Letter B

Question 1

Back-end load

Answer 1

A sales charge applied on the redemption of a mutual fund

Question 2

Balanced budget

Answer 2

A budget is said to be balanced when revenue equals spending.

Question 3

Balanced fund

Answer 3

Invests in both stocks and bonds to provide a balanced mix of income and capital growth.

Question 4

Balance of payments

Answer 4

Canada’s interactions with the rest of the world which are captured here in the current account and capital account

Question 5

Bank of Canada

Answer 5

Canada’s central bank which exercises its influence on the economy by raising and lowering short-term interest rates.

Question 6

Bank Rate

Answer 6

The minimum rate at which the Bank of Canada makes short-term advances to the chartered banks, other members of Payments Canada and investment dealers who trade in the money market.

Question 7

Bear market

Answer 7

A sustained decline in equity prices. Bear markets are usually associated with a downturn (recession or contraction) in the business cycle.

Question 8

Bear

Answer 8

One who expects that the market generally, or the market price of a particular security, will decline. See also Bull.

Question 9

Basis point

Answer 9

One-hundredth of a percentage point of bond yields. Thus, 1% represents 100 basis points.

Question 10

Basis point

Answer 10

One-hundredth of a percentage point of bond yields. Thus, 1% represents 100 basis points.

Question 11

Bankrupt

Answer 11

The legal status of an individual or company that is unable to pay its creditors and whose assets are therefore administered for its creditors by a Trustee in Bankruptcy.

Question 12

Banking group

Answer 12

A group of investment firms, each of which individually assumes financial responsibility for part of an underwriting.

Question 13

Bankers’ acceptance

Answer 13

A commercial draft (i.e., a written instruction to make payment) drawn by a borrower for payment on a specified date. A BA is guaranteed at maturity by the borrower’s bank. As with T-bills, BAs are sold at a discount and mature at their face value, with the difference representing the return to the investor. BAs may be sold before maturity at prevailing market rates, generally offering a higher yield than Canada T-bills.

Question 14

Benchmark

Answer 14

A standard against which an investment or portfolio is measured. A common benchmark is the T-bill rate plus some sort of performance benchmark; for example, the T-bill rate plus 4%. A benchmark could also be a market index; for example, the S&P/TSX Composite Index.

Question 15

Beneficial owner

Answer 15

The real (underlying) owner of an account, securities or other assets. An investor may own shares which are registered in the name of an investment dealer, trustee or bank to facilitate transfer or to preserve anonymity, but the investor would be the beneficial owner.

Question 16

Bid-ask spread

Answer 16

The difference between the current bid and ask, calculated as Ask – Bid.

Question 17

Beta

Answer 17

A measure of the sensitivity (i.e., volatility) of a stock or a mutual fund to movements in the overall stock market. The beta for the market is considered to be 1. A fund that mirrors the market, such as an index fund, would also have a beta of 1. Funds or stocks with a beta greater than 1 are more volatile than the market and are therefore riskier. A beta less than 1 is not as volatile and can be expected to rise and fall by less than the overall market.

Question 18

Best efforts underwriting

Answer 18

The attempt by an investment dealer (underwriter) to sell an issue of securities, to the best of their abilities, but does not guarantee that any or all of the issue will be sold. The investment dealer is not held liable to fulfill the order or to sell all of the securities. The underwriter acts as an agent for the issuer in distributing the issue.

Question 19

Beneficiary

Answer 19

The individual or individuals who have been designated to receive the death benefit. Beneficiaries may be either revocable or irrevocable.

Question 20

Bid price

Answer 20

The highest price a buyer is willing to pay for the financial instrument being quoted. See also Ask.

Question 21

Blue-chip

Answer 21

An active, leading, nationally known common stock with a record of continuous dividend payments and other strong investment qualities. The implication is that the company is of “good” investment value.

Question 22

Buy side

Answer 22

The term applied to retail and institutional investors, since they are the buyers of securities and services provided by the sell-side of the market.

Question 23

Buy-back

Answer 23

A company’s purchase of its common shares either by tender or in the open market for cancellation, subsequent resale or for dividend reinvestment plans.

Question 24

Buy-ins

Answer 24

The obligation to buy back the stock after selling it short if adequate margin cannot be maintained by the client and/or if the originally borrowed stock is called by its owner and no other stock can be borrowed to replace it.

Question 25

Buy and hold

Answer 25

A passive investment approach where the investor or manager buys and holds a portfolio of securities for a long period of time.

Question 26

Business trust

Answer 26

Purchases the assets of an underlying company and the profits and losses resulting from the use of the trust are shared with investors on a proportional basis.

Question 27

Business risk

Answer 27

The risk inherent in a company’s operations, reflected in the variability in earnings. A weakening in consumer interest or technological obsolescence usually causes the decline. Examples include manufacturers of vinyl records, eight track recording tapes and beta video machines.

Question 28

Business cycle

Answer 28

The recurrence of periods of expansion and recession in economic activity. Each cycle is expected to move through five phases – the trough, recovery, expansion, peak, contraction (recession). Given an understanding of the relationship between the business cycle and security prices an investor or fund manager would select an asset mix to maximize returns.

Question 29

Blue sky

Answer 29

A slang term for laws that various Canadian provinces and American states have enacted to protect the public against securities frauds. The term blue skyed is used to indicate that a new issue has been cleared by a securities commission and may be distributed.

Question 30

Bull market

Answer 30

A general and prolonged rising trend in security prices. Bull markets are usually associated with an expansionary phase of the business cycle. As a memory aid, it is said that a bull walks with his head up while a bear walks with his head down

Question 31

Bull

Answer 31

One who expects that the market generally or the market price of a particular security will rise. See also Bear.

Question 32

Budget surplus

Answer 32

Occurs when government revenue for the year exceeds expenditures.

Question 33

Budget deficit

Answer 33

Occurs when total spending by the government for the year is higher than revenue collected.

Question 34

Bucketing

Answer 34

Confirming a transaction where no trade has been executed.

Question 35

Bond

Answer 35

A certificate evidencing a debt on which the issuer promises to pay the holder a specified amount of interest based on the coupon rate, for a specified length of time, and to repay the loan on its maturity. Strictly speaking, assets are pledged as security for a bond issue, except in the case of government “bonds”, but the term is often loosely used to describe any funded debt issue.

Question 36

Bond contract (Bond indenture)

Answer 36

The actual legal agreement between the issuer and the bondholder. The contract outlines the terms and conditions – the coupon rate, timing of coupon payments, maturity date and any other terms. The bond contract is usually administered by a trust company on behalf of all the bondholders. Also called a Bond Indenture or Trust Deed.

Question 37

Broker of record.

Answer 37

The broker named as the official advisor to a corporation on financial matters; has the right of first refusal on any new issues

Question 38

Broker

Answer 38

An investment dealer or a duly registered individual that is registered to trade in securities in the capacity of an agent or principal and is a member of a Self-Regulatory Organization.

Question 39

Bourse de Montréal

Answer 39

A stock exchange (also referred to as the Montréal Exchange) that deals exclusively with non-agricultural options and futures in Canada, including all options that previously traded on the Toronto Stock Exchange and all futures products that previously traded on the Toronto Futures Exchange.

Question 40

Bought deal

Answer 40

A new issue of stocks or bonds bought from the issuer by an investment dealer for resale to its clients, usually by way of a private placement or short form prospectus. The dealer risks its own capital in the bought deal. In the event that the price has to be lowered to sell out the issue, the dealer absorbs the loss

Question 41

Bottom-up analysis

Answer 41

An investment approach that seeks out undervalued companies. A fund manager may find companies whose low share prices are not justified. They would buy these securities and when the market finally realizes that they are undervalued, the share price rises giving the astute bottom up manager a profit. See also Top-Down Analysis.

Question 42

Book value

Answer 42

The amount of net assets belonging to the owners of a business (or shareholders of a company) based on statement of financial position values. It represents the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated. Also represents the original cost of the units allocated to a segregated fund contract.

Question 43

Bond fund

Answer 43

A fund that invests primarily in bonds and derives its income mostly from interest payments made by bond issuers to the fund.

Question 44

Bond residue

Answer 44

The remaining bond once the coupons have been stripped.