Financial term of the day, Monday 27th of April 2015:

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 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.

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Agency sector
Securities issued by federally related institutions and government sponsored enterprises such as the Federal Home Loan Mortgage Corporation, Fannie Mae and Freddy Mac Foundation.

Agency problem
The conflict of interest between principal (e.g. shareholders) and agent (e.g. managers) in which agents have an incentive to act in their own self-interest because they bear less than the total costs of their actions.

Agency costs
The cost of resolving the agency problem. These might include stock options and bonus schemes to managers.

Agency bank
A form of organization commonly used by foreign banks to enter the U.S. market. An agency bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.

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 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 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 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 theory
The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of anther person, 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.

Basis point
One hundredth of 1 percent (0.01%). In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 10% is 50 basis points greater than an interest rate of 10.5%.

Price value of a basis point (PVBP)
Also called the dollar value of a basis point, a measure of the change in the price of the bond if the required yield changes by one basis point.

Bank discount basis
A convention used for quoting bids and offers for treasury bills in terms of annualized yield , based on a 360-day year.

Basis
Regarding a futures contract, the difference between the cash price and the futures price observed in the market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.

Basis price
Price expressed in terms of yield to maturity or annual rate of return.

Basis risk
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for price risk.

Bond-equivalent basis
The method used for computing the bond-equivalent yield.

Adjusted basis
The cost of property after adjustment for certain deductions or additions as permitted or prescribed by the U.S. tax laws. In some instances, the basis of property is derived from the basis of other parties - such as a donor or an estate.

Did you know?

Tail

(a) The difference between the average price in Treasury auctions and the stopout price. (b) A future money market instrument (one available some period hence) created by buying an existing instrument and financing the initial portion of its life with a term repo. (c) The extreme end under a probability curve. (d) The odd amount in a MBS pool.


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