Describes the tendency of stocks to perform differently at
different times. For example, a number of researchers have documented that historically, returns tend to be higher in January compared to other months (especially February). Others have documented returns patterns across days of the week and within the day. Some of these patterns are found in volume and volatility as well as returns.
Refers to over-the-counter trading. "I have a buyer who will
pay $xxx for the stock". Usually a standard markdown from
$xxx is applied to this price in bidding the seller for its stock. Antithesis of cost me.
An upper limit on the interest rate on a floating-rate note (FRN) or
mortgage (ARM). Also, an OTC derivatives contract consisting of a series of European interest rate call options; used to protect an issuer of floating-rate debt from interest rate increases. Each individual call option within the cap is called a caplet. Opposite of a floor.
The percentage of the economy's total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion.
An economic theory that describes the relationship between risk and expected return, and serves as
a model for the pricing of riskysecurities. The CAPM asserts that the
only risk that is priced by rational investors is systematic risk, because that
risk cannot be eliminated by diversification. The CAPM says that
the expected return of
a security or a portfolio is equal to the rate on a
risk-free security plus a risk premium multiplied by the asset's
systematic risk. Theory was invented by William Sharpe (1964) and
John Lintner (1965). The early work of Jack Treynor is was also instrumental in
the development of this model.
. The capital charge is the cost of capital times the amount of invested capital. This capital charge is a dollar amount. By capital charge rate is just the cost of capital. In other words, the capital charge rate is the rate or return required on invested capital.
The tax levied on profits
from the sale of capital assets. A long-termcapital gain, which is achieved
once an asset is held for at
least 12 months, is taxed at a maximum rate of 20% (taxpayers in
28% tax bracket) and 10%
(taxpayers in 15% tax
bracket). Assets held for less than 12 months are taxed at
regular income tax levels,
and, since January 1, 2000, assets held for at least five years
are taxed at 18% and 8%.
Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well,
it might benefit from an infusion of new funds from the more successful divisions. In the context of venture capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash.
The difference between the netcost of a security and the sales price, if
the security is sold at a
loss. Also used in a more general context to refer to the market for stocks, bonds, derivatives and other investments.
Traditionally, this has referred to the market for trading long-termdebt instruments (those that mature in
more than one year). That is, the market where capital is raised. More recently, capital markets is used in a more general context to refer to the market for stocks, bonds, derivatives and other investments.
Companies often go to the capital market to raise money, usually for new investment projects. They might issue new equity, bonds, or rights. The proceeds refers to the amount raised in the capital market. The net proceeds are after all underwriting costs.
A preferred stock and equity warrant purchase program created by US Treasury in October 2008 to stabilize the financial institutions of all sizes throughout U.S. CPP is a part of Troubled Assets Relief Program (TARP).$250 billion was allocated for CPP out of $700 billion TARP fund.
A stock index which is computed by adding the capitalization (float times price) of each individual stock in the index, and then dividing by the divisor. The stocks with the largest market values have the heaviest weighting in the index. See also Float, Divisor.
A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the Option's cap price.
A loose quantity term sometimes used to describe the amount
of a commodityunderlying one commoditycontract; e.g., "a car of bellies."
Derived from the fact that quantities of the product specified in
a contract once corresponded
closely to the capacity of a railroad car.
Seller is responsible for the payment of freight to carry goods to a named overseas destination. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. The risk of loss or damage is transferred from the seller to the buyer once the goods are delivered into the carrier's custody. This term may be used for any mode of transport.
Seller is responsible for the payment of freight to carry goods to a named overseas destination. The risk of loss or damage is transferred from the seller to the buyer when the goods have been delivered into the carrier's custody. This term may be used for any mode of transport.
In private equity fund or hedge fund, carried interest is a share of the profits of a successful partnership that is paid to the manager of the partnership as a form of compensation. Carried interest is typically up to 20% of the profits and becomes payable once the original investment in the fund has been repaid to the investors, plus a predefined hurdle rate.
For the bond market, this refers to a trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose(and long-term bond prices fell as a result), the carry trade could become unprofitable. Indeed, if this occured, there could be a number of investors trying to unwind the carry trade, which would involve selling the long-term bonds. It is possible that this could exacerbate the increase in long-term interest rates, i.e. push the rates even higher. For currency, you buy the currency that has the highest local short term interest rate. For more information on currency, see: Currency Carry Trade.
A group of businesses or nations that act together as a
single producer to obtain marketcontrol and to influence prices in their favor by limiting
production of a product. The United States has laws prohibiting
A family of S&P indices created by Karl Case, Robert Shiller, and Allan Weiss used to measure the nominal value of home prices in the U.S. The Case-Shiller Indices, which are based on 20 metropolitan statistical areas (MSAs), use data on single-family homes sold more than once (resale homes) and re-sold sale prices to provide a weighted and quality-adjusted assessment of the real estate market. Calculated each month by Fiserv, Inc., the family of indices consists of 20 MSA indices and two aggregated indices.
Ratio of cash assets to debt service (interest plus nearby principal). Used in evaluating the risk of a project or firm. The higher the ratio the less likely the firm or project will fail to meet its debt obligations.
A cash balance pension plan is a defined-benefit plan that is maintained on an individual account basis. The employer contributes to a participant's account with a set percentage of annual compensation plus interest charges. The company holds all ownership of profits and losses in the portfolio.
Refers to the efficient management of cash in a business in
order to put the cash to work more quickly and to keep the cash
in applications that produce income, such as the use of lock
boxes for payments.
These laws enable shareholders to sell their stakes to a "controlling" shareholder at a price based on the highest price of recently acquired shares. This works something like Fair-Price provisions extended to nontakeover situations. A few states have these laws.
The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.
A combination of term life insurance with a savings component. A portion of the premium is used to fund a savings or investment component that the policyholder can access by borrowing against it or by cashing in the policy.
Also known as cat bonds, these are used as a way for insurance agents to transfer risks to investors. They are often attractive to investors because the risks (like that of an earthquake) are uncorrelated with the business cycle – and, hence, provide natural diversification. Cat bond is typically structured so that if a major natural catastrophe hits, the principal initially paid by the investors is forgiven and used by the sponsor (the insurer) to pay its claims to policyholders.
An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts.
Announced by the Federal Reserve on December 12, 2007, the Fed made temporary agreements with 14 central banks around the world to provide liquidity in U.S. dollars to overseas markets. The agreements terminated on Feb. 1, 2010.
The certain (zero risk) return an investor would trade for a given
(larger) return with an
associated risk. For example, a
particular investor might
trade an uncertain expected 4% activereturn with 6% risk, for a certain
active return of 1.5%. Used as a way to incorporate individual investor risk tolerances into financial
A person who has passed examinations accredited by the
Certified Financial Planner Board of Standards, showing that the
person is able to manage a client's banking, estate, insurance,
investment, and tax
For this type of index, a value in any specific time period is based on the value of the same entity in the preceding period. Changes in values can be compared between sequential time periods. This differs from a fixed base index in which values in any period are based on the initial value. See: Fixed base index, Index number
A portfolio which
efficiently represents a particular asset characteristic. For a given
characteristic, it is the minimum risk portfolio, with portfolio characteristic equal to 1.
For example, the characteristic portfolio of assetbetas is the benchmark. It is the minimum risk
beta = 1 portfolio.
The document evidencing mortgagesecurity required by Crown Law (law
derived from English law). A Fixed Charge refers to a defined set of assets and is usually registered. A Floating Charge refers to other assets which change from time to time (ie. cash, inventory, etc.), which become a Fixed
Charge after a default.
A transaction where the card holder bank reverses a previous transaction between a merchant and a consumer in case of a dispute. The bank reimburses the consumer by withdrawing the transaction amount from the merchant’s account
An irrevocable trust that pays income to a designated person
or persons until the grantor's death, when the income is passed
on to a designated charity. A charitable lead trust by contrast allows the charity to
receive income during the grantor's life, and the remaining
income to pass to designated family members upon the grantor's
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.
The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system.
Underwriters, actual or
potential, often seek out and "circle" investor interest in a new
issue before final pricing. The
customer circled has basically made a commitment to purchase the
issue if it is available at an agreed-upon price. If the actual
price is other than that stipulated, the customer supposedly has
first offer at the actual
Measures instituted by exchanges to stop trading temporarily when the market has fallen by a certain
percentage in a specified period. They are intended to prevent a
market free fall by permitting
buy and sell orders to
Also known as Staggered Board: is one in which the directors are placed into different classes and serve overlapping terms. Since only part of the board can be replaced each year, an outsider who gains control of a corporation may have to wait a few years before being able to gain control of the board. This slow replacement makes a classified board an effective delays of takeovers. Sometimes known as a delay provision.
The division of stock into
more than one class of common stock, usually called Class
A and Class B. The specific features of each class, which are set out in the charter
and bylaws, usually give certain advantages to the Class A shares, such as increased voting
A dividend clawback is an arrangement whereby the equity owners commit to use dividends they have
received in the past to finance the cash needs of the project or corporation in the future. Clawback has a more general definition. For example, premiums paid on an insurance policy may be refunded (or clawed back) if the policy is cancelled in a certain time frame. Such an arrangement is specified in the contract and referred to as a clawback provision.
In the context of general equities, block trade that matches buy or sell orders/interests, sparing the block trader any inventoryrisk (no net position and hence none available for
additional customers). Natural.
Antithesis of open.
A computerized clearing system for sterling funds that began
operations in 1984. It includes 14 member banks, nearly 450
participating banks, and is one of the clearing companies within
the structure of the Association for Payment Clearing Services
A member firm of a clearing house. Each clearing member must
also be a member of the exchange. Not all members of the
exchange, however, are members of the clearing organization. All
trades of a non-clearing member
must be registered with, and eventually settled through, a
Describes the tendency of funds or investments to be followed
by groups of investors who have similar preferences for a
firm which follows a particular financing policy, such as the amount of
leverage it uses.
A statistical technique that identifies clusters of stocks
whose returns are highly correlated within each cluster
and relatively uncorrelated across clusters. Cluster analysis has
identified groupings such as growth, cyclical, stable, and energy
An institution appointed by the issuer as
co-transfer agent accepts and transfers certificates and sends daily activity journals to the primary record-keeping agent. A co-agent does not maintain security holder records, but is used to facilitate the transfer of stock in a geographic region not easily accessible to the issuer or its principal transfer agent.
The historic New York-based commodity exchange trading futures and options. In June 2004, the CS&CE merged with the New York Cotton Exchange (NYCE) to form the New York Board of Trade. As a result of this merger, all previous exchanges and subsidiaries ceased to exist, including the Coffee, Sugar, & Cocoa Exchange, the New York Cotton Exchange, the Citrus Associates of the New York Cotton Exchange, the New York Futures Exchange (NYFE), and the FINEX Exchange. All markets are now referred to as the New York Board of Trade or NYBOT.
A hypothesis that the probability density
function of the market may be determined by a combination of
group sentiment and fundamental bias. Depending on combinations
of these two factors, the market can be in one of four states: random walk, unstable
transition, chaos, or
Refers to the ceiling and floor of the price fluctuation of an underlying asset. A collar is usually set up with options, swaps, or by other agreements. In corporate finance,
the collar strategy of buying puts and selling calls is often used to mitigate the risk of
a concentrated position in (sometimes) restricted stock. When the
restricted owner can't sell the stock, but needs to diversify the risk, a
collar transaction is one of the few tools available. Many corporate
executives who receive chunks of their compensation in restricted stock need
to employ this strategy to mitigate the diversification risk in their
A letter from an independent auditor included in a preliminary prospectus stating that, while a full audit has not been undertaken, the auditor has done a 'review' sufficient to assure that financial statement information in the preliminary prospectus is correctly prepared to the best of the auditor's knowledge. The auditor in effect states that, had a full audit been done, they are comfortable that the audited financial statements would not be materially different from the ones presented in the preliminary prospectus.
Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and business. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.
Similar to MBS but backed by
loans secured with commercial rather than residential property.
Commercial property includes multi-family, retail, office, etc.,
They are not standardized so there are a lot of details
associated with structure, credit enhancement, diversification,
etc., that need to be understood when valuing these instruments.
promissory notes either unsecured or backed by assets such as loans or mortgages issued by a corporation. The maturity of commercial paper is typically
less than 270 days; the most common maturity range is 30 to 50 days or
less. They are usually sold, like Treasury bills, at a discount.
In 2008, the Federal Reserve offered to purchase highly rated, three-month commercial paper in response to difficulty companies had raising money in the commercial paper market. The goals were to persuade investors to lend to top-tier companies and give borrowers a backstop if funds can’t be obtained in the open market. The CPFF began operations on Oct. 27, 2008, and closed on Feb. 1, 2010.
The fee paid to a broker to
execute a trade, based on number of shares, bonds, options, and/or their dollar value. In
1975, deregulation led to the establishment of discount brokers,
who charge lower commissions than full service brokers. Full service brokers offer
advice and usually have a staff of analysts who follow specific
industries. Discount brokers
simply execute a client's order and usually do not offer an
opinion on a stock. Also known as
a round-turn. Commissions are known as round-turn only in futures trading, since the commission is assessed only after liquidation of the position.
The Committee of European Banking Supervisors (CEBS) gives advice to the European Commission on policy and regulatory issues related to banking supervision.
CEBS is composed of high level representatives from the banking supervisory authorities and central banks of the European Union.
The location of five New York futures exchanges: Commodity Exchange,
Inc. (COMEX); the New York Mercantile Exchange (NYMEX); New York
Cotton Exchange, Coffee, Sugar & Cocoa Exchange (CS&CE), and
New York Futures Exchange (NYFE).
An agreement to buy a specific amount of a commodity at a specified price on a
particular date in the future, allowing a producer to guarantee
the price of a product or raw material used in production.
A statement in which all items are expressed as a percentage
of a base figure, useful for purposes of analyzing trends and
changing relationship among financial statement items. For
example, all items in each year's income statement could be
presented as a percentage of netsales.
Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations.
In the context of project financing, occurs after a Completion Test,
when the project's cash flows become the primary method of repayment. Prior to completion, the primary source of repayment is usually from the sponsors or from the turnkey contractor.
An undertaking either (1) to complete a project so that it
meets certain specified performance criteria on or before a
certain specified date, or (2) to repay project debt if the
completion test cannot be met.
Annual return calculated based on each year's previous balances where each previous balance includes both the original principal and all interest accrued from prior years. Best defined by example. If you invest $100 today and make 5%
in the first year and reinvest ($105) and make 8% in the second
year, the compound annualgrowth rate is 6.489%. The calculation
is $100x1.05x1.08=$113.4 which is what you end up with at the end
of year two. The average return is [square root(113.4/100) -1]=
0.06489 or 6.489%. Note 1. If we had three compounding periods we
would take the cubic root (power of 1/3). Note 2. If we had
invested at exactly 6.489 in both periods, we get
$100x1.06489x1.06489=$113.4. Note 3. The example is directed to a
return - but CAGR could be applied to earnings growth, GDP
The investigation of a firm's business in conjunction with a
securitiesoffering to determine whether the firm's business and
financial situation and its prospects are adequately disclosed in
the prospectus for the offering.
Comprehensive income is the change in equity
of a business enterprise during a period from
transactions and other events from non-owner
sources. It includes all non-owner changes in equity (in contrast to net income which does not
include some changes in equity). Financial Accounting Standards Board
(FASB) issued the Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income. For fiscal years beginning after December 15, 1997, SFAS 130 requires
the disclosure of both net income and a more 'comprehensive measure of income which includes four items recorded as owners equity under previous FASB pronouncements:
adjustments to unrealized gains and losses on available-for-sale marketable securities (SFAS
115), foreign currency translation adjustments (SFAS 52), minimum required pension liability
adjustments (SFAS 87), and changes in the market values of certain futures contracts qualifying
as hedges (SFAS 80).
Short for. the Office of the Comptroller of the Currency (OCC). This federal agency regulates, watches over, and charters national banks (not state banks) and also is in charge of foreign banks conducting business in the U.S. The OCC is headed by the Comptroller of the Currency who is appointed by the President.
A conduit bond is a type of municipal bond sold by a governmental entity for the purpose of making proceeds available to a private entity usually in furtherance of a public purpose. An example would be bonds in connection with not-for-profit hospitals or affordable housing. The governmental issuer is typically not responsible in the event of default.
A letter of credit which a bank other than the bank that opened it agrees to honor as though they had themselves issued it. This additional confirmation is in addition to the obligation of the bank which issued the letter of credit.
Used for listed equity securities. Combined ticker tapes of the NYSE and the curb. Network A covers the NYSE-listed
securities and is used to identify the originating market.
Network B does the same for AMEX-listed securities
and also reports on securities listed on regional stock
exchanges. See: tape.
A trading strategy that sets a floor on a portfolio value by investing in a risky and a riskless asset such that if the risky asset falls to its lowest expected value, the portfolio value will be at the floor. The weights are altered as the asset values change. This limits the downside risk while maintaining a potential upside through the exposure to the risky asset. This is analogous to buying a put option on the portfolio. Also see Portfolio Insurance.
A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.
Refers to an increase in correlation of asset returns that is more than expected. Sometimes also called excess correlation. For example, during the East
Asian crisis that began in July 1997 when the Thai currency
devalued, many emerging markets as far away as South America became increasingly correlated. Contagion is difficult to identify because you
need some sort of measure of the expected correlation. It is
complicated because correlations are known to change through
time, for example, see Erb, Harvey and Viskanta's article in the
1994 Financial Analysts Journal. In periods of negative returns,
correlations (and volatility) are known to increase,
so what might appear to be excessive correlations may not be contagion.
Used in the context of convertible instruments. The price of the stock must exceed the trigger price before the bond holder can convert to common stock at a pre-established conversion price. The trigger price exceeds the conversion price. In addition, after a certain number of years, the convertible instrument usually specifies that both the conversion price and the contingent conversion trigger will increase every year by, for example, a rate equal to LIBOR.
A contingent debt is an unusual kind of debt that is dependent on uncertain future developments.
A contigent debt is not a definitive liability as it is based on the outcome of a future event (for example, such as a court verdict).
The process of accumulating the time value of money forward
in time on a continuous, or instantaneous, basis. Interest is
earned constantly, and at each instant, the interest that accrues
immediately begins earning interest on itself.
Also known as CFD. This is an agreement between buyer and seller to exchange the difference between the current value of the asset and the initial value of the asset when the contract is initiated. For example, suppose the initial price of share XYZ is $100 and a CFD for 1000 shares is exchanged. Both the buyer and seller must post some margin. If the price goes to $105, then the buyer gets $5,000 from the seller. If the price goes to $95, the buyer pays the seller $5,000. This contract avoids ownership of the stock and all the associated transactions issues (like stamp taxes). The contract also allows for leverage (typically 10:1) because the margin that must be posted is only a fraction of the value of the underlying asset. These contracts can also be on the difference of two assets' prices. They can also be on the difference of a single asset of different maturities (like a bond or futures contracts). CFDs are sometimes known as spread trading.
Holder of an indirect claim through a legal agreement that
specifies that the individual must make periodic, fixed payments
to the intermediary in exchange for the right to receive payments
from the intermediary in the future.
An investment style that leads one to buyassets that have
performed poorly and sell assets that have performed well. There
are two possible reasons this strategy might work. The first is a
mean-reversion argument; that is, if the asset has deviated from
its usual level, it should eventually return to that usual level.
The second reason has to do with overreaction. Investors might
have overreacted to bad news sending the asset price lower than
it should be.
The shares owned by the
of a corporation. Sometimes refers to stock that has voting rights rather than stock that carries no voting rights. In a situation where all stock has voting rights, it sometimes refers to
the shareholdings of one investors or a group of investors that effectively control the firm.
An annual statement filed by a life insurancecompany in each
state where it does business in compliance with that state's
regulations. The statement and supporting documents show, among
other things, the assets, liabilities, and surplus of the reporting
In the context of hedge funds, a style of management that involves the simultaneous purchase of a convertible bond and the short sale of shares of the underlying stock. Interest rate risk may or may not be hedged.
The movement of the price of a futures contract toward the
price of the underlyingcash commodity. At the
start, the contract price is usually
higher because of time
value. But as the contract nears expiration, and time value
decreases, the futures price
and the cash price converge. More generally, convergence trading involves taking two related assets that have different prices with the expectation that prices will converge (the cheaper asset is purchased and the more expensive is sold short).
The extent by which the conversion price of a convertible security
exceeds the prevailing common
stock price at the time the convertible security is issued. In general usage, the conversion premium is the amount by which the convertible security trades above its conversted value. For example, if a $1,000 par bond is trading at $1,100, it is convertible into 50 shares, and the shares are trading at $21, the converted value is 50 X 20.50 = $1,025, and the conversion premium is $75.
This concept is best described with respect to a bond. Consider a graph of the bonds price (y-axis) and the bond yield (x-axis). If this graph was a straight line (downward sloping), there would be no convexity. It would be a simple linear relationship between bond price and yield (yield up, price down). However, bonds are non-linear functions of yields partly because irrespective of their how high their yield is, they cannot have negative price. Hence, the bond price is not a straight line, but a curve that is upward (like a bowl). So, if rates increase, the simple linear straightline will tell you (incorrectly) that the bond price drops too much). Essentially, the convexity is the second derivative whereas the linear relationship is the first-derivative (of bond price with respect to yield). If the asset price drops less than predicted by the linear relationship, it is known to have positive convexity (commonly referred in the bond market simply as ‘convexity’). However, if the asset price drops by more than predicted by the linear relationship, it is known to have negative convexity (rather than the common usage in mathematics of concavity). Convexity is also associated with options which (by definition) have non-linear payoffs.
An organization owned by its members. Examples are
agriculture cooperatives that assist farmers in selling their
products more efficiently and apartment buildings owned by the
residents who have full control of the property.
Core inflation for the Consumer Price Index, the Producer Price Index or the Personal Consumption Expenditure Deflator removes the volatile food and energy prices. The Headline inflation includes these components.
A corporation that elects to be taxed as a corporation. The C
corporation pays federal and state income taxes on earnings.
When the earnings are distributed to the shareholders as dividends, this
income is subject to another round of taxation (shareholder's income).
Essentially, the C corporations' earnings are taxed twice. In contrast,
the S corporation's earnings are taxed only once.
A form of corporate self-regulation where businesses monitor and ensure that their activities are aligned with the social, economic, and environmental expectations. CSR-focused businesses proactively promote the public interest and encourage community growth and development. CSR is the deliberate inclusion of public interest into corporate decision making. CSR is wide spread in Europe and has recently gained popularity in the U.S.
An estimate of the Fractal Dimension which
measures the probability that two points chosen at random will be
within a certain distance of each other, and examines how this
probability changes as the distance is increased. White noise will fill its space
since its components are uncorrelated, and its correlation
dimension is equal to whatever dimension it is placed in. A
dependent system will be held together by its correlations and
retain its dimension whatever embedding dimension it is placed
in, as long as it is greater than its fractal dimension.
The opposite of revenue. An expense that reflects the price of purchasing goods, services and financial instruments. A cash cost means that cash is given up today to the purchase. Also, the purchase price of an investment, which is compared to the sale proceeds to determine capital gain or loss.
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. This should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel.
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. This term should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel.
A statistical measure of the degree to which random variables move together.
A positive covariance implies that one variable is above (below)
its mean value when the other variable is above (below) its
A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put.
The principle that the yields
from interest-bearing foreign and domestic investments should be equal when the
currencymarket is used to predetermine the
domestic currency payoff from a foreign investment. For example, suppose interest on 90 U.K. Treasury bills is 4% but only 1% in U.S. When the U.S. investor tries to take advantage of the higher yield, they translate U.S. dollars to Sterling to buy the Treasury bill and then sell 90-days forward Sterling (so they can translate the principal and interest back to U.S. dollars). Covered Interest Parity ensures that the return to this transaction is 1%. If it was different, there would be arbritrage.
An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actually, this is not a "covered" strategy because assignment on the short put would require purchase of stock on margin. This method is also known as a covered combination.
The ability of the bankruptcy court to confirm a plan
of reorganization over the objections of some classes of creditors. This often involves resetting the amount of principal that the bond holders are owed. Related is a mortgage cramdown. Here the home owner cannot pay the mortgage because of financial distress and, indeed, the mortgage could be a higher value than the house. A cramdown resets (lower) the principal amount of the mortgage. This may allow the homeowner to stay in the house (avoid foreclosure).
An automatic system for revising the exchange rate. It involves
establishing a par value
around which the rate can vary up to a given percent. The par value is revised regularly
according to a formula determined by the authorities.
A shortage of available credit for businesses and consumers. This situation could arise when lenders are reluctant to lend because of uncertainty of defaults or are willing to lend only at high interest rates thus making it difficult for businesses and consumers to secure credit. The term became popular the financial crisis that began in 2007 when a large number of homeowners either defaulted or were expected to default on mortgages, leading to great stress on the market in which these securitized loans were traded. The ensuing constriction in liquidity caused lenders to cut back on loans resulting in a credit crunch.
A credit derivative contract between two parties where the buyer makes periodic payments (over the maturity period of the CDS) to the seller in exchange for a commitment to a payoff if a third party defaults. Generally used as insurance against default on a credit asset but can also be used for speculation.
The purchase of the financialguarantee of a large insurance company
to raise funds. In the context of project financing, the issuance of a guarantee or
additional collateral to reinforce the credit
strength of a project financing. Also, the reduction of counterparty risk on a swap transaction through such measures as bilateral netting.
A measure of a bondissuer's ability to repay interest and principal in a timely manner.
assign letter designations such as AAA, AA, and so forth. The lower the rating, the higher
the probability of default.
Applies to derivative products. Difference in the value of
two options, when the value of
the one sold exceeds the value of the one bought. One sells a
"credit spread." Antithesis of a debit spread Related: Quality spread.
Market value of counterparty credit risk. In other words, it is the difference between the true portfolio value (that takes into account the possibility of a counterparty's default) and the risk-free portfolio value.
CREST is CrestCo's real-time settlement system for UK and
Irish shares and other corporate securities. CrestCo has provided
settlement systems for government bonds and money market instruments in the UK since 1990.
Values of control
parameters where the nature of a nonlinear dynamic system
changes. The system can bifurcate, or make the transition
from stable to turbulent behavior. An example is the straw that
breaks the camel's back.
Describes 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.
The exchange rate
between two currencies expressed as the ratio of two foreign exchange rates that
are both expressed in terms of a third currency. Foreign exchange
rate between two currencies other than the US dollar, the
currency in which most exchanges are usually quoted.
A method of analysis that compares a firm's ratios with some
chosen industrybenchmark. The benchmark usually chosen is the
average ratio value for all firms in an industry for the time
period under study.
With dividend; said of a
stock whose buyer is eligible to
receive a declared dividend. Stocks are usually "cum dividend"
for trades made on or before the
third trading day preceding the record date, when the register of
eligible holders is closed for that dividend period. Antithesis
A carry trade where you borrow and pay interest in order to buy something else that has higher interest. For currencies, it might be that you borrow in Yen (where the interest rate might be low) and use the proceeds to purchase U.S. dollar long term debt. While the trade might produce a positive return, it is risky in two dimensions. First, U.S. rates could increase diminishing the value of the bond you purchased. Second, the exchange rate could take an unfavorable move effectively increasing your borrowing costs.
Related: Carry Trade.
The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.