Glossary of Terms 4

Question 1

Geometric Index

Answer 1

A geometric index is based on the geometric mean of the ratio of the share prices.

Question 2

In-the-money

Answer 2

An option with a positive intrinsic value is in-the-money.

Question 3

Infrastructure

Answer 3

The basic facilities, services and installations needed for the functioning of a community or society.

Question 4

Intermediate Goods and Sevices

Answer 4

Goods and services used up in the course of production of “final” goods and services.

Question 5

Intrinsic Value

Answer 5

For a call option, the greater of zero and the amount by which the market price of the underlying asset exceeds the exercise price i.e. max [S_T - K, 0].

For a put option, the greater of zero and the amount by which the exercise price exceeds the market price of the underlying asset i.e. max[K - S_T, 0].

Question 6

Investment Grade Bond

Answer 6

A bond rated at least Baa (by Moody’s) or BBB (by Standard and Poor’s).

Question 7

Investment Trust

Answer 7

Investment trusts are public companies whose function is to manage shares and investments. They have a capital structure in the same way as other public companies and can raise both loan and equity capital. Most have quoted shares allowing small investors to gain exposure to the portfolio held by the investment trust.

Question 8

ISDA

Answer 8

The International Swaps and Derivatives Association, representing the interests of the OTC derivatives marketplace, which has produced a number of Master Agreements regarding terminology, settlement procedures, counterparty risk management, etc.

Question 9

Mandate

Answer 9

The terms of a commission or order.

Question 10

Marking to Market

Answer 10

The practice of revaluing an instrument to reflect the current values of the relevant market variables.