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Campbell R. Harvey's Hypertextual Finance Glossary
Copyright © 2009. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

G
Fifth letter of a Nasdaq stock symbol specifying that the issue is the first convertible bond of the company.
GA
The two-character ISO 3166 country code for GABON.
GAAP
See: Generally Accepted Accounting Principles
GB
The two-character ISO 3166 country code for UNITED KINGDOM.
GBP
Pound Sterling currency
GBP
The ISO 4217 currency code for the United Kingdom Pound.
GD
The two-character ISO 3166 country code for GRENADA.
GDP
See: Gross Domestic Product
GDR
See: Global Depositary Receipt
GE
The two-character ISO 3166 country code for GEORGIA.
GF
The two-character ISO 3166 country code for FRENCH GUIANA.
GH
The two-character ISO 3166 country code for GHANA.
GI
The two-character ISO 3166 country code for GIBRALTAR.
GIC
See: Guaranteed Investment Contract
GL
The two-character ISO 3166 country code for GREENLAND.
GNP
See: Gross National Product
GM
The two-character ISO 3166 country code for GAMBIA.
GMC
See: Guaranteed Mortgage Certificate
GN
The two-character ISO 3166 country code for GUINEA.
GP
The two-character ISO 3166 country code for GUADELOUPE.
GPM
See: Graduated Payment Mortgages
GQ
The two-character ISO 3166 country code for EQUATORIAL GUINEA.
GR
The two-character ISO 3166 country code for GREECE.
GS
The two-character ISO 3166 country code for SOUTH GEORGIA AND THE SOUTH SANDWICH ISLANDS.
GT
The two-character ISO 3166 country code for GUATEMALA.
GTC
See: Good 'til cancelled order
GU
The two-character ISO 3166 country code for GUAM.
GW
The two-character ISO 3166 country code for GUINEA-BISSAU.
GY
The two-character ISO 3166 country code for GUYANA.
Gadfly
A nickname for a "professional" securityholder who owns stock in various companies, attends annual meetings and asks senior management hard and often embarrassing questions.
Gaijin
Japanese term used to describe a non-Japanese investor in Japan (outside person). A more polite version of the same word is gaikokujin which means outside country person.
Gain
A profit on a securities transaction recognized by selling a security for more than the security originally cost. The gain is the difference between the cost and the sale.
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
Financing that is required, but for which no provision has been made. The difference in total funding needed for a proposal and the amount of funding already made available.
Gap Hedging
An asset-liability corporate hedge based on net assets, or the amount of a company’s shareholders’ equity. Less sophisticated than placing one hedge on the total assets of the company, and another on the total liabilities, gap hedging is the practice of simply hedging the net of the two, or owners’ equity. Assumes the volatility of assets and the volatility of liabilities are equal.
Gap opening
In the context of general equities, opening price that is substantially higher or lower than the previous day's closing price, usually because of some extraordinarily positive or negative news.
Garage
The floor of the NYSE, which is situated on the north side of the main trading floor.
Garbatrage
Rising stock prices and increased market activity in an entire sector caused by a psychology change stemming from a major takeover involving two companies in the sector. Speculators feel other takeovers are likely in the sector. See: Rumortrage.
Garman-Kohlhagen option pricing model
A model widely used to price foreign currency options.
Gather in the stops
A market strategy in which investors sell stocks to drive prices to a level that breaks through stop orders known to exist. Once the price is low enough, the stop orders become market orders and are executed, to create snowballing.
Gaussian
A system whose probabilities are well described by the normal distribution, or bell shaped curve.
GDP implicit price deflator
An economic technique used to account for inflation by comparing the current-dollar gross domestic product GDP to constant-dollar GDP as a ratio. The ratio accounts for price changes of goods and services that make up GDP and changes in the composition of GDP.
Gearing
Financial leverage.
GEM (growing equity mortgage)
Mortgage in which annual increases in monthly payments are used to reduce outstanding principal and to shorten the term of the loan.
General Average
Provision in maritime law where all shippers on a given voyage would reimburse the ship line in the event of vessel sinking or catastrophic damage. It also provides for the reimbursement to those shippers whose cargo was thrown overboard in order to save the vessel.
General Average Contribution
The amount of money paid by each shipper involved in a General Average.
General account
Federal Reserve Board's term for a margin account provided to a customer by a brokerage firm. Governed by Regulation T of the Fed.
General Agreement on Tariffs and Trade (GATT)
A treaty adopted by the United Nations aimed at elimination of international trade barriers between member countries.
General cash offer
A public offering made to investors at large.
Generic credit spread
Refers to the corporate bond spread for a particular credit rating and expiry. For example, 10-year single A corporates were priced or trading at 130 basis points above Treasuries last night, or said differently, 130 is the generic credit spread for 10-year single A corporates.
General ledger
Accounting records that show all the financial statement accounts of a business.
General lien
An attachment that gives the lender the right to seize the personal property of a borrower who has not fulfilled the obligations of the loan, but prevents the lender from seizing real property.
General loan and collateral agreement
The agreement governing the broker-dealer's borrowing against listed securities from a bank for the purpose of carrying on business and making transactions. See: Broker loan rate.
General mortgage
A type of obligation that covers all a borrower's mortgageable properties, not just one specific property.
General obligation bonds
Municipal securities secured by the issuer's pledge of its full faith, credit, and taxing power.
General Order
A penalty imposed on imported goods that are not promptly cleared through customs.
General partner
A participant who has unlimited liability for the obligations of a partnership.
General partnership
A partnership in which all participants are general partners.
General price level
An index that measures the change in price of goods in an economy over time and hence the purchasing power of the currency of the country. For instance, in the U.S. it is represented by the CPI (Consumer Price Index) maintained by the U.S. Department of Labor.
General price level accounting
Restating conventional financial statements (which are stated in nominal currency) in units of general purchasing power to adjust for inflation.
General revenue
The sum of taxes, charges, and miscellaneous income taken in at the state and local level while neglecting overlapping revenue which may be erroneously counted twice.
Generally Accepted Accounting Principles (GAAP)
The overall conventions, rules, and procedures that define accepted accounting practice at a particular time in the U.S.
Generation-skipping transfer or trust
A trust in which a principal amount is placed in a trust on the death of person A and is transferred to A's grandchildren when A's children die. The income from the trust goes to the children of person A while they survive.
Generic
Describes the characteristics and/or experience of the total universe of a coupon of MBS sector type; that is, in contrast to a specific pool or collateral group, as in a specific CMO issue.
Genetic Algorithms
Models that optimize rules by mimicking the Darwinian Law of survival of the fittest. A set of rules is chosen from those that work the best. The weakest are discarded. In addition, two successful rules can be combined (the equivalent to genetic cross-overs) to produce offspring rules. The offspring can replace the parents, or they will be discarded if less successful than the parents. Mutation is also accomplished by randomly changing elements. Mutation and cross-over occur with low probability, as in nature.
Geographic risk
Risk that arises when an issuer issues policies concentrated within certain geographic areas, such as the risk of concentrating their coverage in hurricane or earthquake prone regions.
Geometric mean return
Also called the time-weighted rate of return, a measure of the compound 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. Also called the time-weighted rate of return or Dietz algorithm.
Gestation repo
A reverse repurchase agreement between mortgage firms and securities dealers. Under the agreement, the firm sells federal agency-guaranteed MBS and simultaneously agrees to repurchase them at a future date at a fixed price.
Get hit
Go lower in price, when bids in the stock or market are 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 in a position ("We could get out big size in Humana.")
Ghosting
The illegal practice that one firm drives a stock's price higher or lower, while other conspiring firms follow its lead to influence up the price of the stock.
Gift splitting
A technique used to avoid a gift tax in which a large sum of money to be given by two parents to a child is halved and given to the child separately. For example, a husband and wife each donate $10,000 to their child rather than one parent donating $20,000.
Gift tax
A tax assessed on the giver of a property or asset as a gift. A $10,000 federal gift tax exemption exists per recipient. See: Gift splitting.
Gift inter vivos
A piece of property or asset given from one living person to another.
Gilt-edged securities
British and Irish government securities. Blue Chip.
Gilts
British and Irish government securities. Blue Chip.
Ginnie Mae
See: Government National Mortgage Association
Ginnie Mae pass-through
A security guaranteed by the Government National Mortgage Association that is backed by a collection of mortgages, in which the investor receives the interest and principal payments of participating homeowners.
Give up
Used for listed equity securities. (1) Term used in a securities transaction involving three brokers, as follows: Broker A, a floor broker, executes a buy order for broker B (a 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 is 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 governing reimbursement of a broker for services (e.g., research). See: Directed brokerage.
Glamour stock
A popular stock characterized by high earnings growth rate and a price that rise is faster than the market average in a bull market.
Global Depositary Receipt
A receipt denoting ownership of foreign-based corporation stock shares which are traded in numerous capital markets around the world.
Glass-Steagall Act
1933 legislation prohibiting commercial banks to own, underwrite, or deal in corporate stock and corporate bonds.
Global bonds
Bonds designed 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.
GNMA-I
Mortgage-backed securities (MBS) on which registered holders receive separate principal and interest payments on each of their certificates, usually directly from the servicer of the MBS pool. GNMA-I mortgage-backed securities are single-issuer pools.
GNMA-II
Mortgage-backed securities (MBS) on which registered holders receive an aggregate principal and interest payment from a central paying agent on all their certificates. Principal and interest payments are disbursed on the 20th day of the month. GNMA-II MBS 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 Mac's 15-year fixed-rate pass-through securities issued under its cash program.
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
Describes the N.Y. Federal Reserve Bank's trading desk practice of communicating with primary dealers to establish a market of bids and offers on behalf of the Federal Open Market Committee.
Goal
An individual's or institution's financial objective.
Godfather offer
An aggressive takeover technique in that the proposed offer of the acquiring company is so large that management of the target company cannot refuse, out of fear of lawsuits or shareholder revolt.
Go-go fund
A type of mutual fund invested in highly aggressive growth stocks. The fund has high levels of risk and potential return.
Go to
Used in the context of general equities. Sell insurance ("we've got 50 IBM to go".).
Goes
Used in the context of general equities. (1) Trades ("10 IBM goes on at 115 "); see Print; (2) indicates a change in the stock's inside market ("Apple goes 3/4 bid").
Going ahead
A broker-dealer trades in a personal account prior to filling the orders of his or her clients. Prohibited by the NASD rules of fair practice. Also see front running
Going away
The type of bond purchased by dealers for immediate resale to investors, as opposed to purchasing a bond to hold for some amount of time, and then reselling it at a future date.
Going-concern value
The value of a company to another company or individual in terms of an operating business. The difference between a company's going-concern value and its asset or liquidation value is deemed goodwill and plays a major role in mergers and acquisitions.
Going long
The investor's purchase of a security for investment or speculation that the price will rise resulting in a profit once the security is sold. See: long position. Antithesis of going short.
Going out
Used in the context of general equities. Soliciting/advertising over the SS1, NASDSAQ, or Autex.
Going private
When publicly owned stock in a firm is replaced with complete equity ownership by a private group. The firm is delisted on stock exchanges and can no longer be purchased in the open markets.
Going public
When a private company first offers shares to the public market and investors. See: IPO.
Going public through the backdoor
The process by which a company comes to have publicly traded shares without an IPO. This could happen through a reverse shell merger, or through acquisition of a public company and offering shares to previous owners. Another way is through a series of private placements, selling shares on an exchange to institutional and other sophisticated investors.
Going short
Selling stock that an investor does not own by borrowing shares from a broker. The assumption is that the price will fall. The investor anticipates buying (covering the short) the shares back at a lower price than what they were sold for, recognizing the difference as a profit. Antithesis of going long.
Going into the trade
Used in the context of general equities. 1) Condition of the trader's 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.
Gold bars
Bars with a minimum content of 99.5% (two nines five in trader jargon; typically traded gold is four nines pure or 99.99%) gold, which may be held by central banks or traded by investors.
Gold bond
Bonds issued by gold-mining companies and backed by gold. The bonds make interest payments based on the level of gold prices.
Gold bullion
Investment-grade, pure gold, which may be smelted into gold coins or gold bars.
Gold Carry Trade
A carry trade where you borrow and pay interest in order to buy something else that has higher interest. The gold carry trade works as follows. A central bank loans a bank (sometimes called a bullion bank) some gold. The gold lease rate is usually very low. The bullion bank immediately sells the gold and invests in securities with a higher rate of return, such as government long-term bonds. The carry return is the return on the bonds minus the gold lease rate. However, this trade is risky on two dimensions. First, if the bullion bank invested in long-term bonds and the interest rate goes up, the trade could be unprofitable. More seriously, the bullion bank has effectively sold the gold short. If the loan is called by the Central bank and if gold has risen in value, the bullion bank will have to go into the market and purchase higher priced gold. Indeed, if many banks are short, the unwinding of the gold carry trade could drive the gold price even higher. Related: Carry Trade.
Gold certificate
Certificate of an investor that shows proof of ownership of gold bullion.
Gold coins
Coin minted in gold, such as the American Eagle or the Canadian Maple Leaf.
Gold exchange standard
A fixed exchange rate system adopted in the Bretton Woods agreement. It required the U.S. to peg the dollar to gold and other countries to peg their currencies to the U.S. dollar.
Gold fixing
The process of determining the price of gold based on supply and demand forces of the market; which occurs twice daily in London.
Gold mutual fund
A mutual fund that primarily invests in gold-mining companies' stock.
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 to 1914.
Goldbug
Analysts who recommends gold as an investment/hedge. Also, an investor who has a penchant for gold and gold stocks.
Golden handcuffs
A contract that binds a broker to a brokerage firm by offering the broker commissions and bonuses, but penalizes the broker if he or she goes to work for another firm.
Golden handshake
A large payment to a senior employee who is forced into retirement or fired as a result of a takeover or similar development.
Golden hello
A bonus a securities firm pays to attract an employee from a competing firm.
Golden parachute
Compensation paid to departing top-level management by a target firm if a takeover occurs.
Goldilocks economy
A term developed in the mid 1990s to describe the positive performance of the economy as "not too hot, not too cold; just right."
Good delivery
A delivery in which everything - order-endorsement, any necessary attached legal papers, is in good order such that a transaction settles satisfactorily.
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 faith deposit
Used in the context of commodities. Refers to the initial margin account deposit needed when buying or selling a futures contract; approximately 2%-10% of the contract value.
Used in the context of securities to describe the deposit required by securities firms engaged in transactions on behalf of a new client.
Also used to refer to the deposit with a municipal bond issuer by firms competing for the underwriting business.
Good money
Federal funds that clear on the same day, unlike clearinghouse funds, which require three days to clear.
Good-this-Month order (GTM)
An order to buy or sell securities that continues to be a valid order until the end of the current month.
Good through/until date order
Used in the context of general equities. Market or limited price order that remains viable 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)
An order to buy or sell stock that is good until the client executes or cancels it. Brokerages usually set a limit of 30-60 days, at which the G.T.C. order expires if not restated. (Different from a day order.)
Goodwill
Excess of purchase price over fair market value of net assets acquired under the purchase method of accounting.
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 obligations
U.S. government-backed debt instruments, which are considered among the safest investments possible, including Treasury bonds, bills, and notes, and savings bonds.
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.
Governments
U.S. government-issued securities, such as Treasury bills, bonds, and notes, and savings bonds. Governments are considered among the safest investments available as they are backed by the U.S. government.
Also used to refer to debt issues of federal agencies, which are not directly backed by the U.S. government.
Grace period
The time period stipulated in most loan contracts and insurance policies during which a late payment will not result in default or cancellation.
Graduated call writing
Selling covered call options at incrementally rising exercise prices, so that as the price of the underlying stock rises and the options are exercised, the seller receives a higher average price than the original exercise price.
Graduated lease
A type of long-term lease whose payments are variable rather than fixed, and depend upon a benchmark rate, such as changes in the consumer price index.
Graduated payment
Repayment terms calling for gradual increases in the payments on a closed-end obligation. A graduated payment loan usually involves negative amortization.
Graduated-payment mortgage (GPM)
A type of stepped-payment loan in which the borrower's payments are initially lower than those on a comparable level-rate mortgage. The payments gradually increase 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.
Graduated security
A security that has moved from listing on an exchange of less prominence to one of more prominence.
Graham and Dodd method of investing
An investment strategy based on security analysis and identification. Investors buy stocks with undervalued assets speculating that these assets will appreciate to their true value.
Graham-Harvey Measure 1
Performance measure developed by John Graham and Campbell Harvey. The idea is to lever a fund's portfolio to exactly match the volatility of the S&P 500. The difference between the fund's levered return and the S&P 500 return is the performance measure.
Graham-Harvey Measure 2
Performance measure developed 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 fund's return and the levered S&P 500 return is the performance measure.
Grandfathered activities
Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United States, but which were acquired or engaged in before a particular date. Such activities may be continued under the "grandfather" clauses of the Bank Holding Company Act and the International Banking Act.
Grandfather clause
A provision included in a new rule or regulation that exempts a business that is already conducting business in the area addressed by the regulation from penalty or restriction.
Grant
The issuance of an award under a stock plan, such as a stock option or shares of restricted stock.
Grant Date
The date on which an option or other award is granted.
Grantor
A trader in the options market who makes premium income by selling options.
Grantor Retained Income Trust (GRIT)
A tax-saving trust in which a grantor transfers property to a beneficiary, but receives income until termination, at which time the beneficiary begins receiving the income.
Grantor trust
A mechanism of issuing MBS wherein the mortgages' collateral is deposited with a trustee under a custodial or trust agreement.
Graveyard market
Bear market in which 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 knight
In a merger or acquisition, a gray knight is an acquiring company that outbids a white knight in pursuit of its own best interests, although it is friendlier than a hostile bidder.
Gray list
Formal roster of stocks that can be traded by the block desks, but not in risk arbitrage because an investment bank is involved with the company on nonpublic activity (e.g., mergers and acquisitions defense). A stock's presence on this list should never be conveyed to anyone outside the trading area, much less outside the firm. See: Restricted list.
Gray market
Describes the sale of securities that have not officially been issued to firms other than the underwriting syndicate. This type of market serves as a good indicator of demand for a new issue in the public market.
Great call
Used in the context of general equities. Potential customer who may have an interest in participating in a particular trade if customer's past inquiry or activity is any indication.
Greater fool theory
An investment notion that even when a stock is fully valued by conventional standards, there is room for upward movement because there are enough buyers to push prices farther upward purely on speculation or hype.
Greenmail
The holding of a large block of stock of a target company by an unfriendly company, with the object of 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 increase the size of the issue because of high demand for the shares.
Gross per broker
The dollar amount of commissions generated by a broker or registered representative over a specific period.
Gross domestic product (GDP)
The market value of final 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 earnings
A person's total taxable income prior to adjustments. See: adjusted gross income.
Gross estate
The total value of a person's property and assets before accounting for debts, taxes, and liabilities.
Gross income
A person's total income prior to exclusions and deductions.
Gross interest
Interest earned before taxes are deducted.
Gross lease
A type of property lease in which the lessor (owner of the property being leased) pays expenses associated with ownership such as damages, taxes, and insurance.
Gross National Product (GNP)
Measures an economy's 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
Applies mainly 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
Sales minus the cost of goods sold.
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 sales
Total sales calculated by summing all sales at invoice values, neglecting any adjustments such as customer discounts, excise taxes, or returns.
Gross spread
The fraction of the gross proceeds of an underwritten securities offering that is paid as compensation to the underwriters of the offering.
Gross Weight
The full weight (including goods and packaging) of shipment.
Ground lease
A lease of land, as opposed to a lease of a building.
Group depreciation
Method of depreciation where a single average depreciation rate is applied to a group of similar assets with similar service lives. See also Composite depreciation.
Group insurance
Insurance coverage for a group, which can usually be obtained at a cheaper rate than insurance for an individual.
Group of Eight (G-8)
The G-7 countries plus Russia.
Group of Five (G-5)
The five leading countries (France, Germany, Japan, the U.K., 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 of Ten
A group of the ten major industrialized countries whose mission is to create a more stable world economic trading environment through monetary and fiscal policies. The ten are Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States.
Group rotation
The tendency of stocks in one sector of the market to outperform and then underperform other industries, usually as a result of economic cycles or the conditions in a particular industry.
Group rotation manager
A top-down manager who deduces the phases of the business cycle and allocates assets accordingly.
Group sales
Block sale (of large amounts) of securities to institutional investors.
Group Universal Life Policy (GULP)
Universal life insurance on a group basis. See: Group insurance.
Growing Equity Mortgage (GEM)
Mortgage with a fixed interest rate and payments that increase throughout the term of the mortgage.
Growing perpetuity
A constant stream of cash flows without end that is expected to rise indefinitely.
Growth fund
A mutual fund that invests primarily in stocks with a history of and future potential for capital gains.
Growth and income fund
A mutual fund that invests primarily in stocks with a history of capital gains (growth) and consistent dividend payments (income).
Growth manager
A money manager who seeks to buy stocks that typically sell 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 during 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 recession
A growth recession is a prolonged period (more than one quarter) of significantly below trend real GDP growth. For the U.S., this would be growth in the 0-2 percent range. While an official recession usually has two quarters of negative real GDP growth, this is not required in a growth recession.
Growth stock
Common stock of a company that has an opportunity to invest money and earn more than the opportunity cost of capital.
Guarantee
The assumption of responsibility for payment of a debt or performance of some obligation if the liable party fails to perform to expectations.
Guarantee Fee
A sum paid by the importer to the guarantor, usually as a percentage per annum of the face value of the bills or notes being guaranteed.
Guarantee letter
A commercial bank's letter assuring payment of the exercise price of a client's put option.
Guaranteed bond
A type of bond for which a firm other than the issuer guarantees its interest and principal payments.
Guaranteed insurability
A life and health insurance policy feature that enables the insured to add coverage at future times and at fixed and agreed-upon rates regardless of health conditions.
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 at a maturity date the principal amount of a predetermined annual crediting (interest) rate over the life of the investment.
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
A party who will guarantee repayment or performance of a covenant.
Guardian
An individual or trust institution appointed by a court to care for a minor or an incompetent person and his or her property.
Guaranteed renewable policy insurance
A type of insurance policy that requires the insurer to renew the policy to an individual regardless of health changes. No changes may be made to an individual policyholder unless the same change is applied to all policyholders.
Guaranteed replacement cost coverage insurance
A policy that covers the full cost of replacing damaged property without any allowances or deductions, e.g., depreciation.
Guaranteeing/ Avalising Bank
The person, bank, or financial entity who gives the guarantee for the importer.
Guarantor program
Under the 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.
Guidance
It is increasingly important for firms to meet or exceed analysts' consensus earnings forecasts. Often management will give guidance or hints of the earnings per share prospects over the next quarter or next year to try to direct the consensus to what is achievable. For example, it is possible that the consensus is well above management's internal forecasts. Management will try to guide the consensus downwards so that when the earnings are released the negative surprise is minimized. Under Regulation FD, management needs to be very careful to provide guidance information to all shareholders -- not just a select group of analysts. This is often achieved in investor presentations (that are often webcast) or conference calls (where anyone is allowed to dial in).
Gun jumping
In the context of securities trading, refers to trading in a security on the basis of information that has not been made available to the public. The illegal solicitation of buy orders in an underwriting before completion and finalization of Securities and Exchange Commission registration. Also see front running.
Gunslinger
An aggressive portfolio manager who makes risky investments, typically in margin accounts, in search of high returns.
Gypsy Swaps
In the context of Regulation D. A private purchaser wishes to invest directly in an issuer but hopes to acquire unrestricted securities. Through arrangements and understandings with the issuer, a stockholder with shares that are either restricted securities currently eligible for sale under Rule 144 or unrestricted securities sells the shares to the private purchaser. At about the same time, the issuer sells an equivalent number of shares to the stockholder. The Securities & Exchange Commission's view is that the shares taken by the private purchaser from the stockholder will be restricted securities within the meaning of Rule 144(a)(3). The holding period will date to the private acquisition. A public resale of the shares acquired from the stockholder without regard to the conditions of Rule 144 would raise serious issues under Section 5 of the Securities Act for all parties to the transactions.

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Campbell R. Harvey's Hypertextual Finance Glossary
Copyright © 2009. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

Order the popular hard copy version coauthored with the
2002 Pulitzer Prize winner for financial writing,
Gretchen Morgenson of the New York Times.
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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

E
Fifth letter of a Nasdaq stock symbol specifying that an issue has not met the reporting date for the company's SEC regulatory filing requirements.
E/EV
See: EBITDA/enterprise value ratio
EAFE index
See: European Australian and Far East index
EASD
See: European Association of Securities Dealers
EBIAT
See: Earnings Before Interest after Taxes
EBIT
See: Earnings Before Interest and Taxes
EBITD
See: Earnings Before Interest, Taxes and Depreciation
EBITDA
See: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA/EV
See: EBITDA/enterprise value ratio
EBITDA/enterprise value ratio (EBITDA/EV)
A modified measure of the ratio of a company's operating and non-operating profits to the market value of the firm's equity and debt. By providing a simple, though incomplete, ratio of profit to value, EBITDA/EV is often used to estimate the cash return on an investment. See: Enterprise value/EBITDA ratio
EBRD
See: European Bank for Reconstruction and Development
EBT
See: Earnings Before Taxes
EC
The two-character ISO 3166 country code for ECUADOR.
ECA
See: Export Credit Agency
EDC
See: Export Development Corp.
ECGD
See: Export Credit Guarantee Department
ECN
Electronic Communications Network. Defined under Rule 11Ac1- 1(a)(8) under the U.S. Securities Exchange Act of 1934.
ECS
The ISO 4217 currency code for the Ecuadorian Sucre.
EDGAR Electronic Data Gathering, Analysis and Retrieval System
The system through which companies electronically file reports and registration statements with the SEC. This requires converting the paper or word-processing document to be filed into a universal ASCII format, a process known as EDGAR-izing the document. The filings can then be accessed by the public through the SEC's Web site on the Internet.
EEK
The ISO 4217 currency code for the Estonian Kroon.
EFIC
See: Export Finance Insurance Corp.
EFTPOS
Acronynm for Electronic Funds Transfer at Point of Sale. Payment is transferred usually from a checking account at the point of sale.
EG
The two-character ISO 3166 country code for EGYPT.
EGP
The ISO 4217 currency code for the Egyptian Pound.
ECU
See: European Currency Unit
EDI
See: Electronic Data Interchange
EE
The two-character ISO 3166 country code for ESTONIA.
EH
The two-character ISO 3166 country code for WESTERN SAHARA.
EM
See: Effective margin
EMS
See: European Monetary System
EOE
See: European Options Exchange
EOQ
See: Economic Order Quantity
ER
The two-character ISO 3166 country code for ERITREA.
ERM
See: Exchange Rate Mechanism
ES
The two-character ISO 3166 country code for SPAIN.
ESOP
See: Employee Stock Ownership Plan
ESP
The ISO 4217 currency code for the Spanish Peseta.
ET
The two-character ISO 3166 country code for ETHIOPIA.
ETB
The ISO 4217 currency code for the Ethiopian Birr.
ETF
See Exchange Traded Fund.
EU
See: European Union
EUR
The ISO 4217 currency code for Euro.
EUREX
The European derivatives exchange formed in 1998 by a merger of the Deutsche Terminbörse (DTB) and the Swiss Options and Financial Futures Exchange (SOFFEX).
EXDEC
See: Shipper's Export Declaration.
Each way
A broker's commission from his or her involvement on both the purchase and the sale side of a security.
Early distribution
See: Premature distribution
Early Exercise (assignment)
The exercise or assignment of an option contract before its expiration date.
Early withdrawal
See: Premature distribution
Early withdrawal penalty
Penalty paid by the holder of a fixed-term investment penalizing an investor who withdraws money before the agreed-upon maturity date.
Earn-out
Refers to an additional payment in a merger or acquisition that is not part of the original acquisition cost, which is based on the acquired company's future earnings relative to a level determined by the merger agreement.
Earned income
Compensation earned from employment, which includes wages, salary, tips, and compensation.
Earned income credit
A tax credit for taxpayers with children.
Earned surplus
See: Retained earnings
Earnest money
Money given to a seller by a buyer to demonstrate the buyer's good faith. If the deal falls through, the deposit is usually forfeited.
Earning asset
An asset that generates income, e.g., income from rental property.
Earning power
Earnings before interest and taxes (EBIT) divided by total assets.
Earnings
Net income for the company during a period.
Earnings before interest after taxes (EBIAT)
A financial measure defined as revenues less cost of goods sold and selling, general and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest plus cash income taxes. Equivalent to EBIT minus cash taxes.
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 nonoperating profit before the deduction of interest and income taxes.
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 nonoperating profit before the deduction of interest and income taxes. Depreciation expenses are not included in the costs.
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 nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.
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 nonoperating profit before the deduction of income taxes.
Earnings momentum
An increase in the earnings per share growth rate from one reporting period to the next.
Earnings per share (EPS)
A company's profit divided by its number of common outstanding shares. If a company earning $2 million in one year had 2 million common shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term. The one-year (historical or trailing) EPS growth rate is calculated as the percentage change in earnings per share. The prospective EPS growth rate is calculated as the percentage change in this year's earnings and the consensus forecast earnings for next year.
Earnings-price ratio
See: Earnings yield
Earnings response coefficient
A measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements.
Earnings retention ratio
Plowback rate.
Earnings surprises
Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES. Negative earnings surprises generally have a greater adverse effect on stock prices than a reciprocal positive earnings surprise.
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 terms. We often look at earnings yield because this avoids the problem of zero earnings in the denominator of the price-earning ratio.
Easy money
See: Tight money
Eating stock
When an underwriter can't find buyers for a stock and therefore has to buy them for his own account.
ECN
See: Emerging company marketplace
Eclectic paradigm
A theory that posits three types of advantages benefiting a multinational corporation: ownership-specific, location-specific, and market internalization advantages.
Econometrics
The quantitative science of modelling the economy. Econometric models help explain and predict variables of interest.
Economic assumptions
General market environment a firm expects to operate in over the life of a financial plan.
Economic bubble
A market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset. Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the asset.
Economic defeasance
See: In-substance defeasance
Economic dependence
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 firm's productive capacity.
Economic exposure
The extent to which the value of a firm will change because of an exchange rate change.
Economic growth
An increase in the nation's capacity to produce goods and services. Usually refers to real GDP growth.
Economic growth rate
The annual percentage rate of change in the Gross National Product.
Economic income
Cash flow plus change in present value.
Economic indicators
The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate.
Economic Life
The time period over which an asset's NPV is maximized. Economic life can be less than absolute physical life for reasons of technological obsolescence, physical deterioration, or product life cycle.
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 project's output will not be salable at a price that will cover the project's operating and maintenance costs and its debt service requirements.
Economic shock
Events that impact the economy which originate from outside it. They are unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC).
Economic stimulus
A plan to boost the economy and achieve positive effects like increased job creation, jumpstart frozen credit markets, restore consumer spending etc. through the use of fiscal policy like government spending and tax measures. This program is controversial because many economists disagree on the stimulus multiplier. The expenditure is stimulative if the multiplier is greater than 1.0 (extra government spending causes add on spending by consumers). However, many economists think that at best, the multiplier is 1.0 (simple replacement of spending that would already occur) and at worst less then 1.0 (government spending focused on less productive targets than consumers would choose).
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, and all goods and services, and involves the harmonization and unification of social, fiscal, and monetary policies.
Economic value added (EVA)
A method of performance evaluation that adjusts accounting performance for investors' required return on investment. Suppose a division produces a 12% return on capital invested. Given the risk of the division's business line, if investors would usually require 14% on capital invested for this level of risk, the division destroyed shareholder value by the EVA metric. This Stern-Stewart has a trade mark on this term.
Economics
The study of the economy. See also: Macroeconomics; microeconomics; Keynesian economics, monetarism, and supply-side economics.
Economies of scale
Achievement of lower average cost per unit through increased production.
Economies of scale
The decrease in the marginal cost of production as a firm's extent of operations expands.
Economies of scope
Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.
Economies of vertical integration
Produced by achieving lower operating costs by owning all components of production and sometimes sales outlets rather than contracting with companies in the outside marketplace.
EDGAR (Electronic Data Gathering and Retrieval)
The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.
Edge Act corporation
Corporation chartered by the Federal Reserve to engage in international banking. The Board of Governors acts on applications to establish Edge Act corporations and also examines the corporations and their subsidiaries. Named after Senator Walter Edge of New Jersey, who sponsored the original legislation to permit formation of such organizations. See also: agreement corporation.
Edge corporations
Specialized banking institutions, authorized and chartered by the Federal Reserve Board of Governors in the U.S., that are allowed to engage in transactions of a foreign or international character. They are not subject to restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to organize and own an edge corporation.
Education IRA
A type of individual retirement account enabling the contribution of up to $500 per year tax free for each child up to the age of 18 by the parents in the family.
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 a 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 debt
The total debt owed by a firm to its creditors.
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 bond's price - taking into account that expected cash flows will change as interest rates change due to the embedded option.
Effective Interest Rate
The annual rate at which an investment grows in value when interest is credited more often than once a year.
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 net worth
Net worth plus subordinated debt.
Effective rate
A measure of the time value of money that fully reflects the effects of compounding.
Effective sale
A sale based on the most recent round-lot price, which determines the price of the next odd lot. The difference created between the last round-lot price and the odd-lot price is referred to as the odd-lot differential.
Effective spread
The gross underwriting spread adjusted for the impact that a common stock offering's announcement has on the firm's share price.
Effective tax rate
The net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.
Effective yield
Yield or return on a short-term investment after adjustment for the change in exchange rates over the period of concern.
Efficiency
The degree and speed with 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 portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any particular 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
Market in which prices correctly reflect all relevant information.
Efficient Market Hypothesis
States that all relevant information is fully and immediately reflected in a security's 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 past information in prices), semistrong form (stock prices reflect all past and current publicly available information), and strong form (stock prices reflect all relevant information, including information not yet disclosed to the general public, such as insider information).
Efficient markets theory (EMT)
Principle that all assets are correctly priced by the market, and that there are no bargains.
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.
Efficient surface
In mean variance skewness analysis, the set of portfolios that result from investor's preference for higher means, lower variance and higher (positive) skewness. The efficient surface is analogous (in three dimensions, mean, variance and skewness) to the efficient frontier (in two dimensions, mean and variance).
Eighth[-ed]
Historical term 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 bank's 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 demand
The degree of buyers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of demand to price, e.g., luxury goods, where a rise in price causes a decrease in demand. Goods with a small value of elasticity (less than 1) have a demand that is insensitive to price, e.g., food, where a rise in price has little or no effect on the quantity demanded by buyers.
Elasticity of supply
The degree of producers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of supply to price, e.g., luxury goods, where a rise in price causes an increase in supply. Goods with a small value of elasticity (less than 1) have a supply that is insensitive to price, e.g., food, where a rise in price has little or no effect on the amount that producers supply.
Elasticity of an option
Percentage change in the value of an option given a 1% change in the value of the option's underlying stock. Related: delta.
Elect
The conversion of a conditional order into a market order.
Election Period
The period of time during which the holder can elect to extend and extendible bond, or to retract a retractable bond.
Electronic data interchange (EDI)
The direct exchange of information electronically, from one firm's computer to another firm's computer in a structured format.
Electronic depository transfers
The transfer of funds between bank accounts through the Automated Clearing House (ACH) system.
Electronic funds transfer (EFT)
Transfer of funds electronically rather than by check or cash. The Federal Reserve's Fedwire and automated clearninghouse services are EFT systems.
Electronic Funds Transfer Systems
A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, automated clearringhouses (ACHs) and other automated systems.
Electronic Queriable Carrier
A transporter of goods which allows tracking of goods in transit electronically using a waybill number such as United Parcel, Federal Express, etc.
Elephants
A term used to refer to large institutional investors.
Eleven bond index
An index based on the average yield of 11 municipal bonds that mature in 20 years and carry an average AA rating. The eleven bonds used to calculate the index are also found in the 20 bond index, which serves as a benchmark in tracking municipal bond yields.
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
Technical market timing strategy that predicts price movements on the basis of historical price wave patterns and their underlying psychological motives. Robert Prechter is a famous Elliott Wave theorist.
Elves
A term the host uses to refer to guests on the PBS television show, "Wall Street Week", who are technical analysts attempting to predict the direction of stock prices over the next six months.
Embedded option
An option that is part of the structure of a bond that gives either the bondholder or the issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security.
Emergency fund
A reserve of cash kept available to meet the costs of any unexpected financial emergencies.
Emergency Home Finance Act of 1970
The federal legislation creating the Federal Home Loan Mortgage Corporation, a partially government-run program initiated to stimulate the development of a secondary mortgage market and expand mortgages available to veterans and other groups.
Emerging Company Marketplace (ECM)
A service once offered by the American Stock Exchange to help small growth companies fulfill special listing requirements. The service is no longer available.
Emerging markets
The financial markets of developing economies.
Emerging Markets Free index (EMF)
A Morgan Stanley Capital International index created to track stock markets in selected emerging markets that are open to foreign investment like Argentina, Chile, Jordan, Malaysia, Mexico, Philippines, and Thailand.
Emerging markets fund
A mutual fund that invests primarily in countries with developing economies (that is, those that are becoming industrialized). Emerging markets funds tend to be more volatile than domestic stock funds due to currency fluctuation and political instability. Consequently, fund prices can fluctuate dramatically.
Employee contribution
An employee's own deposit to a company retirement plan.
Employee Retirement Income Security Act (ERISA)
The law that regulates the operation of private pensions and benefit plans.
Employee stock fund
A firm-sponsored program that enables employees to purchase shares of the firm's 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.
Employee Stock Purchase Plan (ESPP)
A plan usually linked to a corporation's payroll deduction system allowing employees to purchase shares at a discount from current market value.
Employer matching contribution
The amount, if any, a company contributes on an employee's behalf to the employee's retirement account, usually tied to the employee's own contribution.
Employment rate
The percentage of the labor force that is employed. The employment rate is one of the economic indicators that economists examine to help understand the state of the economy. See also: Unemployment rate.
Empty head and pure heart test
Securities and Exchange Commission rule that allows only the bidder of a tender offer to trade in the stock while possessing inside information.
Encumbered
A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank's holding of a home mortgage encumbers property.
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; and so on.
Endogenous uncertainty
Describes factors within the control of the firm, such as a decision to reveal information about price or input costs. Converse of exogenous.
Endogenous variable
A value determined within the context of a model. Related: Exogenous variable.
Endorse
Transferring asset ownership by signing the back of the asset's certificate.
Endowment
Gift of money or property to a specified institution for a specified purpose.
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.
Energy mutual fund
Mutual fund investing in energy stocks only, e.g., oil and gas companies.
Engineering risk
The risk associated with the impact on a project's cash flows from deficiencies in design or engineering. Also known as design risk.
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 firm's existing products.
Enterprise
A business firm.
Enterprise multiple
The ratio of the enterprise value to the EBITDA of a corporation. See: Enterprise value/EBITDA (EV/E), Enterprise value
Enterprise Value
The market capitalization of a firm's equity plus the market value of the firm's debt. Often the value of assets that are non-core are excluded from the final calculation.
Enterprise value/EBITDA ratio (EV/E)
The EV/EBITDA ratio, also known as the enterprise multiple, is the ratio of a company's enterprise value to its earnings before non-cash items and is commonly used to value possible takeover targets. Although similar to the P/E ratio, there are two aspects of the EV/E ratio that make it a more accurate measurement of a company's true value: the inclusion of EBITDA in the ratio allows for a comparison of earnings between different industries by omitting the effects of interest and taxes on earnings, which vary between industries; the enterprise value, on the other hand, uses net debt in its calculation, which allows for the EV/E ratio to be used to compare companies with different capitalization structures. See: EBITDA, Enterprise multiple, Takeover
Entrepreneur
A person starting a new company who takes on the risks associated with starting the enterprise, which may require venture capital to cover start-up costs.
Entropy
The level of disorder in a system.
Environmental fund
A mutual fund that invests strictly in stocks of companies that are environmentally friendly and/or have the goal of environmental betterment. The investors are trying to support and profit from opportunities related to the environmental movement.
Environmental risk
The risk associated with economic or administrative consequences of slow or catastrophic environmental pollution.
EPS
See: Earnings per share
Equal dollar swap
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 percentage contribution rule (EPCoR)
Principle that each asset contributes the same proportion to the equilibrium portfolio rate premium and risk.
Equal shares swap
Applies mainly to convertible securities. Selling the underlying common and reinvesting the proceeds in as much of the convertible as can be converted into the number of shares of common just sold. See equal dollar swap.
Equalizing dividend
Special dividends received by investors of a firm for income the investor lost because the firm altered the dividends payment schedule.
Equilibrium
The stable state of the system. See: Attractor.
Equilibrium exchange rate
Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML 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 CML is defined by the capital asset pricing model.
Equilibrium price
The price at which the supply of goods matches demand.
Equilibrium rate of interest
The interest rate that clears the market. Also called the trade-clearing interest rate.
Equipment leasing partnership
A limited partnership that receives income and tax benefits such as depreciation costs by purchasing equipment and leasing it to other parties.
Equipment trust certificates
Certificates issued by a trust that is formed to purchase an asset and lease it to a lessee. When the last of the certificates has been repaid, title and ownership of the asset transfers to the lessee.
Equitable owner
The beneficiary of a property held in a trust.
Equity
Ownership interest in a firm. Also, the residual dollar value of a futures trading account, assuming its liquidation is at the going trade price. In real estate, dollar difference between what a property could be sold for and debts claimed against it. In a brokerage account, equity equals the value of the account's securities minus any debit balance in a margin account. Equity is also shorthand for stock market investments.
Equity cap
An agreement in which one party, for an up-front premium, agrees to pay the other at specific time periods if a designated stock market benchmark tops a predetermined level.
Equity carve out
Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only offers a minority share to the equity market. Also known as carve out.
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 falls below a predetermined level.
Equity funding
An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, giving the investor the advantages of insurance protection with the growth potential of a mutual fund.
Equity injection
Purchase of shares (either common or preferred) of a (usually ailing) company or institution to provide it with the required capital.
Equity kicker
Stock warrants issued attached to a new debt, preferred or common stock issue to improve the salability of the issue.
Equity-linked Eurobonds
A Eurobond including a convertibility option or warrant.
Equity-linked policies
Related: Variable life
Equity market
Related: stock market
Equity multiplier
Total assets divided by total common stockholders' equity; the 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 REIT
A Real Estate Investment Trust that assumes ownership status in the property it invests in enabling investors of the REIT to earn dividends on rental income from the property and appreciation in property resale. Antithesis of a Mortgage REIT.
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.
Equityholders
Stockholders; those holding shares of the firm's equity.
Equivalent annual annuity
The amount per year for some number of years that has a present value equal to a given amount.
Equivalent annual benefit
The annual annuity with the same value as 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 cost per year of owning an asset over its entire life.
Equivalent bond yield
Effective annual yield on a short-term, noninterest-bearing security calculated for comparison 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.
Erosion
A negative impact on one or more of a firm's existing assets.
Escalator clause
Provision in a contract allowing cost increases to be passed on. In an employment contract, for example an escalator clause may call for wage increases in line with inflation.
Escheat
Reversion of monies or securities to the state in which the securityholder was last known to reside, when no claim by the securityholder has been made after a certain period of time fixed by state law. This is known as the holding period or cut-off date.
Escheat Period
The period of elapsed time required by applicable state law for property to be presumed abandoned.
Escheatment
The process of turning over unclaimed or abandoned property to a state authority. Escheatment laws require mutual funds to turn over uncashed or returned check dollars and/or client account fund shares if the owner cannot be located within a length of time determined by each state.
Escrow
Property or money held by a third party until the agreed upon obligations of a contract are met.
Escrow receipt
A document provided by a bank in options trading to guarantee that the underlying security is on deposit and available for potential delivery.
Escrowed to Maturity (ETM)
Holding of the proceeds from a new bond issue to pay off an existing bond issue at its maturation date.
Essential purpose (or function) bond
See: Public purpose bond
Estate planning
The preparation of a plan to carry out an individual's wishes as to the administration and disposition of his/her property before or after his/her death.
Estate tax
A federal or state tax imposed on an individual's assets inherited by heirs.
Estimated tax
Tax to be paid quarterly on income that is not subject to withholding tax, including self-employed income, investment income, alimony, rent, and capital gains.
Ethical fund
See: Social conscious mutual fund.
Ethics
Standards of conduct or moral judgment.
Euclidean Geometry
The Plane geometry learned in high school, based upon a few ideal, smooth, symmetric shapes.
Euro
Originally, the term for a deposit made outside one's home country but denominated in the home country currency. This terminology is confusing now since the new European Currency unit, also called the Euro, was introduced on January 1, 1999.
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.
Eurodollar obligations
Certificates of deposit issued in U.S. dollars by foreign banks and foreign branches of U.S. banks.
Euro lines
Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.
Euro straight
A fixed-rate coupon Eurobond.
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. Eurobonds are often bearer bonds.
Euroclear
The Euroclear group is the world's largest settlement system for domestic and international securities transactions, covering both bonds and equities for financial institutions located in over 80 countries.
Euro-commercial paper
Short-term notes with maturities up to 360 days that are issued by companies in international money markets.
Eurocredit market
Comprises banks that accept deposits and provide loans in large denominations and in a variety of currencies. The banks that constitute this market are the same banks that constitute the Eurocurrency market; the difference is that Eurocredit loans are longer-term than so-called Eurocurrency loans.
Eurocredits
Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and government borrowers.
Eurocurrency
Instrument issued outside your country, but denominated in your currency. A Eurodollar is a Certificate of Deposit in U.S. dollars issued in some other country (though mainly traded in London). A Euroyen is a CD issued in yen outside Japan.
Eurocurrency deposit
A short-term fixed-rate time deposit denominated in a currency other than the local currency (e.g., U.S. dollars 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 Eurodeposits may be anywhere other than the U.S. Similarly, a Euroyen or Euro DM deposit represents a CD in yen or DM outside Japan and Germany, respectively.
Eurodollar bonds
Eurobonds denominated in U.S.dollars.
Eurodollar certificate of deposit
A certificate of deposit paying interest and principal in dollars, but issued by a bank outside the United States, usually in Europe.
Eurodollar futures
A futures contract written on a Eurodollar deposit. The contract locks in an interest rate in the future and is cash settled.
Eurodollar interest rate
Interest rate earned on a Eurodollar deposit.
Euroequity issues
Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate. Related: External market.
Euro-medium term note (Euro-MTN)
A nonunderwritten 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.
Euro.NM
Created on March 1, 1996, Euro.NM is a pan- 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), the Deutsche Börse AG (Neuer Markt), the Amsterdam Exchanges (NMAX), and the Brussels Stock Exchange (Euro.NM Belgium).
Euro-note
Short- to medium-term debt instrument sold in the Eurocurrency market.
Euroyen bonds
Eurobonds denominated in Japanese yen.
European, Australia, and Far East index (EAFE index)
Stock index, computed by Morgan Stanley Capital International.
European Association of Securities Dealers Automated Quotation (EASDAQ)
European equivalent of Nasdaq.
European Bank for Reconstruction and Development
Bank targeted at Eastern Europe and the former Soviet Union.
European Central Bank (ECB)
Bank created to monitor the monetary policy of the countries that have converted to the Euro from their local currencies. The original 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
European Currency Unit (ECU)
An index of foreign exchange consisting of European currencies, originally devised in 1979. Also see Euro.
European exchange rate mechanism (ERM)
The system that countries in the European Union once used to pay exchange rates within bands around an ERM central value.
European Exercise
A feature of an option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option. Most index options are European-style exercise.
European Monetary System (EMS)
A system adopted by European Community members with the aim of promoting stability by limiting exchange-rate fluctuations. The system was originated in 1979 by the nine members of the European Community (EC). The EMS comprised three principal elements: the European Currency Unit (ECU), the monetary unit used in EC transactions; the Exchange Rate Mechanism, ERM, whereby those member states taking part agreed to maintain currency fluctuations within certain agreed limits; and the European Monetary Cooperation Fund, which issues the ECU and oversees the ERM. The 1992 Maastricht Treaty provided for the move to Economic and Monetary Union (EMU), including a European Monetary Institute to coordinate the economic and monetary policy of the EU, a European Central Bank (ECB) to govern these policies, and the presentation of a single European currency.
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 exercise
A method of exercising options contracts in which the buyer can only exercise the contract on the last day before expiration.
European-style option
An option contract that can be exercised only on the expiration date.
European terms
A foreign exchange quotation that states the foreign currency price of one U.S. dollar. Opposite of direct quote.
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 until January 1, 1994 and currently comprises 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.
Evaluation period
The time interval over which funds assess a money manager's performance.
Even lot
See: Round lot
Evening up
Buying or selling to offset an existing market position.
Event anomalies
Occurrences such as earnings surprises or stock splits that seem to present opportunity to generate abnormal returns for those trading on the news.
Event driven
In the context of hedge funds, a style of management that combines many different types of hedge fund investing such as merger arbitrage, distressed securities and high yield investing, in conjunction with an important "event" that is supposed to unlock firm value (like a merger announcement, earnings announcement, or a regulator decision).
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.
Event study
A statistical study that examines how the release of information affects prices at a particular time.
Events of default
Contractually specified events that allow lenders to demand immediate repayment of a debt.
Evergreen
A contract that rolls over after each agreed (short-term) period until cancelled by one party.
Evergreen credit
Revolving credit without maturity.
Evergreen funding
A British term referring to the gradual injection of capital into a new or existing enterprise.
Ex Works (EXW)
A transaction in which the seller's only responsibility is to make the ordered goods available to the buyer at the seller's premises. The buyer bears the cost and risk in transporting the goods from the seller's premises to destination. Since this includes pre- carriage and export clearance in the seller's country, EXW is not a very practical Incoterm for U.S. exports.
Ex-all
The sale of a security without the privileges associated with the security such as dividends, voting rights, or warrants.
Ex ante return
The expected return or anticipation return of an asset or portfolio.
Ex ante value
The forecasted price or value.
Exception
A proxy which does not authorize the proxy committee to act on its behalf concerning any other business, adjournments or substitutions.
Exceptional Return
Residual return plus benchmark timing return. For a given asset with beta equal to one, if its residual return is 2%, and the benchmark portfolio exceeds its consensus expected returns by 1%, then the asset's exceptional return is 3%.
Excess accumulation
The amount of a required minimum distribution that an IRA holder fails to remove from an IRA in a timely manner. Excess accumulations are subject to a 50% IRS penalty tax.
Excess contribution
The amount by which an IRA contribution exceeds the allowable limits. If an excess contribution is not properly corrected, a 6% IRS penalty applies.
Excess reserves
Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves.
Exchange Ratio
The number of new shares in an acquiring firm that are given for each outstanding share of an acquired firm.
Exchange Traded Fund
Similar to an index mutual fund, these tracking stocks trade continuously. Two popular ETFs are the Standard and Poor's depositary receipt (SPDR) launched in 1993 and the NASDAQ-100 Index Tracking Stock (QQQ) which was launched in 1999. These vehicles are popular for hedging as well as investment.
Exchange Traded Notes (ETN)
Unsecured, unsubordinated debt securities that are traded on an exchange and offer returns based on the performance of a market index upon maturity. As they are issued by an underwriting bank, their value also depends on the credit rating of the issuer.
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. 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 (with dividend).
Ex-dividend date
The first day of trading when the buyer of a stock is no longer entitled to the most recently announced dividend payment ( i.e. the trade will settle the day after the record date, too late for the buyer to appear on the shareholder record and receive the dividend.) The date set by the NYSE (and generally followed on other U.S. exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is denoted by an x in newspaper listings on that date.
Executor
An individual or trust institution nominated in a will and appointed by a court to settle the estate of a deceased person.
Ex-legal
A municipal bond offered without a law firm's legal opinion. A majority of bonds are issued with legal opinions.
Expatriate
An employee who is a U.S. citizen living and working in a foreign country.
Ex-pit transaction
The closing out of a futures position off the exchange floor. Effected when two hedgers, one long and one short, make a private deal in the cash market, and no longer need their (equal and opposite) futures contracts to hedge. The hedgers contact the exchange and request the contracts be nullified without making a trade on the floor. This must be done (1) to ensure neither contract results in delivery/the requirement to deliver; (2) to properly reflect open interest; and (3) to eliminate the uncertainty of the fill price should a trade actually be done to offset the positions. Extremely rare. Also known as an EFP transaction, an exchange-for-physicals transaction or an against-actuals transaction.
Ex post return
Related: Holding-period return
Ex-rights
Shares of stock that are trading without rights attached.
Ex-rights date
The date on which a share of common stock with rights on it begins trading ex-rights.
Expropriation
The taking over of a company or project by the state, implying compensation will be paid. Nationalization.
Ex-warrants
Describes a stock sale during the time in which the buyer of the stock is not entitled to the warrant accompanying the stock.
Exact interest
Interest paid based on the basis of a 365-day/year schedule by a bank or other financial_institution as opposed to a 360-day basis (ordinary interest). Difference can be material when large principal sums of money are involved.
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.
Except for opinion
An auditor's opinion reflecting the fact that the auditor is unable to audit certain areas of the company's operations because of restrictions imposed by management or other conditions beyond the auditor's control.
Expected rate of inflation
The public's expectations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity.
Excess kurtosis
Kurtosis measures the "fatness" of the tails of a distribution. Positive excess kurtosis means that distribution has fatter tails than a normal distribution. Fat tails means there is a higher than normal probability of big positive and negative returns realizations. When calculating kurtosis, a result of +3.00 indicates the absence of kurtosis (distribution is mesokurtic). For simplicity in its interpretation, some statisticians adjust this result to zero (i.e. kurtosis minus 3 equals zero), and then any reading other than zero is referred to as excess kurtosis. Negative numbers indicate a platykurtic distribution; positive numbers indicate a leptokurtic distribution.
Excess margin
Equity present in an individual's account above the legal minimum required for a margin account or the maintenance requirement at a brokerage firm.
Excess profits tax
Additional federal taxes placed on the earnings of a business, used only in time of national emergency such as war.
Excess reserves
Actual reserves that exceed required reserves.
Excess return on the market portfolio
Difference between the return on the market portfolio and the riskless rate.
Excess returns
Difference between an asset's return and the riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.
Exchange
A marketplace in which shares, options and futures on stocks, bonds, commodities, and indexes are traded. Principal U.S. stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and National Association of Securities Dealers Automatic Quotation System (Nasdaq).
Exchange, The
A nickname for the New York Stock Exchange. Also known as the Big Board, where more than 2000 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.
Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.
Exchange controls
Government restrictions on the purchase of foreign currencies by domestic citizens or on the purchase of the local domestic currency by foreigners.
Exchange distribution
A sale on an exchange floor of a large block of stock in a single transaction. A broker bunches a large number of buy orders and sells the block all at once. The broker receives a special commission from the seller.
Exchange fund (also known as swap fund)
Investment vehicle introduced in 1999 that 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 a diversified portfolio of stocks in a tax-free transaction.
Exchange members
See: Member firm; seat
Exchange offer
An offer by a firm to give one security, such as a bond or preferred stock, in exchange for another security, such as shares of common stock.
Exchange privilege
A mutual fund shareholder's right to switch from one fund to another within one fund family, usually at no additional charge.
Exchange rate
The price of one country's currency expressed in another country's 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 that an investment's value will change because of currency exchange rates.
Exchange risk
The variability of a firm's 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 currency's appreciation or depreciation.
Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.
Exchange Traded Funds (ETF)
Also known as ETF. A basket of stocks similar to an index mutual fund. However, there are a number of important differences between ETFs and mutual funds. The ETF can be traded within the day, they can be shorted, purchased on margin and there even exists options on some ETFs.
Exchangeable
Applies mainly to convertible securities. Means the issuer, if so stated, may substitute a convertible debenture for an existing convertible preferred with identical terms. Most often used when a corporation has an immediate need for equity capital and a low tax rate, and expects either or both conditions to change. This would make the debenture less attractive if the interest tax-deductibility is lost.
Exchangeable instrument
Applies mainly to convertible securities. Bond or preferred stock that may be exchangeable into the common stock of a different public corporation.
Exchangeable Security
Investment instrument that grants its holder the right to exchange it for the common stock of a firm other than the issuer of the instrument.
Excise tax
Federal or state tax placed on the sale or manufacture of a commodity, typically a luxury item e.g., alcohol.
Exclusionary self-tender
A firm's offer to buy a given amount of its own stock while excluding targeted stockholders.
Exclusive
In the context of general equities, having sole possession of the customer order/indication; not in competition with other dealers.
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 one (mutual funds) and three (stocks) days after an order is executed. The time varies greatly across countries. In France, for example 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 List
Sophisticated investors, usually institutional investors, who are considered informed enough that new issues can be marketed to them without a prospectus. This exemption reduces the cost of private placements.
Exempt securities
Instruments exempt from the registration requirements of the Securities Act of 1933 or the margin requirements of the SEC Act of 1934. Such securities include government bonds, agencies, munis, commercial paper, and private placements.
Exemption
Direct reductions from gross income allowed by the IRS.
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 limit
Cap on the number of option contracts of any one class of contract that can be exercised within a five-day period contract. There are no restrictions on exercise for the last 10 trading days before expiry. A stock option's exercise limit varies with the volume of the underlying stock.
Exercise notice
A broker's notification from a client who wants to exercise a right to buy or sell (depending on the type of contract) the underlying security of the option contract.
Exercise price
The price at which the security underlying an options contract may be bought or sold.
Exercise settlement amount
The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.
Exercise value
The value of an in-the-money option if it was exercised today (before the expiration date). For a call option, this is the difference between the current asset price and the stike price. For a put option, it is the difference between the strike price and the current asset price.
Exercising the option
The act of buying or selling the underlying asset via the option contract.
Exhaust price
The low price at which a broker must liquidate a client's holding in a stock purchased in a margin account in order to meet a margin call when the client cannot meet the call.
Exim bank
See: Export-Import Bank
Exit fee
See: Back-end load
Exogenous
Describes facts outside the control of the firm. Converse of endogenous.
Exogenous variable
A variable whose value is determined outside the model in which it is used. Related: Endogenous variable
Exotic option
Refers to options that are more complex than simple put or call options. For example, a Caput is a call option on a put option. Exotic options trade over-the-counter.
Expansion
Phase of the business cycle as it climbs from a trough toward a peak.
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 during the life of a futures contract or total dividends received for holding a particular stock one 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, given 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 asset's 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 Spot Rate
The exchange rate between two currencies that is anticipated to prevail in the spot market on a given future date. It differs from the current spot rate primarily by the extent to which inflation expectations in the two currencies differ.
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.
Expense ratio
The percentage of the assets that are 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 SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions 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 (OER).
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.
Expert system
A software system designed to emulate the processes and procedures conducted by humans in particular areas of expertise, thereby automating decision-making processes.
Experience rating
A technique insurance companies use to determine the correct price of a policy premium.
Expiration
The time an option contract lapses.
Expiration cycle
The recurring cycle of expiry months for which options on a particular security can be available. Basic options are placed in one of three cycles; Cycle 1 (the January/April/July/October, or the first month of each quarter); Cycle 2 (the second month of each quarter); or Cycle 3 (the third month of each quarter).
At any one time, a basic option has contracts with three expiration dates outstanding. For example, in mid-February, options trading on cycle 3 will have March, June and September expiries available. Late in March, after the March options expire, a December contract will be added, thus offering June, September and December expiries.
Higher-volume equity options, index options, and LEAPS can trade on other cycles, such as Cycle 4, Cycle 5 or Cycle 6. Cycle 4, for example, offers options in the two nearest months plus two months from Cycle 3. For example, in mid-April, there would be April, May, June and September expires available. A month later, there would be May, June, September and December expiries available for trading.
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 third Friday of the expiration month; brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.
Expiration time
The time of day by which all exercise notices must be received on the expiration date. Technically, the expiration time is currently 11:59AM on the expiration date, but public holders of option contracts must indicate their desire to exercise no later than 5:30PM on the business day preceding the expiration date. The times are Eastern Time. See also Expiration Date.
Explicit Bankruptcy Costs
Specific costs incurred during the bankruptcy process such as legal fees, court costs, consultants' fees, and document preparation expenses.
Explicit tax
A tax specifically collected by a government; includes income, withholding, property, sales, and value-added taxes and tariffs.
Exploding term sheet
Venture capital jargon. Often a proposed term sheet might explode or be null and void in a fixed period set to negotiate the final contract.
Export Commodity Control List
A listing administered by the U.S. Department of Commerce of items requiring validated export licenses for shipment to some or all countries.
Export Credit Agency
An agency established by a country to finance its nation's goods, investment, and services, often offers political risk insurance.
Export Credit Guarantee
Guarantee from the UK Export Credit Agency.
Export Development Corp.
Canada's Export Credit Agency.
Export Finance Insurance Corp.
Australia's Export Credit Agency.
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.
Export financing interest
Interest income derived from goods manufactured in the U.S. and sold outside the U.S. as long as not more than 50% of the value is imported into the U.S.
Export License
Permission from the exporter's government to export specific merchandise to a particular country.
Export management company
A foreign or domestic company that acts as a sales agent and distributor for domestic exporters in international markets.
Export Management Consultant (EMC)
A company serving as the export department of other firms. Normally, EMC's work on a commission basis and do not take title to the goods they export. Also see: Export Trading Company.
Export Trading Company (ETC)
A company serving as the export department of other firms. They usually take title, risk and responsibility for the goods they export.
Exports
Goods or services sold to parties in foreign countries.
Exposure netting
Offsetting exposures in one currency with exposures in the same or another currency, when 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.
Expost average rate of return
The historical mean percentage an asset has yielded.
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 Auto indication's existence at any time. See: Cancel.
Extendable bond
Bond whose maturity can be extended at the option of the holder (investor).
Extendable notes
Note with maturity that can be extended by mutual agreement between the issuer and investors.
Extension
Voluntary arrangements to restructure a firm's 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
Funding that is not generated by a firm's operations: new borrowing or a stock issue.
External funds
Funds originating from a source outside the corporation to increase cash flow and to aid in expansion efforts, e.g., bank loan or bond offering.
External market
Also referred to as the international market, the offshore market, or, more popularly, the Euromarket. A mechanism for trading securities that at issuance (1) 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.
Extra Dividend
A temporary increase in a firm's dividends beyond the normal level.
Extraordinary call
Early redemption of a revenue bond because the revenue source paying the interest on the bond has been eliminated or has disappeared.
Extraordinary item
An unusual and unexpected one-time event that must be explained to shareholders in an annual or quarterly report, e.g., write down for a discontinued operation, employee fraud, a lawsuit, or other one-time events. Results are often presented with and without these items. The logic of excluding these items is that investors have a better notion of future performance if one-time events are excluded. Differs from an unusual item in that extraordinary items are (1) material; (2) non-recurring; and (3) outside the ordinary nature of the business.
Extra or special dividends
A one-time or special dividend that is paid in addition to a firm's established or expected quarterly dividend.
Extraordinary positive value
A positive net present value.
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.

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Copyright © 2009, Campbell R. Harvey. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

[Version 17 May 2009.]
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Campbell R. Harvey's Hypertextual Finance Glossary
Copyright © 2009. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

Order the popular hard copy version coauthored with the
2002 Pulitzer Prize winner for financial writing,
Gretchen Morgenson of the New York Times.
Order via Amazon
Order via Barnes and Noble
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F
Fifth letter of a Nasdaq stock symbol specifying that the issue is a foreign company.
FAC
See: Federal Advisory Council
FAS
Abbreviation for the Incoterm Free Alongside Ship.
FASB
See: Financial Accounting Standards Board
FCA
Abbreviation for the Free Carrier
FCIA
See: Foreign Credit Insurance Association
FCM
See: Futures commission merchant
FDI
See: Foreign direct investment
FDIC
See: Federal Deposit Insurance Corporation
FFO
See: Funds from operations
FI
The two-character ISO 3166 country code for FINLAND.
FICO
See: Financing corporation
FIFO
See: First in, first out
FIM
The ISO 4217 currency code for the Finnish Markka.
FIRREA
See: Financial Institutions Reform, Recovery and Enforcement Act of 1989
FJ
The two-character ISO 3166 country code for FIJI.
FJD
The ISO 4217 currency code for the Fijian Dollar.
FK
The two-character ISO 3166 country code for FALKLAND ISLANDS (MALVINAS).
FKP
The ISO 4217 currency code for the Falkland Islands Pound.
FO
The two-character ISO 3166 country code for FAROE ISLANDS.
FOK
See: Fill or kill order
FM
The two-character ISO 3166 country code for MICRONESIA, FEDERATED STATES OF.
FPA
Abbreviation for the insurance term Free of Particular Average
FR
The two-character ISO 3166 country code for FRANCE.
FRA
See: Forward rate agreement
FRF
The ISO 4217 currency code for the French Franc.
FRN
See: Floating-rate note
FSC
See: Foreign Sales Corporation
F.T.C.
See: Federal Trade Commission
FX Rate
See:Foreign exchange rate
Face-amount certificate
A debt security issued by face amount. The holder makes payments periodically to the issuer, and the issuer promises to pay the purchaser the face value at maturity or the surrendered value if the security is presented at the maturity specified in the certificate.
Face value
See: Par value
Facilitation
The process of providing a market for a security. Normally, this refers to bids and offers made for large blocks of securities, such as those traded by institutions. Listed options may be used to offset part of the risk assumed by the trader who is facilitating the large block order. See also: Hedge ratio.
Factor
A financial institution that buys a firm's accounts receivable and collects the accounts.
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.
Factor model
A way of decomposing the forces that influence a security's 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.
Factor Return
The return attributable to a particular common factor. We decompose asset returns into common factor components, based on the asset's exposures to common factors times the factor returns, and a specific return.
Factoring
Sale of a firm's accounts receivable to a financial institution known as a factor.
Fade
Refers to over-the-counter trading. Fill another OTC dealer's bid for or offer of stock.
Fail
A deal is said to fail if on the settlement date either the seller does not deliver securities in proper form or the buyer does not 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, where both have knowledge of the relevant facts. Also referred to as market price.
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. In the context of corporate goverance, Fair-Price provisions limit the range of prices a bidder can pay in two-tier offers. They typically require a bidder to pay to all shareholders the highest price paid to any shareholder during a specified period of time before the commencement of a tender offer and do not apply if the deal is approved by the board of directors or a supermajority of the target's shareholders. The goal of this provision is to prevent pressure on the target's shareholders to tender their shares in the front end of a two-tiered tender offer, and they have the result of making such an acquisition more expensive. A majority of states have fair price laws.
Fair price provision
See:Appraisal rights
Fair rate of return
The rate of return that state governments allow a public utility to earn on its investments and expenditures. Utilities then use these profits to pay investors and provide service upgrades to their customers.
Fair value
In the context of futures, 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. More generally, fair value for any asset simply refers to the perception that it is neither underpriced (too cheap) nor overpriced (too expensive).
Fairness opinion
An investment banker's professional opinion as to the price an acquiring firm is offering in a takeover or merger.
Fall Down
In the context of general equities, may not be able to produce as indicated in one's advertised market, due to less help (than anticipated) from other parties or due to changing market conditions.
Fall out of bed
A sudden drop in a stock's price resulting from failed or poor business deals gone bad or falling through.
Fallen angels
Bonds that at the time of issue were considered investment grade but that have dropped below that rating over time.
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.
False accounting
Illegally altering accounting records by making misleading entries or omitting material information for personal gain or to mask poor firm performance.
Fama, Eugene F.
Finance professor at the University of Chicago. Developer of the Efficient Markets Hypothesis.
Fama and French Three Factor Model
Created by Eugene Fama and Kenneth French to describe the expected return of a portfolio. Their model includes the market exposure (known as beta in the Capital Asset Pricing Model) plus two other risk factors: SMB (Small Minus Big) and HML (High Minus Low.) SMB accounts for the tendency for stocks of firms with small market capitalizations generate higher returns, while HML accounts for the tendency that value stocks (of firms with high Book to Market ratios) generating higher returns.
Family of funds
A group of mutual funds offered by one investment company. Often, switching from one mutual fund to another can be done without incurring fees as long as both funds are in the same 'family'.
Family office
Entities (usually registered as corporations or limited liability company) set up to manage the finances of a wealthy family.
Far month
Used in the context of option or futures to refer to the trading month of the contract that is farthest away. Antithesis of nearest month.
Farther out; farther in
Used in the context of options to refer to the relative length of option contract maturities.
FASB No. 8
U.S. accounting standard that requires US firms to translate their foreign affiliates' accounts by the temporal method; that is, reporting gains and losses from currency fluctuations in current income. It was in effect between 1975 and 1981 and became the most controversial accounting standard in the US. It was replaced by FASB No. 52 in 1981.
FASB No. 52
The US accounting standard that replaced FASB No. 8. US companies are required to translate foreign accounts in terms of the current rate and report the changes from currency fluctuations in a cumulative translation adjustment account in the equity section of the balance sheet.
Fast market
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.
Favorable Balance of Trade
The value of a nation's exports in excess of the value of its imports.
Favorable trade balance
Condition that total exports of a nation exceed total imports, creating a net export.
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.
FED Pass
A Federal Reserve action adding more reserves to the banking system, increasing the money available for lending, and making credit easier to attain.
Federal Advisory Council (FAC)
Advisory group made up of one representative (in most cases a banker) from each of the 12 Federal Reserve districts. Established by the Federal Reserve Act, the council meets periodically with the Board of Governors to discuss business and financial conditions and make recommendations.
Federal agency bond
Fixed-income security issued by a government agency such as FNMA.
Federal agency securities
Securities issued by corporations and agencies created by the US government, such as the Federal Home Loan Bank Board and Ginnie Mae.
Federal Agricultural Mortgage Corporation (Farmer Mac)
A federal agency chartered in 1988 to provide a secondary market for farm mortgage loans.
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 deficit (surplus)
When federal government expenditures are exceeded by (are less than) federal government revenue.
Federal Farm Credit Bank
An institution created by the government with the purpose of uniting the financing activities of the Federal Land Banks, the Federal Intermediate Credit Banks, and the banks for cooperatives. See: Federal Farm Credit System.
Federal Farm Credit System
A system chartered in 1971 through the farm credit act providing farmers with credit services through a Federal Land Bank, a Federal Intermediate Credit Bank, and a bank for cooperatives. See: Federal Farm Credit Bank.
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 US Treasury.
Federal funds
Noninterest-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 in which 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
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 US interest rates. 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 gift tax
A federal tax imposed on assets conveyed as gifts to individuals.
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.
Federal Home Loan Mortgage Corporation (FHLMC)
See: Freddie Mac
Federal Housing Administration (FHA)
Federally sponsored agency chartered in 1934 whose stock is currently owned by savings institutions across the United States. The agency buys residential mortgages that meet certain requirements, sells these mortgages in packages, and insures the lenders against loss.
Federal Housing Finance Board (FHFB)
US government agency chartered in 1989 to assume the responsibilities formerly held by the Federal Home Loan Bank system.
Federal Intermediate Credit Bank
A bank sponsored by the federal government to provide funds to institutions making loans to farmers.
Federal intrafund transactions
Intrabudgetary transactions in which payments and receipts both occur within the same federal fund group.
Federal Land Bank
A bank administered under the US Farm Credit Administration that provides long-term mortgage credit to farmers for agriculture-related expenditures.
Federal margin call
A broker's demand upon a customer for cash, or securities needed to satisfy the required Regulation T down payment for a purchase or short sale of securities.
Federal Maritime Commission (FMC)
A U.S. government agency that regulates and administers the shipping industry. This agency also grants freight forwarder licenses.
Federal National Mortgage Association (Fannie Mae)
A 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 nongovernment-backed mortgages.
Federal Open Market Committee (FOMC)
The body that is responsible for setting the interest rates and credit policies of the Federal Reserve System.
Federal Reserve Act of 1913
Federal legislation that established the Federal Reserve System.
Federal Reserve Bank
One of the 12 member banks constituting the Federal Reserve System that is responsible for overseeing the commercial and savings banks of its region to ensure their compliance with regulation.
Federal Reserve District (Reserve district or district)
One of the twelve geographic regions served by a Federal Reserve Bank.
Federal Reserve Board (FRB)
The seven-member governing body of the Federal Reserve System, which is responsible for setting reserve requirements, and the discount rate, and making other key economic decisions.
Federal Reserve float
Float is checkbook money that appears on the books of both the check writer (the payor) and the check receiver (the payee) while a check is being processed. Federal Reserve float is float present during the Federal Reserve's check collection process. To promote efficiency in the payments system and provide certainty about the date that deposited funds will become available to the receiving depository institutions (and the payee), the Federal Reserve credits the reserve accounts of banks that deposit checks according to a fixed schedule. However, processing certain checks and collecting funds from the banks on which these checks are written may take more time than the schedule allows. Therefore, the accounts of some banks may be credited before the Federal Reserve is able to collect payment from other banks, resulting in Federal Reserve float.
Federal Reserve notes
Issued by the US government to the public through the Federal Reserve Banks and their member banks. They represent money owed by the government to the public. Currently, the item "Federal Reserve notes amounts outstanding" consists of new series issues. The Federal Reserve note is the only class of currency currently issued.
Federal Reserve System
The monetary authority of the US, 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 US as well as to supervise Federal Reserve member banks, bank holding companies, international operations of US banks, and US operations of foreign banks.
Federal Savings and Loan Association
An institution chartered by the federal government whose primary function is to regulate institutions that collect savings deposits and provide mortgage loans.
Federal Trade Commission (FTC)
An independent federal agency consisting of a five-member board, whose goal is to create economic competition by promoting consumer protection and prevent illegal business practices. The FTC was created in 1914 to battle monopolisitc trusts, and has since been granted the abilities to prohibit anti-competitive and illegal business practices and enforce industry-wide regulations.
Federally related institutions
Arms of the federal government exempt from SEC registration whose securities are backed by the full faith and credit of the US government (with the exception of the Tennessee Valley Authority).
Fedwire
A wire transfer system for high-value payments operated by the Federal Reserve System.
Fee
A fixed amount or a percentage of an underwriting or principal paid to the underwriter for its services. Also, the charge a mutual fund holder pays for expenses incurred in management and administration of the fund. Also, the rate an account holder pays to a portfolio manager for management of a discretionary account.
Fee table
Schedule found in a mutual fund's prospectus that discloses and illustrates the expenses and fees a shareholder will incur.
Fee-and-commission compensation
See: Fee-based compensation
Fee-based compensation
Payment to a financial adviser of a set hourly rate, or an agreed-upon percentage of assets under management, for a financial plan. When the plan is implemented, the adviser may also receive commission on some or all of the investment products purchased, which would be fee-and-commission compensation.
Fee-only compensation
Payment to a financial adviser of a set hourly rate, or an agreed-upon percentage of assets under management, for a financial plan. Under this arrangement, the adviser receives no commissions on any transactions to implement the plan.
Feedback Systems
An equation where the output becomes the input in the next iteration. This is much like a public address system where the microphone is placed next to the speakers generating feedback as the signal is looped through the PA system.
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.
FICO score
Credit scoring model developed by the Fair Issac Corporation.
Fictitious credit
A margin account's credit balance. Fictitious credit exists after the proceeds from a short sale are accounted for with respect to the margin requirement. The proceeds from the short sale are reflected as a credit, but must stay in the account to serve as security for the loan of securities made in a short sale, and are therefore inaccessible to the client for withdrawal.
Fidelity bond
See: Blanket fidelity bond
Fiduciary
One who must act for the benefit of another party.
Fiduciary out
A provision that permits the Board of Directors to terminate a proposed merger if a better deal arises with another party.
Field warehouse
Warehouse rented by a company on another firm's premises.
Figure
Refers to details about price including the bid and offer. See: Handle
Figuring the tail
Calculating the yield at which a future money market instrument (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
An executed order. Also, the price at which an order is executed.
Fill or kill order (FOK)
Has various definitions. 1) On some exchanges, a market or limited price order that 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 canceled. In this context, no partial fills are accepted, and the FOK order is treated as an IOC, AON order. 2) On other exchanges, a market or limit order that is to be executed by filling the number of shares made available by the first bid or offer, and then canceling any unfilled balance. In this context, a FOK order is treated as an instruction to fill what can be filled by hitting the first bid or offer, and cancel the rest. In this case partial fills are possible, and the FOK order is treated as an IOC, Any Part order.
Because of the prevalence of interlisted stocks, the ability of a broker’s trading desk to direct trades to one exchange or another, and the different interpretations the order can have depending on which exchange the order is routed to, use of this type or order is discouraged. Instead, either an IOC AON, or an IOC Any Part, order will get the desired result regardless of the exchange.
Filter
A rule that stipulates when a security should be bought or sold according to its price action.
Final Take
In the context of project financing, the final participation.
Finance
A discipline concerned with determining value and making decisions. The finance function allocates resources, including the acquiring, investing, and managing of resources.
Finance charge
The total cost of credit a customer must pay on a consumer loan, including interest.
Finance company
A company whose business and primary function is to make loans to individuals, while not receiving deposits like a bank.
Finance Lease
An agreement where the lessor receives lease payments to cover its ownership costs. The lessee is responsible for maintenance, insurance, and taxes. Some finance leases are conditional sales or hire purchase agreements.
Financial Accounting Standards Board (FASB)
Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP).
Financial adviser
A professional offering financial advice to clients for a fee and/or commission.
Financial analysis
Analysis of a company' financial statements, often by financial analysts.
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 Close
The time when the documentation has been executed and conditions precedent have been satisfied or waived. Drawdowns are now permissible.
Financial control
The management of a firm's costs and expenses 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 carving up 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 guarantee insurance
Insurance created to cover losses from specified financial transactions.
Financial innovation
Design of any new financial product, such as exotic currency options and swaps.
Financial institution
An enterprise such as a bank whose primary business and function is to collect money from the public and invest it in financial assets such as stocks and bonds, loans and mortgages, leases, and insurance policies.
Financial institution buyer credit policy
Insurance coverage for loans by banks to foreign buyers of exports.
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
Legislation that established the Office of Thrift Supervision, which was created in the wake of the savings and loan crisis of the late 1980s.
Financial intermediaries
Institutions that provide the market function of matching borrowers and lenders or traders. Financial intermediaries facilitate transactions between those with excess cash in relation to current requirements (suppliers of capital) and those with insufficient cash in relation to current requirements (users of capital) for mutual benefit.
Financial lease
Long-term, noncancellable rental agreement.
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
Common ratios are debt divided by equity and debt divided by the sum of debt plus equity. Related: capitalization ratios.
Financial market
An organized institutional structure or mechanism for creating and exchanging financial assets.
Financial meltdown
Refers to events like steep fall in stock markets, decline in asset values, corporate losses etc. that hurt the economy and lead to losses for investors.
Financial model
A model that represents the financial operations or financial statements of a company in terms of its business parameters and forecasts future financial performance. Models are used for risk management by examining different economic scenarios for the future. Financial models are also used to provide valuations of individual assets that might not be actively traded in a secondary market.
Financial needs approach
A method of establishing the amount of life insurance required by an individual by estimating the financial needs of dependents in the event of the individual's death.
Financial objectives
Goals related to returns that a firm will strive to accomplish during the period covered by its financial plan.
Financial plan
A blueprint relating to the financial future of a firm.
Financial planner
An investment professional who assists individuals with long- and short-term financial goals.
Financial planning
Evaluating the investing and financing options available to a firm. Planning 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 policy
Criteria describing a corporation's choices regarding its debt/equity mix, currencies of denomination, maturity structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some set of stockholders.
Financial position
The account status of a firm's or individual's assets, liabilities, and equity positions as reflected on its financial statement.
Financial press
Media devoted to reporting financial news.
Financial price risk
The chance there will be unexpected changes in a financial price, including currency (foreign exchange) risk, interest rate risk, and commodity price risk.
Financial public relations
Public relations division of a company charged with cultivating positive investor relations and proper disclosure information.
Financial pyramid
A risk structure that spreads investor's risks across low-, medium-, and high-risk vehicles. The bulk of the assets are in safe, low-risk investments that provide a predictable return (base of the pyramid). At the top of the pyramid are a few high-risk ventures that have a modest chance of success.
Financial ratio
The result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing 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 firm's stockholder bears when the firm uses debt and equity.
Financial service income
Income from delivery of financial services such as banking, insurance, leasing, or financial service management fees.
Financial statement
A report of basic accounting data that helps investors understand a firm's financial history and activities.
Financial statement analysis
Evaluation of a firm's financial statements in order to assess the firm's worth and its ability to meet its financial obligations.
Financial strategy
Practices a firm adopts to pursue its financial objectives.
Financial structure
The way in which a company's assets are financed, such as short-term borrowings, long-term debt, and owners equity. Financial structure differs from capital structure in that capital structure accounts for long-term debt and equity only.
Financial supermarket
A company offering a wide variety of financial services such as a combination of banking services, investment services, and insurance brokerage.
Financial tables
Tables found in newspapers listing prices, dividends, yields, price-earnings ratios, trading volume, and other important data on stocks, bonds, mutual funds, and options and futures contracts.
Financial Times (F-T)-Actuaries indexes
Share price indexes for U.K. companies 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 (FTSE) (pronounced footsie).
Financing Agreements
In the context of project financing, the documents which provide the project financing and sponsor support for the project as defined in the project contracts.
Financing Corporation (FICO)
A government agency chartered in 1987 to bail out the Federal Savings and Loan Insurance Corporation (FSLIC) by issuing bonds.
Financing decisions
Decisions concerning the liabilities and stockholders' equity side of the firm's balance sheet, such as a decision to issue bonds.
Financing Intermediaries
Institutions that effect agreement terms between borrower and lender by reaching separate agreements with the borrower and the lender.
Financing Cost Savings
A source of competitive advantage that depends on access to low cost sources of capital.
Finder's fee
A fee a person or company charges for service as an intermediary in a transaction.
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.
Finite-Life Real Estate Investment Trust (FREIT)
A Real Estate Investment Trust whose priority is to sell its holdings within a specified period to realize capital gains.
Firewall
The legal barrier between banking and broker/dealer operations within a financial institution created to prevent the exchange of inside information.
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 anomalies
Trading strategies that generate abnormal returns based on firm-specific characteristics.
Firm commitment underwriting
An underwriting in which an investment banking firm commits to buy and sell an entire issue of stock and assumes all financial responsibility for any unsold shares. Also known as bought deal.
Firm market
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. See: Actual market.
Firm order
In the context of general equities, (1) order to buy or sell for the proprietary account of the broker-dealer firm; (2) buy or sell order not conditional upon the customer's confirmation.
Firm quote
A definite price on a round-lot bid or offer declared by a market maker on a given security and not identified as a nominal quotation (therefore is not negotiable).
Firm-specific news
News that affects only a specific firm. Market. news by contrast affects many firms.
Firm-specific risk
See: Diversifiable risk or unsystematic risk
Firm's net value of debt
Total firm value minus total firm debt.
First board
The Chicago Board of Trade's established dates for delivery on futures contracts.
First call
With collateralized mortgage obligation (CMOs.), the start of the cash flow cycle for the cash flow window.
First call date
A date stated in an indenture that is the first date on which the issuer may redeem a bond either partially or completely.
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. Ending inventory is therefore valued based on the most recently purchased items.
First market
Exchange-traded securities.
First mortgage
A type of mortgage that through a lien gives precedence to the lender of the first mortgage over all other lenders in case of default.
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.
First preferred stock
A type of preferred stock that has priority over other preferred issues and common stock when claiming dividends and assets.
Fiscal agency agreement
An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as a representative of the borrower.
Fiscal agency services
Services performed by the Federal Reserve Banks for the U.S. government. These include maintaining deposit accounts for the Treasury Department, paying U.S. government checks drawn on the Treasury, and issuing and redeeming savings bonds and other government securities.
Fiscal policy
Government spending and taxing for the specific purpose of stabilizing the economy.
Fiscal stimulus
See Economic stimulus.
Fiscal year (FY)
Accounting period covering 12 consecutive months over which a company determines earnings and profits. The fiscal year serves as a period of reference for the company and does not necessarily correspond to the calendar year.
Fiscal year-end
The end of a 12-month accounting period.
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.
Fisher's separation theorem
The notion that a firm's choice of investments is separate from its owner's attitudes toward investments. Also referred to as portfolio separation theorem.
Fit
The matching of the investor's requirements and needs such as risk tolerance and growth potential preference with a specific investment. Also, how well or how poorly a regression line represents the data points it is based on. A good ‘fit’ indicates a high correlation coefficient.
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 judgment about a customer's creditworthiness: character, capacity, capital, collateral, and conditions.
Five hundred dollar rule
A rule of the Federal Reserve that excludes deficiencies of $500 or less in margin requirements as a necessary reason for the firm to liquidate the client's account to cover a margin call.
Five percent rule
A rule of the National Association of Securities Dealers providing ethical guidelines for spreads created by market makers and commissions charged by brokers.
Fixation
The process of setting a price of a commodity, whether in the present or the future. See: Gold fixing.
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 annuities
Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period.
Fixed base index
For this type of index, the value in any specific time period is based on the value in the initial time period and this base remains unchanged throughout the index. This is different from a chain base index in which values in any period are based on the preceding time period. See: Base period, Chain base index, Index number
Fixed benefits
Payments to a beneficiary that are paid in fixed preset amounts and are not variable.
Fixed-charge coverage ratio
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of (Earnings before interest, depreciation and amortization minus unfunded capital expenditures and distributions) divided by total debt service (annual principal and interest payments). Notice that lease payments are sometimes included in the calculations.
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 (one 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 at 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 country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies.
Fixed for floating swap
An interest rate swap in which the fixed rate payments are swapped for floating rate payments.
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-income securities
Investments that have specific and fixed interest rates or dividend rates, such as bonds.
Fixed premium
Payments of a fixed or equal amount paid to an insurance company for insurance or an annuity.
Fixed price basis
An offering of securities at a fixed price.
Fixed-price tender offer
A one-time offer by an acquirer company to purchase a stated number of shares of a target company at a stated fixed price, usually at a premium over the current market price.
Fixed rate
A traditional approach to determining the finance charge payable on an extension of credit. A predetermined and certain rate of interest is applied to the principal.
Fixed-rate loan
A loan whose rate 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.
Fixed-term reverse mortgage
A mortgage in which the lending institution provides payments to a homeowner for a fixed number of years.
Fixed trust
A unit investment trust consisting of securities that were agreed upon at the time of investment and are held for the duration of the trust.
Flag
A pattern reflecting price fluctuations within a narrow range, generating a rectangular area on a graph both prior to and after sharp rises or declines.
Flash
Value of a security displayed, or flashed across the tape, when the tape display cannot keep up with volume on an exchange and lags the current price by more than approximately five minutes.
Flat
Convertibles: Earning interest on the date of payment only.
General: Having neither a short nor a 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 participant's 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 the purchaser is the full price.
Flat price risk
Taking a position either long or short that does not involve spreading.
Flat scale
The pattern for new issues where shorter- and longer-term yields display very little difference over the bond's maturity range.
Flat tax
A tax which is levied at the same rate on all levels of income. See also progressive tax.
Flat trades
A bond in default trades flat; that is, the price quoted covers both principal and unpaid accrued interest. Any security that trades without accrued interest or at a price that includes accrued interest is said to trade flat.
Flattening of the yield curve
A change in the yield curve when the spread between the yield on long-term and short-term Treasuries has decreased. Compare steepening of the yield curve and butterfly shift.
FLEX Options
Exchange traded equity or index options, where the investor can specify within certain limits the terms of the options, such as exercise price Expiration date, exercise type, and settlement calculation.
Flexible budget
A budget that shows how costs vary with different rates of output or at different levels of sales volume and projects revenue based on these different output levels.
Flexible expenses
Expenses for an individual or corporation that can be adjusted or completely dispensed with, e.g., luxury goods.
Flexible mutual fund
Fund that invests in a variety of securities in varying proportions in order to maximize shareholder returns while maintaining a low level of risk.
Flight to quality
The tendency of investors to move toward safer investments (often government bonds) during periods of high economic uncertainty.
Flip-flop note
Note that allows investors to switch between two different types of debt.
Flip side
In the context of general equities, opposite side to a proposition or position (buy, if sell is the proposition and vice versa).
Flipping
Buying shares in an initial public offering (IPO), and then selling the shares immediately after the start of public trading to turn an immediate profit.
Float
Currency: Exchange rate policy that does not 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 stock's volatility is inversely correlated to its float.
Floater
A bond whose interest rate varies with the interest rate of another debt instrument, e.g., a bond that has the interest rate of the Treasury bill +.25%.
Floating debt
Short-term debt that is renewed and refinanced constantly to fund capital needs of a firm or institution.
Floating exchange rate
A country's decision to allow its currency value to change freely. 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 exchange rate system
Purchase or sale of the currencies of other nations by a central bank for the purpose of influencing foreign exchange rates or maintaining orderly foreign exchange markets. Also called foreign-exchange market intervention.
Floating lien
General attachment against a company's assets or against a particular class of assets.
Floating Rate
Interest rate that is reset periodically, usually every couple of months or sometimes daily.
Floating-rate contract
An guaranteed investment instrument whose interest payment 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 securities
Securities bought in a broker's name and resold quickly to attain a profit in a short amount of time.
Floating supply
The aggregate of securities believed to be available for immediate purchase, that is, in the hands of dealers and investors wanting to sell.
Floor
The area of a stock exchange where active trading occurs. Also the price at which a stop order is activated (when the price drops low enough to activate such an order). In context of interest rates, a level which an interest rate or currency is structured not to go below. In context of OTC interest rate options, a series of interest rate put options, where the buyer of the floor guarantees a minimum interest income
Floorless Convertible
Used by companies that are in such bad shape that there is no other way to get financing. This instrument is similar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as toxic convertibles or death spiral convertibles.
Floor broker
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 official
An employee of a stock exchange who settles disputes related to the auction process on the floor of the stock exchange.
Floor picture
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
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 stock exchange member who generally trades only for his own account or for an account controlled by him, or who has such a trade made for him. Also referred to as a "local."
Flotation (rotation) cost
The costs associated with creating capital through the issue of new stocks or bonds, including the compensation earned by the investment banker plus legal, accounting and printing expenses.
Flow of funds
In the context of municipal bonds, refers to the statement displaying the priorities by which municipal revenue will be applied to the debt.

In the context of mutual funds, refers to the movement of money into or out of a mutual fund or between or among various fund sectors.
Flow-through basis
An account for an 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.
Flow-through method
The practice of reporting to shareholders using straight-line depreciation but using accelerated depreciation for tax purposes and "flowing through" the lower income taxes actually paid to financial statements prepared for shareholders.
Flower bond
Government bonds that when owned at the time of death are acceptable at par in payment of federal estate taxes.
Fluctuation
A price or interest rate change.
Fluctuation limit
The limit created by the commodity exchange that halts trading on a future if the price of the future changes, in either direction, more than a previously set amount. Also called daily price limit.
Flurry
A drastic volume increase in a specific security.
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.
Follow-on offering
Offering of additional stock of a company subsequent to its IPO.
Footsie (FTSE)
Financial Times (FT)-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.
For your information (FYI)
A prefix to a security price indicating that the quote is for information purposes only, and not an offer to trade.
Forbes 500
Forbes magazine's list of the largest publicly owned corporations in the United States according to sales, assets, profits, and market value.
Force Majeure
Events outside the control of the parties. These events are acts of man, nature, governments and regulators, or impersonal events. Contract performance is forgiven or extended by the period of force majeure.
Force majeure risk
The risk that there will be a prolonged interruption of operations for a project finance enterprise due to fire, flood, storm, or some other factor beyond the control of the project's sponsors.
Forced conversion
Occurs when a convertible security is called in by the issuer, usually when the underlying stock is selling well above the conversion price. The issuer thus assures the bonds will be retired without requiring any cash payment. Upon conversion into common, the carrying value of the bonds becomes part of a corporation's equity, thus strengthening the balance sheet and enhancing future debt capability.
Forecasting
Making projections about future performance on the basis of historical and current conditions data.
Foreclosure
Process by which the holder of a mortgage seizes the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract.
Foreign banking market
That portion of domestic bank loans supplied to foreigners for use abroad.
Foreign base company income
A category of Subpart F income that includes foreign holding company income and foreign base company sales and service income.
Foreign bond
A bond of a non-domestic company issued on the domestic capital market.
Foreign bond market
Issues floated by foreign companies or government in the domestic bond market.
Foreign branch
A foreign affiliate that is legally a part of the firm. According to the U.S. tax code, foreign branch income is taxed as it is earned in the foreign country.
Foreign corporation
A corporation conducting business in another country from the one it is chartered in and that abides by the laws of another country. See: Alien corporation.
Foreign Corrupt Practices Act
An amendment to the Securities Exchange Act created to prohibit bribery of foreign officials by publicly held US companies.
Foreign Credit Insurance Association (FCIA)
A private consortium of US insurance companies that offers trade credit insurance to US exporters in conjunction with the US Export-Import Bank.
Foreign crowd
NYSE members who trade in foreign bonds on the floor.
Foreign currency
Money of a country other than one's own.
Foreign currency forward contract
Agreement that obligates its parties to exchange given quantities of currencies at a prespecified exchange rate on a certain future date.
Foreign currency futures contract
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 on 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
Issues floated by foreign companies in the domestic equity market.
Foreign exchange
Currency of another country. Abbreviated Forex.
Foreign exchange broker
Intermediaries in the foreign exchange market that do not put their own money at risk.
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 the spread.
Foreign exchange market
Largely banks that serve firms and consumers who may wish to buy or sell various currencies.
Foreign exchange rate
The rate of one currency unit expressed in terms of another.
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 exchange rates. In general, the risk of an adverse movement in exchange rates.
Foreign exchange swap
An agreement to exchange stipulated amounts of one currency for another currency at one or more future dates.
Foreign holdings
The percentage of a portfolio's investments represented by stocks or American Depository Receipts (ADRs) of companies based outside the United States.
Foreign investment risk matrix (FIRM)
Graph that displays financial and political risk by intervals on which countries may be compared according to risk ratings.
Foreign official institutions
Central governments of foreign countries, including all departments and agencies of national governments; central banks, exchange authorities, and all fiscal agents of foreign national governments that undertake activities similar to those of a treasury, central bank, or stabilization fund; diplomatic and consular establishments of foreign national governments; and any international or regional organization, including subordinate and affiliate agencies, created by treaty or convention between sovereign states.
Foreign market
Part of a nation's 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 public borrower
Foreign official institutions; the corporations and agencies of foreign central governments, including development banks and institutions, and other agencies that are majority owned by the central government or its departments; and state, provincial and local governments of foreign countries and their departments and agencies.
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-source income
Income earned from international operations.
Foreign-targeted issue
Notes sold between October 1984 and February 1986 to foreign institutions, foreign short-term branches of US institutions, foreign central banks or monetary authorities, and to international organizations in which the United States held membership. Sold as companion issues, they could be converted to domestic (normal) Treasury notes with the same maturity and interest rates. Interest was paid annually.
Foreign tax credit
Home country credit against domestic income tax. Received in return for foreign taxes paid on foreign derived earnings.
Foreigner
All institutions and individuals living outside the United States, including US citizens living abroad, and branches, subsidiaries, and other affiliates abroad of US banks and business concerns; also central governments, central banks, and other official institutions of countries other than the United States, and international and regional organizations, wherever located. Also refers to persons in the United States to the extent that they are known by reporting institutions to be acting for foreigners.
Forex
See: Foreign exchange
Forfaiter
Purchaser of promises to pay issued by importers.
Forfaiter (Primary)
An individual or financial entity that arranges a forfaiting transaction directly with an exporter and then holds or sells on the payment obligations of the importer/ guarantor.
Forfaiter (Secondary)
An individual or financial entity that buys or sells the payment obligations of the importer/ guarantor.
Forfaiting
A form of factoring that involves selling large, medium to long-term receivables to buyers (forfaiters) who are willing and able to bear the costs and risks of credit and collections.
Forfeiting
Method of financing international trade of capital goods.
Forfeiture
The loss of rights to an asset outlined in a legal contract if a party fails to fulfill obligations of the contract.
Form 8-K
The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock.
Form 4
The form required by the SEC for a change in the holdings of an individual owning 10% or more of the outstanding stock or in the holdings of a company officer.
Form S-3
A shorter form of registration statement than the Form S-1 that can be used by certain already-public companies to sell additional shares. It is also the form most often used to cover resales of restricted securities by selling stockholders.
Form S-8
A very brief form of registration statement filed with the SEC; registers shares to be issued under a stock plan.
Form T
The form required by the NASD to report equity transactions after the market's regular hours.
Form 10-K
A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information.
Form 3
A form required by the SEC and the stock exchange from all holders of 10% or more of a company's stock and all directors and officers, which details securities owned.
Formula basis
A method of selling a new issue of common stock in which the SEC declares the registration statement effective on the basis of a price formula rather than on a specific range.
Formula investing
A formula-based investment technique in which investment decisions are made using predetermined timing or asset allocation models, e.g., dollar cost averaging.
Fortune 500
Fortune magazine's listing of the top 500 US corporations determined by an index of 12 variables.
48-hour rule
PSA Uniform Practices requirement that all pool information in a to be announced (TBA) transaction be communicated by the seller to the buyer before 3 p.m. EST on the business day 48 hours prior to the agreed-upon trade date.
Forward
See: Forward contract
Forward averaging
A method of calculating taxes on a lump sum distribution from a qualified retirement plan that enables the tax payer to pay less than the current tax rate.
Forward contract
A contract that specifies the price and quantity of an asset to be delivered in the future. Forward contracts are not standardized and are not traded on organized exchanges.
Forward cover
The purchase in the cash market of the difference between what you are obligated to deliver in a forward contract and the amount of the asset you own. For example, if you agreed to sell 100,000 bushels of corn in September in a forward contract, but you only have 60,000, you need to purchase 40,000 to cover your obligation.
Forward currency contract
An agreement to buy or sell a country's currency at a specific price, usually 30, 60, or 90 days in the future. This guarantees an exchange rate on a given date.
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
A type of foreign exchange transaction whereby a contract is made to exchange one currency for another at a fixed date in the future at a specified exchange rate. By buying or selling forward exchange, businesses protect themselves against a decrease in the value of a currency they plan to sell at a future date.
Forward exchange rate
Exchange rate fixed today for exchanging currency at some future date.
Forward exchange transaction
Foreign currency purchase or sale at the current exchange rate but with payment or delivery of the foreign currency at a future date.
Forward Fed funds
Fed funds traded for future delivery.
Forward foreign exchange contract
Agreement that obligates an investor to deliver a specified quantity of one currency in return for a specified amount of another currency on a specified future date.
Forward foreign exchange rate
The exchange rate available today to exchange currency at some specified date in the future.
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 parity
Notion that the forward rate is an unbiased predictor of future spot exchange rates.
Forward premium
A currency trades at a forward premium when its forward price is higher than its spot price.
Forward pricing
Practice mandated by the SEC that open-end investment companies establish all incoming buy and sell orders on the next net asset valuation of fund shares.
Forward rate
A projection of future interest rates calculated from either 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 that involves an agreement between a lender and an investor to sell particular kinds of loans at a specified price and future time.
Forward start option
An option that becomes effective some time after it is bought or sold.
Forward trade
A transaction for which settlement will occur on a specified date in the future at a price agreed upon on the trade date.
Forwarder
Acts as a travel agent for cargo. A forwarder specializes in arranging the transport and completing required shipping documentation. Some are affiliated with NVOCC services. In the United States they are licensed by the Federal Maritime Commission.
Foul Bill of Lading
A bill of lading that contains a notation indicating damage or shortage. Also called claused and is the opposite of clean bill of lading.
401(K)
Under section 401(K) of the Internal Revenue Code, a deferred compensation plan set up by an employer so that employees can set aside money for retirement on a pre-tax basis. Employers may match a percentage of the amount that employees contribute to the plan. Contributions by both employees and employers, as well as investment earnings and interest, are not taxed until the employee withdraws the money; if the employee withdraws the money before retirement age, he or she pays an early withdrawal penalty tax. Currently, employees are allowed to annually contribute up to 15 percent of their salary but no more than $11,000 ($12,000 for people 50 or older). Many employers now offer these deferred compensation plans in lieu of or in addition to pensions.
Fourth market
Refers to the practice of institutional investors trading large blocks of securities directly to avoid brokerage commissions. See: Instinet.
Fractal
An object in which the parts are in some way related to the whole. That is, the individual components are "self-similar." An example is the branching network in a tree. While each branch, and each successive smaller branching is different, they are qualitatively similar to the structure of the whole tree.
Fractal Dimension
A number that quantitatively describes how an object fills its space. In Euclidean, or Plane geometry, objects are solid and continuous. That is, they have no holes or gaps. As such, they have integer dimensions. Fractals are rough and often discontinuous, like a wiffle ball, and so have fractional, or fractal dimensions.
Fractal Distribution
A probability density function that is statistically self-similar. That is, in different increments of time, the statistical characteristics remain the same.
Fractal Market Hypothesis
The fractal market hypothesis states that (1) a market consists of many investors with different investment horizons, and (2) the information set that is important to each investment horizon is different. As long as the market maintains this fractal structure, with no characteristic time scale, the market remains stable. When the market's investment horizon becomes uniform, the market becomes unstable because everyone is trading based upon the same information set. Theory due to Ed Peters.
Fractional Brownian Motion
A biased random walk. Unlike Standard Brownian Motion, the odds are biased in one direction or the other. It is like playing with loaded dice.
Fractional coins
Metal currency minted in denominations of 50, 25, and 10 cents, and minor coins (5 cents and 1 cent).
Fractional discretion order
A type of order that gives the broker discretion to alter the price, up or down, within a specific fractional range in order to guarantee an execution.
Fractional Noise
A noise which is not completely independent of previous values. See Fractional Brownian Motion, 1/f Noise, White Noise.
Fractional share
Stocks amounting to less than one full share, usually resulting from splits, acquisitions, exchanges, or dividend reinvestment programs.
Franchise agreement
Contract by which a domestic company (franchisor) licenses its trade name and/or business system and practices for a fee to an independent company (franchisee) in a foreign market.
Franchising
Provision of a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees.
Frankfurt Stock Exchange
The largest of Germany's eight securities exchanges, operated by Deutsche Borse AS.
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 for sale in the capital markets.
Free Alongside Ship (FAS)
An Incoterm (FAS) that means the seller is responsible for the cost of transporting and delivering goods alongside a vessel in a port in his or her country. Since the buyer has responsibility for export clearance under FAS, it is not a practical Incoterm for U.S. exports. FAS should be used only for ocean shipments since risk and responsibility shift from seller to buyer when the goods are placed within the reach of the ship's tackle (crane).
Free on board (FOB)
Implies that distribution services like transport and handling performed on goods up to the customs frontier (of the economy from which the goods are classed as merchandise) are included in the price.
Free box
A bank vault or other suitable storage place for the securities of a firm's customer.
Free Carrier (FCA)
An Incoterm meaning that the cost, risk and responsibility shift from the seller to the buyer when the goods are turned over to a carrier at a designated place.
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. In terms of a formula:

Free cash flows =

Sales (Revenues from operations)
- COGS (Cost of goods sold-labor, material, book depreciation)
- SG&A (Selling, general administrative costs)
EBIT (Earnings before interest and taxes or Operating Earnings)
- Taxes (Cash taxes)
EBIAT (Earnings before interest after taxes)
+ DEP (Book depreciation)
- CAPX (Capital expenditures)
- ChgWC (Change in working capital)
C (Free cash flows)

There is an issue as to whether you want to define the FCFs to the firm as a whole (the cash flow to all of its security holders), or the FCFs only to the firm's equity holders. For firm valuation, you want the former; for stock valuation you want the latter.
To value the firm, calculate the stream of FCFs to the firm and discount this stream by the firm's WACC (Weighted average cost of capital). This will give you the value of a levered firm, including the tax benefits of debt financing. Alternatively, you can discount the firm's FCFs by its unlevered cost of capital and add separately the present value of the tax benefits.
To value the firm's equity, you can either take the above number and subtract the market value of all outstanding debt (liabilities) or you can calculate the FCFs to the firm's equity holders and discount this stream by the firm's levered equity cost of capital.
Notice that changes in working capital have the same effect on free cash flows as do changes in physical capital, i.e., capital expenditures. For example, suppose you had to spend $XX to increase the capacity of your plant. This expenditure would be a reduction in free cash flow in the year it was made. Likewise, if you had to increase the level of your cash balance, inventory or receivables by $XX to accommodate greater sales, then this too would result in a like reduction in free cash flows in the year the level of working capital was increased. [Definition and discussion courtesy of Professor Michael Bradley.]
Free delivery
Securities industry procedure whereby delivery of securities sold is made to the buying customer's bank without requiring 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 of Particular Average
Marine cargo insurance that does not cover partial losses or partial damage unless caused by the vessel being sunk, stranded, burned, on fire, or in a collision.
Free Indices
Usually refers to indices constructed by Morgan Stanley Capital International such that the market capitalization weights reflect the degree to which a stock is investible by foreigners. For example, if a stock has $700 million capitalization but government restrictions only allow up to 50% to be held by foreigners, then the weight in the Free index would by $350 million. The Standard and Poors/International Finance Corporation indices call their equivalent indices Investible Indices (IFCI).
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 simply by mimicking the behavior of a leader who made these investments.
Free-riding
A forbidden practice in which the member of an underwriting syndicate retains a portion of an initial public offering (IPO) and resells the securities at a higher price determined by the market at a later time.

Also forbidden is a brokerage customer's rapid buying and selling of a security without putting up money for the purchase.

Free right of exchange
An investor's right to transfer securities from one name to another name without paying charges that accompany a sales transaction.
Free stock
A stock that is paid for in full and is not pledged in any way as collateral.
Free to trade
Used in the context of general equities. Not subject to any internal (restricted list) or external restrictions on trading; hence, the trader is free to solicit interest.
Freed up
A term used to indicate that an underwriting syndicate's members are no longer restricted to the fixed price agreed upon in the agreement among underwriters and are permitted to trade the security on a free market basis.
Freely floating exchange rate system
Monetary system in which exchange rates are allowed to move due to market forces without intervention by country governments.
Freeze out
The action of pressurizing shareholders with relatively minor amounts of stock to sell their shares after a takeover.
Freight
A transportation term meaning either goods being transported, and/or charges incurred for such transport.
Freight Forwarder
See: forwarder.
Freight shippers
Agents who coordinate the logistics of transportation.
FREIT
See: Finite-Life Real Estate Investment Trust
Frequency distribution
The organization of data to show how often certain values or ranges of values occur.
Fresh picture
Updated estimation of a stock or market, usually following recent trading activity or news that has changed the previous look.
Fresh signal
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.
Frictional cost
The difference between an index fund return and the index it represents. The typically lower rate of return from the fund results from transactions costs.
Frictionless market
Ideal trading environment that imposes no costs or restraints on transactions.
Frictions
The "stickiness" involved in making transactions; the total process including time, effort, money, and tax effects of gathering information and making a transaction such as buying a stock or borrowing money.
Friendly Merger
A business combination that the management of both firms believes will be beneficial to stockholders.
Friendly takeover
Merger when the target firm's management and board of directors is in favor of the takeover. Antithesis of hostile takeover.
Front-end load
The fee applied to an investment at the time of initial purchase, e.g., on a mutual fund purchased from a broker or mutual fund company.
Front fee
The fee initially paid by the buyer upon entering a split-fee option contract.
Front office
Refers to revenue generating sales personnel in a brokerage, insurance, or other financial services operation.
Front running
Entering into an equity trade, options 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 expressly forbidden by the SEC. Traders are not allowed to act on nonpublic information to trade ahead of customers lacking that knowledge.
Frozen account
A disciplinary action taken by the Federal Reserve Board for some violation of Regulation T, where an individual investor cannot sell securities until they are paid for in full and certificates delivered.
Fry a bigger fish
Used in the context of general equities. Work on a trade of larger size than a trade just disclosed.
FR Y-9C
Quarterly report filed by bank holding companies with the Federal Reserve. It contains consolidated balance sheet and income statement with detailed schedules including a schedule for off-balance-sheet items and regulatory capital.
Full
Handle.
Full compensation
Payment for delivery of goods to one party by buying back more than 100 % of the value that was originally sold.
Full coupon bond
A bond with a coupon equal to the going market rate; the bond is therefore selling at par.
Full disclosure
Describes exchange and government regulations providing for the release and free exchange of all information pertinent to a given security.
Full Employment and Balance Growth Act of 1978(Humphrey-Hawkins Act)
Federal legislation that, among other things, specifies the primary objectives of U.S. economic policy-maximum employment, stable prices, and moderate long-term interest rates.
Full faith-and-credit obligations
The security pledges for larger municipal bond issuers, such as states and large cities that 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 recourse
No matter what risk event occurs, the borrower or its guarantors guarantee to repay the debt. This is not a project financing unless the borrower's sole asset is the project.
Full-service broker
A broker who provides clients an all-inclusive selection of services such as advice on security selection and financial planning.
Full-service lease
Also called rental lease. Arrangement in which lessor promises to maintain and insure the equipment leased.
Full Set of Bills of Lading
All originals of an ocean bill of lading.
Full trading authorization
Indication that a broker with a discretionary account can operate without obtaining prior consent to each trade from the client..
Fully depreciated
An asset that has already been charged with the maximum amount of depreciation allowed by the IRS for accounting purposes.
Fully diluted earnings per share
Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.
Fully distributed
A new stock issue that has been completely resold to the investing public and is no longer held by dealers.
Fully invested
Used to describe an investor whose assets are totally committed to investments (typically stock) rather than in cash.
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 affiliate's functional currency is the currency of the primary economic environment in which the affiliate generates and expends cash.
Fund assets
The total value of a portfolio's securities, cash, and other holdings, minus any outstanding debts.
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.
Fund of funds
A mutual fund or hedge fund that invests in other funds.
Fund manager
The person whose responsibility it is to oversee the allocation of the pool of money invested in a particular mutual fund. The fund manager is charged with investing the money to attain returns consistent with the level of risk outlined in the mutual fund prospectus.
Fund switching
Moving money within a mutual fund family from one mutual fund to another.
Fun money
Money that can be used to invest in risky investments with high potential return.
Fundamental analysis
Security analysis that seeks to detect misvalued securities through an analysis of the firm's business prospects. Research often focuses on earnings, dividend prospects, expectations for future interest rates, and risk evaluation of the firm. Antithesis of technical analysis. In macroeconomic analysis, information such as interest rates, GNP, inflation, unemployment, and inventories is used to predict the direction of the economy, and therefore the stock market. In microeconomic analysis, information such as balance sheet, income statement, products, management, and other market items is 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 also 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.
Fundamental forecasting
Analyzing the future on the basis of fundamental relationships between economic variables and exchange rates.
Fundamental Information
Information relating to the economic state of a company or economy. In market analysis, fundamental information is related to the earnings prospects of the firm only.
Funded debt
Debt maturing after more than one year.
Funded Liability
A source of funds that a firm must take overt action to arrange and that carries an interest cost.
Funded pension plan
A pension plan in which all liabilities, including payments to be made to pensioners in the immediate future, are completely funded.
Funding
Used to describe the refinancing of a debt prior to its maturity (the same as refunding). In corporate finance refers to the floating of bonds to raise finance and levels of capital. See also: refunding.
Funding ratio
The ratio of a pension plan's assets to its liabilities.
Funding risk
The risk associated with the impact on a project's cash flow from higher funding costs or lack of availability of funds. See: interest rate risk.
Funds From Operations (FFO)
Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. A similar term increasingly used is funds available for distribution (FAD), which is FFO less capital investments in trust property and the amortization of mortgages.
Fungibility
The substitutability of listed options, which is dependent upon their common expiration dates and strike prices. The congruence of expiration dates and strike prices lets investors close positions by offsetting transactions through the options clearing corporation.
Furthest month
Used in the context of commodities or options trading to refer to the month that is furthest away from the contract's date of settlement.
FUTOP
The Danish derivatives market, merged with the Copenhagen Stock Exchange in 1997.
Future
A term used to designate any contract covering the sale of financial instruments or physical commodities for future delivery on a futures exchange. Alternatively, a future is any forward contract that has been standardized and listed for trading on a futures exchange.
Future investment opportunities
The identification of additional, more valuable, investment opportunities in the future that result from a current opportunity or operation.
Futures commission merchant (FCM)
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 CFTC. Related: Commission house, omnibus account.
Futures contract
A legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon at the initiation of the contract by the buyer and seller. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. A futures contract differs from an option in that an option gives one of the counterparties a right and the other an obligation to buy or sell, while a futures contract is the represents an obligation to both counterparties, one to deliver and the other to accept delivery. 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 where contracts for future delivery of a commodity or a financial instrument are bought or sold.
Futures option
An option on a futures contract. Related: Options on physicals.
Futures price
The price at which 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.
Fuzzy Logic
A system which mathematically models complex relationships which are usually handled in a vague manner by language. Under the title of "Fuzzy Logic" falls formal fuzzy logic (a multi-valued form of logic), and fuzzy sets. Fuzzy sets measure the similarity between an object and a group of objects. A member of a fuzzy set can belong to both the set, and its complement. Fuzzy sets can more closely approximate human reasoning than traditional "crisp" sets. See: Crisp sets.
FVO (for valuation only)
See: For your information

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Copyright © 2009. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

E
Fifth letter of a Nasdaq stock symbol specifying that an issue has not met the reporting date for the company's SEC regulatory filing requirements.
E/EV
See: EBITDA/enterprise value ratio
EAFE index
See: European Australian and Far East index
EASD
See: European Association of Securities Dealers
EBIAT
See: Earnings Before Interest after Taxes
EBIT
See: Earnings Before Interest and Taxes
EBITD
See: Earnings Before Interest, Taxes and Depreciation
EBITDA
See: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA/EV
See: EBITDA/enterprise value ratio
EBITDA/enterprise value ratio (EBITDA/EV)
A modified measure of the ratio of a company's operating and non-operating profits to the market value of the firm's equity and debt. By providing a simple, though incomplete, ratio of profit to value, EBITDA/EV is often used to estimate the cash return on an investment. See: Enterprise value/EBITDA ratio
EBRD
See: European Bank for Reconstruction and Development
EBT
See: Earnings Before Taxes
EC
The two-character ISO 3166 country code for ECUADOR.
ECA
See: Export Credit Agency
EDC
See: Export Development Corp.
ECGD
See: Export Credit Guarantee Department
ECN
Electronic Communications Network. Defined under Rule 11Ac1- 1(a)(8) under the U.S. Securities Exchange Act of 1934.
ECS
The ISO 4217 currency code for the Ecuadorian Sucre.
EDGAR Electronic Data Gathering, Analysis and Retrieval System
The system through which companies electronically file reports and registration statements with the SEC. This requires converting the paper or word-processing document to be filed into a universal ASCII format, a process known as EDGAR-izing the document. The filings can then be accessed by the public through the SEC's Web site on the Internet.
EEK
The ISO 4217 currency code for the Estonian Kroon.
EFIC
See: Export Finance Insurance Corp.
EFTPOS
Acronynm for Electronic Funds Transfer at Point of Sale. Payment is transferred usually from a checking account at the point of sale.
EG
The two-character ISO 3166 country code for EGYPT.
EGP
The ISO 4217 currency code for the Egyptian Pound.
ECU
See: European Currency Unit
EDI
See: Electronic Data Interchange
EE
The two-character ISO 3166 country code for ESTONIA.
EH
The two-character ISO 3166 country code for WESTERN SAHARA.
EM
See: Effective margin
EMS
See: European Monetary System
EOE
See: European Options Exchange
EOQ
See: Economic Order Quantity
ER
The two-character ISO 3166 country code for ERITREA.
ERM
See: Exchange Rate Mechanism
ES
The two-character ISO 3166 country code for SPAIN.
ESOP
See: Employee Stock Ownership Plan
ESP
The ISO 4217 currency code for the Spanish Peseta.
ET
The two-character ISO 3166 country code for ETHIOPIA.
ETB
The ISO 4217 currency code for the Ethiopian Birr.
ETF
See Exchange Traded Fund.
EU
See: European Union
EUR
The ISO 4217 currency code for Euro.
EUREX
The European derivatives exchange formed in 1998 by a merger of the Deutsche Terminbörse (DTB) and the Swiss Options and Financial Futures Exchange (SOFFEX).
EXDEC
See: Shipper's Export Declaration.
Each way
A broker's commission from his or her involvement on both the purchase and the sale side of a security.
Early distribution
See: Premature distribution
Early Exercise (assignment)
The exercise or assignment of an option contract before its expiration date.
Early withdrawal
See: Premature distribution
Early withdrawal penalty
Penalty paid by the holder of a fixed-term investment penalizing an investor who withdraws money before the agreed-upon maturity date.
Earn-out
Refers to an additional payment in a merger or acquisition that is not part of the original acquisition cost, which is based on the acquired company's future earnings relative to a level determined by the merger agreement.
Earned income
Compensation earned from employment, which includes wages, salary, tips, and compensation.
Earned income credit
A tax credit for taxpayers with children.
Earned surplus
See: Retained earnings
Earnest money
Money given to a seller by a buyer to demonstrate the buyer's good faith. If the deal falls through, the deposit is usually forfeited.
Earning asset
An asset that generates income, e.g., income from rental property.
Earning power
Earnings before interest and taxes (EBIT) divided by total assets.
Earnings
Net income for the company during a period.
Earnings before interest after taxes (EBIAT)
A financial measure defined as revenues less cost of goods sold and selling, general and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest plus cash income taxes. Equivalent to EBIT minus cash taxes.
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 nonoperating profit before the deduction of interest and income taxes.
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 nonoperating profit before the deduction of interest and income taxes. Depreciation expenses are not included in the costs.
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 nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.
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 nonoperating profit before the deduction of income taxes.
Earnings momentum
An increase in the earnings per share growth rate from one reporting period to the next.
Earnings per share (EPS)
A company's profit divided by its number of common outstanding shares. If a company earning $2 million in one year had 2 million common shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term. The one-year (historical or trailing) EPS growth rate is calculated as the percentage change in earnings per share. The prospective EPS growth rate is calculated as the percentage change in this year's earnings and the consensus forecast earnings for next year.
Earnings-price ratio
See: Earnings yield
Earnings response coefficient
A measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements.
Earnings retention ratio
Plowback rate.
Earnings surprises
Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES. Negative earnings surprises generally have a greater adverse effect on stock prices than a reciprocal positive earnings surprise.
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 terms. We often look at earnings yield because this avoids the problem of zero earnings in the denominator of the price-earning ratio.
Easy money
See: Tight money
Eating stock
When an underwriter can't find buyers for a stock and therefore has to buy them for his own account.
ECN
See: Emerging company marketplace
Eclectic paradigm
A theory that posits three types of advantages benefiting a multinational corporation: ownership-specific, location-specific, and market internalization advantages.
Econometrics
The quantitative science of modelling the economy. Econometric models help explain and predict variables of interest.
Economic assumptions
General market environment a firm expects to operate in over the life of a financial plan.
Economic bubble
A market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset. Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the asset.
Economic defeasance
See: In-substance defeasance
Economic dependence
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 firm's productive capacity.
Economic exposure
The extent to which the value of a firm will change because of an exchange rate change.
Economic growth
An increase in the nation's capacity to produce goods and services. Usually refers to real GDP growth.
Economic growth rate
The annual percentage rate of change in the Gross National Product.
Economic income
Cash flow plus change in present value.
Economic indicators
The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate.
Economic Life
The time period over which an asset's NPV is maximized. Economic life can be less than absolute physical life for reasons of technological obsolescence, physical deterioration, or product life cycle.
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 project's output will not be salable at a price that will cover the project's operating and maintenance costs and its debt service requirements.
Economic shock
Events that impact the economy which originate from outside it. They are unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC).
Economic stimulus
A plan to boost the economy and achieve positive effects like increased job creation, jumpstart frozen credit markets, restore consumer spending etc. through the use of fiscal policy like government spending and tax measures. This program is controversial because many economists disagree on the stimulus multiplier. The expenditure is stimulative if the multiplier is greater than 1.0 (extra government spending causes add on spending by consumers). However, many economists think that at best, the multiplier is 1.0 (simple replacement of spending that would already occur) and at worst less then 1.0 (government spending focused on less productive targets than consumers would choose).
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, and all goods and services, and involves the harmonization and unification of social, fiscal, and monetary policies.
Economic value added (EVA)
A method of performance evaluation that adjusts accounting performance for investors' required return on investment. Suppose a division produces a 12% return on capital invested. Given the risk of the division's business line, if investors would usually require 14% on capital invested for this level of risk, the division destroyed shareholder value by the EVA metric. This Stern-Stewart has a trade mark on this term.
Economics
The study of the economy. See also: Macroeconomics; microeconomics; Keynesian economics, monetarism, and supply-side economics.
Economies of scale
Achievement of lower average cost per unit through increased production.
Economies of scale
The decrease in the marginal cost of production as a firm's extent of operations expands.
Economies of scope
Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.
Economies of vertical integration
Produced by achieving lower operating costs by owning all components of production and sometimes sales outlets rather than contracting with companies in the outside marketplace.
EDGAR (Electronic Data Gathering and Retrieval)
The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.
Edge Act corporation
Corporation chartered by the Federal Reserve to engage in international banking. The Board of Governors acts on applications to establish Edge Act corporations and also examines the corporations and their subsidiaries. Named after Senator Walter Edge of New Jersey, who sponsored the original legislation to permit formation of such organizations. See also: agreement corporation.
Edge corporations
Specialized banking institutions, authorized and chartered by the Federal Reserve Board of Governors in the U.S., that are allowed to engage in transactions of a foreign or international character. They are not subject to restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to organize and own an edge corporation.
Education IRA
A type of individual retirement account enabling the contribution of up to $500 per year tax free for each child up to the age of 18 by the parents in the family.
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 a 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 debt
The total debt owed by a firm to its creditors.
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 bond's price - taking into account that expected cash flows will change as interest rates change due to the embedded option.
Effective Interest Rate
The annual rate at which an investment grows in value when interest is credited more often than once a year.
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 net worth
Net worth plus subordinated debt.
Effective rate
A measure of the time value of money that fully reflects the effects of compounding.
Effective sale
A sale based on the most recent round-lot price, which determines the price of the next odd lot. The difference created between the last round-lot price and the odd-lot price is referred to as the odd-lot differential.
Effective spread
The gross underwriting spread adjusted for the impact that a common stock offering's announcement has on the firm's share price.
Effective tax rate
The net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.
Effective yield
Yield or return on a short-term investment after adjustment for the change in exchange rates over the period of concern.
Efficiency
The degree and speed with 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 portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any particular 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
Market in which prices correctly reflect all relevant information.
Efficient Market Hypothesis
States that all relevant information is fully and immediately reflected in a security's 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 past information in prices), semistrong form (stock prices reflect all past and current publicly available information), and strong form (stock prices reflect all relevant information, including information not yet disclosed to the general public, such as insider information).
Efficient markets theory (EMT)
Principle that all assets are correctly priced by the market, and that there are no bargains.
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.
Efficient surface
In mean variance skewness analysis, the set of portfolios that result from investor's preference for higher means, lower variance and higher (positive) skewness. The efficient surface is analogous (in three dimensions, mean, variance and skewness) to the efficient frontier (in two dimensions, mean and variance).
Eighth[-ed]
Historical term 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 bank's 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 demand
The degree of buyers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of demand to price, e.g., luxury goods, where a rise in price causes a decrease in demand. Goods with a small value of elasticity (less than 1) have a demand that is insensitive to price, e.g., food, where a rise in price has little or no effect on the quantity demanded by buyers.
Elasticity of supply
The degree of producers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of supply to price, e.g., luxury goods, where a rise in price causes an increase in supply. Goods with a small value of elasticity (less than 1) have a supply that is insensitive to price, e.g., food, where a rise in price has little or no effect on the amount that producers supply.
Elasticity of an option
Percentage change in the value of an option given a 1% change in the value of the option's underlying stock. Related: delta.
Elect
The conversion of a conditional order into a market order.
Election Period
The period of time during which the holder can elect to extend and extendible bond, or to retract a retractable bond.
Electronic data interchange (EDI)
The direct exchange of information electronically, from one firm's computer to another firm's computer in a structured format.
Electronic depository transfers
The transfer of funds between bank accounts through the Automated Clearing House (ACH) system.
Electronic funds transfer (EFT)
Transfer of funds electronically rather than by check or cash. The Federal Reserve's Fedwire and automated clearninghouse services are EFT systems.
Electronic Funds Transfer Systems
A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, automated clearringhouses (ACHs) and other automated systems.
Electronic Queriable Carrier
A transporter of goods which allows tracking of goods in transit electronically using a waybill number such as United Parcel, Federal Express, etc.
Elephants
A term used to refer to large institutional investors.
Eleven bond index
An index based on the average yield of 11 municipal bonds that mature in 20 years and carry an average AA rating. The eleven bonds used to calculate the index are also found in the 20 bond index, which serves as a benchmark in tracking municipal bond yields.
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
Technical market timing strategy that predicts price movements on the basis of historical price wave patterns and their underlying psychological motives. Robert Prechter is a famous Elliott Wave theorist.
Elves
A term the host uses to refer to guests on the PBS television show, "Wall Street Week", who are technical analysts attempting to predict the direction of stock prices over the next six months.
Embedded option
An option that is part of the structure of a bond that gives either the bondholder or the issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security.
Emergency fund
A reserve of cash kept available to meet the costs of any unexpected financial emergencies.
Emergency Home Finance Act of 1970
The federal legislation creating the Federal Home Loan Mortgage Corporation, a partially government-run program initiated to stimulate the development of a secondary mortgage market and expand mortgages available to veterans and other groups.
Emerging Company Marketplace (ECM)
A service once offered by the American Stock Exchange to help small growth companies fulfill special listing requirements. The service is no longer available.
Emerging markets
The financial markets of developing economies.
Emerging Markets Free index (EMF)
A Morgan Stanley Capital International index created to track stock markets in selected emerging markets that are open to foreign investment like Argentina, Chile, Jordan, Malaysia, Mexico, Philippines, and Thailand.
Emerging markets fund
A mutual fund that invests primarily in countries with developing economies (that is, those that are becoming industrialized). Emerging markets funds tend to be more volatile than domestic stock funds due to currency fluctuation and political instability. Consequently, fund prices can fluctuate dramatically.
Employee contribution
An employee's own deposit to a company retirement plan.
Employee Retirement Income Security Act (ERISA)
The law that regulates the operation of private pensions and benefit plans.
Employee stock fund
A firm-sponsored program that enables employees to purchase shares of the firm's 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.
Employee Stock Purchase Plan (ESPP)
A plan usually linked to a corporation's payroll deduction system allowing employees to purchase shares at a discount from current market value.
Employer matching contribution
The amount, if any, a company contributes on an employee's behalf to the employee's retirement account, usually tied to the employee's own contribution.
Employment rate
The percentage of the labor force that is employed. The employment rate is one of the economic indicators that economists examine to help understand the state of the economy. See also: Unemployment rate.
Empty head and pure heart test
Securities and Exchange Commission rule that allows only the bidder of a tender offer to trade in the stock while possessing inside information.
Encumbered
A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank's holding of a home mortgage encumbers property.
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; and so on.
Endogenous uncertainty
Describes factors within the control of the firm, such as a decision to reveal information about price or input costs. Converse of exogenous.
Endogenous variable
A value determined within the context of a model. Related: Exogenous variable.
Endorse
Transferring asset ownership by signing the back of the asset's certificate.
Endowment
Gift of money or property to a specified institution for a specified purpose.
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.
Energy mutual fund
Mutual fund investing in energy stocks only, e.g., oil and gas companies.
Engineering risk
The risk associated with the impact on a project's cash flows from deficiencies in design or engineering. Also known as design risk.
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 firm's existing products.
Enterprise
A business firm.
Enterprise multiple
The ratio of the enterprise value to the EBITDA of a corporation. See: Enterprise value/EBITDA (EV/E), Enterprise value
Enterprise Value
The market capitalization of a firm's equity plus the market value of the firm's debt. Often the value of assets that are non-core are excluded from the final calculation.
Enterprise value/EBITDA ratio (EV/E)
The EV/EBITDA ratio, also known as the enterprise multiple, is the ratio of a company's enterprise value to its earnings before non-cash items and is commonly used to value possible takeover targets. Although similar to the P/E ratio, there are two aspects of the EV/E ratio that make it a more accurate measurement of a company's true value: the inclusion of EBITDA in the ratio allows for a comparison of earnings between different industries by omitting the effects of interest and taxes on earnings, which vary between industries; the enterprise value, on the other hand, uses net debt in its calculation, which allows for the EV/E ratio to be used to compare companies with different capitalization structures. See: EBITDA, Enterprise multiple, Takeover
Entrepreneur
A person starting a new company who takes on the risks associated with starting the enterprise, which may require venture capital to cover start-up costs.
Entropy
The level of disorder in a system.
Environmental fund
A mutual fund that invests strictly in stocks of companies that are environmentally friendly and/or have the goal of environmental betterment. The investors are trying to support and profit from opportunities related to the environmental movement.
Environmental risk
The risk associated with economic or administrative consequences of slow or catastrophic environmental pollution.
EPS
See: Earnings per share
Equal dollar swap
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 percentage contribution rule (EPCoR)
Principle that each asset contributes the same proportion to the equilibrium portfolio rate premium and risk.
Equal shares swap
Applies mainly to convertible securities. Selling the underlying common and reinvesting the proceeds in as much of the convertible as can be converted into the number of shares of common just sold. See equal dollar swap.
Equalizing dividend
Special dividends received by investors of a firm for income the investor lost because the firm altered the dividends payment schedule.
Equilibrium
The stable state of the system. See: Attractor.
Equilibrium exchange rate
Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML 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 CML is defined by the capital asset pricing model.
Equilibrium price
The price at which the supply of goods matches demand.
Equilibrium rate of interest
The interest rate that clears the market. Also called the trade-clearing interest rate.
Equipment leasing partnership
A limited partnership that receives income and tax benefits such as depreciation costs by purchasing equipment and leasing it to other parties.
Equipment trust certificates
Certificates issued by a trust that is formed to purchase an asset and lease it to a lessee. When the last of the certificates has been repaid, title and ownership of the asset transfers to the lessee.
Equitable owner
The beneficiary of a property held in a trust.
Equity
Ownership interest in a firm. Also, the residual dollar value of a futures trading account, assuming its liquidation is at the going trade price. In real estate, dollar difference between what a property could be sold for and debts claimed against it. In a brokerage account, equity equals the value of the account's securities minus any debit balance in a margin account. Equity is also shorthand for stock market investments.
Equity cap
An agreement in which one party, for an up-front premium, agrees to pay the other at specific time periods if a designated stock market benchmark tops a predetermined level.
Equity carve out
Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only offers a minority share to the equity market. Also known as carve out.
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 falls below a predetermined level.
Equity funding
An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, giving the investor the advantages of insurance protection with the growth potential of a mutual fund.
Equity injection
Purchase of shares (either common or preferred) of a (usually ailing) company or institution to provide it with the required capital.
Equity kicker
Stock warrants issued attached to a new debt, preferred or common stock issue to improve the salability of the issue.
Equity-linked Eurobonds
A Eurobond including a convertibility option or warrant.
Equity-linked policies
Related: Variable life
Equity market
Related: stock market
Equity multiplier
Total assets divided by total common stockholders' equity; the 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 REIT
A Real Estate Investment Trust that assumes ownership status in the property it invests in enabling investors of the REIT to earn dividends on rental income from the property and appreciation in property resale. Antithesis of a Mortgage REIT.
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.
Equityholders
Stockholders; those holding shares of the firm's equity.
Equivalent annual annuity
The amount per year for some number of years that has a present value equal to a given amount.
Equivalent annual benefit
The annual annuity with the same value as 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 cost per year of owning an asset over its entire life.
Equivalent bond yield
Effective annual yield on a short-term, noninterest-bearing security calculated for comparison 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.
Erosion
A negative impact on one or more of a firm's existing assets.
Escalator clause
Provision in a contract allowing cost increases to be passed on. In an employment contract, for example an escalator clause may call for wage increases in line with inflation.
Escheat
Reversion of monies or securities to the state in which the securityholder was last known to reside, when no claim by the securityholder has been made after a certain period of time fixed by state law. This is known as the holding period or cut-off date.
Escheat Period
The period of elapsed time required by applicable state law for property to be presumed abandoned.
Escheatment
The process of turning over unclaimed or abandoned property to a state authority. Escheatment laws require mutual funds to turn over uncashed or returned check dollars and/or client account fund shares if the owner cannot be located within a length of time determined by each state.
Escrow
Property or money held by a third party until the agreed upon obligations of a contract are met.
Escrow receipt
A document provided by a bank in options trading to guarantee that the underlying security is on deposit and available for potential delivery.
Escrowed to Maturity (ETM)
Holding of the proceeds from a new bond issue to pay off an existing bond issue at its maturation date.
Essential purpose (or function) bond
See: Public purpose bond
Estate planning
The preparation of a plan to carry out an individual's wishes as to the administration and disposition of his/her property before or after his/her death.
Estate tax
A federal or state tax imposed on an individual's assets inherited by heirs.
Estimated tax
Tax to be paid quarterly on income that is not subject to withholding tax, including self-employed income, investment income, alimony, rent, and capital gains.
Ethical fund
See: Social conscious mutual fund.
Ethics
Standards of conduct or moral judgment.
Euclidean Geometry
The Plane geometry learned in high school, based upon a few ideal, smooth, symmetric shapes.
Euro
Originally, the term for a deposit made outside one's home country but denominated in the home country currency. This terminology is confusing now since the new European Currency unit, also called the Euro, was introduced on January 1, 1999.
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.
Eurodollar obligations
Certificates of deposit issued in U.S. dollars by foreign banks and foreign branches of U.S. banks.
Euro lines
Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.
Euro straight
A fixed-rate coupon Eurobond.
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. Eurobonds are often bearer bonds.
Euroclear
The Euroclear group is the world's largest settlement system for domestic and international securities transactions, covering both bonds and equities for financial institutions located in over 80 countries.
Euro-commercial paper
Short-term notes with maturities up to 360 days that are issued by companies in international money markets.
Eurocredit market
Comprises banks that accept deposits and provide loans in large denominations and in a variety of currencies. The banks that constitute this market are the same banks that constitute the Eurocurrency market; the difference is that Eurocredit loans are longer-term than so-called Eurocurrency loans.
Eurocredits
Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and government borrowers.
Eurocurrency
Instrument issued outside your country, but denominated in your currency. A Eurodollar is a Certificate of Deposit in U.S. dollars issued in some other country (though mainly traded in London). A Euroyen is a CD issued in yen outside Japan.
Eurocurrency deposit
A short-term fixed-rate time deposit denominated in a currency other than the local currency (e.g., U.S. dollars 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 Eurodeposits may be anywhere other than the U.S. Similarly, a Euroyen or Euro DM deposit represents a CD in yen or DM outside Japan and Germany, respectively.
Eurodollar bonds
Eurobonds denominated in U.S.dollars.
Eurodollar certificate of deposit
A certificate of deposit paying interest and principal in dollars, but issued by a bank outside the United States, usually in Europe.
Eurodollar futures
A futures contract written on a Eurodollar deposit. The contract locks in an interest rate in the future and is cash settled.
Eurodollar interest rate
Interest rate earned on a Eurodollar deposit.
Euroequity issues
Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate. Related: External market.
Euro-medium term note (Euro-MTN)
A nonunderwritten 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.
Euro.NM
Created on March 1, 1996, Euro.NM is a pan- 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), the Deutsche Börse AG (Neuer Markt), the Amsterdam Exchanges (NMAX), and the Brussels Stock Exchange (Euro.NM Belgium).
Euro-note
Short- to medium-term debt instrument sold in the Eurocurrency market.
Euroyen bonds
Eurobonds denominated in Japanese yen.
European, Australia, and Far East index (EAFE index)
Stock index, computed by Morgan Stanley Capital International.
European Association of Securities Dealers Automated Quotation (EASDAQ)
European equivalent of Nasdaq.
European Bank for Reconstruction and Development
Bank targeted at Eastern Europe and the former Soviet Union.
European Central Bank (ECB)
Bank created to monitor the monetary policy of the countries that have converted to the Euro from their local currencies. The original 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
European Currency Unit (ECU)
An index of foreign exchange consisting of European currencies, originally devised in 1979. Also see Euro.
European exchange rate mechanism (ERM)
The system that countries in the European Union once used to pay exchange rates within bands around an ERM central value.
European Exercise
A feature of an option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option. Most index options are European-style exercise.
European Monetary System (EMS)
A system adopted by European Community members with the aim of promoting stability by limiting exchange-rate fluctuations. The system was originated in 1979 by the nine members of the European Community (EC). The EMS comprised three principal elements: the European Currency Unit (ECU), the monetary unit used in EC transactions; the Exchange Rate Mechanism, ERM, whereby those member states taking part agreed to maintain currency fluctuations within certain agreed limits; and the European Monetary Cooperation Fund, which issues the ECU and oversees the ERM. The 1992 Maastricht Treaty provided for the move to Economic and Monetary Union (EMU), including a European Monetary Institute to coordinate the economic and monetary policy of the EU, a European Central Bank (ECB) to govern these policies, and the presentation of a single European currency.
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 exercise
A method of exercising options contracts in which the buyer can only exercise the contract on the last day before expiration.
European-style option
An option contract that can be exercised only on the expiration date.
European terms
A foreign exchange quotation that states the foreign currency price of one U.S. dollar. Opposite of direct quote.
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 until January 1, 1994 and currently comprises 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.
Evaluation period
The time interval over which funds assess a money manager's performance.
Even lot
See: Round lot
Evening up
Buying or selling to offset an existing market position.
Event anomalies
Occurrences such as earnings surprises or stock splits that seem to present opportunity to generate abnormal returns for those trading on the news.
Event driven
In the context of hedge funds, a style of management that combines many different types of hedge fund investing such as merger arbitrage, distressed securities and high yield investing, in conjunction with an important "event" that is supposed to unlock firm value (like a merger announcement, earnings announcement, or a regulator decision).
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.
Event study
A statistical study that examines how the release of information affects prices at a particular time.
Events of default
Contractually specified events that allow lenders to demand immediate repayment of a debt.
Evergreen
A contract that rolls over after each agreed (short-term) period until cancelled by one party.
Evergreen credit
Revolving credit without maturity.
Evergreen funding
A British term referring to the gradual injection of capital into a new or existing enterprise.
Ex Works (EXW)
A transaction in which the seller's only responsibility is to make the ordered goods available to the buyer at the seller's premises. The buyer bears the cost and risk in transporting the goods from the seller's premises to destination. Since this includes pre- carriage and export clearance in the seller's country, EXW is not a very practical Incoterm for U.S. exports.
Ex-all
The sale of a security without the privileges associated with the security such as dividends, voting rights, or warrants.
Ex ante return
The expected return or anticipation return of an asset or portfolio.
Ex ante value
The forecasted price or value.
Exception
A proxy which does not authorize the proxy committee to act on its behalf concerning any other business, adjournments or substitutions.
Exceptional Return
Residual return plus benchmark timing return. For a given asset with beta equal to one, if its residual return is 2%, and the benchmark portfolio exceeds its consensus expected returns by 1%, then the asset's exceptional return is 3%.
Excess accumulation
The amount of a required minimum distribution that an IRA holder fails to remove from an IRA in a timely manner. Excess accumulations are subject to a 50% IRS penalty tax.
Excess contribution
The amount by which an IRA contribution exceeds the allowable limits. If an excess contribution is not properly corrected, a 6% IRS penalty applies.
Excess reserves
Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves.
Exchange Ratio
The number of new shares in an acquiring firm that are given for each outstanding share of an acquired firm.
Exchange Traded Fund
Similar to an index mutual fund, these tracking stocks trade continuously. Two popular ETFs are the Standard and Poor's depositary receipt (SPDR) launched in 1993 and the NASDAQ-100 Index Tracking Stock (QQQ) which was launched in 1999. These vehicles are popular for hedging as well as investment.
Exchange Traded Notes (ETN)
Unsecured, unsubordinated debt securities that are traded on an exchange and offer returns based on the performance of a market index upon maturity. As they are issued by an underwriting bank, their value also depends on the credit rating of the issuer.
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. 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 (with dividend).
Ex-dividend date
The first day of trading when the buyer of a stock is no longer entitled to the most recently announced dividend payment ( i.e. the trade will settle the day after the record date, too late for the buyer to appear on the shareholder record and receive the dividend.) The date set by the NYSE (and generally followed on other U.S. exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is denoted by an x in newspaper listings on that date.
Executor
An individual or trust institution nominated in a will and appointed by a court to settle the estate of a deceased person.
Ex-legal
A municipal bond offered without a law firm's legal opinion. A majority of bonds are issued with legal opinions.
Expatriate
An employee who is a U.S. citizen living and working in a foreign country.
Ex-pit transaction
The closing out of a futures position off the exchange floor. Effected when two hedgers, one long and one short, make a private deal in the cash market, and no longer need their (equal and opposite) futures contracts to hedge. The hedgers contact the exchange and request the contracts be nullified without making a trade on the floor. This must be done (1) to ensure neither contract results in delivery/the requirement to deliver; (2) to properly reflect open interest; and (3) to eliminate the uncertainty of the fill price should a trade actually be done to offset the positions. Extremely rare. Also known as an EFP transaction, an exchange-for-physicals transaction or an against-actuals transaction.
Ex post return
Related: Holding-period return
Ex-rights
Shares of stock that are trading without rights attached.
Ex-rights date
The date on which a share of common stock with rights on it begins trading ex-rights.
Expropriation
The taking over of a company or project by the state, implying compensation will be paid. Nationalization.
Ex-warrants
Describes a stock sale during the time in which the buyer of the stock is not entitled to the warrant accompanying the stock.
Exact interest
Interest paid based on the basis of a 365-day/year schedule by a bank or other financial_institution as opposed to a 360-day basis (ordinary interest). Difference can be material when large principal sums of money are involved.
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.
Except for opinion
An auditor's opinion reflecting the fact that the auditor is unable to audit certain areas of the company's operations because of restrictions imposed by management or other conditions beyond the auditor's control.
Expected rate of inflation
The public's expectations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity.
Excess kurtosis
Kurtosis measures the "fatness" of the tails of a distribution. Positive excess kurtosis means that distribution has fatter tails than a normal distribution. Fat tails means there is a higher than normal probability of big positive and negative returns realizations. When calculating kurtosis, a result of +3.00 indicates the absence of kurtosis (distribution is mesokurtic). For simplicity in its interpretation, some statisticians adjust this result to zero (i.e. kurtosis minus 3 equals zero), and then any reading other than zero is referred to as excess kurtosis. Negative numbers indicate a platykurtic distribution; positive numbers indicate a leptokurtic distribution.
Excess margin
Equity present in an individual's account above the legal minimum required for a margin account or the maintenance requirement at a brokerage firm.
Excess profits tax
Additional federal taxes placed on the earnings of a business, used only in time of national emergency such as war.
Excess reserves
Actual reserves that exceed required reserves.
Excess return on the market portfolio
Difference between the return on the market portfolio and the riskless rate.
Excess returns
Difference between an asset's return and the riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.
Exchange
A marketplace in which shares, options and futures on stocks, bonds, commodities, and indexes are traded. Principal U.S. stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and National Association of Securities Dealers Automatic Quotation System (Nasdaq).
Exchange, The
A nickname for the New York Stock Exchange. Also known as the Big Board, where more than 2000 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.
Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.
Exchange controls
Government restrictions on the purchase of foreign currencies by domestic citizens or on the purchase of the local domestic currency by foreigners.
Exchange distribution
A sale on an exchange floor of a large block of stock in a single transaction. A broker bunches a large number of buy orders and sells the block all at once. The broker receives a special commission from the seller.
Exchange fund (also known as swap fund)
Investment vehicle introduced in 1999 that 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 a diversified portfolio of stocks in a tax-free transaction.
Exchange members
See: Member firm; seat
Exchange offer
An offer by a firm to give one security, such as a bond or preferred stock, in exchange for another security, such as shares of common stock.
Exchange privilege
A mutual fund shareholder's right to switch from one fund to another within one fund family, usually at no additional charge.
Exchange rate
The price of one country's currency expressed in another country's 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 that an investment's value will change because of currency exchange rates.
Exchange risk
The variability of a firm's 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 currency's appreciation or depreciation.
Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.
Exchange Traded Funds (ETF)
Also known as ETF. A basket of stocks similar to an index mutual fund. However, there are a number of important differences between ETFs and mutual funds. The ETF can be traded within the day, they can be shorted, purchased on margin and there even exists options on some ETFs.
Exchangeable
Applies mainly to convertible securities. Means the issuer, if so stated, may substitute a convertible debenture for an existing convertible preferred with identical terms. Most often used when a corporation has an immediate need for equity capital and a low tax rate, and expects either or both conditions to change. This would make the debenture less attractive if the interest tax-deductibility is lost.
Exchangeable instrument
Applies mainly to convertible securities. Bond or preferred stock that may be exchangeable into the common stock of a different public corporation.
Exchangeable Security
Investment instrument that grants its holder the right to exchange it for the common stock of a firm other than the issuer of the instrument.
Excise tax
Federal or state tax placed on the sale or manufacture of a commodity, typically a luxury item e.g., alcohol.
Exclusionary self-tender
A firm's offer to buy a given amount of its own stock while excluding targeted stockholders.
Exclusive
In the context of general equities, having sole possession of the customer order/indication; not in competition with other dealers.
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 one (mutual funds) and three (stocks) days after an order is executed. The time varies greatly across countries. In France, for example 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 List
Sophisticated investors, usually institutional investors, who are considered informed enough that new issues can be marketed to them without a prospectus. This exemption reduces the cost of private placements.
Exempt securities
Instruments exempt from the registration requirements of the Securities Act of 1933 or the margin requirements of the SEC Act of 1934. Such securities include government bonds, agencies, munis, commercial paper, and private placements.
Exemption
Direct reductions from gross income allowed by the IRS.
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 limit
Cap on the number of option contracts of any one class of contract that can be exercised within a five-day period contract. There are no restrictions on exercise for the last 10 trading days before expiry. A stock option's exercise limit varies with the volume of the underlying stock.
Exercise notice
A broker's notification from a client who wants to exercise a right to buy or sell (depending on the type of contract) the underlying security of the option contract.
Exercise price
The price at which the security underlying an options contract may be bought or sold.
Exercise settlement amount
The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.
Exercise value
The value of an in-the-money option if it was exercised today (before the expiration date). For a call option, this is the difference between the current asset price and the stike price. For a put option, it is the difference between the strike price and the current asset price.
Exercising the option
The act of buying or selling the underlying asset via the option contract.
Exhaust price
The low price at which a broker must liquidate a client's holding in a stock purchased in a margin account in order to meet a margin call when the client cannot meet the call.
Exim bank
See: Export-Import Bank
Exit fee
See: Back-end load
Exogenous
Describes facts outside the control of the firm. Converse of endogenous.
Exogenous variable
A variable whose value is determined outside the model in which it is used. Related: Endogenous variable
Exotic option
Refers to options that are more complex than simple put or call options. For example, a Caput is a call option on a put option. Exotic options trade over-the-counter.
Expansion
Phase of the business cycle as it climbs from a trough toward a peak.
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 during the life of a futures contract or total dividends received for holding a particular stock one 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, given 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 asset's 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 Spot Rate
The exchange rate between two currencies that is anticipated to prevail in the spot market on a given future date. It differs from the current spot rate primarily by the extent to which inflation expectations in the two currencies differ.
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.
Expense ratio
The percentage of the assets that are 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 SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions 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 (OER).
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.
Expert system
A software system designed to emulate the processes and procedures conducted by humans in particular areas of expertise, thereby automating decision-making processes.
Experience rating
A technique insurance companies use to determine the correct price of a policy premium.
Expiration
The time an option contract lapses.
Expiration cycle
The recurring cycle of expiry months for which options on a particular security can be available. Basic options are placed in one of three cycles; Cycle 1 (the January/April/July/October, or the first month of each quarter); Cycle 2 (the second month of each quarter); or Cycle 3 (the third month of each quarter).
At any one time, a basic option has contracts with three expiration dates outstanding. For example, in mid-February, options trading on cycle 3 will have March, June and September expiries available. Late in March, after the March options expire, a December contract will be added, thus offering June, September and December expiries.
Higher-volume equity options, index options, and LEAPS can trade on other cycles, such as Cycle 4, Cycle 5 or Cycle 6. Cycle 4, for example, offers options in the two nearest months plus two months from Cycle 3. For example, in mid-April, there would be April, May, June and September expires available. A month later, there would be May, June, September and December expiries available for trading.
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 third Friday of the expiration month; brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.
Expiration time
The time of day by which all exercise notices must be received on the expiration date. Technically, the expiration time is currently 11:59AM on the expiration date, but public holders of option contracts must indicate their desire to exercise no later than 5:30PM on the business day preceding the expiration date. The times are Eastern Time. See also Expiration Date.
Explicit Bankruptcy Costs
Specific costs incurred during the bankruptcy process such as legal fees, court costs, consultants' fees, and document preparation expenses.
Explicit tax
A tax specifically collected by a government; includes income, withholding, property, sales, and value-added taxes and tariffs.
Exploding term sheet
Venture capital jargon. Often a proposed term sheet might explode or be null and void in a fixed period set to negotiate the final contract.
Export Commodity Control List
A listing administered by the U.S. Department of Commerce of items requiring validated export licenses for shipment to some or all countries.
Export Credit Agency
An agency established by a country to finance its nation's goods, investment, and services, often offers political risk insurance.
Export Credit Guarantee
Guarantee from the UK Export Credit Agency.
Export Development Corp.
Canada's Export Credit Agency.
Export Finance Insurance Corp.
Australia's Export Credit Agency.
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.
Export financing interest
Interest income derived from goods manufactured in the U.S. and sold outside the U.S. as long as not more than 50% of the value is imported into the U.S.
Export License
Permission from the exporter's government to export specific merchandise to a particular country.
Export management company
A foreign or domestic company that acts as a sales agent and distributor for domestic exporters in international markets.
Export Management Consultant (EMC)
A company serving as the export department of other firms. Normally, EMC's work on a commission basis and do not take title to the goods they export. Also see: Export Trading Company.
Export Trading Company (ETC)
A company serving as the export department of other firms. They usually take title, risk and responsibility for the goods they export.
Exports
Goods or services sold to parties in foreign countries.
Exposure netting
Offsetting exposures in one currency with exposures in the same or another currency, when 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.
Expost average rate of return
The historical mean percentage an asset has yielded.
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 Auto indication's existence at any time. See: Cancel.
Extendable bond
Bond whose maturity can be extended at the option of the holder (investor).
Extendable notes
Note with maturity that can be extended by mutual agreement between the issuer and investors.
Extension
Voluntary arrangements to restructure a firm's 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
Funding that is not generated by a firm's operations: new borrowing or a stock issue.
External funds
Funds originating from a source outside the corporation to increase cash flow and to aid in expansion efforts, e.g., bank loan or bond offering.
External market
Also referred to as the international market, the offshore market, or, more popularly, the Euromarket. A mechanism for trading securities that at issuance (1) 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.
Extra Dividend
A temporary increase in a firm's dividends beyond the normal level.
Extraordinary call
Early redemption of a revenue bond because the revenue source paying the interest on the bond has been eliminated or has disappeared.
Extraordinary item
An unusual and unexpected one-time event that must be explained to shareholders in an annual or quarterly report, e.g., write down for a discontinued operation, employee fraud, a lawsuit, or other one-time events. Results are often presented with and without these items. The logic of excluding these items is that investors have a better notion of future performance if one-time events are excluded. Differs from an unusual item in that extraordinary items are (1) material; (2) non-recurring; and (3) outside the ordinary nature of the business.
Extra or special dividends
A one-time or special dividend that is paid in addition to a firm's established or expected quarterly dividend.
Extraordinary positive value
A positive net present value.
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.

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Copyright © 2009, Campbell R. Harvey. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

[Version 17 May 2009.]
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Campbell R. Harvey's Hypertextual Finance Glossary
Copyright © 2009. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

Order the popular hard copy version coauthored with the
2002 Pulitzer Prize winner for financial writing,
Gretchen Morgenson of the New York Times.
Order via Amazon
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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A
Fifth letter of a Nasdaq stock symbol specifying Class A shares.
AAII
See: American Association of Individual Investors
ABO
See: Accumulated Benefit Obligation
ABS
See: Automated Bond System
ABX index
Index created by the firm Markit. It is based on the price of credit default swaps on the index's constituent mortgage backed securities. A decline in the the ABX Index indicates that the market associates more risk with subprime mortgages.
ACAT
See: Automated Customer Account Transfer
ACES
See: Advance Computerized Execution System
ACH
See: Automated Clearing House
ACRS
See: Accelerated cost recovery system
ACU
See: Asian currency units
AD
The two-character ISO 3166 country code for ANDORRA.
ADB
See: Adjusted Debit Balance
ADB
See: Asian Development Bank
ADR
See: American Depositary Receipt
ADS
See: American Depositary Share
AE
The two-character ISO 3166 country code for UNITED ARAB EMIRATES.
AED>
The ISO 4217 currency code for United Arab Emirates Dirham.
AEX
See: Amsterdam Exchange
AFA
The ISO 4217 currency code for Afghan Afghani.
AF
The two-character ISO 3166 country code for AFGHANISTAN.
AFM
See: Amman Financial Market
AFS
See: Available for Sale
AG
The two-character ISO 3166 country code for ANTIGUA AND BARBUDAAG.
AI
The two-character ISO 3166 country code for ANGUILLAAI.
AIBD
Association of International Bond Dealers
AL
The two-character ISO 3166 country code for ALBANIA.
ALCO
See: Asset-Liability Committee.
ALL
The ISO 4217 currency code for Albanian Lek.
ALLL
See Allowance for loan and lease losses.
ALT
Alternative Trading System. This term is defined under section 301 of the U.S. Securities Act.
AM
The two-character ISO 3166 country code for ARMENIA.
AMD
The ISO 4217 currency code for Armenian Dram.
AMEX
See: American Stock Exchange
AMPS
See: Auction Market Preferred Stock
AN
The two-character ISO 3166 country code for NETHERLANDS ANTILLES.
ANG
The ISO 4217 currency code for Netherlands Antilles Guilder.
AO
The two-character ISO 3166 country code for ANGOLA.
AOCI
See: Accumulated Other Comprehensive Income.
AON
See: All or none order
AOR
The ISO 4217 currency code for Angolan Reajustado Kwanza.
AOS
See: Automated Order System
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
AR
See: Auto-Regressive
ARCH
See: Auto-Regressive Conditional Heteroskedasticity
AQ
The two-character ISO 3166 country code for ANTARCTICA.
AR
The two-character ISO 3166 country code for ARGENTINA.
ARS
The ISO 4217 currency code for Argentinian Peso.
ARM
See: Adjustable-rate mortgage
ARMS
See: Adjustable-rate mortgage securities
ARM
See: Adjustable-rate mortgage
ARPS
See: Adjustable-rate preferred stock
ARPS
See: Auction rate preferred stock
ARR
See: Average rate of return
AS
The two-character ISO 3166 country code for AMERICAN SAMOA.
ASE
See: Athens Stock Exchange.
ASX
See: Australian Stock Exchange
AT
The two-character ISO 3166 country code for AUSTRIA.
ATP
See: Arbitrage Trading Program
ATS
The ISO 4217 currency code for Austrian Schilling.
AU
The two-character ISO 3166 country code for AUSTRALIA.
AUD
The ISO 4217 currency code for Australian Dollar currency.
AW
The two-character ISO 3166 country code for ARUBA.
AWG
The ISO 4217 currency code for Aruban Guilder.
AZ
The two-character ISO 3166 country code for AZERBAIJAN.
AZM
The ISO 4217 currency code for Azerbaijani Manat.
AAA+ Bank
Refers to banks that are rated AAA by IBCA, Moodys Investor Service and Standard & Poors.
Abandonment
Controlling party giving up rights to property voluntarily.
Abandonment option
The option of terminating an investment earlier than originally planned.
ABC agreement
A contract between an employee and a brokerage firm outlining the rights of the firm purchasing an NYSE membership for that employee.
Ability to pay
Refers to the borrower's ability to make interest and principal payments on debts. See: Fixed charge coverage ratio.
In context of municipal bonds, refers to the issuer's present and future ability to create sufficient tax revenue to fulfill its contractual obligations, accounting for municipal income and property values.
In context of taxation, notion that tax rates should be determined according to income or wealth.
Abnormal returns
The component of the return that is not due to systematic influences (market-wide influences). In other words, the abnormal returns is the difference between the actual return and that is expected to result from market movements (normal return). Related: excess returns.
Above par
See: Par.
Absolute advantage
A person, company or country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another person, company or country.
Absolute form of purchasing power parity
A theory that prices of products of two different countries should be equal when measured by a common currency. Also called the "law of one price."
Absolute Physical Life
The period of use after which an asset has deteriorated to such an extent that it can no longer be used.
Absolute priority
Rule in bankruptcy proceedings requiring senior creditors 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.
Abusive tax shelter
A limited partnership that the IRS judges to be claiming tax deductions illegally.
Accelerated cost recovery system (ACRS)
Schedule of depreciation rates allowed for tax purposes.
Acceleration clause
A contract stating that the unpaid balance becomes due and payable if specific actions transpire, such as failure to make interests payments on time.
Accelerated depreciation
Any depreciation method that produces larger deductions for depreciation in the early years of an asset's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.
Acceptance
Contractual agreement instigated when the drawee of a time draft "accepts" the draft by writing the word "accepted" thereon. The drawee assumes responsibility as the acceptor and for payment at maturity. See: Letter of credit and banker's acceptance.
Accommodation
A form of loan in which the borrower is not obligated to compensate the lender. These loans are often accompanied by accommodation bills, which guarantee that a third party compensates the lender, should the borrower be unable. Troubled financial institutions frequently use accommodation loans.
Accommodation loan
A legal agreement signed by two parties whereby one of the co-signers guarantees credit liability for the other co-signer. Â Accommodation loans, often called accommodation endorsements or bills, allows the guarantor to add strength to the creditworthiness of the other party. Â If the receiving party defaults on its debt, the guarantor is then responsible for the debt of the other party. See: Covenant
Accommodative monetary policy
Federal Reserve System policy to increase the amount of money available to banks for lending. See: Monetary policy.
Account
In the context of bookkeeping, refers to the ledger pages upon which various assets, liabilities, income, and expenses are represented.

In the context of investment banking, refers to the status of securities sold and owned or the relationship between parties to an underwriting syndicate. In the context of securities, the relationship between a client and a broker/dealer firm allowing the firm's employee to be the client's buying and selling agent. See: Account executive; account statement.

Account Ad Valorem Duty
An imported merchandise tax expressed as a percentage.
Account balance
Credits minus debits at the end of a reporting period.
Account executive
The brokerage firm employee who handles stock orders for clients. See: Broker.
Account in trust
Account managed by the account holder for another person, called the beneficiary. For example, an account opened by parents to give money to their minor children.
Account Party
Party who applies to open a bank for the issuance of a letter of credit.
Account reconciliation
The reviewing and adjusting of the balance in a personal checkbook to match your bank statement.
Account statement
In the context of banking, refers to a summary of all balances.

In the context of securities, a summary of all transactions and positions (long and short) between a broker/dealer and a client. See also: Option agreement.

Accountant's opinion
A signed statement from an independent public accountant after examination of a firm's records and accounts. The opinion may be unqualified or qualified. See: Qualified opinion.
Accounting earnings
Earnings of a firm as reported on its income statement.
Accounting exposure
The change in the value of a firm's 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 financing
A short-term financing method in which accounts receivable are collateral for cash advances. See: Factoring.
Accounts receivable turnover
The ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.
Accredited investor
Refers to an individual whose net worth, or joint net worth with a spouse, exceeds $1,000,000; or whose individual income exceeded $200,000 or whose joint income with a spouse exceeded $300,000 in each of the 2 most recent years and can be expected to meet that income in the current year. More details of the definitions for investors other that individuals are found in Regulation D of the Securities and Exchange Commission.
Accreting Swap)
An interest rate swap in which the notional principal amount increases over time, for example as with a construction loan provided in tranches as each stage of the project is completed.
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 Accounting Convention
An accounting system that tries to match the recognition of revenues earned with the expenses incurred in generating those revenues. It ignores the timing of the cash flows associated with revenues and expenses.
Accrual basis
In the context of accounting, practice in which expenses and income are accounted for as they are earned or incurred, whether or not they have been received or paid. Antithesis of cash basis accounting.
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 benefits
The pension benefits earned by an employee according to the years of the employee's service.
Accrued discount
Interest that accumulates on savings bonds from the date of purchase until the date of redemption or final maturity, whichever comes first. Series A, B, C, D, E, EE, F, I, and J are discount or accrual bonds, meaning principal and interest are paid when the bonds are redeemed. Series G, H, HH, and K are income bonds, and the semiannual interest paid to their holders is not included in accrued discount.
Accrued interest
Applies mainly 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 bond's 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 semiannually and sells the bond one-quarter of the way into the coupon period, the buyer pays the seller $10 as the latter's proportion of interest earned.)
Accrued market discount
The rise in the market value of a discount bond as it approaches maturity (when it is redeemable at par) and not because of falling market interest rates.
Accumulate
Broker/analyst recommendation that could mean slightly different things depending on the broker/analyst. In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security that might skyrocket. A buy recommendation, but not an urgent buy.
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.
Accumulated dividend
A dividend that has reached its due date, but is not paid out. See: Cumulative preferred stock.
Accumulated Other Comprehensive Income (AOCI)
A balance sheet account that reports the total of all comprehensive income items except Net Income.
Accumulated profits tax
A tax on earnings retained in a firm as a way for the principals to defer personal income taxes.
Accumulation
In the context of corporate finance, refers to profits that are added to the capital base of the company rather than paid out as dividends. See: Accumulated profits tax.
In the context of investments, refers to the purchase by an institutional broker of a large number of shares over a period of time in order to avoid pushing the price of that share up.
In the context of mutual funds, refers to the regular investing of a fixed amount while reinvesting dividends and capital gains.
Accumulation area
A range within which a buyer accumulates shares of a stock. See: On-balance volume and distribution area.
Acid test ratio
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.
Acquired surplus
The surplus acquired when a company is purchased in a pooling of interests combination, i.e. the net worth not considered to be capital stock.
Acquiree
A firm that is being acquired.
Acquirer
A firm or individual that is purchasing another firm or asset.
Acquisition
When a firm buys another firm.
Acquisition cost
Refers to the price (including the closing costs) to purchase another company or property.

In the context of investments, refers to price plus brokerage commissions, of a security, or the sales charge applied to load funds. See: Tax basis.

Acquisition of assets
A merger or consolidation in which an acquirer purchases the selling firm's assets.
Acquisition of stock
A merger or consolidation in which an acquirer purchases the acquiree's stock.
Acquittance
A written document which releases a second party from any financial or other liability. An example of an acquittance would be a receipt indicating payment in full.
Across the board
Movement or trend in the stock market that causes all stocks in all sectors to move in the same direction.
Acting in concert
Investors working together and performing identical actions to attain the same investment goal.
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.
Active
A market in which there is frequent trading.
Active account
Refers to a brokerage account in which many transactions occur. Brokerage firms may levy a fee if an account generates an inadequate level of activity.
Active bond crowd
Refers to members of the bond department of the NYSE who trade the most bonds. Antithesis of cabinet crowd.
Active box
Securities that are held in safekeeping and are available as collateral for securing brokers' loans or customers' margin positions.
Active fund management
An investment approach that purposely shifts funds either between asset classes (asset allocation) or between individual securities (security selection).
Active income
Income from an active business as opposed to passive investment income according to the U.S. tax code.
Active Management
The opposite of passive management. The passive manager simply minimizes the tracking error of their portfolio and a well known index (e.g. S&P 500 index mutual funds). The active manager will deviate from the benchmark weights by (i) varying the weights from the benchmark weights on the securities; (ii) adding securities outside the benchmark or choosing not to hold securities included in the benchmark and (iii) time-varying asset allocation where weights on certain asset classes change through time. The goal of active management is to produce a return that exceeds the passive return with minimal risk.
Active portfolio strategy
A strategy that uses available information and forecasting techniques to seek better performance than a buy and hold portfolio. Related: Passive portfolio strategy.
Active Return
Return relative to a benchmark. If a portfolio's return is 5%, and the benchmark's return is 3%, then the portfolio's active return is 2%.
Active Risk
The risk (annualized standard deviation) of the active return. Also called the tracking error.
Activist Investor
A minority shareholder who seeks to influence decision making at a company by voicing concerns, engaging in a dialogue with management, or lobbying other shareholders for support. The demands could relate to changes in management, representation on the board, acquisitions or divestitures, salaries, bonus payments, use of retained earnings etc.
Act of Bankruptcy
An action by a debtor that can be a basis for creditors to file a bankruptcy petition against the debtor. Examples of such actions are concealing assets, defrauding creditors, favoring one creditor over another, or admitting in written a willingness to be adjudged bankrupt.
Actual/360
Day count convention for calculating interest accrued on U.S. Treasury bills and other money market instruments. Uses actual number of days in a month and 360 days in a year for calculating interest payments. Also see Day count convention.
Actual/Actual
Day count convention for calculating interest accrued on U.S. Treasury bonds. Uses actual number of days in a month and actual number of days in a year for calculating interest payments. Also see Day count convention.
Actual Cash Value
Cost of replacing a property with another of the same kind and in similar condition. Calculated as the replacement cost less depreciation.
Actual market
Used in context of general equities. Firm market. Antithesis of Subject market.
Actuals
The physical commodities underlying a futures contract. Cash commodity, physical asset.
A-D
Advance-Decline, or 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 AD line indicates whether a strong bull or bear market is under way.
Ad valorem tax
A type of tax calculated based on percentage of gross or stated value. For example, VAT.
Additional bonds test
A test for ensuring that bond issuers can meet the debt service requirements of issuing any new additional bonds.
Additional hedge
A protection against fallout risk in the mortgage pipeline.
Adequacy of coverage
A test that measures the extent to which the value of an asset is protected from potential loss either through insurance or hedging.
Adjustable rate
Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to 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 that limits 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 mortgage securities (ARMS)
Mortgage-backed securities where the underlying asset is a pool of Adjustable rate mortgages.
Adjustable-rate preferred stock (ARPS)
Publicly traded issues that may be collateralized by mortgages and MBS
Adjusted balance method
Method of calculating finance charges that uses the account balance remaining after adjusting for all transactions posted during the given billing period as its basis. Related: Average daily balance method, previous balance method, past due balance method.
Adjusted basis
Price from which to calculate and derive capital gains or losses upon sale of an asset. Account actions such as any stock splits that have occurred since the initial purchase must be accounted for.
Adjusted debit balance (ADB)
The account balance for a margin account that is calculated by combining the balance owed to a broker with any outstanding balance in the special miscellaneous account, and any paper profits on short accounts.
Adjusted exercise price
Term used in options on Ginnie Mae (Government National Mortgage Association) contracts. The final exercise price of the option accounts for the coupon rates carried on Ginnie Mae mortgages. For example, if the standard GNMA mortgage has an 9% yield, the price of GNMA pools with 13% mortgages in them is altered so that the investor receives the same yield.
Adjusted gross income (AGI)
Gross income less allowable adjustments, which is the income on which an individual is taxed by the federal government.
Adjusted present value (APV)
The net present value analysis of an asset if financed solely by equity (present value of unlevered 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 buyout.
Adjustment bond
A bond issued in exchange for outstanding bonds when a corporation facing bankruptcy is recapitalized.
Administrative pricing rules
IRS rules used to allocate income on export sales to a foreign sales corporation.
Advance
Increase in the market price of stocks, bonds, commodities, or other assets.
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 fix the sales price approximately.
Advance Computerized Execution System (ACES)
Refers to the Advance Computerized Execution System, run by Nasdaq. ACES automates trades between order entry and market maker firms that have established trading relationships with each other. Securities are designated as specified for automatic execution.
Advance Decline Ratio
Ratio of the number of stocks that advance in value to the number of stocks that decline in value over a given time period. An increasing advance-decline ratio signals a bullish trend while a decreasing advance-decline ratio signals a bearish trend.
Advance funded pension plan
A pension plan in which funds are set aside in advance of the date of retirement.
Advance refunding
In the context of municipal bonds, refers to the sale of new bonds (the refunding issue) before the first call date of old bonds (the issue to be refunded). The refunding issue usually specifies a rate lower than the issue to be refunded, and the proceeds are invested, usually in government securities, until the higher-rate bonds become callable. See: Refunding escrow deposits.
Advance tax ruling
A written statement sought by a taxpayer from the tax authorities about the tax implications of a transaction. It is often a precondition for closing the transaction because an adverse tax ruling may make the transaction (e.g. a merger) financially unviable.
Advancement
Money or property given to a person by the deceased before death and intended as an advance against the beneficiary's share in the will.
Adverse opinion
An independent auditor's opinion expressing that a firm's financial statements do not reflect the company's position accurately. See also: Qualified opinion.
Adverse selection
Refers to a situation in which sellers have relevant information that buyers lack (or vice versa) about some aspect of product quality.
Advising bank
Corresponding bank in the beneficiary's country to which an issuing bank sends a letter of credit.
Advisory letter
A newsletter offering financial advice to its readers.
Affidavit of Loss
A sworn statement describing the particulars and circumstances of the loss of securities. This affidavit is required before a Bond of Indemnity can be issued and the securities replaced.
Affiliate
Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company.
Affiliated corporation
A corporation that is an affiliate to the parent company.
Affiliated person
An individual who possesses enough influence and control in a corporation as to be able to alter the actions of the corporation.
Affirmative covenant
A bond covenant that specifies certain actions the firm must take.
Affirmative obligation
A New York Stock Exchange rule that governs the behavior of specialists. Affirmative obligation is the mandate of the specialists to step in and act as either the buyer or the seller when public investor orders exist do not match up naturally. Also known as positive_obligation. Related: negative_obligation.
Affordability index
An index that measures the financial ability of consumers to purchase a home.
After acquired clause
A contractual clause in a mortgage agreement stating that any additional mortgageable property attained by the borrower after the mortgage is signed will be regarded as additional security for the obligation addressed in the mortgage.
After-hours dealing or trading
Securities trading after regular trading hours on organized exchanges.
Aftermarket
See: Secondary market.
After-tax basis
The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond.
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.
Against the box
See: Selling short against the box.
Aged fail
An account between two broker/dealers that remains intact 30 days after the settlement date. The receiving firm must adjust its capital as it can no longer treat this account as an asset.
Agencies
See: Federal agency securities.
Agency
In context of general equities, 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 firm's own trading account. Antithesis of principal. See: Dealer.
Agency bank
A form of organization commonly used by foreign banks to enter the US 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 ADRs 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 cost view
The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debt financing.
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 securities
Securities issued by federally related institutions and U.S. government-sponsored entities. Such agencies were created to reduce borrowing costs for certain sectors of the economy, such as agriculture.
Agency theory
The analysis of principal-agent relationships, in which one person, an agent, acts on behalf of another person, a principal.
Agent
A party appointed to act on behalf of a principal entity or person. In context of project financing, refers to the bank in charge of administering the project financing.
Aggregate exercise price
The exercise price multiplied by the number of shares in a put or call contract. The option premium is excluded in the aggregate exercise price. In the case of options traded on debt instruments, the aggregate exercise price is the exercise price of the underlying security multiplied by its face value.
Aggregation
Process in corporate financial planning whereby the smaller investment proposals of each of the firm's operational units are aggregated and effectively treated as a whole.
Aggressive Growth Hedge Fund
In the context of hedge funds, a style of management that focuses primarily on equities that are expected to have strong earnings growth.
Aggressive growth mutual fund
A mutual fund designed for maximum capital appreciation that places its money in companies with high growth rates.
Aggressively
Used in context of general equities. For a customer it means working to buy or sell one's stock, with an emphasis on execution over price. For a trader it means acting in a way that puts the firm's 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.
Agreement among underwriters
A contract among participating members of a syndicate that defines the members' proportionate liability, which is usually limited to and based on the participants' level of involvement. The contract outlines the payment schedule on the settlement date. Compare: Underwriting agreement.
Agreement corporation
Corporation chartered by a state to engage in international banking: so named because the corporation enters into an "agreement" with the Fed's Board of Governors that it will limit its activities to those permitted by an Edge Act Corporation.
Ahead of itself
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 specialist's book. See: Behind, matched orders, priority, stock ahead.
AIMR Performance Presentation Standards Implementation Committee
The Association for Investment Management and Research (AIMR) 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.
Air Freight Consolidator
An air freight carrier that does not own or operate its own aircraft but ships its cargo with actual equipment operating carriers. Consolidators issue house air waybills to their customers and receive master air waybills from the actual carriers.
Air pocket stock
A stock whose price drops precipitously, often on the unexpected news of poor results.
ALCO package
Reporting package that contains financial information related to the Asset-Liability Committee e.g. yield curve assumptions, net interest income projections, and economic value of equity assessments made by the firms as part of their business planning processes.
Alien corporation
A company incorporated under the laws of a foreign country regardless of where the company conducts its operations.
All equity rate
The discount rate that reflects only the business risks of a project, distinct from the effects of financing.
All in
Refers to an issuer's interest rate after accounting for commissions and various related expenses.
All-in-rate
Rate used in charging customers for accepting banker's acceptances, consisting of the discount interest rate plus the commission.
All Ordinaries Index
The major stock price index in Australia. The capitalization weighted index is made up of the largest 500 companies as measured by market capitalization that are listed on the Australian Stock Exchange. The index was developed with a base value of 500 as of 1979.
All or none order (AON)
Used in context of general equities. A limited price order that 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 FOK order, an AON 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. AON orders are not shown on the specialist's book because they cannot be traded in pieces. Antithesis of any-part-of order. See: FOK order.
All-in cost
Total costs, explicit and implicit.
All-or-none underwriting
An arrangement whereby a security issue is cancelled if the underwriter is unable to resell the entire issue.
All Risk Insurance
Marine cargo insurance which covers most perils except strikes, riots, civil unrest, capture, war, seizure, civil war, piracy, loss of market, and inherent vice.
Allied member
A partner or stockholder of a firm that is a member of the NYSE, the partner or stockholder is not personally a member of the NYSE.
Alligator spread
The term used to describe a spread in the options market that generates such a large commission that the client is unlikely to make a profit even if the markets move as the investor anticipated.
Allocation-of-income rules
US tax provisions that define how income and deductions are to be allocated between domestic source and foreign source income.
Allocational efficiency
The effectiveness with which a market channels capital toward its most productive uses.
Allotment
The number of securities assigned to each of the participants in an underwriting syndicate.
Allowance for Loan and Lease Losses
A contra-account on the balance sheet used for offsetting losses on loan and lease assets.
Alpha
Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund's 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 25%, 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 excess return given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen Index. Related: Risk-adjusted return.
Alpha equation
Regression usually run over 36-60 months of data: Return-Treasury bill= alpha + beta (S&P 500 - Treasury bill) + error. The alpha is the intercept. Note that the benchmark does not necessarily have to be the S&P 500. A mutual fund specializing in international investment might be benchmarked to a broader world market index, such as the MSCI World Index.
Alphabet stock
Categories of common stock of a corporation associated with a particular subsidiary resulting from acquisitions and restructuring. The various alphabetical categories have different voting rights and pay dividends tied to the operating performance of the particular divisions. See also: Tracking stocks.
Alt-A
Short for Alternative-A paper. Alt-A are loans that are considered riskier than prime loans but less risky than subprime loans. Generally made to individuals with a good credit score but some aspect of the loan (e.g. limited documentation or high loan-to-value ratio) makes the loan riskier than prime. Also see A paper, No docs.
Alternative investments
Usually refers to investments in hedge funds. Many hedge funds pursue strategies that are uncommon relative to mutual funds. Examples of alternative investment strategies are: long--short equity, event driven, statistical arbitrage, fixed income arbitrage, convertible arbritage, short bias, global macro, and equity market neutral. May also refer to the high frequency style of commodity trading advisors who often employ technical and quantitative tools for intraday investments
Alternative Minimum Tax (AMT)
A federal tax aimed at ensuring that wealthy individuals, estates, trusts, and corporations pay a minimal level income tax. For individuals, the AMT is calculated by adding adjusted gross income to tax preference items.
Alternative mortgage instruments
Variations of mortgage instruments such as adjustable-rate and variable-rate mortgages, graduated-payment mortgages, 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, where 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 of more than one unit of trading, the number of units executed determines the amount of the alternative order to be treated as cancelled. Sometimes known as One Cancels the Other. Also see: Either-or order.
American Association of Individual Investors (AAII)
A not-for-profit organization to educate individual investors about stocks, bonds, mutual funds, and other financial instruments.
American Depositary Receipt (ADR)
Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR. "Unsponsored" ADRs do not receive such assistance. ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares, adjusted for the SDR/ordinary ratio essentially equal. American depository shares (ADS) are a similar form of certification.
American Depositary Receipt Fees
Fees associated with the creating or releasing of ADRs from ordinary shares, charged by the commercial banks with correspondent banks in the international sites.
American Depositary Receipt Ratio
The number of ordinary shares into which an ADR can be converted.
American Depositary Share (ADS)
Foreign stock issued in the US and registered in the ADR 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 US 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 highest volume of trading in the US. Located at 86 Trinity Place in downtown Manhattan. The bulk of trading on AMEX consists of index options (computer technology index, institutional index, major market index) and shares of small to medium-sized companies are predominant. Recently merged with Nasdaq 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 equity options are American style.
Amman Financial Market (AFM)
Established in 1976, the AFM is the only stock exchange in Jordan.
Amman Stock Exchange
The only agency authorized as a formal market for trading securities in Jordan.
Amortization
The repayment of a loan by installments.
Amortization factor
The pool factor implied by the scheduled amortization assuming no prepayments.
Amortizing interest rate swap
Swap in which the principal or notional amount declines over time.
Amount outstanding and in circulation
All currency issued by the Bureau of the Mint and intended as a medium of exchange. Coins sold by the Bureau of the Mint at premium prices are not included; uncirculated coin sets sold at face value plus handling charge are included.
Amsterdam Exchange (AEX)
Exchange that comprises the AEX-Effectenbeurs, the AEX-Optiebeurs (formerly the European Options Exchange or EOE) and the AEX-Agrarische Termijnmarkt. AEX-Data Services is the operating company responsible for the dissemination of data from the Amsterdam Exchange 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.
And interest
An indication that the buyer will receive accrued interest in addition to the price quoted for a bond.
Andean Pact
A regional trade pact that includes Venezuela, Colombia, Ecuador, Peru, and Bolivia.
Angel
An investment-grade bond. Antithesis to fallen angel. In the context of venture capital, the first investor.
Angels
Individuals providing venture capital.
Ankle biter
Stock issued with a market capitalization of less than $500 million.
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 basis
The technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. The process is known as annualizing.
Annual effective yield
See: Annual percentage yield.
Annual exclusion
A tax rule allowing the deduction of certain income from taxation.
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.
Annual meeting
Meeting of stockholders held once a year at which the managers of a company report to the stockholders on the year's results.
Annual percentage rate (APR)
In the context of credit cards, the periodic rate times the number of periods in a year. For example, a 1.5% monthly rate has an APR of 18%. In the context of consumer lending, the APR takes into account more than the interest rate applied to the principal per period. Under the Truth in Lending Act, it has a specific definition and includes all the costs paid by a non-exempt consumer borrower that are considered a "finance charge," including fees paid to third parties by the lender if not properly disclosed and excluded from the finance charge (such as credit insurance).
Annual percentage yield (APY)
The effective, or true annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate, raising it to the number of periods in a year and then subtracting one. For example, a 1% per month rate has an APY 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 (APR). The annual percentage yield (APY) includes the effect of compounding interest.
Annual renewable term insurance
See: Term insurance.
Annual report
Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, as well as balance sheet, income statement, and cash flow statement information. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K.
Annualized gain
If stock X appreciates 1.5% in one month, the annualized gain for that stock over a twelve month period is (12 x 1.5%) = 18%. Compounded over the 12 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.
Annualizing
See: Annual basis.
Annuitant
An individual who receives benefits from an annuity.
Annuitize
To commence a series of payments from the capital that has accumulated in an annuity. The payments may be a fixed amount, for a fixed period of time, or for a lifetime.
Annuity
A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
Annuity certain
An annuity that pays a specific amount on a monthly basis for a set amount of time.
Annuity due
An annuity with n payments, where 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.
Annuity starting date
The date when an annuitant starts receiving payments from an annuity.
Anticipated holding period
The period of time an individual expects to hold an asset.
Anticipation
Paying what is owed before it is due (usually to save interest charges).
Antidilutive effect
Result of a transaction that increases earnings per common share (e.g., by decreasing the number of shares outstanding).
Anti-Persistence
In R/S Analysis, an anti-persistent time series reverses itself more often than a random series would. If the system had been up in the previous period, it is more likely that it will be down in the next period and vice versa. Also called pink noise, or 1/f noise. See: Persistence, R/S Analysis, Hurst Exponent, Joseph Effect, Noah Effect.
Antigreenmail
Greenmail refers to the agreement between a large shareholder and a company in which the shareholder agrees to sell his stock back to the company, usually at a premium, in exchange for the promise not to seek control of the company for a specified period of time. Antigreenmail provisions prevent such arrangements unless the same repurchase offer is made to all shareholders or approved by shareholder vote. There are some states that have antigreenmail laws.
Antitrust laws
Legislation established by the federal government to prevent the formation of monopolies and to regulate trade.
Any-interest-date
A call provision in a municipal bond indenture that establishes the right of redemption for the issuer on any interest payment due date.
Any-or-all bid
Often used in risk arbitrage. Takeover bid in which 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
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 (AON).
A paper
Another name for prime paper.
Applied mathematics
The study of the application of mathematical principles to domains outside of mathematics itself. Although the branches of mathematics within this categorization change with time, applied mathematics typically involves the use of differential equations, numerical analysis, and statistics with areas of knowledge such as engineering, biology, physics, computer science, economics, and finance.
Appraisal ratio
The signal-to-noise ratio of an analyst's 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.
Appreciation
Increase in the value of an asset.
Appropriation request
Formal request for funds for capital investment project.
Approved list
A list of equities and other investments that a financial institution or mutual fund is allowed to invest in. See: Legal list.
APS
Auction Preferred Stock. A type of Dutch Auction Preferred Stock (Goldman Sachs product).
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, but, arbitrage opportunities are often precluded because of transactions costs.
Arbitrage bonds
Municipality issued bonds issued intended to gain an interest rate advantage by refunding a higher-rate bond in ahead of their call date. Lower-rate refunding issue proceeds are invested in Treasuries until the first call date of the higher-rate issue.
Arbitrage-free option-pricing models
Yield curve option-pricing models.
Arbitrage Pricing Theory (APT)
An alternative model to the capital asset pricing model developed by Stephen Ross and based purely on arbitrage arguments. The APT implies that there are multiple risk factors that need to be taken into account when calculating risk-adjusted performance or alpha.
Arbitrage Trading Program (ATP)
See: Program trading.
Arbitrageur
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. The arbitrageur profits 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.
Arbs
Short for Arbitrageurs..
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?", Inquiring as to whether any portion of that trade is still available 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.
Arizona Stock Exchange
A single price auction exchange for equity trading that allows anonymous buyers and sellers to trade at low transaction costs.
Arm's length price
The price at which a willing buyer and a willing unrelated seller would freely agree to transact or a trade between related parties that is conducted as if they were unrelated, so that there is no conflict of interest in the transaction.
Arms index
Also known as a TRading INdex (TRIN). The index is usually calculated as the number of advancing issues divided by the number of declining issues. This, in turn, is divided by the advancing volume divided by the declining volume. If there is considerably more advancing volume relative to declining volume this will tend to reduce the index (i.e. increase the denominator). Hence, a value less than 1.0 is bullish while values greater than 1.0 indicate bearish demand. The index often is smoothed with a simple moving average.
Around us
Used in context of general equities. See: Away from you.
Arranger
The senior tier of a syndication. This implies the entity that agreed and negotiated the project financing structure. Also refers to the bank or underwriter entitled to syndicate the loan or bond issue. Also known as the lead underwriter.
Arrearage
In the context of investments, refers to the amount by which interest on bonds or dividends on cumulative preferred stock is due and unpaid.
Articles of incorporation
Legal document establishing a corporation and its structure and purpose.
Artificial currency
A currency substitute, e.g., special drawing rights (SDRs).
Artificial Intelligence
The creation of models that mimic thought processes. See: Neural Networks, Fuzzy Logic, and Genetic Algorithms.
Ascending tops
A chart pattern that depicts that each peak in a security's price over a period of time is higher than the preceding peak. Antithesis of descending tops.
Asia-Pacific Economic Cooperation Pact (APEC)
A loose economic affiliation of Southeast Asian and Far Eastern nations. The most prominent members are China, Japan, and Korea.
Asian Currency Units (ACU)
Dollar deposits held in Singapore or other Asian centers.
Asian Development Bank
A financial_institution established in 1966 to reduce poverty in the Asia-Pacific region. The bank is headquartered in Manila, Philippines and consists of 61 member countries.
Asian dollar market
Asian banks that collect deposits and make loans denominated in US dollars.
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
In context of general equities, price at which a security or commodity is offered for sale on an exchange or in the OTC 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.
Aspirin
Australian Stock Price Riskless Indexed Notes. Zero-coupon four-year bonds repayable at face value plus the percentage increase by which the Australian stock index of all ordinaries (common stocks) rises above a predefined level during the given period.
Assay
Metal purity test to confirm that the metal meets the standards for trading on a commodities exchange (commodities exchange center).
Assessed valuation
The value assigned to property by a municipality for the purpose of tax assessment. Such an assessed valuation is important to investors in municipal bonds that are backed by property taxes.
Asset
Any possession that has value in an exchange.
Asset activity ratios
Ratios that measure how effectively the firm is managing its assets.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the major classes of assets in which it may invest.
Asset allocation mutual fund
A mutual fund that rotates among stocks, bonds, and money market securities to maximize return on investment and minimize risk.
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 if the ratio of assets to debt does not fall below a specified minimum.
Asset Depreciation Range System
A range of depreciable lives the IRS allows for particular classes of assets.
Asset/equity ratio
The ratio of total assets to stockholder equity.
Asset for asset swap
Creditors exchange the debt of one defaulting borrower for the debt of another defaulting borrower.
Asset impairment
See Impairment.
Asset/Liability Committee (ALCO)
A risk management committee in a bank that evaluates the risk associated with the bank's assets and liabilities. It manages interest rate risk while ensuring adequate returns and liquidity.
Asset/liability management
The task of managing the funds of a financial institution to accomplish two goals: (1) to earn an adequate return on funds invested and (2) to maintain a comfortable surplus of assets beyond liabilities. Also called surplus management.
Asset management account
Account at a brokerage house, bank, or savings institution that integrates banking services and brokerage features.
Asset play
A company with assets that are not believed to be accurately reflected in its stock price, making it an attractive buy or play.
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.
Asset stripper
A corporate raider (company A) that takes over a target company (company B) in order to sell large assets of company B to repay debt. Company A calculates that the net, selling off the assets and paying off the debt, will leave the raider with assets that are worth more than what it paid for company B.
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 firm's existing assets and expropriate value from the debtholders.
Asset swap
An interest rate swap used to alter the cash flow characteristics of an institution's assets in order to provide a better match with its liabilities.
Asset turnover
The ratio of net sales to total assets.
Asset value
The net market value of a corporation's assets on a per-share basis, not the market value of the shares. A company is undervalued in the market when asset value exceeds market value.
Assets
A firm's productive resources.
Assets-in-place
Property in which a firm has already invested.
Assets requirements
A common element of a financial plan that describes projected capital spending and the proposed uses of net working capital.
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.
Assignment of proceeds
Arrangement that allows the original beneficiary of a letter of credit to pledge or turn over proceeds to another, typically end supplier.
Assimilation
The public absorption of a new issue of stocks once the stock has been completely sold by underwriter. See: Absorbed.
Association of Southeast Asian Nations (ASEAN)
A loose economic and geopolitical affiliation that includes Singapore, Brunei, Malaysia, Thailand, the Philippines, Indonesia, and Vietnam. Future members are likely to include Burma, Laos, and Cambodia.
Assumed interest rate
Rate of interest used by an insurance company to calculate the payout on an annuity contract.
Assumption
Becoming responsible for the liabilities of another party.
ASX Derivatives and Options Market (ASXD)
Options market trading options on more than 50 of Australia's and New Zealand's leading companies.
Asymmetric information
Information that is known to some people but not to other people.
Asymmetric taxes
When participants in a transaction have different net tax rates.
Asymmetric volatility
Phenomenon that volatility is higher in down markets 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. Stock is offered at; stock is bid for. In an offering, the trading syntax followed is "Quantity-at-Price"; in a bid, the syntax followed is "Price-for-Quantity."
Athens Stock Exchange
Greece's only major securities market. Greek language only.
At par
A price equal to nominal or face value of a security. See: Par.
At risk
The exposure to the danger of economic loss. Frequently used in the context of claiming tax deductions. For example, a person can claim a tax deduction in a limited partnership if the taxpayer can show it is at risk of never realizing a profit and of losing its initial investment. See: Value at risk.
At the bell
In context of general equities, at the opening or close of the market. See: MOC Order.
At the close order
In the context of securities, an all or none market order that is to be executed at the closing price of the security on the exchange. If the execution cannot be made under this condition, the order is to be treated as cancelled.

In the context of futures and options, refers to a contract that is to be executed on some exchanges during the closing period, a period in which there is a range of prices.

At the figure
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 market
See: Market order.
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
In context of general equities, market order or limited price order that is to be executed at the opening (and corresponding price) of the stock or not at all, and any such order or portion thereof not so executed is to be treated as cancelled.
Attractor
In non-linear dynamic series, an attractor defines the equilibrium level of the system. See: Point Attractor, Limit Cycle, and Strange Attractor.
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.
Athens Stock Exchange (ASE)
Greece's principal stock exchange.
Auction Market Preferred Stock (AMPS)
A type of Dutch Auction Preferred Stock (A Merrill Lynch product).
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, whose dividend is adjusted every seven weeks through a Dutch auction.
Audit
An examination of a company's accounting records and books conducted by an outside professional in order to determine whether the company is maintaining records according to generally accepted accounting principles. See: accountant's opinion.
Audit trail
Resolves the validity of an accounting entry by a step-by-step record by which accounting data can be traced to their source.
Auditor's certificate
See: Accountant's opinion.
Auditor's report
A section of an annual report that includes the auditor's opinion about the veracity of the financial statements.
Aunt Millie
An unsophisticated investor.
Australian Stock Exchange (ASX)
Australia's major securities market, formed when the six state stock exchanges (Adelaide, Brisbane, Hobart, Melbourne, Perth, and Sydney stock exchanges) were merged in 1987.
Autarky
Absence of a cross-border trade in models of international trade.
Autex
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 be only 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.
Authentication
In the context of bonds, refers to the validation of a bond certificate.
Authority bond
A bond issued by a government agency or a corporation created to manage a revenue-producing public enterprise. The difference between an authority bond and a municipal bond is that margin protections may be incorporated in the authority bond contract as well as in the legislation that enables the authority.
Authorized shares
Number of shares authorized for issuance by a firm's corporate charter.
Autocorrelation
The correlation of a variable with itself over successive time intervals. Sometimes called serial correlation.
Automated bond system (ABS)
The computerized system that records bids and offers for inactively traded bonds until they are cancelled or executed on the NYSE.
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 Customer Account Transfer (ACAT)
For transfers of securities from a non-equity trading account to your equity trading account with your broker.
Automated Export System
Electronic filing of Shippers Export Declaration (SEDs) with US Customs prior to departure.
Automated Order System (AOS)
Investment bank computerized order entry system that sends single order entries to DOT (Odd-Lot) or to investment banks floor brokers on the exchange. See: Round lot, GTC orders.
Automated Pit Trading (APT)
Introduced in 1989, APT is the LIFFE screen-based trading system that replicates the open outcry method of trading on screen. APT 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.
Automated teller machine (ATM)
Computer-controlled terminal located on the premises of financial institutions or elsewhere, though which customers may make deposits, withdrawals or other transactions as they would through a bank teller. Other terms sometimes used to describe such terminals are customer-bank communications terminal (CBCT) and remote service unit (RSU). Groups of banks sometimes share ATMs. Sometimes called Automated Banking Machines.
Automatic Data Processing (ADP)
A private company that acts as an intermediary to perform proxy services for several banks and brokers. Distributes proxy material to beneficial owners, tabulates the returned proxies, and provides the Corporation or its tabulator compiled reports of the tabulation results. ADP also distributes quarterly reports and other corporate information to the beneficial owners.
Automatic exercise
A protection procedure whereby the Options Clearing Corporation attempts to protect the holder of an expiring in-the-money option by automatically exercising the option on behalf of the holder.
Automatic extension
An automatic extension of time granted to a taxpayer to file a tax return.
Automatic funds transfer
A transfer of funds from one account or investment vehicle to another using electronic or telecommunications technology.
Automatic investment program
A program in which an investor can invest or withdraw funds automatically. A mutual fund, for example, automatically withdraws a pre determined specified amount from the investor's bank account on a regular basis.
Automatic reinvestment
See: Constant dollar plan.
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.
Automatic transfer service (ATS) account
A depositor's saving account from which funds may be transferred automatically to the same depositor's checking account to cover a check written or to maintain a minimum balance.
Automatic withdrawal
A mutual fund that gives shareholders the right to receive a fixed payment from dividends on a quarterly or monthly basis.
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, Rubinstein. 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.
Auto-Regressive (AR) Process
A stationary stochastic process where the current value of the time series is related to the past p values, where p is any integer, is called an AR(p) process. When the current value is related to the previous two values, it is an AR(2) process. An AR(1) process has an infinite memory.
Autoregressive Conditional Heteroskedasticity (ARCH)
A nonlinear stochastic process, where the variance is time-varying, and a function of the past variance. ARCH processes have frequency distributions which have high peaks at the mean and fat-tails, much like fractal distributions. The ARCH model was invented by Robert Engle. The Generalized ARCH (GARCH) model is the most widely used and was pioneered by Tim Bollerslev. See: Fractal Distributions.
Availability
The period in which the project financing is available for drawdown.
Availability float
Checks deposited by a company that have not yet been cleared.
Available cash flow
Total cash sources less total cash uses before payment of debt service.
Available for Sale
Investment in securities where the intention is not to trade in the short-term and they may or may not be held to maturity. These are usually reported at market value. Unrealized gains or losses on these investments do not appear in Net Income but in the Accumulated Other Comprehensive Income account. Also see Held to Maturity, Trading Securities.
Available on the way in
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 salesperson. See: Open.
Aval
Term meaning inseparable from the financial instrument. This gives a guarantee and is abstracted from the performance of the underlying trade contract: Article 31 of the 1930 Geneva Convention of the Bills Of Exchange states that the aval can be written on the bill itself or on an allonge. US Banks are prohibited from avalizing drafts.
Avalizor
An institution or person who gives the aval.
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 DJIA stocks, and divides the results by a predetermined number, the divisor.
Average accounting return
The average project earnings after taxes and depreciation divided by the average book value of the investment during its life.
Average (across-day) measures
An estimation of price that uses the average or representative price of a large number of trades.
Average age of accounts receivable
The weighted-average age of all the firm's 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
In the context of investing, refers to the average cost of shares or stock bought at different prices over time.
Average cost of capital
A firm's required payout to bondholders and 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 daily balance
A method for calculating interest in which the balance owed each day by a customer is divided by the number of days. See also: Adjusted balance method and previous balance method.
Average discount rate
Purchasers tender their competitive bids on a discount rate basis. The weighted, or adjusted mean of all bids accepted in Treasury bill auctions.
Average down
A strategy used by investors to reduce the average cost of shares, in which the investor purchases more shares with a fixed amount of capital as the price of the shares decreases. The investor receives more shares per dollar and decreases the average price per share.
Average equity
A customer's average daily balance in a trading account at a brokerage firm.
Average life
Also referred to as the weighted-average life (WAL). 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 maturity.
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.
Average up
A strategy used by investors to lower the overall cost of shares by buying as many shares with a given amount of capital in an increasing market. Buying $1000 worth of shares at $30, $35, $40, and $45, for instance, will make the average cost of the sharesx $36.65, lower than the average price of $37.50.
Averaging
See: Constant dollar plan.
Avoided cost
In context of project financing, the capital and expense that would have to be spent if the project did not proceed.
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
In context of general equities, out of line with the inside market at this 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 FOK. Antithesis of in-line.
Away from us
Used in context of general equities, to characterize role of a competing broker/dealer. Trading away from us signifies that stock is bought and/or sold with institutions using other trading firms.
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.

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Copyright © 2009, Campbell R. Harvey. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

[Version 17 May 2009.]
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