Campbell R. Harvey's Hypertextual Finance Glossary

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Fifth letter of a Nasdaq stock symbol specifying that an issue has not met the reporting date for the company's SEC regulatory filing requirements.
EAFE index
See: European Australian and Far East index
See: European Association of Securities Dealers
See: Earnings Before Interest after Taxes
See: Earnings Before Interest and Taxes
See: Earnings Before Interest, Taxes and Depreciation
See: Earnings Before Interest, Taxes, Depreciation, and Amortization
See: Earnings Before Taxes
The two-character ISO 3166 country code for ECUADOR.
Electronic Communications Network. Defined under Rule 11Ac1- 1(a)(8) under the U.S. Securities Exchange Act of 1933.
The ISO 4217 currency code for the Ecuadorian Sucre.
EDGAR Electronic Data Gathering, Analysis and Retrieval System
The system through which companies electronically file reports and registration statements with the SEC. This requires converting the paper or word-processing document to be filed into a universal ASCII format, a process known as EDGAR-izing the document. The filings can then be accessed by the public through the SEC's Web site on the Internet.
The ISO 4217 currency code for the Estonian Kroon.
The two-character ISO 3166 country code for EGYPT.
The ISO 4217 currency code for the Egyptian Pound.
See: European Currency Unit
See: Electronic Data Interchange
The two-character ISO 3166 country code for ESTONIA.
The two-character ISO 3166 country code for WESTERN SAHARA.
See: Effective margin
See: European Monetary System
See: European Options Exchange
See: Economic Order Quantity
The two-character ISO 3166 country code for ERITREA.
See: Exchange Rate Mechanism
The two-character ISO 3166 country code for SPAIN .
See: Employee Stock Ownership Plan
The ISO 4217 currency code for the Spanish Peseta.
The two-character ISO 3166 country code for ETHIOPIA.
The ISO 4217 currency code for the Ethiopian Birr.
See: European Union
The ISO 4217 currency code for Euro.
The European derivatives exchange formed in 1998 by a merger of the Deutsche Terminbörse (DTB) and the Swiss Options and Financial Futures Exchange (SOFFEX).
See: Shipper's Export Declaration.
Each way
A broker's commission from his or her involvement on both the purchase and the sale side of a security.
Early distribution
See: Premature distribution
Early Exercise (assignment)
The exercise or assignment of an option contract before its expiration date.
Early withdrawal
See: Premature distribution
Early withdrawal penalty
Penalty paid by the holder of a fixed-term investment penalizing an investor who withdraws money before the agreed-upon maturity date.
Refers to an additional payment in a merger or acquisition that is not part of the original acquisition cost, which is based on the acquired company's future earnings relative to a level determined by the merger agreement.
Earned income
Compensation earned from employment, which includes wages, salary, tips, and compensation.
Earned income credit
A tax credit for taxpayers with children.
Earned surplus
See: Retained earnings
Earnest money
Money given to a seller by a buyer to demonstrate the buyer's good faith. If the deal falls through, the deposit is usually forfeited.
Earning asset
An asset that generates income, e.g., income from rental property.
Earning power
Earnings before interest and taxes (EBIT) divided by total assets.
Net income for the company during a period.
Earnings before interest after taxes (EBIAT)
A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest plus cash income taxes. Equivalent to EBIT minus cash taxes.
Earnings before interest and, taxes (EBIT)
A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes.
Earnings before interest, taxes, and depreciation (EBITD)
A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation expenses are not included in the costs.
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.
Earnings before taxes (EBT)
A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of income taxes.
Earnings momentum
An increase in the earnings per share growth rate from one reporting period to the next.
Earnings per share (EPS)
A company's profit divided by its number of outstanding shares. If a company earning $2 million in one year had 2 million shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term. The one-year (historical or trailing) EPS growth rate is calculated as the percentage change in earnings per share. The prospective EPS growth rate is calculated as the percentage change in this year's earnings and the consensus forecast earnings for next year.
Earnings-price ratio
See: Earnings yield
Earnings response coefficient
A measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements.
Earnings retention ratio
Plowback rate.
Earnings surprises
Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES Negative earnings surprises generally have a greater adverse effect on stock prices than a reciprocal positive earnings surprise.
Earnings yield
The ratio of earnings per share, after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the price-earnings ratio. It is the total twelve months, earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage terms. We often look at earnings yield because this avoids the problem of zero earnings in the denominator of the price-earning ratio.
Easy money
See: Tight money
Eating stock
When an underwriter can't find buyers for a stock and therefore has to buy them for his own account.
See: Emerging company marketplace
Eclectic paradigm
A theory that posits three types of advantages benefiting a multinational corporation: ownership-specific, location-specific, and market internalization advantages.
The quantitative science of predicting the economy.
Economic assumptions
General market environment a firm expects to operate in over the life of a financial plan.
Economic defeasance
See: In-substance defeasance
Economic dependence
When the costs and/or revenues of one project depend on those of another.
Economic earnings
The real flow of cash that a firm could pay out forever in the absence of any change in the firm's productive capacity.
Economic exposure
The extent to which the value of a firm will change because of an exchange rate change.
Economic growth
An increase in the nation's capacity to produce goods and services. Usually refers to real GDP growth.
Economic growth rate
The annual percentage rate of change in the Gross National Product.
Economic income
Cash flow plus change in present value.
Economic indicators
The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate.
Economic Life
The time period over which an asset's NPV is maximized. Economic life can be less than absolute physical life for reasons of technological obsolescence, physical deterioration, or product life cycle.
Economic order quantity (EOQ)
The order quantity that minimizes total inventory costs.
Economic rents
Profits in excess of the competitive level.
Economic risk
In project financing, the risk that the project's output will not be salable at a price that will cover the project's operating and maintenance costs and its debt service requirements.
Economic shock
Events that impact the economy, come from outside it, and are unexpected and upredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC).
Economic surplus
For any entity, the difference between the market value of all its assets and the market value of its liabilities.
Economic union
An agreement between two or more countries that allows the free movement of capital, labor, and all goods and services, and involves the harmonization and unification of social, fiscal, and monetary policies.
Economic value added (EVA)
A method of performance evaluation that adjusts accounting performance for investors' required return on investment. Suppose a division produces a 12% return on capital invested. Given the risk of the division's business line would have. If investors would usually require 14% on capital invested, the division destroyed shareholder value by the EVA metric. This description is trade marketed by Stern-Stewart.
The study of the economy. See also: Macroeconomics; microeconomics; Keynesian economics, monetarism, and supply-side economics.
Economies of scale
Achievement of lower average cost per unit through increased production.
Economies of scale
The decrease in the marginal cost of production as a firm's extent of operations expands.
Economies of scope
Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.
Economies of vertical integration
Produced by achieving lower operating costs by owning all components of production and sometimes sales outlets rather than contracting for companies in the outside marketplace.
The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.
Edge Act corporation
Corporation chartered by the Federal Reserve to engage in international banking. The Board of Governors acts on applications to establish Edge Act corporations and also examines the corporations and their subsidiaries. Named after Senator Walter Edge of New Jersey, who sponsored the original legislation to permit formation of such organizations. See also: agreement corporation.
Edge corporations
Specialized banking institutions, authorized and chartered by the Federal Reserve Board of Governors in the U.S., that are allowed to engage in transactions of a foreign or international character. They are not subject to restrictions on interstate banking. Foreign banks operating in the US are permitted to organize and own an edge corporation.
Education IRA
A type of individual retirement account enabling the contribution of up to $500 per year for each child up to the age of 18 by the parents in the family.
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of compounding.
Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.
Effective call price
The strike price in a market redemption provision plus the accrued interest to the redemption date.
Effective convexity
The convexity of a bond calculated using cash flows that change with yields.
Effective date
In an interest rate swap, the date the swap begins accruing interest.
Effective debt
The total debt owed by a firm to its creditors.
Effective duration
The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bond's price-taking into account that expected cash flows will change as interest rates change due to the embedded option.
Effective Interest Rate
The annual rate at which an investment grows in value when interest is credited more often than once a year.
Effective margin (EM)
Used with SAT performance measures, the amount equal to the net earned spread, or margin of income, on assets in excess of financing costs for a given interest rate and prepayment rate scenario.
Effective net worth
Net worth plus subordinated debt.
Effective rate
A measure of the time value of money that fully reflects the effects of compounding.
Effective sale
A sale based on the most recent round-lot price, which determines the price of the next odd lot. The difference created between the last round-lot price and the odd-lot price is referred to as the odd-lot differential.
Effective spread
The gross underwriting spread adjusted for the impact that a common stock offering's announcement has on the firm's share price.
Effective tax rate
The net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.
Effective yield
Yield or return on a short-term investment after adjustment for the change in exchange rates over the period of concern.
The degree and speed with which a market accurately incorporates information into prices.
Efficient capital market
A market in which new information is very quickly reflected accurately in share prices.
Efficient diversification
The organizing principle of modern portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any particular level of portfolio risk.
Efficient frontier
The combinations of securities portfolios that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return. Pioneered by Harry Markowitz.
Efficient market
Economy in which prices correctly reflect all relevant information.
Efficient Market Hypothesis
States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all information on past prices), semistrong form (stock prices reflect all publicly available information), and strong form (stock prices reflect all relevant information including insider information).
Efficient markets theory (EMT)
Principle that all assets are correctly priced by the market, and that there are no bargains.
Efficient portfolio
A portfolio that provides the greatest expected return for a given level of risk (i.e., standard deviation), or, equivalently, the lowest risk for a given expected return.
Efficient set
Graph representing a set of portfolios that maximize expected return at each level of portfolio risk.
Efficient surface
In mean variance skewness analysis, the set of portfolios that result from investors' preference for higher means, lower variance and higher (positive) skewness. The efficient surface is analogous (in three dimensions, mean, variance and skewness) to the effficient frontier (in two dimensions, mean and variance).
Used in the context of general equities. A specialist or another broker is bidding higher or offering lower than we are, often topping or undercutting us by an eighth.
Either/or facility
An agreement permitting a bank customer to borrow either domestic dollars from the bank's head office or Eurodollars from one of its foreign branches.
Either-or order
Used in the context of general equities. See: Alternative order.
Either-way market
In the interbank Eurodollar deposit market, an either-way market is one in which the bid and offered rates are identical.
Elasticity of demand and supply
The degree of buyers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of demand to price, e.g., luxury goods. Goods with a small value of elasticity (less than 1) have a demand that is insensitive to price, e.g., food.
Elasticity of an option
Percentage change in the value of an option given a 1% change in the value of the option's underlying stock.
The conversion of a conditional order into a market order.
Electronic data interchange (EDI)
The direct exchange of information electronically, from one firm's computer to another firm's computer in a structured format.
Electronic depository transfers
The transfer of funds between bank accounts through the Automated Clearing House (ACH) system.
Electronic funds transfer (EFT)
Transfer of funds electronically rather than by check or cash. The Federal Reserve's Fedwire and automated clearninghouse services are EFT systems.
Electronic Funds Transfer Systems
A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, automated clearringhouses (ACHs) and other automated systems.
Electronic Queriable Carrier
A transporter of goods which allows tracking of goods in transit electronically using a waybill number such as United Parcel, Federal Express, etc.
A term used to refer to large institutional investors.
Eleven bond index
An index based on the average yield of 11 municipal bonds that mature in 20 years and carry an average AA rating. The eleven bonds used to calculate the index are also found in the 20 bond index, which serves as a benchmark in tracking municipal bond yields.
Eligible bankers' acceptances
In the BA market, an acceptance may be referred to as eligible because it is acceptable by the Fed as collateral at the discount window and/or because the accepting bank can sell it without incurring a reserve requirement.
Elliott Wave Theory
Technical market timing strategy that predicts price movements on the basis of historical price wave patterns and their underlying psychological motives. Robert Prechter is a famous Elliott Wave theorist.
A term the host uses to refer to guests on the PBS television show, "Wall Street Week", who are technical analysts attempting to predict the direction of stock prices over the next six months.
Embedded option
An option that is part of the structure of a bond that gives either the bondholder or the issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security.
Emergency fund
A reserve of cash kept available to meet the costs of any unexpected financial emergencies.
Emergency Home Finance Act of 1970
The federal legislation creating the Federal Home Loan Mortgage Corporation, a partially government-run program initiated to stimulate the development of a secondary mortgage market and expand mortgages available to veterans and other groups.
Emerging Company Marketplace (ECM)
A service once offered by the American Stock Exchange to help small growth companies fulfill special listing requirements. The service is no longer available.
Emerging markets
The financial markets of developing economies.
Emerging Markets Free index (EMF)
A Morgan Stanley Capital International index created to track stock markets in selected emerging markets that are open to foreign investment like Argentina, Chile, Jordan, Malaysia, Mexico, Philippines, and Thailand.
Emerging markets fund
A mutual fund that invests primarily in countries with developing economies (that is, those that are becoming industrialized). Emerging markets funds tend to be more volatile than domestic stock funds due to currency fluctuation and political instability. Consequently, fund prices can fluctuate dramatically.
Employee contribution
An employee's own deposit to a company retirement plan.
Employee Retirement Income Security Act (ERISA)
The law that regulates the operation of private pensions and benefit plans.
Employee stock fund
A firm-sponsored program that enables employees to purchase shares of the firm's common stock on a preferential basis.
Employee stock ownership plan (ESOP)
A company contributes to a trust fund that buys stock on behalf of employees.
Employee Stock Purchase Plan (ESPP)
A plan usually linked to a Corporation's payroll deduction system allowing employees to purchase shares at a discount from current market value.
Employer matching contribution
The amount, if any, a company contributes on an employee's behalf to the employee's retirement account, usually tied to the employee's own contribution.
Employment rate
The percentage of the labor force that is employed. The employment rate is one of the economic indicators that economists examine to help understand the state of the economy. See also: Unemployment rate.
Empty head and pure heart test
Securities and Exchange Commission rule that allows only the bidder of a tender offer to trade in the stock while possessing inside information.
A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank's holding of a home mortgage encumbers property.
End-of-year convention
Treating cash flows as if they occur at the end of a year as opposed to the date convention. Under the end-of-year convention, the present is time 0, the end of year 1 occurs one year hence; and so on.
Endogenous uncertainty
Describes factors within the control of the firm, such as a decision to reveal information about price or input costs. Converse of exogenous.
Endogenous variable
A value determined within the context of a model. Related: Exogenous variable.
Transferring asset ownership by signing the back of the asset's certificate.
Gift of money or property to a specified institution for a specified purpose.
Endowment funds
Investment funds established for the support of institutions such as colleges, private schools, museums, hospitals, and foundations. The investment income may be used for the operation of the institution and for capital expenditures.
Energy mutual fund
Mutual fund investing in energy stocks only, e.g., oil and gas companies.
Enhanced indexing
Also called indexing-plus, an indexing strategy whose objective is to exceed or replicate the total return performance of some predetermined index.
An innovation that has a positive impact on one or more of a firm's existing products.
A business firm.
Enterprise Value
The market capitalization of a firm's equity plus the market value of the firm's debt. Often the value of assets that are non-core are excluded the final calculation.
A person starting a new company who takes on the risks associated with starting the enterprise, which may require venture capital to cover start-up costs.
The level of disorder in a system.
Environmental fund
A mutual fund that invests strictly in stocks of companies that are environmentally friendly and/or have the goal of environmental betterment. The investors are trying to support and profit from opportunities related to the environmental movement.
See: Earnings per share
Equal dollar swap
Selling common stock/convertibles in one company and reinvesting the proceeds in as many shares of (1) another type of security issued by the company, or (2) another security of the same type but of another company -- as can be bought with the proceeds of the sale. See: Equal shares swap.
Equal percentage contribution rule (EPCoR)
Principle that each asset contributes the same proportion to the equilibrium portfolio rate premium and risk.
Equal shares swap
Applies mainly to convertible securities. Selling the underlying common and reinvesting the proceeds in as much of the convertible as can be converted into the number of shares of common just sold. See equal dollar swap.
Equalizing dividend
Special dividends received by investors of a firm for income the investor lost because the firm altered the dividends payment schedule.
The stable state of the system. See: Attractor.
Equilibrium exchange rate
Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.
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.
Equilibrium price
The price when the supply of goods matches demand.
Equilibrium rate of interest
The interest rate that clears the market. Also called the trade-clearing interest rate.
Equipment leasing partnership
A limited partnership that receives income and tax benefits such as depreciation costs by purchasing equipment and leasing it to other parties.
Equipment trust certificates
Certificates issued by a trust that is formed to purchase an asset and lease it to a lessee. When the last of the certificates has been repaid, title and ownership of the asset transfers to the lessee.
Equitable owner
The beneficiary of a property held in a trust.
Ownership interest in a firm. Also, the residual dollar value of a futures trading account, assuming its liquidation is at the going trade price. In real estate, dollar difference between what a property could be sold for and debts claimed against it. In a brokerage account, equity equals the value of the account's securities minus any debit balance in a margin account. Equity is also shorthand for stock market investments.
Equity cap
An agreement in which one party, for an up-front premium, agrees to pay the other at specific time periods if a designated stock market benchmark tops a predetermined level.
Equity claim
Also called a residual claim; a claim to a share of earnings after debt obligations have been satisfied.
Equity collar
The simultaneous purchase of an equity floor and sale of an equity cap.
Equity contribution agreement
An agreement to contribute equity to a project under certain specified conditions.
Equity floor
An agreement in which one party agrees to pay the other at specific time periods if a specific stock market benchmark falls below a predetermined level.
Equity funding
An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, give the investor the advantages of insurance protection with the growth potential of a mutual fund.
Equity kicker
Stock warrants issued attached to privately placed bonds.
Equity-linked Eurobonds
A Eurobond including a convertibility option or warrant.
Equity-linked policies
Related: Variable life
Equity market
Related: stock market
Equity multiplier
Total assets divided by total common stockholders' equity; the total assets per dollar of stockholders' equity.
Equity options
Securities that give the holder the right (but not the obligation) to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.
Equity REIT
A Real Estate Investment Trust that assumes ownership status in the property it invests in enabling investors of the REIT to earn dividends on rental income from the property and appreciation in property resale. Antithesis of a Mortgage REIT.
Equity swap
A swap in which the cash flows exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or floating rate). Related: Interest rate swap.
Stockholders; those holding shares of the firm's equity.
Equivalent annual annuity
The amount per year for some number of years that has a present value equal to a given amount.
Equivalent annual benefit
The annual annuity with the same value as the net present value of an investment project.
Equivalent annual cash flow
Annuity with the same net present value as the company's proposed investment.
Equivalent annual cost
The cost per year of owning an asset over its entire life.
Equivalent bond yield
Annual yield on a short-term, noninterest-bearing security calculated for comparison to yields quoted on coupon securities.
Equivalent loan
Given the after-tax stream associated with a lease, the maximum amount of conventional debt that the same period-by-period after-tax debt service stream is capable of supporting.
Equivalent taxable yield
The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-exempt issue.
A negative impact on one or more of a firm's existing assets.
Escalator clause
Provision in a contract allowing cost increases to be passed on. In an employment contract, for example an escalator clause may call for wage increases in line with inflation.
Reversion of monies or securities to the state in which the securityholder was last known to reside, when no claim by the securityholder has been made after a certain period of time fixed by state law. This known as the holding period or cut-off date.
Escheat Period
The period of elapsed time required by applicable state law for property to be presumed abandoned.
The process of turning over unclaimed or abandoned property to a state authority. Escheatment laws require mutual funds to turn over uncashed or returned check dollars and/or client account fund shares if the owner cannot be located within a length of time determined by each state.
Property or money held by a third party until the agreed upon obligations of a contract are met.
Escrow receipt
A document provided by a bank in options trading to guarantee that the underlying security is on deposit and available for potential delivery.
Escrowed to Maturity (ETM)
Holding of the proceeds from a new bond issue to pay off an existing bond issue at its maturation date.
Essential purpose (or function) bond
See: Public purpose bond
Estate planning
The preparation of a plan to carry out an individual's wishes as to the administration and disposition of his/her property before or after his/her death.
Estate tax
A federal or state tax imposed on an individual's assets inherited by heirs.
Estimated tax
Tax to be paid quarterly on income that is not subject to withholding tax, including self-employed income, investment income, alimony, rent, and capital gains.
Ethical fund
See: Social conscious mutual fund.
Standards of conduct or moral judgment.
Euclidean Geometry
The Plane geometry we learn in high school, based upon a few ideal, smooth, symmetric shapes.
Originally for a deposit outside one's home country but in the home country currency. This terminology is confusing now since the new European currency unit, also called the Euro, was introduced on January 1, 1999.
Euro CDs
CDs issued by a US bank branch or foreign bank located outside the US Almost all Euro CDs are issued in London.
Eurodollar obligations
Certificates of deposit issued in US dollars by foreign banks and foreign branches of US banks.
Euro lines
Lines of credit granted by banks (foreign or foreign branches of US banks) for Eurocurrencies.
Euro straight
A fixed-rate coupon Eurobond.
A bank that regularly accepts foreign currency-denominated deposits and makes foreign currency loans.
A bond that is (1) underwritten by an international syndicate, (2) issued simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single country.
The Euroclear group is the world's largest settlement system for domestic and international securities transactions, covering both bonds and equities for financial institutions located in over 80 countries.
Euro-commercial paper
Short-term notes with maturities up to 360 days that are issued by companies in international money markets.
Eurocredit market
Comprises banks that accept deposits and provide loans in large denominations and in a variety of currencies. The banks that constitute this market are the same banks that constitute the Eurocurrency market; the difference is that Eurocredit loans are longer-term than so-called Eurocurrency loans.
Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and government borrowers.
Instrument issued outside your country, but denominated in your currency. A Eurodollar is a Certificate of Deposit in US dollars in some other country (though mainly traded in London). A Euroyen is a CD in yen outside Japan.
Eurocurrency deposit
A short-term fixed-rate time deposit denominated in a currency other than the local currency (i.e., US dollars deposited in a London bank).
Eurocurrency market
The money market for borrowing and lending currencies that are held in the form of deposits in banks located outside the countries where the currencies are issued as legal tender.
Refers to a certificate of deposit in US dollars in a bank that is not located in the US Most of the Eurodollar deposits are in London banks, but Eurodeposits may be anywhere other than the US Similarly, a Euroyen or Euro DM deposit represents a CD in yen or DM outside Japan and Germany, respectively.
Eurodollar bonds
Eurobonds denominated in U.S.dollars.
Eurodollar certificate of deposit
A certificate of deposit paying interest and principal in dollars, but issued by a bank outside the United States, usually in Europe.
Euroequity issues
Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate. Related: External market.
Euro-medium term note (Euro-MTN)
A nonunderwritten Euronote issued directly to the market. Euro-MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are under five years.
Created on March 1, 1996, Euro.NM is a pan- network of regulated markets dedicated to growth companies, regardless of their sector of activity or country of origin. Euro.NM member exchanges and their respective new markets consist of the Paris Stock Exchange (Le Nouveau Marché), the Deutsche Börse AG (Neuer Markt),  the Amsterdam Exchanges (NMAX), and the Brussels Stock Exchange (Euro.NM Belgium).
Short- to medium-term debt instrument sold in the Eurocurrency market.
Euroyen bonds
Eurobonds denominated in Japanese yen.
European, Australia, and Far East index (EAFE index)
Stock index, computed by Morgan Stanley Capital International.
European Association of Securities Dealers Automated Quotation (EASDAQ)
European equivalent of Nasdaq.
European Central Bank (ECB)
Bank created to monitor the monetary policy of the 11 countries that have converted to the Euro from their local currencies. The 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
European Currency Unit (ECU)
An index of foreign exchange consisting of European currencies, originally devised in 1979. See also: Euro.
European exchange rate mechanism (ERM)
The system that countries in the European Union once used to pay exchange rates within bands around an ERM central value.
European Exercise
A feature of an option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option.
European Monetary System (EMS)
A system adopted by European Community members with the aim of promoting stability by limiting exchange-rate fluctuations. The system was originated in 1979 by the nine members of the European Community (EC). The EMS comprised three principal elements: the European Currency Unit (ECU), the monetary unit used in EC transactions; the Exchange Rate Mechanism, ERM, whereby those member states taking part agreed to maintain currency fluctuations within certain agreed limits; and the European Monetary Cooperation Fund, which issues the ECU and oversees the ERM. The 1992 Maastricht Treaty provided for the move to Economic and Monetary Union (EMU) , including a European Monetary Institute to coordinate the economic and monetary policy of the EU, a European Central Bank (ECB) to govern these policies, and the presentation of a single European currency.
European option
Option that may be exercised only at the expiration date. Related: American option.
European Options Exchange (EOE)
Now AEX-Optiebeurs. See: Amsterdam Exchanges (AEX).
European-style exercise
A method of exercising options contracts in which the buyer can exercise the contract on the last day before expiration.
European-style option
An option contract that can be exercised only on the expiration date.
European terms
A foreign exchange quotation that states the foreign currency price of one US dollar.
European Union (EU)
An economic association of European countries founded by the Treaty of Rome in 1957 as a common market for six nations. It was known as the European Community until January 1, 1994 and currently comprises 15 European countries. Its goals are a single market for goods and services without any economic barriers, and a common currency with one monetary authority.
Evaluation period
The time interval over which funds assess a money manager's performance.
Even lot
See: Round lot
Evening up
Buying or selling to offset an existing market position.
Event anomalies
Occurrences such as earnings surprises or stock splits that seem to present opportunity to generate abnormal returns for those trading on the news.
Event driven
In the context of hedge funds, a style of management that combines many different types of hedge fund investing such as merger arbitrage, distressed securities and high yield investing, in conjunction with an important "event" that is supposed to unlock firm value (like a merger announcement, earnings announcement, or a regulator decision).
Event risk
The risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover, or corporate restructuring.
Event study
A statistical study that examines how the release of information affects prices at a particular time.
Events of default
Contractually specified events that allow lenders to demand immediate repayment of a debt.
Evergreen credit
Revolving credit without maturity.
Evergreen funding
A British term referring to the gradual injection of capital into a new or existing enterprise.
Ex Works (EXW)
seller's only responsibility is to make the ordered goods available to the buyer at the seller's premises. The buyer bears the cost and risk in transporting the goods from the seller's premises to destination. Since this includes pre- carriage and export clearance in the seller's country, EXW is not a very practical Incoterm for U.S. exports.
The sale of a security without the privileges associated with the security such as dividends, voting rights, or warrants.
Ex ante return
The expected return or anticipated return of an asset or portfolio.
Ex ante value
The forecasted rate of return.
A proxy which does not authorize the proxy committee to act on its behalf concerning any other business, adjournments or substitutions.
Exceptional Return
Residual return plus benchmark timing return. For a given asset with beta equal to one, if its residual return is 2%, and the benchmark portfolio exceeds its consensus expected returns by 1%, then the asset's exceptional return is 3%.
Excess accumulation
The amount of a required minimum distribution that an IRA holder fails to remove from an IRA in a timely manner. Excess accumulations are subject to a 50% IRS penalty tax.
Excess contribution
The amount by which an IRA contribution exceeds the allowable limits. If an excess contribution is not properly corrected, a 6% IRS penalty applies.
Excess reserves
Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves.
Exchange Ratio
The number of new shares in an acquiring firm that are timed for each outstanding share of an acquired firm.
This literally means "without dividend." The buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend. It is the interval between the record date and the payment date during which the stock trades without its dividend-the buyer of a stock selling ex-dividend does not receive the recently declared dividend. Antithesis of cum dividend (with dividend).
Ex-dividend date
The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. The date set by the NYSE (and generally followed on other US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is denoted by an x in newspaper listings on that date.
An individual or trust institution nominated in a will and appointed by a court to settle the estate of a deceased person.
A municipal bond offered without a law firm's legal opinion. As the majority of bonds are issued with legal opinions.
An employee who is a U.S. citizen living and working in a foreign country.
Ex-pit transaction
The purchase of commodities off the exchange's floor.
Ex post return
Related: Holding-period return
Shares of stock that are trading without rights attached.
Ex-rights date
The date on which a share of common stock begins trading ex-rights.
Ex-stock dividends
The time period between the announcement of a stock dividend and its actual payment. The buyer of shares during this time period does is not entitled to the dividend.
Describes a stock sale in which the buyer is not entitled to the warrant accompanying the stock.
Exact interest
Interest paid based on the basis of a 365-day/year schedule by a bank or other financial institution as opposed to a 360-day basis (ordinary interest). Difference can be material when large principal sums of money are involved.
Exact matching
A bond portfolio management strategy that involves finding the lowest cost portfolio generating cash inflows exactly equal to cash outflows that are being financed by investment.
Except for opinion
An auditor's opinion reflecting the fact that the auditor is unable to audit certain areas of the company's operations because of restrictions imposed by management or other conditions beyond the auditor's control.
Excepted rate of inflation
The public's exceptations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity.
Excess kurtosis
Kurtosis measures the "fatness" of the tails of a distribution. Excess kurtosis means that distribution has fatter tails than a normal distribution. Fat tails means there is a higher than normal probability of big positive and negative returns realizations.
Excess margin
Equity present in an individual's account above the legal minimum required for a margin account or the maintenance requirement at a brokerage firm.
Excess profits tax
Additional federal taxes placed on the earnings of a business, used only in time of national emergency such as war.
Excess reserves
Actual reserves that exceed required reserves.
Excess return on the market portfolio
Difference between the return on the market portfolio and the riskless rate.
Excess returns
Difference between asset return and riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.
A marketplace in which shares, options and futures on stocks, bonds, commodities, and indexes are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and National Association of Securities Dealers Automatic Quotation System (Nasdaq).
Exchange, The
A nickname for the New York Stock Exchange. Also known as the Big Board, where more than 2000 common and preferred stocks are traded. The exchange is the oldest in the United States, founded in 1792, and the largest. It is located on Wall Street in New York City.
Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.
Exchange controls
Government restrictions on the purchase of foreign currencies by domestic citizens or on the purchase of the local domestic currency by foreigners.
Exchange distribution
A sale on an exchange floor of a large block of stock in a single transaction. A broker bunches a large number of buy orders and sells the block all at once. The broker receives a special commission from the seller.
Exchange fund (also known as swap fund)
Investment vehicle introduced in 1999 that appeals to wealthy investors with large holdings in a single stock who want to diversify without paying capital gains taxes. These funds allow investors to exchange their stock for shares in the diversified portfolio of stocks in a tax-free transaction.
Exchange members
See: Member firm; seat
Exchange offer
An offer by a firm to give one security, such as a bond or preferred stock, in exchange for another security, such as shares of common stock.
Exchange privilege
A mutual fund shareholder's right to switch from one fund to another within one fund family, usually at no additional charge.
Exchange rate
The price of one country's currency expressed in another country's currency.
Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their currency exchange rates within an agreed-upon range with respect to other member countries.
Exchange rate risk
Also called currency risk; the risk that an investment's value will change because of currency exchange rates.
Exchange risk
The variability of a firm's value that results from unexpected exchange rate changes, or the extent to which the present value of a firm is expected to change as a result of a given currency's appreciation or depreciation.
Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.
Exchange Traded Funds
Also known as ETF. A basket of stocks similar to an index mutual fund. However, there are a number of important differences between ETFs and mutual funds. The ETF can be traded within the day, they can be shorted, purchased on margin and there even exists options on some ETFs.
Applies mainly to convertible securities. Means the issuer, if so stated, may substitute a convertible debenture for an existing convertible preferred with identical terms. Most often used when a corporation has an immediate need for equity capital and a low tax rate, and expects either or both conditions to change. This would make the debenture less attractive if the interest tax-deductibility is lost.
Exchangeable instrument
Applies mainly to convertible securities. Bond or preferred stock that may be exchangeable into the common stock of a different public corporation.
Exchangeable Security
Investment instrument that grants its holder the right to exchange it for the common stock of a firm other than the issuer of the instrument.
Excise tax
Federal or state tax placed on the sale or manufacture of a commodity, typically a luxury item e.g., alcohol.
Exclusionary self-tender
A firm's offer to buy a given amount of its own stock while excluding targeted stockholders.
In the context of general equities, having sole possession of the customer order/indication; not in competition with other dealers.
The process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the US between one (mutual funds) and five (stocks) days after an order is executed. Settlement times for exchange-listed stocks are in the process of being reduced to three days in the U. S. The time varies greatly across countries. In France, for example settlements are only once per month.
Execution costs
The difference between the execution price of a security and the price that would have existed in the absence of a trade, which can be further divided into market impact costs and market timing costs.
Exempt securities
Instruments exempt from the registration requirements of the Securities Act of 1933 or the margin requirements of the SEC Act of 1934. Such securities include government bonds, agencies, munis, commercial paper, and private placements.
Direct reductions from gross income allowed by the IRS.
To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.
Exercise limit
Cap on the number of option contracts of any one class of contract that can be exercised within a five-day period contract. Stock option's exercise limit is typically 2000 contracts.
Exercise notice
A broker's notification a client want to exercise a right to buy or sell (depending on the type of contract) the underlying security of the option contract.
Exercise price
The price at which the security underlying a future or options contract may be bought or sold.
Exercise settlement amount
The difference between the exercise price fo the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.
Exercise value
The amount of advantage over a current market transaction provided by an in-the-money option.
Exercising the option
The act of buying or selling the underlying asset via the option contract.
Exhaust price
The low price at which a broker must liquidate a client's holding in a stock purchased in a margin account in order to meet a margin call when the client cannot meet the call.
Exim bank
See: Export-Import Bank
Exit fee
See: Back-end load
Describes facts outside the control of the firm. Converse of endogenous.
Exogenous variable
A variable whose value is determined outside the model in which it is used. Related: Endogenous variable
Exotic option
Refers to options that are more complex than simple puts or call options. For example, a Caput is a call option on a put option.
Phase of the business cycle as it climbs from a trough toward a peak.
Expectations hypothesis theories
Theories of the term structure of interest rates, which include the pure expectations theory; the liquidity theory of the term structure, and the preferred habitat theory. These theories hold that each forward rate equals the expected future interest rate for the relevant period. These three theories differ, however, on whether other factors also affect forward rates, and how.
Expectations theory of forward exchange rates
A theory of foreign exchange rates that states that the expected future spot foreign exchange rate t periods from now equals the current t-period forward exchange rate.
Expected dividend yield
Total amount of dividends received during the life of a futures contract or total dividends received for holding a particular stock one year. See: Current yield.
Expected future cash flows
Projected future cash flows associated with an asset.
Expected future return
The return that is expected to be earned on an asset in the future. Also called the expected return.
Expected return
The expected return on a risky asset, given a probability distribution for the possible rates of return. Expected return equals some risk-free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic US Treasury bond) multiplied by the assets beta. The conditional expected return varies through time as a function of current market information.
Expected return-beta relationship
Implication of the CAPM that security risk premiums will be proportional to beta.
Expected return on investment
The return one can expect to earn on an investment. See: Capital asset pricing model.
Expected Spot Rate
The exchange rate between two currencies that is anticipated to prevail in the spot market on a given future date. It differs from the current spot rate primarily by the extent to which inflation expectations in the two currencies differ.
Expected value
The weighted average of a probability distribution. Also known as the mean value.
Expected value of perfect information
The expected value if the future uncertain outcomes could be known minus the expected value with no additional information.
Expense ratio
The percentage of the assets that are spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs, and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (OER).
Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year.
Experience rating
A technique insurance companies use to determine the correct price of a policy premium.
The time an option contract lapses.
Expiration cycle
Dates on which options on a particular security expire. A given option will be placed in one of three cycles; the January cycle, the February cycle, or the March cycle. At any time, an option has contracts with four expiration dates outstanding: two in near-term months and two in far-term months. Last day on which an option may be exercised.
Expiration date
The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the third Friday of the expiration month; brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.
Expiration time
The time of day by which all exercise notices must be received on the expiration date. Technically, the expiration time is currently 5:00PM on the expiration date, but public holders of option contracts must indicate their desire to exercise no later than 5:30PM on the business day preceding the expiration date. The times are Eastern Time. See also Expiration Date.
Explicit Bankruptcy Costs
Specific costs incurred during the bankruptcy process such as legal fees, court costs, consultants' fees, and document preparation expenses.
Explicit tax
A tax specifically collected by a government; includes income, withholding, property, sales, and value-added taxes and tariffs.
Exploding term sheet
Venture capital jargon. Often a proposed term sheet, might explode or be null and void in a fixed period set to negotiate the final contract.
Export Commodity Control List
A listing administered by the U.S. Department of Commerce of items requiring validated export licenses for shipment to some or all countries.
Export-import Bank (Ex-IM Bank)
The US federal government agency that extends trade credits to US companies to facilitate the financing of US exports.
Export financing interest
Interest income derived from goods manufactured in the US and sold outside the US as long as not more than 50% of the value is imported into the US
Export License
Permission from the exporter's government to export specific merchandise to a particular country.
Export management company
A foreign or domestic company that acts as a sales agent and distributor for domestic exporters in international markets.
Export Management Consultant (EMC)
A company serving as the export department of other firms. Normally, EMC's work on a commission basis and do not take title to the goods they export. Also see: Export Trading Company.
Export Trading Company (ETC)
A company serving as the export department of other firms. They usually take title, risk and responsibility for the goods they export.
Goods or services sold to parties in foreign countries.
Exposure netting
Offsetting exposures in one currency with exposures in the same or another currency, when exchange rates are expected to move in such a way that losses or gains on the first exposed position should be offset by gains or losses on the second currency exposure.
Expost average rate of return
The historical mean percentage an asset has yielded.
The official seizure by a government of private property. Any government has the right to seize such property, according to international law, if prompt and adequate compensation is given.
Used in the context of general equities. Remove any trace of an Auto indication's existence at any time. See: Cancel.
Extendable bond
Bond whose maturity can be extended at the option of the lender or issuer.
Extendable notes
Note with maturity that can be extended by mutual agreement between the issuer and investors.
Voluntary arrangements to restructure a firm's debt, under which the payment date is postponed.
Extension date
The day on which the first option either expires or is extended.
Extension swap
Extending maturity through a swap, e.g. selling a 2-year note and buying one with a slightly longer current maturity.
External efficiency
Related: Pricing efficiency
External finance
Funding that is not generated by a firm's operations: new borrowing or a stock issue.
External funds
Funds originating from a source outside the corporation to increase cash flow and to aid in expansion efforts, e.g., bank loan or bond offering.
External market
Also referred to as the international market, the offshore market, or, more popularly, the Euromarket. A mechanism for trading securities that at issuance (1) are offered simultaneously to investors in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: Internal market.
Retire or pay off debt.
Extra Dividend
A temporary increase in a firm's dividends beyond the normal level.
Extraordinary call
Early redemption of a revenue bond because the revenue source paying the interest on the bond has been eliminated or has disappeared.
Extraordinary item
An unusual and unexpected one-time event that must be explained to shareholders in an annual or quarterly report, e.g., write down for a discontinued operation, employee fraud, a lawsuit, or other one-time events. Results are often presented with and without these items. The logic of excluding these items is that investors a better notion of future performance if one-time events are excluded.
Extra or special dividends
A dividend that is paid in addition to a firm's established or expected quarterly dividend.
Extraordinary positive value
A positive net present value.
Extrapolative statistical models
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.

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Copyright © 2002, Campbell R. Harvey. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

[Version October 15, 2002.]

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