Definitions Flashcards
A type of employer-sponsored pension plan that does not allow the employee to determine the amount of the eventual pension benefit in advance. The benefits received depends on how successfully the contributions have been invested over the years. Employers and employees both contribute.
Defined contribution plan
A decrease in the general price level of goods and services in a country. Deflation occurs when the inflation rate falls below 0%.
Deflation
A security whose value is determined by the value of some other security or asset. Example: option or future.
Derivative
A mutual fund company that has it’s own centralized order-taking department and sales staff is said to engage in this.
Direct distribution
Hedge fund strategies that bet on anticipated movements in the market prices of equities, debt securities, foreign currencies and commodities.
Directional strategies
Holds the ultimate responsibility for a mutual fund’s activities, ensuring that the investments are in keeping with the fund’s investments objectives. Also, a person elected by voting common shareholders at the annual meeting to direct company policies.
Director
Includes insider reports, regular corporate financial reports, timely disclosure of material changes in the affairs of a company and examination of all prospectuses to ensure that ________ is full and plain. This allows investors to make informed decisions.
Disclosure
Occurs when the price of a mutual fund is below its net asset value.
Discount
The amount of money coming in from employment and other sources minus the amount of money going out to pay bills.
Discretionary income
Any purchase or sale where the sales representative determines the timing and or price of a sale or purchase.
Discretionary trading
Profits of a company that are distributed to shareholders in direct proportion to the number of shares held.
Dividend
A type of fixed-income fund that holds dividend paying common shares and possibly preferred shares. These funds are distinguished from preferred dividend funds by the fact that they tend to hold mostly common shares.
Dividend fund
The dividends received from an investment in common and preferred shares
Dividend income
Refers to the preferential tax treatment granted to dividend income received from taxable Canadian Corporations. The dividend is grossed up by 38% and the tax credit of 15.02% is calculated on this amount.
Dividend tax credit (dtc)
A transfer of deposits from chartered banks to the Bank of Canada.
Drawdown
A measure of a bond or bond portfolio’s sensitivity to change in interest rates. The higher (lower) the duration, the greater (smaller) the change in the value of a bond in response to a given change in interest rates.
Duration
A legal obligation imposed on mutual funds representatives requiring that they adhere to a standard of care while performing acts that could foreseeably harm others.
Duty of care
For an individual it includes all income from employment but excludes income from investments and any pension or unemployment benefits received
Earned income
A shareholder ratio that is calculated by dividing net income by the number of common shares outstanding.
Earnings per common share (eps)
A summary of the firm’s business activities over a given time period. It outlines the revenues earned, and deducts all of the expenses incurred to earn those revenues to arrive at the net income.
Earnings statement
These are a group of statistics that provide information about the direction and level of activity of the economy.
Economic indicators
In the case of mutual funds, the benefits derived from paying a lower cost per unit when buying securities in larger volumes.
Economies of Scale
In the case of money market mutual funds, this calculation makes the assumption that the yield generated over the last 7 days will remain constant for one year in the future. It assumes weekly compounding of returns at that rate.
Effective yield
The prices of stocks or securities reflect all of the information that may exist about those stocks or securities.
Efficient market
Data recorded or stored in a computer system or other similar device and that can be read or perceived by a person or a computer system or other similar device. This includes displays, printouts and other output of that data.
Electronic document
The opposite illogical or distorted reasoning. Often involuntary, relating to feelings, perceptions or beliefs about elements, objects or relations between them, in reality or in the imagination.
Emotional bias
People who are subject to this bias place more value on an asset they hold property rights to than on an asset they do not hold property rights to.
Endowment bias
This type of fund seeks out smaller firms that are expected to pay little or no dividends and to produce significant capital gains as their share prices increase. Tend to have a lot of volatility and are suitable for investors with high risk tolerance.
Equity growth funds
Has the primary goal of earning capital gains by constructing a portfolio designed to mimic a particular stock market index – often the s&p tsx index in Canada
Equity index funds
An investment instrument that provides an ownership stake in a company
Equity instruments
Seeks to earn some combination of current dividend income and capital gains. It generally invests in common shares of larger firms with strong dividend records and limited capital gain potential.
Equity mutual fund
A type of specialized mutual fund that restricts its investments based on some ethical or moral issue
Ethical fund
Hedge fund strategies that seek to profit from unique events such as mergers, acquisitions, stock splits and stock buy backs.
Event-driven strategies
The possibility of returns above those needed to compensate for the risk of an investment. Undervalued stocks offer this possibility.
Excess returns
The risk that an unexpected change in exchange rates will alter the value of foreign assets or cash payments expected from a foreign source
Exchange rate risk
Baskets of securities traded like individual stocks on an exchange. Similar to index mutual funds on that they will primarily invest in the equities of companies that compose the target index, but the way this is structured allows it to be far more tax efficient than an index mutual fund
Exchange traded funds (etf)
The market for securities sold without prospectus
Exempt market
The phase of the economic cycle that follows the trough. During this phase economic activity increases.
Expansion
A monetary policy that seeks to increase the size of the money supply.
Expansionary policy
One of the two methods used to calculate gross domestic product. With this method GDP is obtained by totaling all spending in the economy.
Expenditure approach
Costs that are directly borne by the investor. They fall into three categories, management fees, operating expenses, and sales charges
Explicit costs
A cost or benefit not taken into account when pricing a Good or service.
Externalities
All relevant information that might have an impact on an investor’s decision to buy or sell must be fully disclosed
Fairness
Bases the pension on an employee’s length of service and average earnings over a stated period of time. Often this is the average of the best five consecutive years of earnings in the last ten years of employment.
Final average plan
An inter-governmental body whose purpose is to develop and promote national and international policies to combat money laundering and terrorist financing
Financial action task force FAFT
Include the size if the clients investment portfolio, employment and investment income, whether the source of employment income is secure, and the level of periodic expenses incurred.
Financial circumstances
A client’s reasons for selecting a given investment. May be expressed in terms of the types of desired returns (growth, interest etc) or in terms of desires investment characteristics such as safety or liquidity
Financial goals and objectives
Suppliers and users of capital access the markets through the chartered banks, trust companies, life insurance companies, and investment dealers. Can be deposit-taking or non deposit-taking
Financial intermediaries
A visual aid that can be used to help build a financial plan and prioritize decision making around asset choices.
Financial planning pyramid
The process of examining and working with the firm’s financial accounting information in order to assess value and financial soundess.
Financial statement analysis
This encompasses all of the diverse financial activities that take place in the country. It refers to the process through which capital flows from the suppliers through the various financial intermediaries to the eventual users of capital, all under the surveillance of the regulatory bodies.
Financial system
Risks associated with the direction of interest rates, equities, currencies and commodities. Broadly speaking it refers to market-induces risk or systemic risk.
First order risks
A deliberate action by a government to influence the economy through changes either in spending or in taxation initiatives.
Fiscal policy
Assets that are expected to last longer than one year.
Fixed assets
A type of systemic withdrawal plan that allows investors to receive a periodic fixed amount of money through the redemption of units of their mutual fund.
Fixed-dollar (constant) withdrawal plan
Consists of fixed-income securities. Fixed-income funds share the goal of generating current income.
Fixed-income mutual funds
Securities that generate predetermined periodic interest or dividend income. They include government and corporate bonds, mortgages and preferred shares.
Fixed-income securities
A systemic withdrawal plan that allows the mutual fund investor to receive money such that over a specified Period the mutual fund will be completely paid out.
Fixed-period withdrawal plan
An unmanaged pool of debt securities that all mature at the same time. The pool is created by an investment dealer who then sells units of the pool to investors. Unlike a bond fund, this pool has a limited life
Fixed trust
An employee’s monthly pension is a specified number of dollars for each year of service.
Flat benefit plan
To estimate the cash flow to be earned during the year as well as the price you think you could sell a security for at the end of the year.
Forecast
The market for currencies of different countries. As with the OTC market, this market is an interconnected computer network.
Foreign exchange market
An agreement to buy or sell a currency, a commodity, an index, or a security at a specific price at some point in the future. Although delivery is not until the expiry date, the price is determined at initiation of the contract thereby guaranteeing a price for the underlying asset on a given date. Not standardized and not traded on organized exchanges.
Forward contract
The correct method of calculating the price that an investor will pay for a mutual fund unit. It involves using the unit price at the close of business in the day the order is placed.
Forward pricing
Individuals who buy and sell mutual fund units actively, sometimes holding positions for as little as one day.
Frequent trader
This is assessed by some mutual funds to discourage investors from redeeming their units shortly after purchase or from switching between funds.
Frequent trading charge
The result of the labour turnover in a normal, healthy, economy, where people enter and leave the workforce and jobs are created and terminated.
Frictional unemployment
The investment objectives that define both the fundamental nature of the mutual and the fundamental investment features of the mutual fund that distinguishes it from other mutual funds.
Fundamental investment objectives
Provides day to day supervision of the fund’s investment portfolio
Fund manager
The investor owns units of a pool of mutual funds.
Fund of funds
The mutual fund investment firm
Fund sponsor
A program that provides a series of portfolios with multiple mutual funds to reflect pre-selected asset allocation models.
Fund wrap
Security analysis that attempts to determine the true or intrinsic value of a security by examining the fundamentals such as sales, earnings, economic changes, competitive forces and management.
Fundamental analysis
Contracts in which investors agree to take delivery or deliver goods (or securities) at a particular future date at a predetermined price.
Futures
A transferable agreement to deliver or take delivery of a fixed quantity of an asset for a specific price by a specific future date.
Futures contract
A type of global mutual fund that earns dividends and capital gains.
Global equity funds
These funds offer international diversification by investing in the economies of specific countries or regions anywhere in the world, including Canada.
Global funds
Contracting to sell the underlying asset at the settlement date.
Going short
A debt security that is issued by the federal, provincial and municipal governments in order to finance public spending. These bonds trade OTC, they have wide range of maturities and little to no default risk.
Government bond
Mutual funds that specialize in investing in companies that produce technologies for alternative or renewable energy such as wind turbines and solar batteries.
Green investing
The market value, in current dollars, of all goods and services produced within a country in one year. Includes the value of all goods produced by Canadians and foreigners in Canada but not of Canadians abroad.
Gross domestic product
The market value in current dollars of all goods and services produced in a country in one year. Includes the goods and services produced by Canadians abroad but not foreigners in Canada.
Gross national product
The excess of sales revenues over the costs that were incurred to produce or acquire the goods that were sold.
Gross profit
A value approach to buying earnings growth. Like growth managers, these managers seek companies with projections of growing earnings and high increasing returns on equity relative to the industry average. They avoid stocks with high price/earning ratios and price to book ratios
Growth at a reasonable price GARP
A form of equity investing that is more concerned about the future prospects of a firm than it’s present price
Growth investing
A deposit instrument most commonly available from trust companies, requiring a minimum investment at a predetermined rate of interest for a stated term. Generally not redeemable prior to maturity.
Guaranteed investment certificate
Lightly regulated pools of capital rub by managers that have great flexibility in applying their investment strategies.
Hedge funds
The process of reducing the risk of loss from fluctuations in the market prices – effectively locking in the value of a portfolio. Derivative securities can be used for this purpose.
Hedging.
A fund manager is paid an incentive fee only on new net profits. It sets the bar above which a fund manager is paid incentive fees.
High water mark
Examines each stock in the portfolio and maps it to a specific style at a specific point in time.
Holdings-based style analysis
The rate that a hedge fund must earn before its manager receives an incentive fee. Usually based on short term interest rates to reflect the opportunity cost of holding risk-free assets such as t-bills.
Hurdle rate
Securities, usually preferred shares, that have features of both shares and common bonds.
Hybrid security
Trading costs which are measured by brokerage fees and turnover
Implicit cost
Fees that are usually calculated after the deduction of management expenses and fees and not on gross return earned by a manager.
Incentive fees
One of the two methods used to calculate GDP. With this method GDP is determined by totaling all income earned in the economy.
Income approach
An investment trust created to purchase and hold interests in the opportune assets of a company b
Income trust
The analysis of an industry including how products are produced, the critical cost factors of production, and whether new products are likely to have an impact on the current competitive structure of the industry.
Industry analysis
A generalized, sustained trend of rising prices.
Inflation
An issuing by a company that has never issued shares before. Requires an estimate of appropriate offering price off the shares.
Initial Public Offering IOP
An individual with inside information of material significance about his company that has not been made available to the public.
Insider
A financial leverage ratio that reveals the ability of a company to repay the interest charges on its debt and indicates how well these charges are covered based on earnings.
Interest coverage ratio
A fixed-income investment philosophy that involves moving between long term government bonds and very short term T-bills based on a forecast of interest rates over a certain time
Horizon. Price sensitivity to interest rates increases as the term to maturity increases and the coupon decreases.
Interest rate anticipation
Income earned on fixed-income securities.
Interest income
The basic feature is that as interest rates rise, the price of fixed-income securities falls.
Interest rate risk
An operating performer ratio that measures the number of times a company’s inventory is turned over in a year.
Inventory turnover ratio
Responsible for hiring investment managers and ongoing distribution of funds.
Investment company
Offers investors an interest in a pool of securities.
Investment fund
Their role is to ensure the suitability of an investment product and to suggest investment products that are suitable.
Investment guide
The length of time within which an investor expects a given investment to satisfy his investment or return objectives.
Investment horizon
The Canadian investment industry’s national self-regulatory organization. They set up and enforce rules regarding proficiency, business and financial conduct of dealer firms and their employees, setting and enforcing market integrity rules regarding trading activity.
Investment industry regulatory organization. IIROC
Is responsible for constructing and managing the investment portfolios that make up the various mutual funds managed by an investment company.
Portfolio manager/investment manager
The statement thAt guides the overall asset management of the mutual fund portfolios.
Investment policy statement
The fundamental characteristic is that it is a diversified collection of securities.
Investment portfolio
The price paid per unit of a mutual fund.
Unit fund
Stocks in general, and smaller stocks in particular move abnormally high in the month of January
January effect
The mutual fund advisor must do their due diligence to learn essential facts relevant to every client and every order. Information concerning a clients financial status, family and other commitments, as well as goals is required to make an appropriate investment recommendation.
Know your client
Understand the characteristics (risk, level, fees, type of income generated, tax consequences) of all the funds offered for sale.
Know your product
Type of investment fund sponsored by labour unions, that invest in unproved firms. Offer the possibility of tax reduction.
Labour-sponsored venture capital funds
An economic indicator that measures the change after an economy has passed through a phase of the business cycle.
Lagging indicators
The tendency of consumers to buy more of a good when it’s price decreases and less when it increases.
Law of demand
The tendency of suppliers to offer more of a good at a higher price and less of a good at a lower price.
Law of supply
An economic indicator that helps to determine which phase of the business cycle is likely to occur in the future.
Leading indicators
The responsibility of an advisor to ensure that each client buys only
Suitable investments.
Legal responsibility
The use of borrowed funds to invest.
Leverage
An annuity whose payments are guaranteed as long as the annuitant lives.
Life annuity
A termination option available to holders of locked-in pension funds such as LIRA. Similar to a RRIF but it has both a maximum and minimum
Withdrawal requirement. Funds from a standard RRSP cannot be transferred to this.
Life income fund LIF
Similar to the fixed-period plan except that the period selected is the expected remaining lifetime of the investor.
Life withdrawal plan
An order to buy or sell a security at a specific price or better.
Limit order
Refers to the readiness with which an asset can be sold without requiring the seller to make a large price concession.
Liquidity
Sales commission charged to individual investors.
Load
When a registered pension plan is terminated prior to retirement plan funds may be transferred into this. The funds cannot be withdrawn until the investor reaches a certain age.
Locked-in retirement account
Refers to the market for securities with a remaining life or maturity of more than one year.
Long term capital market
Securities with a remaining maturity of more than one year.
Longer-term security
This involves buying a security when you are expecting the price to increase.
Long transactions
A strong impulse to avoid losses than to acquire gains.
Loss aversion
The field of assessing the performance, structure and behaviour of the economy as a whole.
Macroeconomics
Involves actively trading derivatives products and strategies on physical commodities, financial assets and currencies.
Managed funds
A calculation that is required under national instrument 81-102. It allows investors to compare the level of management fees and expenses from one fund to another.
Management expense ratio MER
The amount that an investor is requires to leave on deposit when using borrowed funds to purchase securities. Usually a fixed percentage of the value of the security.
Margin
This occurs when an investor who has purchased securities on a margins is required to deposit additional funds to his account usually the result of a decline in price.
Margin call
Refers to the rate of tax to be paid on the next dollar of income earned from any source.
Marginal tax rate
Bonds for which there is a ready market (i.e. Clients will buy them because the prices and features are attractive).
Marketable growth bond
