Letter D Flashcards
Daily valuation method
A method of calculating the NAVPS of a mutual fund. The incremental change in the value of a fund from day to day is expressed as an index from which the return can be calculated. This method of calculation is beneficial for mutual funds, which generally calculate NAVPS daily. It greatly simplifies their return calculation at the end of the month.
Dark pool
An equity marketplace that does not offer pre-trade transparency on trader orders.
Direct bonds
This term is used to describe bonds issued by governments that are firsthand obligations of the government itself. See also Guaranteed Bonds.
Designated broker
A designated broker has a contractual agreement with an ETF company to aid in the creation and redemption of ETF units.
Derivative
A type of financial instrument whose value is based on the performance of an underlying financial asset, commodity, or other investment. Derivatives are available on interest rates, currency, stock indexes. For example, a call option on IBM is a derivative because the value of the call varies in relation to the performance of IBM stock. See also Options.
Depreciation
Systematic charges against earnings to write off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements, or obsolescence. It is a bookkeeping entry and does not involve the expenditure of cash.
Depletion
Refers to consumption of natural resources that are part of a company’s assets. Producing oil, mining and gas companies deal in products that cannot be replenished and as such are known as wasting assets. The recording of depletion is a bookkeeping entry similar to depreciation and does not involve the expenditure of cash.
Delayed floater
A type of variable rate preferred share that entitles the holder to a fixed dividend for a predetermined period of time after which the dividend becomes variable. Also known as a fixed-reset or fixed floater.
Delayed opening
Postponement in the opening of trading of a security the result of a heavy influx of buy and/or sell orders.
Denominations
The face values of a bond.
Demand pull inflation
A type of inflation that develops when continued consumer demand pushes prices higher.
Delisting
Removal of a security’s listing on a stock exchange.
Demand
The quantity demanded of a good or service based on a particular price during a given period. The lower the price, the higher the demand.
Deferred sales charge
The fee charged by a mutual fund or insurance company for redeeming units. It is otherwise known as a redemption fee or back-end load. These fees decline over time and are eventually reduced to zero if the fund is held long enough.
Deferred tax liabilities
The income tax payable in future periods. These liabilities commonly result from temporary differences between the book value of assets and liabilities as reported on the statement of financial position and the amount attributed to that asset or liability for income tax purposes
Deflation
A sustained fall in prices where the consumer price index is negative.
Defined contribution plan
A type of registered pension plan where the amount contributed is known but the dollar amount of the pension to be received is unknown. Also known as a money purchase plan.
Defined benefit plan
A type of registered pension plan in which the annual payout is based on a formula. The plan pays a specific dollar amount at retirement using a predetermined formula.
Debt-to-equity ratio
A ratio that shows whether a company’s borrowing is excessive. The higher the ratio, the higher the financial risk.
Debt security
A debt instrument such as a bond or debenture. The instrument represents a liability on a loan and specifies basic terms such as the amount borrowed, the interest rate and maturity date.
Deferred preferred shares
A type of preferred share that pays no dividend until a future maturity date.
Deferred annuity
This type of contract, usually sold by life insurance companies, pays a regular stream of income to the beneficiary or annuitant at some agreed-upon start date in the future. The original payment is usually a stream of payments made over time, ending prior to the beginning of the annuity payments. See also Annuity
Defensive stock
A stock of a company with a record of stable earnings and continuous dividend payments and which has demonstrated relative stability in poor economic conditions. For example, utility stock values do not usually change from periods of expansion to periods of recession since most individuals use a constant amount of electricity.
Defensive industry
An industry with a record of stable earnings and continuous dividend payments and which has demonstrated relative stability in poor economic conditions.
Deemed disposition
Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale, e.g., there is a deemed disposition on death or emigration from Canada.
Default
A bond is in default when the borrower has failed to live up to its obligations under the trust deed with regard to interest, sinking fund payments or has failed to redeem the bonds at maturity.
Default risk
The risk that a debt security issuer will be unable to pay interest on the prescribed date or the principal at maturity. Default risk applies to debt securities not equities since equity dividend payments are not contractual.
Declining-balance method
An accounting method of depreciation whereby a fixed percentage is applied to the outstanding balance of an asset to determine the expense to be charged each period.
Declining industry
An industry moving from the maturity stage. It tends to grow at rates slower than the overall economy, or the growth rate actually begins to decline.
Day order
A buy or sell order that automatically expires if it is not executed on the day it is entered. All orders are day orders unless otherwise specified.
Dealer market
A market in which securities are bought and sold over-the-counter in which dealers acts as principals when buying and selling securities for clients. Also referred to as the unlisted market.
Debt
Money borrowed from lenders for a variety of purposes. The borrower typically pays interest for the use of the money and is obligated to repay it at a set date.
Debenture
A certificate of indebtedness of a government or company backed only by the general credit of the issuer and unsecured by mortgage or lien on any specific asset. In other words, no specific assets have been pledged as collateral.
Death benefit
The amount that a segregated fund policy pays to the beneficiary or the estate when the market value of the segregated fund is lower than the guaranteed amount on the death of the annuitant.
Dealer member
A stock brokerage firm or investment dealer which is a member of a stock exchange or the Investment Industry Regulatory Organization of Canada.
Dealer’s spread
The difference between the bid and ask prices on a security.
Direct electronic access (DEA)
The process of some institutional clients directly accessing the exchanges electronically via their investment dealers rather than placing orders (usually verbally) with their investment dealer who would in turn execute the transaction.
Directional strategies
A type of hedge fund that places a bet on the anticipated movements in the market prices of equities, fixed-income securities, foreign currencies and commodities.
Dynamic asset allocation
An asset allocation strategy that refers to the systematic rebalancing, either by time period or weight, of the securities in the portfolio, so that they match the long-term benchmark asset mix among the various asset classes.
Duty of care
The responsibility to conduct due diligence before providing advice or recommending products.
Duration
A measure of bond price volatility. The approximate percentage change in the price or value of a bond or bond portfolio for a 1% point change in interest rates. The higher the duration of a bond the greater its risk.
Due diligence report
When negotiations for a new issue of securities begin between a dealer and corporate issuer, the dealer normally prepares a due diligence report examining the financial structure of the company.
Drawdown
A cash management open-market operation pursued by the Bank of Canada to influence interest rates. A drawdown refers to the transfer of deposits to the Bank of Canada from the direct clearers, effectively draining the supply of available cash balances. See also Redeposit
Dividend discount model
The relationship between a stock’s current price and the present value of all future dividend payments. It is used to determine the price at which a stock should be selling based on projected future dividend payments.
Dividend fund
Invest in preferred shares as well as high-quality common shares, with a history of consistently paying dividends.
Dow Jones Industrial Average (DJIA)
A price-weighted average that uses 30 actively traded blue chip companies as a measure of the direction of the New York Stock Exchange.
Domestic bonds
Bonds issued in the currency and country of the issuer. For example, a Canadian dollar-denominated bond, issued by a Canadian company, in the Canadian market would be considered a domestic bond.
Dollar cost averaging
Investing a fixed amount of dollars in a specific security at regular set intervals over a period of time, thereby reducing the average cost paid per unit.
Dividend yield
A value ratio that shows the annual dividend rate expressed as a percentage of the current market price of a stock. Dividend yield represents the investor’s percentage return on investment at its prevailing market price.
Dividend tax credit
A procedure to encourage Canadians to invest in preferred and common shares of taxable, dividend-paying Canadian corporations. The taxpayer pays tax based on grossing up the dividend and obtains a credit against federal and provincial tax based on the grossed up amount. The federal government may adjust the gross up rate and tax credit from year to year.
Dividend payout ratio
A ratio that measures the amount or percentage of the company’s profit that are paid out to shareholders in the form of dividends.
Dividend reinvestment plan
The automatic reinvestment of shareholder dividends in more shares of the company’s stock.
Dividend record date
The date upon which a company determines which shareholders are entitled to the declared dividend.
Director
Person elected by voting common shareholders at the annual meeting to direct company policies.
Directors’ circular
Information sent to shareholders by the directors of a company that are the target of a takeover bid. A recommendation to accept or reject the bid, and reasons for this recommendation, must be included.
Dividend
An amount distributed out of a company’s profits to its shareholders in proportion to the number of shares they hold. Over the years a preferred dividend will remain at a fixed annual amount. The amount of common dividends may fluctuate with the company’s profits. A company is under no legal obligation to pay preferred or common dividends.
Diversification
Spreading investment risk by buying different types of securities in different companies in different kinds of businesses and/or locations.
Disposable income
Personal income minus income taxes and any other transfers to government.
Disinflation
A decline in the rate at which prices rise – i.e., a decrease in the rate of inflation. Prices are still rising, but at a slower rate.
Discretionary account
A securities account where the client has given specific written authorization to a partner, director or qualified portfolio manager to select securities and execute trades for him. See also Managed Account and Wrap Account.
Discouraged workers
Individuals that are available and willing to work but cannot find jobs and have not made specific efforts to find a job within the previous month.
Discount rate
In computing the value of a bond, the discount rate is the interest rate used in calculating the present value of future cash flows.
Discount brokers
Brokerage house that buys and sells securities for clients at a greater commission discount than full-service firms. Also known as self-directed brokers.
Discount
The amount by which a preferred stock or bond sells below its par value.
Disclosure
One of the principles of securities regulation in Canada. This principle entails full, true and plain disclosure of all material facts necessary to make reasoned investment decisions.
