Definitions Flashcards
Trend
A long-term pattern of movement in a particular direction.
European-style
Said of an option contract that can only be exercised on the option’s expiration date.
Triple bottoms
In technical analysis, a reversal pattern that is formed when the price forms three troughs at roughly the same price level; used to predict a change from a downtrend to an uptrend.
Ratio scales
A measurement scale that has all the characteristics of interval measurement scales as well as a true zero
point as the origin.
Average revenue
Total revenue divided by quantity sold.
Universal owners
Long-term investors, such as pension funds,
that have significant assets invested in globally diversified
portfolios.
Free trade
When there are no government restrictions on a country’s ability to trade.
Plain vanilla bond
Bond that makes periodic, fixed coupon payments during the bond’s life and a lump-sum payment of principal at maturity. Also called conventional bond.
Loss aversion
The tendency of people to dislike losses more than they like comparable gains.
Total cost
The summation of all costs, for which costs are classified as fixed or variable.
Asset utilization ratios
Ratios that measure how efficiently a
company performs day-to-day tasks, such as the collection
of receivables and management of inventory.
Reverse repurchase agreement
A repurchase agree- ment viewed from the perspective of the cash lending counterparty.
Effective interest rate
The borrowing rate or market rate that a company incurs at the time of issuance of a bond.
Grouping by nature
With reference to the presentation of expenses in an income statement, the grouping together of expenses by similar nature, e.g., all depreciation expenses.
Peak
The highest point of a business cycle
Prior probabilities
Probabilities reflecting beliefs prior to the
arrival of new information.
Overlay/portfolio tilt
An ESG investment style that focuses
on the use of certain investment strategies or products to change specific aggregate ESG characteristics of a fund or investment portfolio to a desired level (e.g., tilting an investment portfolio toward a desired carbon footprint).
Nominal rate
A rate of interest based on the security’s face value.
Valuation allowance
A reserve created against deferred tax
assets, based on the likelihood of realizing the deferred
tax assets in future accounting periods.
Discount margin
See required margin.
Grouping by function
With reference to the presentation of expenses in an income statement, the grouping together of expenses serving the same function, e.g. all items that are costs of goods sold.
Option
A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time. Also referred to as contingent claim or option contract.
Covariance
A measure of the co-movement (linear association)
between two random variables.
Deferred tax assets
A balance sheet asset that arises when an excess amount is paid for income taxes relative to account- ing profit. The taxable income is higher than accounting profit and income tax payable exceeds tax expense. The company expects to recover the difference during the course of future operations when tax expense exceeds income tax payable.
Lockbox system
A payment system in which customer pay- ments are mailed to a post office box and the banking institution retrieves and deposits these payments several times a day, enabling the company to have use of the fund sooner than in a centralized system in which customer payments are sent to the company.
Pseudo-random numbers
Numbers produced by random number generators
European option
An option that can only be exercised on its expiration date.
What is ACCOUNTS PAYABLE ?
Amounts that a business owes to its vendors for goods and services that were purchased from them but which have not yet been paid
Pretax margin
A profitability ratio calculated as earnings before taxes divided by revenue.
Open interest
The number of outstanding contracts in a clearinghouse at any given time. The open interest figure changes daily as some parties open up new positions, while other parties offset their old positions.
Small country
A country that is a price taker in the world
market for a product and cannot influence the world market price.
Look-ahead bias
A bias caused by using information that was unavailable on the test date.
Unsecured debt
Debt which gives the debtholder only a
general claim on an issuer’s assets and cash flow.
Fiat money
Money that is not convertible into any other commodity.
Bond yield plus risk premium approach
An estimate of the cost of common equity that is produced by summing the before-tax cost of debt and a risk premium that captures the additional yield on a company’s stock relative to its bonds. The additional yield is often estimated using historical spreads between bond yields and stock yields.
Reserve accounts
Form of internal credit enhancement that relies on creating accounts and depositing in these accounts cash that can be used to absorb losses. Also called reserve funds.
Convertible bond
Bond that gives the bondholder the right
to exchange the bond for a specified number of common shares in the issuing company.
Data mining
The practice of determining a model by extensive searching through a dataset for statistically significant patterns. Also called data snooping.
First lien debt
Debt secured by a pledge of certain assets that
could include buildings, but may also include property and
equipment, licenses, patents, brands, etc.
Day order
An order that is good for the day on which it is submitted. If it has not been filled by the close of business,
the order expires unfilled.
Back simulation
Another term for the historical method of
estimating VaR. This term is somewhat misleading in that the method involves not a simulation of the past but rather what actually happened in the past, sometimes adjusted to reflect the fact that a different portfolio may have existed in the past than is planned for the future.
What is AGGREGATE DEMAND?
The quantity of goods and services that households, businesses, government, and foreign customers want to buy at any given level of prices.
Defined contribution pension plans
Individual accounts to which an employee and typically the employer makes con- tributions during their working years and expect to draw on the accumulated funds at retirement. The employee bears the investment and inflation risk of the plan assets.
Repurchase agreement
A form of collateralized loan involv- ing the sale of a security with a simultaneous agreement by the seller to buy the same security back from the purchaser at an agreed-on price and future date. The party who sells the security at the inception of the repurchase agreement and buys it back at maturity is borrowing money from the other party, and the security sold and subsequently
repurchased represents the collateral.
Technical analysis
A form of security analysis that uses price
and volume data, which is often displayed graphically, in decision making.
Currency option bonds
Bonds that give the bondholder the right to choose the currency in which he or she wants to
receive interest payments and principal repayments.
Break point
In the context of the weighted average cost of capital (WACC), a break point is the amount of capital at which the cost of one or more of the sources of capital changes, leading to a change in the WACC.
Extra dividend
A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payment.
Liquidity
The ability to purchase or sell an asset quickly and easily at a price close to fair market value. the ability to meet short-term obligations using assets that are the most readily converted into cash
Capital deepening investment
Increases the stock of capital relative to labor.
Solvency ratios
Ratios that measure a company’s ability to meet its long-term obligations.
Private placement
Typically, a non-underwritten, unregis- tered offering of securities that are sold only to an inves- tor or a small group of investors. It can be accomplished directly between the issuer and the investor(s) or through an investment bank.
Return on sales
An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses. Also referred to as net profit margin.
Treasury stock method
A method for accounting for the effect of options (and warrants) on earnings per share (EPS) that specifies what EPS would have been if the options and warrants had been exercised and the company had used the proceeds to repurchase common stock.
Probability density function
A function with non-negative values such that probability can be described by areas under the curve graphing the function.
Decreasing returns to scale
When a production process leads
to increases in output that are proportionately smaller than
the increase in inputs.
Dependent
With reference to events, the property that the probability of one event occurring depends on (is related to) the occurrence of another event.
Degree of total leverage
The ratio of the percentage change
in net income to the percentage change in units sold; the sensitivity of the cash flows to owners to changes in the number of units produced and sold.
Quick assets
Assets that can be most readily converted to cash (e.g., cash, short-term marketable investments, receivables).
Valuation ratios
Ratios that measure the quantity of an asset or flow (e.g., earnings) in relation to the price associated with a specified claim (e.g., a share or ownership of the enterprise).
Population
All members of a specified group.
What is AGGREGATE INCOME?
The value of all the payments earned by the suppliers of factors used in the production of goods and services
Security market index
A portfolio of securities representing
a given security market, market segment, or asset class.
Neural networks
Computer programs based on how our own
brains learn and process information.
Carrying amount
The amount at which an asset or liability is valued according to accounting principles.
Distributed ledger technology
Technology based on a distributed ledger.
Put-call-forward parity
The relationship amount puts, calls, and forward contracts
Option contract
see option
Closed-end fund
A mutual fund in which no new investment
money is accepted. New investors invest by buying existing shares, and investors in the fund liquidate by selling their shares to other investors.
Free cash flow
The actual cash that would be available to the company’s investors after making all investments necessary to maintain the company as an ongoing enterprise (also referred to as free cash flow to the firm); the internally generated funds that can be distributed to the company’s investors (e.g., shareholders and bondholders) without impairing the value of the company.
Ordinal scale
A measurement scale that sorts data into cat- egories that are ordered (ranked) with respect to some characteristic.
Elasticity
The percentage change in one variable for a per- centage change in another variable; a general measure of how sensitive one variable is to a change in the value of another variable.
Continuation patterns
A type of pattern used in technical
analysis to predict the resumption of a market trend that
was in place prior to the formation of a pattern.
Event
Any outcome or specified set of outcomes of a random variable.
Debt-rating approach
A method for estimating a company’s
before-tax cost of debt based upon the yield on comparably rated bonds for maturities that closely match that of the company’s existing debt.
Bond market vigilantes
Bond market participants who might reduce their demand for long-term bonds, thus pushing up their yields.
DuPont analysis
An approach to decomposing return on investment, e.g., return on equity, as the product of other financial ratios.
Counterparty risk
The risk that the other party to a contract will fail to honor the terms of the contract.
Capital expenditure
Expenditure on physical capital (fixed assets).
Capital market line
(CML) The line with an intercept point equal to the risk-free rate that is tangent to the efficient frontier of risky assets; represents the efficient frontier
when a risk-free asset is available for investment.
Private equity fund
A hedge fund that seeks to buy, optimize, and ultimately sell portfolio companies to generate profits. See venture capital fund.
Stated annual interest rate
A quoted interest rate that does not account for compounding within the year. Also called
quoted interest rate.
Asset class
A group of assets that have similar characteristics,
attributes, and risk/return relationships.
Risk transfer
Actions to pass on a risk to another party, often, but not always, in the form of an insurance policy.
Law of demand
The principle that as the price of a good rises, buyers will choose to buy less of it, and as its price falls, they will buy more.
Free trade areas
One of the most prevalent forms of regional integration, in which all barriers to the flow of goods and services among members have been eliminated.
Solvency risk
The risk that an organization does not survive or succeed because it runs out of cash, even though it might otherwise be solvent.
Simulation trial
A complete pass through the steps of a simulation
Crowding out
The thesis that government borrowing may divert private sector investment from taking place.
Conversion value
For a convertible bond, the current share
price multiplied by the conversion ratio.
Repo
A form of collateralized loan involving the sale of a security with a simultaneous agreement by the seller to buy the same security back from the purchaser at an agreed-on price and future date. The party who sells the security at the inception of the repurchase agreement and buys it back at maturity is borrowing money from the other party, and the security sold and subsequently repurchased represents the collateral.
Secured debt
Debt in which the debtholder has a direct claim—a pledge from the issuer—on certain assets and their associated cash flows.
Float factor
An estimate of the average number of days it takes deposited checks to clear; average daily float divided by average daily deposit.
Committed lines of credit
A bank commitment to extend credit up to a pre-specified amount; the commitment is considered a short-term liability and is usually in effect for 364 days (one day short of a full year).
Forward rate
The interest rate on a bond or money market instrument traded in a forward market. A forward rate can be interpreted as an incremental, or marginal, return for extending the time-to-maturity for an additional time period.
Central bank funds rates
Interest rates at which central bank funds are bought (borrowed) and sold (lent) for maturities ranging from overnight to one year. Called Federal or Fed
funds rates in the United States.
Strategic groups
Groups sharing distinct business models or catering to specific market segments in an industry.
Externality
An effect of a market transaction that is borne by parties other than those who transacted.
Non-accelerating inflation rate of unemployment
Effective unemployment rate, below which pressure emerges in labor markets.
Consistent
With reference to estimators, describes an esti- mator for which the probability of estimates close to the value of the population parameter increases as sample size increases.
Number of days of payables
An activity ratio equal to the number of days in a period divided by the payables turnover ratio for the period; an estimate of the average number of days it takes a company to pay its suppliers.
Stock split
An increase in the number of shares outstanding with a consequent decrease in share price, but no change to the company’s underlying fundamentals.
Artificial intelligence
Computer systems that exhibit cognitive and decision-making ability comparable (or superior) to that of humans
Average accounting rate of return (ARR)
(ARR) Over the life of a project, the AAR can be defined as the average net income divided by the average book value.
Period costs
Costs (executives salaries - example) that can’t be directly matched with the timing of revenue and which are thus expensed immediatly
Auction
A type of bond issuing mechanism often used for
sovereign bonds that involve bidding.
Bid
The price at which a dealer or trader is willing to buy an asset, typically qualified by a maximum quantity.
Sample skewness
A sample measure of degree of asymmetry of a distribution.
Asset-based loan
A loan that is secured with company assets.
Total probability rule
A rule explaining the unconditional probability of an event in terms of probabilities of the event conditional on mutually exclusive and exhaustive scenarios.
Out-of-sample test
A test of a strategy or model using a sample outside the time period on which the strategy or model was developed.
Direct method
See direct format.
Game theory
The set of tools decision makers use to incorpo-
rate responses by rival decision makers into their strategies.
Discount interest
A procedure for determining the interest on a loan or bond in which the interest is deducted from the face value in advance.
Credit curve
A curve showing the relationship between time to maturity and yield spread for an issuer with comparable bonds of various maturities outstanding, usually upward
sloping.
Safety stock
A level of inventory beyond anticipated needs that provides a cushion in the event that it takes longer to replenish inventory than expected or in the case of greater than expected demand.
Alternative investment markets
Market for investments other than traditional securities investments (i.e., traditional common and preferred shares and traditional fixed income instruments). The term usually encompasses direct and indirect investment in real estate (including timber- land and farmland) and commodities (including precious metals); hedge funds, private equity, and other investments requiring specialized due diligence.
(google: Asset that doesn’t fall in one of the conventional investment categories ‘ equity / income / cash category’
example: hedge fund, venture capital, real property, commodities.
SEC have them unregulated
Short position
A position in an asset or contract in which one has sold an asset one does not own, or in which a
right under a contract can be exercised against oneself.
Sinking fund arrangement
Provision that reduces the credit
risk of a bond issue by requiring the issuer to retire a por-
tion of the bond’s principal outstanding each year.
Limit up
A limit move in the futures market in which the price at which a transaction would be made is at or above the upper limit.
London interbank offered rate (Libor)
Collective name for multiple rates at which a select set of banks believe they could borrow unsecured funds from other banks in the London interbank market for different currencies and different borrowing periods ranging from overnight to one year.
Extreme value theory
A branch of statistics that focuses primarily on extreme outcomes.
Per capita real GDP
Real GDP / (divided) by the size of the population , often used as a measure of the average standard of living in a country
Performance bond
See margin bond
Support
In technical analysis, a price range in which buying
activity is sufficient to stop the decline in the price of a
security.
Neo-Keynesians
A group of dynamic general equilibrium models that assume slow-to-adjust prices and wages.
Binomial model
A model for pricing options in which the underlying price can move to only one of two possible
new prices.
Security selection
The process of selecting individual securities; typically, security selection has the objective of generating superior risk-adjusted returns relative to a portfolio’s benchmark
Bond
Contractual agreement between the issuer and the
bondholders.
Economic costs
All the remuneration needed to keep a pro- ductive resource in its current employment or to acquire the resource for productive use; the sum of total accounting
costs and implicit opportunity costs.
Price return index
An index that reflects only the price appre- ciation or percentage change in price of the constituent
securities. Also called price index.
Overcollateralization
Form of internal credit enhancement
that refers to the process of posting more collateral than needed to obtain or secure financing.
Call money rate
The interest rate that buyers pay for their margin loan.
Operating leverage
The use of fixed costs in operations.
Property, plant, and equipment
Tangible assets that are expected to be used for more than one period in either the production or supply of goods or services, or for admin- istrative purposes.
January effect
Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first five trading days in January. Also called turn-of-the-year effect.
Basic EPS
Net earnings available to common shareholders (i.e., net income minus preferred dividends) divided by the weighted average number of common shares outstanding.
Diminishing marginal productivity
Describes a state in which each additional unit of input produces less output than previously.
Passive strategy
IN reference to short-term cash management, it is an investment strategy characterized by simple decision rules for making daily investments
Hypothesis
With reference to statistical inference, a statement
about one or more populations.
TRIN
A flow of funds indicator applied to a broad stock market index to measure the relative extent to which money is moving into or out of rising and declining stocks
Securitization
A process that involves moving assets into a special legal entity, which then uses the assets as guarantees
to secure a bond issue.
Capital lease
See finance lease.
Execution instructions
Instructions that indicate how to fill an order.
Pairs arbitrage trade
A trade in two closely related stocks involving the short sale of one and the purchase of the other
Arbitrage-free pricing
The overall process of pricing derivatives by arbitrage and risk neutrality.
Also called the principle of no arbitrage
Profit margin
An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses.
Subordinated debt
A class of unsecured debt that ranks below a firm’s senior unsecured obligations.
Unsupervised learning
A machine learning approach that
does not make use of labeled training data.
Law of diminishing marginal returns
The observation that a variable factor’s marginal product must eventually fall as more of it is added to a fixed amount of the other factors.
Competitive strategy
A company’s plans for responding to
the threats and opportunities presented by the external
environment.
Cost-push
Type of inflation in which rising costs, usually
wages, compel businesses to raise prices generally.
Demand curve
Graph of the inverse demand function. A graph showing the demand relation, either the highest quantity willingly purchased at each price or the highest price willingly paid for each quantity.
Cartel
Participants in collusive agreements that are made openly and formally.
Sample mean
The sum of the sample observations, divided
by the sample size.
Expansionary
Tending to cause the real economy to grow.
Real GDP
The value of goods and services produced, measured at base year prices.
Tracking error
The standard deviation of the differences between a portfolio’s returns and its benchmark’s returns; a synonym of active risk.
Linear interpolation
The estimation of an unknown value on the basis of two known values that bracket it, using a straight line between the two known values.
Balance sheet ratios
Financial ratios involving balance sheet items only.
Dividend discount model based approach
An approach for estimating a country’s equity risk premium. The market rate of return is estimated as the sum of the dividend yield and the growth rate in dividends for a market index. Subtracting the risk-free rate of return from the estimated market return produces an estimate for the equity risk premium.
Real interest rate
Nominal interest rate minus the expected rate of inflation.
Estimate
The particular value calculated from sample obser- vations using an estimator.
Percentiles
Quantiles that divide a distribution into 100 equal parts
Primary bond markets
Markets in which issuers first sell
bonds to investors to raise capital.
FIFO method
The first in, first out, method of accounting for inventory, which matches sales against the costs of items of inventory in the order in which they were placed in inventory.
Combination
A listing in which the order of the listed items
does not matter.
Liquid market
Said of a market in which traders can buy or sell with low total transaction costs when they want to trade.
Operating risk
The risk attributed to the operating cost struc- ture, in particular the use of fixed costs in operations; the risk arising from the mix of fixed and variable costs; the risk that a company’s operations may be severely affected by environmental, social, and governance risk factors.
What is the definition of: ABNORMAL RETURN?
The amount by which a security’s actual return differs from its expected return.
Sometime triggered by “events” like the security’s risk and the market’s return.
Credit-worthiness
The perceived ability of the borrower to
pay what is owed on the borrowing in a timely manner; it represents the ability of a company to withstand adverse impacts on its cash flows.
Expansionary fiscal policy
Fiscal policy aimed at achieving
real economic growth.
Return on total capital
A profitability ratio calculated as EBIT divided by the sum of short- and long-term debt and equity.
Probability distribution
A distribution that specifies the probabilities of a random variable’s possible outcomes.
Economies of scale
Reduction in cost per unit resulting from increased production.
Bernoulli random variable
A random variable having the outcomes 0 and 1.
Bar chart
A price chart with four bits of data for each time interval—the high, low, opening, and closing prices. A vertical line connects the high and low. A cross-hatch left indicates the opening price and a cross-hatch right indicates the close.
Deductible temporary differences
Temporary differences
that result in a reduction of or deduction from taxable income in a future period when the balance sheet item is recovered or settled.
Grey market
The forward market for bonds about to be issued. Also called “when issued” market.
Type II error
The error of not rejecting a false null hypothesis.
Contraction risk
The risk that when interest rates decline, the
security will have a shorter maturity than was anticipated at the time of purchase because borrowers refinance at the new, lower interest rates.
American depository receipt
A US dollar-denominated security that trades like a common share on US exchanges.
Organized exchange
A securities marketplace where buyers and seller can meet to arrange their trades.
Budget surplus/deficit
The difference between government
revenue and expenditure for a stated fixed period of time.
Secured bonds
Bonds secured by assets or financial guaran- tees pledged to ensure debt repayment in case of default.
Risk governance
The top-down process and guidance that directs risk management activities to align with and support the overall enterprise.
Empirical probability
The probability of an event estimated
as a relative frequency of occurrence.
Horizontal demand schedule
Implies that at a given price, the response in the quantity demanded is infinite.
Relative/best-in-class screening
An ESG investment style
that focuses on sectors, companies, or projects selected for ESG performance relative to industry peers.
Laddering strategy
A form of active strategy which entails scheduling maturities on a systematic basis within the investment portfolio such that investments are spread out equally over the term of the ladder.
Settlement
The process that occurs after a trade is completed, the securities are passed to the buyer, and payment is received by the seller.
Longitudinal data
Observations on characteristic(s) of the same observational unit through time.
Discount
To reduce the value of a future payment in allowance for how far away it is in time; to calculate the present value of some future amount. Also, the amount by which an instrument is priced below its face (par) value.
Precautionary stocks
A level of inventory beyond anticipated needs that provides a cushion in the event that it takes longer to replenish inventory than expected or in the case
of greater than expected demand.
Bitcoin
A cryptocurrency using blockchain technology that
was created in 2009.
What is AMORTIZING BOND ?
Bond with a payment schedule that calls for periodic payments of interest and repayments of principal
Conditional expected value
The expected value of a stated event given that another event has occurred.
Time value of money
The principles governing equivalence
relationships between cash flows with different dates.
Support tranche
A class or tranche in a CMO that protects the PAC tranche from prepayment risk.
Long-run average total cost
The curve describing average total cost when no costs are considered fixed.
Asset-based valuation models
Valuation based on estimates
of the market value of a company’s assets.
Growth investors
With reference to equity investors, investors who seek to invest in high-earnings-growth companies.
Double declining balance depreciation
An accelerated depreciation method that involves depreciating the asset at double the straight-line rate. This rate is multiplied by the book value of the asset at the beginning of the period (a declining balance) to calculate depreciation expense.
Straight-line method
A depreciation method that allocates
evenly the cost of a long-lived asset less its estimated residual value over the estimated useful life of the asset.
Constant-yield price trajectory
A graph that illustrates the change in the price of a fixed-income bond over time assuming no change in yield-to-maturity. The trajectory shows the “pull to par” effect on the price of a bond trading at a premium or a discount to par value.
Float-adjusted market-capitalization weighting
An index weighting method in which the weight assigned to each constituent security is determined by adjusting its market
capitalization for its market float.
Degree of financial leverage
(DFL) The ratio of the percentage change in net income to the percentage change in operating income; the sensitivity of the cash flows available to owners when operating income changes.
Economic order quantity–reorder point (EOQ–ROP)
An approach to managing inventory based on expected demand and the predictability of demand; the ordering point for new inventory is determined based on the costs of ordering and carrying inventory, such that the total cost associated with inventory is minimized.
Deferred coupon bond
Bond that pays no coupons for its first few years but then pays a higher coupon than it otherwise normally would for the remainder of its life. Also called split coupon bond.
Convertible preference shares
A type of equity security that entitles shareholders to convert their shares into a specified number of common shares.
Real income
Income adjusted for the effect of inflation on the purchasing power of money. Also known as the purchasing power of income. If income remains constant and a good’s price falls, real income is said to rise, even though the num- ber of monetary units (e.g., dollars) remains unchanged.
Cross-sectional analysis
Analysis that involves comparisons across individuals in a group over a given time period or at a given point in time.
Labor force
The portion of the working age population (over the age of 16) that is employed or is available for work but not working (unemployed).
Strong-form efficient market
A market in which security prices reflect all public and private information.
Equipment trust certificates
Bonds secured by specific types of equipment or physical assets.
What are the two other name of the balance sheet ?
A- Statement of financial position
B- statement of financial condition
C- Both A & B
D- none
Fill or kill
See immediate or cancel order.
Total return swap
A swap in which one party agrees to pay the total return on a security. Often used as a credit derivative, in which the underlying is a bond.
Price weighting
An index weighting method in which the weight assigned to each constituent security is determined by dividing its price by the sum of all the prices of the
constituent securities.
What is the other term / name for Weighted average life?
Average Life
Trough
The lowest point of a business cycle.
Put/Call ratio
A technical analysis indicator that evaluates market sentiment based upon the volume of put options traded divided by the volume of call options traded for a particular financial instrument
Target independent
A bank’s ability to determine the defi- nition of inflation that they target, the rate of inflation that they target, and the horizon over which the target is to be achieved.
Gross profit
Sales minus the cost of sales (i.e., the cost of goods sold for a manufacturing company).
Liquidity premium
An extra return that compensates investors for the risk of loss relative to an investment’s fair value if the investment needs to be converted to cash quickly.
Business risk
The risk associated with operating earnings.
Operating earnings are uncertain because total revenues and many of the expenditures contributed to produce those revenues are uncertain.
Covenants
The terms and conditions of lending agreements that the issuer must comply with; they specify the actions that an issuer is obligated to perform (affirmative covenant)
or prohibited from performing (negative covenant).
Responsible investing
The practice of identifying companies that can efficiently manage their financial, environmental, and human capital resources to generate attractive long- term profitability; often synonymous with sustainable
investing.
Double bottoms
In technical analysis, a reversal pattern that is formed when the price reaches a low, rebounds, and then sells off back to the first low level; used to predict a change from a downtrend to an uptrend.
Dark pools
Alternative trading systems that do not display the orders that their clients send to them.
Blue chip
Widely held large market capitalization companies
that are considered financially sound and are leaders in
their respective industry or local stock market.
Net present value
NPV) The present value of an investment’s cash inflows (benefits) minus the present value of its cash outflows (costs).
Loss severity
Portion of a bond’s value (including unpaid interest) an investor loses in the event of default.
Standards of conduct
Behaviors required by a group; estab- lished benchmarks that clarify or enhance a group’s code
of ethics.
Finance lease
From the lessee perspective, under US GAAP,
a type of lease which is more akin to the purchase of an asset by the lessee. From the lessor perspective, under IFRS, a lease which “transfers substantially all the risks and rewards incidental to ownership of an underlying asset.”
Term maturity structure
Structure for a bond issue in which
the bond’s notional principal is paid off in a lump sum at maturity.
Common stock
See common shares.
Put option
An option that gives the holder the right to sell an underlying asset to another party at a fixed price over a specific period time
Units-of-production method
A depreciation method that allocates the cost of a long-lived asset based on actual
usage during the period.
Candlestick chart
A price chart with four bits of data for each time interval. A candle indicates the opening and closing price for the interval. The body of the candle is shaded if the opening price was higher than the closing price, and the body is clear if the opening price was lower than the closing price. Vertical lines known as wicks or shadows extend from the top and bottom of the candle to indicate the high and the low prices for the interval.
Exchanges
Places where traders can meet to arrange their trades.
Financial leverage
The extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income; also, short for the financial leverage ratio.
Unexpected inflation
the component of inflation that is a surprise
Subjective probability
A probability drawing on personal or subjective judgment.
Golden cross
A technical analysis term that describes a situa-
tion where a short-term moving average crosses from below a longer-term moving average to above it; this movement is considered bullish.
Priority of claims
Priority of payment, with the most senior or highest ranking debt having the first claim on the cash flows and assets of the issuer.
Normal profit
The level of accounting profit needed to just cover the implicit opportunity costs ignored in accounting costs.
Exhaustive
Covering or containing all possible outcomes.
Floaters
See floating-rate notes.
Fractional reserve banking
Banking in which reserves con- stitute a fraction of deposits.
Legal tender
Something that must be accepted when offered in exchange for goods and services.
Narrow money
The notes and coins in circulation in an econ- omy, plus other very highly liquid deposits.
Treasury Inflation-Protected Securities
A bond issued by the United States Treasury Department that is designed to protect the investor from inflation by adjusting the principal of the bond for changes in inflation.
GDP deflator
A gauge of prices and inflation that measures the aggregate changes in prices across the overall economy.
Relative strength analysis
A comparison of the performance of one asset with the performance of another asset or a benchmark based on changes in the ratio of the securities’ respective prices over time.
Level of significance
The probability of a Type I error in testing a hypothesis.
Customs union
Extends the free trade area (FTA) by not only allowing free movement of goods and services among members, but also creating a common trade policy against nonmembers.
Exercise value
The value obtained if an option is exercised based on current conditions. Also known as intrinsic value.
Transparency
Said of something (e.g., a market) in which information is fully disclosed to the public and/or regulators.
Cross-default provisions
Provisions whereby events of default such as non-payment of interest on one bond trigger default on all outstanding debt; implies the same default probability for all issues.
What is ACCELERATED BOOK BUILD?
An offering of securities by an investment bank acting as principal that is accomplished in only one or two days
Terms of trade
The ratio of the price of exports to the price of imports, representing those prices by export and import price indexes, respectively.
Automated Clearing House (ACH)
An electronic payment
network available to businesses, individuals, and finan- cial institutions in the United States, US Territories, and Canada.
Off-the-run
Seasoned government bonds are off-the-run securities; they are not the most recently issued or the most actively traded.
What is Asset allocation?
The process of determining how investment funds should be distributed among asset classes.
Economic loss
The amount by which accounting profit is less than normal profit.
Carrying value
The net amount shown for an asset or liabil- ity on the balance sheet; book value may also refer to the company’s excess of total assets over total liabilities. For a bond, the purchase price plus (or minus) the amortized amount of the discount (or premium).
Unsponsored
A type of depository receipt in which the foreign company whose shares are held by the depository has no
involvement in the issuance of the receipts.
Asset-backed securities
A type of bond issued by a legal entity called A SPECIAL PURPOSE ENTITY (SPE) on a collection of assets that the SPE owns. Also, securities backed by receivables and loans other than mortgages.
Non-current assets
Assets that are expected to benefit the company over an extended period of time (usually more than one year).
Operationally efficient
Said of a market, a financial system, or an economy that has relatively low transaction costs.
Stop order
An order in which a trader has specified a stop price condition. Also called stop-loss order.
What is ACTIVITY RATIOS?
Ratios that measure how efficiently a company performs day to day task, such as the collection of receivables and management of inventory.
Also called ASSET UTILIZATION RATIOS or OPERATING EFFICIENCY RATIOS
Parametric test
Any test (or procedure) concerned with parameters or whose validity depends on assumptions concerning the population generating the SAMPLE
Delta
The sensitivity of the derivative price to a small change in the value of the underlying asset.
Continuous trading market
A market in which trades can be arranged and executed any time the market is open.
Descriptive statistics
The study of how data can be summa-
rized effectively.
Fundamental analysis
The examination of publicly available information and the formulation of forecasts to estimate the intrinsic value of assets.
Payments system
The system for the transfer of money
Second lien
A secured interest in the pledged assets that ranks below first lien debt in both collateral protection and priority of payment.
Full price
The price of a security with accrued interest; also called the invoice or dirty price.
On-the-run
The most recently issued and most actively traded sovereign securities.
Shutdown point
The point at which average revenue is equal
to the firm’s average variable cost.
Free-cash-flow-to-equity models
Valuation models based on discounting expected future free cash flow to equity.
Split coupon bond
See deferred coupon bond.
Univariate distribution
A distribution that specifies the prob-
abilities for a single random variable.
Efficient market
A market in which asset prices reflect new information quickly and rationally.
Capital structure
The mix of debt and equity that a company uses to finance its business; a company’s specific mixture of long-term financing.
Factor
A common or underlying element with which several variables are correlated.
Bid size
The maximum quantity of an asset that pertains to a specific bid price from a trader.
Binomial tree
The graphical representation of a model of asset price dynamics in which, at each period, the asset moves
up with probability p or down with probability (1 – p).
Estimation
With reference to statistical inference, the sub- division dealing with estimating the value of a population parameter.
Triangle patterns
In technical analysis, a continuation chart pattern that forms as the range between high and low prices narrows, visually forming a triangle.
Value at risk
(VaR) A money measure of the minimum value of losses expected during a specified time period at a given level of probability.
Official interest rate
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks. Also called
official policy rate or policy rate.
Exports
Goods and services that an economy sells to other countries.
Green bonds
A bond used in green finance whereby the proceeds are earmarked towards environmental-related products.
Bid–ask spread
The difference between the prices at which
dealers will buy from a customer (bid) and sell to a cus- tomer (offer or ask). It is often used as an indicator of liquidity.
Federal funds rate
The US interbank lending rate on overnight borrowings of reserves.
Current ratio
A liquidity ratio calculated as current assets divided by current liabilities.
What is ANNUITY?
A finite set of level sequential cash flows
Google : a fixed amount of money that is paid to someone each year.
Risk management framework
The infrastructure, process, and analytics needed to support effective risk management in an organization.
Rule of 72
The principle that the approximate number of years necessary for an investment to double is 72 divided by the
stated interest rate.
Point and figure chart
A technical analysis chart that is con- structed with columns of X’s alternating with columns of O’s such that the horizontal axis represents only the num- ber of changes in price without reference to time or volume
Basis point
Used in stating yield spreads, one basis point equals one-hundredth of a percentage point, or 0.01%.
Underwriter
A firm, usually an investment bank, that takes the risk of buying the newly issued securities from the issuer, and then reselling them to investors or to dealers, thus guaranteeing the sale of the securities at the offering price negotiated with the issuer.
Realizable (settlement) value
With reference to assets, the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal; with reference to liabilities, the un-discounted amount of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.
What is MULTILATERAL TRADING FACILITIES ?
see alternative trading system
Flotation cost
Fees charged to companies by investment bankers and other costs associated with raising new capital.
Wealth effect
An increase (decrease) in household wealth increases (decreases) consumer spending out of a given level of current income.
Contra account
An account that offsets another account.
Logarithmic scale
A scale in which equal distances represent equal proportional changes in the underlying quantity.
Dual-currency bonds
Bonds that make coupon payments in one currency and pay the par value at maturity in another currency.
VaR
See value at risk
What is the other name sport market is referred too?
Underlying
Sunk cost
A cost that has already been incurred.
Statement of financial condition
The financial statement that presents an entity’s current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims), as of a particular point in time (the date of the balance sheet).
Risk aversion
The degree of an investor’s inability and unwillingness to take risk.
Default probability
The probability that a borrower defaults or fails to meet its obligation to make full and timely pay- ments of principal and interest, according to the terms of the debt security. Also called default risk.
Zero volatility spread (Z-spread)
Calculates a constant yield spread over a government (or interest rate swap) spot curve.
High-water mark
The highest value, net of fees, that a fund has reached in history. It reflects the highest cumulative return used to calculate an incentive fee.
Sample
A subset of a population.
Operating profit
A company’s profits on its usual business activities before deducting taxes. Also called operating income.
LIFO method
The last in, first out, method of accounting for inventory, which matches sales against the costs of items of inventory in the reverse order the items were placed in inventory (i.e., inventory produced or acquired last are assumed to be sold first).
Cost of preferred stock
The cost to a company of issuing preferred stock; the dividend yield that a company must commit to pay preferred stockholders.
Barter economy
An economy where economic agents as house-holds, corporations, and governments “pay” for goods and services with another good or service.
Time tranching
The creation of classes or tranches in an ABS/MBS that possess different (expected) maturities.
Tracking risk
The standard deviation of the differences
between a portfolio’s returns and its benchmarks returns.
Also called tracking error.
Over-the-counter (OTC) markets
A decentralized market where buy and sell orders initiated from various locations
are matched through a communications network.
Laspeyres index
A price index created by holding the com- position of the consumption basket constant.
Current account
A component of the balance of payments account that measures the flow of goods and services.
Economic profit
Equal to accounting profit less the implicit opportunity costs not included in total accounting costs; the difference between total revenue (TR) and total cost (TC). Also called abnormal profit or supernormal profit.
At the money
An option in which the underlying’s price
equals the exercise price.
Structural (or cyclically adjusted) budget deficit
The deficit that would exist if the economy was at full employment (or full potential output).
Just-in-time (JIT) method
Method of managing inventory
that minimizes in-process inventory stocks.
Registered bonds
Bonds for which ownership is recorded by
either name or serial number.
Foreign portfolio investment
Shorter-term investment by individuals, firms, and institutional investors (e.g., pension funds) in foreign financial instruments such as foreign stocks and foreign government bonds.
Capital asset pricing model
(CAPM) An equation describing the expected return on any asset (or portfolio) as a linear function of its beta relative to the market portfolio.
Risk Tolerance
The amount of risk an investor is willing and able to bear to achieve an investment goal
Frequency distribution
A tabular display of data summarized into a relatively small number of intervals.
Exercise price
The fixed price at which an option holder can buy or sell the underlying. Also called strike price, striking price, or strike.
What is ACCOUNTING PROFIT?
Income as reported on the income statement, in accordance with prevailing accounting standards, before the provisions for income tax expense.
Also called INCOME BEFORE TAXES or PRETAX INCOME.
Tariffs
Taxes that a government levies on imported goods.
Direct write-off method
An approach to recognizing credit
losses on customer receivables in which the company waits until such time as a customer has defaulted and only then recognizes the loss.
Peformance fee
Fee paid to the general partner from the limited partners based on realized net profits
G-spread
The yield spread in basis points over an actual or
interpolated government bond.
Bottom-up analysis
An investment selection approach that focuses on company-specific circumstances rather than emphasizing economic cycles or industry analysis.
Tax loss carry forward
A taxable loss in the current period that may be used to reduce future taxable income.
What is commitment offering other name?
Underwritten offering.
Sales-type leases
Under US GAAP, a type of finance lease, from a lessor perspective, where the present value of the lease payments (lease receivable) exceeds the carrying value of the leased asset. The revenues earned by the lessor both a selling profit at inception and financing (interest) revenues.
Surety bond
Form of external credit enhancement whereby
a rated and regulated insurance company guarantees to reimburse bondholders for any losses incurred up to a maximum amount if the issuer defaults.
Relative dispersion
The amount of dispersion relative to a
reference value or benchmark.
Position
The quantity of an asset that an entity owns or owes.
Contractionary fiscal policy
A fiscal policy that has the objective to make the real economy contract.
Operational risk
The risk that arises from inadequate or failed people, systems, and internal policies, procedures, and processes, as well as from external events that are beyond the control of the organization but that affect its operations.
Net book value
The remaining (undepreciated) balance of an asset’s purchase cost. For liabilities, the face value of a bond minus any unamortized discount, or plus any unamortized premium.
Store of value
The quality of tending to preserve value.
Base rates
The reference rate on which a bank bases lending rates to all other customers.
Transactions money balances
Money balances that are held to finance transactions.
Elasticity of demand
A measure of the sensitivity of quan- tity demanded to a change in a product’s own price: %∆QD/%∆P.
Taxable temporary differences
Temporary differences that result in a taxable amount in a future period when deter- mining the taxable profit as the balance sheet item is recovered or settled.
Trust receipt arrangement
The use of inventory as collateral
for a loan. The inventory is segregated and held in trust, and the proceeds of any sale must be remitted to the lender immediately.
Change in polarity principle
A tenet of technical analysis that once a support level is breached, it becomes a resis- tance level. The same holds true for resistance levels; once breached, they become support levels.
Voluntarily unemployed
A person voluntarily outside the labor force, such as a jobless worker refusing an available vacancy.
Load fund
A mutual fund in which, in addition to the annual fee, a percentage fee is charged to invest in the fund and/ or for redemptions from the fund.
Non-cumulative preference shares
Preference shares for which dividends that are not paid in the current or subse- quent periods are forfeited permanently (instead of being accrued and paid at a later date).
Non-recourse loan
Loan in which the lender does not have a shortfall claim against the borrower, so the lender can look only to the property to recover the outstanding mortgage balance.
Tax base
The amount at which an asset or liability is valued for tax purposes.
Funds of hedge funds
Funds that hold a portfolio of hedge funds, more commonly shortened to funds of funds.
Short selling
A transaction in which borrowed securities are sold with the intention to repurchase them at a lower price
at a later date and return them to the lender.
Debt-to-equity ratio
A solvency ratio calculated as total debt
divided by total shareholders’ equity.
Company analysis
Analysis of an individual company.
Cash flow from operations
The net amount of cash provided from operating activities.
Operating cycle
A measure of the time needed to convert raw materials into cash from a sale; it consists of the number of days of inventory and the number of days of receivables.
Covered bond
Debt obligation secured by a segregated pool of assets called the cover pool. The issuer must maintain the value of the cover pool. In the event of default, bondholders have recourse against both the issuer and the cover pool.
Equity swap
A swap transaction in which at least one cash flow is tied to the return to an equity portfolio position, often an equity index.
t-Test
A hypothesis test using a statistic (t-statistic) that follows a t-distribution.
Capital market securities
Securities with maturities at issuance longer than one year.
Government equivalent yield
A yield that restates a yield- to-maturity based on 30/360 day-count to one based on actual/actual.
Bilateral loan
A loan from a single lender to a single borrower.
Non-sovereign government bonds
A bond issued by a gov- ernment below the national level, such as a province, region, state, or city.
Risk averse
The assumption that an investor will choose the least risky alternative.
Operating lease
An agreement allowing a lessee to use some asset for a period of time; essentially a rental.
Blockchain
A type of digital ledger in which information is
recorded sequentially and then linked together and secured
using cryptographic methods.
Top-down analysis
An investment selection approach that begins with consideration of macroeconomic conditions and then evaluates markets and industries based upon such conditions.
Financial risk
The risk that environmental, social, or gover- nance risk factors will result in significant costs or other losses to a company and its shareholders; the risk arising from a company’s obligation to meet required payments
under its financing agreements.
Price priority
The principle that the highest priced buy orders and the lowest priced sell orders execute first.
Unit labor cost
The average labor cost to produce one unit
of output.
No-load fund
A mutual fund in which there is no fee for investing in the fund or for redeeming fund shares, although there is an annual fee based on a percentage of the fund’s net asset value.
Policy rate
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
Line chart
In technical analysis, a plot of price data, typically closing prices, with a line connecting the points.
Distributed ledger
A type of database that may be shared among entities in a network
Principle of no arbitrage
See arbitrage-free pricing.
Embedded option
Contingency provisions that provide the issuer or the bondholders the right, but not the obligation, to take action. These options are not part of the security and cannot be traded separately.
Required rate of return
See market discount rate.
Herding
Clustered trading that may or may not be based on information.
Cash markets
See spot markets.
Average total cost
Total cost divided by quantity produced.
Debt incurrence test
A financial covenant made in conjunc- tion with existing debt that restricts a company’s ability to incur additional debt at the same seniority based on one
or more financial tests or conditions.
Standard deviation
The positive square root of the variance; a measure of dispersion in the same units as the original data.
Head and shoulders pattern
In technical analysis, a rever-
sal pattern that is formed in three parts: a left shoulder, head, and right shoulder; used to predict a change from an uptrend to a downtrend.
Kondratieff wave
A 54-year long economic cycle postulated by Nikolai Kondratieff.
Trade protection
Government policies that impose restric-
tions on trade, such as tariffs and quotas.
Paasche index
An index formula using the current composition of a basket of products
What is the other name for Zero-coupon bonds?
Pure Discount Bonds
Average fixed cost
Total fixed cost divided by quantity produced.
Principal
The amount of funds originally invested in a project or instrument; the face value to be paid at maturity.
Hidden order
An order that is exposed not to the public but only to the brokers or exchanges that receive it.
Nominal risk-free interest rate
The sum of the real risk-free interest rate and the inflation premium.
Electronic communications networks
See alternative trading systems.
Yield to maturity
Annual return that an investor earns on a
bond if the investor purchases the bond today and holds it until maturity. It is the discount rate that equates the pres- ent value of the bond’s expected cash flows until maturity with the bond’s price. Also called yield-to-redemption or redemption yield.
Balanced
With respect to a government budget, one in which spending and revenues (taxes) are equal.
Elliott wave theory
A technical analysis theory that claims that the market follows regular, repeated waves or cycles.
What is ACCRUED EXPENSES ?
Liabilities related to expenses that have been incurred but not yet paid as of the end of an accounting period -> example of an accrued expense is rent that has been incurred but not yet paid, resulting in a liability “rent payable.”
Also called ACCRUED LIABILITIES
Notching
Ratings adjustment methodology where specific issues from the same borrower may be assigned different credit ratings.
Degree of operating leverage
(DOL) The ratio of the percentage change in operating income to the percentage change in units sold; the sensitivity of operating income to changes in units sold.
Normal goods
Goods that are consumed in greater quantities as income increases.
Seasoned offering
An offering in which an issuer sells addi- tional units of a previously issued security.
Free float
The number of shares that are readily and freely tradable in the secondary market.
Arbitrageurs
Traders who engage in arbitrage
Diluted shares
The number of shares that would be outstanding if all potentially dilutive claims on common shares (e.g., convertible debt, convertible preferred stock, and employee stock options) were exercised.
Leverage
In the context of corporate finance, leverage refers to the use of fixed costs within a company’s cost structure. Fixed costs that are operating costs (such as depreciation or rent) create operating leverage. Fixed costs that are financial costs (such as interest expense) create financial leverage.
Pari passu
On an equal footing
Forward contract
An agreement between two parties in which one party, the buyer, agrees to buy from the other party, the seller, an underlying asset at a later date for a price established at the start of the contract.
Liabilities
Present obligations of an enterprise arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits; creditors’ claims on the resources of a company.
Coupon rate
The interest rate promised in a contract; this is the rate used to calculate the periodic interest payments.
Prime brokers
Brokers that provide services that commonly include custody, administration, lending, short borrowing, and trading.
Time-weighted rate of return
The compound rate of growth of one unit of currency invested in a portfolio during a stated measurement period; a measure of investment per- formance that is not sensitive to the timing and amount
of withdrawals or additions to the portfolio.
Sales risk
Uncertainty with respect to the quantity of goods and services that a company is able to sell and the price it is able to achieve; the risk related to the uncertainty of revenues.
Firm commitment offering
See underwritten offering
What is ACID-TEST RATIO?
A stringent measure of liquidity that indicates a company’s ability to satisfy current liabilities with its most liquid assets.
(or called quick ratio, also check for formula)
calculated as:
Cash + Short Term marketable investments + receivables) / current liabilities
Complete markets
Informally, markets in which the variety
of distinct securities traded is so broad that any desired
payoff in a future state-of-the-world is achievable.
Current liabilities
Short-term obligations, such as accounts payable, wages payable, or accrued liabilities, that are expected to be settled in the near future, typically one year or less.
Promissory note
A written promise to pay a certain amount of money on demand.
Back-testing
With reference to portfolio strategies, the appli- cation of a strategy’s portfolio selection rules to historical data to assess what would have been the strategy’s historical performance.
Payback period
The number of years required to recover the original investment in a project. The payback is based on cash flows
Duration gap
A bond’s Macaulay duration minus the investment horizon.
Effective duration
The sensitivity of a bond’s price to a change in a benchmark yield curve.
Gamma
A numerical measure of how sensitive an option’s delta (the sensitivity of the derivative’s price) is to a change in the value of the underlying.
Big Data
The vast amount of data being generated by industry, governments, individuals, and electronic devices that arises from both traditional and non-traditional data sources.
Priced risk
Risk for which investors demand compensation
for bearing (e.g. equity risk, company-specific factors,
macroeconomic factors).
Cost of debt
The cost of debt financing to a company, such as
when it issues a bond or takes out a bank loan.
Foreign currency reserves
Holding by the central bank of
non-domestic currency deposits and non-domestic bonds.
Sample excess kurtosis
A sample measure of the degree of
a distribution’s kurtosis in excess of the normal distribu-
tion’s kurtosis
Weighted average cost of capital
A weighted average of the aftertax required rates of return on a company’s common stock, preferred stock, and long-term debt, where the weights are the fraction of each source of financing in the company’s target capital structure.
Cryptocurrency
An electronic medium of exchange that lacks
physical form.
Trade credit
A spontaneous form of credit in which a pur-
chaser of the goods or service is financing its purchase by delaying the date on which payment is made.
Non-cyclical
A company whose performance is largely inde- pendent of the business cycle
Prepaid expense
A normal operating expense that has been
paid in advance of when it is due.
Central bank funds market
The market in which deposit- taking banks that have an excess reserve with their national central bank can loan money to banks that need funds for maturities ranging from overnight to one year. Called the
Federal or Fed funds market in the United States
First-degree price discrimination
Where a monopolist is able
to charge each customer the highest price the customer
is willing to pay.
Vertical analysis
Common-size analysis using only one report- ing period or one base financial statement; for example, an income statement in which all items are stated as per- centages of sales.
Code of ethics
An established guide that communicates an organization’s values and overall expectations regarding member behavior. A code of ethics serves as a general guide for how community members should act.
Depository institutions
Commercial banks, savings and loan banks, credit unions, and similar institutions that raise funds from depositors and other investors and lend it to borrowers.
Financial flexibility
The ability to react and adapt to financial adversity and opportunities.
Convexity adjustment
For a bond, one half of the annual or approximate convexity statistic multiplied by the change in the yield-to-maturity squared.
Continuous time
Time thought of as advancing in extremely
small increments.
Principal–agent relationship
A relationship in which a principal hires an agent to perform a particular task or service;
also known as an agency relationship.
Forward commitments
Class of derivatives that provides the ability to lock in a price to transact in the future at a previously agreed-upon price
Deferred income
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service.
Eurobonds
Type of bond issued internationally, outside the jurisdiction of the country in whose currency the bond is denominated.
Forward curve
A series of forward rates, each having the same timeframe.
Revaluation model
Under IFRS, the process of valuing long- lived assets at fair value, rather than at cost less accumu- lated depreciation. Any resulting profit or loss is either reported on the income statement and/or through equity
under revaluation surplus.
Conditional probability
The probability of an event given (conditioned on) another event.
Is payable date and payment date the same thing ? (Yes or no )
Yes - the day that the company actually mails out (or electronically transfers) a dividend payment.
What is ACTIVE INVESTMENT?
An approach to investing in which the investor seeks to outperform a given benchmark
Perfectly elastic
When the quantity demanded or supplied of a given good is infinitely sensitive to a change in the value of a specified variable (e.g., price)
One-tailed hypothesis test
A test in which the null hypothesis is rejected only if the evidence indicates that the population parameter is greater than (smaller than) θ0. The alternative hypothesis also has one side.
Ex-dividend date
The first date that a share trades without (i.e., “ex”) the dividend.
Operating cash flow
The net amount of cash provided from operating activities.
Fibonacci sequence
A sequence of numbers starting with 0 and 1, and then each subsequent number in the sequence is the sum of the two preceding numbers. In Elliott Wave Theory, it is believed that market waves follow patterns that are the ratios of the numbers in the Fibonacci sequence.
Platykurtic
Describes a distribution that has relatively less weight in the tails than the normal distribution.
Bond equivalent yield
A calculation of yield that is annualized using the ratio of 365 to the number of days to maturity. Bond equivalent yield allows for the restatement and com- parison of securities with different compounding periods.
National income
The income received by all factors of produc- tion used in the generation of final output. National income equals gross domestic product (or, in some countries, gross national product) minus the capital consumption allowance and a statistical discrepancy.
Non-renewable resources
Finite resources that are depleted once they are consumed, such as oil and coal.
Quantile
A value at or below which a stated fraction of the data lies. Also called fractile.
Broker–dealer
A financial intermediary (often a company)
that may function as a principal (dealer) or as an agent
(broker) depending on the type of trade.
Per unit contribution margin
The amount that each unit sold contributes to covering fixed costs - that is, the difference between he price per unit and the variable cost per unit.
Permissionless networks
Networks that are fully open to any user on a DLT network.
Risk factor/risk premium investing
An ESG investment style
that focuses on the inclusion of ESG information in the analysis of systematic risks as, for example, in smart beta and factor investment strategies (similar to size, value, momentum, and growth strategies).
Contract rate
See mortgage rate.
Quantity equation of exchange
An expression that over a given period, the amount of money used to purchase all goods and services in an economy, M × V, is equal to monetary value of this output, P × Y.
Point of sale (POS)
Systems that capture transaction data at the physical location in which the sale is made.
Project sequencing
To defer the decision to invest in a future project until the outcome of some or all of a current project is known. Projects are sequenced through time, so that investing in a project creates the option to invest in future projects.
Quintiles
Quantiles that divide a distribution into five equal parts.
Cash collateral account
Form of external credit enhance- ment whereby the issuer immediately borrows the credit- enhancement amount and then invests that amount, usually in highly rated short-term commercial paper.
Standardizing
A transformation that involves subtracting the
mean and dividing the result by the standard deviation.
Historical equity risk premium approach
An estimate of a country’s equity risk premium that is based upon the his- torical averages of the risk-free rate and the rate of return on the market portfolio.
Diffusion index
Reflects the proportion of the index’s components that are moving in a pattern consistent with the overall index.
Expenses
Outflows of economic resources or increases in liabilities that result in decreases in equity (other than decreases because of distributions to owners); reductions in net assets associated with the creation of revenues.
Display size
The size of an order displayed to public view.
Leptokurtic
Describes a distribution that has fatter tails than a normal distribution.
Financial account
A component of the balance of payments account that records investment flows.
Unearned revenue
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service. Also called deferred revenue or deferred income
Settlement price
The official price, designated by the clearing- house, from which daily gains and losses will be determined and marked to market.
Primary capital markets (primary markets)
The market where securities are first sold and the issuers receive the proceeds.
What is:
Aggregate supply curve
The level of domestic output that companies will produce at each price level.
(google: graph supply curve - long and short run)
Lessee
The party obtaining the use of an asset through a lease.
Replication
The creation of an asset or portfolio from another asset, portfolio, and/or derivative
Weak-form efficient market hypothesis
The belief that secu- rity prices fully reflect all past market data, which refers to all historical price and volume trading information.
Risk-neutral pricing
Sometimes said of derivatives pricing, uses the fact that arbitrage opportunities guarantee that a risk-free portfolio consisting of the underlying and the derivative must earn the risk-free rate.
Special purpose entity
A non-operating entity created to carry out a specified purpose, such as leasing assets or securitizing receivables; can be a corporation, partnership, trust, limited liability, or partnership formed to facilitate a specific type of business activity. Also called special purpose vehicle or variable interest entity.
Key rate duration
A method of measuring the interest rate sensitivities of a fixed-income instrument or portfolio to
shifts in key points along the yield curve.
Treynor ratio
A measure of risk-adjusted performance that relates a portfolio’s excess returns to the portfolio’s beta.
Earnings surprise
The portion of a company’s earnings that
is unanticipated by investors and, according to the efficient market hypothesis, merits a price adjustment.
Credit default swap (CDS)
A type of credit derivative in which one party, the credit protection buyer who is seeking credit protection against a third party, makes a series of regularly scheduled payments to the other party, the credit protection seller. The seller makes no payments until a credit event occurs.
Bollinger Bands
A price-based technical analysis indicator consisting of a moving average plus a higher line repre- senting the moving average plus a set number of standard deviations from average price (for the same number of periods as used to calculate the moving average) and a lower line that is a moving average minus the same number
of standard deviations.
Syndicated loans
Loans from group of lenders to a single borrower
Trade surplus (deficit)
When the value of exports is greater
(less) than the value of imports.
Fiscal policy
The use of taxes and government spending to
affect the level of aggregate expenditures.
Common market
Level of economic integration that incor-
porates all aspects of the customs union and extends it by allowing free movement of factors of production among members.
Quasi-government bonds
A bond issued by an entity that is either owned or sponsored by a national government. Also called agency bond.
Target capital structure
A company’s chosen proportions of debt and equity.
Distressed investing
Investing in securities of companies
in financial difficulty. Private equity funds that specialize in distressed investing typically buy the debt of mature companies in financial difficulty.
Liquidity trap
A condition in which the demand for money
becomes infinitely elastic (horizontal demand curve) so that injections of money into the economy will not lower interest rates or affect real activity.
Preference shares
type of equity interest which ranks above
common shares with respect to the payment of dividends and the distribution of the company’s net assets upon liquidation. They have characteristics of both debt and equity securities. Also called preferred stock.
Probability
A number between 0 and 1 describing the chance that a stated event will occur.
Return on assets (ROA)
A profitability ratio calculated as net income divided by average total assets; indicates a compa- ny’s net profit generated per dollar invested in total assets.
Fintech
Technological innovation in the design and delivery
of financial services and products in the financial industry.
Statistic
A quantity computed from or used to describe a sample of data.
Losses
Asset outflows not directly related to the ordinary activities of the business.
Futures contract
A variation of a forward contract that has essentially the same basic definition but with some addi- tional features, such as a clearinghouse guarantee against credit losses, a daily settlement of gains and losses, and an
organized electronic or floor trading facility.
Perfectly inelastic
When the quantity demanded or supplied of a given good is completely insensitive to a change in the value of a specified variable (e.g., price)
Double top
In technical analysis, a reversal pattern that is formed when an uptrend reverses twice at roughly the same high price level; used to predict a change from an uptrend to a downtrend.
Population variance
A measure of dispersion relating to a population, calculated as the mean of the squared devia- tions around the population mean.
Non-current liabilities
Obligations that broadly represent a probable sacrifice of economic benefits in periods generally greater than one year in the future.
Expected inflation
The level of inflation that economic agents expect in the future.
Dispersion
The variability around the central tendency.
Spot rates
A sequence of market discount rates that cor-
respond to the cash flow dates; yields-to-maturity on
zero-coupon bonds maturing at the date of each cash flow.
Assignment of accounts receivable
The use of accounts
receivable as collateral for a loan.
Demand shock
A typically unexpected disturbance to demand, such as an unexpected interruption in trade or transportation.
Quantitative easing
An expansionary monetary policy based on aggressive open market purchase operations.
Long
The buyer of a derivative contract. Also refers to the position of owning a derivative.
CBOE Volatility Index
A measure of near-term market volatility as conveyed by S&P 500 stock index option prices.
Gilts
Bonds issued by the UK government.
Revolving credit agreements
The strongest form of short- term bank borrowing facilities; they are in effect for multi- ple years (e.g., 3–5 years) and may have optional medium- term loan features.
Net tax rate
The tax rate net of transfer payments.
Risk exposure
The state of being exposed or vulnerable to a risk. The extent to which an organization is sensitive to underlying risks.
Behavioral finance
A field of finance that examines the psychological variables that affect and often distort the investment decision making of investors, analysts, and portfolio managers.
Depository receipt
A security that trades like an ordinary share on a local exchange and represents an economic interest in a foreign company.
Two-week repo rate
The interest rate on a two-week repur- chase agreement; may be used as a policy rate by a central bank.
Common-size analysis
The restatement of financial statement items using a common denominator or reference item that allows one to identify trends and major differences; an example is an income statement in which all items are expressed as a percent of revenue.
Flags
A technical analysis continuation pattern formed by
parallel trendlines, typically over a short period.
Stakeholders
Individuals or groups of individuals who may be affected either directly or indirectly by a decision and thus have an interest, or stake, in the decision.
Price to cash flow
A valuation ratio calculated as price per
share divided by cash flow per share.
Credit scoring model
A statistical model used to classify borrowers according to creditworthiness.
What is the other name of underlying?
Spot market
Diluted EPS
The EPS that would result if all dilutive securities were converted into common shares.
Personal disposable income
Equal to personal income less personal taxes.
Ethics
The study of moral principles or of making good choices. Ethics encompasses a set of moral principles and rules of conduct that provide guidance for our behavior.
Population standard deviation
A measure of dispersion
relating to a population in the same unit of measurement as the observations, calculated as the positive square root of the population variance.
Deep learning
Machine learning using neural networks with many hidden layers
Green finance
A type of finance that addresses environmental concerns while achieving economic growth.
Free cash flow to equity (FCFE)
The cash flow available to a company’s common shareholders after all operating expenses, interest, and principal payments have been made, and necessary investments in working and fixed capital have been made.
What is the definition of: A PRIORI PROBABILITY?
A probability based on logical analysis rather than on observation or personal judgement
Net revenue
Revenue after adjustments (e.g., for estimated returns or for amounts unlikely to be collected).
Beta
A measure of the sensitivity of a given investment or portfolio to movements in the overall market.
Passive investment
A buy and hold approach in which an investor does not make portfolio changes based on short-term expectations of changing market or security performance
Simple random sample
A subset of a larger population cre- ated in such a way that each element of the population
has an equal probability of being selected to the subset.
Complements
Goods that tend to be used together; techni-
cally, two goods whose cross-price elasticity of demand
is negative.
Yield duration
The sensitivity of the bond price with respect
to the bond’s own yield-to-maturity.
Fundamental weighting
An index weighting method in which the weight assigned to each constituent security is based on its underlying company’s size. It attempts to address the disadvantages of market-capitalization weighting by using measures that are independent of the constituent security’s price.
Permanent differences
Differences between tax and financial reporting of revenue (expenses) that will not be reversed at some future date. These result in a difference between the company’s effective tax rate and statutory tax rate and do not result in a deferred tax item.
Prepayment penalty mortgages
Mortgages that stipulate a monetary penalty if a borrower prepays within a certain time period after the mortgage is originated.
Fixed-for-floating interest rate swap
An interest rate swap in which one party pays a fixed rate and the other pays a floating rate, with both sets of payments in the same
currency. Also called plain vanilla swap or vanilla swap.
Reserve requirement
The requirement for banks to hold
reserves in proportion to the size of deposits.
Quasi-fixed cost
A cost that stays the same over a range of production but can change to another constant level when production moves outside of that range.
Underwritten offering
A type of securities issue mechanism in which the investment bank guarantees the sale of the securities at an offering price that is negotiated with the issuer. Also known as firm commitment offering.
Standard normal distribution
The normal density with mean
(μ) equal to 0 and standard deviation (σ) equal to 1.
Nonparametric test
A test that is not concerned with a parameter, or that makes minimal assumptions about the population from which a sample comes.
Boom
An expansionary phase characterized by economic growth “testing the limits” of the economy.
Semiannual bond basis yield
An annual rate having a periodicity of two, also known as a semiannual bond equivalent yield
Hurdle rate
The rate of return that must be met for a project
to be accepted.
Buyback
A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash.
Domestic content provisions
Stipulate that some percentage of the value added or components used in production should be of domestic origin.
Linker
See inflation-linked bond.
Expansion
The period of a business cycle after its lowest point and before its highest point.
Earnings per share
The amount of income earned during a
period per share of common stock.
Divergence
In technical analysis, a term that describes the case when an indicator moves differently from the security
being analyzed.
Controlling shareholders
A particular shareholder or block
of shareholders holding a percentage of shares that gives them significant voting power.
Share repurchase
A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash.
Global registered share
A common share that is traded on
different stock exchanges around the world in different
currencies.
Cost of capital
The rate of return that suppliers of capital require as compensation for their contribution of capital.
Economic indicator
A variable that provides information on
the state of the overall economy.
Zero-coupon bonds
Bonds that do not pay interest during
the bond’s life. It is issued at a discount to par value and
redeemed at par. Also called pure discount bonds.
Giffen goods
Goods that are consumed more as the price of the good rises because it is a very inferior good whose income effect overwhelms its substitution effect when
price changes.
Required margin
The yield spread over, or under, the ref- erence rate such that an FRN is priced at par value on a rate reset date.
Vote by proxy
A mechanism that allows a designated party— such as another shareholder, a shareholder representative, or management—to vote on the shareholder’s behalf.
Liquidity ratios
Financial ratios measuring the company’s
ability to meet its short-term obligations.
Net realisable value
Estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
Two-tailed hypothesis test
A test in which the null hypoth- esis is rejected in favor of the alternative hypothesis if the evidence indicates that the population parameter is either smaller or larger than a hypothesized value.
Opportunity cost
The value that investors forgo by choosing a particular course of action; the value of something in its best alternative use.
Flat price
The full price of a bond minus the accrued interest; also called the quotes or clean price
Current assets
Assets that are expected to be consumed or converted into cash in the near future, typically one year or less. Also called liquid assets.
What does ARR mean?
Average accounting Rate of return
Trimmed mean
A mean computed after excluding a stated small percentage of the lowest and highest observations.
Return on equity (ROE)
A profitability ratio calculated as net income divided by average shareholders’ equity.
First mortgage debt
Debt secured by a pledge of a specific
property.
Probability function
A function that specifies the probability that the random variable takes on a specific value.
Stagflation
When a high inflation rate is combined with a high level of unemployment and a slowdown of the economy.
Producer price index
Reflects the price changes experienced by domestic producers in a country.
Proxy contest
Corporate takeover mechanism in which shareholders are persuaded to vote for a group seeking a controlling position on a company’s board of directors.
Financial leverage ratio
A measure of financial leverage calcu- lated as average total assets divided by average total equity.
Good-on-open
An execution instruction specifying that an order can only be filled at the opening of trading.
Growth cyclical
A term sometimes used to describe companies that are growing rapidly on a long-term basis but that still experience above-average fluctuation in their revenues and profits over the course of a business cycle.
Crossing networks
Trading systems that match buyers and sellers who are willing to trade at prices obtained from other markets.
Death cross
A technical analysis term that describes a situation where a short-term moving average crosses from above a longer-term moving average to below it; this movement is considered bearish.
Commodity swap
A swap in which the underlying is a com- modity such as oil, gold, or an agricultural product.
What is QUASI-GOVERNMENT BOND other name?
Agency Bond
Up transition probability
The probability that an asset’s
value moves up.
Debentures
Type of bond that can be secured or unsecured.
Holder-of-record date
The date that a shareholder listed on the corporation’s books will be deemed to have owner- ship of the shares for purposes of receiving an upcoming dividend.
Day’s sales outstanding
Estimate of the average number of
days it takes to collect on credit accounts.
Liquidity risk
The risk that a financial instrument cannot be
purchased or sold without a significant concession in price due to the size of the market.
Gross margin
Sales minus the cost of sales (i.e., the cost of goods sold for a manufacturing company).
Ordinary annuity
An annuity with a first cash flow that is paid one period from the present.
Continuous random variable
A random variable for which the range of possible outcomes is the real line (all real num- bers between −∞ and +∞ or some subset of the real line).
Nonsystematic risk
Unique risk that is local or limited to a particular asset or industry that need not affect assets outside of that asset class.
Sovereign bond
A bond issued by a national government.
Reserve funds
See reserve accounts.
Component cost of capital
The rate of return required by suppliers of capital for an individual source of a company’s funding, such as debt or equity.
Sampling plan
The set of rules used to select a sample.
Gross domestic product
The market value of all final goods and services produced within the economy in a given period of time (output definition) or, equivalently, the aggregate income earned by all households, all companies, and the government within the economy in a given period of time (income definition).
Random variable
A quantity whose future outcomes are
uncertain.
Fisher effect
The thesis that the real rate of interest in an economy is stable over time so that changes in nominal interest rates are the result of changes in expected inflation.
Non-agency RMBS
In the United States, securities issued by private entities that are not guaranteed by a federal agency or a GSE.
Best offer
The lowest offer (ask price) in the market.
Broker
1) An agent who executes orders to buy or sell secu- rities on behalf of a client in exchange for a commission.
2) See futures commission merchants.
Double coincidence of wants
A prerequisite to barter trades, in particular that both economic agents in the transaction want what the other is selling.
Net profit margin
An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses. Also called profit margin or return on sales.
What is ACCELERATED METHODS?
Depreciation methods that allocate a relatively large proportion of the cost of an asset to the early years of the asset’s useful life.
Text analytics
The use of computer programs to analyze and derive meaning from typically large, unstructured text- or
voice-based datasets.
Current yield
The sum of the coupon payments received over the year divided by the flat price; also called the income or interest yield or running yield.
Effective convexity
A curve convexity statistic that measures the secondary effect of a change in a benchmark yield curve on a bond’s price.
Loan-to-value ratio
The ratio of a property’s purchase price to the amount of its mortgage.
Pennants
A technical analysis continuation patterns formed by trendlines that converge to form a triangle, typically over a short period
Extension risk
The risk that when interest rates rise, fewer prepayments will occur because homeowners are reluctant to give up the benefits of a contractual interest rate that now looks low. As a result, the security becomes longer in maturity than anticipated at the time of purchase.
Alternative trading systems
Trading venues that function like exchanges but that do not exercise regulatory authority over their subscribers except with respect to the conduct of the subscribers’ trading in their trading systems. Also called electronic communications networks or multilateral trading facilities.
Commercial paper
A short-term, negotiable, unsecured prom-
issory note that represents a debt obligation of the issuer.
Power of a test
The probability of correctly rejecting the
null—that is, rejecting the null hypothesis when it is false.
Economic stabilization
Reduction of the magnitude of economic fluctuations.
Fisher index
The geometric mean of the Laspeyres index.
Comparable company
A company that has similar business
risk; usually in the same industry and preferably with a
single line of business.
Stakeholder management
The identification, prioritization, and understanding of the interests of stakeholder groups, and managing the company’s relationships with these groups.
Self-investment limits
With respect to investment limitations
applying to pension plans, restrictions on the percentage of assets that can be invested in securities issued by the pension plan sponsor.
Excess kurtosis
Degree of kurtosis (fatness of tails) in excess of the kurtosis of the normal distribution.
Semilogarithmic
Describes a scale constructed so that equal intervals on the vertical scale represent equal rates of change, and equal intervals on the horizontal scale repre- sent equal amounts of change.
Cross-sectional data
Observations over individual units at a point in time, as opposed to time-series data.
New classical macroeconomics
An approach to macroeco- nomics that seeks the macroeconomic conclusions of individuals maximizing utility on the basis of rational
expectations and companies maximizing profits.
Required yield spread
The difference between the yield-to-
maturity on a new bond and the benchmark rate; additional compensation required by investors for the difference in risk and tax status of a bond relative to a government bond. Sometimes called the spread over the benchmark.
Fixed charge coverage
A solvency ratio measuring the num- ber of times interest and lease payments are covered by operating income, calculated as (EBIT + lease payments) divided by (interest payments + lease payments).
Forward rate agreements
a forrward contract calling for one party to make a fixed interest payment and the other to make an interest payment at a rate to be determined at the contract expiration.
Non-financial risks
Risks that arise from sources other than changes in the external financial markets, such as changes in accounting rules, legal environment, or tax rates.
Joint probability
The probability of the joint occurrence of stated events.
Pass-through rate
The coupon rate of a mortgage pass-through security
Carry
The net of the costs and benefits of holding, storing, or “carrying” an asset.
Operational independence
A bank’s ability to execute mon- etary policy and set interest rates in the way it thought
would best meet the inflation target.
Technology
The process a company uses to transform inputs into outputs.
What is:
Aging schedule
A breakdown of accounts into categories of days outstanding.
google: a company account table of the receivables in order of invoice due dates
Autarkic price
The price of a good or service in an autarkic
economy.
Random number
An observation drawn from a uniform distribution.
Limited partners
Partners with limited liability. Limited part- nerships in hedge and private equity funds are typically restricted to investors who are expected to understand and to be able to assume the risks associated with the investments.
Terminal value
The expected value of a share at the end of the investment horizon—in effect, the expected selling price.
Sampling distribution
The distribution of all distinct possible values that a statistic can assume when computed from samples of the same size randomly drawn from the same
population.
Headline inflation
The inflation rate calculated based on the price index that includes all goods and services in an economy.
Capital stock
The accumulated amount of buildings, machin- ery, and equipment used to produce goods and services.
Owners’ equity
The excess of assets over liabilities; the resid- ual interest of shareholders in the assets of an entity after deducting the entity’s liabilities. Also called shareholders’ equity or shareholders’ funds.
Number of days of inventory
An activity ratio equal to the
number of days in a period divided by the inventory ratio for the period; an indication of the number of days a com- pany ties up funds in inventory.
Global minimum-variance portfolio
The portfolio on the minimum-variance frontier with the smallest variance of return.
Strategic analysis
Analysis of the competitive environment with an emphasis on the implications of the environment for corporate strategy.
Underlying
An asset that trades in a market in which buyers and sellers meet, decide on a price, and the seller then delivers the asset to the buyer and receives payment. The underlying is the asset or other derivative on which a par- ticular derivative is based. The market for the underlying is also referred to as the spot market.
Supply shock
A typically unexpected disturbance to supply.
Semiannual bond equivalent yield
See semiannual bond basis yield
Tax expense
An aggregate of an entity’s income tax payable (or recoverable in the case of a tax benefit) and any changes in deferred tax assets and liabilities. It is essentially the income tax payable or recoverable if these had been determined based on accounting profit rather than taxable income.
Primary dealers
Financial institutions that are authorized
to deal in new issues of sovereign bonds and that serve primarily as trading counterparties of the office responsible for issuing sovereign bonds.
Lessor
The owner of an asset that grants the right to use the
asset to another party.
Comparative advantage
A country’s ability to produce a
good or service at a lower relative cost, or opportunity cost, than its trading partner.
Total factor productivity
A scale factor that reflects the por- tion of growth that is not accounted for by explicit factor inputs (e.g. capital and labor).
Depository bank
A bank that raises funds from depositors and other investors and lends it to borrowers.
Weighted average maturity
Weighting the remaining num- ber of months to maturity for each mortgage loan in the pool by the amount of the outstanding mortgage balance.
Lagging economic indicators
Turning points that take place later than those of the overall economy; they are believed to have value in identifying the economy’s past condition.
Deflation
Negative inflation.
Straight voting
A shareholder voting process in which shareholders receive one vote for each share owned.
Risk premium
An extra return expected by investors for bearing some specified risk.
Veblen goods
Goods that increase in desirability with increasing price
Operating profit margin
A profitability ratio calculated as
operating income (i.e., income before interest and taxes)
divided by revenue. Also called operating margin.
Cash flow additivity principle
The principle that dollar amounts indexed at the same point in time are additive.
Contracts for differences
See non-deliverable forwards.
Payable date
The day that the company actually mails out ( or electronically transfers) a dividend payment
Shortfall risk
The risk that portfolio value will fall below some minimum acceptable level over some time horizon.
Depreciation
The process of systematically allocating the cost of long-lived (tangible) assets to the periods during which the assets are expected to provide economic benefits.
Convergence
The tendency for differences in output per capita across countries to diminish over time; in technical analysis, a term that describes the case when an indicator moves in the same manner as the security being analyzed.
Book value
The net amount shown for an asset or liability on the balance sheet; book value may also refer to the company’s excess of total assets over total liabilities. Also called carrying value.
Call
An option that gives the holder the right to buy an under- lying asset from another party at a fixed price over a specific period of time.
What is:
Aggregate supply
The quantity of goods and services producers are willing to supply at any given level of price.
(google: total available goods / services to a particular market from a producer)
Breakeven point
The number of units produced and sold at which the company’s net income is zero (Revenues = Total cost); in the case of perfect competition, the quantity at which price, average revenue, and marginal revenue equal average total cost.
Unit normal distribution
The normal density with mean (μ)
equal to 0 and standard deviation (σ) equal to 1.
Discount rates
In general, the interest rate used to calculate a present value. In the money market, however, discount rate is a specific type of quoted rate.
Out of the money
Options that, if exercised, would require the payment of more money than the value received and therefore would not be currently exercised.
Quoted margin
The specified yield spread over the reference rate, used to compensate an investor for the difference in the credit risk of the issuer and that implied by the reference rate.
What is the other name for Book Value ?
Carrying value
Hypothesis testing
With reference to statistical inference, the subdivision dealing with the testing of hypotheses about
one or more populations.
Binomial random variable
The number of successes in n
Bernoulli trials for which the probability of success is
constant for all trials and the trials are independent.
Cash prices
See spot prices.
Total return index
An index that reflects the price appreciation or percentage change in price of the constituent securities plus any income received since inception.
Scenario analysis
Analysis that shows the changes in key
financial quantities that result from given (economic) events, such as the loss of customers, the loss of a sup- ply source, or a catastrophic event; a risk management technique involving examination of the performance of a portfolio under specified situations. Closely related to stress testing.
Profit
The return that owners of a company receive for the use of their capital and the assumption of financial risk when making their investments.
Effective annual rate
The amount by which a unit of currency will grow in a year with interest on interest included.
Direct format
With reference to the cash flow statement, a format for the presentation of the statement in which cash flow from operating activities is shown as operating cash receipts less operating cash disbursements. Also called direct method.
Target balance
A minimum level of cash to be held avail- able—estimated in advance and adjusted for known funds transfers, seasonality, or other factors.
Equal weighting
An index weighting method in which an equal weight is assigned to each constituent security at inception.
Leveraged buyout
A transaction whereby the target company’s management team converts the target to a privately held company by using heavy borrowing to finance the purchase of the target company’s outstanding shares.q
Peer group
A group of companies engaged in similar business activities whose economics and valuation are influenced by closely related factors
Structural subordination
Arises in a holding company struc- ture when the debt of operating subsidiaries is serviced by the cash flow and assets of the subsidiaries before funds can be passed to the holding company to service debt at the parent level.
Collaterals
Assets or financial guarantees underlying a debt
obligation that are above and beyond the issuer’s promise to pay.
Repo rate
The interest rate on a repurchase agreement.
Tactical asset allocation
The decision to deliberately deviate from the strategic asset allocation in an attempt to add value based on forecasts of the near-term relative perfor- mance of asset classes.
Node
Each value on a binomial tree from which successive moves or outcomes branch.
What is ABSOLUTE FREQUENCY?
The number of (time a value of) observations in a given interval (is counted) “for grouped data”
Relative price
The price of a specific good or service in comparison with those of other goods and services.
Turn-of-the-year effect
Calendar anomaly that stock mar- ket returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first five trading days in January.
Default risk
The probability that a borrower defaults or fails to meet its obligation to make full and timely payments of principal and interest, according to the terms of the debt security. Also called default probability.
Unlimited funds
An unlimited funds environment assumes
that the company can raise the funds it wants for all prof-
itable projects simply by paying the required rate of return.
Strategic asset allocation
The set of exposures to IPS- permissible asset classes that is expected to achieve the client’s long-term objectives given the client’s investment constraints.
Terminal stock value
The expected value of a share at the end of the investment horizon—in effect, the expected selling price. Also called terminal value.
Smart beta
Involves the use of simple, transparent, rules-based strategies as a basis for investment decisions.
Neutral rate of interest
The rate of interest that neither spurs
on nor slows down the underlying economy.
Securitized assets
Assets that are typically used to create
asset-backed bonds; for example, when a bank securitizes a pool of loans, the loans are said to be securitized.
Smart contract
A computer program that is designed to self- execute on the basis of pre-specified terms and conditions agreed to by parties to a contract.
Ethical principles
Beliefs regarding what is good, acceptable, or obligatory behavior and what is bad, unacceptable, or forbidden behavior.
Risk
Exposure to uncertainty. The chance of a loss or adverse outcome as a result of an action, inaction, or external event.
Secondary bond markets
Markets in which existing bonds are traded among investors.
Law of diminishing returns
The smallest output that a firm can produce such that its long run average costs are minimized.
Elastic
Said of a good or service when the magnitude of elas- ticity is greater than one.
Lockup period
The minimum holding period before investors are allowed to make withdrawals or redeem shares from a fund.
Dutch Book theorem
A result in probability theory stating that inconsistent probabilities create profit opportunities.
What is QUASI-GOVERNMENT BOND?
A bond issued by an entity that is either owned or sponsored by a national government
Cash flow from operating activities
The net amount of cash provided from operating activities.
Weighted average life
A measure that gives investors an indication of how long they can expect to hold the MBS before it is paid off; the convention-based average time to receipt of all principal repayments. Also called average life.
Quote-driven market
A market in which dealers acting as principals facilitate trading.
Good-on-close
An execution instruction specifying that an order can only be filled at the close of trading. Also called market on close.
Renewable resources
Resources that can be replenished,
such as a forest.
What is AMERICAN DEPOSITORY SHARE?
The underlying shares on which American depository receipts are based. They trade in the issuing company’s domestic market
(google: a certificate issued by an american bank representing a share of a foreign stock the bank holds in trust but that is traded on an american stock exchange)
What is ANTICIPATION STOCK?
Excess inventory that is held in anticipation of increased demand, often because of seasonal patterns of demand
Semi-strong-form efficient market
A market in which security prices reflect all publicly known and available information.
Convenience yield
A non-monetary advantage of holding an asset.
Futures price
The agreed-upon price of a futures contract.
Shareholder activism
Strategies used by shareholders to attempt to compel a company to act in a desired manner.
Frequency polygon
A graph of a frequency distribution obtained by drawing straight lines joining successive points representing the class frequencies.
Order
A specification of what instrument to trade, how much to trade, and whether to buy or sell.
Average life
See weighted average life.
Open economy
An economy that trades with other countries.
Net operating cycle
An estimate of the average time that elapses between paying suppliers for materials and col- lecting cash from the subsequent sale of goods produced
Elasticity of supply
A measure of the sensitivity of quantity supplied to a change in price: %∆QS/%∆P.
Enterprise risk management
An overall assessment of a company’s risk position. A centralized approach to risk management sometimes called firmwide risk management.
Conversion ratio
For a convertible bond, the number of
common shares that each bond can be converted into.
LIFO reserve
The difference between the reported LIFO inven- tory carrying amount and the inventory amount that would have been reported if the FIFO method had been used (in other words, the FIFO inventory value less the LIFO inventory value).
Spread risk
Bond price risk arising from changes in the yield
spread on credit-risky bonds; reflects changes in the mar- ket’s assessment and/or pricing of credit migration (or downgrade) risk and market liquidity risk.
Secondary market
The market where securities are traded among investors.
Cost of carry
See carry.
Alternative data
Non-traditional data types generated by the use of electronic devices, social media, satellite and sensor networks, and company exhaust.
High-frequency trading
A form of algorithmic trading that makes use of vast quantities of data to execute trades on ultra-high-speed networks in fractions of a second.
Say on pay
A process whereby shareholders may vote on executive remuneration (compensation) matters.
Recession
A period during which real GDP decreases (i.e.,negative growth) for at least two successive quarters, or a period of significant decline in total output, income, employment, and sales usually lasting from six months to a year.
Days in receivables
Estimate of the average number of days
it takes to collect on credit accounts.
Depression
See contraction.
Fiduciary call
A combination of a European call and a risk-free bond that matures on the option expiration day and has a face value equal to the exercise price of the call.
Fixed rate perpetual preferred stock
Nonconvertible, non- callable preferred stock that has a fixed dividend rate and no maturity date
What is ANNUITY DUE?
An annuity having a first cash flow that is paid immediately
Warehouse receipt arrangement
The use of inventory as collateral for a loan; similar to a trust receipt arrangement except there is a third party (i.e., a warehouse company) that supervises the inventory.
Capacity
The ability of the borrower to make its debt pay- ments on time.
ESG integration
The integration of qualitative and quanti- tative environmental, social, and governance factors into traditional security and industry analysis; also known as ESG incorporation.
Transfer payments
Welfare payments made through the social security system that exist to provide a basic minimum level of income for low-income households.
Swap contract
An agreement between two parties to exchange a series of future cash flows.
What is AGGREGATE DEMAND CURVE?
Inverse relationship between the price level and the real output
Taxable income
The portion of an entity’s income that is sub-
ject to income taxes under the tax laws of its jurisdiction.
Bridge financing
Interim financing that provides funds until permanent financing can be arranged.
Systematic sampling
A procedure of selecting every kth member until reaching a sample of the desired size. The sample that results from this procedure should be approx- imately random.
Quick ratio
A stringent measure of liquidity that indicates a company’s ability to satisfy current liabilities with its most liquid assets, calculated as (cash + short-term marketable investments + receivables) divided by current liabilities.
Price index
Represents the average prices of a basket of goods and services.
Ricardian equivalence
An economic theory that implies that it makes no difference whether a government finances a deficit by increasing taxes or issuing debt.
Running yield
See current yield.
Supranational bonds
A bond issued by a supranational agency
such as the World Bank.
Held-to-maturity
Debt (fixed-income) securities that a com- pany intends to hold to maturity; these are presented at their original cost, updated for any amortisation of dis- counts or premiums.
What is the other name for Carrying value?
Book value
Cost structure
The mix of a company’s variable costs and
fixed costs.
Price to earnings ratio
(P/E ratio or P/E) The ratio of share
price to earnings per share.
Semivariance
The average squared deviation below the mean.
Deep learning nets
Machine learning using neural networks with many hidden layers.
Scatter plot
A two-dimensional plot of pairs of observations on two data series.
Normal distribution
A continuous, symmetric probability distribution that is completely described by its mean and its variance.
Open market operations
The purchase or sale of bonds by the national central bank to implement monetary policy. The bonds traded are usually sovereign bonds issued by the national government.
Common shares
A type of security that represent an owner- ship interest in a company.
Full integration
An ESG investment style that focuses on the explicit inclusion of ESG factors into the traditional financial analysis of individual stocks for the purpose of valuation (e.g., as inputs into cash flow forecasts and/or cost-of-capital estimates).
Option premium
The amount of money a buyer pays and
seller receives to engage in an option transaction.
Public offering
An offering of securities in which any member of the public may buy the securities. Also called public offers
Paired observations
Observations that are dependent on each other
Thematic investment
An ESG investing style that focuses
on investing in themes or assets specifically relating to ESG factors, such as clean energy, green technology, or sustainable agriculture.
Simple interest
The interest earned each period on the orig-
inal investment; interest calculated on the principal only.
Discriminatory pricing rule
A pricing rule used in continuous markets in which the limit price of the order or quote that first arrived determines the trade price.
Precautionary money balances
Money held to provide a buffer against unforeseen events that might require money.
Portfolio planning
The process of creating a plan for building a portfolio that is expected to satisfy a client’s investment objectives.
Venture capital
Investments that provide “seed” or startup
capital, early-stage financing, or later-stage financing (including mezzanine-stage financing) to companies that are in early development stages and require additional capital for expansion or preparation for an initial public offering.
Diffuse prior
The assumption of equal prior probabilities.
Positive screening
An ESG investment style that focuses on the inclusion of certain sectors, companies, or practices in a fund or portfolio on the basis of specific minimum
ESG criteria.
Book building
Investment bankers’ process of compiling a “book” or list of indications of interest to buy part of an offering.
Diminishing balance method
An accelerated depreciation method, i.e., one that allocates a relatively large propor- tion of the cost of an asset to the early years of the asset’s useful life.
Collateral manager
Buys and sells debt obligations for and from the CDO’s portfolio of assets (i.e., the collateral) to generate sufficient cash flows to meet the obligations to
the CDO bondholders.
Cumulative distribution function
A function giving the probability that a random variable is less than or equal to a specified value.
Shareholders’ equity
Assets less liabilities; the residual inter-
est in the assets after subtracting the liabilities.
Long position
A position in an asset or contract in which one owns the asset or has an exercisable right under the contract.
Cannibalization
Cannibalization occurs when an investment takes customers and sales away from another part of the company.
Derivative pricing rule
A pricing rule used by crossing net-
works in which a price is taken (derived) from the price that is current in the asset’s primary market.
Relative frequency
With reference to an interval of grouped
data, the number of observations in the interval divided by the total number of observations in the sample.
Unanticipated (unexpected) inflation
The component of
inflation that is a surprise.
Quoted interest rate
A quoted interest rate that does not account for compounding within the year. Also called stated annual interest rate.
Perpetual bonds
Bonds with no stated maturity date.
Sample selection bias
Bias introduced by systematically
excluding some members of the population according to a particular attribute—for example, the bias introduced when data availability leads to certain observations being excluded from the analysis.
Best effort offering
An offering of a security using an invest-
ment bank in which the investment bank, as agent for the issuer, promises to use its best efforts to sell the offering but does not guarantee that a specific amount will be sold.
Random number generator
An algorithm that produces uniformly distributed random numbers between 0 and 1.
Number of days of receivables
Estimate of the average num- ber of days it takes to collect on credit accounts.
What is ARBITRAGE ?
1) The simultaneous purchase of an undervalued asset or portfolio, in order to obtain a diskless profit on the price differential.
Taking advantage of a market inefficiency in a risk-free manner.
2) the condition in a financial market in which equivalent asset or combinations of assets sell for two different prices, creating an opportunity to profit at no risk with no commitment of money.
In a well-functioning financial market, few arbitrage opportunities are possible
3) a risk-free operation that earns an expected positive net profit but requires no net investment of money.
Google: the simultaneous buying and selling, currency, or commodities in different market or in derivatives forms in order to take advantage of differing prices for the same asset.
Participating preference shares
Preference shares that entitle shareholders to receive the standard preferred dividend plus the opportunity to receive an additional dividend if the company’s profits exceed a pre-specified level.
Simple random sampling
The procedure of drawing a sample
to satisfy the definition of a simple random sample.
Certificate of deposit
An instrument that represents a spec- ified amount of funds on deposit with a bank for a speci- fied maturity and interest rate. CDs are issued in various
denominations and can be negotiable or non-negotiable.
Retracement
In technical analysis, a reversal in the movement of a security’s price such that it is counter to the prevailing
longerterm price trend.
Term structure of credit spreads
The relationship between
the spreads over the “risk-free” (or benchmark) rates and
times-to-maturity.
Degrees of freedom (df)
The number of independent obser- vations used.
Nonconventional cash flow
In a nonconventional cash flow
pattern, the initial outflow is not followed by inflows only, but the cash flows can flip from positive (inflows) to nega- tive (outflows) again (or even change signs several times).
Other comprehensive income
Items of comprehensive income that are not reported on the income statement; comprehensive income minus net income.
Fixed costs
Costs that remain at the same level regardless of
a company’s level of production and sales.
Point estimate
A single numerical estimate of an unknown quantity, such as a population parameter.
What is AMORTIZING LOAN ?
Loan with a payment schedule that calls for periodic payments of interest and repayments of principal
Warrant
Attached option that gives its holder the right to buy the underlying stock of the issuing company at a fixed exercise price until the expiration date.
Redemption yield
See yield to maturity
Weighted mean
An average in which each observation is weighted by an index of its relative importance.
Dividend discount model
(DDM) A present value model that
estimates the intrinsic value of an equity share based on the present value of its expected future dividends.
Settlement date
Date when the buyer makes cash payment and the seller delivers the security.
Repurchase date
The date when the party who sold the security at the inception of a repurchase agreement buys the security back from the cash lending counterparty.
Sample kurtosis
A sample measure of the degree of a distri-
bution’s peakedness.
Principal business activity
The business activity from which a
company derives a majority of its revenues and/or earnings.
Spurious correlation
A correlation that misleadingly points toward associations between variables.
Total fixed cost
The summation of all expenses that do not change as the level of production varies.
Call market
A market in which trades occur only at a particular time and place (i.e., when the market is called).
Fair value
The amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction; the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Harmonic mean
A type of weighted mean computed by averaging the reciprocals of the observations, then taking
the reciprocal of that average.
Variance
The expected value (the probability-weighted
average) of squared deviations from a random variable’s
expected value.
Price relative
A ratio of an ending price over a beginning price; it is equal to 1 plus the holding period return on the asset.
Credit tranching
A structure used to redistribute the credit risk associated with the collateral; a set of bond classes created to allow investors a choice in the amount of credit risk that they prefer to bear.
Yield to redemption
see yield to maturity
Sector
A group of related industries.
Notional principal
An imputed principal amount.
Derivatives
A financial instrument whose value depends on the value of some underlying asset or factor (e.g., a stock price, an interest rate, or exchange rate).
Artihmetric mean
The sum of the observations divided (/) by the number of observations
Other name for underwritten offering is ?
Commitment offering
Total variable cost
The summation of all variable expenses.
Cash conversion cycle
A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to days of inventory on hand + days of sales outstanding – number of days of payables. Also called net operating cycle.
Specific identification method
An inventory accounting method that identifies which specific inventory items were sold and which remained in inventory to be carried over to later periods.
Broad money
Encompasses narrow money plus the entire range of liquid assets that can be used to make purchases.
What is the other name for ALTERNATIVE TRADING SYSTEM?
Electronic communications networks or multilateral trading facilities
Daily settlement
See mark to market and marking to market.
Drag on liquidity
When receipts lag, creating pressure from the decreased available funds.
Revenue
The amount charged for the delivery of goods or services in the ordinary activities of a business over a stated period; the inflows of economic resources to a company over a stated period.
Block brokers
A broker (agent) that provides brokerage ser- vices for large-size trades.
Sustainable rate of economic growth
The rate of increase in the economy’s productive capacity or potential GDP.
Spread
In general, the difference in yield between different fixed income securities. Often used to refer to the differ-
ence between the yield-to-maturity and the benchmark.
Keynesians
Economists who believe that fiscal policy can
have powerful effects on aggregate demand, output, and employment when there is substantial spare capacity in an economy.
Stock dividend
A type of dividend in which a company distrib- utes additional shares of its common stock to shareholders instead of cash.
Lender of last resort
An entity willing to lend money when no other entity is ready to do so.
Early repayment option
See prepayment option.
Lower bound
The lowest possible value of an option.
What is ELECTRONIC COMMUNICATIONS NETWORKS
see Alternative trading system
Letter of credit
Form of external credit enhancement whereby
a financial institution provides the issuer with a credit line to reimburse any cash flow shortfalls from the assets backing the issue.
Open-end fund
A mutual fund that accepts new investment money and issues additional shares at a value equal to the net asset value of the fund at the time of investment.
Allocationally efficient
A characteristic of a market, a financial system, or an economy that promotes the allocation of resources to their highest value uses.
Price value of a basis point
A version of money duration, it is
an estimate of the change in the full price of a bond given a 1 basis point change in the yield-to-maturity.
Unconditional probability
The probability of an event not
conditioned on another event.
Street convention
Yield measure that neglects weekends and holidays; the internal rate of return on cash flows assuming payments are made on the scheduled dates, even when the scheduled date falls on a weekend or holiday.
Serial maturity structure
Structure for a bond issue in which
the maturity dates are spread out during the bond’s life; a stated number of bonds mature and are paid off each year before final maturity.
Stackelberg model
A prominent model of strategic decision making in which firms are assumed to make their decisions sequentially.
Capital allocation line
(CAL) A graph line that describes the combinations of expected return and standard deviation of return available to an investor from combining the optimal portfolio of risky assets with the risk-free asset
Sustainable investing
The practice of identifying companies that can efficiently manage their financial, environmen- tal, and human capital resources to generate attractive long-term profitability; often synonymous with responsible investing.
Price to book value
A valuation ratio calculated as price per
share divided by book value per share.
Discouraged worker
A person who has stopped looking for
a job or has given up seeking employment.
Estimator
An estimation formula; the formula used to com- pute the sample mean and other sample statistics are examples of estimators.
Robo-adviser
A machine-based analytical tool or service that provides technology-driven investment solutions through
online platforms.
Leading economic indicators
Turning points that usually precede those of the overall economy; they are believed to have value for predicting the economy’s future state, usually near-term.
Haircut
See repo margin.
Defensive companies
Companies with sales and profits that have little sensitivity to the business cycle or state of the economy.
Conventional cash flow
A conventional cash flow pattern is
one with an initial outflow followed by a series of inflows.
Spearman rank correlation coefficient
A measure of cor- relation applied to ranked data.
Permissioned networks
Networks that are fully open only to select participants on a DLT network
Enterprise value
A measure of a company’s total market value from which the value of cash and short-term investments have been subtracted.
Sampling
The process of obtaining a sample.
What is ADD-ON RATES?
Bank certificates of deposit, repos, and indexes such as LIBOR & EURIBOR are quoted on an add-basis (bond equivalent yield basis)
Performance evaluation
The measurement and assessment of the outcome of investment management decision
Face value
The amount of cash payable by a company to the bondholders when the bonds mature; the promised payment at maturity separate from any coupon payment.
Trade diversion
When regional integration results in lower- cost imports from non-member countries being replaced with higher-cost imports from members
General partner
The partner that runs the business and ultimately bears unlimited liability for the business’s debts
and obligations.
Committed capital
The amount that the limited partners have agreed to provide to the private equity fund.
Proxy voting
A process that enables shareholders who are unable to attend a meeting to authorize another individual to vote on their behalf
Balance of trade deficit
When the domestic economy is spending more on foreign goods and services than foreign economies are spending on domestic goods and services.
Systematic risk
Risk that affects the entire market or econ- omy; it cannot be avoided and is inherent in the overall market. Systematic risk is also known as non-diversifiable or market risk.
Household
A person or a group of people living in the same
residence, taken as a basic unit in economic analysis.
Constituent securities
With respect to an index, the individual securities within an index.
Reverse repurchase agreement
A repurchase agree- ment viewed from the perspective of the cash lending counterparty.
Redemptions
Withdrawals of funds by investors, as allowed by the notice period and other terms in the partnership agreement
Profit and loss (P&L) statement
A financial statement that provides information about a company’s profitability over a stated period of time. Also called the income statement.
Unit elastic
An elasticity with a magnitude of negative one.
Also called unitary elastic.
Giro system
An electronic payment system used widely in
Europe and Japan.
Statistically significant
A result indicating that the null hypothesis can be rejected; with reference to an estimated regression coefficient, frequently understood to mean a result indicating that the corresponding population regres- sion coefficient is different from 0.
Public offer
See public offering
Benchmark issue
The latest sovereign bond issue for a given maturity. It serves as a benchmark against which to com- pare bonds that have the same features but that are issued by another type of issuer.
Backup lines of credit
A type of credit enhancement provided by a bank to an issuer of commercial paper to ensure that the issuer will have access to sufficient liquidity to repay maturing commercial paper if issuing new paper is not a viable option.
Bond indenture
The governing legal credit agreement, typ- ically incorporated by reference in the prospectus. Also called trust deed.
Disbursement float
The amount of time between check issu- ance and a check’s clearing back against the company’s account.
Sustainable growth rate
The rate of dividend (and earnings) growth that can be sustained over time for a given level of return on equity, keeping the capital structure constant and without issuing additional common stock.
Total comprehensive income
The change in equity during a
period resulting from transaction and other events, other than those changes resulting from transactions with owners in their capacity as owners.
Days of inventory on hand
An activity ratio equal to the
number of days in the period divided by inventory turnover over the period.
Private investment in public equity
PIPE) An investment in the equity of a publicly traded firm that is made at a discount to the market value of the firm’s shares.
Variation margin
Additional margin that must be deposited in
an amount sufficient to bring the balance up to the initial
margin requirement.
What is ANTI-DILUTIVE ?
With ref. to a transaction or a security, one that would increased earnings per shares (EPS) or result in EPS higher than the company’s basic EPS - anti-dilutive securities are not included in the calculation of dilutes EPS.
Expected value
The probability-weighted average of the pos- sible outcomes of a random variable.
Statutory voting
A common method of voting where each share represents one vote.
Speculative demand for money
The demand to hold specu- lative money balances based on the potential opportunities or risks that are inherent in other financial instruments. Also called portfolio demand for money.
Outcome
A possible value of a random variable
Pure discount bonds
See zero-coupon bonds
Capital consumption allowance
A measure of the wear and tear (depreciation) of the capital stock that occurs in the production of goods and services
Fed funds rate
The US interbank lending rate on overnight borrowings of reserves.
Statement of financial position
The financial statement that presents an entity’s current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims), as of a particular point in time (the date of the balance sheet).
Step-up coupon bond
Bond for which the coupon, which may be fixed or floating, increases by specified margins at specified dates.
Central banks
The dominant bank in a country, usually with
official or semi-official governmental status.
What is ACCOUNTING COSTS?
Monetary value of economic resources used in performing an activity. These can be explicit, out-of-pocket, current payments, or an allocation of historical payments (depreciation) for resources. They do not include implicit opportunity costs.
Natural language processing
Computer programs developed to analyze and interpret human language.
Contingent convertible bonds
Bonds that automatically convert into equity if a specific event or circumstance occurs, such as the issuer’s equity capital falling below the minimum requirement set by the regulators. Also called CoCos.
Statement of changes in equity
(statement of owners’ equity)
A financial statement that reconciles the beginning-of- period and end-of-period balance sheet values of share- holders’ equity; provides information about all factors affecting shareholders’ equity. Also called statement of owners’ equity.
Yield
The actual return on a debt security if it is held to
maturity.
Spread over the benchmark
See required yield spread.
Repo margin
The difference between the market value of the security used as collateral and the value of the loan. Also called haircut.
Screening
The application of a set of criteria to reduce a set of potential investments to a smaller set having certain desired characteristics.
Credit spread option
An option on the yield spread on a bond.
Collateralized debt obligation
Generic term used to describe a security backed by a diversified pool of one or more debt
obligations.
Capital budgeting
The process that companies use for deci- sion making on capital projects—those projects with a life of one year or more.
Histogram
A bar chart of data that have been grouped into a frequency distribution.
Sponsored
A type of depository receipt in which the foreign company whose shares are held by the depository has a
direct involvement in the issuance of the receipts.
Sensitivity analysis
Analysis that shows the range of possible
outcomes as specific assumptions are changed.
Personal consumption expenditures
All domestic personal consumption; the basis for a price index for such consumption called the PCE price index.
Exclusionary screening
An ESG implementation approach that excludes certain sectors or companies that deviate from an investor’s accepted standards. Also called negative screening or norms-based screening.
Survivorship bias
The bias resulting from a test design that fails to account for companies that have gone bankrupt, merged, or are otherwise no longer reported in a database.
Repurchase price
The price at which the party who sold the security at the inception of the repurchase agreement buys the security back from the cash lending counterparty.
Price to sales
A valuation ratio calculated as price per share
divided by sales per share.
Debt-to-capital ratio
A solvency ratio calculated as total debt divided by total debt plus total shareholders’ equity
Posterior probability
An updated probability that reflects or
comes after new information.
Price stability
In economics, refers to an inflation rate that is
low on average and not subject to wide fluctuation.
Credit enhancements
Provisions that may be used to reduce the credit risk of a bond issue.
Assets
Resources controlled by an enterprise as a result of past events and from which future economic benefits to
the enterprise are expected to flow.
Variable cost
Costs that fluctuate with the level of produc-
tion and sales.
Behind the market
Said of prices specified in orders that are worse than the best current price; e.g., for a limit buy order, a limit price below the best bid.
Put-call parity
An équation expressing the equivalence (parity) of a portfolio of a call and a bond with a portfolio of a put and the underlying, which leads to the relationship between put and call prices.
Limit order book
The book or list of limit orders to buy and sell that pertains to a security.
Price multiple
A ratio that compares the share price with some sort of monetary flow or value to allow evaluation of the relative worth of a company’s stock.
What is ACCOUNTS RECEIVABLE TURNOVER?
Ratio of sales on credit to the average balance in accounts receivable
Continuously compounded return
The natural logarithm of 1 plus the holding period return, or equivalently, the natural logarithm of the ending price over the beginning price.
Gains
Asset inflows not directly related to the ordinary activities of the business.
What is AGENCY RMBS?
In the USA, securities backed by residential mortgages loans and guaranteed by a federal agency or guarantee by either of the two GSEs (Fannie Mae OR Freddie Mac)
(google: backed by government tax agencies)
Simple yield
The sum of the coupon payments plus the straight-line amortized share of the gain or loss divided by the flat price.
Oligopoly
Market structure with a relatively small number of firms supplying the market.
Negative screening
An ESG investment style that focuses on the exclusion of certain sectors, companies, or practices in a fund or portfolio on the basis of specific ESG criteria
Global depository receipt
A depository receipt that is issued
outside of the company’s home country and outside of the
United States.
Diversification ratio
The ratio of the standard deviation of
an equally weighted portfolio to the standard deviation of
a randomly selected security.
Contraction
The period of a business cycle after the peak and
before the trough; often called a recession or, if exceptionally severe, called a depression.
Collateralized mortgage obligation
A security created through the securitization of a pool of mortgage-related products (mortgage pass-through securities or pools of loans).
Rho
The sensitivity of the option price to the risk-free rate.
What is ACTIVE RETURN?
The return on a portfolio - (minus) the return on the portfolio’s benchmark
Currency swap
A swap in which each party makes interest payments to the other in different currencies.
Triple tops
In technical analysis, a reversal pattern that is formed when the price forms three peaks at roughly the same price level; used to predict a change from an uptrend to a downtrend.
Partial duration
See key rate duration
Currencies
Monies issued by national monetary authorities.
Ask size
The max quantity of an asset that pertains (google: applicable) to a specific ask price from a trader.
Ex: If the ask for a share issue is 30$ for a size of 1,000 shares, the trader is offering to sell a 30$ up to 1,000 shares.
Sales
Generally, a synonym for revenue; “sales” is generally understood to refer to the sale of goods, whereas “revenue” is understood to include the sale of goods or services.
Compounding
The process of accumulating interest on interest.
Quotas
Government policies that restrict the quantity of a good that can be imported into a country, generally for a specified period of time.
Robust
The quality of being relatively unaffected by a violation of assumptions.
What is ACQUISITION METHOD?
A method of accounting for a business combination where the acquirer is required to measure each identifiable asset and liability at fair value.
This method was the result of a joint project of the IASB and FASB aiming at convergence in standards for the accounting of business combinations.
( google: when an acquirer buys another company and uses GAAP, it must record the event -> that event is called acquisition method)
Parameter
A descriptive measure computed from or used to describe a population of data, conventionally represented by greek letters
Bid–offer spread
The difference between the prices at which dealers will buy from a customer (bid) and sell to a cus- tomer (offer or ask). It is often used as an indicator of liquidity.
Best bid
The highest bid in the market.
Unemployed
People who are actively seeking employment but are currently without a job
Stock-out losses
Profits lost from not having sufficient inven- tory on hand to satisfy demand.
Reverse repo
A repurchase agreement viewed from the per- spective of the cash lending counterparty.
Export subsidy
Paid by the government to the firm when it exports a unit of a good that is being subsidized.
LIFO layer liquidation
With respect to the application of the LIFO inventory method, the liquidation of old, relatively low-priced inventory; happens when the volume of sales rises above the volume of recent purchases so that some sales are made from relatively old, low-priced inventory. Also called LIFO liquidation.
Clearinghouse
An entity associated with a futures market that acts as middleman between the contracting parties and guarantees to each party the performance of the other.
Closed economy
An economy that does not trade with other
countries; an autarkic economy.
Clearing
The process by which the exchange verifies the
execution of a transaction and records the participants’
identities.
Direct financing leases
Under US GAAP, a type of finance lease, from a lessor perspective, where the present value of the lease payments (lease receivable) equals the carrying value of the leased asset. No selling profit is recognized at lease inception. The revenues earned by the lessor are financing in nature.
Par value
the amount of principal on a bond
Non-participating preference shares
Preference shares that do not entitle shareholders to share in the profits of the company. Instead, shareholders are only entitled to receive a fixed dividend payment and the par value of the shares in the event of liquidation.
Sample statistic
A quantity computed from or used to describe a sample.
Forward market
For future delivery, beyond the usual settle- ment time period in the cash market.
Rebalancing policy
The set of rules that guide the process of restoring a portfolio’s asset class weights to those specified in the strategic asset allocation.
Say’s law
Named for French economist J.B. Say: All that is pro- duced will be sold because supply creates its own demand.
Discounted cash flow models
Valuation models that estimate
the intrinsic value of a security as the present value of the future benefits expected to be received from the security.
Liquidation
To sell the assets of a company, division, or subsidiary piecemeal, typically because of bankruptcy; the form of bankruptcy that allows for the orderly satisfaction of creditors’ claims after which the company ceases to exist.
What is AMORTIZED COST?
The historical cost (initially recognized costs) of an asset, adjusted for amortization and impairment
Operating efficiency ratios
Ratios that measure how effi- ciently a company performs day-to-day tasks, such as the collection of receivables and management of inventory.
Profession
An occupational group that has specific educa- tion, expert knowledge, and a framework of practice and behavior that underpins community trust, respect, and recognition.
Sample standard deviation
The positive square root of the sample variance.
Balance sheet
The financial statement that presents an entity’s current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims), as of a particular point in time (the date of the balance sheet). Also called statement of financial position or statement of financial condition.
Bonus issue of shares
A type of dividend in which a com- pany distributes additional shares of its common stock to shareholders instead of cash.
Time-series data
Observations of a variable over time.
True yield
The internal rate of return on cash flows using the actual calendar including weekends and bank holidays
Seniority ranking
Priority of payment of various debt
obligations.
Note rate
See mortgage rate.
Good-till-cancelled order
An order specifying that it is valid until the entity placing the order has cancelled it (or, com- monly, until some specified amount of time such as 60 days has elapsed, whichever comes sooner).
Second-degree price discrimination
When the monopolist charges different per-unit prices using the quantity pur- chased as an indicator of how highly the customer values the product.
Contractionary
Tending to cause the real economy to contract
Own price
The price of a good or service itself (as opposed to the price of something else).
Capital markets
Financial markets that trade securities of
longer duration, such as bonds and equities.
Transactions motive
In the context of inventory management, the need for inventory as part of the routine production– sales cycle.
Lead underwriter
The lead investment bank in a syndicate of investment banks and broker–dealers involved in a securities underwriting.
Bearer bonds
Bonds for which ownership is not recorded; only the clearing system knows who the bond owner is.
Goodwill
An intangible asset that represents the excess of the purchase price of an acquired company over the value of the net assets acquired.
Equity
Assets less liabilities; the residual interest in the assets after subtracting the liabilities.
Order-driven markets
A market (generally an auction market) that uses rules to arrange trades based on the orders that traders submit; in their pure form, such markets do not make use of dealers.
Duration
A measure of the approximate sensitivity of a secu- rity to a change in interest rates (i.e., a measure of interest rate risk).
Standing limit orders
A limit order at a price below market and which therefore is waiting to trade.
Trade creation
When regional integration results in the
replacement of higher cost domestic production by lower cost imports from other members.
Electronic funds transfer (EFT)
The use of computer networks to conduct financial transactions electronically.
Trading securities
Under US GAAP, a category of debt securi-
ties held by a company with the intent to trade them. Also called held-for-trading securities.
Sampling error
The difference between the observed value
of a statistic and the quantity it is intended to estimate.
Fundamental value
The underlying or true value of an asset based on an analysis of its qualitative and quantitative characteristics. Also called intrinsic value.
What is AGGREGATE OUTPUT?
The value of all the goods and services produced in a specified period of time
Human capital
The accumulated knowledge and skill that workers acquire from education, training, or life experience and the corresponding present value of future earnings to
be generated by said skilled individual.
Relative strength index
A technical analysis momentum
oscillator that compares a security’s gains with its losses over a set period.
Dividend
A distribution paid to shareholders based on the number of shares owned.
Current government spending
With respect to government expenditures, spending on goods and services that are provided on a regular, recurring basis including health, education, and defense.
Change of control put
A covenant giving bondholders the right to require the issuer to buy back their debt, often at par or at some small premium to par value, in the event that the borrower is acquired.
Voluntary export restraint
A trade barrier under which the exporting country agrees to limit its exports of the good to its trading partners to a specific number of units.
Sharpe ratio
The average return in excess of the risk-free rate divided by the standard deviation of return; a measure of the average excess return earned per unit of standard
deviation of return.
Security characteristic line
A plot of the excess return of a
security on the excess return of the market.
Limitations on liens
Meant to put limits on how much secured debt an issuer can have.
Time-period bias
The possibility that when we use a time- series sample, our statistical conclusion may be sensitive to the starting and ending dates of the sample.
Limit order
Instructions to a broker or exchange to obtain the best price immediately available when filling an order, but in no event accept a price higher than a specified (limit) price when buying or accept a price lower than a specified (limit) price when selling.
Parallel shift
A parallel yield curve shift implies that all rates change by the same amount in the same direction.
Weighted average coupon rate
Weighting the mortgage rate of each mortgage loan in the pool by the percentage of the mortgage outstanding relative to the outstanding amount of all the mortgages in the pool.
Asset beta
The unlevered beta; reflects the business risk of
the assets; the asset’s systematic risk.
Staggered boards
Election process whereby directors are typically divided into multiple classes that are elected sep- arately in consecutive years—that is, one class every year.
Risk-neutral probabilities
Weights that are used to compute a binomial option price. They are the probabilities that would apply if a risk-neutral investor valued an option.
Wholesale price index
Reflects the price changes experienced by domestic producers in a country.
Cumulative voting
A voting process whereby each shareholders can accumulate and vote all his /her shares for a single candidate in an election, as opposed to having to allocate their voting rights evenly among all candidates
Guarantee certificate
A type of structured financial instru- ment that provides investors capital protection. It combines a zero-coupon bond and a call option on some underlying asset.
Employed
The number of people with a job.
Cash flow yield
The internal rate of return on a series of cash flows.
Diseconomies of scale
Increase in cost per unit resulting
from increased production.
Preferred stock
See preference shares.
Rent
Payment for the use of property.
Secondary precedence rules
Rules that determine how to rank orders placed at the same time.
Operating breakeven
The number of units produced and sold at which the company’s operating profit is zero (revenues = operating costs).
Third-degree price discrimination
When the monopolist segregates customers into groups based on demographic or other characteristics and offers different pricing to each group.
Putable bonds
Bonds that give the bondholder the right to sell the bond back to the issuer at a predetermined price on a specified dates.
Real risk-free interest rate
The single-period interest rate for a completely risk-free security if no inflation were expected.
Objective probabilities
Probabilities that generally do not vary from person to person; includes a priori and objective probabilities.
Benchmark rate
Typically the yield-to-maturity on a gov- ernment bond having the same, or close to the same, time-to-maturity.
Total invested capital
The sum of market value of common equity, book value of preferred equity, and face value of debt.
Automatic stabilizer
A countercyclical factor that automat- ically comes into play as an economy slows and unem- ployment rises.
Risk shifting
Actions to change the distribution of risk outcomes
Natural rate of unemployment
Effective unemployment rate, below which pressure emerges in labor markets.
Contingency provision
Clause in a legal document that allows for some action if a specific event or circumstance occurs.
Bullet bond
Bond in which the principal repayment is made
entirely at maturity.
What is AGENCY BONDS?
See Quasi-Government Bond
Portfolio company
In private equity, the company in which the private equity fund is investing.
One-sided hypothesis test
A test in which the null hypothesis
is rejected only if the evidence indicates that the population parameter is greater than (smaller than) θ0. The alternative hypothesis also has one side.
Solvency
With respect to financial statement analysis, the ability of a company to fulfill its long-term obligations.
Available-for-sale
Under US GAAP, debt securities not classified as either held-to-maturity or held-for-trading securities. The investor is willing to sell but not actively planning to sell. In general, available-for-sale debt secu- rities are reported at fair value on the balance sheet, with unrealized gains included as a component of other com- prehensive income.
Subordination
Form of internal credit enhancement that relies on creating more than one bond tranche and ordering the claim priorities for ownership or interest in an asset between the tranches. The ordering of the claim priorities is called a senior/subordinated structure, where the tranches of highest seniority are called senior followed by subor- dinated or junior tranches. Also called credit tranching.
Default risk premium
An extra return that compensates investors for the possibility that the borrower will fail to make a promised payment at the contracted time and in the contracted amount.
Life-cycle stage
The stage of the life cycle: embryonic, growth, shakeout, mature, declining.
Present value models
Valuation models that estimate the intrinsic value of a security as the present value of the future benefits expected to be received from the security. Also called discounted cash flow models.
Vega
A measure of the sensitivity of an options price to changes in the underlying’s volatility
Cost averaging
The periodic investment of a fixed amount of money
Permutation
An ordered listing.
Equity risk premium
The expected return on equities minus the risk-free rate; the premium that investors demand for investing in equities.
Declaration date
The day that the corporation issues a state-
ment declaring a specific dividend.
Financing activities
Activities related to obtaining or repaying
capital to be used in the business (e.g., equity and long-
term debt).
Geometric mean
A measure of central tendency computed by
taking the nth root of the product of n non-negative values.
What is AMORTIZATION ?
The process of allocating the cost of intangibles long-ter, assets having a finite useful life to accounting periods, the allocation of the amount of a bond premium or discount to the periods remaining until bond maturity.
Google: the action or process of gradually writing off the initial cost of an asset
Recognition lag
The lag in government response to an eco- nomic problem resulting from the delay in confirming a change in the state of the economy.
Arms index
A flow of funds indicator applied to a broad stocks market index to measure the relative extent to which money is moving into or out of rising and declining stocks
Engagement/active ownership
An ESG investment style that
uses shareholder power to influence corporate behavior through direct corporate engagement (i.e., communicating with senior management and/or boards of companies), filing or co-filing shareholder proposals, and proxy voting that is directed by ESG guidelines.
Downgrade risk
The risk that a bond issuer’s creditworthiness deteriorates, or migrates lower, leading investors to believe the risk of default is higher. Also called credit migration risk.
Clearing instructions
Instructions that indicate how to arrange the final settlement (“clearing”) of a trade.
Non-sovereign bonds
A bond issued by a government below the national level, such as a province, region, state, or city.
Production function
Provides the quantitative link between the levels of output that the economy can produce and the inputs used in the production process.
Asian call option
A european-style option with a value at maturity and the average stock price during the life of the option, or 00$, whichever is greater
What is ADDITION RULE FOR PROBABILITIES?
A principle stating that the probability that A or B occurs (both occur) equals the probability that A occurs, plus the probability that B occurs, minus the probability that both A and B occur.
Hostile takeover
An attempt by one entity to acquire a com- pany without the consent of the company’s management.
Discounted payback period
the number of years it takes for the cumulative discounted cash flows from a project to equal the original investment.
Collateralized loan obligations
A structured asset-backed
security that is collateralized by a pool of loans.
Overbought
A market condition in which market sentiment is thought to be unsustainably bullish.
Stop-loss order
See stop order.
Foreign direct investment
Direct investment by a firm in one country (the source country) in productive assets in
a foreign country (the host country).
Coincident economic indicators
Turning points that are usu- ally close to those of the overall economy; they are believed to have value for identifying the economy’s present state.
Working capital management
The management of a compa- ny’s short-term assets (such as inventory) and short-term liabilities (such as money owed to suppliers).
What is ANNUEL PERCENTAGE RATE ?
The cost of borrowing expressed as a yearly rate
Autarky
A state in which a country does not trade with other
countries.
Perfect competition
A market structure in which the individual firm has virtually no impact on market price, because it is assumed to be a very small seller among a very large number of firms selling essentially identical products
Capital restrictions
Controls placed on foreigners’ ability to own domestic assets and/or domestic residents’ ability to own foreign assets.
n Factorial
For a positive integer n, the product of the first n positive integers; 0 factorial equals 1 by definition. n factorial is written as n!.
Prepayment risk
The uncertainty that the timing of the actual cash flows will be different from the scheduled cash flows as set forth in the loan agreement due to the borrowers’ ability to alter payments, usually to take advantage of interest rate movements.
Target semi-deviation
The positive square root of target a target value
Store of wealth
Goods that depend on the fact that they
do not perish physically over time, and on the belief that others would always value the good.
Unemployment rate
The ratio of unemployment to labor force
Kurtosis
The statistical measure that indicates the combined weight of the tails of a distribution relative to the rest of the distribution.
Drawdown
A percentage peak-to-trough reduction in net asset value
Corporate governance
The system of internal controls and
procedures by which individual companies are managed.
Tender offer
Corporate takeover mechanism which involves shareholders selling their interests directly to the group seeking to gain control.
Personal income
A broad measure of household income
that includes all income received by households, whether earned or unearned; measures the ability of consumers to make purchases.
Bernoulli trial
An experiment that can produce one of two outcomes.
Gold standard
With respect to a currency, if a currency is on
the gold standard a given amount can be converted into a
prespecified amount of gold.
Cournot assumption
Assumption in which each firm deter- mines its profit-maximizing production level assuming that the other firms’ output will not change.
Yield-to-worst
The lowest of the sequence of yields-to-call
and the yield-to-maturity.
Socially responsible investing
An investment approach that
excludes investments in companies or industries that devi- ate from an organization’s beliefs and sometimes includes investments with favorable environmental or social profiles
Dividend payout ratio
The ratio of cash dividends paid to
earnings for a period.
Trust deed
The governing legal credit agreement, typically incorporated by reference in the prospectus. Also called
bond indenture.
Option-adjusted yield
The required market discount rate whereby the price is adjusted for the value of the embed- ded option.
Short
The seller of an asset or derivate contract. also refers to the position of being short an asset or derivate contract
Horizon yield
The internal rate of return between the total return (the sum of reinvested coupon payments and the sale price or redemption amount) and the purchase price of the bond.
Premium
In the case of bonds, premium refers to the amount
by which a bond is priced above its face (par) value. In the case of an option, the amount paid for the option contract.
Spot prices
The price of an asset for immediately delivery.
Venture capital fund
A hedge fund that seeks to buy, optimize, and ultimately sell portfolio companies to generate profits. See private equity fund.
Resistance
In technical analysis, a price range in which selling activity is sufficient to stop the rise in the price of a security.
Quantity theory of money
Asserts that total spending (in money terms) is proportional to the quantity of money.
Security market line
(SML) the graph of the capital asset pricing model
Weighted average cost method
An inventory accounting method that averages the total cost of available inventory items over the total units available for sale.
Recourse loan
Loan in which the lender has a claim against the borrower for any shortfall between the outstanding mortgage balance and the proceeds received from the sale of the property.
Long-lived assets
Assets that are expected to provide eco- nomic benefits over a future period of time, typically greater than one year. Also called long-term assets.
Demand function
A relationship that expresses the quantity demanded of a good or service as a function of own-price and possibly other variables.
Time value decay
Said of an option when, at expiration,
no time value remains and the option is worth only its exercise value.
Core inflation
The inflation rate calculated based on a price index of goods and services except food and energy.
CVaR
Conditional VaR, a tail loss measure. The weighted average of all loss outcomes in the statistical distribution that exceed the VaR loss
Cash-settled forwards
See non-deliverable forwards.
Return-generating model
A model that can provide an esti-
mate of the expected return of a security given certain parameters and estimates of the values of the independent variables in the model.
Cyclical companies
Companies with sales and profits that regularly expand and contract with the business cycle or state of economy.
Prospectus
The document that describes the terms of a new bond issue and helps investors perform their analysis on the issue
Traditional investment markets
Markets for traditional investments, which include all publicly traded debts and equities and shares in pooled investment vehicles that hold publicly traded debts and/or equities.
par curve
a sequence of yields-to maturity such that each bond is priced at par value. The bonds are assumed to have the same currency, credit risk, liquidity, tax status, and annual yields stated for the same periodicity.
Economic union
Incorporates all aspects of a common market and in addition requires common economic institutions and coordination of economic policies among members.
Rebalancing
Adjusting the weights of the constituent securities in an index.
Cumulative relative frequency
For data grouped into inter- vals, the fraction of total observations that are less than the value of the upper limit of a stated interval.
Benchmark
A comparison portfolio; a point of reference or comparison.
Credit analysis
The evaluation of credit risk; the evaluation
of the creditworthiness of a borrower or counterparty.
Operating activities
Activities that are part of the day-to-day business functioning of an entity, such as selling inventory and providing services.
Degree of confidence
The probability that a confidence inter-
val includes the unknown population parameter.
Order precedence hierarchy
With respect to the execution of orders to trade, a set of rules that determines which orders execute before other orders.
Defensive interval ratio
A liquidity ratio that estimates the number of days that an entity could meet cash needs from liquid assets; calculated as (cash + short-term mar- ketable investments + receivables) divided by daily cash expenditures.
Historical simulation
Another term for the historical method of estimating VaR. This term is somewhat misleading in that the method involves not a simulation of the past but rather what actually happened in the past, sometimes adjusted to reflect the fact that a different portfolio may have existed in the past than is planned for the future.
Call option
An option that gives the holder the right to buy an underlying asset from another party at a fixed price over a specific period of time.
Collateralized bond obligations
A structured asset-backed security that is collateralized by a pool of bonds.
Cumulative preference shares
Preference shares for which any dividends that are not paid accrue and must be paid in full before dividends on common shares can be paid.
Classified balance sheet
A balance sheet organized so as to group together the various assets and liabilities into
subcategories (e.g., current and noncurrent).
Credit derivatives
A contract in which one party has the right to claim a payment from another party in the event that a specific credit event occurs over the life of the contract.
Correlation
A number between −1 and +1 that measures the comovement (linear association) between two random
variables.
Shelf registration
Type of public offering that allows the
issuer to file a single, all-encompassing offering circular that covers a series of bond issues.
Substitutes
Said of two goods or services such that if the price of one increases the demand for the other tends to increase, holding all other things equal (e.g., butter and margarine).
Shareholder engagement
The process whereby companies
engage with their shareholders.
Time value
The difference between the market price of the option and its intrinsic value.
Survey approach
An estimate of the equity risk premium that is based upon estimates provided by a panel of finance experts.
Semideviation
The positive square root of semivariance
sometimes called semistandard deviation
Put
An option that gives the holder the right to sell an underlying asset to another party at a fixed price over a specific period of time
Situational influences
External factors, such as environmental
or cultural elements, that shape our behavior.
Dealing securities
Securities held by banks or other financial intermediaries for trading purposes.
Protective put
An option strategy in which a long position in an asset is combined with a long position in a put
Deferred revenue
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service.
FX swap
The combination of a spot and a forward FX
transaction.
Sovereign
A bond issued by a national government.
Discrete random variable
A random variable that can take
on at most a countable number of possible values.
Callable bond
A bond containing an embedded call option that gives the issuer the right to buy the bond back from the investor at specified prices on pre-determined dates.
Cyclical
See cyclical companies.
Average product
Measures the productivity of inputs on
average and is calculated by dividing total product by the total number of units for a given input that is used to generate that output.
Sovereign yield spread
An estimate of the country spread
(country equity premium) for a developing nation that is based on a comparison of bonds yields in country being analyzed and a developed country. The sovereign yield spread is the difference between a government bond yield in the country being analyzed, denominated in the currency of the developed country, and the Treasury bond yield on a similar maturity bond in the developed country.
Principal amount
Amount that an issuer agrees to repay the
debt holders on the maturity date.
Separately managed account
(SMA) An investment port- folio managed exclusively for the benefit of an individual
or institution.
What is AMERICAN STYLE?
Type of option contract that can be exercised at any time up to the option’s expiration date
Buy-side firm
An investment management company or other investor that uses the services of brokers or dealers (i.e., the client of the sell side firms).
Vertical demand schedule
Implies that some fixed quantity is demanded, regardless of price.
Statistical inference
Making forecasts, estimates, or judg- ments about a larger group from a smaller group actually observed; using a sample statistic to infer the value of an unknown population parameter.
Gross profit margin
The ratio of gross profit to revenues.
Data science
An interdisciplinary field that brings computer science, statistics, and other disciplines together to analyze
and produce insights from Big Data.
Safety-first rules
Rules for portfolio selection that focus on the risk that portfolio value will fall below some minimum acceptable level over some time horizon.
Official policy rate
An interest rate that a central bank sets
and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
What is ABSOLUTE DISPERSION?
The amount of variability present without comparison to any reference point or benchmark.
Prepayment option
Contractual provision that entitles the
borrower to prepay all or part of the outstanding mortgage principal prior to the scheduled due date when the prin- cipal must be repaid. Also called early repayment option
Private equity securities
Securities that are not listed on public exchanges and have no active secondary market. They are issued primarily to institutional investors via non-public offerings, such as private placements.
Quota rents
Profits that foreign producers can earn by raising the price of their goods higher than they would without a quota.
What is AGENCY BOND other name?
Quasi-government bond
Correlation coefficient
A number between −1 and +1 that
measures the consistency or tendency for two investments to act in a similar way. It is used to determine the effect on portfolio risk when two assets are combined.
Perpetuity
A perpetual annuity, or a set of never-ending level
sequential cash flows, with the first cash flow occurring one period from now. A bond that does not mature.
Future value (FV)
The amount to which a payment or series
of payments will grow by a stated future date.
Type I error
The error of rejecting a true null hypothesis.
Term structure
See maturity structure.
Risk budgeting
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
Special purpose vehicle
See special purpose entity.
Credit-linked note (CLN)
Fixed-income security in which the holder of the security has the right to withhold payment of the full amount due at maturity if a credit event occurs.
Option-adjusted spread
OAS = Z-spread – Option value (in basis points per year).
Balance of payments
A double-entry bookkeeping system that summarizes a country’s economic transactions with the rest of the world for a particular period of time, typically a calendar quarter or year
Speculative money balances
Monies held in anticipation that other assets will decline in value.
Captive finance subsidiary
A wholly-owned subsidiary of a company that is established to provide financing of the sales of the parent company.
Hedge funds
Private investment vehicles that typically use leverage, derivatives, and long and short investment strategies.
Range
The difference between the maximum and minimum
values in a dataset.
Required yield
See market discount rate.
Potential GDP
The level of real GDP that can be produced
at full employment; measures the productive capacity of
the economy.
Likelihood
The probability of an observation, given a partic- ular set of conditions.
Data snooping
See data mining.
Non-deliverable forwards
Cash-settled forward contracts, used predominately with respect to foreign exchange for- wards. Also called contracts for differences.
Net income
The difference between revenue and expenses; what remains after subtracting all expenses (including depreciation, interest, and taxes) from revenue.
Payment date
The day that the company actually mails out (or electronically transfers) a dividend payment
Expected loss
Defat probability times loss severity given default
Development capital
Minority equity investments in more
mature companies that are seeking capital to expand or restructure operations, enter new markets, or finance major acquisitions.
Linear scale
A scale in which equal distances correspond to equal absolute amounts. Also called arithmetic scale.
Fiscal multiplier
The ratio of a change in national income to
a change in government spending.
Call protection
The time during which the issuer of the bond is not allowed to exercise the call option.
Simulation
Computer-generated sensitivity or scenario anal- ysis that is based on probability models for the factors that drive outcomes.
Comprehensive income
The change in equity of a busi-
ness enterprise during a period from nonowner sources; includes all changes in equity during a period except those resulting from investments by owners and distributions to owners; comprehensive income equals net income plus other comprehensive income.
Capital rationing
A capital rationing environment assumes
that the company has a fixed amount of funds to invest.
Syndicated offering
A bond issue that is underwritten by a group of investment banks
Price elasticity of demand
Measures the percentage change in the quantity demanded, given a percentage change in the price of a given product.
Price takers
Producers that must accept whatever price the
market dictates.
What is ACTIVE STRATEGY?
In ref. to short-term cash management: an investment strategy characterized by monitoring and attempting to capitalize on market conditions to optimized the risk and return relationship of short-term investments.
Horizontal analysis
Common-size analysis that involves com- paring a specific financial statement with that statement in prior or future time periods; also, cross-sectional analysis of one company with another.
Demand-pull
Type of inflation in which increasing demand raises prices generally, which then are reflected in a busi- ness’s costs as workers demand wage hikes to catch up with the rising cost of living.
Locked limit
A condition in the futures markets in which a transaction cannot take place because the price would be beyond the limits.
Cash market securities
Money market securities settled on a “same day” or “cash settlement” basis.
Paired comparisons test
A statistical test for differences based on paired observations drawn from samples that are dependent on each other
Collateral trust bonds
Bonds secured by securities such as
common shares, other bonds, or other financial assets.
Productivity
The amount of output produced by workers in a given period of time—for example, output per hour worked; measures the efficiency of labor.
Trade payables
Amounts that a business owes to its vendors for goods and services that were purchased from them but
which have not yet been paid.
Restricted payments
A bond covenant meant to protect
creditors by limiting how much cash can be paid out to shareholders over time.
Ask
The price at which a dealer or trader is willing to sell an asset, typically qualified by a maximum quantity (ask size)
*check offer
ESG
An acronym that encompasses environmental, social and governance.
Tokenization
The process of representing ownership rights to physical assets on a blockchain or distributed ledger.
Historical cost
In reference to assets, the amount paid to purchase an asset, including any costs of acquisition and/ or preparation; with reference to liabilities, the amount of proceeds received in exchange in issuing the liability.
Character
The quality of a debt issuer’s management.
Curve duration
The sensitivity of the bond price (or the market value of a financial asset or liability) with respect to a benchmark yield curve
Working capital
The difference between current assets and current liabilities.
Brokered market
A market in which brokers arrange trades
among their clients.
Contingent claims
Derivatives in which the payoffs occur if
a specific event occurs; generally referred to as options.
Deferred tax liabilities
A balance sheet liability that arises when a deficit amount is paid for income taxes relative to accounting profit. The taxable income is less than the accounting profit and income tax payable is less than tax expense. The company expects to eliminate the liability over the course of future operations when income tax payable exceeds tax expense.
Credit-linked coupon bond
Bond for which the coupon changes when the bond’s credit rating changes.
Profitability index
PI) For a simple project, the PI is the present value of a project’s future cash flows divided by the initial investment.
Risk management
The process of identifying the level of risk an organization wants, measuring the level of risk the orga- nization currently has, taking actions that bring the actual level of risk to the desired level of risk, and monitoring the new actual level of risk so that it continues to be aligned with the desired level of risk.
Clawback
A requirement that the general partner return any funds distributed as incentive fees until the limited partners have received back their initial investment and a
percentage of the total profit.
Notice period
The length of time (typically 30–90 days) in
advance that investors may be required to notify a fund of their intent to redeem some or all of their investment.
Cryptography
An algorithmic process to encrypt data, mak-
ing the data unusable if received by unauthorized parties.
Statement of operations
A financial statement that provides information about a company’s profitability over a stated period of time.
Credit risk
The risk of loss caused by a counterparty’s or debtor’s failure to make a promised payment. Also called default risk.
Dealers
A financial intermediary that acts as a principal in trades.
Sample variance
A sample measure of the degree of dis- persion of a distribution, calculated by dividing the sum of the squared deviations from the sample mean by the sample size minus 1.
Limit down
A limit move in the futures market in which the price at which a transaction would be made is at or below the lower limit.
Supervised learning
A machine learning approach that makes use of labeled training data.
Covariance matrix
A matrix or square array whose entries are
covariances; also known as a variance–covariance matrix.
Direct taxes
Taxes levied directly on income, wealth, and
corporate profits.
Special dividend
A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payment.
Price return
Measures only the price appreciation or percent- age change in price of the securities in an index or portfolio.
Volatility
As used in option pricing, the standard deviation of the continuously compounded returns on the under- lying asset.
World price
The price prevailing in the world market.
Primary market
The market where securities are first sold and the issuers receive the proceeds.
Two-fund separation theorem
The theory that all investors regardless of taste, risk preferences, and initial wealth will hold a combination of two portfolios or funds: a risk-free asset and an optimal portfolio of risky assets.
Foreign exchange gains (or losses)
Gains (or losses) that
occur when the exchange rate changes between the inves- tor’s currency and the currency that foreign securities are denominated in.
Ordinary shares
Equity shares that are subordinate to all other types of equity (e.g., preferred equity). Also called common stock or common shares.
Current cost
With reference to assets, the amount of cash or
cash equivalents that would have to be paid to buy the same or an equivalent asset today; with reference to liabilities, the undiscounted amount of cash or cash equivalents that would be required to settle the obligation today.
Offer
The price at which a dealer or trader is willing to sell an asset, typically qualified by a maximum quantity (ask size).
Contribution margin
The amount available for fixed costs and
profit after paying variable costs; revenue minus variable
costs.
Asset swap
Converts the periodic fixed coupon of a specific
bond to a Libor plus or minus a spread.
What is ACCRUED INTEREST?
Interest earned but not yet paid
Homogeneity of expectations
The assumption that all inves- tors have the same economic expectations and thus have the same expectations of prices, cash flows, and other investment characteristics.
Capital account
A component of the balance of payments account that measures transfers of capital.
Tenor
The time-to-maturity for a bond or derivative contract.
Also called term to maturity.
Floating-rate notes
A note on which interest payments are
not fixed, but instead vary from period to period depending
on the current level of a reference interest rate.
Conditional variances
The variance of one variable, given the outcome of another.
New Keynesians
A group of dynamic general equilibrium
models that assume slow-to-adjust prices and wages.
Oversold
A market condition in which market sentiment is thought to be unsustainably bearish.
Short-run average total cost
The curve describing average
total cost when some costs are considered fixed.
Own-price elasticity of demand
The percentage change in quantity demanded for a percentage change in good’s own price, holding all other things constant.
Joint probability function
A function giving the probability of joint occurrences of values of stated random variables.
Benchmark spread
The yield spread over a specific bench- mark, usually measured in basis points.
Nominal GDP
The value of goods and services measured at current prices.
Population mean
The arithmetic mean value of a population; the arithmetic mean of all the observations or values in
the population.
Sell-side firm
A broker/dealer that sells securities and provides independent investment research and recommendations to their clients (i.e., buy-side firms).
Conversion price
For a convertible bond, the price per share
at which the bond can be converted into shares.
Quartiles
Quantiles that divide a distribution into four equal parts.
Single-step format
With respect to the format of the income statement, a format that does not subtotal for gross profit ( revenue - cost of good sold)
Reversal patterns
A type of pattern used in technical analysis to predict the end of a trend and a change in direction of the security’s price.
Skewed
Not symmetrical.
All-or-nothing (AON) orders
An order that includes the instruction to trade only if the trade fills the entire quantity (size) specified.
( google SEC: order to buy or sell a stock that must be executed in its entirety, or not executed at all. AON orders that cannot be executed immediately remain active until they are executed or cancelled.)
Best-in-class
An ESG implementation approach that seeks to identify the most favorable companies in an industry based on ESG considerations.
Spot markets
Markets in which assets are traded for immediate delivery.
Experience curve
A curve that shows the direct cost per unit of good or service produced or delivered as a typically declining function of cumulative output.
Stress testing
A specific type of scenario analysis that esti- mates losses in rare and extremely unfavorable combina- tions of events or scenarios.
Validity instructions
Instructions which indicate when the
order may be filled.
Pull on liquidity
When disbursements are paid too quickly or trade credit availability is limited, requiring companies to expend funds before they receive funds from sales that could cover the liability
Principal value
Amount that an issuer agrees to repay the
debt holders on the maturity date.
What is the other name for Pure Discount bonds?
Zero-coupon bonds
Coefficient of variation
(CV) The ratio of a set of observa- tions’ standard deviation to the observations’ mean value.
Forward price
The fixed price or rate at which the transaction scheduled to occur at the expiration of a forward contract will take place. This price is agreed on at the initiation date of the contract.
Reverse stock split
A reduction in the number of shares outstanding with a corresponding increase in share price, but no change to the company’s underlying fundamentals.
Option-adjusted price
The value of the embedded option plus the flat price of the bond.
Nominal scale
A measurement scale that categorizes data but does not rank them.
Overfitting
An undesirable result from fitting a model so
closely to a dataset that it does not perform well on new data.
Nash equilibrium
When two or more participants in a non- coop-erative game have no incentive to deviate from their respective equilibrium strategies given their opponent’s strategies.
Foreclosure
Allows the lender to take possession of a mort- gaged property if the borrower defaults and then sell it to
recover funds.
Value investors
With reference to equity investors, investors who are focused on paying a relatively low shares price in relation to earnings or assets per share
Average variable cost
Total variable cost divided by quantity
produced.
Profitability ratios
Ratios that measure a company’s ability to generate profitable sales from its resources (assets).
Law of one price
The condition in a financial market in which two equivalent financial instruments or combinations of financial instruments can sell for only one price. Equivalent to the principle that no arbitrage opportunities are possible.
What is ABSOLUTE ADVANTAGE?
A country’s ability to produce a good or service at a lower absolute cost than its trading partner (aka: other countries)
Total probability rule for expected value
A rule explain- ing the expected value of a random variable in terms of expected values of the random variable conditional on mutually exclusive and exhaustive scenarios.
Spot curve
A sequence of yields-to-maturity on zero-coupon bonds. Sometimes called zero or strip curve because coupon
payments are “stripped” off of the bonds.
Price limits
Limits imposed by a futures exchange on the price change that can occur from one day to the next.
Refinancing rate
A type of central bank policy rate.
Down transition probability
The probability that an asset’s value moves down in a model of asset price dynamics.
Fractile
A value at or below which a stated fraction of the data lies
Float
In the context of customer receipts, the amount of money
that is in transit between payments made by customers and
the funds that are usable by the company.
Periodicity
The assumed number of periods in the year, typically matches the frequency of coupon payemts
Reorganization
Agreements made by a company in bank-
ruptcy under which a company’s capital structure is altered and/or alternative arrangements are made for debt repay- ment; US Chapter 11 bankruptcy. The company emerges from bankruptcy as a going concern.
Pure-play method
A method for estimating the beta for a company or project, it requires using a comparable company’s beta and adjusting it for financial leverage differences.
Conventional bond
See plain vanilla bond.
Term structure of yield volatility
The relationship between the
volatility of bond yields-to-maturity and times-to-maturity.
Labor productivity
The quantity of goods and services (real GDP) that a worker can produce in one hour of work.
Credit migration risk
The risk that a bond issuer’s creditwor- thiness deteriorates, or migrates lower, leading investors to believe the risk of default is higher. Also called down- grade risk.
What is ACTION LAG?
Delay from policy deacons to implementation
Portfolio demand for money
The demand to hold specula- tive money balances based on the potential opportunities or risks that are inherent in other financial instruments.
Hedge portfolio
A hypothetical combination of the derivative and its underlying that eliminates risk.
Balloon payment
Large payment required at maturity to retire a bond’s outstanding principal amount.
Skewness
A quantitative measure of skew (lack of symmetry); a synonym of skew.
Total return
Measures the price appreciation, or percentage change in price of the securities in an index or portfolio, plus any income received over the period.
Net exports
The difference between the value of a country’s exports and the value of its imports (i.e., value of exports minus imports).
Sector indexes
Indexes that represent and track different economic sectors—such as consumer goods, energy, finance, health care, and technology—on either a national, regional, or global basis.
Direct debit program
An arrangement whereby a customer authorizes a debit to a demand account; typically used by companies to collect routine payments for services.
Present value (PV
The present discounted value of future cash flows: For assets, the present discounted value of the future net cash inflows that the asset is expected to generate; for liabilities, the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities.
Exercise
The process of using an option to buy or sell the underlying.
Underemployed
A person who has a job but has the qualifi- cations to work a significantly higher-paying job.
Consumer surplus
The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them.
Basket of listed depository receipts
An exchange-traded fund (ETF) that represents a portfolio of depository receipts.
Divisor
A number (denominator) used to determine the value of a price return index. It is initially chosen at the incep- tion of an index and subsequently adjusted by the index provider, as necessary, to avoid changes in the index value that are unrelated to changes in the prices of its constit- uent securities.
Capital market expectations
An investor’s expectations concerning the risk and return prospects of asset classes.
Cross-price elasticity of demand
The percentage change in quantity demanded for a given percentage change in the price of another good; the responsiveness of the demand for Product A that is associated with the change in price of Product B.
Two-sided hypothesis test
A test in which the null hypoth- esis is rejected in favor of the alternative hypothesis if the evidence indicates that the population parameter is either smaller or larger than a hypothesized value.
Tree diagram
A diagram with branches emanating from nodes representing either mutually exclusive chance events or mutually exclusive decisions.
Holding period return
The return that an investor earns during a specified holding period; a synonym for total return.
Defined benefit pension plans
Plans in which the company promises to pay a certain annual amount (defined benefit) to the employee after retirement. The company bears the investment risk of the plan assets.
panel data
observations through time on a signal characteristic of multiple observational units
Winsorized mean
A mean computed after assigning a stated percent of the lowest values equal to one specified low value, and a stated percent of the highest values equal to one specified high value.
Debt-to-assets ratio
A solvency ratio calculated as total debt divided by total assets.
ESG investing
The consideration of environmental, social, and governance factors in the investment process.
Free cash flow to the firm (FCFF)
The cash flow available to the company’s suppliers of capital after all operating expenses have been paid and necessary investments in working capital and fixed capital have been made.
Structured financial instruments
Financial instruments that share the common attribute of repackaging risks. Structured financial instruments include asset-backed securities, collateralized debt obligations, and other struc- tured financial instruments such as capital protected, yield enhancement, participation and leveraged instruments.
