Glossary of Terms 3

Question 1

Economic Good

Answer 1

A consumable item that is useful to people but is scarce in relation to its demand, so that human effort is required to obtain it.

Question 2

Enterprise Value

Answer 2

The combined total market capitalisation of a firm’s debt and equity. This may also be computed as the sum of expected future net cash flows, discounted at a firm-specific discount rate.

Question 3

Eurobond

Answer 3

An international bond issued by a company or government, often in a currency other than the currency of the borrower. The bonds are traded internationally through banks, and not in the traditional bond markets.

Question 4

European Option

Answer 4

An option that can only be exercised at expiry.

Question 5

Event Risk

Answer 5

The risk of loss due to single events that are unlikely but may have serious consequences if they do occur. The events are either largely or entirely outside the control of the organization. Such losses do not follow traditional stochastic processes.

Question 6

Exchange Traded Funds

Answer 6

An ETF is a collective investment vehicle that is traded on a securities exchange at a price that is closely related to its net asset value and is quoted in real time. It combines the valuation feature of a unit trust with the tradability of an investment trust. ETFs are generally managed as index-tracker funds and, not being shares, do not incur stamp duty on purchases.

Question 7

Fiduciary

Answer 7

Proceeding from trust or confidence. Also, an individual, corporation or association to whom certain property is given to hold in trust. The property is to be utilised or invested for the benefit of the property owner, to the best ability of the fiduciary.

Question 8

Floating Rate Note

Answer 8

A Eurobond with variable rate of interest. FRNs are usually medium-term bonds.

Question 9

Forward Rate Agreements

Answer 9

A forward contract where the parties agree that a certain interest rate will apply to a certain principal amount during a specified future time period.

Question 10

Futures Contract

Answer 10

Like a forward contract, this is a contract to buy (or sell) an asset on an agreed basis in the future. However, futures contracts are standardised contracts that can be traded on a recognised exchanged.