Campbell R. Harvey's Hypertextual Finance Glossary

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Fifth letter of a Nasdaq stock symbol specifying that it is the third preferred bond of the company.
See: Institutional Brokers Estimate System
See: International Banking Facility
See: International Bank for Reconstruction and Development
See: Information Coefficient
See: International Chamber of Commerce
The two-character ISO 3166 country code for INDONESIA.
The ISO 4217 currency code for the Indonesian Rupiah.
See: International Depository Receipt
The two-character ISO 3166 country code for IRELAND.
The ISO 4217 currency code for the Irish Punt.
See: International Finance Corporation
The two-character ISO 3166 country code for ISRAEL.
The ISO 4217 currency code for the Israeli Shekel.
See: International Monetary Fund
See: International Monetary Market
The two-character ISO 3166 country code for INDIA.
The ISO 4217 currency code for the Indian Rupee.
The two-character ISO 3166 country code for BRITISH INDIAN OCEAN TERRITORY .
See: Interest-only strip
IOC order
See: Immediate or canceled order
See: Index and Option Market
See: Investment Product Line
See: Initial Public Offering
The two-character ISO 3166 country code for IRAQ.
The ISO 4217 currency code for the Iraqi Dinar.
The two-character ISO 3166 country code for IRAN, ISLAMIC REPUBLIC OF.
See: Industrial Revenue Bond
The ISO 4217 currency code for the Iranian Rial.
See: Internal rate of return
The two-character ISO 3166 country code for ICELAND.
See: International Swap Dealers Association
The ISO 4217 currency code for the Icelandic Krona.
See: International Security Market Association
See: International Organization for Standardization.
The two-character ISO 3166 country code for ITALY.
The ISO 4217 currency code for the Italian Lira.
See: In-the-money
See: Intermarket Trading System
IBC's money fund report average
Report giving the average yield of all major money market funds.
Treasury savings bonds with a 30-year maturity indexed to account for inflation.
Identified shares
Stock or mutual fund whose purchase date and price may be identified for capital gains and tax purposes when shares sold.
Idiosyncratic Risk
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words, the risk that is firm-specific and can be diversified through holding a portfolio of stocks.
I-I page
In over-the-counter trading, same as H-H page, but exclusively for OTC stocks.
Illegal dividend
A corporation's dividend that is declared in violation of its charter and/or of state laws, typically because of the way it is calculated.
In the context of finance. absence of cash flow needed to fulfill financial debts and meet obligations. In the context of investments, describes a lightly traded investment such as a stock or bond that is not easily converted into cash.
Imbalance of orders
Used for listed equity securities. Too many market orders of one kind-buy or to sell or limit orders to buy up or sell down, without matching orders of the opposite kind. An imbalance usually follows a dramatic event such as a takeover, research recommendation, or death of a key executive, or a government ruling that will significantly affect the company's business. If it occurs before the stock exchange opens, trading in the stock is delayed. If it occurs during the trading day, the specialist halts and then suspends trading (with floor governor's approval) until enough matching orders can be found to make an orderly market.
Immediate or canceled order (IOC order)
Market or limited price order that is to be executed in whole or in part as soon as such order is represented in the trading crowd. The portion not executed is to be treated as canceled. A stop is considered an execution in this context. See: AON order, FOK order.
Immediate family
Term used in the NASD rules of fair practice to refer to one's parents, brothers, sisters, children, relatives supported financially, father-in-law, mother-in-law, sister-in-law, and brother-in-law.
Immediate payment annuity
An annuity contract paid by a single payment and with a specified payment plan the starts immediately after the contract is purchased.
Immediate settlement
Delivery and settlement of securities within five business days.
The construction of an asset and a liability match that benefits from offsetting changes in value.
Immunization strategy
A bond portfolio strategy whose goal is to eliminate the portfolio's risk, in case of a general change in the rate of interest, through the use of duration.
Impaired capital
When a company's total capital is less than the par value of all its capital stock.
Impaired credit
Result of a borrower's reduced credit rating.
Imperfect market
Economic environment in which the costs of labor and other resources used for production encourage firms to use substitute inputs that less costly.
Implicit Bankruptcy Costs
Opportunity costs incurred prior to the bankruptcy process such as the loss of sales or financing.
Implicit tax
Lower or higher before-tax required returns on assets that are subject to lower or higher tax rates.
Implied call
The right of the homeowner to prepay, or call, a mortgage at any time.
Implied repo rate
The rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date. Related: Cheapest to deliver issue.
Implied volatility
The expected volatility in a stock's return derived from its option price, maturity date, exercise price, and riskless rate of return, using an option pricing model such as Black-Scholes.
Import/export letters of credit
Bank or financial institution issuance's of funds in a certain amount provided to facilitate international trade.
Import Quota
Puts limits on the quantity of certain products that can be legally imported into a particular country during a particular time frame. There is a Fixed quota, which is a maximum quantity not to be exceeded, and tariff rate surcharge, which permits additional quantities but at much higher duty.
Import substitution development strategy
A development strategy followed by many Latin American countries and other LDCs that emphasize import substitution-accomplished through protectionism-as the route to economic growth.
Imputation tax system
Arrangement by which investors who receive a dividend also receive a tax credit for corporate taxes that the firm has paid.
Imputed interest
Used in accounting to refer to interest that has effectively been paid to a bondholder, even though no money has actually been paid.
Imputed value
Refers to the value of an asset, service, or company that is not physically recorded in any accounts but is implicit in the product, e.g., the opportunity cost of cash remaining in a savings account and not invested.
In between
Used in the context of general equities. Priced higher than the bid price but lower than the offer price. See: In the middle
In the box
Means that a dealer has a wire receipt for securities, indicating that effective delivery on them has been made.
In competition
Indication that the customer has revealed trading interest to multiple brokers and that the trade will take place with the firm having the highest bid or lowest offer. Antithesis of exclusive.
In hand
Used in the context of general equities. Firm indicating control of a bid, offer, or order.
In the hole
Used in the context of general equities. Below the inside market when one is attempting to sell the stock; at a significant discount. Antithesis of premium.
In the context of general equities, keeping an activity within the firm. For example, rather than go to the marketplace and sell a security for a client to anyone, an attempt is made to find a buyer to complete the transaction with the firm. Although a listed trade must be taken to the floor of the stock exchange, matching supply with demand within the confines of the firm results in higher commissions for the firm.
In-house processing float
The time it takes the receiver of a check to process a payment and deposit it in a bank for collection.
Used in the context of general equities. (1) An order or market in a specific security within the inside market; 2) any announcement (earnings) that adheres closely to Wall Street analysts' expectations.
In the middle
Used in the context of general equities. At a price exactly in between the bid and offer prices.
A put option that has a strike price higher than the underlying futures price, or a call option with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in the money by $0.50 an ounce. Related: Put. Antithesis of out-of-the-money.
In play
Often used in risk arbitrage. Company that has become the target of a takeover, and whose stock has now become a speculative issue.
In-the-money option
An option that has value.
In & out
Refers to over-the-counter trading. Trade in which the trader has both the buyers and sellers lined up for a clean trade. See: Cross
In-and-out trader
A daytrader, or a speculator who buys and sells the same security on the same day.
In the tank
Used in the context of general equities. Slang expression meaning market prices are dropping rapidly.
In touch with
Used in the context of general equities. Having a sell inquiry in a stock (not a firm customer sell order), often entailing a capital commitment. Antithesis of looking for.
In-substance defeasance
Process through which debt is removed from the balance sheet but not canceled.
Inactive asset
Asset not used in a productive manner at all times.
Inactive post
Trading post on NYSE floor where inactive, lightly traded stocks are traded in 10-share lots as opposed to 100-share lots.
Inactive stock/bond
A security that trades in very small volume on a daily basis. See:: Illiquid.
Incentive fee
Compensation paid to commodities trading advisers or to any practitioner who achieves above-average returns. Sometimes called performance fee.
Incentive Stock Option (ISO)
An Option that has met certain tax requirements entitling the optionee to favorable tax treatment. Such an option is free from regular tax at the date of grant and the date of exercise (when a non-qualified option would become taxable). If two holding period tests are met (two years between grant date and sale date and one year between the exercise date and sale date), the profit on the option qualifies as a long term capital gain rather than ordinary income. If the holding periods are not met, there has been a "disqualifying disposition".
Incestuous share dealing
Trading of shares between companies in order to create a tax or financial benefit for the companies involved.
Income baskets
Category to which certain income is allocated. Losses in one basket may not be used to offset gains in another basket. Specified in U.S. tax code.
Income beneficiary
One who receives income from a trust.
Income bond
A bond whose payment of interest is contingent on sufficient earnings. These bonds are commonly used during the reorganization of a failed or failing business.
Income dividend
Any payout to mutual fund shareholders resulting from interest, dividends, or other income.
Income exclusion rule
The IRS rule that excludes certain types of income from taxation, e.g., welfare payments.
Income fund
A mutual fund that seeks to provide to liberal current income from investments.
Income immunization strategies
Methodologies adopted to insure adequate future cash flow.
Income investment company
A management company focused on managing a mutual fund whose primary purpose is income generation, typically investing in bonds and high dividend yielding stocks.
Income limited partnership
A limited partnership whose main goal is income generation, e.g., real estate, oil equipment.
Income property
Real estate purchased for the reasons of income generation.
Income risk
The possibility that a portfolio's dividends will decline as a result of falling interest rates. Income risk is generally greatest for money market instruments and short-term bonds, and least for long-term bonds.
Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the difference between revenues and expenses) of a corporation over some period of time.
Income stock
Common stock with a high dividend yield and few profitable investment opportunities.
Income tax
A state or federal government's levy on individuals as personal income tax and on the earnings of corporations as corporate income tax.
Incontestability clause
Clause in a life insurance contract preventing the insurer from revoking the policy after it has been in force for a year or two if the life insurance company discovers any important facts that the policyholder may have concealed, such as experiencing a stroke.
A legal process through which a company receives a charter and the state in which it is based allows it to operate as a corporation.
Trade terms used worldwide to specify seller and buyer obligations in shipments against international sales contracts. These terms are adopted by the International Chamber of Commerce (ICC) for international movement of merchandise. Since they in themselves are not law, they must be specified if desired in quotations, sales contracts, purchase orders and commercial invoices.
Incremental cash flows
Difference between the firm's cash flows with and without a project.
Incremental cost of capital
Average cost applicable to the issue of each additional unit of debt and equity.
Incremental costs and benefits
Costs and benefits that would occur if a particular course of action is taken, compared to those that would have obtained if that course of action had not been taken.
Incremental internal rate of return
Internal rate of return (I.R.R.) on the incremental investment from choosing a larger instead of a smaller project.
Used in insurance policy agreements as to compensation for damage or loss. Hold harmless
Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgements resulting from lawsuits pertaining to their conduct.
Agreement between lender and borrower that details specific terms of the bond issuance. Specifies legal obligations of bond issuer and rights of bondholders. An indenture spells out the specific terms of a bond, as well as the rights and responsibilities of both the issuer of the security and the holder.
Independent auditor
A certified public accountant operating outside the company who can provide an accountant's opinion.
Independent broker
NYSE member who executes orders for floor brokers and firms other than its own.
Independent investments
Investments available to a firm that may be selected individually or in groups because each investment is different in its nature and purpose.
Independent project
A project whose acceptance or rejection is independent of the acceptance or rejection of other projects.
Independent variable
Term used in regression analysis to represent the element or condition that is expected to influence another (so-called dependent) variable.
Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month. Indexes measure the ups and downs of stock, bond, and some commodities markets, in terms of market prices and weighting of companies the index.
Index arbitrage
An investment/trading strategy that exploits divergences between actual and theoretical futures prices. An example is the simultaneous buying (selling) of stock index futures (i.e., S&P 500) while selling (buying) the underlying stocks of that index, capturing as profit the temporarily inflated basis between these two baskets. Often, the point at which profitability exists is expressed at the block call as the number of points the future must be over or under the underlying basket for an arbitrage opportunity to exist. See: Program trading.
Index fund
Investment fund designed to match the returns on a stock market index. Mutual fund whose portfolio matches that of a broad-based index such as the S&P 500 and whose performance therefore mirrors the market as represented by that index.
Index futures
A futures contract on an index (such as a foreign stock index) in the futures market.
Index method
Technique to calculate rates of return that is based on initial and terminal values.
Index model
A model of stock returns using a market index such as the S&P 500 to represent common or systematic risk factors.
Index option
A call or put option based on a stock market index.
Index and Option Market (IOM)
A division of the CME established in 1982 for trading stock index products and options.
Index swap
A swap of a market index for some other asset, such as a stock-for-stock or debt-for-stock swap.
Index warrant
A stock index option issued by either a corporate or a sovereign entity as part of a security offering, and guaranteed by an option clearing corporation.
Indexed bond
Bond whose payments are linked to an index, e.g., the consumer price index.
Indexed Stock Options
Options that have an exercise price which may fluctuate above or below market value at performance options in that the exercise price of indexed options typically remains variable until the option is exercised.
A passive instrument strategy calling for construction of a portfolio of stocks designed to track the total return performance of an index of stocks.
Indexing plus
See: Enhanced indexing
Indicated dividend
Total amount of dividends that would be paid on a share of stock over the next 12 months if each dividend were the same amount as the most recent dividend. Usually represented by the letter "e" in stock tables.
Indicated yield
The yield, based on the most recent quarterly rate times four. To determine the yield, divide the annual dividend by the price of the stock. The resulting number is represented as a percentage. See: Dividend yield.
(1) Notice given by a dealer (through Autex) or customer of an interest in buying or selling stock, sometimes including specific volume and price; (2) approximation of where a specialist sees buy and sell interest to tighten the range to an opening price.
Indication of interest
A dealer's or investor's interest in purchasing (not commitment to buy) securities that are still in the underwriting stage and are being registered by the Securities and Exchange Commission.
Indication pricing schedule
A statement of rates for an interest rate or currency swap.
Used in the context of general equities. Technical or fundamental measurement that securities analysts use to forecast the market's direction, such as investment advisory sentiment, volume of stock trading, direction of interest rates, and buying or selling by corporate insiders.
Indifference curve
The expression in a graph of a utility function, where the horizontal axis measures risk and the vertical axis measures expected return. The curve connects all portfolios with the same utility.
Indirect Claim
Claim of a financial intermediary; the intermediary relends funds to the deficit unit to enable it to acquire real assets.
Indirect costs of financial distress
Costs such as lost business as a result of bankruptcy or liquidation.
Indirect diversification benefits
Diversification benefits provided by the multinational corporation that are not available to investors through their portfolio investment.
Indirect Exchange Rate
The foreign currency price of one unit of the home currency.
Indirect method
Reporting in the statement of cash flow that adjusts or reconciles net income to cash from operations.
Indirect quote
For foreign exchange, the number of units of a foreign currency needed to buy one US dollar.
Indirect terms
The price of a unit of domestic currency in foreign currency terms. See: Direct terms.
Individual Retirement Account (IRA)
A retirement account that may be established by an employed person. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.
Individual Retirement Account (IRA) rollover
A provision of the law governing IRA's that enables a retiree or anyone receiving a lump-sum payment from a pension, profit-sharing, or salary reduction plan to transfer the amount into an IRA.
Individual tax return
A tax return filed by an individual to account for their personal income and taxes payable.
Inductive reasoning
The attempt to use information about a specific situation to draw a conclusion.
Industrial production
A statistic determined by the Federal Reserve Board focusing on the total output of all US factories and mines on a monthly basis. Used as an economic indicator.
Industrial revenue bond (IRB)
A bond issued by local government agencies on behalf of corporations.
General term used in the financial markets to refer to companies manufacturing, producing, or distributing goods and services.
The category describing a company's primary business activity. This category is usually determined by the largest portion of revenue.
Industry allocation
Investment of certain proportions of a portfolio in certain industries. Sometimes called sector allocation.
Inefficient portfolio
Group of assets dominated by at least one other portfolio under the mean variance rule. For example, if A has both lower return and higher volatility than B, we say A is dominated by B.
Infant industry argument
Argument that industries in the developing and emerging sectors of the economy need protection against international competition in order to establish themselves.
The rate at which the general level of prices for goods and services is rising.
Inflation accounting
Accounting practices allowing for the effects of inflation.
Inflation-escalator clause
A clause in a contract providing for increases or decreases in inflation depending on fluctuations in the cost of living, production costs, and so forth.
Inflation hedge
Investments designed to hedge against inflation and the loss of purchasing power associated with it.
Inflation-indexed securities
Securities such as bonds or notes that guarantee a return higher than the rate of inflation if the security is held to maturity.
Inflation risk
Also called purchasing power risk, the risk that changes in the real return the investor will realize after adjusting for inflation will be negative.
Inflation uncertainty
The fact that future inflation rates are not known. It is a possible contributing factor to the makeup of the term structure of interest rates.
Inflexible expenses
Expenses that cannot be adjusted or eliminated such as car payments or rental payments. Antithesis of flexible expenses.
Information Agent
Agent whose primary task is to disseminate and explain the details of capital transactions.
Information asymmetry
Condition that information is known to some, but not all, participants.
Information Coefficient (IC)
The correlation between predicted and actual stock returns, sometimes used to measure the contribution of a financial analyst. An IC of 1.0 indicates a perfect linear relationship between predicted and actual returns, while an IC of 0.0 indicates no linear relationship.
Information content effect
The rise in the stock price following a dividend signal, or publication of some other related news.
Information costs
Transactions costs that include the assessment of the investment merits of a financial asset. Related: Search costs.
Information-motivated trades
Trades in which an investor believes he or she possesses pertinent information not currently reflected in the stock's price.
Information Ratio
The ratio of annualized expected residual return to residual risk. A central measurement for active management, value added is proportional to the square of the information ratio.
Information services
Organizations that furnish investment and other types of information, such as information that helps a firm monitor its cash position.
Informational efficiency
The speed and accuracy with which prices reflect new information.
Information Signaling
Conveying intelligence through a firm's actions. A firm's dividend policy, for example, provides signals to investors concerning the value of the firm's stock.
Informational efficiency
The degree to which market prices correctly and quickly reflect information and thus the true value of an underlying asset.
Informationless trades
Trades that are the result of either a reallocation of wealth or an implementation of an investment strategy that acts only on existing information. That is, an investor might sell a large block of stock -- not because they have information that leads them to think the stock will fall in value -- but because they might need the cash for some other investment.
A country's fundamental system of transportation, communications, and other aspects of its physical capabilities.
A bar of metal such as the type that the Federal Reserve System uses to store gold reserves.
Inheritance tax return
Tax form required to determine the amount of state tax due on an inheritance.
Initial filing
Has various meanings. It could refer to a form that is filed with the Securities and Exchange Commission in advance of a major event, such as a public offering or a share repurchase. It could also refer to filings that occur before legal inside transactions.
Initial margin
(1) Amount of money deposited by both buyers and sellers of futures contracts to ensure performance of the terms of the contract; (2) amount of cash or eligible securities required to be deposited with a broker before engaging in margin transactions.
Initial margin requirement
When buying securities on margin, the proportion of the total market value of the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the Board of Governors of the Federal Reserve the responsibility to set initial margin requirements, but individual brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by the exchange.
Initial public offering (IPO)
A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. IPOs by investment companies (closed-end funds) usually include underwriting fees that represent a load to buyers.
Initial Public Offering Spinning
The practice of an investment bank setting aside portions of a corporation's Initial Public Offering for senior management of that corporation.
Initiate coverage
(1) Firm is now followed by analysts at a particular securities house; (2) Indication to cover short position by purchasing the underlying stock (this cancels out the short position).
Inland Bill of Lading
A document used as a receipt from the carrier to shipper that covers the transport of goods overland. It also acts as a contract of carriage.
Input-output tables
Tables that indicate how much each industry requires of the production of each other industry in order to produce each dollar of its own output.
Used in the context of general equities. In-line expression of interest in a particular stock, usually asking the firm to bid for or offer stock.
In-service withdrawal
A participant-initiated withdrawal from an employer-sponsored retirement plan while the participant is still employed by the company.
Inside market
Refers to over-the-counter trading. Best (highest) bid and best (lowest) offer, often used in the O.T.C. Market. See: In-line.
Insider information
Material information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.
Insider trading
Trading by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock.
Insider Trading Sanctions Act of 1984
Act imposing civil and criminal penalties for insider trading violations.
Insider Trading & Securities Fraud Enforcement Act of 1988 (ITSFEA)
Federal legislation that greatly increased the penalties for trading on material inside information.
These are directors and senior officers of a corporation-in effect, those who have access to inside information about a company. An insider also is someone who owns more than 10% of the voting shares of a company.
Insolvency risk
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
A firm that is unable to pay debts (its liabilities exceed its assets).
Inspector(s) of Election
The person(s) appointed by the Corporation to act as a judge on voting matters brought before a shareholder meeting. The inspector determines which proxies and ballots are in good form, and acceptable to be voted. They also count and record the votes, supervise and inspect the counting process and attest to the final results. They cannot be overruled on these matters, although they have no voice in the procedural aspects of the meeting itself.
Inspector’s or Judge’s Certificate
A form provided by the Corporation, and completed by the Inspectors of Election, attesting to the final voting results and percentages of a shareholder meeting.
Installment payments
Distribution of plan assets to beneficiaries based upon a regular schedule.
Installment sale
The sale of an asset in exchange for a specified series of payments (the installments).
Instinet (Institutional Networks Corporation)
Computerized subscriber service that serves as a vehicle for the fourth market. "Instinet" is registered with the SEC As a stock exchange it numbers among its subscribers a large number of mutual funds and other institutional investors linked to each other by computer terminals. The system permits subscribers to display bids and offers (which are exposed system wide for whatever length of time the initiating party specifies) and to consummate trades electronically. Instinet is largely used by market makers, but, nonmarket makers and customers have equal access.
An organization, probably very large, engaged in professional investing in securities. Normally a bank, insurance company, or mutual fund.
Institutional broker
A broker who buys and sells securities for institutional investors such as banks, and mutual funds, pensions.
Institutional Brokers' Estimate System (IBES)
Service that assembles analysts' estimates of future earnings for thousands of publicly traded companies, detailing how many estimates are available for each company and the high, low, and average estimates for each.
Institutional investors
Organizations that invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds.
The gradual domination of financial markets by institutional investors, as opposed to individual investors. This process has occurred throughout the industrialized world.
Notes issued by a federal agency whose obligations are guaranteed by the full-faith-and-credit of the government, even though the agency's responsibilities are not necessarily those of the US government.
Financial securities, such as money market instruments or capital market instruments.
Insurable interest
An insurance term referring to the relationship between a policy's insured person or property and the potential beneficiary. The beneficiary must have an insurable interest in the insured person or property to receive payment of the policy if the insured died while the policy was in force.
Guarding against property loss or damage making payments in the form of premiums to an insurance company, which pays an agreed-upon sum to the insured in the event of loss.
Insurance agent
The insurance company representative and adviser who sells insurance policies.
Insurance broker
A broker, independent of any insurance company, who represents the interests of the buyer in searching for insurance coverage at the lowest cost and providing the highest benefit to the buyer.
Insurance claim
A claim for reimbursement from the insurance company when the insured has suffered a loss that is covered under an insurance policy.
Insurance dividend
Money paid annually to policyholders participating in cash value life insurance policies.
Insurance policy
A contract detailing an insurance policy and outlining what risks are insured, what insurance premiums are to be paid by the policyholder, what deductibles prevail, and all the details associated with a policy.
Insurance premium
Payments calculated by the insurance company based on risk factors that must be made by the insured to guarantee protection of property loss under an insurance policy.
Insurance principle
The law of averages. The average outcome for many independent trials of an experiment will approach the expected value of the experiment.
Insurance settlement
The payment of proceeds by an insurance company to the insured to settle an insurance claim within the guidelines stipulated in the insurance policy.
The property or persons covered by an insurance policy.
Insured account
A bank or financial account that is insured for the benefit of the depositor, protecting against loss in the event that the savings institution becomes insolvent. See: FDIC.
Insured bond
A municipal bond backed both by the credit of the municipal issuer and by commercial insurance policies.
Insured plans
Defined benefit pension plans that are guaranteed by life insurance products. Related: Non-insured plans
Insured Trade Acceptance
A trade acceptance where the buyer's ability to pay is insured.
Intangible asset
A legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual property, patents, copyrights, and trademarks are examples of intangible assets.
Integer programming
Variant of linear programming in which the solution values must be integers.
Integrated financial market
A market in which there are no barriers to financial flows, and the same risk asset commands the same expected return, irrespective of domicile.
Intellectual property rights
Patents, copyrights, and proprietary technologies and processes that may be the basis of a company's competitive advantage.
Interbank market
Financial institutions exchange of currencies between and among themselves.
Interbank rate
Interbank spread
The difference between a bank's offer and bid rates for deposits in the Eurocurrency market.
Intercommodity spread
In the commodities market, a spread consisting of a long position and a short position in different but related commodities for example, speculating that the price relationship between the two commodities will change, e.g., platinum and gold.
Intercompany loan
Loan made by one unit of a corporation to another unit of the same corporation.
Intercompany transaction
Transaction carried out between two units of the same corporation.
Interdelivery spread
Used in futures or options market to refer the purchase of one month of a contract and selling another month in the same contract, in the hope that the price difference will widen or narrow, depending on the investment.
Interfund transactions
Financial arrangements effected by payments made from one fund group (either Federal funds or trust funds) to another group.
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property.
Interest coverage ratio
The ratio of earnings before interest and taxes to annual interest expense. This ratio measures a firm's ability to pay interest.
Interest coverage test
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's interest coverage would, as a result of the issue, fall below some specified minimum.
Interest deduction
An interest expense, such as interest on a margin account, that is allowed as a deduction for tax purposes.
Interest equalization tax
Tax on foreign investment by residents of the US which was abolished in 1974.
Interest expense
Interest expense is the money the corporation or individual pays out in interest on loans.
Interest in Arrears
Interest that is due only at the maturity date rather than periodically over the life of the loan.
Interest on interest
Interest earned on reinvestment of each interest payment on money invested. See: compound interest.
Interest-only loan
A loan in which payment of principal is deferred and interest payments are the only current obligation.
Interest-only strip (IO)
A security based solely on the interest payments from a pool of mortgages, Treasury bonds, or other bonds. Once the principal on the mortgages or bonds has been repaid, interest payments stop, and the value of the IO falls to zero.
Interest payments
Contractual debt payments based on the coupon rate of interest and the principal amount.
Interest rate
The monthly effective interest rate. For example, the periodic rate on a credit card with an 18% annual percentage rate is 1.5% per month.
Interest rate agreement
An agreement whereby one party, for an up-front premium, agrees to compensate the other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined level (the strike rate).
Interest rate cap
An interest rate agreement in which payments are made when the reference rate exceeds the strike rate. Also called an interest rate ceiling.
Interest rate on debt
The firm's cost of debt capital.
Interest rate ceiling
See: Interest rate cap
Interest rate floor
An interest rate agreement in which payments are made when the reference rate falls below the strike rate. Related: Interest rate cap.
Interest rate futures contract
A futures contract based on an interbank deposit rate or an underlying debt security. The value of the contract rises and falls inversely to changes in interest rates.
Interest rate parity theorem
Expression that the interest rate differential between two countries is equal to the difference between the forward foreign exchange rate and the spot rate.
Interest rate parity line (IRP)
Diagonal line on a graph that characterizes interest rate parity.
Interest rate risk
The chance that a security's value will change due to a change in interest rates. For example, a bond's price drops as interest rates rise. For a depository institution, also called funding risk: The risk that spread income will suffer because of a change in interest rates.
Interest rate swap
A binding agreement between counterparties to exchange periodic interest payments on some predetermined dollar principal, which is called the notional principal amount. For example, one party will pay fixed and receive variable.
Interest-sensitive insurance policy
A cash value life insurance policy whose insurance dividend rates vary with respect to inflation, enabling the policyholder to avoid the loss of purchasing power associated with inflation.
Interest-sensitive stock
Stocks whose earnings are dependent upon and change with the interest rate, e.g., bank stocks.
Interest subsidy
The value of a firm's deduction of the interest payments on its debt from its earnings before calculation of its tax bill under current tax law.
Interest tax shield
The reduction in income taxes that results from the tax-deductibility of interest payments.
Interim dividend
The declaration and payment of a dividend prior to annual earnings determination.
Interim financing
A short-term loan made to a company on the condition that a takeout will follow with long-term or intermediate financing.
Interim rate of return
The rate of return earned between cash flows.
Interim statement
A financial statement that reflects only a limited period of a company's financial statement, not the entire fiscal year.
Interlocking directorate
Describes cross-memberships of directors on each other's company Board of Directors.
Intermarket sector spread
The spread between the interest rate offered in two sectors of the bond market for issues of the same maturity.
Intermarket spread swaps
An exchange of one bond for another based on the manager's projection of a realignment of spreads between sectors of the bond market.
Intermarket Surveillance Information System (ISIS)
A database that distributes information from all the major stock exchanges in the United States.
Intermarket Trading System (ITS)
Electronic communications network linking the trading floors of seven registered exchanges to permit trading among them in stocks listed on either the NYSE or AMEX and one or more regional exchanges. Through ITS, any broker or market maker on the floor of any participating exchange can reach other participants for an execution whenever the nationwide quote shows a better price available. A floor broker on the exchange can enter an ITS order to assure excecution of all of an offering or bid, instead of splitting it with competing brokers.
See: Financial intermediary
Intermediate targets
An intermediate target is a variable (such as the money supply) that is not directly under the control of the central bank, but that does respond fairly quickly to policy actions, is observable frequently and bears a predictable relationship to the ultimate goals of policy.
Typically one-ten years.
Intermediate trend
General movement in price data that lasts from three weeks to six months.
Intermediated market
A financial market in which some financial institution stands between counterparties to financial transactions.
Investment through a financial institution. Related: Disintermediation.
When a non-linear dynamical system alternates between periodic and chaotic behavior. See: Chaos, Dynamical Systems.
Internal auditor
An employee of a company who analyzes the company's accounting records to that the company is following and complying with all regulations.
Internal expansion
Growth of assets resulting from internal financing or internally generated cash flow.
Internal finance
Finance generated within a firm by retained earnings and depreciation.
Internal growth rate
Maximum rate a firm can expand without outside sources of funding. Growth generated by cash flows retained by company.
Internal market
The mechanisms for issuing and trading securities within a nation, including its domestic market and foreign market. Compare: External market.
Internal measure
The number of days that a firm can finance operations without additional cash income.
Internal rate of return (IRR)
Dollar-weighted rate of return. Discount rate at which net present value (NPV) investment is zero. The rate at which a bond's future cash flows, discounted back to today, equal its price.
Internal Revenue Code
The various statutes and regulations making up federal tax law.
Internal Revenue Service (IRS)
The federal agency responsible for the collection of federal taxes, including personal and corporate income taxes, Social Security taxes, and excise and gift taxes.
Internal Revenue Service Restructuring and Reform Act of 1998
The legislation targeted at IRS reform, particularly related to the time period required for capital gains and taxpayer protection and rights.
Internally efficient market
See: Operationally efficient market
International arbitrage
Simultaneous buying and selling of foreign securities and ADRs to capture the profit potential created by time, currency, and settlement inconsistencies that vary across international borders.
International Asset Pricing Model (IAPM)
The international version of the CAPM assuming that investors in each country share the same consumption basket and purchasing power parity holds.
International Bank for Reconstruction and Development (IBRD)
IBRD or World Bank makes loans at nearly conventional terms to countries for projects of high economic priority.
International Banking Facility (IBF)
A branch that an American bank establishes in the United States to do Eurocurrency business.
International Bank for Reconstruction and Development (IBRD)
Also commonly called the World Bank. It is a United Nations affiliated institution that assists in the development of its poorer members by facilitating private investments, and by making and guaranteeing loans.
International bonds
A collective term that refers to global bonds, Eurobonds, and foreign bonds.
International Chamber of Commerce (ICC)
A business organization with membership from over 80 countries. They work to harmonize trade practices worldwide by establishing agreed upon rules such as Incoterms and Uniform Customs and Procedures for Documentary Credits.
International Depository Receipt (IDR)
A receipt issued by a bank as evidence of ownership of one or more shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR structure is that the corporation does not have to comply with all the issuing requirements of the foreign country where the stock is to be traded. The US version of the IDR is the American Depository Receipt (ADR).
International Development Association (IDA)
Association established to stimulate country development; it was especially suited for less prosperous nations, since it provided loans at low interest rates.
International diversification
The attempt to reduce risk by investing in more than one nation. By diversifying across nations whose economic cycles are not perfectly correlated, investors can typically reduce the variability of their returns.
International Finance Corporation (IFC)
A corporation owned by the World Bank that produces a number of well-known stock indexes for emerging markets. Its major role is to provide financing for projects in less developed countries.
International finance subsidiary
A subsidiary incorporated in the US, usually in Delaware, whose sole purpose once was to issue debentures overseas and invest the proceeds in foreign operations, with the interest paid to foreign bondholders not subject to US withholding tax. Elimination of the corporate withholding tax has ended the need for this type of subsidiary.
International Fisher effect
States that the interest rate differential between two countries should be an unbiased predictor of the future change in the spot rate.
International Fisher relationship
Theory that nominal interest rates and inflation rates in different countries are connected. The Fisher equation says the nominal interest rate is the product of one plus the real interest rate times one plus the expected rate of inflation.
International fund
A mutual fund that can invest only outside the United States.
International market
Related: External market
International market index
An index listed on the American Stock Exchange tracking the performance of 50 American Depository Receipts traded on the AMEX, NYSE, and NASDAQ.
International Monetary Fund (IMF)
An organization founded in 1944 to oversee exchange arrangements of member countries and to lend foreign currency reserves to members with short-term balance of payment problems.
International Monetary Market (IMM)
A division of the CME established in 1972 for trading financial futures. Related: Chicago Mercantile Exchange (CME)
International monetary system
The global network of government and commercial institutions within which currency exchange rates are determined.
International mutual fund
A mutual fund that invests strictly in securities markets throughout the world, excluding the United States. A global fund, on the other hand, invests in both foreign and domestic securities.
International Organization for Standardization
ISO is not an acronym but the name of a standards setting organization chartered by the United Nations. The name ISO is derived from Greek and connotes equality, i.e. each member country regardless of size or wealth gets only one vote. The ISO 4217 are the standard three letter currency codes. These codes are usually composed of the ISO 3166 two letter country code plus a third letter representing the name of the currency.
International Petroleum Exchange (IPE)
Energy futures and options exchange based in London.
International Security Market Association (ISMA)
Swiss law association located in Zurich that regroups all the participants on the Eurobond primary and secondary markets. Establishes uniform trading procedures in the international bond markets.
International Stock Exchange of the U.K. and the Republic of Ireland (ISE)
Organization that replaced the London stock exchange after its merger with the International Securities Regulatory Organization (ISRO).
International Swap Dealers Association (ISDA)
Formed in 1985 to promote uniform practices in the writing, trading, and settlement of swaps and other derivatives.
A method of approximating a price or yield that is unknown by using numbers that are known.
The practice of using a second broker in a securities transaction, which is considered illegal it is if used to generate additional commission.
Inter vivos trust
A trust created between living persons. Antithesis of a testamentary trust.
Intrabudgetary transactions
Effected when payment and receipt both occur within the budget, or when payment is made from off-budget federal entities whose budget authority and outlays are excluded from the budget totals.
Intracommodity spread
Used in the context of futures trading to refer to a trader holding, buying, and selling contracts in the same commodity on the same exchange, but for different months.
Intracompany trade
Transactions between or among subsidiaries that are part of the same parent company.
Term meaning "within the day," often to refer to the high and the low price of a stock.
Intramarket sector spread
The spread between two issues of the same maturity within a market sector. For instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility corporate bonds.
Intrastate offering
A securities offering limited to just one state in the United States.
Intrinsic value
The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which an option is in-the-money. For call options, this is the difference between the stock price, if that difference is a positive number, or zero otherwise. For put options it is the difference between the striking price and the stock price, if that difference is positive, and zero otherwise. See also: In-the-Money, Time Value Premium, Parity.
Intrinsic value of an option
The amount by which an option is in the money. An option that is not in the money has no intrinsic value.
Intrinsic value of a firm
The present value of a firm's expected future net cash flows discounted by the required rate of return.
For companies: Raw materials, items available for sale or in the process of being made ready for sale. They can be individually valued by several different means, including cost or current market value, and collectively by FIFO (First in, first out), LIFO (Last in, first out) or other techniques. The lower value of alternatives is usually used to preclude overstating earnings and assets. For securities firms: Securities bought and held by a broker or dealer for resale.
Inventory financing
Used in the context of factoring and general finance to refer to loans to consumer product producers that use inventory as collateral. See also: Inventory loan.
Inventory loan
A secured short-term loan to purchase inventory. The three basic forms are a blanket inventory lien, a trust receipt, and field warehousing financing.
Inventory turnover
A measure of how often the company sells and replaces its inventory. It is the ratio of annual cost of sales to the lastest inventory. One can also interpret the ratio as the time to which inventory is held. For example a ratio of 26 implies that investory is held, on average, for two weeks. It is best to use this ratio to compare companies within an industry (high turnover is a good sign) because there are huge differences in this ratio across industries.
Inverse floater
A derivative instrument whose coupon rate is linked to the market rate of interest in an inverse relationship.
Inverse floating-rate note
A variable-rate security whose coupon rate increases as a benchmark interest rate declines.
Inverted market
A futures market in which the nearer months are selling at price premiums to the more-distant months. Related: Premium.
Inverted scale
A serial bond offering whose bonds with earlier maturity dates have higher yields than bonds with later maturity dates.
Inverted yield curve
When short-term interest rates are higher than long-term rates. Antithesis of positive yield curve.
The creation of more money through the use of capital.
Investment adviser
A person or an organization that makes the day-to-day decisions regarding a portfolio's investments. Also called a portfolio manager.
Investment Advisers Act
Legislation passed in 1940 requiring financial advisers to register with the Securities and Exchange Commission. The measure was enacted to protect the public from fraud or misrepresentation by investment advisers.
Investment advisory service
A business that specializes in providing investment advice for a fee. All advisers of an advisory service must be registered with the Securities and Exchange Commission.
Investment agreement
An contract specifying the rights and responsibilities of a host government and a corporation in the structure and operation of an investment project.
Investment analysts
Related: Financial analysts
Investment bank
Financial intermediaries who perform a variety of services, including aiding in the sale of securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and institutional clients, and trading for their own accounts. See: Underwriters.
Investment certificate
A document that serves as proof that an individual has an investment in a savings and loan association.
Investment climate
Factors such as economic, monetary, and other conditions that affect the performance of investments.
Investment club
A group of people who combine their money into a larger pool, then invest collectively in stocks and bonds, making decisions as a group.
Investment company
A firm that that invests the funds of investors in securities appropriate for their stated investment objectives in return for a management fee. See also: Mutual fund.
Investment Company Act of 1940
Legislation that requires investment companies to register with the SEC and that outlines standards by which they must operate.
Investment Company Institute (ICI)
A national industry group of investment companies, including mutual funds, founded in 1940.
Investment decisions
Decisions concerning the asset side of a firm's balance sheet, such as the decision to offer a new product.
Investment-grade bonds
A bond that is assigned a rating in the top four categories by commercial credit rating companies. S&P classifies investment-grade bonds as BBB or higher, and Moody's classifies investment grade bonds as Baa or higher. Related: High-yield bond.
Investment history
The history of a member firm that establishes certain norms in respect of its investment practice.
Investment income
The revenue from a portfolio of invested assets.
Investment letter
A letter of intent between the issuer of new securities and the buyer, in the private placement of these new securities. The letter of intent establishes that the securities are being bought for a minimum time period and are treated as an investment, not for resale. If no such letter exists, the securities must be registered with Securities and Exchange Commission.
Investment management
The process of managing money. Also called portfolio management and money management.
Investment manager
The individual who manages a portfolio of investments. Also called a portfolio manager or a money manager.
Investment objective
The financial objective of an investor. Whether the investor requires income or capital appreciation, for example. The investor's objective governs the investment strategy.
Investment opportunity set
The universe of choices as to investments available to an individual or corporation.
Investment philosophy
The style and general ideology of investment practiced by an investor. Certain investors favor small-capitalization stocks, while others prefer large blue-chip stocks, for example.
Investment policy
Statement of objectives and constraints for an individual's or organization's approach.
Investment product line (IPL)
The line of required returns for investment projects as a function of beta (nondiversifiable risk).
Investment Risk
Uncertainty about the future benefits to be realized from an investment.
Investment Valuation Model (IVM)
The basic mathematical technique of finance that calculates the value of an investment as the present value of all future cash flows expected to be generated by the investment.
As a discipline, the study of financial securities, such as stocks and bonds, from the investor's viewpoint.
Investment software
Computer software that helps investors make investment decisions by identifying situations that meet programmed parameters.
Investment strategy
A strategy, or plan of attack, an investor uses when deciding how to allocate capital among several options including stocks, bonds, cash equivalents, commodities, and real estate. The strategy should take into account the investor's tolerance for risk as well as future needs for capital.
Investment strategy committee
A committee within a brokerage firm that conducts research and makes recommendations on the firm's stated investment strategy.
Investment Tax Credit
Proportion of new capital investment that could be used to reduce a company's tax bill (abolished in 1986).
Investment trust
A closed-end fund regulated by the Investment Company Act of 1940. These funds have a fixed number of shares that are traded on the secondary markets, like corporate stock. The market price may exceed the net asset value per share, in which case shares are selling at a premium. When the market price falls below the (NAV)/share, shares are selling at a discount. Many closed-end funds are of a specialized nature; the portfolio represents a particular industry or, country. These funds are usually listed on US and foreign exchanges.
Investment value
Applies mainly to dealer securities. Fixed income value of a convertible, the price at which the convert would have to sell as a straight debt instrument relative to the yield of other bonds of like maturity, or size, and quality; represents a presumed floor to the bond, assuming the continued creditworthiness of the issuer and the general level of interest rates. Bond value. See: conversion value.
The owner of a financial asset.
Investor fallout
In the mortgage pipeline, risk that occurs when the originator commits loan terms to the borrowers and gets commitments from investors at the time of application, or if both sets of terms are made at closing.
Investor relations
The process by which the corporation communicates with its investors.
Investor's equity
The balance of a margin account. Related: Buying on margin, initial margin requirement.
Investors service bureau
NYSE service that deals with all general inquiries concerning securities investments.
Bill written by a seller of goods or services and submitted to a purchaser for payment.
Invoice billing
Billing system in which invoices are sent off at the time of customer orders and are all separate bills to be paid.
Invoice date
Usually the date when goods are shipped. Payment dates are set relative to the invoice date.
Invoice price
The price that the buyer of a futures contract must pay the seller when a Treasury bond is delivered.
Involuntary liquidation preference
A premium that must be paid to preferred or preference stockholders if the issuer of the stock is forced into involuntary liquidation.
IPO Spinning
See Initial Public Offering Spinning.
IRA/Keogh accounts
Special accounts that allow saving taxes deferred until money is withdrawn. These plans are subject to frequent changes in law with respect to the deductibility of contributions. Withdrawals of tax-deferred contributions are taxed as income, including the capital gains from such accounts.
Irredeemable bond
A bond lacking a call feature or a right of redemption. Also refers to a perpetual bond.
Irrational call option
The implied call imbedded in a MBS. Irrational because the call is sometimes not exercised when it is in the money (interest rates are below the threshold to refinance), and sometimes exercised when it is not in the money. Option exercise like this affects payments on the MBS.
Irrelevance result
The Modigliani and Miller theorem that a firm's capital structure is irrelevant to the firm's value.
Irrevocable letter of credit
Assurance of funds issued by a bank that cannot be canceled or amended without the beneficiary's approval.
Irrevocable trust
A trust that is unable to be amended, altered, or revoked.
A particular financial asset.
Issued share capital
Total amount of shares that have been issued. Related: Outstanding shares.
An entity that puts a financial asset in the marketplace.
Issuing bank
Bank that issues a letter of credit.
Istanbul Stock Exchange
The sole securities exchange in Turkey.
Italian Derivatives Market (IDEM)
A derivatives market operated by the Italian Stock Exchange Council. It trades futures and options on the 30 index and individual stock options. See: Italian Stock Exchange.
Italian Exchange (Borsa Italiana)
Italy's major securities exchange.
Italian Stock Exchange (ISE)
The Milan-based stock exchange, which came into effect after the unification of Italy's ten national exchanges in 1991. All listed securities are traded electronically. The main indexes are the MIB and the MIBTEL, based on the prices of all listed shares, and the MIB 30, based on a sample of the 30 most liquid and highly capitalized shares.
Itemized deduction
Specific deductions allowed by the IRS outlined in the tax return.
"It's us,"
Used in the context of general equities. "The firm, and not a customer, is the party involved."

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

[Version November 5, 2002.]

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