities offer deferral of taxes with the option of withdrawing ones funds in the form of life annuity.
 
Deferred call
  A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.
 
Deferred equity
  A common term for convertible bonds because of their equity component and the expectation that the bond will ultimately be converted into shares of common stock.
 
Deferred futures
  The most distant months of a futures contract. A bond that sells at a discount and does not pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-in-kind bond.
 
Deferred nominal life annuity
  A monthly fixed-dollar payment beginning at retirement age. It is nominal because the payment is fixed in dollar amount at any particular time, up to and including retirement.
 
Deferred taxes
  A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.
 
Deficit
  An excess of liabilities over assets, of losses over profits, or of expenditure over income.
 
Defined benefit plan
  A pension plan in which the sponsor agrees to make specified dollar payments to qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor. Related: defined contribution plan
 
Defined contribution plan
  A pension plan in which the sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: defined benefit plan
 
Delayed issuance pool
  Refers to Mortgage Backed Securities (M.B.S.s) that at the time of issuance were collateralized by seasoned loans originated prior to the MBS pool issue date.
 
Delayed opening
  Used for listed equity securities. Postponement of the start of trading in a stock until a gross imbalance in buy and sell orders is corrected. Such an imbalance is likely to follow on the heels of a significant event such as a takeover offer. See: suspended trading.
 
Delayed settlement/delivery
  Used in the context of general equities. Transaction in which the contract is settled in excess of five full business days. Sellers option. See: dividend play, settlement.
 
Deliver
  In a futures or forward contract , if you agree to sell in the future, you may have to deliver the commodity.
 
Deliverable instrument
  The asset in a forward contract that will be delivered in the future at an agreed-upon price.
 
Delivery
  The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.
 
Delivery date
  The date that you must fulfill the obligations of a forward or futures contract.
 
Delivery notice
  The written notice given by the seller of his intention to make delivery against an open, short futures position on a particular date. Related: notice day
 
Delivery options
  The options available to the seller of an interest rate futures contract, including the quality option, the timing option, and the wild card option. Delivery options make the buyer uncertain of which Treasury bond will be delivered or when it will be delivered.
 
Delivery points
  Those points designated by futures exchanges at which the financial instrument or commodity covered by a futures contract may be delivered in fulfillment of such contract .
 
Delivery price
  The price fixed by the Clearinghouse at which deliveries on futures are invoiced; also the price at which the futures contract is settled when deliveries are made.
 
Delivery versus payment
  A transaction in which the buyers payment for securities is due at the time of delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be made by bank wire, check, or direct credit to an account.
 
Delta
  Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the underlying stock. Applies to derivative products. Measure of the relationship between an option price and the underlying futures contract or stock price. For a call option, a delta of 0.50 means a half-point rise in premium for every dollar that the stock goes up. As options near expiration, in-the-money call option contracts approach a delta of 1.0, while in the money put options approach a delta of -1. See: hedge ratio, neutral hedge.
 
Delta hedge
  A dynamic hedging strategy using options with continuous adjustment of the number of options used, as a function of the delta of the option.
 
Delta neutral
  The value of the portfolio is not affected by changes in the value of the asset on which the options are written.
 
Demand deposits
  Checking accounts that pay no interest and can be withdrawn upon demand.
 
Demand line of credit
  A bank line of credit that enables a customer to borrow on a daily or on-demand basis.
 
Demand master notes
  Short-term securities that are repayable immediately upon the holders demand.
 
Demand shock
  An event that affects the demand for goods and services in the economy.
 
Dependent
  Acceptance of a capital budgeting project contingent on the acceptance of another project.
 
Depository preferred
  Mainly applies to convertible securities. Device enabling an issuer to circumvent an arbitrary corporate limit on the number of preferred shares issuable.
 
Depository transfer check (DTC)
  Check made out directly by a local bank to a particular firm or person.
 
Depository Trust Company (DTC)
  D.T.C. is a user-owned securities depository which accepts deposits of eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in its custody, and provides for withdrawals of securities from its custody. Used in the context of general equities. Central securities repository where stock and bond certificates are exchanged. Most of these exchanges now take place electronically, and few paper certificates actually change hands. The D.T.C. is a member of the Federal Reserve System and is owned by most of the brokerage houses on Wall Street and the N.Y.S.E.
 
Depreciate
  To allocate the purchase cost of an asset over its life.
 
Depreciation
  A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long term assets over the useful life of the assets.
 
Depreciation tax shield
  The value of the tax write-off on depreciation of plant and equipment.
 
Derivative instruments
  Contracts such as options and futures whose price is derived from the price of the underlying financial asset.
 
Derivative markets
  Markets for derivative instruments.
 
Derivative security
  A financial security, such as an option, or future, whose value is derived in part from the value and characteristics of another security, the underlying order.
 
Designated order turnaround system (DOT)
  Computerized order entry system which, for example, allows for orders to buy or sell large baskets of stock to be transmitted immediately to the specialist on the, where execution will occur in no longer than 2.5 minutes, depending on the basket size. Also used for odd lot transactions to occur at the prices and quantities available. See: A.O.S.
 
Detachable warrant
  A warrant entitles the holder to buy a given number of shares of stock at a stipulated price. A detachable warrant is one that may be sold separately from the package it may have originally been issued with (usually a bond).
 
Deterministic models
  Liability-matching models that assume that the liability payments and the asset cash flows are known with certainty. Related: Compare stochastic models
 
Detrend
  To remove the general drift, tendency or bent of a set of statistical data as related to time. Often accomplished by regressing a variable or a time index and perhaps time-squared and capturing the residuals.
 
Deutsche Börse AG (DBAG)
  Deutsche Börse AG (DBAG) is the operating company for the German cash and derivatives markets. It has four subsidiaries: Deutsche Börse Clearing AG, Deutsche Börse Systems AG, Frankfurter Wertpapierbörse (FWB) and the derivatives market Eurex Deutschland (formerly the Deutsche Terminbörse DTB).
 
Deutsche Terminbörse (DTB)
  Formerly the German financial futures and options market. Merged with the Swiss Options and Financial Futures Exchange (SOFFEX) in 1998 to form EUREX, the European derivatives exchange.
 
Devaluation
  A decrease in the spot price of the currency. Often initiated by a government announcement.
 
Difference from S&P
  A mutual funds return minus the change in the Standard & Poors 500 Index for the same time period. A notation of -5.00 means the fund return was 5 percentage points less than the gain in the S&P, while 0.00 means that the fund and the S&P had the same return.
 
Differential disclosure
  The practice of reporting conflicting or markedly different information in official corporate statements including annual and quarterly reports and the 10-Ks and 10-Qs.
 
Differential swap
  Swap between two L.I.B.O.R. rates of interest, e.g. yen L.I.B.O.R. for dollar L.I.B.O.R. Payments are in one currency.
 
Diffusion process
  A conception of the way a stocks price changes that assumes that the price takes on all intermediate values.
 
Digits deleted
  Used in the context of general equities. Designation on securities exchange tape meaning that because the tape has been delayed, some digits have been dropped (i.e., 26 1/2 becomes 6 1/2).
 
Dilution
  Diminution in the proportion of income to which each share is entitled.
 
Dilution protection
  Mainly applies to convertible securities. Standard provision whereby the conversion ratio is changed accordingly in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholders potential equity position. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value.
 
Dilutive effect
  Result of a transaction that decreases earnings per common share (E.P.S.).
 
Dip
  Used in the context of general equities. Slight drop in securities prices after a sustained uptrend. Analysts often advise investors to buy on dips, meaning buy when a price is momentarily weak. See: correction, break, crash.
 
Directed brokerage
  Used in the context of general equities. Specific brokerage house requested (by an account) to be used in executing an order. See: give up.
 
Direct estimate method
  A method of cash budgeting based on detailed estimates of cash receipts and cash disbursements category by category.
 
Direct lease
  Lease in which the lessor purchases new equipment from the manufacturer and leases it to the lessee.
 
Directorship
  Used in the context of general equities. Stock status whereby a trader may not maintain positions in the security, due to an investment bank employee serving as a director on the corporations board of directors done to avoid conflicts of interest; signified by a flashing D on Quotron. Contrast to restricted.
 
Direct paper
  Commercial paper sold directly by the issuer to investors.
 
Direct placement
  Selling a new issue not by offering it for sale publicly, but by placing it with one of several institutional investors.
 
Direct quote
  For foreign exchange, the number of U.S. dollars needed to buy one unit of a foreign currency.
 
Direct search market
  Buyers and sellers seek each other directly and transact directly.
 
Direct stock-purchase programs
  Investors purchase securities directly from the issuer.
 
Dirty float
  A system of floating exchange rates in which the government occasionally intervenes to change the direction of the value of the countrys currency.
 
Dirty price
  Bond price including accrued interest, i.e., the price paid by the bond buyer.
 
Disbursement float
  A decrease in book cash but no immediate change in bank cash, generated by checks written by the firm.
 
DISC
  See: Domestic International Sales Corporation
 
Disclaimer of opinion
  An auditors statement disclaiming any opinion regarding the company's financial condition.
 
Discount
  Used in the context of general equities. Convertible: difference between gross parity and a given convertible price. Most often invoked when a redemption is expected before the next coupon payment, making it liable for accrued interest for which he may never be compensated. Antithesis of premium. General: information that has already been taken into account and is built into a stock or market. Straight equity: price lower than that of the last sale or inside market.
 
Discount bond
  Debt sold for less than its principal value. If a discount bond pays no coupon, it is called a zero coupon bond.
 
Discounted basis
  Selling something on a discounted basis is to sell below maturity value, so that the difference makes up all or part of the interest.
 
Discounted cash flow (DCF)
  Future cash flows multiplied by discount factors to obtain present values.
 
Discounted dividend model (DDM)
  A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends.
 
Discounted in/by market
  Used in the context of general equities. In/by the market. Unannounced information that is widely accepted/anticipated, and hence is already taken into account in the pricing of the security/ market (i.e., Poor earnings).
 
Discounted payback period rule
  An investment decision rule in which the cash flows are discounted at an interest rate and the payback rule is applied on these discounted cash flows.
 
Discount factor
  Present value of $1 received at a stated future date.
 
Discounting
  Calculating the present value of a future amount. The process is opposite to compounding.
 
Discount period
  The period during which a customer can deduct the discount from the net amount of the bill when making payment.
 
Discount rate
  The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.
 
Discount securities
  Non-interest-bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g. U.S. Treasury bills.
 
Discount window
  Facility provided by the Fed enabling member banks to borrow reserves against collateral in the form of governments or other acceptable paper.
 
Discrete compounding
  Compounding the time value of money for discrete time intervals.
 
Discrete random variable
  A random variable that can take only a certain specified set of discrete possible values - for example, the positive integers 1, 2, 3, . . .
 
Discrete variable
  Variable like 1,2,3. Bond ratings are examples of discrete classifications.
 
Discretionary account
  Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.
 
Discretionary cash flow
  Cash flow that is available after the funding of all positive net present value (N.P.V.) capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.
 
Discriminant analysis
  A statistical process that links the probability of default to a specified set of financial ratios.
 
Disintermediation
  Withdrawal of funds from a financial institution in order to invest them directly.
 
Distributed
  After a Treasury auction, there will be many new issues in dealers hands. As those issues are sold, they are said to be distributed.
 
Distributions
  Payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some corporations offer Dividend Reinvestment Plans (D.R.P.).
 
Divergence
  When two or more averages or indices fail to show confirming trends.
 
Diversifiable risk
  Related: unsystematic risk.
 
Diversification
  Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk.
 
Dividend
  A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.
 
Dividend clawback
  With respect to a project financing, an arrangement under which the sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.
 
Dividend clientele
  A group of shareholders who prefer that the firm follow a particular dividend policy. For example, such a preference is often based on comparable tax situations.
 
Dividend Discount Model (DDM)
  A model for valuing the common stock of a company, based on the present value of the expected future dividends.
 
Dividend growth model
  A model wherein dividends are assumed to be growing at a constant rate in perpetuity. The value of the stock equals next years dividends divided by the difference between the required rate of return and the assumed constant growth rate in dividends.
 
Dividend limitation
  A bond covenant that restricts in some way the firms ability to pay cash dividends.
 
Dividend payout ratio
  Percentage of earnings paid out as dividends.
 
Dividend policy
  An established guide for the firm to determine the amount of money it will pay as dividends.
 
Dividend rate
  The fixed or floating rate paid on preferred stock based on par value.
 
Dividend Reinvestment Plan (DRP)
  Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging. The D.R.P. is usually administered by the company without charges to the holder.
 
Dividend rights
  A shareholders rights to receive per-share dividends identical to those other shareholders receive.
 
Dividends per share
  Dividend paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.
 
Dividend trade roll/play
  Used for listed equity securities. Method of buying and selling stocks around their ex-dividend dates so as to collect the dividend (which is 80% tax-exempt) offset by a fully-taxable capital loss. Predicated on the 80% (as of tax reform law of 1986) tax-exempt status that some corporations receive on dividend income. Japanese insurance companies are also large players due to a national regulation that allows policy distribution of income, excluding capital gains only.
 
Dividend yield (Funds)
  Indicated yield represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not redemption charges.
 
Dividend yield (Stocks)
  Indicated yield represents annual dividends divided by current stock price.
 
DM
  Deutsche (German) marks.
 
DNR Order
  See: Do Not Reduce Order
 
Doctrine of sovereign immunity
  Doctrine that says a nation may not be tried in the courts of another country without its consent.
 
Documented discount notes
  Commercial paper backed by normal bank lines plus a letter of credit from a bank stating that it will pay off the paper at maturity if the borrower defaults. Such paper is also referred to as L.O.C. paper.
 
Dollar bonds
  Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with U.S. Dollar bonds, a common term of reference in the Eurobond market.
 
Dollar duration
  The product of modified duration and the initial price.
 
Dollar price of a bond
  Percentage of face value at which a bond is quoted.
 
Dollar return
  The return realized on a portfolio for any evaluation period, including (1) the change in market value of the portfolio and (2) any distributions made from the portfolio during that period.
 
Dollar roll
  Similar to the reverse repurchase agreement - a simultaneous agreement to sell a security held in a portfolio with purchase of a similar security at a future date at an agreed-upon price.
 
Dollar safety margin
  The dollar equivalent of the safety cushion for a portfolio in a contingent immunization strategy.
 
Dollar-weighted rate of return
  Also called the internal rate of return, the interest rate that will make the present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.
 
Domestic International Sales Corporation (DISC)
  A U.S. corporation that receives a tax incentive for export activities.
 
Domestic market
  Part of a nations internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation. Compare external market and foreign market.
 
Do Not Reduce Order (DNR Order)
  Used in the context of general equities. Limit order to buy, order to sell, or a stop limit order to sell which is not to be reduced by the amount of an ordinary cash dividend on the ex-dividend date. A Do not reduce order applies only to ordinary cash dividends, and not stock dividends or rights.
 
Dont know (DK, Dked)
  Dont know the trade. A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.
 
DOT
  See: Designated Order Turnaround System
 
Double auction market
  Used for listed equity securities. Systems by which securities are bought and sold through brokers on the securities exchanges, as distinguished from the O.T.C. market, where trades are negotiated. Unlike the conventional auction with one auctioneer and many buyers, here we have many sellers and many buyers.
 
Double-declining-balance depreciation
  Method of accelerated depreciation.
 
Double dip
  Used for listed equity securities. Dividend roll in which the dividend capturer already owns the stock cum dividend and is enriching his current yield through a second, or double dose of dividend.
 
Double-dip lease
  A cross-border lease in which the disparate rules of the lessors and lessees countries let both parties be treated as the owner of the leased equipment for tax purposes.
 
Double-tax agreement
  Agreement between two countries that taxes paid abroad can be offset against domestic taxes levied on foreign dividends.
 
Doubling option
  A sinking fund provision that may allow repurchase of twice the required number of bonds at the sinking fund call price.
 
Dow Jones Industrial Average
  This is the best known U.S. index of stocks. It contains 30 stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies and commodities. The Dow is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials.
 
Down-and-in option
  Barrier option that comes into existence if asset price hits a barrier.
 
Down-and-out option
  Barrier option that expires if asset price hits a barrier.
 
Downgrade
  A classic negative change in ratings for a stock, or other rated security.
 
Downtick
  Move down in a particular stock. On U.S. stock exchanges you cannot sell the stock short on a downtick.
 
Dow Theory
  Used in the context of general equities. Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows.
 
Draft
  An unconventional order in writing - signed by a person, usually the exporter, and addressed to the importer - ordering the importer or the importers agent to pay, on demand (sight draft) or at a fixed future date (time draft), the amount specified on its face.
 
Draw a call
  Used in the context of general equities. Provoking a customer indication/inquiry/order by setting an attractive market or doing large portions of the volume in a stock.
 
Drop
  Refers to over-the-counter trading. Remove from O.T.C. trading list; hence, no longer making a market in a security.
 
Drop, the
  With the dollar roll transaction the difference between the sale price of a mortgage-backed pass-through, and its re-purchase price on a future date at a predetermined price.
 
Drop lock
  An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed if it falls to a specified level.
 
DRP
  See: Dividend Reinvestment Plan
 
DTC
  See: Depository Trust Company
 
DTC
  See: Depository Transfer Check
 
Dual-currency issues
  Eurobonds that pay coupon interest in one currency but pay the principal in a different currency.
 
Dual listing
  Used for listed equity securities. Listing of a security on more than one exchange, thus increasing the competition for bid and offer prices, the liquidity of the securities, and the number of hours when the stock can be traded (if listed both on the east and west coasts.) See: listed security.
 
Dual syndicate equity offering
  An international equity placement where the offering is split into two tranches - domestic and foreign - and each tranche is handled by a separate lead manager.
 
Due bill
  An instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Occasionally used in the bill market.
 
Due dilengence
  In the process of an acquisition, the acquiring firm is often allowed to see the target firms internal books. The acquiring firm does an internal audit. Offers are often made contingent upon the resolution of the due dilengence process.
 
Dumping
  Used in the context of general equities. Offering large amounts of stock with little or no concern for price or market effect.
 
Duplicative portfolio
  Mainly applies to derivative products. Basket of stocks that imitates the price movement of another set of securities (e.g., S&P 500 index).
 
Dupont system of financial control
  Highlights the fact that return on assets (R.O.A.) can be expressed in terms of the profit margin and asset turnover.
 
Duration
  A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
 
Dutch auction
  Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions. Often used in risk arbitrage. Auction system in which the price of an item (stock) is gradually lowered until it meets a responsive bid (government T-bills) or offer (corporate repurchase) and is sold. In a corporate repurchase, a range of prices is set by the company within which shareholders are invited to tender their shares. The tender offer is open for a specific period of time (i.e., 20 days), and the quantity of stock to be purchased is stated as well, subject to proration if more shares are tendered than can be legally purchased under the stated terms (often an additional amount equal to 20% of outstanding shares can be purchased). The price paid is that at which the amount stated to be purchased can be sold. Compare to double auction system.
 
Dynamic asset allocation
  An asset allocation strategy in which the asset mix is quantitatively shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.
 
Dynamic hedging
  A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to insure the value of a portfolio using a synthetic put option.

E
  Fifth letter of a NASDAQ stock symbol specifying that it has not met the reporting date for the company's SEC regulatory filing requirements.
 
EAFE index
  See: European, Australian, and Far East index
 
Earning power
  Earnings before interest and taxes (EBIT) divided by total assets.
 
Earnings
  Net income for the company during the period.
 
Earnings before interest, taxes, depreciation and amortization (EBITDA)
  A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and non-operating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.
 
Earnings before interest, taxes and depreciation (EBITD)
  A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and non-operating profit before the deduction of interest and income taxes. Depreciation expenses are not included in the costs.
 
Earnings before interest and taxes (EBIT)
  A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and non-operating profit before the deduction of interest and income taxes.
 
Earnings before taxes (EBT)
  A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and non-operating profit before the deduction of income taxes.
 
Earnings per share (EPS)
  E.P.S., as it is called, is a company's profit divided by its number of outstanding shares. If a company earned $2 million in one year had 2 million shares of stock outstanding, its EPS would be $1 per share. In calculating E.P.S., the company often uses a weighted average of shares outstanding over the reporting term.
 
Earnings retention ratio
  Plowback rate.
 
Earnings surprises
  Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or I.B.E.S. Negative earnings surprises generally have a greater adverse affect on stock prices than the reciprocal positive earnings surprise on stock prices.
 
Earnings yield
  The ratio of earnings per share, after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the price/earnings ratio. It is the total twelve months earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage. We often look at earning yields because it avoids the problem of zero earnings in the denominator of the price/earning ratio.
 
EBIT
  See: Earnings Before Interest and Taxes
 
EBITD
  See: Earnings Before Interest, Taxes and Depreciation
 
EBITDA
  See: Earnings Before Interest, Taxes, Depreciation and Amortization
 
EBT
  See: Earnings Before Taxes
 
Economic assumptions
  Economic environment a firm expects to operate in over the life of the financial plan.
 
Economic defeasance
  See: in-substance defeasance.
 
Economic dependence
  Exists when the costs and/or revenues of one project depend on those of another.
 
Economic earnings
  The real flow of cash that a firm could pay out forever in the absence of any change in the firms productive capacity.
 
Economic exposure
  The extent to which the value of the firm will change because of an exchange rate change.
 
Economic income
  Cash flow plus change in present value.
 
Economic order quantity (EOQ)
  The order quantity that minimizes total inventory costs.
 
Economic rents
  Profits in excess of the competitive level.
 
Economic risk
  In project financing, the risk that the projects output will not be salable at a price that will cover the projects operating and maintenance costs and its debt service requirements.
 
Economic surplus
  For any entity, the difference between the market value of all its assets and the market value of its liabilities.
 
Economic union
  An agreement between two or more countries that allows the free movement of capital, labor, all goods and services, and involves the harmonization and unification of social, fiscal, and monetary policies.
 
Economies of scale
  The decrease in the marginal cost of production as a firms scale of operations increases.
 
Economies of scope
  Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.
 
ECU
  See: European Currency Unit
 
EDGAR
  The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other S.E.C. filings, to investors.
 
Edge corporations
  Specialized banking institutions, authorized and chartered by the Federal Reserve Board in the U.S., which are allowed to engage in transactions that have a foreign or international character. They are not subject to any restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to organize and own an Edge corporation.
 
EDI
  See: Electronic Data Interchange
 
Effective annual interest rate
  An annual measure of the time value of money that fully reflects the effects of compounding.
 
Effective annual yield
  Annualized interest rate on a security computed using compound interest techniques.
 
Effective call price
  The strike price in an market redemption provision plus the accrued interest to the redemption date.
 
Effective convexity
  The convexity of a bond calculated using cash flows that change with yields.
 
Effective date
  In an interest rate swap, the date the swap begins accruing interest.
 
Effective duration
  The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bonds price taking into account that expected cash flows will change as interest rates change due to the embedded option.
 
Effective margin (EM)
  Used with SAT performance measures, the amount equal to the net earned spread, or margin of income, on assets in excess of financing costs for a given interest rate and prepayment rate scenario.
 
Effective rate
  A measure of the time value of money that fully reflects the effects of compounding.
 
Effective spread
  The gross underwriting spread adjusted for the impact that the common stock offerings announcement has on the firms share price.
 
Effect the market
  Used in the context of general equities. Change the price or volume levels at which a stock trades through artificial, extraordinary, or non-fundamental demand or supply (i.e., corporate repurchase).
 
Efficiency
  The degree and speed to which a market accurately incorporates information into prices.
 
Efficient capital market
  A market in which new information is very quickly reflected accurately in share prices.
 
Efficient diversification
  The organizing principle of modern portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any level of portfolio risk.
 
Efficient frontier
  The combinations of securities portfolios that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return. Pioneered by Harry Markowitz.
 
Efficient Market Hypothesis
  In general the hypothesis states that all relevant information is fully and immediately reflected in a securitys market price thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all publicly available information) and strong form (stock prices reflect all relevant information including insider information).
 
Efficient portfolio
  A portfolio that provides the greatest expected return for a given level of risk (i.e. standard deviation), or equivalently, the lowest risk for a given expected return.
 
Efficient set
  Graph representing a set of portfolios that maximize expected return at each level of portfolio risk.
 
Eighth[-ed]
  Used in the context of general equities. A Specialist or another broker is bidding higher or offering lower than we are, often topping or undercutting us by an eighth.
 
Either/or facility
  An agreement permitting a bank customer to borrow either domestic dollars from the banks head office or Eurodollars from one of its foreign branches.
 
Either-or order
  Used in the context of general equities. See: Alternative order.
 
Either-way market
  In the interbank Eurodollar deposit market, an either-way market is one in which the bid and offered rates are identical.
 
Elasticity of an option
  Percentage change in the value of an option given a 1% change in the value of the options underlying stock.
 
Electronic data interchange (EDI)
  The exchange of information electronically, directly from one firms computer to another firms computer, in a structured format.
 
Electronic depository transfers
  The transfer of funds between bank accounts through the Automated Clearing House (A.C.H.) system.
 
Eligible bankers acceptances
  In the BA market, an acceptance may be referred to as eligible because it is acceptable by the Fed as collateral at the discount window and/or because the accepting bank can sell it without incurring a reserve requirement.
 
Elliott Wave Theory
  Used in the context of general equities. Technical market timing strategy that predicts price movements based on historical price wave patterns and their underlying psychological motives. Robert Prechter is a famous Elliott Wave Theorist.
 
EM
  See: Effective Margin
 
EM
  See: Effective margin
 
Embedded option
  An option that is part of the structure of a bond that provides either the bondholder or issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security.
 
Emerging markets
  The financial markets of developing economies.
 
Employee stock fund
  A firm-sponsored program that enables employees to purchase shares of the firms common stock on a preferential basis.
 
Employee stock ownership plan (ESOP)
  A company contributes to a trust fund that buys stock on behalf of employees.
 
EMS
  See: European Monetary System
 
End-of-year convention
  Treating cash flows as if they occur at the end of a year as opposed to the date convention. Under the end-of-year convention, the present is time 0, the end of year 1 occurs one year hence, etc.
 
Endogenous variable
  A value determined within the context of a model. Related: Exogenous variable
 
Endowment funds
  Investment funds established for the support of institutions such as colleges, private schools, museums, hospitals, and foundations. The investment income may be used for the operation of the institution and for capital expenditures.
 
Enhanced indexing
  Also called indexing plus, an indexing strategy whose objective is to exceed or replicate the total return performance of some predetermined index.
 
Enhancement
  An innovation that has a positive impact on one or more of a firms existing products.
 
EOE
  See: European Options Exchange
 
EOQ
  See: Economic Order Quantity
 
Equal dollar swap
  Used in the context of general equities. Selling common stock/convertibles in one company and reinvesting the proceeds in as many shares of 1) another type of security issued by the company, or 2) another security of the same type but of another company -- as can be bought with the proceeds of the sale. See: equal shares swap.
 
Equal shares swap
  Mainly applies to convertible securities. Selling the underlying common and reinvesting the proceeds in as much convertible as could be converted into the number of shares of common just sold. See equal dollar swap.
 
Equilibrium market price of risk
  The slope of the capital market line (C.M.L.). Since the C.M.L. represents the expected return offered to compensate for a perceived level of risk, each point on the line is a balanced market condition, or equilibrium. The slope of the line determines the additional expected return needed to compensate for a unit change in risk. The equation of the C.M.L. is defined by the Capital Asset Pricing Model.
 
Equilibrium rate of interest
  The interest rate that clears the market. Also called the trade-clearing interest rate.
 
Equipment trust certificates
  Certificates issued by a trust that was formed to purchase an asset and lease it to a lessee. When the last of the certificates has been repaid, title ownership of the asset transfers to the lessee.
 
Equity
  Represents ownership interest in a firm. Also the residual dollar value of a futures trading account, assuming its liquidation occurs at the going trade price.
 
Equity cap
  An agreement in which one party, for an upfront premium, agrees to compensate the other at specific time periods if a designated stock market benchmark is greater than a predetermined level.
 
Equity claim
  Also called a residual claim, a claim to a share of earnings after debt obligations have been satisfied.
 
Equity collar
  The simultaneous purchase of an equity floor and sale of an equity cap.
 
Equity contribution agreement
  An agreement to contribute equity to a project under certain specified conditions.
 
Equity floor
  An agreement in which one party agrees to pay the other at specific time periods if a specific stock market benchmark is less than a predetermined level.
 
Equityholders
  Those holding shares of the firms equity.
 
Equity kicker
  Used to refer to warrants because they are usually issued attached to privately placed bonds.
 
Equity-linked policies
  Related: Variable life
 
Equity market
  Related:Stock market
 
Equity multiplier
  Total assets divided by total common stockholders equity; the amount of total assets per dollar of stockholders equity.
 
Equity options
  Securities that give the holder the right (but not the obligation) to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.
 
Equity swap
  A swap in which the cash flows exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or floating rate). Related: interest rate swap.
 
Equivalent annual annuity
  The equivalent identical amount per year for some number of years that has a present value equal to a given amount.
 
Equivalent annual benefit
  The equivalent annual annuity for the net present value of an investment project.
 
Equivalent annual cash flow
  Annuity with the same net present value as the company's proposed investment.
 
Equivalent annual cost
  The equivalent cost per year of owning an asset over its entire life.
 
Equivalent bond yield
  Annual yield on a short-term, non-interest bearing security calculated in order to be comparable to yields quoted on coupon securities.
 
Equivalent loan
  Given the after-tax stream associated with a lease, the maximum amount of conventional debt that the same period-by-period after-tax debt service stream is capable of supporting.
 
Equivalent taxable yield
  The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-exempt issue.
 
ERM
  See: Exchange Rate Mechanism
 
Erosion
  An innovation that has a negative impact on one or more of a firms existing assets.
 
ESOP
  See: Employee Stock Ownership Plan
 
Ethics
  Standards of conduct or moral judgement.
 
EU
  See: European Union
 
EUREX
  The European derivatives exchange formed in 1998 following the merger of the Deutsche Terminbörse (DTB) and the Swiss Options and Financial Futures Exchange (SOFFEX).
 
Euro
  Euro usually refers to a deposit outside the home country but in the home country currency. This terminology is confusing given the new European currency unit, also called the Euro, was introduced on January 1, 1999.
 
Eurobank
  A bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.
 
Eurobond
  A bond that is (1) underwritten by an international syndicate, (2) issued simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single country.
 
Euro CDs
  CDs issued by a U.S. bank branch or foreign bank located outside the U.S. Almost all Euro CDs are issued in London.
 
Euroclear
  One of two principal clearing systems in the Eurobond market. It began operations in 1968, is located in Brussels, and is managed by Morgan Guaranty Bank. Mainly applies to international equities. European Clearing Organization which functions similarly to the D.T.C.
 
Euro-commercial paper
  Short-term notes with maturities up to 360 days that are issued by companies in international money markets.
 
Eurocredits
  Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and government borrowers.
 
Eurocurrency
  Euro just means outside your country. So a Eurodollar is a certificate of deposit in U.S. dollars in some other country (though mainly traded in London). A Euroyen is a CD in yen outside of Japan.
 
Eurocurrency deposit
  A short-term fixed rate time deposit denominated in a currency other than the local currency (i.e. US$ deposited in a London bank).
 
Eurocurrency market
  The money market for borrowing and lending currencies that are held in the form of deposits in banks located outside the countries where the currencies are issued as legal tender.
 
Eurodollar
  Refers to a certificate of deposit in U.S. dollars in a bank that is not located in the U.S. Most of the Eurodollar deposits are in London banks but it is possible to have Eurodeposits anywhere other than the U.S. Similarly, a Euroyen or EuroDM deposit represents the CD in Yen or DM outside Japan and Germany, respectively.
 
Eurodollar bonds
  Eurobonds denominated in U.S.dollars.
 
Euroequity issues
  Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate. Euromarket. Related: external market
 
Euro lines
  Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.
 
Euro-medium term note (Euro-MTN)
  A non-underwritten Euronote issued directly to the market. Euro-MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are under five years.
 
EuroNM
  Created on March 1, 1996, Euro.NM is a pan-European network of regulated markets dedicated to growth companies, regardless of their sector of activity or country of origin. Euro.NM member exchanges and their respective new markets consist of the Paris Stock Exchange (Le Nouveau Marché), Deutsche Börse AG (Neuer Markt),  Amsterdam Exchanges (NMAX) and the Brussels Stock Exchange (Euro.NM Belgium)
 
Euro-note
  Short- to medium-term debt instrument sold in the Eurocurrency market.
 
European, Australian, and Far East index (EAFE index)
  Stock index, computed by Morgan Stanley Capital International.
 
European Association of Securities Dealers Automated Quotation (EASDAQ)
  European Association of Securities Dealers Automated Quotation system. European equivalent of N.A.S.D.A.Q.S..
 
European Currency Unit (ECU)
  An index of foreign exchange consisting of about 10 European currencies, originally devised in 1979. See: Euro
 
European Monetary System (EMS)
  An exchange arrangement formed in 1979 that involves the currencies of European Union member countries.
 
European option
  Option that may be exercised only at the expiration date. Related: American option.
 
European Options Exchange (EOE)
  Now AEX-Optiebeurs. See: Amsterdam Exchanges (AEX).
 
European-style option
  An option contract that can only be exercised on the expiration date.
 
European Union (EU)
  An economic association of European countries founded by the Treaty of Rome in 1957 as a common market for six nations. It was known as the European Community before 1993 and is currently comprised of 15 European countries. Its goals are a single market for goods and services without any economic barriers and a common currency with one monetary authority. The E.U. was known as the European Community until January 1, 1994.
 
Euro straight
  A fixed-rate coupon Eurobond.
 
Euroyen bonds
  Eurobonds denominated in Japanese yen.
 
Evaluation period
  The time interval over which a money managers performance is evaluated.
 
Evening up
  Buying or selling to offset an existing market position.
 
Event risk
  The risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.
 
Events of default
  Contractually specified events that allow lenders to demand immediate repayment of a debt.
 
Event study
  A statistical study that examines how the release of information affects prices at a particular time.
 
Evergreen credit
  Revolving credit without maturity.
 
Exact matching
  A bond portfolio management strategy that involves finding the lowest cost portfolio generating cash inflows exactly equal to cash outflows that are being financed by investment.
 
Exante return
  The expected return or anticipated return of an asset or portfolio.
 
Except for opinion
  An auditors opinion reflecting the fact that the auditor was unable to audit certain areas of the company's operations because of restrictions imposed by management or other conditions beyond the auditors control.
 
Excess Kurtosis
  Kurtosis measures the fatness of the tails of the distribution. Excess kurtosis means that distribution has fatter tails than normal distribution.
 
Excess reserves
  Any excess of actual reserves above required reserves.
 
Excess return on the market portfolio
  The difference between the return on the market portfolio and the riskless rate.
 
Excess returns
  The difference between asset return and riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.
 
Exchange
  The marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded. Principal US stock exchanges are: New York Stock Exchange (N.Y.S.E.), American Stock Exchange (A.M.E.X.) and the National Association of Securities Dealers Automatic Quotation System (N.A.S.D.A.Q.).
 
Exchange, The
  A nickname for the New York Stock Exchange. Also known as the Big Board. More than 2,000 common and preferred stocks are traded. The exchange is the oldest in the United States, founded in 1792, and the largest. It is located on Wall Street in New York City.
 
Exchangeable
  Mainly applies to convertible securities. Right of an issuer, if so stated, to exchange a convertible debenture for an existing convertible preferred with identical terms. Most often used if a corporation has an immediate need for equity capital and has a currently low tax rate, and thus expects either or both conditions to change. This would make the debenture less attractive due to the interest tax deductibility being lost.
 
Exchangeable instrument
  Mainly applies to convertible securities. Bond or preferred stock, exchangeable into the common stock of a different public corporation (i.e., Spin off).
 
Exchangeable Security
  Security that grants the security holder the right to exchange the security for the common stock of a firm other than the issuer of the security.
 
Exchange controls
  Governmental restrictions on the purchase of foreign currencies by domestic citizens or on the purchase of the local domestic currency by foreigners.
 
Exchange fund (also known as Swap fund)
  Investment vehicle introduced in 1999 which appeals to wealthy investors with large holdings in a single stock who want to diversify without paying capital gains taxes. These funds allow investors to exchange their stock for shares in the diversified portfolio of stocks in a tax-free transaction
 
Exchange of assets
  Acquisition of another company by purchase of its assets in exchange for cash or stock.
 
Exchange offer
  An offer by the firm to give one security, such as a bond or preferred stock, in exchange for another security, such as shares of common stock.
 
Exchange of stock
  Acquisition of another company by purchase of its stock in exchange for cash or shares.
 
Exchange rate
  The price of one countrys currency expressed in another countrys currency.
 
Exchange Rate Mechanism (ERM)
  The methodology by which members of the EMS maintain their currency exchange rates within an agreed upon range with respect to other member countries.
 
Exchange rate risk
  Also called currency risk, the risk of an investments value changing because of currency exchange rates.
 
Exchange risk
  The variability of a firms value that results from unexpected exchange rate changes or the extent to which the present value of a firm is expected to change as a result of a given currencys appreciation or depreciation.
 
Exclusionary self-tender
  The firm makes a tender offer for a given amount of its own stock while excluding targeted stockholders.
 
Exclusive
  Used in the context of general equities. Having sole possession of the customer order/indication solely, not in competition with other dealers.
 
Ex-dividend
  This literally means without dividend. The buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend. Used in the context of general equities. It is the interval between the record date and the payment date during which the stock trades without its dividend -- the buyer of a stock selling ex-dividend does not receive the recently declared dividend. Antithesis of cum dividend.
 
Ex-dividend date
  The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. This date set by the N.Y.S.E. (and generally followed on other US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is marked with an x in newspaper listings on that date.
 
Execution
  The process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between 1 (mutual funds) and 5 (stocks) days after an order is executed. Settlement times for exchange listed stocks are in the process of being reduced to three days in the U. S. The time greatly varies across countries. For example, in France, settlements are only once per month.
 
Execution costs
  The difference between the execution price of a security and the price that would have existed in the absence of a trade, which can be further divided into market impact costs and market timing costs.
 
Exempt securities
  Instrument exempt from the registration requirements of the Securities Act of 1933 or the margin requirements of the S.E.C. Act of 1934. Such securities include government bonds, agencies, munis, commercial paper, and private placements.
 
Exercise
  To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.
 
Exercise price
  The price at which the security underlying a future or options contract may be bought or sold.
 
Exercise value
  The amount of advantage over a current market transaction provided by an in-the-money option.
 
Exercising the option
  The act buying or selling the underlying asset via the option contract.
 
Exogenous variable
  A variable whose value is determined outside the model in which it is used. Related: Endogenous variable
 
Expectations hypothesis theories
  Theories of the term structure of interest rates which include the pure expectations theory, the liquidity theory of the term structure, and the preferred habitat theory. These theories hold that each forward rate equals the expected future interest rate for the relevant period. These three theories differ, however, on whether other factors also affect forward rates, and how.
 
Expectations theory of forward exchange rates
  A theory of foreign exchange rates that states that the expected future spot foreign exchange rate t periods from now equals the current t-period forward exchange rate.
 
Expected dividend yield
  Total amount of dividends received on the index during the life of a futures contract or total dividends received for holding a stock on year. See: current yield.
 
Expected future cash flows
  Projected future cash flows associated with an asset.
 
Expected future return
  The return that is expected to be earned on an asset in the future. Also called the expected return.
 
Expected return
  The expected return on a risky asset based on a probability distribution for the possible rates of return. Expected return equals some risk free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by the assets beta. The conditional expected return varies through time as a function of current market information.
 
Expected return-beta relationship
  Implication of the CAPM that security risk premiums will be proportional to beta.
 
Expected return on investment
  The return one can expect to earn on an investment. See: capital asset pricing model.
 
Expected value
  The weighted average of a probability distribution. Also known as the mean value.
 
Expected value of perfect information
  The expected value if the future uncertain outcomes could be known minus the expected value with no additional information.
 
Expensed
  Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year.
 
Expense ratio
  The percentage of the assets that were spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the S.E.C. by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio or the SAI includes the transaction costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (O.E.R.).
 
Expiration
  The time when the option contract ceases to exist (expires).
 
Expiration cycle
  An expiration cycle relates to the dates on which options on a particular security expire. A given option will be placed in 1 of 3 cycles, the January cycle, the February cycle, or the March cycle. At any point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2 in far-term months. Last day on which an option may be exercised.
 
Expiration date
  The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the 3rd Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of an option holders intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.
 
Export-Import Bank (Ex-Im Bank)
  The U.S. federal government agency that extends trade credits to U.S. companies to facilitate the financing of U.S. exports.
 
Ex post return
  Related: Holding period return
 
Exposure netting
  Offsetting exposures in one currency with exposures in the same or another currency, where exchange rates are expected to move in such a way that losses or gains on the first exposed position should be offset by gains or losses on the second currency exposure.
 
Expropriation
  The official seizure by a government of private property. Any government has the right to seize such property, according to international law, if prompt and adequate compensation is given.
 
Expunge
  Used in the context of general equities. Remove any trace of an Autex indications existence at any time. See: cancel.
 
Ex-rights
  In connection with a rights offering, shares of stock that are trading without the rights attached.
 
Ex-rights date
  The date on which a share of common stock begins trading ex-rights.
 
Extendable bond
  Bond whose maturity can be extended at the option of the lender or issuer.
 
Extendable notes
  Note with maturity that can be extended by mutual agreement between the issuer and investors.
 
Extension
  Voluntary arrangements to restructure a firms debt, under which the payment date is postponed.
 
Extension date
  The day on which the first option either expires or is extended.
 
Extension swap
  Extending maturity through a swap, e.g. selling a 2-year note and buying one with a slightly longer current maturity.
 
External efficiency
  Related: pricing efficiency.
 
External finance
  Finance that is not generated by the firm: new borrowing or a stock issue.
 
External market
  Also referred to as the international market, the offshore market, or, more popularly, the Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal market
 
Extinguish
  Retire or pay off debt.
 
Extraordinary positive value
  A positive net present value.
 
Extra or special dividends
  A dividend that is paid in addition to a firms regular quarterly dividend.
 
Extrapolative statistical models
  Models that apply a formula to historical data and project results for a future period. Such models include the simple linear trend model, the simple exponential model, and the simple autoregressive model.

F
  Fifth letter of a NASDAQ stock symbol specifying that it is a foreign company.
 
Face value
  See: Par value
 
Factor
  A financial institution that buys a firms accounts receivables and collects the debt.
 
Factor analysis
  A statistical procedure that seeks to explain a certain phenomenon, such as the return on a common stock, in terms of the behavior of a set of predictive factors.
 
Factoring
  Sale of a firms accounts receivable to a financial institution known as a factor.
 
Factor model
  A way of decomposing the forces that influence a securitys rate of return into common and firm-specific influences.
 
Factor portfolio
  A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factors.
 
Fade
  Refers to over-the-counter trading. Fill another O.T.C. dealers bid for, or offer of, stock.
 
Fail
  A trade is said to fail if on settlement date either the seller fails to deliver securities in proper form or the buyer fails to deliver funds in proper form.
 
Fair-and-equitable test
  A set of requirements for a plan of reorganization to be approved by the bankruptcy court.
 
Fair game
  An investment prospect that has a zero risk premium.
 
Fair market price
  Amount at which an asset would change hands between two parties, both having knowledge of the relevant facts. Also referred to as market prices.
 
Fair price
  The equilibrium price for futures contracts. Also called the theoretical futures price, which equals the spot price continuously compounded at the cost of carry rate for some time interval.
 
Fair price provision
  See:appraisal rights.
 
Fall Down
  Used in the context of general equities. May not be able to produce as indicated in ones advertised market, due to getting less help from other parties (than anticipated) or due to changing market conditions.
 
Fallout risk
  A type of mortgage pipeline risk that is generally created when the terms of the loan to be originated are set at the same time the sale terms are established. The risk is that either of the two parties, borrower or investor, fails to close and the loan falls out of the pipeline.
 
Fama, Eugene F
  Founder of the Efficient Markets Hypothesis. Finance professor at the University of Chicago.
 
FASB
  See: Financial Accounting Standards Board
 
FASB No 52
  The U.S. accounting standard which replaced FASB No. 8. U.S. companies are required to translate foreign accounts by the current rate and report the changes from currency fluctuations in a cumulative translation adjustment account in the equity section of the balance sheet.
 
FASB No 8
  U.S. accounting standard that requires U.S. firms to translate their foreign affiliates accounts by the temporal method. Gains and losses from currency fluctuations were reported in current income. It was in effect between 1975 and 1981 and became the most controversial accounting standard in the U.S. It was replaced by FASB No. 52 in 1981.
 
Fast market
  Used in the context of general equities. Excessively rapid trading in a specific security that causes a delay in the electronic updating of its last sale and market conditions, particularly in options.
 
FCIA
  See: Foreign Credit Insurance Association
 
FDI
  See: Foreign direct investment
 
FDIC
  See: Federal Deposit Insurance Corporation
 
Feasible portfolio
  A portfolio that an investor can construct given the assets available.
 
Feasible set of portfolios
  The collection of all feasible portfolios.
 
Feasible target payout ratios
  Payout ratios that are consistent with the level of excess funds available to make cash dividend payments.
 
Federal agency securities
  Securities issued by corporations and agencies created by the U.S. government, such as the Federal Home Loan Bank Board and Ginnie Mae.
 
Federal credit agencies
  Agencies of the federal government set up to supply credit to various classes of institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.
 
Federal Deposit Insurance Corporation (FDIC)
  A federal institution that insures bank deposits.
 
Federal Financing Bank
  A federal institution that lends to a wide array of federal credit agencies funds it obtains by borrowing from the U.S. Treasury.
 
Federal funds
  Non-interest bearing deposits held in reserve for depository institutions at their district Federal Reserve Bank. Also, excess reserves lent by banks to each other.
 
Federal funds market
  The market where banks can borrow or lend reserves, allowing banks temporarily short of their required reserves to borrow reserves from banks that have excess reserves.
 
Federal funds rate
  This is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The Fed Funds rate, as it is called, often points to the direction of U.S. interest rates. Mainly applies to convertible securities. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate.
 
Federal Home Loan Banks
  The institutions that regulate and lend to savings and loan associations. The Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-à-vis member commercial banks.
 
Federally related institutions
  Arms of the federal government that are exempt from S.E.C. registration and whose securities are backed by the full faith and credit of the U.S. government (with the exception of the Tennessee Valley Authority).
 
Federal National Mortgage Association (Fannie Mae)
  The publicly-owned, government-sponsored corporation chartered in 1938 to purchase mortgages from lenders and resell them to investors. Known by the nickname Fannie Mae, it packages mortgages backed by the Federal Housing Administration, but also sells some non-governmentally backed mortgages.
 
Federal Reserve System
  The central bank of the U.S., established in 1913, and governed by the Federal Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the U.S. as well as to supervise Federal Reserve member banks, bank holding companies, international operations of U.S. banks, and U.S. operations of foreign banks.
 
Fedwire
  A wire transfer system for high-value payments operated by the Federal Reserve System.
 
FFO
  See: Funds from operations
 
FHA prepayment experience
  The percentage of loans in a pool of mortgages outstanding at the origination anniversary, based on annual statistical historic survival rates for FHA-insured mortgages.
 
Fiat money
  Nonconvertible paper money.
 
Field warehouse
  Warehouse rented by a warehouse company on another firms premises.
 
Figure
  See: Full, Handle.
 
Figuring the tail
  Calculating the yield at which a future money market (one available some period hence) is purchased when that future security is created by buying an existing instrument and financing the initial portion of its life with a term repo.
 
Fill
  The price at which an order is executed.
 
Fill or kill order (FOK)
  A trading order that is canceled unless executed within a designated time period. Used in the context of general equities. A market or limited price order which is to be executed in its entirety as soon as it is represented in the trading crowd, and, if not so executed, is to be treated as cancelled. For purposes of this definition, a stop is considered an execution. Equivalent to A.O.N. and I.O.C. simultaneously.
 
Filter
  A rule that stipulates when a security should be bought or sold according to past price action.
 
Finance
  A discipline concerned with determining value and making decisions. The finance function allocates resources, including the acquiring, investing, and managing resources.
 
Financial Accounting Standards Board (FASB)
  Sets accounting standards for U.S. firms.
 
Financial analysts
  Also called securities analysts and investment analysts, professionals who analyze financial statements, interview corporate executives, and attend trade shows, in order to write reports recommending either purchasing, selling, or holding various stocks.
 
Financial assets
  Claims on real assets.
 
Financial control
  The management of a firms costs and expenses in order to control them in relation to budgeted amounts.
 
Financial distress
  Events preceding and including bankruptcy, such as violation of loan contracts.
 
Financial distress costs
  Legal and administrative costs of liquidation or reorganization. Also includes implied costs associated with impaired ability to do business (indirect costs).
 
Financial engineering
  Combining or dividing existing instruments to create new financial products.
 
Financial future
  A contract entered into now that provides for the delivery of a specified asset in exchange for the selling price at some specified future date.
 
Financial intermediaries
  Institutions that provide the market function of matching borrowers and lenders or traders.
 
Financial lease
  Long-term, non-cancelable lease.
 
Financial leverage
  Use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.
 
Financial leverage clientele
  A group of investors who have a preference for investing in firms that adhere to a particular financial leverage policy.
 
Financial leverage ratios
  Related: capitalization ratios.
 
Financial market
  An organized institutional structure or mechanism for creating and exchanging financial assets.
 
Financial objectives
  Objectives of a financial nature that the firm will strive to accomplish during the period covered by its financial plan.
 
Financial plan
  A financial blueprint for the financial future of a firm.
 
Financial planning
  The process of evaluating the investing and financing options available to a firm. It includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against that plan.
 
Financial press
  That portion of the media devoted to reporting financial news.
 
Financial ratio
  The result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focussing on specific relationships.
 
Financial risk
  The risk that the cash flow of an issuer will not be adequate to meet its financial obligations. Also referred to as the additional risk that a firms stockholder bears when the firm utilizes debt and equity.
 
Financial times (F-T)-actuaries indices
  Used for listed equity securities. Share price indices for U.K. companies together with earnings yield, price earnings ratio, and dividend yield. The denominator in the index formula is the market capitalization at the base date, adjusted for all capital changes affecting the particular index since the base date. See: footsie.
 
Financing decisions
  Decisions concerning the liabilities and stockholders equity side of the firms balance sheet, such as the decision to issue bonds.
 
FINEX
  The financial futures and options division of the New York Cotton Exchange (NYCE), with a trading floor in Dublin, FINEX Europe, creating a 24-hour market in most FINEX contracts.
 
Finish
  Used in the context of general equities. See: Fill.
 
Firm
  Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also, a synonym for company.
 
Firm commitment underwriting
  An undewriting in which an investment banking firm commits to buy the entire issue and assumes all financial responsibility for any unsold shares.
 
Firm market
  Used in the context of general equities. Prices at which a security can actually be bought or sold in decent sizes, as compared to an inside market with very little depth.
 
Firm order
  Used in the context of general equities. 1) Order to buy or sell for the proprietary account of the broker-dealerfirm; 2) buy or sell order not conditional upon the customers confirmation.
 
Firms net value of debt
  Total firm value minus total firm debt.
 
Firm-specific risk
  See:diversifiable risk or unsystematic risk.
 
First-call
  With collateralized mortgage obligation (C.M.O.s), the start of the cash flow cycle for the cash flow window.
 
First-In-First-Out (FIFO)
  An accounting method for valuing the cost of goods sold that uses the cost of the oldest item in inventory first.
 
First notice day
  The first day, varying by contracts and exchanges, on which notices of intent to deliver actual financial instruments or physical commodities against futures are authorized.
 
First-pass regression
  A time series regression to estimate the betas of securities portfolios.
 
Fiscal agency agreement
  An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as an agent of the borrower.
 
Fiscal policy
  The use of government spending and taxing for the specific purpose of stabilizing the economy.
 
Fisher effect
  A theory that nominal interest rates in two or more countries should be equal to the required real rate of return to investors plus compensation for the expected amount of inflation in each country.
 
Fishers separation theorem
  The firms choice of investments is separate from its owners attitudes towards investments. Also referred to as portfolio separation theorem.
 
Fitch sheet
  Used in the context of general equities. Chronological listing of trades in a security showing the price, size, exchange, and time (to the second) of the trades; obtained by hitting #M on Quotron.
 
Five Cs of credit
  Five characteristics that are used to form a judgement about a customers creditworthiness: character, capacity, capital, collateral, and conditions.
 
Fixed-annuities
  Annuity contracts in which the insurance company or issuing financial institution pays a fixed dollar amount of money per period.
 
Fixed asset
  Long-lived property owned by a firm that is used by a firm in the production of its income. Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents, trademarks, and customer recognition.
 
Fixed asset turnover ratio
  The ratio of sales to fixed assets.
 
Fixed-charge coverage ratio
  A measure of a firms ability to meet its fixed-charge obligations: the ratio of (net earnings before taxes plus interest charges paid plus long-term lease payments) to (interest charges paid plus long-term lease payments).
 
Fixed cost
  A cost that is fixed in total for a given period of time and for given production levels.
 
Fixed-dates
  In the Euromarket the standard periods for which Euros are traded (1 month out to a year out) are referred to as the fixed dates.
 
Fixed-dollar obligations
  Conventional bonds for which the coupon rate is set as a fixed percentage of the par value.
 
Fixed-dollar security
  A nonnegotiable debt security that can be redeemed at some fixed price or according to some schedule of fixed values, e.g., bank deposits and government savings bonds.
 
Fixed-exchange rate
  A countrys decision to tie the value of its currency to another countrys currency, gold (or another commodity), or a basket of currencies.
 
Fixed-income equivalent
  Also called a busted convertible, convertible security that is trading like a straight security because the optioned common stock is trading well below the conversion price.
 
Fixed-income instruments
  Assets that pay a fixed-dollar amount, such as bonds and preferred stock.
 
Fixed-income market
  The market for trading bonds and preferred stock.
 
Fixed price basis
  An offering of securities at a fixed price.
 
Fixed-price tender offer
  A one-time offer to purchase a stated number of shares at a stated fixed price, usually a premium to the current market price.
 
Fixed-rate loan
  A loan where the rate paid by the borrower is fixed for the life of the loan.
 
Fixed-rate payer
  In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a floating-rate payment.
 
Flat
  Used in the context of general equities.
Convertibles: earning interest on the date of payment only.
General: having neither a short nor long position in a stock. Clean.
Market: characterized by horizontal price movement, usually the result of low activity.
Equities: to execute without commission or markup.
 
Flat benefit formula
  Method used to determine a participants benefits in a defined benefit plan by multiplying months of service by a flat monthly benefit.
 
Flat price (also clean price)
  The quoted newspaper price of a bond that does not include accrued interest. The price paid by purchaser is the full price.
 
Flat price risk
  Taking a position either long or short that does not involve spreading.
 
Flattening of the yield curve
  A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.
 
Flat trades
  (1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid, accrued interest. (2) Any security that trades without accrued interest or at a price that includes accrued interest is said to trade flat.
 
Flight to quality
  The tendency of investors to move towards safer, government bonds during periods of high economic uncertainty.
 
Flip-flop note
  Note that allows investors to switch between two different types of debt.
 
Flipside
  Used in the context of general equities. Opposite side to that which was just mentioned (buy, if sell mentioned and vice versa).
 
Float
  Used in the context of general equities.
Currency: exchange rate policy whereby the authorities do not accept an obligation to limit the range of the market rate.
Equities: number of shares of a corporation that are outstanding and available for trading by the public, excluding insiders or restricted stock on a when issued basis. A stocks volatility is inversely correlated to its Float.
 
Floater
  Floating rate bond.
 
Floating exchange rate
  A countrys decision to allow its currency value to freely change. The currency is not constrained by central bank intervention and does not have to maintain its relationship with another currency in a narrow band. The currency value is determined by trading in the foreign exchange market.
 
Floating lien
  General lien against a company's assets or against a particular class of assets.
 
Floating-rate contract
  A guaranteed investment contract where the credit rating is tied to some variable (floating) interest rate benchmark, such as a specific-maturity Treasury yield.
 
Floating-rate note (FRN)
  Note whose interest payment varies with short-term interest rates.
 
Floating-rate payer
  In an interest rate swap, the counterparty who pays a rate based on a reference rate, usually in exchange for a fixed-rate payment
 
Floating-rate preferred
  Preferred stock paying dividends that vary with short-term interest rates.
 
Floating supply
  The amount of securities believed to be available for immediate purchase, that is, in the hands of dealers and investors wanting to sell.
 
Floor broker
  Used for listed equity securities. Member of an exchange who is an employee of a member firm and executes orders, as agent, on the floor of the exchange for clients.
 
Floor picture
  Used for listed equity securities. Details of the trading crowd for a stock, such as the major players, their sizes, and the outside market +/- an eighth.
 
Floor planning
  Arrangement used to finance inventory. A finance company buys the inventory, which is then held in trust for the user.
 
Floor ticket
  Used for listed equity securities. Summary of a stock or commodities exchange order ticket by the registered representative on receipt of a buy or sell order from a client; gives the floor broker the information needed to execute a securities transaction.
 
Floor trader
  A member who generally trades only for his own account, for an account controlled by him or who has such a trade made for him. Also referred to as a local.
 
Flower bond
  Government bonds that are acceptable at par in payment of federal estate taxes when owned by the decedent at the time of death.
 
Flow-through basis
  An account for the investment credit to show all income statement benefits of the credit in the year of acquisition, rather than spreading them over the life of the asset acquired.
 
Flow-through method
  The practice of reporting to shareholders using straight-line depreciation and using accelerated depreciation for tax purposes and flowing through the lower income taxes actually paid on to financial statement prepared for shareholders.
 
Focus list
  Used in the context of general equities. Investment banks published list of buy and sell recommendations from its research department; signified by a flashing F on Quotron.
 
FOK
  See: Fill or Kill Order
 
Footsie
  Mainly applies to international equities. Financial times (f-t)-actuaries 100 index: Dow average of London.
 
For/At
  Used in the context of general equities. Conjunctions used in an order, market summary, or trade recap that signify a bid or an offer, respectively. See: On.
 
For a number
  Used in the context of general equities. Implies that the quantity mentioned is not his total but instead is only approximate, and to open him up more will obligate one to participate.
 
Forced conversion
  Mainly applies to convertible securities. Occurs when a convertible security is called in by the issuer, usually when the underlying stock is selling well above the conversion price. Thus, they assure the bonds will be retired without requiring any cash payment. Upon conversion into common, the carrying value of the bonds becomes part of a corporations equity, thus strengthening the balance sheet and enhancing future debt issuing capability.
 
Force majeure risk
  The risk that there will be an interruption of operations for a prolonged period after a project finance project has been completed due to fire, flood, storm, or some other factor beyond the control of the projects sponsors.
 
Foreign banking market
  That portion of domestic bank loans supplied to foreigners for use abroad.
 
Foreign bond
  A bond issued on the domestic capital market of another company.
 
Foreign bond market
  That portion of the domestic bond market that represents issues floated by foreign companies or governments.
 
Foreign Credit Insurance Association (FCIA)
  A private U.S. consortium of insurance companies that offers trade credit insurance to U.S. exporters in conjunction with the U.S. (Ex-Im Bank) Export-Import Bank.
 
Foreign currency
  Foreign money.
 
Foreign currency forward contract
  Mainly applies to international equities. Agreement that obliges its parties to exchange given quantities of currencies at a pre-specified exchange rate on a certain future date.
 
Foreign currency futures contract
  Mainly applies to international equities. Standardized and easily transferable obligation between two parties to exchange currencies at a specified rate during a specified delivery month; standardized contract on specified underlying currencies, in multiples of standard amounts. Purchased and traded on a regulated exchange to which margins are posted.
 
Foreign currency option
  An option that conveys the right (but not the obligation) to buy or sell a specified amount of foreign currency at a specified price within a specified time period.
 
Foreign currency translation
  The process of restating foreign currency accounts of subsidiaries into the reporting currency of the parent company in order to prepare consolidated financial statements.
 
Foreign direct investment (FDI)
  The acquisition abroad of physical assets such as plant and equipment, with operating control residing in the parent corporation.
 
Foreign equity market
  That portion of the domestic equity market that represents issues floated by foreign companies.
 
Foreign exchange
  Currency from another country.
 
Foreign exchange controls
  Various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents.
 
Foreign exchange dealer
  A firm or individual that buys foreign exchange from one party and then sells it to another party. The dealer makes the difference between the buying and selling prices, or spread.
 
Foreign exchange risk
  The risk that a long or short position in a foreign currency might have to be closed out at a loss due to an adverse movement in the exchange rates.
 
Foreign exchange swap
  An agreement to exchange stipulated amounts of one currency for another currency at one or more future dates.
 
Foreign market
  Part of a nations internal market, representing the mechanisms for issuing and trading securities of entities domiciled outside that nation. Compare external market and domestic market.
 
Foreign market beta
  A measure of foreign market risk that is derived from the capital asset pricing model.
 
Foreign Sales Corporation (FSC)
  A special type of corporation created by the Tax Reform Act of 1984 that is designed to provide a tax incentive for exporting U.S.-produced goods.
 
Foreign tax credit
  Home country credit against domestic income tax. Received in return for foreign taxes paid on foreign derived earnings.
 
Forex
  See: Foreign exchange.
 
Forfaiter
  Purchaser of promises to pay issued by importers.
 
Formula basis
  A method of selling a new issue of common stock in which the S.E.C. declares the registration statement effective on the basis of a price formula rather than on a specific range.
 
Forward
  See: forward contract.
 
Forward contract
  A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. It is not standardized and is not traded on organized exchanges. Although the delivery is made in the future, the price is determined at the initial trade date.
 
Forward cover
  Purchase or sale of forward foreign currency in order to offset a known future cash flow.
 
Forward delivery
  A transaction in which the settlement will occur on a specified date in the future at a price agreed upon on the trade date.
 
Forward differential
  Annualized percentage difference between spot and forward rates.
 
Forward discount
  A currency trades at a forward discount when its forward price is lower than its spot price.
 
Forward exchange rate
  Exchange rate fixed today for exchanging currency at some future date.
 
Forward Fed funds
  Fed funds traded for future delivery.
 
Forward forward contract
  In Eurocurrencies, a contract under which a deposit of fixed maturity is agreed to at a fixed price for future delivery.
 
Forward interest rate
  Interest rate fixed today on a loan to be made at some future date.
 
Forward looking multiple
  A truncated expression for a P/E ratio that is based on forward (expected) earnings rather than on trailing earnings.
 
Forward market
  A market in which participants agree to trade some commodity, security, or foreign exchange at a fixed price for future delivery.
 
Forward premium
  A currency trades at a forward premium when its forward price is higher than its spot price.
 
Forward rate
  A projection of future interest rates calculated from either the spot rates or the yield curve.
 
Forward rate agreement (FRA)
  Agreement to borrow or lend at a specified future date at an interest rate that is fixed today.
 
Forward sale
  A method for hedging price risk which involves an agreement between a lender and an investor to sell particular kinds of loans at a specified price and future time.
 
Forward trade
  A transaction in which the settlement will occur on a specified date in the future at a price agreed upon the trade date.
 
Fourth market
  Direct trading of large in exchange-listed securities between investors without the use of a broker.
 
FRA
  See: Forward rate agreement
 
Freddie Mac (Federal Home Loan Mortgage Corporation)
  A Congressionally chartered corporation that purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and securities these mortgages for sale into the capital markets.
 
Free cash flows
  Cash not required for operations or for reinvestment. Often defined as earnings before interest (often obtained from the operating income line on the income statement) less capital expenditures less the change in working capital.
 
Free delivery
  Used in the context of general equities. Securities industry procedure whereby delivery of securities sold is made to the buying customers bank without the requirement of immediate payment, thus a credit agreement of sorts. Antithesis of delivery vs. Payment.
 
Free float
  An exchange rate system characterized by the absence of government intervention. Also known as clean float.
 
Free on board
  Implies that distributive services like transport and handling performed on goods up to the customs frontier of the economy from which the goods are classed as merchandise.
 
Free reserves
  Excess reserves minus member bank borrowings at the Fed.
 
Free rider
  A follower who avoids the cost and expense of finding the best course of action and by simply mimicking the behavior of a leader who made these investments.
 
Free to trade
  Used in the context of general equities. Removed from any internal (restricted list) or external restrictions on trading, and hence the trader is free to solicit interest as well.
 
Frequency distribution
  The organization of data to show how often certain values or ranges of values occur.
 
Fresh picture
  Used for listed equity securities. Updated picture of a stock or market, usually following recent trading activity or news which has changed the previous look.
 
Fresh signal
  Used in the context of general equities. Piece of information (fundamental or technical) leading one to believe a stock will move in a certain manner.
 
Friction costs
  Costs, both implied and direct, associated with a transaction. Such costs include time, effort, money, and associated tax effects of gathering information and making a transaction.
 
Frictions
  The stickiness in making transactions; the total hassle including time, effort, money, and tax effects of gathering information and making a transaction such as buying a stock or borrowing money.
 
FRN
  See: Floating Rate Note
 
Front ending
  Used in the context of general equities. Trading a partial of relatively small size in comparison to the remainder of the total order, at times without giving the opposite side (the buyer/seller of this small partial) adequate disclosure of the extent of the latter end of the total order, and thus disadvantaging this party when this sizable latter end moves the stocks price against his initial buy or sell price of the smaller, front end.
 
Front fee
  The fee initially paid by the buyer upon entering a split-fee option contract.
 
Front running
  Used in the context of general equities. Entering into option or futures contracts with advance knowledge of a block transaction that will influence the price of the underlying security to capitalize on the trade. This practice is forbidden by the S.E.C. and should never be followed within any brokerage firm.
 
Fry a bigger fish
  Used in the context of general equities. Work on a trade of larger size than that which was just disclosed.
 
FSC
  See: Foreign Sales Corporation
 
Full
  Handle.
 
Full coupon bond
  A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.
 
Full faith-and-credit obligations
  The security pledges for larger municipal bond issuers, such as states and large cities which have diverse funding sources.
 
Full-payout lease
  See: financial lease
 
Full price
  Also called dirty price, the price of a bond including accrued interest. Related: flat price.
 
Full-service lease
  Also called rental lease. Lease in which the lessor promises to maintain and insure the equipment leased.
 
Fully diluted earnings per shares
  Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.
 
Fully modified pass-throughs
  Agency pass-throughs that guarantee the timely payment of both interest and principal. Related: modified pass-throughs
 
Fully valued
  Used in the context of general equities. Said of a stock that has reached a price at which analysts think the underlying company's fundamental earnings power has been fully recognized by the market.
 
Functional currency
  As defined by FASB No. 52, an affiliates functional currency is the currency of the primary economic environment in which the affiliate generates and expends cash.
 
Fundamental analysis
  Security analysis that seeks to detect misvalued securities through an analysis of the firms business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future interest rates, and risk evaluation of the firm. Used in the context of general equities. Antithesis of technical analysis. In macroeconomic analysis, information such as interest rates, G.N.P., inflation, unemployment, and inventories are used to predict the direction of the economy, and henceforth the Stock market. In microeconomic analysis, information such as balance sheet, income statement, products, management and other market items are used to forecast a company's imminent success or failure, and hence the future price action of the stock.
 
Fundamental beta
  The product of a statistical model to predict the fundamental risk of a security using not only price data but other market-related and financial data.
 
Fundamental descriptors
  In the model for calculating fundamental beta, ratios in risk indexes other than market variability, which rely on financial data other than price data.
 
Funded debt
  Debt maturing after more than one year.
 
Fund family
  Set of funds with different investment objectives offered by one management company. In many cases, investors may move their assets from one fund to another within the family at little or no cost.
 
Funding ratio
  The ratio of a pension plans assets to its liabilities.
 
Funding risk
  Related: interest rate risk
 
Funds From Operations (FFO)
  Used by real estate and other investment trusts to define the cash flow from trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly used is Funds Available for Distribution (FAD), which is F.F.O. less capital investments in trust property and the amortization of mortgages.
 
Future
  A term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery on a commodity exchange.
 
Future investment opportunities
  The options to identify additional, more valuable investment opportunities in the future that result from a current opportunity or operation.
 
Futures
  A term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery on a commodity exchange.
 
Futures commission merchant
  A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection with such solicitation or acceptance of orders, accepts any money or securities to provide margin for any resulting trades or contracts. The FCM must be licensed by the C.F.T.C.. Related: commission house, omnibus account
 
Futures contract
  Agreement to buy or sell a set number of shares of a specific stock in a designated future month at a price agreed upon today by the buyer and seller. The contracts themselves are often traded on the futures market. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.
 
Futures contract multiple
  A constant, set by an exchange, which when multiplied by the futures price gives the dollar value of a stock index futures contract.
 
Futures market
  A market in which contracts for future delivery of a commodity or a security are bought or sold.
 
Futures option
  An option on a futures contract. Related: options on physicals.
 
Futures price
  The price at which the parties to a futures contract agree to transact upon the settlement date.
 
Future value
  The amount of cash at a specified date in the future that is equivalent in value to a specified sum today.

G
  Fifth letter of a NASDAQ stock symbol specifying that it is the first convertible bond of the company.
 
GAAP
  See: Generally Accepted Accounting Principals
 
Gamma
  The ratio of a change in the option delta to a small change in the price of the asset on which the option is written.
 
Gap opening
  Used in the context of general equities. Opening price that is substantially higher or lower than the previous days closing price, usually because of some extraordinarily positive or negative news.
 
Garmen-Kohlhagen option pricing model
  A widely used model for pricing foreign currency options.
 
GDP
  See: Gross Domestic Product
 
Gearing
  Financial leverage.
 
GEMs (growing-equity mortgages)
  Mortgages in which annual increases in monthly payments are used to reduce outstanding principal and to shorten the term of the loan.
 
General cash offer
  A public offering made to investors at large.
 
Generally Accepted Accounting Principals (GAAP)
  A technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time in the U.S.
 
General obligation bonds
  Municipal securities secured by the issuers pledge of its full faith, credit, and taxing power.
 
General partner
  A partner who has unlimited liability for the obligations of the partnership.
 
General partnership
  A partnership in which all partners are general partners
 
Generic
  Refers to the characteristics and/or experience of the total universe of a coupon of M.B.S. sector type; that is, in contrast to a specific pool or collateral group, as in a specific C.M.O. issue.
 
Geographic risk
  Risk that arises when an issuer has policies concentrated within certain geographic areas, such as the risk of damage from a hurricane or an earthquake.
 
Geometric mean return
  Also called the time weighted rate of return, a measure of the compounded rate of growth of the initial portfolio market value during the evaluation period, assuming that all cash distributions are reinvested in the portfolio. It is computed by taking the geometric average of the portfolio subperiod returns.
 
Gestation repo
  A reverse repurchase agreement between mortgage firms and securities dealers. Under the agreement, the firm sells federal agency-guaranteed M.B.S. and simultaneously agrees to repurchase them at a future date at a fixed price.
 
Get hit
  Go lower in price, due to bids in the stock or market being hit, causing those bids to vanish and be replaced by lower ones. Come in. Antithesis of on the take.
 
Get out
  Used in the context of general equities. Sell interest (We could get out big size in Humana.)
 
GIC
  See: Guaranteed Investment Contract
 
Gilt-edged securities
  British and Irish government securities. Blue Chip
 
Ginnie Mae
  See: Government National Mortgage Association.
 
Give up
  Used for listed equity securities. 1) Term used in a securities transaction involving three brokers, as illustrated by the following scenario: Broker A, a floor broker, executes a buy order for broker B. (Another member firm broker who has too much business at the time to execute the order.) The broker with whom broker A completes the transaction (the sell side broker) is broker C. Broker A gives up the name of broker B, so that the record shows a transaction between broker B and broker C even though the trade was actually executed between broker A and broker C; 2) distribution of commissions to brokerage houses not participating in a trade. This is a grey area of the law intended to reimburse a broker for previously provided services (i.e., Research). See: directed brokerage.
 
Glass-Steagall Act
  A 1933 act in which Congress forbade commercial banks to own, underwrite, or deal in corporate stock and corporate bonds.
 
Global bonds
  Bonds that are designed so as to qualify for immediate trading in any domestic capital market and in the Euromarket.
 
Global fund
  A mutual fund that can invest anywhere in the world, including the U.S.
 
Globalization
  Tendency toward a worldwide investment environment, and the integration of national capital markets
 
GMC
  See: Guaranteed Mortgage Certificate
 
GNMA-I
  Mortgage-backed securities (M.B.S.) on which registered holders receive separate principal and interest payments on each of their certificates, usually directly from the servicer of the M.B.S. pool. GNMA-I mortgage-backed securities are single-issuer pools.
 
GNMA-II
  Mortgage-backed securities (M.B.S.) on which registered holders receive an aggregate principal and interest payment from a central paying agent on all of their certificates. Principal and interest payments are disbursed on the 20th day of the month. GNMA-II M.B.S. are backed by multiple-issuer pools or custom pools (one issuer but different interest rates that may vary within one percentage point). Multiple-issuer pools are known as Jumbos. Jumbo pools are generally longer and offer certain mortgages that are more geographically diverse than single-issuer pools. Jumbo pool mortgage interest rates may vary within one percentage point.
 
GNMA Midget
  A GNMA pass-through certificate backed by fixed rate mortgages with a 15 year maturity. GNMA Midget is a dealer term and is not used by GNMA in the formal description of its programs.
 
Gnomes 
  Freddie Macs 15-year, fixed-rate pass-through securities issued under its cash program.
 
GNP
  See: Gross National Product
 
Go along
  Used for listed equity securities. Buy or sell at prices that randomly occur on the floor, participating in what trades the specialist and other players will allow.
 
Go-around
  When the Fed offers to buy securities, to sell securities, to do repo, or to do reverses, it solicits competitive bids or offers from all primary dealers.
 
Goes
  Used in the context of general equities. 1) Trades (10 IBM goes on at 115 ); See Print; 2) indicates a change in the stocks, inside market (Apple goes 3/4 bid).
 
Going into the trade
  Used in the context of general equities. 1) Condition of the traders position in the security and expectations of stock placement with accounts just prior to taking an order to the exchange floor for execution; 2) On the way in. Antithesis of come out of the trade.
 
Going out
  Used in the context of general equities. Soliciting/advertising over the SS1, N.A.S.D.A.Q., or Autex.
 
Going-private transactions
  Publicly owned stock in a firm is replaced with complete equity ownership by a private group. The shares are delisted from stock exchanges and can no longer be purchased in the open markets.
 
Golden parachute
  Compensation paid to top-level management by a target firm if a takeover occurs.
 
Gold exchange standard
  A system of fixing exchange rates adopted in the Bretton Woods agreement. It involved the U.S. pegging the dollar to gold and other countries pegging their currencies to the dollar.
 
Gold standard
  An international monetary system in which currencies are defined in terms of their gold content and payment imbalances between countries are settled in gold. It was in effect from about 1870-1914.
 
Good
  Used in the context of general equities. Including among the group and side (buy or sell) being discussed during the block call.
 
Good delivery
  A delivery in which everything - endorsement, any necessary attached legal papers, etc. - is in order.
 
Good delivery and settlement procedures
  Refers to PSA Uniform Practices such as cutoff times on delivery of securities and notification, allocation, and proper endorsement.
 
Good through/until date order
  Used in the context of general equities. Market or limited price order which is to be represented in the trading crowd for a stated period of time unless cancelled, executed, or changed, after which such order or the portion thereof not executed is to be treated as cancelled.
 
Good til cancelled order (GTC)
  It means an order to buy or sell stock that is good until you execute or cancel it. Brokerages usually set a limit of 30-60 days, at which the G.T.C. order expires if not restated. (In contrast to a day order.)
 
Goodwill
  Excess of the purchase price over the fair market value of the net assets acquired under the purchase method of accounting.
 
Go to
  Used in the context of general equities. Sell interest (Weve got 50 IBM to go).
 
Government bond
  See: Government securities.
 
Government National Mortgage Association (Ginnie Mae)
  A wholly owned U.S. government corporation within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of principal and interest on securities issued by approved servicers that are collateralized by FHA-issued, VA-guaranteed, or Farmers Home Administration (FmHA)-guaranteed mortgages.
 
Government securities
  Negotiable U.S. Treasury securities.
 
Government sponsored enterprises
  Privately owned, publicly chartered entities, such as the Student Loan Marketing Association, created by Congress to reduce the cost of capital for certain borrowing sectors of the economy including farmers, homeowners, and students.
 
GPM
  See: Graduated Payment Mortgages
 
Graduated-payment mortgages (GPMs)
  A type of stepped-payment loan in which the borrowers payments are initially lower than those on a comparable level-rate mortgage. The payments are gradually increased over a predetermined period (usually 3,5, or 7 years) and then are fixed at a level-pay schedule which will be higher than the level-pay amortization of a level-pay mortgage originated at the same time. The difference between what the borrower actually pays and the amount required to fully amortize the mortgage is added to the unpaid principal balance.
 
Graham-Harvey Measure 1
  Performance measure invented by John Graham and Campbell Harvey. The idea is to lever a funds portfolio to exactly match the volatility of the S&P 500. The difference between the funds levered return and the S&P 500 return is the performance measure.
 
Graham-Harvey Measure 2
  Performance measure invented by John Graham and Campbell Harvey. The idea is to lever the S&P 500 portfolio to exactly match the volatility of the fund. The difference between the funds return and the levered S&P 500 return is the performance measure.
 
Grantor trust
  A mechanism of issuing MBS wherein the mortgages collateral is deposited with a trustee under a custodial or trust agreement.
 
Graveyard market
  Used in the context of general equities. Bear market wherein investors who sell are faced with substantial losses, while potential investors prefer to stay liquid; that is, to keep their money in cash or cash equivalents until market conditions improve.
 
Gray market
  Purchases and sales of Eurobonds that occur before the issue price is finally set.
 
Great call
  Used in the context of general equities. Customer does not have a working order in with the trader, but we feel has an interest in participating in a trade being constructed due to ones past inquiry or activity.
 
Greenmail
  Situation in which a large block of stock is held by an unfriendly company, forcing the target company to repurchase the stock at a substantial premium to prevent a takeover.
 
Greenshoe option
   Option that allows the underwriter for a new issue to buy and resell additional shares.
 
Grey list
  Used in the context of general equities. Formal grouping of stocks which can be traded by the block desks, but not in risk arbitrage due to an Investment banks 0involvement with the company on non-public activity (i.e., Mergers and Acquisitions defense). A stocks being on this list should never be conveyed to anyone outside of the trading area, much less outside of the firm. See restricted list.
 
Gross domestic product (GDP)
  The market value of goods and services produced over time including the income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S. residents and corporations overseas.
 
Gross interest
  Interest earned before taxes are deducted.
 
Gross national product (GNP)
  Measures and economys total income. It is equal to G.D.P. plus the income abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.
 
Gross parity
  Mainly applies to convertible securities and international equities. Antithesis of net parity. For the price of a convertible = including accrued interest. For the price of international security = including commissions, fees, stamp duty and other transaction costs, translated into U.S. dollar amounts.
 
Gross profit margin
  Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold.
 
Gross spread
  The fraction of the gross proceeds of an underwritten securities offering that is paid as compensation to the underwriters of the offering.
 
Group of eight (G-8)
  The G-7 countries plus Russia.
 
Group of five (G-5)
  The five leading countries (France, Germany, Japan, United Kingdom, and the U.S.) that meet periodically to achieve some cooperative effort on international economic issues. When currency issues are discussed, the monetary authorities of these nations hold the meeting.
 
Group of seven (G-7)
  The G-5 countries plus Canada and Italy.
 
Group rotation manager
  A top-down manager who infers the phases of the business cycle and allocates assets accordingly.
 
Growing perpetuity
  A constant stream of cash flows without end that is expected to rise indefinitely.
 
Growth manager
  A money manager who seeks to buy stocks that are typically selling at relatively high P/E ratios due to high earnings growth, with the expectation of continued high or higher earnings growth.
 
Growth opportunity
  Opportunity to invest in profitable projects.
 
Growth phase
  A phase of development in which a company experiences rapid earnings growth as it produces new products and expands market share.
 
Growth rates
  Compound annual growth rate for the number of full fiscal years shown. If there is a negative or zero value for the first or last year, the growth is N.M.(not meaningful).
 
Growth stock
  Common stock of a company that has an opportunity to invest money and earn more than the opportunity cost of capital.
 
GTC
  See: Good til cancelled order
 
Guaranteed insurance contract
  A contract promising a stated nominal interest rate over some specific time period, usually several years.
 
Guaranteed investment contract (GIC)
   A pure investment product in which a life company agrees, for a single premium, to pay the principal amount of a predetermined annual crediting (interest) rate over the life of the investment, all of which is paid at the maturity date.
 
Guaranteed Mortgage Certificates (GMC)
  First issued by Freddie Mac in 1975, G.M.C.s, like PCs, represent undivided interest in specified conventional whole loans and participations previously purchased by Freddie Mac.
 
Guarantor program
  Under the (Federal Home Loan Mortgage Corporation) Freddie Mac program, the aggregation by a single issuer (usually an S&L) for the purpose of forming a qualifying pool to be issued as PCs under the Freddie Mac guarantee.

H
  Fifth letter of a NASDAQ stock symbol specifying that it is the second preferred bond of the company.
 
Haircut
  The margin or difference between the actual market value of a security and the value assessed by the lending side of a transaction (i.e. a repo).
 
Handle
  The whole-dollar price of a bid or offer is referred to as the handle (ie. if a security is quoted at 101.10 bid and 101.11 offered, 101 is the handle). Traders are assumed to know the handle. See: Full
 
Hard capital rationing
  Capital rationing that under no circumstances can be violated.
 
Hard currency
  A freely convertible currency that is not expected to depreciate in value in the foreseeable future.
 
Hard dollars
  Used in the context of general equities. Actual, separate payments made by a customer for services including research, provided by a brokerage firm. Antithesis of soft dollars.
 
Harmless warrant
  Warrant that allows the user to purchase a bond only by surrendering an existing bond with similar terms.
 
Hart-Scott-Rodino Act
  Often used in risk arbitrage. Antitrust act administered by U.S. Department of Justice and the F.T.C. that requires an investor to file a form with the government before he acquires an economic interest in the lesser of $15 million or 15% in a specific security. The government has thirty days to respond to the filer.
 
Harvey, Campbell R
  Author of this glossary. Finance professor at Duke University. Author of research on international finance, asset allocation and emerging markets.
 
Head & shoulders
  In technical analysis, a chart formation in which a stock price reaches a peak and declines, rises above its former peak and again declines and rises again but not to the second peak and then again declines. The first and third peaks are shoulders, while the second peak is the formations head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.
 
Heavy
  Used in the context of general equities. Presently dominated by sellers, or over-supply, in the market or security resulting in falling prices. See: overbought, resistance level, tired
 
Hedge
  A transaction that reduces the risk of an investment.
 
Hedged portfolio
  A portfolio consisting of the long position in the stock and the long position in the put option, so as to be riskless and produce a return that equals the risk-free interest rate.
 
Hedge fund
  A fund that may employ a variety of techniques to enhance returns, such as both buying and shorting stocks based on a valuation model.
 
Hedge ratio (delta)
  The ratio of volatility of the portfolio to be hedged and the return of the volatility of the hedging instrument. For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible. If a preferred is convertible into 2.0 common shares, a 75% hedge ratio would be short (long) 1500 common for every 1000 preferred long (short). For options, ratio between the change in an options theoretical value and the change in price of the underlying stock at a given point in time. See: Delta
 
Hedgie
  Slang for a hedge fund.
 
Hedging
  A strategy designed to reduce investment risk using call options, put options, short selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by reducing the risk of loss.
 
Hedging demands
  Demands for securities to hedge particular sources of consumption risk, beyond the usual mean-variance diversification motivation.
 
Held at the opening
  Used for listed equity securities. Not open for trading due to specialist or regulators disallowing trading to occur until imbalances dissipate or news is allowed to disseminate.
 
Held order
  Used for listed equity securities. Order which must be executed without hesitation (market held - Hit the bid or take the offer in line) or if the stock can be bought or sold at that price (held limit order) in sufficient quantity.
 
Hell-or-high-water contract
  A contract that obligates a purchaser of a projects output to make cash payments to the project in all events, even if no product is offered for sale.
 
Helsinki Exchanges (HEX)
  The Helsinki Exchanges (HEX Ltd, Helsinki Securities and Derivatives Exchange and Clearing House) was formed at the beginning of 1998 following the merger of the Helsinki Stock Exchange Ltd and SOM Ltd, the Securities and Derivatives Exchange and the Clearing House.
 
Herstatt risk
  The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
 
HEX
  See: Helsinki Exchange
 
H-H page
  Quotron display page that shows new listed inquiries/orders received after the block call.
 
High-coupon bond refunding
  Refunding of a high-coupon bond with a new, lower coupon bond.
 
High flyer
  Used in the context of general equities. High-priced and highly speculative stock that moves up and down sharply over a short period. Generally glamorous in nature due to the capital gains potential associated with them; also used to describe any high-priced stock. Antithesis of sleeper.
 
Highly leveraged transaction (HLT)
  Bank loan to a highly leveraged firm.
 
High price
  The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.
 
High-yield bond
  See: junk bond.
 
Historical cost
  Terminology for the accounting cost that is carried in the books for a current cost of the item.
 
Historical exchange rate
  An accounting term that refers to the exchange rate in effect when an asset or liability was acquired.
 
Hit the bid
  A dealer who agrees to sell at the bid price quoted by another dealer is said to hit that bid. Antithesis of take the offer.
 
Hit the ribbon
  Used in the context of general equities. See: Print
 
HKFE
  See: Hong Kong Futures Exchange
 
HLT
  See: Highly Leveraged Transaction
 
Holder of record date
  The date on which holders of record in a firms stock ledger are designated as the recipients of either dividends or stock rights. Also called date of record.
 
Holding company
  A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
 
Holding period
  Length of time that an individual holds a security.
 
Holding period return
  The rate of return over a given period.
 
Homemade dividend
  Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.
 
Homemade leverage
  Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can duplicate the affects of corporate leverage on their own. Thus, if levered firms are priced too high, rational investors will simply borrow on personal accounts to buy shares in unlevered firms.
 
Home run
  Used in the context of general equities. Large capital gain in a stock in a short period of time.
 
Homogeneity
  The degree to which items are similar.
 
Homogeneous
  Exhibiting a high degree of homogeneity.
 
Homogenous expectations assumption
  An assumption of Markowitz portfolio construction that investors have the same expectations with respect to the inputs that are used to derive efficient portfolios: asset returns, variances, and covariances.
 
Hong Kong Futures Exchange (HKFE)
  Established in 1976, the Hong Kong Futures Exchange (H.K.F.E.) operates futures and options markets in index, stock, interest rate and foreign exchange products.
 
Horizon analysis
  An analysis of returns using total return to assess performance over some investment horizon.
 
Horizon return
  Total return over a given horizon.
 
Horizontal acquisition
  Merger between two companies producing similar goods or services.
 
Horizontal analysis
  The process of dividing each expense item of a given year by the same expense item in the base year. This allows for the exploration of changes in the relative importance of expense items over time and the behavior of expense items as sales change.
 
Horizontal merger
  A merger involving two or more firms in the same industry that are both at the same stage in the production cycle; that is two or more competitors.
 
Horizontal spread
  The simultaneous purchase and sale of two options that differ only in their exercise date.
 
Host security
  The security to which a warrant is attached.
 
Hot
  Used in the context of general equities. Active, usually with positive price implications.
 
Hot money
  Money that moves across country borders in response to interest rate differences and that moves away when the interest rate differential disappears.
 
How are you making XXX?
  What is your market in a particular stock? See: quotation
 
Hubris
  An arrogance due to excessive pride and an insolence toward others.
 
Human capital
  The unique capabilities and expertise of individuals.
 
Hurdle rate
  The required return in capital budgeting. E.g. if the project has an expected rate of return greater than the hurdle rate, the project may be accepted.
 
Hybrid
  A package containing two or more different kinds of risk management instruments that are usually interactive.
 
Hybrid security
  A convertible security whose optioned common stock is trading in a middle range, causing the convertible security to trade with the characteristics of both a fixed-income security and a common stock instrument.

I
  Fifth letter of a NASDAQ stock symbol specifying that it is the third preferred bond of the company.
 
IBES
  See: Institutional Brokers Estimate System
 
IBF
  See: International Banking Facility
 
IBRD
  See: International Bank for Reconstruction and Development
 
IC
  See: Information Coefficient
 
Idiosyncratic Risk
  Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words, the risk that is firm specific and can be diversified through holding a portfolio of stocks.
 
IDR
  See: International Depository Receipt
 
IFC
  See: International Finance Corporation
 
I-I page
  Refers to over-the-counter trading. Same as H-H page, but exclusively for O.T.C. Stocks.
 
Imbalance of orders
  Used for listed equity securities. Too many market orders of one kind -- to buy or to sell or limit orders to buy up or sell down, without matching orders of the opposite kind. An imbalance usually follows a dramatic event such a takeover, research recommendation, death of a key executive, or a government ruling that will significantly affect the company's business. If it occurs before the stock exchange opens, trading in the stock is delayed. If it occurs during the trading day, the specialist halts and then suspends trading (with floor governors approval) until enough matching orders can be found to make an orderly market.
 
IMF
  See: International Monetary Fund
 
IMM
  See: International Monetary Market
 
Immediate or cancelled order (IOC order)
  Used in the context of general equities. Market or limited price order which is to be executed in whole or in part as soon as such order is represented in the trading crowd. The portion not executed is to be treated as cancelled. A stop is considered an execution in this context. See: A.O.N. order, F.O.K. order.
 
Immediate settlement
  Delivery and settlement of securities within five business days.
 
Immunization
  The construction of an asset and a liability that are subject to offsetting changes in value.
 
Immunization strategy
  A bond portfolio strategy whose goal is to eliminate the portfolios risk against a general change in the rate of interest through the use of duration.
 
Implied call
  The right of the homeowner to prepay, or call, the mortgage at any time.
 
Implied repo rate
  The rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date. Related: cheapest to deliver issue
 
Implied volatility
  The expected volatility in a stocks return derived from its option price, maturity date, exercise price, and riskless rate of return, using an option-pricing model such as Black/Scholes.
 
Import-substitution development strategy
  A development strategy followed by many Latin American countries and other L.D.C.s that emphasized import substitution - accomplished through protectionism - as the route to economic growth.
 
Imputation tax system
  Arrangement by which investors who receive a dividend also receive a tax credit for corporate taxes that the firm has paid.
 
In & out
  Refers to over-the-counter trading. Trade in which the trader has both the buyers and sellers lined up for a clean trade. See: cross
 
In between
  Used in the context of general equities. Priced higher than the bid price but lower than the offer price. See: in the middle
 
Income beneficiary
  One who receives income from a trust.
 
Income bond
  A bond on which the payment of interest is contingent on sufficient earnings. These bonds are commonly used during the reorganization of a failed or failing business.
 
Income fund
  A mutual fund providing for liberal current income from investments.
 
Income statement (statement of operations)
  A statement showing the revenues, expenses, and income (the difference between revenues and expenses) of a corporation over some period of time.
 
Income stock
  Common stock with a high dividend yield and few profitable investment opportunities.
 
In competition
  Indication that the customer has shown his interest to multiple brokers and that the trade will take place with the firm having the highest bid or lowest offer. Antithesis of exclusive.
 
Incremental cash flows
  Difference between the firms cash flows with and without a project.
 
Incremental costs and benefits
  Costs and benefits that would occur if a particular course of action were taken compared to those that would occur if that course of action were not taken.
 
Incremental internal rate of return
  Internal rate of return (I.R.R.) on the incremental investment from choosing a large project instead of a smaller project.
 
Indenture
  Agreement between lender and borrower which details specific terms of the bond issuance. Specifies legal obligations of bond issuer and rights of bondholders. Document spelling out the specific terms of a bond as well as the rights and responsibilities of both the issuer of the security and the holder.
 
Independent project
  A project whose acceptance or rejection is independent of the acceptance or rejection of other projects.
 
Index
  Often applies to derivative products. Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month. Most relevantly, indices measure the ups and downs of stock, bond , and some commodities markets, reflecting market prices and weighing of the companies on the index.
 
Index and Option Market (IOM)
  A division of the C.M.E. established in 1982 for trading stock index products and options. Related: Chicago Mercantile Exchange (C.M.E.).
 
Index arbitrage
  An investment/trading strategy that exploits divergences between actual and theoretical futures prices. For example, the simultaneous buying (selling) of stock index futures (i.e., S&P 500) while selling (buying) the underlying stocks of that index, capturing as profit the temporarily-inflated basis between these two baskets. Often, the point where profitability exists is expressed at the block call as a number of points the future must be over or under the underlying basket for an arbitrage opportunity to exist. See: program trading
 
Indexed bond
  Bond whose payments are linked to an index, e.g. the consumer price index.
 
Index fund
  Investment fund designed to match the returns on a stock market index. Mutual fund whose portfolio matches that of a broad-based index such as the S&P 500 and whose performance therefore mirrors the market as represented by that index.
 
Indexing
  A passive instrument strategy consisting of the construction of a portfolio of stocks designed to track the total return performance of an index of stocks.
 
Indexing plus
  See: Enhanced indexing
 
Index model
  A model of stock returns using a market index such as the S&P 500 to represent common or systematic risk factors.
 
Index option
  A call or put option based on a stock market index.
 
Index warrant
  A stock index option issued by either a corporate or sovereign entity as part of a security offering, and guaranteed by an option clearing corporation.
 
Indicated dividend
  Total amount of dividends that would be paid on a share of stock over the next 12 months if each dividend were the same amount as the most recent dividend. Usually represent by the letter e in stock tables.
 
Indicated yield
  The yield, based on the most recent quarterly rate times four. To determine the yield, divide the annual dividend by the price of the stock. The resulting number is represented as a percentage. See: dividend yield.
 
Indication
  1) Notice given by a dealer (through Autex ) or customer of his interest in buying or selling stock, sometimes including specific volume and price; 2) approximation of where a specialist sees buy and sell interest to tighten the range to an opening price.
 
Indicator
  Used in the context of general equities. Technical or fundamental measurement securities analysts use to forecast the markets direction, such as investment advisory sentiment, volume of stock trading, direction of interest rates, and buying or selling or corporate insiders.
 
Indifference curve
  The graphical expression of a utility function, where the horizontal axis measures risk and the vertical axis measures expected return. The curve connects all portfolios with the same utilities.
 
Indirect quote
  For foreign exchange, the number of units of a foreign currency needed to buy one U.S.dollar.
 
Inductive reasoning
  The attempt to use information about a specific situation to draw a conclusion.
 
Industrial revenue bond (IRB)
  A bond issued by local government agencies on behalf of corporations.
 
Industry
  The category describing a company's primary business activity. This category is usually determined by the largest portion of revenue.
 
Inflation
  The rate at which the general level of prices for goods and services is rising.
 
Inflation-escalator clause
  A clause in a contract providing for increases or decreases in inflation based on fluctuations in the cost of living, production costs, and so forth.
 
Inflation risk
  Also called purchasing-power risk, the risk that changes in the real return the investor will realize after adjusting for inflation will be negative.
 
Inflation uncertainty
  The fact that future inflation rates are not known. It is a possible contributing factor to the makeup of the term structure of interest rates.
 
Informational efficiency
  The speed and accuracy with which prices reflect new information.
 
Information asymmetry
  A situation involving information that is known to some, but not all, participants.
 
Information Coefficient (IC)
  The correlation between predicted and actual stock returns, sometimes used to measure the value of a financial analyst. An I.C. of 1.0 indicates a perfect linear relationship between predicted and actual returns, while an I.C. of 0.0 indicates no linear relationship.
 
Information-content effect
  The rise in the stock price following the dividend signal.
 
Information costs
  Transaction costs that include the assessment of the investment merits of a financial asset. Related: search costs.
 
Informationless trades
  Trades that are the result of either a reallocation of wealth or an implementation of an investment strategy that only utilizes existing information.
 
Information-motivated trades
  Trades in which an investor believes he or she possesses pertinent information not currently reflected in the stocks price.
 
Information services
  Organizations that furnish investment and other types of information, such as information that helps a firm monitor its cash position.
 
In hand
  Used in the context of general equities. Firm, indicating control of a bid, offer, or order.
 
In-house
  Used in the context of general equities. Keeping an activity within the firm. For example, rather than go to the marketplace and sell a security for a client to anyone, an attempt is made to find a buyer to complete the transaction with the firm. Although a listed trade must be brought to the floor of the stock exchange, matching supply with demand within the confines of the firm results in greater commissions for the firm.
 
In-house processing float
  Refers to the time it takes the receiver of a check to process the payment and deposit it in a bank for collection.
 
Initial margin
  Used in the context of general equities. 1) Amount of money deposited by both buyers and sellers of futures contracts to ensure performance of the terms of the contract; 2) amount of cash or eligible securities required to be deposited with a broker before engaging in margin transactions.
 
Initial margin requirement
  When buying securities on margin, the proportion of the total market value of the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the Board of Governors of the Federal Reserve the responsibility to set initial margin requirements, but individual brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by the exchange.
 
Initial public offering (IPO)
  A company's first sale of stock to the public. Securities offered in an I.P.O. are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in I.P.O.s generally must be prepared to accept very large risks for the possibility of large gains. I.P.O.s by investment companies (closed-end funds) usually contain underwriting fees which represent a load to buyers.
 
Initiate coverage
  1. Firm is now followed by analysts at a particular securities house. 2. Indication to cover short position by purchasing the underlying stock (this cancels out the short position).
 
In-line
  Used in the context of general equities. 1) An order or market in a specific security which lies within the inside market; 2) any announcement (earnings) that adheres closely to Wall Street analysts expectations.
 
In play
  Often used in risk arbitrage. Company that has become the target of a takeover, and whose stock has now become a speculative issue.
 
Input-output tables
  Tables that indicate how much each industry requires of the production of each other industry in order to produce each dollar of its own output.
 
Inquiry
  Used in the context of general equities. In-line expression of interest in a particular stock, usually asking the firm to bid for or offer stock.
 
Inside market
  Refers to over-the-counter trading. Best (highest) bid and best (lowest) offer, often used in the O.T.C. Market. See: in-line
 
Insider information
  Material information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.
 
Insiders
  These are directors and senior officers of a corporation -- in effect those who have access to inside information about a company. An insider also is someone who owns more than 10% of the voting shares of a company.
 
Insider trading
  Trading by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock.
 
Insolvency risk
  The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
 
Insolvent
  A firm that is unable to pay debts (liabilities are greater than assets).
 
Installment sale
  The sale of an asset in exchange for a specified series of payments (the installments).
 
Instinet (Institutional Networks Corporation)
  Computerized subscriber service that serves as a vehicle for the fourth market. Instinet is registered with the S.E.C. As a stock exchange if numbers among its subscribers a large number of mutual funds and other institutional investors linked to each other by computer terminals. The system permits subscribers to display bids and offers (which are exposed system-wide for whatever length of time the initiating party specifies) and to consummate trades electronically. Instinet is largely used by market-makers, but, as mentioned, non-market-makers and customers have equal access.
 
Institutional Brokers Estimate System (IBES)
  Service which assembles analysts estimates of future earnings for thousands of publicly-traded companies, detailing how many estimates are available for each company and the high, low, and average estimates or each.
 
Institutional investors
  Organizations that invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds.
 
Institutionalization
  The gradual domination of financial markets by institutional investors, as opposed to individual investors. This process has occurred throughout the industrialized world.
 
Instruments
  Financial securities, such as money market instruments or capital market instruments.
 
In-substance defeasance
  Defeasance whereby debt is removed from the balance sheet but not cancelled.
 
Insurance principle
  The law of averages. The average outcome for many independent trials of an experiment will approach the expected value of the experiment.
 
Insured bond
  A municipal bond backed both by the credit of the municipal issuer and by commercial insurance policies.
 
Insured plans
  Defined benefit pension plans that are guaranteed by life insurance products. Related: non-insured plans
 
Intangible asset
  A legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual property, patents, copyrights, and trademarks are examples of intangible assets.
 
Integer programming
  Variant of linear programming whereby the solution values must be integers.
 
Intercompany loan
  Loan made by one unit of a corporation to another unit of the same corporation.
 
Intercompany transaction
  Transaction carried out between two units of the same corporation.
 
Interest
  The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property.
 
Interest coverage ratio
  The ratio of the earnings before interest and taxes to the annual interest expense. This ratio measures a firms ability to pay interest.
 
Interest coverage test
  A debt limitation that prohibits the issuance of additional long-term debt if the issuers interest coverage would, as a result of the issue, fall below some specified minimum.
 
Interest equalization tax
  Tax on foreign investment by residents of the U.S. which was abolished in 1974.
 
Interest expense
  In a corporate setting, interest expense is the money the company or corporation pays out in interest on loans.
 
Interest on interest
  Interest earned on reinvestment of each interest payment on money invested. See: compound interest.
 
Interest-only strip (IO)
  A security based solely on the interest payments form a pool of mortgages, Treasury bonds, or other bonds. Once the principal on the mortgages or bonds has been repaid, interest payments stop and the value of the IO falls to zero.
 
Interest payments
  Contractual debt payments based on the coupon rate of interest and the principal amount.
 
Interest rate
  The monthly effective interest rate. For example, the periodic rate on a credit card with an 18% annual percentage rate is 1.5% per month.
 
Interest rate agreement
  An agreement whereby one party, for an upfront premium, agrees to compensate the other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined level (the strike rate).
 
Interest rate cap
  Also called an interest rate ceiling, an interest rate agreement in which payments are made when the reference rate exceeds the strike rate.
 
Interest rate ceiling
  See: interest rate cap.
 
Interest rate floor
  An interest rate agreement in which payments are made when the reference rate falls below the strike rate. Related: Interest rate cap
 
Interest rate on debt
  The firms cost of debt capital.
 
Interest rate parity theorem
  Interest rate differential between two countries is equal to the difference between the forward foreign exchange rate and the spot rate.
 
Interest rate risk
  The risk that a securitys value changes due to a change in interest rates. For example, a bonds price drops as interest rates rise. For a depository institution, also called funding risk, the risk that spread income will suffer because of a change in interest rates.
 
Interest rate swap
  A binding agreement between counterparties to exchange periodic interest payments on some predetermined dollar principal, which is called the notional principal amount. For example, one party will pay fixed and receive variable.
 
Interest subsidy
  A firms deduction of the interest payments on its debt from its earnings before it calculates its tax bill under current tax law.
 
Interest tax shield
  The reduction in income taxes that results from the tax-deductibility of interest payments.
 
Intermarket sector spread
  The spread between the interest rate offered in two sectors of the bond market for issues of the same maturity.
 
Intermarket spread swaps
  An exchange of one bond for another based on the managers projection of a realignment of spreads between sectors of the bond market.
 
Intermarket trading system (ITS)
  Electronic communications network linking the trading floors of seven registered exchanges to permit trading among them in stocks listed on either the N.Y.S.E. or A.M.E.X. and one or more regional exchanges. Through I.T.S., any broker or market-maker on the floor of any participating exchange can reach out to other participants for an execution whenever the nationwide quote shows a better price available. A floor broker on the exchange can enter an I.T.S. order to assure that he will get all of an offering or bid, instead of splitting it up with competing brokers.
 
Intermediate-term
  Typically 1-10 years.
 
Intermediation
  Investment through a financial institution. Related: disintermediation.
 
Internal finance
  Finance generated within a firm by retained earnings and depreciation.
 
Internal growth rate
  Maximum rate a firm can expand without outside sources of funding. Growth generated by cash flows retained by company.
 
Internally efficient market
  See: Operationally efficient market.
 
Internal market
  The mechanisms for issuing and trading securities within a nation, including its domestic market and foreign market. Compare: external market.
 
Internal measure
  The number of days that a firm can finance operations without additional cash income.
 
Internal rate of return (IRR)
  Dollar-weighted rate of return. Discount rate at which net present value (N.P.V.) investment is zero. The rate at which a bonds future cash flows, discounted back to today, equals its price.
 
International arbitrage
  Simultaneous buying and selling of foreign securities and A.D.R.s to capture the profit potential created by time, currency, and settlement inconsistencies that vary across international borders.
 
International Bank for Reconstruction and Development (IBRD)
  International Bank for Reconstruction and Development or World Bank makes loans at nearly conventional terms to countries for projects of high economic priority.
 
International Banking Facility (IBF)
  International Banking Facility. A branch that an American bank establishes in the United States to do Eurocurrency business.
 
International bonds
  A collective term that refers to global bonds, Eurobonds, and foreign bonds.
 
International Depository Receipt (IDR)
  A receipt issued by a bank as evidence of ownership of one or more shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the I.D.R. structure is that the corporation does not have to comply with all the regulatory issuing requirements of the foreign country where the stock is to be traded. The U.S. version of the I.D.R. is the American Depository Receipt (A.D.R.).
 
International diversification
  The attempt to reduce risk by investing in the more than one nation. By diversifying across nations whose economic cycles are not perfectly correlated, investors can typically reduce the variability of their returns.
 
International Finance Corporation (IFC)
  A corporation owned by the World Bank that produces a number of well known stock indexes for emerging markets.
 
International finance subsidiary
  A subsidiary incorporated in the U.S., usually in Delaware, whose sole purpose was to issue debentures overseas and invest the proceeds in foreign operations, with the interest paid to foreign bondholders not subject to U.S. withholding tax. The elimination of the corporate withholding tax has ended the need for this type of subsidiary.
 
International Fisher effect
  States that the interest rate differential between two countries should be an unbiased predictor of the future change in the spot rate.
 
International fund
  A mutual fund that can invest only outside the United States.
 
International market
  Related: external market.
 
International Monetary Fund (IMF)
  An organization founded in 1944 to oversee exchange arrangements of member countries and to lend foreign currency reserves to members with short-term balance of payment problems.
 
International Monetary Market (IMM)
  A division of the C.M.E. established in 1972 for trading financial futures. Related: Chicago Mercantile Exchange (C.M.E.).
 
International Security Market Association (ISMA)
  Swiss law association located in Zurich that regroups all the participants on the Eurobond primary and secondary markets. Establishes uniform trading procedures in the international bond markets.
 
International Swap Dealers Association (ISDA)
  Formed in 1985 to promote uniform practices in the writing, trading, and settlement of swaps and other derivatives.
 
In the box
  This means that a dealer has a wire receipt for securities indicating that effective delivery on them has been made.
 
In the hole
  Used in the context of general equities. Below the inside market when one is attempting to sell the stock; at a significant discount. Antithesis of premium.
 
In the middle
  Used in the context of general equities. At a price exactly in between the bid and offer prices.
 
In-the-money
  A put option that has a strike price higher than the underlying futures price, or a call option with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in-the-money by $0.50 an ounce. Related: put. Antithesis of Out of the money.
 
In the tank
  Used in the context of general equities. Slang expression meaning market prices are dropping rapidly.
 
In touch with
  Used in the context of general equities. Having a sell inquiry in a stock (not a firm customer sell order), often entailing a capital commitment. Antithesis of looking for.
 
Intramarket sector spread
  The spread between two issues of the same maturity within a market sector. For instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility corporate bonds.
 
Intrinsic value of a firm
  The present value of a firms expected future net cash flows discounted by the required rate of return.
 
Intrinsic value of an option
  The amount by which an option is in-the-money. An option which is not in-the-money has no intrinsic value.
 
Inventory
  For companies: Raw materials, items available for sale or in the process of being made ready for sale. They can be individually valued by several different means, including cost or current market value, and collectively by (First-in-first-out) F.I.F.O., (Last-in-first-out) L.I.F.O. or other techniques. The lower value of alternatives is usually used to preclude overstating earnings and assets. For security firms: securities bought and held by a broker or dealer for resale.
 
Inventory loan
  A secured short-term loan to purchase inventory. The three basic forms are a blanket inventory lien, a trust receipt, and field warehousing financing.
 
Inventory turnover
  The ratio of annual sales to average inventory which measures the speed that inventory is produced and sold. Low turnover is an unhealthy sign, indicating excess stocks and/or poor sales.
 
Inverse floating rate note
  A variable rate security whose coupon rate increases as a benchmark interest rate declines.
 
Inverted market
  A futures market in which the nearer months are selling at price premiums to the more distant months. Related: premium.
 
Investment analysts
  Related: financial analysts
 
Investment bank
  Financial intermediaries who perform a variety of services, including aiding in the sale of securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and institutional clients, and trading for their own accounts. See: Underwriters.
 
Investment decisions
  Decisions concerning the asset side of a firms balance sheet, such as the decision to offer a new product.
 
Investment grade bonds
  A bond that is assigned a rating in the top four categories by commercial credit rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys classifies investment grade bonds as Ba or higher. Related: High-yield bond.
 
Investment income
  The revenue from a portfolio of invested assets.
 
Investment management
  Also called portfolio management and money management, the process of managing money.
 
Investment manager
  Also called a portfolio manager and money manager, the individual who manages a portfolio of investments.
 
Investment product line (IPL)
  The line of required returns for investment projects as a function of beta (nondiversifiable risk).
 
Investments
  As a discipline, the study of financial securities, such as stocks and bonds, from the investors viewpoint. This area deals with the firms financing decision, but from the other side of the transaction.
 
Investment tax credit
  Proportion of new capital investment that can be used to reduce a company's tax bill (abolished in 1986).
 
Investment trust
  A closed-end fund regulated by the Investment Company Act of 1940. These funds have a fixed number of shares which are traded on the secondary markets similarly to corporate stocks. The market price may exceed the net asset value per share, in which case it is considered at a premium. When the market price falls below the (N.A.V.)/share, it is at a discount. Many closed-end funds are of a specialized nature, with the portfolio representing a particular industry, country, etc. These funds are usually listed on US and foreign exchanges.
 
Investment value
  Mainly applies to dealer securities. Fixed income value of a convertible, the price at which the convert would have to sell as a straight debt instrument relative to the yield of other bonds of like maturity, size and quality; represents a presumed floor to the bond, allowing, of course, for the continued credit worthiness of the issuer and the general level of interest rates. Bond value. See: conversion value
 
Investor
  The owner of a financial asset.
 
Investor fallout
  In the mortgage pipeline, risk that occurs when the originator commits loan terms to the borrowers and gets commitments from investors at the time of application, or if both sets of terms are made at closing.
 
Investor relations
  The process by which the corporation communicates with its investors.
 
Investors equity
  The balance of a margin account. Related: buying on margin, initial margin requirement.
 
Invoice
  Bill written by a seller of goods or services and submitted to the purchaser for payment.
 
Invoice billing
  Billing system in which the invoices are sent off at the time of customer orders and are all separate bills to be paid.
 
Invoice date
  Usually the date when goods are shipped. Payment dates are set relative to the invoice date.
 
Invoice price
  The price that the buyer of a futures contract must pay the seller when a Treasury Bond is delivered.
 
Involuntary liquidation preference
  A premium that must be paid to preferred or preference shareholders if the issuer of the stock is forced into involuntary liquidation.
 
IO
  See: Interest Only Strip
 
IOC order
  See: Immediate or cancelled order
 
IOM
  See: Index and option market
 
IPL
  See: Investment Product Line
 
IPO
  See: Initial Public Offering
 
IRA/Keogh accounts
  Special accounts where you can save and invest, and the taxes are deferred until money is withdrawn. These plans are subject to frequent changes in law with respect to the deductibility of contributions. Withdrawals of tax deferred contributions are taxed as income, including the capital gains from such accounts.
 
IRB
  See: Industrial Revenue Bond
 
IRR
  See: Internal rate of return
 
Irrational call option
  The implied call imbedded in the M.B.S.. Identified as irrational because the call is sometimes not exercised when it is in the money (interest rates are below the threshold to refinance). Sometimes exercised when not in the money (some sold without regard to the relative level of interest rates).
 
Irrelevance result
  The Modigliani and Miller theorem that a firms capital structure is irrelevant to the firms value.
 
ISDA
  See: International Swap Dealers Association
 
ISMA
  See: International Security Market Association
 
Issue
  A particular financial asset.
 
Issued share capital
  Total amount of shares that are in issue. Related:outstanding shares.
 
Issuer
  An entity that issues a financial asset.
 
ITS
  See: Intermarket trading system
 
Its us
  Used in the context of general equities. The firm, and not a customer, is the party involved. Profile.

J
  Fifth letter of a NASDAQ stock symbol specifying that it is the voting stock of the company.
 
Japanese Association of Securities Dealers Automated Quotation System (JASDAQ)
  Japanese equivalent of N.A.S.D.A.Q..
 
JASDAQ
  See: Japanese Association of Securities Dealers Automated Quotation System
 
J-curve
  Theory that says a countrys trade deficit will initially worsen after its currency depreciates because higher prices on foreign imports will more than offset the reduced volume of imports in the short-run.
 
Jensen index
  An index that uses the capital asset pricing model to determine whether a money manager outperformed a market index. The alpha of an investment or investment manager.
 
Johannesburg Stock Exchange (JSE)
  Established in 1886, the Johannesburg Stock Exchange (J.S.E.) is the only stock exchange in South Africa. Gold and mining stocks form the majority of shares listed.
 
Joint account
  An agreement between two or more firms to share risk and financing responsibility in purchasing or underwriting securities.