De facto

Similar financial terms

Bond indenture
A contract or agreement between the issuer and the bondholder, which sets forth all the obligations of the issuer.

Deferred-coupon bonds
Bonds that let the issuer avoid using cash to make interest payments for a specified number of years. There are three types of deferred-coupon structures: (a) deferred-interest bonds, (b) step-up bonds and (c) payment-in-kind bonds.

Default risk on bonds
Issuers that potentially run into cash flow problems, simultaneously attaches default risk to their bonds if there is uncertainty whether they can afford to pay coupons and principals. Bonds with default risk trade in the market at a price that is lower than comparable U.S. Treasury securities, which are considered free of default risk. Default risk is gauged by quality ratings assigned by recognised rating companies such as Moody’s Investor Service, Standard & Poor’s Corporation, Morningstar an ...

Tender offer
Usually means that one firm or person is making an offer directly to the shareholders in another firm to sell (tender) their shares at specified prices. Less otherwise stated in a company’s memorandum, obtaining 50% or more of the shares of the target firms is equivalent to having received shareholder approval. Tender offers can be friendly or hostile.

Cum dividend
Phrase used to indicate that a stock is selling with a recently declared right or dividend.

Ex dividend
Phrase used to indicate that a stock is selling without a recently declared right or dividend. The ex-rights or ex-dividend date is generally four business days before the date of record

Dividend
Payment made by a firm to its owners, either in cash or in stock. Also referred to as the income component of the return on an investment in stock.

Blockholder
The holder of a significant stake of a the ownership shares.

De novo entry
Entry into an industry by forming a new company as opposed to combining with an existing firm in the industry.

Delphi technique
An information gathering technique in which questionnaires are sent to informed individuals. The responses are summarized into a feedback report and used to generate subsequent questionnaires to probe more deeply into the issue under consideration.

Confidence Interval
A rule used to construct a random interval so that a certain percentage of all data sets, determined by the confidence level, yields an interval that contains the population value.

Standard Deviation
A common measure of spread in the sampling distribution of a random variable. In a financial context, the standard deviation is commonly used to measure risk.

Stock index
A stock index tracks changes in the value of a hypothetical portfolio of stocks. The major stock indices in the world are the NASDAQ Composite, S&P 500 and Dow Jones Index.

SIC Code
The Standard Industrial Classification (SIC) code is a numbering system established by the Office of Management and Budget that identifies companies by industry. It is used to promote the comparability of economic statistics from various facets of the U.S. economy.

Principal Orders
Principal orders refers to hte activity by a broker or dealer who buys or sells for his or her own account and risk.

U.S. Dollar Index
The U.S. dollar index is a trade-weighted index of the values of six foreign currencies. At the moment, the index consists of euros (EUR), Japanese yen (JPY), British pounds (GBP), Canadian dollars (CAD), Swedish kronas (SEK) and Swiss francs (CHF).

Weather derivatives
Weather derivatives gives payoffs dependant on the weather. Usually the weather is measured by the deviation in the temperature from the normal temperature.

Day Trade
A trade that is entered into and closed out on the same day.

Downgrade Trigger
A clause in a contract that states that the contract will be terminated with a cash settlement if the credit rating of one side falls below a certain level.

Limit Order
An order that can be executed only at a specified price or one more favorable to the investor.

Irredeemable bonds
Bonds with a fixed maturity but not subject to prior redemption; bonds that cannot be called for redemption by the issuer (payer or obligor) before maturity. They should not be confused with perpetual bonds or intermediate bonds. UK Irredeemable (undated) bonds have no final maturity date. They are callable by the government at any time within 3 months. As their coupons range between 2.5% and 4% they are unlikely to be called. War loan, issued by the UK government during the First World War ...

Black-Scholes model
The Black-Scholes model is the most commonly used formula when evaluating European call and put options. The equation was first published by economists Myron Scholes and the late Fisher Black in 1973. Later, Scholes and Robert Merton earned the Nobel Prize in Economics (1997) for the work done on the model and for its general contribution to the understanding of valuation of financial assets.

The formula makes some key assumptions that must be fulfilled in order to give the right answer ...

Underlying instrument
An underlying instrument is the financial instrument upon which the price of derivative is derived from.

DEM
Deutsche Mark from West Germany. Now replaced with the euro (EUR).

Debtors
Amounts owing to the company, including the value of sales made under credit, where settlement or payment from the customer is still awaited.

Good till cancelled order
A good till cancelled order (GTC) is an order to a broker instructing him to buy or sell shares at a specified price which remains valid until cancelled by the client or by execution.

Herfindahl index
The Herfindahl index (HI) is a measure of industry concentration equal to the sum of the squared market shares of the firms in the industry.

The Herfindahl index is defined as the sum of the squares of the market shares of each individual firm. As such, the index can range from 0 to 10,000, moving from a very large amount of very small firms to a single monopolistic producer. Decreases in the Herfindahl index generally indicate a loss of pricing power and an increase in competition, whe ...

Cross default
Default on a loan agreement, which results in the default of the entire loan portfolio.

Bon de souscription.
The French term for a stock purchase warrant.

Golden cross
In technical analysis, what happens when the short moving average price of a stock (say, its 20-day moving average) cuts above a longer moving average (say, its 50-day average).

For chartists, this cross is a sign that the market mood has turned decidedly in favour of the stock, especially if up to that point two moving averages have been moving roughly in parallel.

Dead cross
In technical analysis, what happens when the short moving average price of a stock (say, its 20-day moving average) falls below a longer moving average (say, its 50-day average).

For chartists, this cross is a sign that sentiment in the market has turned against the stock, especially if up to that point two moving averages have been moving roughly in parallel.

Federal National Mortgage Association (FNMA)
The FNMA is a US government-backed corporation which purchases mortgages from lenders and resells them to investors. It is financed by the issue of debt securities. Equity shares, known as Fannie Maes, are traded on the New York Stock Exchange.

Breadth index
A measurement of advances and declines in a trading period.

Day Order
A buy or sell order that will expire automatically at the end of the trading day on which it is entered.

One Cancels the Other Order (OCO)
A combination of two orders in which the execution of either one automatically cancels the other.

Current portion of long-term dept
Those liabilities that are payable within the next 12 months, including accounts and taxes payable, and the current portion (12 months' payments) of notes payable and current liabilities.

Debenture
A corporate bond without any collateral; its value is based on the reputation and financial strength of the issuer.

Dept/equity ratio
A ratio showing the percentage of total shareholders' equity represented by long-term dept. This important fundamental test shows the degree of capitalization that is derived from dept rather than from equity.

Dept investments
Investments that involve making capital available to others in exchange for intrest, through savings accounts, loans, or bonds.

Deferred assets
Payments that will be assigned as expenses in a later period, but that are paid in advance and temporarily set up as assets on the balance sheet.

Deferred credits
Deferred income listed in the liability section of the balance sheet.

Depreciation
An annual deduction for a portion of the value or property, plant, and equipment.

Dividend payout ratio
A ratio showing the percentage of net profits paid out in dividends on common stock, after reducing net profits by the amount of dividends paid on preferred stock.

Dividend yield
A stock's daily percentage summary of yield, calculated by dividing annual dividend per share by the day's closing stock price.

Federal funds rate
The rate charged by the Federal Reserve to member banks when excess reserve loans are made from one bank to another.

Insider
An officer or director of a company, anyone who owns more than 10 percent of a corporation's voting stock and his or her immediate family members, or anyone who has information about a company that is not available to other investors.

Accelerated depreciation
Any depreciation method that produces larger deductions for depreciation in the early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.

Yield curve option-pricing models
Models that can incorporate different volatility assumptions along the yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

All-or-none underwriting
An arrangement whereby a security issue is canceled if the underwriter is unable to re-sell the entire issue.

American Depositary Receipts (ADRs)
Certificates issued by a U.S. depositary 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 ADRs. "Unsponsored" ADRs do not receive such assistance. ADRs carry the same ...

Eurodollar demand deposit
Eurodollar demand deposit accounts are not often used or available, as the balances of such accounts would be volatile and the transaction costs incurred in such a service would reduce the overall efficiency and competitiveness of the eurodollar market. It is the latter factor that stimulates interest-rate-conscious corporate treasures and investment agencies to make eurodollar time deposits with banks in offshore centres.

Variable rated demand bond
Variable rated demand bond (VRDB) is a floating rate bond that can be sold back periodically to the issuer.

Value-added tax
Value-added tax (VAT) is a method of indirect taxation whereby a tax is levied at each stage of production on the value added at that specific stage.

Unsecured debt
Debt that does not identify specific assets that can be taken over by the debtholder in case of default.

Unfunded debt
Debt maturing within one year (short-term debt).

Underwriting syndicate
A group of investment banks that work together to sell new security offerings to investors. The underwriting syndicate is led by the lead underwriter.

Underwriting income
For an insurance company, the difference between the premiums earned and the costs of settling claims.

Underwriting fee
The portion of the gross underwriting spread that compensates the securities firms that underwrite a public offering for their underwriting risk.

Underwriter
A party that guarantees the proceeds to the firm from a security sale, thereby in effect taking ownership of the securities. Or, stated differently, a firm, usually an investment bank, that buys an issue of securities from a company and resells it to investors.

Underwrite
To guarantee, as to guarantee the issuer of securities a specified price by entering into a purchase and sale agreement to bring securities to market.

Underpricing
Issue of securities at a discount to their market value.

Underperform
When a security is expected to appreciate at a slower rate than the overall market.

Underlying security
For options it is the security subject to being purchased or sold upon exercise of an option contract. For example, Deutsche Bank stock is the underlying security to Deutsche Bank options.

For depository receipts it is the class, series and number of the foreign shares represented by the depository receipt.

Underlying
The "something" that the parties agree to exchange in a derivative contract.

Underinvestment problem
The mirror image of the asset substitution problem, wherein stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to the debtholders.

Underfunded pension plan
A pension plan that has a negative surplus (i.e., liabilities larger than assets).

Two-state option pricing model
An option pricing model in which the underlying asset can take on only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the binomial option pricing model.

Two-sided market
A market in which both bid and asked prices, good for the standard unit of trading, are quoted.

Two-factor model
Black's zero-beta version of the capital asset pricing model.

Trust deed
Agreement between trustee and borrower setting out terms of bond.

Treynor Index
Treynor's T is a measure of the excess return per unit of risk, where excess return is defined as the difference between the portfolio's return and the risk-free rate of return over the same evaluation period and where the unit of risk is the portfolio's beta.

Transaction demand (for money)
The need to accommodate a firm's expected cash transactions.

Traditional view (of dividend policy)
An argument that "within reason," investors prefer large dividends to smaller dividends because the dividend is sure but future capital gains are uncertain.

Traders
Persons who take positions in securities and their derivatives with the objective of making profits. Traders can make markets by trading the flow. When they do that, their objective is to earn the bid/ask spread. Traders can also be of the sort who take proprietary positions whereby they seek to profit from the directional movement of prices or spread positions.

Trade house
A firm which deals in actual commodities.

Trade on top of
Trade at a narrow or no spread in basis points relative to some other bond yield, usually Treasury bonds.

Trade draft
A draft addressed to a commercial enterprise.

Trade debt
Accounts payable.

Trade date
In an interest rate swap, the date that the counterparties commit to the swap. Also, the date on which a trade occurs. Trades generally settle (are paid for) 1-5 business days after a trade date. With stocks, settlement is generally 3 business days after the trade.

Trade credit
Credit granted by a firm to another firm for the purchase of goods or services.

Trade acceptance
Written demand that has been accepted by an industrial company to pay a given sum at a future date.

Trade
A verbal (or electronic) transaction involving one party buying a security from another party. Once a trade is consummated, it is considered "done" or final. Settlement occurs 1-5 business days later.

Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to shareholders' equity.

Time deposit
Interest-bearing deposit at a savings institution that has a specific maturity.

Thinly traded
Infrequently traded.

Terms of trade
The weighted average of a nation's export prices relative to its import prices.

Tender offer premium
The premium offered above the current market price in a tender offer.

Tender
To offer for delivery against futures.

Technical descriptors
Variables that are used to describe the market on a technical basis.

Tax-deferred retirement plans
Employer-sponsored and other plans that allow contributions and earnings to be made and accumulate tax-free until they are paid out as benefits.

Tax deferral option
The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is payable only when the gain is realized by selling the asset.

Tax differential view ( of dividend policy)
The view that shareholders prefer capital gains over dividends, and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tandem programs
Under Ginnie Mae, mortgage funds provided at below-market rates to residential mortgage buyers with FHA Section 203 and 235 loans and to developers of multifamily projects with Section 236 loans initially and later with Section 221(d)(4) loans.

Taking delivery
Refers to the buyer's actually assuming possession from the seller of the asset agreed upon in a forward contract or a futures contract.

Sum-of-the-years-digits depreciation
The sum-of-the-years-digits (SOTYD) depreciation is a method of accelerated depreciation used in the US.

Subordinated debt
Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debtholders receive payment only after senior debt claims are paid in full.

Subordinated debenture bond
An unsecured bond that ranks after secured debt, after debenture bonds, and often after some general creditors in its claim on assets and earnings. Related: Debenture bond, mortgage bond, collateral trust bonds.

Structured debt
Debt that has been customized for the buyer, often by incorporating unusual options.

Strike index
For a stock index option, the index value at which the buyer of the option can buy or sell the underlying stock index. The strike index is converted to a dollar value by multiplying by the option's contract multiple.

Stratified sampling bond indexing
A method of bond indexing that divides the index into cells, each cell representing a different characteristic, and that buys bonds to match those characteristics.

Stratified sampling approach to indexing
An approach in which the index is divided into cells, each representing a different characteristic of the index, such as duration or maturity.

Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index are classified into stratum, and each stratum is represented in the portfolio.

Straight line depreciation
An equal dollar amount of depreciation in each accounting period.

Stop-limit order
A stop order that designates a price limit. In contrast to the stop order, which becomes a market order once the stop is reached, the stop-limit order becomes a limit order once the stop is reached.

Stop order (or stop)
An order to buy or sell at the market when a definite price is reached, either above (on a buy) or below (on a sell) the price that prevailed when the order was given.

Stop-loss order
An order to sell a stock when the price falls to a specified level.

Stockholder's equity
The residual claims that stockholders have against a firm's assets, calculated by subtracting total liabilities from total assets.

Stockholder's books
Set of books kept by firm management for its annual report that follows Financial Accounting Standards Board rules. The tax books follow IRS tax rules.

Stockholder
Holder of equity shares in a firm.

Stock index option
An option in which the underlying is a common stock index.

Stockholder equity
Balance sheet item that includes the book value of ownership in the corporation. It includes capital stock, paid in surplus, and retained earnings.

Stock dividend
Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold.

Stochastic models
Liability-matching models that assume that the liability payments and the asset cash flows are uncertain.

Stakeholders
All parties that have an interest, financial or otherwise, in a firm - stockholders, creditors, bondholders, employees, customers, management, the community, and the government.

Spot trade
The purchase and sale of a foreign currency, commodity, or other item for immediate delivery.

Speculative grade bond
Bond rated Ba or lower by Moody's, or BB or lower by S&P, or an unrated bond.

Speculative demand (for money)
The need for cash to take advantage of investment opportunities that may arise.

Special dividend
Also referred to as an extra dividend. Dividend that is unlikely to be repeated.

Single-premium deferred annuity
An insurance policy bought by the sponsor of a pension plan for a single premium. In return, the insurance company agrees to make lifelong payments to the employee (the policyholder) when that employee retires.

Simple linear trend model
An extrapolative statistical model that asserts that earnings have a base level and grow at a constant amount each period.

Signaling view (on dividend policy)
The argument that dividend changes are important signals to investors about changes in management's expectation about future earnings.

Single index model
A model of stock returns that decomposes influences on returns into a systematic factor, as measured by the return on the broad market index, and firm specific factors.

Single factor model
A model of security returns that acknowledges only one common factor.

Side effects
Effects of a proposed project on other parts of the firm.

Shareholders' letter
A section of an annual report where one can find jargon-free discussions by management of successful and failed strategies which provides guidance for the probing of the rest of the report.

Shareholders' equity
This is a company's total assets minus total liabilities. A company's net worth is the same thing. Also referred to as ownership interest in the UK.

Senior debt
Debt that, in the event of bankruptcy, must be repaid before subordinated debt receives any payment.

Sell-side analyst
Also called a Wall Street analyst, a financial analyst who works for a brokerage firm and whose recommendations are passed on to the brokerage firm's customers.

Sell limit order
Conditional trading order that indicates that a security may be sold at the designated price or higher.

Security selection decision
Choosing the particular securities to include in a portfolio.

Security deposit (initial)
Synonymous with the term margin. A cash amount of funds that must be deposited with the broker for each contract as a guarantee of fulfillment of the futures contract. It is not considered as part payment or purchase.

Secured debt
Debt that, in the event of default, has first claim on specified assets.

Savings deposits
Accounts that pay interest, typically at below-market interest rates, that do not have a specific maturity, and that usually can be withdrawn upon demand.

Risk indexes
Categories of risk used to calculate fundamental beta, including (a) market variability, (b) earnings variability, (c) low valuation, (d) immaturity and smallness, (e) growth orientation, and (f) financial risk.

Reversing trade
Entering the opposite side of a currently held futures position to close out the position.

Residual dividend approach
An approach that suggests that a firm pay dividends if and only if acceptable investment opportunities for those funds are currently unavailable.

Remainderman
One who receives the principal of a trust when it is dissolved.

Registered trader
A member of the exchange who executes frequent trades for his or her own account.

Refunded bond
Also called a prerefunded bond, one that originally may have been issued as a general obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S. government obligations that are sufficient for paying the bondholders.

Redemption cushion
The percentage by which the conversion value of a convertible security exceeds the redemption price (strike price).

Redemption charge
The commission charged by a mutual fund when redeeming shares. For example, a 2% redemption charge (also called a "back end load") on the sale of shares valued at €1000 will result in payment of €980 (or 98% of the value) to the investor. This charge may decrease or be eliminated as shares are held for longer time periods.

Redeemable
Eligible for redemption under the terms of the indenture.

Pure index fund
A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.

Publicly traded assets
Assets that can be traded in a public market, such as the stock market.

Program trades
Also called basket trades, orders requiring the execution of trades in a large number of different stocks at as near the same time as possible.

Profitability index
The present value of the future cash flows divided by the initial investment. Also called the benefit-cost ratio.

Probability density function
The probability function for a continuous random variable.

Pre-trade benchmarks
Prices occurring before or at the decision to trade.

Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a stated date. A limit is placed on the value of the shares the investor receives.

Precautionary demand (for money)
The need to meet unexpected or extraordinary contingencies with a buffer stock of cash.

Preauthorized electronic debits (PADs)
Debits to its bank account in advance by the payer. The payer's bank sends payment to the payee's bank through the _ACH)Automated Clearing House (ACH) system.

Posttrade benchmarks
Prices after the decision to trade.

Pie model of capital structure
A model of the debt/equity ratio of the firms, graphically depicted in slices of a pie that represent the value of the firm in the capital markets.

Philadelphia Stock Exchange (PHLX)
A securities exchange where American and European foreign currency options on spot exchange rates are traded.

Perfect market view (of dividend policy)
Analysis of a decision on dividend policy, in a perfect capital market environment, that shows the irrelevance of dividend policy in a perfect capital market.

Pecking-order view (of capital structure)
The argument that external financing transaction costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated funds are the most preferred, new debt is next, debt-equity hybrids are next, and new equity is the least preferred source.

Path dependent option
An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.

Overnight delivery risk
A risk brought about because differences in time zones between settlement centers require that payment or delivery on one side of a transaction be made without knowing until the next day whether the funds have been received in an account on the other side. Particularly apparent where delivery takes place in Europe for payment in dollars in New York.

Overfunded pension plan
A pension plan that has a positive surplus (i.e., assets exceed liabilities).

Original issue discount debt (OID debt)
Debt that is initially offered at a price below par.

Option not to deliver
In the mortgage pipeline, an additional hedge placed in tandem with the forward or substitute sale.

Optimization approach to indexing
An approach to indexing which seeks to optimize some objective, such as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.

Optimal redemption provision
Provision of a bond indenture that governs the issuer's ability to call the bonds for redemption prior to their scheduled maturity date.

Open (good-til-cancelled) order
An individual investor can place an order to buy or sell a security. That open order stays active until it is completed or the investor cancels it.

Odd lot dealer
A broker who combines odd lots of securities from multiple buy or sell orders into round lots and executes transactions in those round lots.

Nonredeemable
Not permitted, under the terms of indenture, to be redeemed.

Negotiable order of withdrawal (NOW)
Demand deposits that pay interest.

Negotiated certificate of deposit
A large-denomination CD, generally $1MM or more, that can be sold but cannot be cashed in before maturity.

Mutually exclusive investment decisions
Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.

Money market demand account
An account that pays interest based on short-term interest rates.

Modern portfolio theory
Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification.

Modeling
The process of creating a depiction of reality, such as a graph, picture, or mathematical representation.

MBS Depository
A book-entry depository for GNMA securities. The depository was initially operated by MBSCC and is currently in the process of becoming a separately incorporated, participant-owned, limitedpurpose trust company organized under the State of New York Banking Law.

Market value-weighted index
An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value.

Market order
This is an order to immediately buy or sell a security at the current trading price.

Market model
This relationship is sometimes called the single-index model. The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against returns on the market portfolio.

Mandatory redemption schedule
Schedule according to which sinking fund payments must be made.

Managerial decisions
Decisions concerning the operation of the firm, such as the choice of firm size, firm growth rates, and employee compensation.

Making delivery
Refers to the seller's actually turning over to the buyer the asset agreed upon in a forward contract.

Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.

Long-term debt ratio
The ratio of long-term debt to total capitalization.

Long-term debt/capitalization
Indicator of financial leverage. Shows long-term debt as a proportion of the capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and common stockholder equity.

Long-term debt
An obligation having a maturity of more than one year from the date it was issued. Also called funded debt.

Liquidating dividend
Payment by a firm to its owners from capital rather than from earnings.

Limit order book
A record of unexecuted limit orders that is maintained by the specialist. These orders are treated equally with other orders in terms of priority of execution.

Legal defeasance
The deposit of cash and permitted securities, as specified in the bond indenture, into an irrevocable trust sufficient to enable the issuer to discharge fully its obligations under the bond indenture.

Ladder strategy
A bond portfolio strategy in which the portfolio is constructed to have approximately equal amounts invested in every maturity within a given range.

Macaroni defense
The macaroni defense is a tactic used by a corporation that is the target of a hostile takeover bid involving the issue of a large number of bonds that must be redeemed at a higher value if the company is taken over.

TMWX (Wilshire 5000 Total Market Index)
The TMWX measures the performance of all U.S. headquartered equity securities with readily available price data.

Bo Derek
Jargon used to describe a perfect stock or investment. The term comes from the name of the actress (Bo Derek) in the 1979 blockbuster "10," in which she portrayed the "perfect woman".

Code of ethics
A written guide to acceptable and ethical behavior (as defined by an organization) that outlines uniform policies, standards, and punishments for violations.

American Standard Code for Information Interchange
American Standard Code for Information Interchange (ASCII) is the most common format for text files in computers and on the internet.

A rising tide that lifts all boats
Something that benefits all (Former U.S. President John F. Kennedy)

TSX Index
This is the re-named index tracking the top 60 Toronto Stock Exchange companies. It is managed and promoted by Standard and Poor's. It is generally referred to as the S&P/TSX60.

Insider Trading
Insider trading is the trading (buying or selling) of shares in a company by an insider - i.e. a senior manager, director, or person who owns more than 10% of the shares of a company. Insider trading is not illegal. But, if insiders trade on material privileged information - before it becomes known to the general public - that is a problem! This is perfectly legal except when trading takes place using privileged information which has not yet been released to the public. We often hear of insider ...

Kansas City Board of Trade
The second largest grain exchange in the world, established in 1876. The KBOT was the first exchange to trade stock index (share price index) futures.

Chicago Board of Trade (CBOT)
The CBOT is the largest commodity exchange in the world. Founded in 1848, it accounts for about half of the turnover in futures contracts in the US and the bulk of the world's grain futures trading. The CBOT offers futures contracts in a range of commodities, from pork bellies to long-term US government bonds.

Balance of trade
Net flow of goods (exports minus imports) between countries.

Balance sheet identity
Total Assets = Total Liabilities + Total Shareholders' Equity

Beggar-thy-neighbor devaluation
A devaluation that is designed to cheapen a nation's currency and thereby increase its exports at other countries' expense and reduce imports. Such devaluations often lead to trade wars.

Bidder
A firm or person that wants to buy a firm or security.

Binomial option pricing model
An option pricing model in which the underlying asset can take on only two possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Block trade
A large trading order, defined on the New York Stock Exchange as an order that consists of 10,000 shares of a given stock or a total market value of $200,000 or more.

Bond indexing
Designing a portfolio so that its performance will match the performance of some bond index.

Bought deal
Security issue where one or two underwriters buy the entire issue.

Budget deficit
The amount by which government spending exceeds government revenues.

Builder buydown loan
A mortgage loan on newly developed property that the builder subsidizes during the early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Buy limit order
A conditional trading order that indicates a security may be purchased only at the designated price or lower.

Buying the index
Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the same return.

Buy-side analyst
A financial analyst employed by a non-brokerage firm, typically one of the larger money management firms that purchase securities on their own accounts.

Capital allocation decision
Allocation of invested funds between risk-free assets versus the risky portfolio.

Capital Builder Account (CBA)
A Merrill Lynch brokerage account that allows investors to access the loan value of his or her eligible securities to buy or sell securities. Excess cash in a CBA can be invested in a money market fund or an insured money market deposit account without losing access to the money.

Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash deficiency the project may experience.

Cash delivery
The provision of some futures contracts that requires not delivery of underlying assets but settlement according to the cash value of the asset.

Cash dividend
A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.

Cash-surrender value
An amount the insurance company will pay if the policyholder ends a whole life insurance policy.

CEDEL
A centralized clearing system for eurobonds.

Certificate of deposit (CD)
Also called a time deposit, this is a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited. A CD bears a maturity date and a specified interest rate, and can be issued in any denomination. The duration can be up to five years.

Cheapest to deliver issue
The acceptable Treasury security with the highest implied repo rate; the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.

Coefficient of determination
A measure of the goodness of fit of the relationship between the dependent and independent variables in a regression analysis; for instance, the percentage of variation in the return of an asset explained by the market portfolio return.

Completion undertaking
An undertaking either (a) to complete a project such that it meets certain specified performance criteria on or before a certain specified date or (b) to repay project debt if the completion test cannot be met.

Confidence indicator
A measure of investors' faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.

Confidence level
The degree of assurance that a specified failure rate is not exceeded.

Conflict between bondholders and stockholders
These two groups may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective covenants work to resolve these conflicts.

Constant-growth model
Also called the Gordon-Shapiro model, an application of the dividend discount model which assumes (a) a fixed growth rate for future dividends and (b) a single discount rate.

Consumer Price Index
The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of U.S. inflation. The U.S. Department of Labor publishes the CPI very month.

Contingent deferred sales charge (CDSC)
The formal name for the load of a back-end load fund.

Counter trade
The exchange of goods for other goods rather than for cash; barter.

Cross-border risk
Refers to the volatility of returns on international investments caused by events associated with a particular country as opposed to events associated solely with a particular economic or financial agent.

Cumulative dividend feature
A requirement that any missed preferred or preference stock dividends be paid in full before any common dividend payment is made.

Dead wood
People who are part of an organization but no longer contribute to the firm's output.

Devil's advocate (let me play)
Ponder or predict criticism of a project as a means to improve the quality of the proposal.

"In addition to being an effective role model, the new strategic leader needs at least one good alter ego, devil's advocate , or contrarian to avoid getting into a rut."
Planning Review, Sept. 10, 1994, p. 6.

Demand, law of
Ceteris paribus, the lower the price of a good (or service), the greater the quantity of it that will be demanded by purchasers at any given time.

Derivatives
Derivatives are financial instruments, which include forwards, futures, options and swaps, whose value is based on (or derived from) an underlying asset, index or reference rate.

Embedded value
A methodology that reflects future shareholder profits in the life insurance business. Embedded value equals the free surplus plus the value of inforce business. Embedded value is hard to compare with different companies since each company determines its own input parameters, for example the level of target surplus.

Final dividend
The dividend that is paid at the end of the financial year as the final amount of profit has been published, under deduction of the interim dividend which was already paid out.

Free rider
A person who chooses to receive the benefits of public goods or positive externalities without contributing to paying the costs of producing those benefits.

Order
Instruction to a broker/dealer to buy, sell, deliver, or receive securities or commodities that commits the issuer of the "order" to the terms specified.

Fill-or-kill order (FOK)
A trading order that is canceled unless executed within a designated time period. 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. For purposes of this definition, a stop is considered an execution.

Avoided cost
In context of project financing, the capital and expense that would have to be spent if the project did not proceed.

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.

CAC 40 index
A broad-based index of common stocks composed of 40 of the 100 largest companies listed on the forward segment of the official list of the Paris Bourse.

Day around order
A day order that supersedes (cancels and replaces) the previous order by altering its size or price limit.

Dealer options
Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.

Dear money
UK term for tight money.

Death Spiral 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 floorless convertibles.

Death Valley Curve
In venture capital, refers to the period before a new company starts generating revenues, when it is difficult for the company to raise money.

Debit
An expense, or money paid out from an account. A debit transaction is one which the net cost is greater than the net sale proceeds. The opposite of credit

Debit card
A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occurring contemporaneously with the customer's purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment.

Debt bomb
A default on debt and obligations by a major financial_institution that disrupts the stability of the economic system.

Debt outstanding subject to limitation
Obligations incurred by the Treasury subject to the statutory limit set by Congress. Until World War 1, a specific amount of debt was authorized for each separate security issue. Beginning with the Second Liberty Loan Act of 1917, the nature of the limitation was modified until, in 1941, it developed into an overall limit on the outstanding Federal debt. The statuatory limit may change from year to year.

Decile rank
Performance over time, rated on a scale from 1 to 10. 1 indicates that a mutual fund's return is in the top 10% of funds being compared; while 3 means the return is in the top 30%.

Decimalization
The quotation and trading of stock or bond prices in decimals, as opposed to fractions such as eighths.

Deep in the money
A call option with an exercise price substantially below the underlying stock's market price. Also put option with an exercise price substantially above the underlying stock's market price. Often substantially below is defined as more than one strike price below (for calls)/above (for puts) the current value of the underlying security.

Deep out of the money
A call option with an exercise pricesubstantially above the market price. Also put option with an exercise price substantially below the underlying stock's market price. Often substantially below is defined as more than one strike price below (for calls)/above (for puts) the current value of the underlying security.

Defensive securities
Low-risk stocks or bonds that will provide a predictable and safe return on an investor's money.

Deferred charge
An expenditure treated as an asset that carries forward until it becomes pertinent to the business at hand, e.g., the underwriting fees on a corporate bond issue, which the corporation capitalizes as a deferred charge and then amortizes over the life of the bond issue.

Deflator
A statistical factor used to convert current dollar purchasing power into inflation-adjusted purchasing power. Enables the comparison of prices while accounting for inflation in two different time periods.

Blanket fidelity bond
SEC-required insurance coverage that brokerage firms are required to have in order to cover fraudulent trading by employees.

Blitzkrieg tender offer
In the context of a takeover, refers to a tender offer that is priced so attractively that the tender is completed quickly.

Bo Derek stock
High quality stock.

Confidential memorandum
A document that presents detailed financial information required by prospective buyers prior to making an offer to acquire a firm.

Demand curve
The deman curve is a graphic illustration depicting the relationship between quantity demanded and price when all other economic variables are held constant.

Federal Home Loan Bank Act of 1932
Law that created the Federal Home Loan Bank Board and a network of regional home loan banks.

Federal Home Loan Bank Board (FHLBB)
The FHLBB is an agency responsible for regulating and controlling savings and loan institutions, superseded by FIRREA in 1989.

Undersubscribed
Having received fewer offers to buy than there are securities available for sale.

Extrapolative statistical models
Statistical 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.

Madrid Stock Exchange (Bolsa de Madrid)
The largest of Spain's four stock exchange.

Golden hello
A bonus paid by a securities firm to attract an employee from a competing firm.

Notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

Design Failure Mode and Effects Analysis (DFMEA)
An analytical technique used by a design responsible engineer/team as a means to assure, to the extent possible, that potential failure modes and, their associated causes/mechanisms have been considered and addressed.

GDP deflator
The index value used to eliminate the effect of inflation. Real national income is found by dividing money national income by the GDP deflator and multiplying by 100.

Harrod-Domar growth model
An economic model which maintains that the growth rate of GDP depends upon the level of savings and the capital output ratio.

Independent Trustee
A trustee who is independent of the settlor. Independence is generally defined as not being related to the settlor by blood, through marriage, by adoption or in an employer/employee relationship.

Nonresident of the US alien (NRA)
Not a U.S. person as defined under the Internal Revenue Code (IRC).

Redemption Fee
A charge assessed against an invetor for redeeming shares or interests in a fund. Often this charge is used for early or premature withdrawals. This feature is more common for funds investing in illiquid securities or emerging market funds and annuity products.

Heavy Crude Oil
Petroleum with a high specific gravity and a low API gravity. It has a relatively high proportion of heavy hydrocarbon products or fractions.

Ho-Lee Option Model
An arbitrage free model which uses an estimated spot curve to evaluate embedded options in credit or fixed income securities.

X or Cross Trade
A transaction that is not exposed to the public by outcry or usual trading practices. This type of trade is permissible provided it is done in accordance with the rules and regulations of the particular exchange and other regulatory organizations. The letter X can indicate this type of transaction on a ticker tape. It may be also used on a ticket or blotter.

Extra Dividend
A payment declared or paid by a corporation in addition to its ordinary dividend policy. It can reflect a distribution of profits which are considered extraordinary.

Marketed Deal
An arrangement in a public share distribution whereby the price at which the shares are sold is determined after a period of marketing activities. During the marketing period, the underwriters are able to contact potential purchasers to assess potential demand and price sensitivity. Shares continue to be publicly traded, if they had been previously listed. The underwriters minimize the price risk on resale (thereby lowering the discount to market), but the seller bears a risk of a price decline ...

Stop Limit Order
A stop limit order is an order that goes into force as soon as there is a trade at the specified price. The order, however, can only be filled at the stop limit price or better.

Transfer Trades
Entries made upon the books of futures commission merchants for the purpose of: (a) transferring existing trades from one account to another within the same office where no change in ownership is involved; (b) transferring existing trades from the books of one commission merchant to the books of another commission merchant where no change in ownership is involved. Also called Ex-Pit Transactions.

Underlying Commodity
The commodity or futures contract on which a commodity option is based, and which must be accepted or delivered if the option is exercised. Also, the cash commodity underlying a futures contract.

Cheapest-to-Deliver
Usually refers to the selection of bonds deliverable against an expiring bond futures contract.

Commodity Price Index
Index or average, which may be weighted, of selected commodity prices, intended to be representative of the markets in general or a specific subset of commodities (for example, grains or livestock).

Contract Grades
Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.

Delta
The expected change in an option's price given a one-unit change in the price of the underlying futures contract or physical commodity.

Good This Week Order (GTW)
Order which is valid only for the week in which it is placed.

Hardening
(a) Describes a price which is gradually stabilizing; (b) a term indicating a slowly advancing market.

Overnight Trade
A trade which is not liquidated on the same trading day in which it was established.

Deposit Notes
A term deposit in a bank. Deposit notes, like medium-term notes, may serve as the basis for an equity or currency-linked risk management structure.

Market Index Deposits (MIDs)
Bank certificates of deposit or deposit notes with a return linked to the performance of an index, usually a stock market index.

Advance funded pension plan
Pension plan in which funds are set aside in advance of the date of retirement.

Jensen index
Index that uses the capital asset pricing model to determine whether a money manager outperformed a market index. The alpha of an investment or investment manager.

Jensen Model
Jensen's model proposes another risk adjusted performance measure. This measure was developed by Michael C. Jensen and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required re ...

Amortization factor


Reported factor
The pool factor as reported by the bond buyer for a given amortization period.

Present value factor
Factor used to calculate an estimate of the present value of an amount to be received in a future period.

Pool factor
The outstanding principal balance divided by the original principal balance with the result expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae, Fannie Mae, and Freddie Mac(Federal Home Loan Mortgage Corporation) MBSs.

One-factor APT
A special case of the arbitrage pricing theory that is derived from the one-factor model by using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a single factor.

Old-line factoring
Factoring arrangement that provides collection, insurance, and finance for accounts receivable.

Net benefit to leverage factor
A linear approximation of a factor, T*, that enables one to operationalize the total impact of leverage on firm value in the capital market imperfections view of capital structure.

Multifactor CAPM
A version of the capital asset pricing model derived by Merton that includes extramarket sources of risk referred to as factor.

Maturity factoring
Factoring arrangement that provides collection and insurance of accounts receivable.

Conversion factors
Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Factor market
The place where inputs or resources are bought or sold. Factor markets usually refer to labor or capital.