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Investment Banking Jargon > Investopedia > Flashcards

Investopedia Flashcards

1
Q

Alligator Spread

A

An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favourable market movements. Usually used in the options market.

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2
Q

Bear market

A

A market condition in which the prices of securities are falling, and widespread pessimism causes negative sentiment to be self-sustaining.

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3
Q

Black market

A

Economic activity that takes place outside the government sanctioned channels. Allows participants to avoid government price or controlled taxes.

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4
Q

Bubble theory

A

A school of thought that believes that the prices of assets can temporarily rise far above their true values and these bubbles are easily identifiable.

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5
Q

Capital Gain

A

An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.

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6
Q

Capital markets

A

Markets for buying and selling equity and debt instruments.

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7
Q

Compound Annual Growth Rate (CAGR)

A

The mean annual growth rate of an investment over a specified period of time more than one year.

CAGR = (end value/beginning value)^(1/no. Of years)-1

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8
Q

Dead Cat Bounce

A

A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend.

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9
Q

Depreciation

A

A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting reasons.

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10
Q

Draghi effect

A

The calming effect of European Central Bank President, Mario Draghi, on global financial markets.

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11
Q

Due Diligence

A

An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to sale.

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12
Q

Elephants

A

Slang for large institutions that have funds to make high volumes of trades.

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13
Q

Emerging markets ETF

A

An exchange traded fund that focuses on the stocks of the emerging market economies.

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14
Q

Endowment effect

A

In behavioural finance, the endowment effect describes a circumstance in which an individual values something which they already own more than something which they do not yet own.

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15
Q

Exchange Traded Funds (ETFs)

A

ETFs are tools that provide more diversification. They track other ETFs rather than individual stocks, bonds or derivatives.

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16
Q

Financial instrument

A

A real or virtual document representing a legal agreement involving some sort of monetary value. Usually equity or debt based.

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17
Q

Fisher effect

A

An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and nominal inflation rates. It states that the real interest rate equals the nominal interest rate minus the expected inflation rate.

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18
Q

Abenomics

A

Nickname for the multi-pronged economic program by Japanese Prime Minister Shinzo Abe. Abenomics seeks to remedy two decades of stagnation by increasing the nation’s money supply, boosting government spending and enacting reforms to make the economy more competitive.

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19
Q

Game Theory

A

A model of optimality taking into consideration not only benefits less costs, but also the interaction between participants.

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20
Q

Goldilocks Economy

A

An economy that is not so hot that it causes inflation and not so cold that it causes recession.

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21
Q

Gorilla

A

A company that dominates an industry without having a complete monopoly.

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22
Q

Group of Ten (G10)

A

Eleven industrialised nations that meet on an annual basis to consult each other on international finance matters.

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23
Q

Halo Effect

A

The halo effect is a term used in marketing to explain the bias shown by customers towards certain products because of a favourable experience with other products made by the same manufacturer or maker.

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24
Q

Insurance

A

Insurance is a contract purchased by individuals or companies that manage their risk.

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25
Q

J-Curve Effect

A

A type of diagram where the curve galls at the outset and eventually rises to a point higher than the starting point.

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26
Q

Law of Demand

A

A microeconomic law that states, all factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease.

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27
Q

Letter or Intent

A

Used in most major business transactions, a letter of intent outlines the terms of a deal and serves as an agreement between two parties.

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28
Q

Lion Economics

A

A nickname given to Africa’s growing economies, which had a collective GDP of $1.6 trillion in 2008, close to Russia’s and Brazil’s.

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29
Q

Liquidity

A

Describes the degree to which an asset or security can be quickly bought and sold in the market without affecting the assets price.

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30
Q

Mad Hatter

A

A CEO or managerial team whose ability to lead a team is highly suspect.

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31
Q

Marlboro Friday

A

A reference to Friday 2nd April 1993, when Phillip Morris, the maker of Marlboro cigarettes, announced that it would be cutting the price of Marlboros to compete with generic cigarette makers.

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32
Q

OPEC

A

Organisation of Petroleum Exporting Countries. 12 member states.

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33
Q

Operating Margin

A

Margin or ratio used to measure a company’s pricing strategy and operating efficiency.

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34
Q

Pension Fund

A

Established by an employer to facilitate and organise the investment of employees’ retirement funds contributed by the employer and employees.

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35
Q

Present Value

A

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

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36
Q

Candlestick

A

A chart that displays the high, low, opening and closing prices for a security for a single day. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.

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37
Q

Profit Margin

A

Profit margin is part of a category of profitability ratios calculated as net income divided by revenue, or net profits divided by sales.

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38
Q

Quick Ratio

A

An indicator of a company’s short term liquidity.

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39
Q

Recession

A

A significant decline in activity across the economy, lasting longer than a few months.

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40
Q

Reinsurance

A

Insurance purchased by an insurance company from other insurance companies to manage their risk.

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41
Q

Return on Investment (ROI)

A

A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments.

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42
Q

Return on invested capital

A

A calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments.
ROIC = (Net Income - Dividends)/ Total Capital

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43
Q

Revenue

A

The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise.

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44
Q

Robin Hood Effect

A

A phenomenon where the less well-off gain at the expense of the better-off. (income inequality and education inequality).

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45
Q

Shanghai Stock Exchange

A

The largest stock exchange in mainland China.

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46
Q

Shadow Market

A

The informal market, which is generally defined as economic activities, enterprises and workers that are not regulated or protected by the state.

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47
Q

Stock Market Crash

A

A rapid and often unanticipated drop in stock prices.

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48
Q

Take a Bath

A

An expression that is a slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative investment.

49
Q

Take a Flier

A

An expression that is a slang term for a decision to invest in highly speculative investments.

50
Q

Technical Analysis

A

A method of evaluating securities by analysing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts or other tools to identify patterns that can suggest future activity.

51
Q

Tiger Club Economics

A

The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Indicate a similar but slower growth trajectory to other Asian Tigers.

52
Q

Turkey

A

A slang for an investment that yields disappointing results or turns out worse than expected.

53
Q

Wedding Warrant

A

A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered.

54
Q

Wal-Mart Effect

A

The economic impact felt by local businesses when a large firm such as Wal-Mart opens a location in the area.

55
Q

Widow’s Exemption

A

In general terms, a widow’s exemption refers to the amount that can be deducted from taxable income by the widow, thereby reducing her tax burden.

56
Q

Hammer

A

A price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price.

57
Q

Footprint charts

A

A group of charts that provide price and volume activity together on one data point over a specified time frame. Attempt to provide increased price transparency and a clearer picture of market activity.

58
Q

Stick Wage Theory

A

An economic hypothesis theorising that the pay of employed workers tends to have a slow response to the changes in the performance of a company or of the broader economy.

59
Q

Principal-Agent Problem

A

The principal-agent problem develops when a principal creates an environment in which an agent’s incentives don’t align with its own.

60
Q

Daily Chart

A

A line graph that displays the intraday movements of a given security.

61
Q

Franchise

A

A franchise is a type of licence that a party acquires to allow them to have access to a business’s proprietary knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business’s name. In exchange for gaining the franchise, the franchise usually pays the franchisor initial startup and annual licensing fees.

62
Q

Encumbrance

A

An encumbrance is a claim against a property by a party that is not the owner. An encumbrance can impact the transferability of the property and restrict free use until the encumbrance is lifted.

63
Q

Asset turnover ratio

A

The ratio of the value of a company’s sales or revenues generated relative to the value of its assets. The asset turnover ratio can often be used as an indicator of the efficiency with which a company is deploying assets in generating revenue.
Asset turnover = sales / total assets

64
Q

Substitute

A

A substitute or substitute good in economics and consumer theory is a product or service that a consumer sees as the same or similar to another product.

65
Q

Consumer theory

A

The study of how people decide what to spend their money on given their preferences and their budget constraints.

66
Q

Endowment

A

An endowment is a financial asset, in the form of a donation made to a non-profit group, institution of individual consisting of investment funds or other property that may or may not have a stated purpose at the bequest of the donor.

67
Q

Christmas tree

A

An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at different strike prices.

68
Q

Call option

A

An agreement that gives an investor the right (but not obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specified time period.

69
Q

Put

A

An option contract giving the owner the right, but not obligation, to sell a specified amount of an underlying asset at a share price within a specified time. The buyer of the put option estimates that the underlying asset will drop below the exercise price before the expiration date.

70
Q

Christmas Island Dollar

A

The former currency of the Christmas Island, who now use the Australian dollar. The switch from the use of local currency to the use of another jurisdiction’s currency is called dollarisation and is a common phenomenon throughout the world.

71
Q

Weight of Ice, Snow or Sleet Insurance

A

Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because of the weight of ice, snow or sleet.

72
Q

Crowding Out Effect

A

The crowding out effect is an economic theory stipulating that rises in public sector spending drive down or even eliminate private sector spending.

73
Q

Supply

A

Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers.

74
Q

Remittance

A

A remittance most commonly refers to the funds that an expatriate sends to their country of origin via wire, mail, or online transfer. These peer to peer transfers of funds across borders are economically significant for many countries that receive them.

75
Q

Vintage Year

A

The year in which the first influx of investment capital is delivered to a project or company. This marks when capital is contributed by venture capital, private equity fund or a partnership drawing down from investors.

76
Q

Terminal Year

A

The year in which an individual dies, in the context of estate planning and taxation. Terminal year is used in estate planning and taxation because special tax rules and handling of income and assets may apply during the taxpayers final year.

77
Q

Man-Year

A

A method of describing the amount of work done by an individual throughout the whole year.

78
Q

Commercial Year

A

A commercial year is a 360 day year composed of 12 months with each lasting 30 days.

79
Q

Base Year

A

The first of a series of years in an economic or financial index. A base year is normally set to an arbitrary level of 100.

80
Q

Boston Snow Indicator

A

A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year.

81
Q

Winter Range Form

A

A type of insurance that covers livestock, including cattle and sheep, on the range in western states, from the seven months beginning of October, and ending at the beginning of May.

82
Q

Christmas Club

A

A short-term savings accounts that usually pays out the full account balance to its account holders once each year, right before Christmas.

83
Q

Santa Claus Rally

A

A surge in the price of stocks that often occurs in the week between Christmas and New Year’s Day.

84
Q

Tax Year

A

The period of time which is covered by a particular tax return. Many firms simply use the calendar year as their tax year, however this is not always required.

85
Q

Uptick Rule

A

A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the previous trade. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines.

86
Q

Fiscal Year

A

A period that a company or government uses for accounting purposes and preparing financial statements.

87
Q

Big Uglies

A

Old industrial companies in gritty industries (such as mining, steel and oil) and as a result, they tend to be unpopular stocks with investors.

88
Q

Tip from a dip

A

Advice from a person who claims to have inside information, such as substantially higher than expected earnings or government approval of corporate mergers, that will materially impact a stock’s price but actually doesn’t.

89
Q

Circuit Breaker

A

Refers to any of the measures used by stock exchanges during large sell-offs to avert panic selling. Sometimes called a “collar”.

90
Q

Garbatrage

A

An increase in price and trading volume in a particular sector of the economy that occurs as a result of a recent takeover, which initiates a change in sentiment towards that sector.

91
Q

Valium Picnic

A

A market holiday or a slow trading day.

92
Q

Suicide Pill

A

A defensive strategy by which a target company engages in an activity that might actually ruin the company rather than prevent a hostile takeover.

93
Q

Plain Vanilla

A

Plain vanilla signifies the most basic or standard version of a financial instrument, usually options, bonds, futures and swaps.

94
Q

Delivery Duty Unpaid (DDU)

A

DDU is an international trade where the seller is responsible for making a safe delivery of goods to a named destination, paying all transport expenses and assuming all risks during transportation except for duty once it arrives to port. When the goods arrive at the agreed location, the buyer becomes responsible for paying the duty and other customer clearing expenses.

95
Q

Series 6

A

Series 6 is a securities licence entitling the holder to register as a limited representative and sell mutual funds, variable annuities and insurance premiums. Holders of series 6 licence are not permitted to sell corporate or municipal securities, direct participation programs and options.

96
Q

Shark Watcher

A

A firm specialising in the early detection of takeovers. The firms primary business is usually the solicitation of proxies for client corporations.

97
Q

Killer Bees

A

An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defence strategies to keep an attempted hostile takeover from occurring.

98
Q

Eat Your Own Dog Food

A

A colloquialism that describes a company using its own products or services for internal operations.

99
Q

Capitulation

A

When investors give up any previous gains in stock price by selling equities in an effort to get out the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

100
Q

Bear Hug

A

An offer made by one company to buy the shares of another for a much higher per-share price than what the company is worth. A bear hug offer is usually made when there is doubt that the target company’s management will be willing to sell.

101
Q

Cockroach Theory

A

A market theory that suggests that when a company reveals bad news to the public, there may be many more related negative events that have yet to be revealed. The term comes from the common belief that seeing one cockroach is usually evidence that there are many more that remain hidden.

102
Q

Lobster Trap

A

A strategy used by a target firm to prevent a hostile takeover. A lobster trap anti-takeover strategy involves the target company passing a provision that prevents any shareholder, with an ownership over 10%, from converting convertible securities into voting stock. This prevents larger shareholders from adding to their voting stock position and facilitating the takeover of the target company.

103
Q

Land Rehabilitation

A

A re-engineering process that attempts to restore an area of land back to its natural state after it has been damaged as a result of some sort of disruption.

104
Q

Land Trust

A

A legal agreement where a trustee is appointed to maintain ownership of a piece of real property for the benefit of another party, the beneficiary of the trust.

105
Q

Bagel Land

A

A slang term that represents a stock or other security that is approaching £0 in price. Arriving in bagel land is usually the result of one or more major business problems that may not be resolvable.

106
Q

Land Flip

A

A fraudulent practice in the real estate business of selling underdeveloped land at highly inflated prices.

107
Q

Hard Landing

A

An economic state wherein the economy is slowing down sharply or is tipping into outright recession after a period of rapid growth. A hard landing may be the undesirable consequence of efforts by a nation’s central bank to tighten monetary policy, so as to slow down growth and keep inflation in check.

108
Q

Soft Landing

A

A term used to describe a rate of economic growth high enough to avoid recession, but slow enough to avoid high inflation. A soft landing is typically defined as an economy that has avoided a strong contraction, often made evident by recessionary events, through government intervention by way of fiscal or monetary policies, in many cases.

109
Q

Land

A

Property or real estate, not including buildings or equipment, that does not occur naturally. Depending on the title, land ownership may also give the holder rights to natural resources on the land.

110
Q

Revenue

A

The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the top line or gross income figure which costs are subtracted to determine net income.

111
Q

Board of Directors

A

A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues.

112
Q

Blockchain

A

A Blockchain is a public ledger of all Bitcoin transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the Blockchain in a linear, chronological order.

113
Q

Blocks

A

Blocks are files where data pertaining to the Bitcoin network is permanently recorded. A block records some or all of the most recent Bitcoin transactions that have not yet entered any prior blocks.

114
Q

Free Market

A

Free trade is the economic policy of not discriminating against imports from and exports to foreign jurisdictions. Buyers and sellers from separate economies may voluntarily trade without the domestic government applying tariffs, quotas, subsidies or prohibitions on the goods and services. Free trade is the opposite of trade protectionism or economic isolationism.

115
Q

Hurricane Deductible

A

An amount a homeowner must pay before insurance will cover the damage caused by a hurricane. Hurricane deductibles are separate from regular homeowners insurance deductibles and are based on the percentage of the home’s value.

116
Q

Limit Order

A

A limit order is a take-profit order placed with a bank or brokerage to buy or sell a set amount of a financial instrument at a specified price or better; because a limit order is not a market order, it may not be executed if the price set by the investor to limit the period of time in which the order is left open. Limit orders also allow an investor to limit the length of time an order can be outstanding before being cancelled.

117
Q

Paper Dealer

A

A market dealer that buys and sells extremely short corporate bonds called commercial paper. A paper dealer is typically a large financial firm that has the capital and sophistication to distribute commercial paper to investors on behalf of borrowing corporations and to make a market in commercial paper, setting prices at which it is willing to buy and sell.

118
Q

High Income No Taxes

A

“Hint” is an acronym that stands for high income no taxes. It is applied to high earners who avoid paying federal income tax through legal means.

119
Q

Speculator

A

A speculator is a person who trades derivatives, commodities, bonds, equities or currencies with a higher than average risk in return for a higher than average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, in the hopes of making quick, large gains.

Investment Banking Jargon (5 decks)

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