The eighth highest rating in Moody's Long-term Corporate Obligation Rating.
Obligations rated Baa1 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
Rating one notch higher is A3. Rating one notch lower is Baa2
The ninth highest rating in Moody's Long-term Corporate Obligation Rating.
Obligations rated Baa2 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
Rating one notch higher is Baa1. Rating one notch lower is Baa3
In the context of mutual funds, a
feature allowing fundholders to use an earlier date on a letter of intent to invest in a mutual fund in exchange for a reduced sales charge, e.g. Giving retroactive value to purchases from the earlier date. In the context of corporate governance, the illegal practice of setting the date of options awarded as part of executive compensation to a period when the stock price was very low (rather than setting the date of the options on the date the award was made).
Withholding of a certain amount of investment income (e.g. interest, dividends) by banks and other businesses under conditions such as missing Taxpayer Identification Number (TIN) or under directions from the IRS. Also see: TEFRA, W-8, W-9.
A market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month. This may occur when the costs of storing the product until eventual delivery are effectively subtracted from the price today. The opposite of contango.
A government owned entity that takes over and liquidatestoxic assets from failed or declining financial institutions to leave them with a clean balance sheet. The strategy was last used during the Savings and Loan crisis of 1980s where this entity was called the Resolution Trust Corporation.
A plan by former U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased financing from the World Bank and continued lending from commercial banks.
A statistical compilation formulated by a sovereign nation of all economic transactions between residents of that nation and residents of all other nations during a stipulated period of time, usually a calendar year.
An index that tracks the price of transporting dry bulk cargo like cement, coal, iron ore, and grain on bulk freighters. As many of these commodities are raw materials that go into production of finished goods, the BDI is often taken to be an indicator of economic growth and production. The index is maintained by the London-based Baltic Exchange.
An international bank headquartered in Basel, Switzerland, which serves
as a forum for monetary cooperation among several European central banks,
the Bank of Japan, and the US
Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it now monitors and collects data on international
banking activity and promulgates rules concerning international bank regulation.
A term used synonymously with paper money or currency issued by a bank. Notes are, in effect, a promise to pay the bearer on demand the amount stated on the face of the note. Today, only the Federal Reserve Banks are authorized to issue bank notes, i.e. Federal Reserve notes, in the United States.
A series of unexpected cash withdrawals caused by a sudden decline in depositor confidence or fear that the bank will be closed by the charteringagency, i.e. many depositors withdraw cash almost simultaneously. Since the cash reserve a bank keeps on hand is only a small fraction of its deposits, a large number of withdrawals in a short period of time can deplete available cash and force the bank to close and possibly go out of business.
A computer message system linking major banks. It is used not for effecting payments, but as a mechanism to advise the receiving bank of some action that has occurred, e.g., the payment by a customer of funds into that bank's account.
A fixed income strategy in which the maturities of the securities included in the portfolio are concentrated at two extremes. For example, a portfolio manager invests in short and long duration bonds but not in the intermediate duration bonds.
Option contracts that remain dormant until a trigger point (the barrier price) is reached, at which point the call or put option is activated, and results either in a long or short options position, or in the automatic exercise of an options position.
One example is an up-and-in call. Assume an exercise price of $50 and a barrier price of $53. If the stock stays below $53, the call option cannot be exercised. If the stock price reaches the $53 barrier price, the holder then has a call option on the shares at $50. These are exotic options.
Index measuring the ratio of the averageyield on 10 top-grade bonds to the average yield on 10 intermediate-grade bonds. The discrepancy between high-rated top-grade bonds and low-rated bond yields establishes a measure that is indicative of investor confidence.
Agreement concluded among country representatives in 1988 in Basel, Switzerland to develop standardized risk-based capital requirements for banks across countries. The Accord is also known as 1988 Basel Accord and it primarily focused on credit risk and is now viewed as outdated. Basel II is currently in the process of implementation and Basel III is currently under development.
An update of Basel I, Basel II was published in June 2004. The revised accord aimed to improve the consistency of capital regulations internationally, make regulatory capital more risk sensitive, and promote enhanced risk-management practices among large, internationally active banking organizations. Generally speaking, with Basel II, the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold. However, critics of Basel II say that the revised accord failed to regulate certain risk transfers, such as securitization or transfer of risk to unregulated parts of holding companies.
Describes the third version of the Basel Accords agreed upon by 27 countries on September 12, 2010. Among the highlights was the increasing of Tier 1 capital from 2% to 4.5% and the addition of a buffer of 2.5%. The assets that qualify for capital were also redefined. The full implementation of the accord is not due until 2023.
In the bondmarket, 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 5% is 50 basis points higher than an interest rate of 4.5%. Sometimes referred to as BPS, BIPS, and pronounced "Bips"
A credit derivative contract that provides a payoff when any of the multiple reference entities default. The contract specifies the number of defaults after which the payoff is generated, based on which the instrument is classified as first-to-default CDS, second-to-default CDS or more generally nth-to-default CDS.
Packages that involve the exchange of more than two currencies against a base currency at expiration. The basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange for a base currency, either at the prevailing foreign exchangemarket rate or at a prearranged rate of exchange. Multinational corporations with multicurrency cash flows frequently use basket options because it is generally cheaper to buy an option on a basket of currencies than to buy individual options on each of the currencies that make up the basket.
In the context of general equities, attempt by investors to move the price of a stock opportunistically by selling large numbers of sharesshort. The investors pocket the difference between the initial price and the new, lower price after this maneuver. This technique is illegal under SEC rules, which stipulate that every shortsale must be on an uptick.
Applies to derivative products. Strategy in the options or futures markets designed to take advantage of a fall in the price of a security or commodity. A bear spread with call options is created by buying
a call option with a certain strike price and selling a call option
on the same stock with a lower strike price (with the same expiration date). A bear spread with put options is where an investor buys a put with a high strike price and sells a put with
a low strike price. With futures, the investor sells the nearby contract and purchases the next out contract. All of these strategies are designed to profit from a fall in the underlying asset's price.
A devaluation that is designed to cheapen a nation's currency and thereby increase its exports at the expense of other countries. Devaluation can also reduce a nation's imports. Such devaluations often lead to trade wars.
Official name for the Beige book is Summary of Commentary on Current Economic Conditions. It is a report published by the Fed before FOMC meeting (eight times a year) and is used to inform the members on changes in the economy.
As used for most purposes under the federal securities laws. A beneficial owner of stock is any person or entity with sole or shared power to vote or dispose of the stock. This SEC definition is intended to include a holder who enjoys the benefits of ownership although the shares may be held in another name.
The measure of an asset'srisk in relation to the market (for example, the S&P500) or to an alternative benchmark or factors. Roughly speaking, a security with a beta of 1.5, will have move, on average, 1.5 times the market return. [More precisely, that stock'sexcess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return).] According to asset pricing theory, beta represents the type of risk, systematic risk, that cannot be diversified away. When using beta, there are a number of issues that you need to be aware of: (1) betas may change through time; (2) betas may be different depending on the direction of the market (i.e. betas may be greater for down moves in the market rather than up moves); (3) the estimated beta will be biased if the security does not frequently trade; (4) the beta is not necessarily a complete measure of risk (you may need multiple betas). Also, note that the beta is a measure of co-movement, not volatility. It is possible for a security to have a zero beta and higher volatility than the market.
The price a potential buyer is willing to pay for a security. Sometimes also used in the context of takeovers where one corporation is bidding for (trying to buy) another corporation. In trading, we have the bid-ask spread which is the difference between what buyers are willing to pay and what sellers are asking for in terms of price.
When a non-linear dynamic system develops twice the possible solutions that it had before it passed its critical level. A bifurcation cascade is often
called the period doubling route to chaos
because the transition from an orderly system to a chaotic system often occurs
when the number of possible solutions begins increasing, doubling each time.
The Big Mac Index is published by the Economist as an informal way of measuring the Purchasing Power Parity between currencies by comparing the price of a Big Mac in one country (in its currency) with the price of a Big Mac in another country (in its currency). The index was first introduced in September 1986 and has been published annually by the Economist since then.
Bilateral netting - the consolidation of all swap agreements between two counterparties into one master agreement. The result is that if one counterparty bankrupts, that counterparty cannot seek to collect on any swaps that are in-the-money to them while at the same time refusing to pay out on any that are out-of-the-money. Instead, the master agreement sets out that in this event all swaps between the two counterparties will be netted; only then will the bankrupt company receive money, and then only if they are net in-the-money.
A contract between an exporter and a
transportation company in which the latter agrees to transport the goods under
specified conditions that limit its liability. It is the exporter's receipt for the goods as well as proof that goods have been or will be received.
Refers to October 19, 1987, when the Dow Jones Industrial Average fell 508 points on the heels of sharp drops the previous week. On Monday, October 27, 1997, the Dow dropped 554 points. While the point drop set a new record, the percentage decline was substantially less than in 1987.
This is stock over which the board of directors has broad authority to determine voting, dividend, conversion, and other rights. While it can be used to enable a company to meet changing financial needs, its most important use is to implement poison pills or to prevent takeovers by placement of this stock with friendly investors.
In the context of general equities, conference meeting during which customer indications and orders, along with the traders' own buy/sell preferences, are conveyed to the entire organization. See block list.
A blocker corporation is a type of C Corporaton. Tax exempt investors and foreign investors often set up offshore feeder corporation known as a blocker corporation when they invest in private equity or hedge funds in order to avoid US trade or business income tax.
Plus or minus two standard deviations where the standard deviations are calculated
historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move.
Direct translation is "Family Allowance", Bolsa Familia Program is a part of Brazilian governmental welfare program Fome Zero (Zero Hunger) launched by President Luiz Inácio Lula da Silva (Brazilian President 2003-2011). Bolsa Familia provides financial aid to low-income Brazilian families under the condition that their children attend school and are vaccinated. It is currently the largest conditional cash transfer program in the world.
Bonds are debt and are issued for a period of more than one year. The US government, local governments, water districts, companies and many other types of institutions sell bonds. When an investorbuys bonds, he or she is lendingmoney. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.
A system that monitors and evaluates the performance of a fixed income portfolio, as well as the individual securities held in the portfolio. BONDPAR decomposes the return into the elements beyond the manager's control--such as the interest
rate environment and client-imposed duration policy constraints--and those that the management process contributes to, such as interest rate management, sector/quality allocations, and individual bond selection.
The book-to-bill ratio is the ratio of orders taken (booked) to products shipped and bills sent (billed). The ratio measures
whether the company has more orders than it can deliver (>1), equal amounts
(=1), or less (<1). This ratio is of significant interest to investors/traders in the high-technology sector.
Securities which are not represented by paper certificates but are maintained in computerized records at the Fed in the names of member banks, which in turn keep computer records of the securities they own as well as those they are holding for customers. In the case of other securities where a book-entry has developed, certificates reside in a central clearinghouse or are held by another agent. These securities do not move from holder to holder.
A check returned by a bank because it is not payable, usually because of insufficient funds. Also used in the context of securities to refer to the rejection and ensuing reclamation of a security; a stock price's abrupt decline and recovery.
The percentage of assets or stocksadvancing relative to those unchanged or declining. Also the number of independent forecasts available per year. A stock picker forecasting returns to 100 stocks every quarter exhibits a breadth of 400, assuming each forecast is independent (based on separate information).
In the context of general equities, percentage of stocks participating in a particular market move. Technical analysts say there
was significant breadth if two-thirds of the stocks listed on an exchange move in the same direction during a trading session. See: A/D line.
The difference in yield between inflation-protected and nominal debt of the same maturity. If the breakeven rate is negative it suggests traders are betting the economy may face deflation in the near future.
Used in the context of general equities. Change one's offering or bid prices to move to a more realistic, tight
level where execution is more feasible.
Often done to trim one's position, thus
"breaking price" from where the trades
occurred (if long, "break price" downward by a certain amount).
The prepayment rate of an MBScoupon that will produce the same cash flow yield (CFY) as that of a predetermined benchmark MBS coupon. Used to identify for coupons higher than the benchmark coupon the prepayment rate that will produce the same cash flow yield (CFY) as that of the benchmark coupon; and for coupons lower than the benchmark coupon the lowest prepayment rate that will do so.
For mutual funds,
the point at which the amount invested reduces the sales charge is called the "breakpoint." Each mutual fund may have several breakpoints; the larger the investment, the greater the discount. Note that the actual reduction in the sales charge is known as the "breakpoint discount". Also, the term "breakpointing" is sometimes used to refer to the offering of breakpoint discounts. The practice of soliciting mutual fund purchases just below the breakpoint (to earn more commissions) is considered unethical and in violation of NASD rules. See: right of accumulation.
For mutual funds,
this refers to the practice of soliciting mutual fund purchases just below the breakpoint (to earn more commissions). The practice is considered unethical and in violation of NASD rules.
A short-term loan that is used until a company secures permanent financing or removes an existing obligation. A bridge loan provides an immediate cash flow. In venture capital, a bridge is usually a short term note (6-12 months) that converts to preferred stock.
Money borrowed by brokers from banks for uses such as financing specialists's inventories of stock, financing the underwriting of new issues of corporate and municipal securities, and financing customer margin accounts.
Compelling a research analyst of an investment bank to work in the underwriting department for a corporate client, therefore allowing for the transmission of insider information. Also called "Over
the Chinese wall".
Broad responsibility conferred by Congress that empower government agencies to spend federal funds. Congress can specify criteria for the spending of these funds. For example, it may stipulate that a given agency must spend within a specific year, number of years, or any time in the future. The basic forms of budget authority are; appropriations, authority to borrow, contract authority, and authority to obligate and expend offsettingreceipts and collections. The period of time during which Congress makes funds available may be specified as one-year, multiple years or no year. The available amount may be classified as either definite or indefinite; a specific amount or an unspecified amount can be made available. Authority may also be classified as current or permanent. Permanent authority requires no current action by Congress.
An illegal brokerage firm that accepts customer orders but does not attain immediate executions. A bucket shop broker promises the customer
a certain price, but waits until a price discrepancy is present and the trade is advantageous to the firm and then keeps the difference as profit. Alternatively, the broker may never fill the customer's order but keep the money.
A mortgageloan on newly developed property that the builder subsidizes during the early years of the development. The builder uses cash to buydown the mortgage rate to a lower level than the
prevailing marketloan 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).
Bond whose principal repayment is linked to the price of another security. The bonds are issued in two tranches: In the first tranche repayment increases with the price of the other security, and in the second tranche repayment decreases with the price of the other security.
A spread strategy used in options and futures trading that
is designed to capitalize on expected price appreciation. A bull spread using call options is created by buying
a call option on an asset with a certain strike price and selling a call
option on the same asset with a higher strike price (same expiration date). A bull spread with put options is created by buying a put option with a low strike and selling a put option with a high
strike price (same expiration date). Less frequently, the bull spread is implemented by buying the nearby futures contract and selling the next out contract.
Metal coins consisting of gold, silver, platinum, or palladium that are
activelytraded. Some examples include the
American eagle and the Canadian maple leaf. Their price is directly connected
to the underlying price of their metal.
These laws impose a moratorium on certain kinds of transactions (e.g., asset sales, mergers) between a large shareholder and the firm for a period usually ranging between three and five years after the shareholder's stake passes a pre-specified (minority) threshold. These laws are in place in more than half the U.S. states.
Applies to derivative products. Complex optionstrategy that involves buying a call
option with a relatively low strike price; buying a call option with a
relatively high strike price; and selling two call options with an intermediate strike
price. Essentially, this is a bear call spread stacked on top of a bull call spread. One can also do this with puts. The investor buys a put with a low strike, buys a put at high strike and sells two
puts at intermediate strike price.
The payoff diagram resembles the shape of a butterfly.
In the context of general equities, rare market or limit order to buy a stated amount of a stock, provided that the price to be obtained is not higher than the last sale if the last sale is a minus or zero-minus tick, and is not higher than the last sale minus the minimum fractional change in the stock if the last sale is a plus or zero-plus tick. (If limit, then the buy cannot occur above the limit, regardless of tick.)
A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer's periodic payments to repay the indebtedness. In the context of project financing, refers to a one-time payment out of liquidated damages to reflect cash flowlosses from sustained underperformance.
These provisions limit shareholders' ability to amend the governing documents of the corporation. This might take the form of a supermajority vote requirement for charter or bylaw amendments, total elimination of the ability of shareholders to amend the bylaws, or the ability of directors beyond the provisions of state law to amend the bylaws without shareholder approval.
An irrevocable trust that is designed to pay trust income (and principal, if needed) to an individual's spouse for the duration of the spouse's lifetime. The bypass trust is not part of the beneficiary spouse's estate and is not subject to federal estate taxes upon his/her death.