Accounting & Investement Dictionary
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An alphabetical listing of General terms and items. |
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Fifth letter of Nasdaq stock symbol specifying issue is the company's first class of preferred shares.
Stands for principal and interest on bonds or mortgage-backed securities.
Profit and loss statement for a trader.
Purchase and sale statement. A statement provided by the broker showing change in the customer's net ledger balance after the offset of any previously established positions.
Refers to west coast listed equity securities. See: Pacific Stock Exchange.
See: Price/earnings ratio
That portfolios with low P/E stocks exhibit higher average risk-adjusted returns than those with high P/E stocks. Related: Value manager.
Current stock price divided by trailing annual earnings per share or expected annual earnings per share. Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25.50 = 10 times $2.55. XYZ stock sells for ten times earnings.
Business slang, usually used in reference to startups or internet startup, refers to "path to profitability."
See: Planned amortization class
Stands for Planned Amortization Class bond. A tranche class offered by some CMOs that has a sinking fund schedule and an ability to make principal payments that are not subordinated to other classes.
Takeover defense strategy in which the prospective acquiree retaliates against the acquirer's tender offer by launching its own tender offer for the other firm.
Used for listed equity securities. Regional exchange located in Los Angeles and San Francisco; only U.S. exchange open between 4:00 and 4:30.
A mortgage on a house and property in the house.
See: Preauthorized electronic debits
See: Paid-in capital
When all payments that are due have been made.
Capital received from investors in exchange for stock, but not stock from capital generated from earnings or donated. This account includes capital stock and contributions of stockholders credited to accounts other than capital stock. It would also include surplus resulting from recapitalization.
A life insurance policy in which all premiums that are due have been paid.
Illegal practice by traders who manipulate the market by buying and selling a security to create the illusion of high trading activity and to attract other traders who may push up the price.
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Used for listed equity securities. Matched buy and sell market orders, usually pertaining to the pre-opening market picture in a stock, or MOC orders (especially relating to futures/options expirations).
Stock of two companies under the same management that are sold as one unit with one certificate.
A buyback to offset and effectively liquidate a prior sale of securities.
Rapid trading of stocks or bonds in high volume in anticipation of sharply rising or falling prices, usually after unexpected news is released.
Money market instruments, commercial paper, and other.
A brokerage firm that buys and sells commercial paper to make a profit.
Unrealized capital gain (loss) on securities held in a portfolio based on a comparison of current market price to original cost.
Equal to the nominal or face value of a security. A bond selling at par is worth an amount equivalent to its original issue value or its value upon redemption at maturity-typically $1000/bond. See: Discount, premium.
A bond trading at its face value.
Also called the maturity value or face value; the amount that an issuer agrees to pay at the maturity date.
The official exchange rate between two countries' currencies.
Stock that has a nominal value assigned to it in the corporation's charter and printed on the face of each share of stock.
A process whereby two companies in different countries borrow each other's currency for a specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing foreign exchange risk. Also referred to as back-to-back loans.
A shift in economic conditions in which the change in the interest rate on all maturities is the same number of basis points. In other words, if the three month T-bill increases 100 basis points (one %), then the 6-month, 1-year, 5-year, 10-year, 20-year, and 30-year rates all increase by 100 basis points as well. Related: Non-parallel shift in the yield curve.
A model is a combination of variables, such as GDP growth, and coefficients which multiply these variables. The coefficients are often estimated from the data. The coefficients are called parameters.
A company that owns or maintains control over other companies, known as subsidiaries, which are themselves separate legal entities; control generally refers to more than 50 percent ownership of the stock of another company.
National stock market of France.
The deposit rate on interbank transactions in the Eurocurrency market quoted in Paris.
For convertibles, level at which a convertible security's market price equals the aggregate value of the underlying common stock; value/worth of the convertible bond considered only as an equity instrument (Conversion ratio times common price). See: Conversion value. For international parity, US$ price of a foreign stock's last sale in an overseas market (Local currency stock price times forex rate times ADR ratio). For listed parity, condition whereby no party has floor priority, and matching thus occurs. For options parity, dollar amount by which an option is in the money. See: Intrinsic value.
Related: Conversion value
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Putting money into safe investments such as money market investments while deciding where to invest the money.
Often used in risk arbitrage. Illegal holding of stock by a third party, or the financing of such a stock, in which the third party's sole reason for holding the stock is to conceal ownership or control of a raider, thus sidestepping the Williams Act requirements of 5% holding limits. See: Rule 13d.
Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually made to avoid a compromise in price and also to get some business instead of losing the customers inquiry/order to a competitor.
Used for listed equity securities. (1) Customer willing to buy/sell in line with market. (2) Buyer/seller who goes along with another buyer/seller in a percentage order.
Preferred stock that can be converted into common stock at the option of the holder. In contrast, to the usual preferred stock, the value of the preferred stock is refunded to the holder. That is, one gets conversion plus the value of the stock.
Dividend received from ownership of participating preferred stock.
The portion of total fees in a syndicated credit that go to the participating banks.
A guaranteed investment contract whose policyholder is not guaranteed a crediting rate, but instead receives a return based on the actual experience of the portfolio managed by the life insurance company.
Life insurance that pays dividends to policyholders depending on the company's success as provided by few claims and profitable underwritings and investments.
Preferred stock that provides the holder with a specified dividend plus the right to additional earnings under specified conditions.
Used in the context of general equities. Investments representing an interest in a pool of funds or in other instruments, such as foreign securities, that allow participation in the rise or fall of a security or group of securities.
A large loan made by a group of lenders, that enables a borrower to obtain financing above the legal lending limit of an individual lender.
Business associate who shares equity in a firm.
An association of two or more individuals or organizations to carry on economic activity.
A legal agreement between partners; it usually specifies, among other things, the capital contributions to be made by each partner, the ratios in which partnership earnings and losses will be distributed, the management responsibilities of the partners, and the partners' rights to transfer or sell their individual interests.
The process of transferring responsibility for a brokerage firm's trading account from one office to another around the world in order to benefit from trading 24 hours a day.
The interest rate paid on a securitized pool of assets, which is less than the rate paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.
The net interest rate passed through to investors after deducting servicing, management, and guarantee fees from the gross mortgage coupon.
A pool of fixed income securities backed by a package of assets (i.e., mortgages) where the holder receives the principal and interest payments. Related: Mortgage pass-through security
Income or loss from business activities in which a person does not materially participate, such as a limited partnership.
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A loss incurred in participating in passive investing.
A bond without any interest yield.
An investment that favors passive income, such as an income-oriented real estate limited partnership.
Putting money into a profitable business opportunity that is deemed passive by the IRS and thus benefits from tax deductions.
Buying a well diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
See: Passive investment management.
A market index portfolio.
A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities. Related: Active portfolio strategy.
An exclusive right granted for 17 years by the federal government to manufacture and sell an invention.
An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.
A technical chart formation used to make market predictions by following the price movements of securities.
A method of paying income tax in which the employer deducts a portion of an employee's monthly salary to remit to the IRS.
In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold. In the context of general equities, paying a lower price in an accumulation of stock. Antithesis of pay-up.
Attempts by municipal bond underwriting businesses to gain influence with political officials who decide which underwriters are awarded the municipality's business.
The loss of cash resulting from a swap into higher-priced bonds or the need/willingness of a bank or other borrower to pay a higher rate of interest to get funds. Used in the context of general equities. (1) When an investor who wants to buy a stock at a particular price hesitates and the stock begins to rise; instead of letting the stock go, he "pays up" to buy the shares at the higher prevailing price. (2) Buy shares in a high-quality company at what is felt to be a high, but supportable, price due to its quality.
A method of making payment that is used to maintain control over payments made on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft to the payer, which must approve it and return it to the bank before payment can be received.
Related: Accounts payable
The length of time it takes to recover the initial cost of a project, without regard to the time value of money.
The person (entity) to whom payment on a note is to be made.
The person making a payment to a payee.
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An agent who makes principal and interest payments to bondholders on behalf of the issuer.
The date on which shareholders of record will be sent a check for the declared dividend.
Company-written checks that have not yet cleared.
A bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or in the form of additional bonds.
Reducing fund transfers between affiliates to only a netted amount. Netting can occur on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).
Describes the collection pattern of receivables. The pattern might describe the probability that a 72-day-old account will still be unpaid when it is 73 days-old.
In option pricing, a graph of the value of the option position at expiration as a function of the underlying asset price.
Generally, the proportion of earnings paid out to the common stockholders as cash dividends. More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.
An amount subtracted from a paycheck as the government requires or the employee requests. Mandatory deductions include various taxes. Voluntary deductions include loan payments or deposits into saving accounts.
See: Pension Benefit Guaranty Corporation
See: Participation certificates.
The high point at the end of an economic expansion until the start of a contraction.
The argument that external financing transactions costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated funds are the most preferred, followed by new debt, and debt-equity hybrids. Finally, new equity is at the least preferred source.
See: Private Export Funding Corporation
See: Prospective earnings growth ratio
Making transactions in a security, currency, or commodity in order to stabilize or target its value through market intervention.
A clause found in contract agreements that provides for a penalty in the event of default.
A chart pattern resembling a pointed flag, with the point facing to the right, which shows a diminishing variance of price.
Used in the context of general equities. Stock that typically sells for less than $1 a share, although it may rise to as much as $10/share after the initial public offering, usually because of heavy promotion. All are traded OTC, many of them in the local markets of Denver, Vancouver, or Salt Lake City.
A federal agency that insures the vested benefits of pension plan participants (established in 1974 by the ERISA legislation).
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A fund set up to pay the pension benefits of a company's workers after retirement.
A form of poison pill providing that in the event of a hostile takeover attempt, any excess pension plan assets can be used to benefit pension plan participants. This prevents the raiding firm from using the pension assets to finance the takeover.
A contract between a company and it employees whereby the company agrees to pay benefits to employees after their retirement.
Termination of an overfunded defined benefit pension plan and replacement of it with a life insurance company-sponsored fixed annuity plan.
Organizations that have established a pension plan.
The second-lowest-priced of the ten highest-yielding stocks in the Dow Jones Industrial Average that is said (by authors O'Higgins and Downes) to be the Dow stock with the best possibility of outperforming the average as a whole.
A form of poison pill providing that the entire management threatens to resign in the event of a takeover.
The total bonded debt of a municipality divided by the population of the municipality.
See: Preferred equity redemption stock
Percentage that the stock price has to rise (fall) to double the price of the call (put).
Used for listed equity securities. Market limited price order to buy/sell a specified percentage (usually 50%) of shares traded (sometimes after a fixed number of shares of the stock have already traded). See: participating buyer/seller, "Participate but do not initiate."
Applies mainly to convertible securities. Premium over parity of a convertible bond divided by parity.
A market in which there are never any arbitrage opportunities.
An idealized market environment in which every market participant is too small to affect the market price by acting on its own.
A situation in which the profit and loss from the underlying asset and the hedge position are equal.
Analysis of a firm's capital structure decision, which shows the irrelevance of capital structure in a perfect capital market.
Analysis of a decision on dividend policy, in a perfect capital market environment, that shows the irrelevance of dividend policy.
A first attachment on an asset that is duly recorded with the relevant government body so that the lender will be able to act on it should the borrower default.
Markets in which no trader has the power to change the price of goods or services. Perfect capital markets are characterized by certain conditions: (1) Trading is costless, and access to the financial markets is free; (2)information about borrowing and lending opportunities is freely available; and (3) there are many traders, and no single trader can have a significant impact on market prices.
The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer questions such as: (1) What were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was market timing statistically significant? and (4), was security selection statistically significant?
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A surety bond between two parties, insuring one party against loss if the terms of a contract are not fulfilled.
The assessment of a manager's results, which involves, first, determining whether the money manager added value by outperforming the established benchmark (performance measurement) and, second, determining how the money manager achieved the calculated return (performance attribution analysis).
A growth-oriented mutual fund investing in growth stock and performance stock with low dividends and high risk.
Calculation of the return a money manager realizes over some time interval.
Shares of stock given to managers on the basis of performance as measured by earnings per share and similar criteria. A control device shareholders sometimes use to tie management to the self-interest of shareholders.
High-growth stock in a company that retains earnings for further growth and therefore pays no dividends, but that an investor feels has significant future potential.
The time period of often high volatility after a new issue is released when the trading price of the security is established by the market.
An annuity that provides guaranteed payments to an annuitant for a specified period of time.
A system of accounting for inventory in which cost of goods sold is determined and inventory is adjusted at the end of the accounting period, not when merchandise is purchased or sold.
Accumulation of capital in a mutual fund by making regular payments on a monthly or quarterly basis.
A fixed or variable annuity contract for which fixed-amount premiums are paid either monthly or quarterly, and that does not begin paying out until a time elected by the annuitant.
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.
Principal Exchange-Rated-Linked Securities
Long-term financing using either debt or equity.
Option strategy involving the purchase of options with similar expiration dates and different exercise prices.
Nonredeemable bond with no maturity date that pays regular interest rates indefinitely.
Recordkeeping system in which book inventory is updated daily.
A system of accounting for inventory in which detailed records of the number of units and the cost of each purchase and sales transactions are prepared throughout the accounting period.
Warrants that have no expiration date.
A constant stream of identical cash flows without end, such as a British consol.
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Personal benefits, including direct benefits, such as the use of a firm car or expense account for personal business, and indirect benefits, such as up-to-date office decoration.
Insurance policy attachment designed to cover specified personal valuables.
Amount of money a taxpayer can exclude from personal income for each member of the household in calculation of a tax obligation.
Total income received from all sources, including wages, salaries, or rents, and the like.
The inflation rate as it affects a specific individual.
Any assets other than real estate.
The argument that the difference in personal tax rates between income from debt and income from equity eliminates the disadvantage of the double taxation (corporate and personal) of income from equity.
An interest in an asset held by a trustee for the benefit of another person.
A small amount of cash kept on hand for making miscellaneous payments.
Income from a limited partnership that creates taxability without generating cash flow.
An incentive scheme that awards management bonuses based on increases in the market price of the company's stock.
A subsidiary of the Philadelphia Stock Exchange that trades currency futures.
A securities exchange trading American and European foreign currency options on spot exchange rates.
Stock exchange based in the Philippines, which operates two trading floors, at Manila and Makati.
A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple trade-off between inflation and unemployment (high inflation and low unemployment, and low inflation and high unemployment). Named after A.W. Phillips. Obviously, the relation between these important macroeconomic variables is more complicated than this simple graph would suggest. For a modern treatment, see work of Robert Lucas.
See: Philadelphia Stock Exchange
Transferring money between funds in the same mutual fund family by telephone request. There may be a charge associated with these transfers. Phone switching is also possible among different fund families if the funds are held in street name by a participating broker/dealer.
Physical precautions used to protect assets and records, such as locks on doors, fireproof vaults, password verification, security gauds.
A procedure auditors use to ensure that inventory recorded in the book is correct by actually checking out the physical inventory.
See: Paris Interbank Offer Rate
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The gain in yield that occurs when a block of bonds is swapped for another block of higher-coupon bonds.
A bond with a relatively high coupon that is close to the date at which it is callable, meaning that a fall in interest rates will most likely cause early redemption of the bond at a premium.
Describes bid and asked prices a broker quotes for a given security. Used for listed equity securities. Bid and ask prices and quantity information from a specialist or from a dealer regarding a particular security (i.e., "IBM's 1/4 to 1/2, 5m by 10m").
A model of the debt-equity ratio of the firms, graphically depicted in slices of a pie that represent the value of the firm in the capital markets.
Apply mainly to convertible securities. Increment of bonds that trade in portions of $1000 minimum. Not all bonds can be traded in "pieces," and the increments can vary.
When a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.
A broker who trading stocks, bonds or commodities in a personal account following a trade just made for a customer. The broker assumes that the customer is making the trade on valuable inside information. Illegal.
See: Payment-in-kind bond
Highly speculative bonds or preferred stock that pay interest or dividends through additional bonds or preferred stock.
Refers to over-the-counter trading. Daily publication of the national quotation bureau that reports the bid and ask prices of thousands of OTC stocks, as well as the market makers who trade each stock.
Used for listed equity securities. Smallest unit of a currency (i.e., cents for U.S. dollars).
The underwriting process that must be completed with the SEC before a security can be offered for sale to the public.
A specific area of the trading floor that is designed for the trading of commodities, individual futures, or option contracts.
A committee of the exchange that determines the daily settlement price of futures contracts.
Stands for principal, interest, taxes, and insurance, the four main parts of monthly mortgage obligations.
Price level established as being significant by market's failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level.
The marketing of new securities, usually through sales to institutional investors. See: Float.
A bank depositing Eurodollars with (selling Eurodollars to) another bank is often said to be making a placement.
The percentages of last week's new municipal bond offerings that have been bought from the underwriters, according to the Bond Buyer newspaper.
A term that refers to a relatively simple derivative financial instrument, usually a swap or other derivative that is issued with standard features.
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A plan for reorganizing a firm during the Chapter 11 bankruptcy process.
Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan.
The entities that establish pension plans, including private business entities acting for their employees; state and local entities operating on behalf of their employees; unions acting on behalf of their members; and individuals representing themselves.
(1) The class of CMO that has the most stable cash flows and the lowest prepayment risk of any class of CMO Because of a stable cash flow, it is considered the least risky CMO (2) A CMO bond class that stipulates cash flow contributions to a sinking fund. A PAC directs principal payments to the sinking fund on a priority basis in accordance with a predetermined payment schedule, with prior claim to the cash flows before other CMO classes. Similarly, cash flows received by the trust in excess of the sinking fund requirement are also allocated to other bond classes. The prepayment experience of the PAC is therefore very stable over a wide range of prepayment experience.
Budgeted or projected outlays for major expenditures on permanent or fixed assets as outlined in the corporate financial plan.
Budgeted or projected ways need for reasons or to obtain short-term and long-term financing as outlined in the corporate financial plan.
The length of time a model or investor or plan projects into the future.
The assets of a business including land, buildings, machinery, and all equipment permanently employed.
Used in the context of general equities. Customer or trader who is actively involved in a particular stock or the market in general.
Trading in high, uncalculated risk usually refers to actions of amateur investors.
See: Project loan certificate
See: Hypothecation
To reinvest earnings in a business rather than pay out them out as dividends. Common practice in high-growth companies.
Related: Retention rate
A variable that handles financial slack in the financial plan.
Used to quote a price in 64ths. Dealers in government bonds normally give price quotes in 32nds. To quote a bid or offer in 64ths, they use pluses; a dealer who bids 4+ is bidding the handle plus 4/32 + 1/64, which equals the handle plus 9/64.
Used for listed equity securities. Floor indication that someone is on the floor with equal priority standing who wants to buy/sell at least the same number of shares at the same price as one's own order. Outside. See: Matched orders. Compare to ahead.
Used in the context of general equities. Trade occurring at a price higher than the previous sale. Uptick. Antithesis of minus tick. See: Short sale.
Used for listed equity securities. A short seller (referring to the regulation requiring a plus tick to short).
See: Project notes
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See: Principal only
The smallest unit of price change quoted, or one one-hundredth of a percent. Related: Minimum price fluctuation and tick.
A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is used solely to record changes in price.
Anti-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the cyanide pill that secret government agents are said to be instructed to swallow if capture is imminent.
A covenant allowing the bondholder to demand repayment in the event of a hostile takeover.
Way in which an investor seeks to assess an appropriate long-term "normal" mix of assets that represents an ideal blend of controlled risk and enhanced return.
The maximum dollar amount of coverage provided by an insurance company for a certain policy.
A loan often made at a below-market interest rate from an insurance company to a policyholder that is secured by the cash surrender value of a life insurance policy.
An individual who owns an insurance policy.
Packaged loans acquired by policyholders that are secured by the cash surrender value of the policies, and are offered by a broker/dealer as bonds.
Possibility of negative events such as expropriation of assets, changes in tax policy, restrictions on the exchange of foreign currency, or other changes in the business climate of a country.
In capital budgeting, the concept that investment projects are financed out of a pool of bonds, preferred stock, and common stock, and a weighted-average cost of capital must be used to calculate investment returns. In insurance, a group of insurers who share premiums and losses in order to spread risk. In investments, the combination of funds for the benefit of a common project, or a group of investors who use their combined influence to manipulate prices.
The outstanding principal balance divided by the original principal balance with the result expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae, Fannie Mae, and Freddie Mac (Federal Home Loan Mortgage Corporation) MBSs.
An accounting method for reporting acquisitions accomplished through the use of equity. The combined assets of the merged entity are consolidated using book value, as opposed to the purchase method, which uses market value. The merging entities' financial results are combined as though the two entities have always been a single entity.
Often used in risk arbitrage. See: Shark repellent.
The character of benefits that may be carried from a previous job to the next.
A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index from which their beta is derived. Alpha is the return achieved over and above the return that results from the correlation between the portfolio and the market (beta). In simple terms, portable alpha is a strategy that involves investing in areas that have little to no correlation with the market.
A collection of investments, real and/or financial.
Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatility of an individual securities portfolio, taken as a whole, as measured by the individual stock betas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P's excess return increases by 10% the portfolio is expected to increase by 10.5%.
A strategy using a leveraged portfolio in the underlying stock to create a synthetic put option. The strategy's goal is to ensure that the value of the portfolio does not fall below a certain level.
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The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio.
Related: Investment management
Used in the context of general equities. Professional responsible for the securities portfolio of an individual or institutional investor, such as a mutual fund, pension fund, profit-sharing plan, bank trust department, or insurance company. In return for a fee, the manager has the fiduciary responsibility to manage the assets prudently and choose which asset types are most appropriate over time. Related: Investment manager.
The expected return/standard deviation pairs of all portfolios that can be constructed from a given set of assets.
Used in the context of general equities. Number between 0 and 1 that measures the strength of correlation of movement between the portfolio/stock and the index. Indeed, the R2 is the square of the correlation. For hedging purposes, the higher the R2, the better.
Applies to derivative products. Recomposition of a portfolio's asset mix by selling off undesired asset types (equities, debt, or cash) or specific securities within that class, while simultaneously buying desired types or securities. Often a firm is asked to bid on an old portfolio and give an offering of the desired portfolio. See: Program trading.
Theory that an investor's choice of a risky investment portfolio is separate from his attitude towards risk. Related: Fisher's separation theorem.
See: Modern portfolio theory.
For an investment company, an annualized rate found by dividing the lesser of purchases and sales by the average of portfolio assets.
Weighted sum of the covariance and variances of the assets in a portfolio.
A market commitment; the number of contracts bought or sold for which no offsetting transaction has been entered into. The buyer of a commodity is said to have a long position, and the seller of a commodity is said to have a short position. Related: Open contracts.
Buying shares to build up a long position or selling shares to create a short position in a particular security or group of securities.
Diagram showing the possible payoffs from a derivative investment.
Applies to derivative products. Maximum position available in any one future or option contract for a given institution. For "bona fide" futures hedgers, there are no position limits.
Used in the context of general equities. Going long or short in anticipation of a stock's movement.
Used in the context of general equities. List of long and short positions for an individual trader or desk, at times accompanied by the trades from the previous trading session that brought these closing positions.
A commodities trader who takes a long-term approach in maintaining positions in the market and does not close out of these positions until close to the delivery date.
Related: Net financing cost
A property of option-free bonds that the price appreciation for a large downward change in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change in interest rates.
A bond covenant that specifies certain actions the firm must take. Also called an affirmative covenant.
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When long-term debt interest rates are higher than short-term debt rates (because of the increased risk involved with long-term debt security).
A type of corporation permitted under the U.S. tax code whose branch operation in a U.S. possession can obtain tax benefits as though it were operating as a foreign subsidiary.
Particular place on the floor of an exchange where transactions in stocks listed on the exchange occur.
A listing of all real account balances after the closing process has been completed; provides a means of testing whether total debits equal total credits for all real accounts prior to beginning a new accounting cycle.
A set of procedures for evaluating a capital budgeting decision after the fact.
A check that becomes payable and negotiable on a future date specified.
Prices after the decision to trade.
The process of transferring amounts from the journal to the ledger.
The option of deferring a project without eliminating the possibility of undertaking it.
Purposely delaying receipt of income to a later year in order to reduce current tax liability.
The portion of stock or bond issue that is returned to the managing underwriter by the participating investment bankers for sale to institutional investors.
Phrase used when managing underwriter has sold the entire pot.
A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit.
An issue that is sold out before the coupon announcement.
Net income before federal income taxes are subtracted.
Gain on a security before taxes.
Prices occurring before or at the decision to trade.
Possibly fraudulent practice whereby commodities dealers carry out risk-free trades at predetermined prices to acquire tax advantages.
Checks that are authorized by a payer in advance, and written either by the payee or by the payee's bank and then deposited in the payee's bank account.
Debits to a bank account in advance by the payer. The payer's bank sends payment to the payee's bank through the Automated Clearing House (ACH) system.
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The need to meet unexpected or extraordinary contingencies with a buffer stock of cash.
A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay.
The established system of priorities of trades in an exchange. For example, the highest bid and lowest offer have highest precedence; the first bid or first offer at a price has highest priority, and large orders have priority over smaller orders.
Gold, silver, platinum, and palladium, which are used for their intrinsic value or for their value in production. These may be traded either in their physical state or by way of futures and options contracts, mining company stocks, bonds, mutual funds, or other instrument.
Method of charging interest in which the annual interest is either deducted from the face amount of the loan when the funds are distributed or is added to the total amount and divided into the regular payments.
The right of current stockholders to purchase additional shares of stock in order to maintain their same percentage of ownership if new shares are issued.
Refers to over-the-counter trading. Selection of a dealer to handle a trade despite the dealer's market not being the best available. Often the "preferenced dealer" will then move his market in line.
A security that ranks junior to preferred stock but senior to common stock in the right to receive payments from the firm; essentially junior preferred stock.
Net income after interest and taxes (before common stock dividends) divided by preferred stock dividends.
Preferred stock that converts automatically into equity at a stated date. A limit is placed on the value of the shares the investor receives.
A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. The theory rejects the assertion that the risk premium must rise uniformly with maturity, but instead profits that to the extent that the demand for and supply of funds do not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances, as long as they are compensated by an appropriate risk premium whose magnitude will reflect the extent of aversion to either price or reinvestment risk.
Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock.
A class of stock that usually provides dividend and liquidation preferences over common stock.
A contract for preferred stock.
Preferred stock at par value divided by total capitalization, which gives the portion of capitalization that consists of preferred stock.
Financial ratio defined as stock price divided by sales over earnings growth. Often used in the valuation of Internet stocks. Related: PSSG.
An initial or tentative version of a prospectus.
(1) A bond sold above its par value. (2) The price of an option contract; also, in futures trading, the amount by which the futures price exceeds the price of the spot commodity. For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. If a stock is trading at $45, and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the premium is high, the bond trades like any fixed income bond; if low, like a stock. See: Gross parity, net parity. For futures, excess of fair value of future over the spot index, which in theory will equal the Treasury bill yield for the period to expiration minus the expected dividend yield until the future's expiration. For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). For straight equity, price higher than that of the last sale or inside market. Related: Inverted market premium payback period. Also called break-even time; the time it takes to recover the premium per share of a convertible security.
A bond that is selling for more than its par value.
The income received by an investor who sells an option.
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The excess of the issuance (market) price of stock over its par or stated value.
An attempt to acquire a large portion of a company's stock to gain control by offering stockholders a premium over the market value for their shares.
A bankruptcy in which a debtor and its creditors pre-negotiate a plan of reorganization and then file it along with the bankruptcy petition.
Payments made in advance for items normally charged to expense.
An asset account showing interest that has been paid in advance, which is expensed and charged to the borrower's P & L statement.
A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity.
Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities.
Payments made in excess of scheduled mortgage principal repayments.
Refunded bond.
Procedure of floating a second bond at a lower interest rate in order to pay off the first bond at the first call date and to reduce overall borrowing costs.
An order to purchase part of a new municipal bond issue that is accepted by an underwriting syndicate before an official public offering.
The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of $100 to be received in one year is $100 x [1/(1 + 0.10)] = $91.
Factor used to calculate an estimate of the present value of an amount to be received in a future period. If the opportunity cost of funds is 10% over next year, the factor is [1/(1 + 0.10)].
The value today of $1 to be received or paid at some future date given a specified interest rate.
The value today of a series of equally spaced, equal-amount payments to be made or received in the future given a specified interest rate.
Net present value (NPV) of investments the firm is expected to make in the future.
Highest-ranking officer in a corporation after the chief executive officer.
A theory that stock market trends can be predicted and explained by the four-year presidential election cycle.
Method of calculating finance charges based on the account balance at the end of the previous month.
Increase or decrease in the closing price of a security compared to the previous day's closing price.
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The limitation of the price appreciation potential for a callable bond in a declining interest rate environment, based on the expectation that the bond will be redeemed at the call price.
The process of determining the prices of assets in the marketplace through the interactions of buyers and sellers.
The percentage change in quantity divided by a percentage change in the price. Answers the question: How much will the demand for my product decrease if I raise prices by 10%?
A term used when the price of a stock rockets or dives in a direction away from its last price range, such as a stock with a trading range of $10-$12 that closes at $12 and climbs to $14 the next day.
Used in the context of general equities. Willingness of a buyer or seller to negotiate on price, within reason, from the price at the last sale or the indicated level. See: Takes price.
Related: Market impact costs
See: Consumer price index and producer price index
A price charged by the dominant producer that becomes the price adopted by all the other producers.
Related: Relative strength
Used in the context of general equities. Cost to become a player in a stock in an inordinately aggressive market (i.e., locking on one side, size or price concessions); trader becomes aggressive in order to break the domination of customer activity by another dealer.
Related: Relative strength
The interval between the high and low prices over which a stock has traded over a particular period of time.
The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of mortgage pipeline risk created in the production segment when loan terms are set for the borrower in advance of setting terms for secondary market sale. If the general level of rates rises during the production cycle, the lender may have to sell the originated loans at a discount.
An options strategy that involves buying and selling two options on the same security with the same expiration month, but with different exercise prices.
Government intervention to set an artificially high price through the use of a price floor designed to aid producers.
Individuals who respond to rates and prices by acting as though prices have no influence on them.
Also called the dollar value of a basis point; a measure of the change in the price of a bond if the required yield changes by one basis point.
Compares a stock's market value to the value of total assets less total liabilities (book value). Determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits. Also called Market-to-Book.
Shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher multiple means investors have higher expectations for future growth, and have bid up the stock's price.
Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.
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Adjustment mechanism under the classic gold standard allowing disturbances in the price level in one country to be wholly or partly offset by a countervailing flow of specie (gold coins) that would act to equalize prices across countries and automatically bring international payments into balance.
A relationship espoused by some technical analysts that signals continuing rises or falls in security prices that are related to changes in volume traded.
An index giving a greater influence to higher-valued stocks by weighting all component stocks by their price.
The market has already incorporated information, such as a low dividend, into the price of a stock.
Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.
Term used for an unrealistically low bid price or unrealistically high offer price.
Also called external efficiency; a market characteristic that prices at all times fully reflect all available information that is relevant to the valuation of securities.
Usually refers to the select list of securities firms that are authorized to deal in new issues of government bonds.
Sale of a new issue of stock or bonds, as distinguished from a secondary distribution.
Earnings available for the payment of dividends to common stockholders divided by the number of common shares outstanding.
The balance sheet, income statement, and statement of cash flows, used by external groups to assess a company's economic standing.
Where a newly issued security is first offered. All subsequent trading of this security occurs is done in the secondary market.
Direct/Sale of a firm's newly issued shares by the firm to investors.
Stands for prescribed right to income and maximum equity, a certificate that entitles the owner to the dividend/income from an underlying security, but not to the capital appreciation of that security.
The highest-quality, investment-grade debt of corporations as decided by rating agencies such as Moody's.
The interest rate at which banks lend to their best (prime) customers. More often than not, a bank's most creditworthy customers borrow at rates below the prime rate.
A mutual fund that buys portions of corporate loans from banks and pays the interest to shareholders.
An instrument such as a stock or bond for which payments depend only on the financial status of the issuer.
principal (face value or maturity value): The amount that will be paid on a bond at a maturity date. The original amount of money invested, excluding any interest or dividends (e.g., $1,000 to purchase a Treasury bill).
The face amount of debt; the amount borrowed or lent. Often called principal.
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A debt instrument with its principal and interest denominated in U.S. dollars, but with principal repayment depending on the exchange rate of the U.S. dollar against a foreign currency.
The face amount of a note; the amount (excluding interest) that the maker agrees to pay the payee.
A stockholder who owns 10% or more of the voting stock of a company. Such stockholders must report all trading in the stock to the SEC pursuant insider trading rules.
Occurs when one person, an agent, acts on the behalf of another person, the principal.
A mortgage-backed security (MBS) whose holder receives only principal cash flows on the underlying mortgage pool. All the principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped MBS on the basis of the current face value of the underlying collateral pool.
That portfolios of different sorts of assets differently correlated with one another will have negligible unsystematic risk. In other words, unsystematic risks disappear in diversified portfolios, and only systematic risks persist, those related to particular assets.
Used in the context of general equities. As a verb execute a trade, evidenced by its printing on the ticker tape. As a noun, a trade.
Adjustments made directly to Retained Earnings in order to correct errors in the financial statements of prior periods.
A bond usually arising from reorganization with precedence over another bond of the same issuing company that is equally secured.
Preferred stock that has a higher claim on all dividends and assets in liquidation than claims of other preferred stock.
Used for listed equity securities. System used in an auction market, in which the first bid or offer price is executed before other bid and offer prices, even if subsequent orders are larger. NYSE rules stipulate that the bid made first should be executed first, or if two bids came in at once, the bid for the large number of shares receives "priority." The bid not executed is then turned to the broker, who informs the customer that the trade was not completed because there was stock ahead. See: Standing.
Company that mobilizes private capital for financing the export of big-ticket items by U.S. firms by purchasing at fixed interest rates the medium- to long-term debt obligations of importers of U.S. products.
A ruling by the IRS in response to a request for interpretation of a tax law.
A limited partnership with no more than 35 participants that is not registered with the SEC.
The break-up market value of all divisions of a company if divisions were each independent and established their own market stock prices.
Policy protecting the holder against loss resulting from default on a mortgage loan.
The sale of a bond or other security directly to a limited number of investors. For example, sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company, avoiding the need for SEC registration if the securities are purchased for investment as opposed to resale. Antithesis of public offering.
Resident immigrant workers' remittances to their country of origin as well as, e.g., gifts, dowries, inheritances, prizes, charitable contributions.
Related: Conventional pass-throughs.
A municipal bond allowing more than 10% of the proceeds go to private activities.
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The transfer of government-owned or government-run companies to the private sector, usually by selling them.
A method of analyzing the impact of alternative possible capital structure choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will be able to use projected tax shield benefits fully.
A firm's financial statements as adjusted to reflect a projected or planned transaction. "What-if" analysis.
A financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows.
A term describing an allocation that is based on a proportionate distribution of the total.
The relative likelihood of a particular outcome among all possible outcomes.
The function that describes the change of certain realizations for a continuous random variable.
A function that describes all the values a random variable can take and the probability associated with each. Also called a probability function.
A measure that assigns a likelihood of occurrence to each and every possible outcome.
OTC securities sale whose revenue is used to buy another security.
Index measuring changes in wholesale prices, published by the U.S. Bureau of Labor Statistics every month.
The time it takes to bring new and/or improved products to market.
A type of mortgage pipeline risk that occurs when a lender has an unusual loan in production or inventory but does not have a sale commitment at a prearranged price.
A method of nonrecourse asset-based financing in which a specified percentage of revenue realized from the sale of the project's output is used to pay debt service.
The coupon rate at which a pass-through security guaranteed by Ginnie Mae is issued.
An agreement by the loan purchaser to allow a monthly loan quota to be delivered in batches.
The amount of output per unit of input, such as the quantity of a product produced per hour of capital employed.
Professional Risk Manager : A professional designation which concerns people who has qualification and cover financial theory, financial instruments and markets, mathematical foundations of risk measurement, risk management practices and case studies, best practices, conduct, ethics and by laws.
Trader trying to get involved in a stock who presents self as a buyer/seller to draw a call from a customer. That is the trader has nothing real, or natural.
The positive difference between total revenue from a business or investment, minus total expense.
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A division of an organization held responsible for producing its own profits.
A prediction of future profits of a company, which may affect investment decisions.
Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin.
Action by short-term securities traders to cash in on gains created by a sharp market rise, which pushes prices down temporarily but implies an upward market trend. See: Ring the [cash] register.
An incentive system providing that employees share in company profits through a cash fund or a deferred plan used to buy stock or bonds.
A company's ability to generate revenues in excess of the costs incurred in producing those revenues.
The present value of the future cash flows divided by the initial investment. Also called the benefit-cost ratio.
Ratios that focus on how well a firm is performing. Profit margins measure performance with relation to sales. Rate of return ratios measure performance relative to some measure of size of the investment.
Orders requiring the execution of trades in a large number of different stocks at as near the same time as possible. Also called basket trades. Related: Block trade
Trades based on signals from computer programs, usually entered directly from the trader's computer in to the market's computer system and executed automatically. Applies to derivative products. A process of electronic execution of trading of a basket of stocks simultaneously, for index arbitrage, portfolio restructuring, or outright buy/sell interests. See: super dot.
Periodic payments to a supplier, contractor, or subcontractor for work as it is completed as desired, in order to reduce working capital requirements.
A periodic review of a capital investment project to evaluate its continued economic viability.
A tax system providing that the average tax rate increases for some increases in income, but never decreases with an increase in income.
A form of asset-based financing in which a firm finances a discrete set of assets on a stand-alone basis.
An econometric model forecasting and describing the effects of changes in different economies on other economies.
A primary program of Ginnie Mae for securitizing FHA-insured and coinsured multifamily, hospital, and nursing home loans.
Securities backed by a variety of FHA-insured loans-primarily multifamily apartment buildings, hospitals, and nursing homes.
Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes, nursing homes, hospitals, and other special development.
Notes issued by municipalities to finance federally sponsored programs in urban renewal and housing and guaranteed by the U.S. Department of Housing and Urban Development.
A measure of a pension plan's liability at the calculation date assuming that the plan is ongoing and will not terminate in the foreseeable future. Related: Accumulated benefit obligation.
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With CMOs, the date at the end of the estimated cash flow window where final payment is made.
The use of econometric models to forecast the future performance of a company, country, or other financial entity using historical and current information.
Written pledge to pay.
Policy regarding either a general class of transactions such as inventory or a specific transaction to achieve control objectives.
The distribution to shareholders of assets other than cash.
A list of personal property with corresponding values and initial costs often used to substantiate insurance claim and tax losses.
Rights of individuals and companies to own and use property as they see fit and to receive the stream of income that their property generates.
A tax levied on real property based on its use and its assessed value.
A method of stockholder voting that allows minority shareholders and groups of small shareholders to have a better chance of getting representation on a board of directors than under statutory voting.
Principal trading in which firm seeks direct gain rather than commission dollars.
A business owned by one person.
Based on forecasts from proprietary sources such as Institutional Brokers' Estimate System (IBES), First Call, or Zach's. Growth is forecast of earnings minus current earnings divided by current earnings. Forward-looking measure rather than typical earnings growth measures, which look back in time (historical).
An official document that contains information required by the Securities & Exchange Commission to describe a mutual fund.
Assure the salesperson or trader that interest, buy or sell, will be attended to, given any change in the trading circumstances, as follows: At a price: If the stock trades at a certain price or price range, the trader will show this market to the salesperson and thus allow participation under these favorable circumstances. Floor protection: Representation of a client on the floor of the exchange-so that if size were to trade at his price or a better price, salesperson would participate. Volume (OTC): If a certain amount of volume trades (that parallels the protectee's interest), trader assures salesperson of reasonable participation in the trading activity. The extent of this protection depends on liquidity, number of market makers, and other aspects of the stock.
Notion that governments should protect domestic industry from import competition by means of tariffs, quotas, and other trade barriers.
A part of an indenture or loan agreement that limits certain actions a company may take during the term of the loan to protect the lender's interests.
A strategy that involves buying a put option on the underlying security that is held in a portfolio. Related: Hedge option strategies.
An amount on the P & I statement that estimates a company's total income tax liability for the year.
A stipulation in a convertible issue that allows the issuer to call the issue during the noncall period if the price of the stock reaches a certain level. In the case of convertible securities, right of an issuer to accelerate the first redemption date if the underlying common should trade at or above a certain level for a sustained period. Most typical terms are 150% of conversion price for 20 consecutive days. Note that under these circumstances the security has appreciated, at a minimum, 50% since being issued.
Authorization, whether written or electronic, that shareholders' votes may be cast by others. Shareholders can and often do give management their proxies, delegating the right and responsibility to vote their shares as specified.
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A battle for the control of a firm in which a dissident group seeks, from the firm's other shareholders, the right to vote those shareholders' shares in favor of the dissident group's slate of directors. Also called proxy fights.
Often used in risk arbitrage. Technique used by an acquiring company to attempt to gain control of a takeover target. The acquirer tries to persuade the shareholders of the target company that the present management of the firm should be ousted in favor of a slate of directors favorable to the acquirer, thus enabling the acquiring company to gain control of the company without paying a premium price.
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Information required by the SEC that must be provided to shareholders who wish to vote for directors and on other company decisions by proxy.
Vote cast by one person or entity on behalf of another.
A common law standard against which those investing the money of others (fiduciaries) are judged.
The Bond Market Trade Association's Mortgaged Asset-Backed Securities Division's prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new production loans. 100% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% percentage points per month thereafter until the 30th month. Thereafter, 100% PSA is the same as 6% CPR (Constant prepayment rate).
Financial ratio defined as stock price divided by sales over sales growth. Often used in the valuation of Internet stocks. Related: PREG.
Entities whose stock is publicly traded.
Issues of debt by governments to compensate for a lack of tax revenues.
Bonds of local public housing agencies that are secured by the federal government and whose proceeds are used to provide low-rent housing.
A limited partnership with an unlimited number of partners that is registered with the SEC and is available for public trading by broker/dealers
Used in the context of general equities. Offering to the investment public, after compliance with registration requirements of the SEC, usually by an investment banker or a syndicate made up of several investment bankers, at a price agreed upon between the issuer and the investment bankers. Antithesis of private placement. See: Primary distribution and secondary distribution.
The price of a new issue of securities at the time that the issue is offered to the public.
The portion of a company's stock that is held by the public.
The trade association for primary dealers in U.S. government securities, including MBSs.
Legislation intended to eliminate many holding company abuses by reorganizing the financial structures of holding companies in the gas and electric utility industries and regulating their debt and dividend policies.
Storage facility operated by an independent warehouse company on its own premises.
A specific type of municipal bond used to finance public projects such as roads or government buildings. Interest on municipal bonds is federal income tax-free.
Describes a company whose stock is held by the public, whether individuals or business entities.
Assets that can be traded in a public market, such as the stock market.
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Slang for a trader selling a position, usually a losing position, as in, "When in doubt, puke it out."
Used in the context of general equities. See: Cancel.
The downward reversal of a prolonged upward price trend.
Investors selling off positions after a stock or bond market has increased sharply or setting up hedging positions to guard against a negative turn of the market.
Buy; be long; have an ownership position.
Method of accounting for a merger that treats the acquirer as having purchased the assets and assumed the liabilities of the acquiree, which are then written up or down to their respective fair market values. The difference between the purchase price and the net assets acquired is attributed to goodwill.
Used in connection with project financing; an agreement to purchase a specific amount of project output per period.
A method of securities distribution in which a firm purchases securities from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.
A reduction in the purchase price, allowed if payment is made within a specified period.
Resembles a sinking fund, except that money is used to purchase bonds only if they are selling below their par value.
See: Underwriting syndicate
A consumer loan taken to finance a purchase.
A method used to prepare consolidated financial statements when one company has acquired a controlling interest in another company with similar activities by exchanging cash or other assets for more than 50 percent of the acquired company's outstanding voting stock.
A written order to buy specified goods at a stipulated price.
A contra-purchase account used for recording the return of, or allowances for, previously purchased merchandise.
A mortgage given by a buyer in lieu of cash when the buyer is unable to borrow commercially for the purchase of property.
An account in which all inventory purchases are recorded; used with the periodic inventory method.
A special journal in which credit purchases are recorded.
A measurement of the relative value of money in terms of the quality and quantity of goods and services it can buy. Inflation decreases purchasing power; deflation increases it.
The amount of goods and services that can be exchanged for a dollar as compared with amount of a previous time period.
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The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.
Related: Inflation risk
A bond that will make only one payment of principal and interest. Also called a zero-coupon bond or a single-payment bond.
A theory that asserts that forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the market's expectations of future short-term rates. For example, an increasing slope to the term structure implies increasing short-term interest rates. Related: Biased expectations theories.
A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.
A market in which only one firm has total control over the entire market for a product due to some sort of barrier to entry for other firms, often a patent held by the controlling firm.
A company involved in only one line of business.
Moving to higher yield-bonds.
A loan that is backed by securities and that is used to buy other securities under certain government regulations.
A form filed by a borrower that describes the use of a loan backed by securities, and guarantees that the funds lent will not be used illegally to buy securities against Federal Reserve regulations.
An option granting the right to sell the underlying futures contract. Opposite of a call.
To exercise a put option.
A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years. If the price is above par, the put is a "premium put."
A bank's letter certifying that the person writing a put option has sufficient funds in an account to cover the exercise price if required.
Used for listed equity securities. Trade, or cross, a block of stock at the designated price and quantity. See: Print.
This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.
The price at which an asset will be sold if a put option is exercised. Also called the strike or exercise price of a put option.
Gives the holder of a floating-rate bond the right to redeem the note at par on the coupon payment date.
A financial instrument giving the buyer the right, or option, to enter into a swap as a floating-rate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.
Exercise a put option; require that the option writer to purchase the stock at the strike price.
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See: Print
Applies to derivative products. Option pricing principle that says, given a stock's price, a put and call of the same class must have a static price relationship because arbitrage opportunities or activities will always reestablish such a relationship.
The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the underlying stock and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the exercise price. The call value equals C = S + P - PV(k).
The ratio of the volume of put options traded to the volume of call options traded, which is used as an indicator of investor sentiment (bullish or bearish).
See: Price value of a basis point
An illegal, fraudulent scheme in which a con artist convinces victims to invest by promising an extraordinary return but instead simply uses newly invested funds to pay off any investors who insist on terminating their investment.
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