Law of one price

Similar financial terms

Tax clawback agreement
An agreement to contribute as equity to a project the value of all previously realized project-related tax benefits not already clawed back to the extent required to cover any cash deficiency of the project.

Law of large numbers
The mean of a random sample approaches the mean (expected value) of the population as the sample grows.

Blue-sky laws
State laws covering the issue and trading of securities.

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.

Goodhart Law
The Goodhart Law is a law developed by Professor Charles Goodhart (who has also served as a member of the Monetary Policy Committee) that says "that any observed statistical regularity will tend to collapse once pressure is placed on it for control purposes". In other words if a relationship between two variables is observed, and the government then try to use this relationship as a policy tool, the whole relationship is likely to break down.

Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA) is based on a portfolio consisting of 30 blue-chipi stocks in the United States. The weights given to the stocks are proportional to their prices.

In-the-money
An option that has a positive value if exercised immediately. For example, a call when the exercise price is below the current price of the underlying asset, or a put when the exercise price is above the current price of the underlying asset.

Out-of-the-money
An option that has a negative value if exercised immediately. For example, a call when the exercise price is above the current price of the underlying asset, or a put when the exercise price is below the current price of the underlying asset.

Out-of-the-money options are usually not exercised.

At-the-money
An option that has zero value if exercised immediately. For example, a call or put when the exercise price is equal to the current price of the underlying asset.

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

Zero-one integer programming
An analytical method that can be used to determine the solution to a capital rationing problem.

All or none
Requirement that none of an order be executed unless all of it can be executed at the specified price.

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

Near money
A domestic dollar deposit is money within the context of the US economy while tue euro-dollar deposit is near money held y a bank branch in an offshore money market, such as Luxembourg. So the eurodollar market is a place where banks outside the US accept (borrow from customers) and place (lend) dollar deposits.

Unseasoned issue
Issue of a security for which there is no existing market.

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

Tombstone
Advertisement listing the underwriters to a security issue.

Time value of money
The idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received.

Target zone arrangement
A monetary system under which countries pledge to maintain their exchange rates within a specific margin around agreed-upon, fixed central exchange rates.

Stand-alone principle
Investment principle that states a firm should accept or reject a project by comparing it with securities in the same risk class.

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

Seasoned new issue
A new issue of stock after the company's securities have previously been issued. A seasoned new issue of common stock can be made by using a cash offer or a rights offer.

Seasoned issue
Issue of a security for which there is an existing market.

Seasoned datings
Extended credit for customers who order goods in periods other than peak seasons.

Risk prone
Willing to pay money to transfer risk from others.

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

Postponement option
The option of postponing a project without eliminating the possibility of undertaking it.

Phone switching
In mutual funds, the ability to transfer shares between funds in the same family by telephone request. There may be a charge associated with these transfers. Phone switching is also possible among different fund families if the funds are held in street name by a participating broker/dealer.

Out-of-the-money option
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.

One-way market
(a) A market in which only one side, the bid or asked, is quoted or firm. (b) A market that is moving strongly in one direction.

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.

One man picture
The picture quoted by a broker is said to be a one-man picture if both the bid and offered prices come from the same source.

New money
In a Treasury auction, the amount by which the par value of the securities offered exceeds that of those maturing.

Money supply
M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits
M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.

Money rate of return
Annual money return as a percentage of asset value.

Money purchase plan
A defined benefit contribution plan in which the participant contributes some part and the firm contributes at the same or a different rate. Also called and individual account plan.

Money market notes
Publicly traded issues that may be collateralized by mortgages and MBSs.

Money market hedge
The use of borrowing and lending transactions in foreign currencies to lock in the home currency value of a foreign currency transaction.

Money market fund
A mutual fund that invests only in short term securities, such as bankers' acceptances, commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at $1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities and/or the fund may have private insurance protection.

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

Money market
Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S.government bonds, treasury bills and commercial paper from banks and companies.

Money center banks
Banks that raise most of their funds from the domestic and international money markets , relying less on depositors for funds.

Money base
Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.

Monetary / non-monetary method
Under this translation method, monetary items (e.g. cash, accounts payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g. inventory, fixed assets, and long-term investments) are translated at historical rates.

Monetary policy
Actions taken by the Board of Governors of the Federal Reserve System to influence the money supply or interest rates.

Monetary gold
Gold held by governmental authorities as a financial asset.

Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Hush money
Bribe; payment to keep someone quiet

Keep up with the Jones
Strive, especially beyond one's income to socialize and spend like others in the same neighborhood.

Prisoner's dilemma
A game frequently displayed in cop dramas on the telly. Two partners in crime are separated into separate rooms at the police station and given a similar deal. If one implicates the other, he may go free while the other receives a life in prison. If neither implicates the other, both are given moderate sentences, and if both implicate the other, the sentences for both are severe. Each player has a dominant strategy to implicate the other, and thus in equilibrium each receives a harsh punishment, ...

Tight money
When a restricted money supply makes credit difficult to secure. The antithesis of tight money is easy money.

Dear money
UK term for tight money.

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.

Monetary neutrality
A proposition that in the long run, a percentage rise in the money supply is matched by the same percentage rise in the price level, leaving unchanged the real money supply and all other economic variables such as interest rates.

This theory, a core belief of classical economics, was first put forward in the 18th century by David Hume. He set out the classical dichotomy that economic variables come in two varieties, nominal and real, and that the things that influence nominal variables ...

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

Exercise price
Price at which the holder of an option can buy (call option) or sell (put option) the underlying stock. Also referred to as strike price.

Ask price
The price at which a market maker is prepared to sell a security. Also known as offer price.

Offer price
The price at which a market maker is prepared to sell a security. Also known as ask price.

Bid price
The price at which a market maker is prepared to buy a security.

Settlement price
The average of the prices that a futures contract trades for immediately before the bell signaling the close trading for a day. It is used in mark-to-market calculations.

Variable price security
A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.

Transfer price
The price at which one unit of a firm sells goods or services to another unit of the same firm.

Theoretical futures price
Also called the fair price, the equilibrium futures price.

Subscription price
Price that the existing shareholders are allowed to pay for a share of stock in a rights issue.

Strike price
The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.

Stated conversion price
At the time of issuance of a convertible security, the price the issuer effectively grants the security holder to purchase the common stock, equal to the par value of the convertible security divided by the conversion ratio.

Spot price
The current marketprice of the actual physical commodity. Also called cash price.

Reverse price risk
A type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an investor at rates prevailing at application but sets the note rates when the borrowers close. The lender is thus exposed to the risk of falling rates.

Put price
The price at which the asset will be sold if a put option is exercised. Also called the strike or exercise price of a put option.

Price-volume relationship
A relationship espoused by some technical analysts that signals continuing rises and falls in security prices based on accompanying changes in volume traded.

Price-specie-flow mechanism
Adjustment mechanism under the classical gold standard whereby disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of specie (gold coins) that would act to equalize prices across countries and automatically bring international payments back in balance.

Prices
Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.

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.

Priced out
The market has already incorporated information, such as a low dividend, into the price of a stock.

Price takers
Individuals who respond to rates and prices by acting as though they have no influence on them.

Price risk
The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of mortgage-pipeline risk created in the production segment when loan terms are set for the borrower in advance of terms being set for secondary market sale. If the general level of rates rises during the production cycle, the lender may have to sell his originated loans at a discount.

Price elasticity
The percentage change in the quantity divided by the percentage change in the price.

Price discovery process
The process of determining the prices of the assets in the marketplace through the interactions of buyers and sellers.

Price compression
The limitation of the price appreciation potential for a callable bond in a declining interest rate environment, based on the expectation that the bond will be redeemed at the call price.

Price/sales ratio
Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.

Price/earnings ratio
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price.

Option price
Also called the option premium, the price paid by the buyer of the options contract for the right to buy or sell a security at a specified price in the future.

Opening price
The range of prices at which the first bids and offers were made or first transactions were completed.

Nominal price
Price quotations on futures for a period in which no actual trading took place.

Minimum price fluctuation
Smallest increment of price movement possible in trading a given contract. Also called point or tick. The zero-beta portfolio with the least risk.

Maximum price fluctuation
The maximum amount the contract price can change, up or down, during one trading session, as fixed by exchange rules in the contract specification.

Marketplace price efficiency
The degree to which the prices of assets reflect the available marketplace information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active management of earning a greater return than passive management would, after adjusting for the risk associated with a strategy and the transactions costs associated with implementing a strategy.

Market prices
The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.

Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-to-risk ratio of the market portfolio.

Market conversion price
Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio.

Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to outperform portfolios consisting of stocks with a high price-earnings ratio.

Low price
This is the day's lowest price of a security that has changed hands between a buyer and a seller.

Limit price
Maximum price fluctuation

Bargain-purchase-price option
Gives the lessee the option to purchase the asset at a price below fair market value when the lease expires.

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

Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.

Clean price
Bond price excluding accrued interest.

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.

Convertible price
The contractually specified price per share at which a convertible security can be converted into shares of common stock.

Daily price limit
The level within many commodity, futures, and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract.

Equilibrium price
The price when the supply of goods matches demand.

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 (CAPM).

Known price item
When a good whose price is widely known by members of the public is priced to attract customers.

Variable Price Limit
A price limit schedule, determined by an exchange, that permits variations above or below the normally allowable price movement for any one trading day.

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).

Price discrimination
Price discrimination occurs whenever a firm charges differential prices across customers that are not related to differences in production and distribution costs. Thus, discriminating firms seek to exploit the perceived consumer surplus and maximize producer surplus.