vocab 3

Question 1

Dividend reinvestment plan

Answer 1

The automatic reinvestment of shareholder dividends in more share’s of the company’s stock.

Question 2

Dividend yield

Answer 2

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.

Question 3

Drawdown

Answer 3

A cash management open-market operation pursued by the bank of Canada to influence interest rates. A drawdown refers to a transfer in deposits to the Bank of
Canada from the direct clearers, effectively draining the supply of available cash balances. See also Redeposit

Question 4

Due diligence report

Answer 4

When negotiations for a new issue of securities begin between a dealer and a corporate issuer, the dealer normally prepares a due diligence report examining the financial structure of the company.

Question 5

Duration

Answer 5

A measure of bond price volatility. The approximate percentage change in the price or value of a bond or portfoliio for a 1% point change in interest rates. The higher duration of a bond the greater the risk.

Question 6

Dynamic asset allocation

Answer 6

An asset allocation strategy that refers to the systematic rebalancing, either by time period or weight, of the security in the portfolio, so that they match the long term bench mark asset mix among the various asset classes.

Question 7

Earned income

Answer 7

Income that is designated by Canada customs and revenue agency for RRSP calculations. Most types of revenues are included with the exception of any form of investment income and pension income.

Question 8

Efficient market hypothesis

Answer 8

The theory that a stocks price reflects all available information and reflects its true value.

Question 9

Election period

Answer 9

When an investor purchases a extendible or retractible bond, they have a time period in which to notify the company if they want to notify the company.

Question 10

Embedded option

Answer 10

A term used to describe the convertible, retractible or extendible features of some securities. These features can often be valued using the same techniques to value options.

Question 11

Enterprise multiple (EM)

Answer 11

A ratio used to measure a company’s overall value by comparing its enterprise value to its earnings before interest, taxes and amortization.

Question 12

Enterprise Value (EV)

Answer 12

Reflects what it would cost to purchase a company as a whole. EV is calculated as the market value of the company’s common equity, preferred equity and debt less any cash or investments that it records on its balance sheets.

Question 13

Equipment trust certificate

Answer 13

A type of debt security that was historically used to finance “rolling stock” or railway boxcars. The cars were the collateral behind the issue and when the issue was paid down the cars reverted to the issuer. In recent times, equipment trust are used as a method of financing containers for the offshore industry. A security, more common in the U.S than in Canada.

Question 14

Equity dividend shares

Answer 14

Shares that trade like bonds and preferred shares, but can benefit from increases in dividends paid on the underlying common shares. Also known as structured preferreds. see also split shares

Question 15

Equity or shareholders equity

Answer 15

Ownership interest of common and preferred shareholders in a company. The difference between the assets and liabilities of a company which is sometimes called net worth.

Question 16

Equity earnings

Answer 16

A company’s share of an unconsolidated subsidiary’s earnings. The equity accounting method is used when a company owns 20% to 50% of a subsidiary.

Question 17

Escrowed or pooled shares

Answer 17

Outstanding shares of a company which, while entitled to vote and recieve dividends, may not be bought or sold unless special approval is obtained. Mining and oil companies commmonly use this technique when treasury shares are issued for new properties. Shares can be released from escrow (i.e. freed to be bought and sold) only with the permission of applicable authorities such as a stock exchange and/or securities commision.

Question 18

Eurobonds

Answer 18

Bonds denominated in Canadian dollars or other currencies and sold to investors in currencies other than the country of issue. A bond denominated in Canadian dollars and issued in Germany would be classified as a Eurobond.

Question 19

European option

Answer 19

An option that can only be excercised on a specific date - normally the business day prior to expiration.

Question 20

Event driven hedge fund

Answer 20

A type of hedge fund that seeks to profit from unique events such as mergers, aquisitions, stock splits or buybacks.

Question 21

Ex-ante

Answer 21

A projection of expected returns - what investors expect to realize as a return.

Question 22

Ex-dividend

Answer 22

A term that denoted that when a person purchases a common or preferred share, they are not entitled to a dividend payment. Shares go ex-dividend two business days prior to the shareholder record date.

Question 23

Ex-post

Answer 23

The rate of return that was actually received. This historic data is used to measure actual performance.

Question 24

Ex-rights

Answer 24

A term that denotes that the purchaser of a common share would not be entitled to a rights offering. Common shares go ex-rights two business days prior to the shareholder of record date.

Question 25

Exchange fund account

Answer 25

A special federal government account operated by the Bank of Canada to hold and conduct transactions in Canada's foreign exchange reserves on instuctions from the minister of finance.

Question 26

Exchange traded funds ETF's

Answer 26

Open ended mutual fund trusts that hold the same stocks in the same proportion as those included in a specific stock index.

Question 27

Exempt list

Answer 27

Large professional buyers of securities, mostly financial institutions, that are offered a portion of a new issue by one member of the banking group on behalf of the whole syndicate. The term exempt indicates that this group of investors is exempt from recieving a prospectus on a new issue as they are considered to be sophisticated and knowledgeable.

Question 28

Exempt market

Answer 28

An unregulated market for sophisticated participants in government bonds, corporate issues and commercial paper. A prospectus has not been required to raise money privately from private investors ( largely institutions, but also individuals) and registration with a securities commision for those so dealing has not been needed.

Question 29

Excercise

Answer 29

The process of invoking the rights of the option or warrant contract. It is the holder of the contract who exercises his or her rights. See also assignment

Question 30

Exercise notice

Answer 30

The instuctions tendered by the option holder, through the investment dealer, which states the holders decision to activate the rights given in the option contract. Once tendered, it is irrevocable.

Question 31

Expectation theory

Answer 31

A theory stating that yield curve is shaped by a market consensus about future interest rates.

Question 32

Expiry date

Answer 32

The date on which certain rights or contracts cease to exist. For equity option, this date is usually the saturday following the third friday of the month listed in the contract. This term can also be used to describe the day on which warrants and rights cease to exist.

Question 33

Extraordinary items

Answer 33

An event not typical of normal business activity and do not occur on a regular basis. For example, a company may write off an underperforming division or it may sell a large amount of real estate in a given fiscal year. The result of these special gains or losses are included as an extraordinary item on the earnings statement.

Question 34

Face value

Answer 34

The value of a bond or debenture that appears on the face of the certificate. Face value is ordinarily the amount the issuer will pay at maturity. Face value is no indication of market value.

Question 35

Factors of production

Answer 35

The resources that consumers, firms , and governments use to produce goods and services and include labour, natural resources, entrepreneurship and capital.

Question 36

Fiduciary responsibility

Answer 36

The responsibility of an investment advisor, mutual fund sales person or financial planner to aleays put the clients interest first. The fiduciary is in a position of trust and must act accordingly.

Question 37

Final good

Answer 37

A finished product, one that is purchased by the ultimate end user.

Question 38

Financial risk

Answer 38

The additional risk placed on the common shareholders from a company's decision to use debt to finance its operation.

Question 39

Final prospectus

Answer 39

The prospectus which supersedes the preliminary prospectus and is accepted for filing by applicable provincial securities commisions. the fianl prospectus shows all required information pertinent to the new issue and a copy must be given to each first time buyer of the new issue.

Question 40

Finance or acceptance company paper

Answer 40

Short term negotiable debt securities similar to commercial papre, but issued by finance companies.

Question 41

Financing

Answer 41

The purchase for resale of a security issue by one or more investment dealers. the formal agreement between the investment dealer and the corporation issuing the securities is called the underwriting agreement.

Question 42

Firm bid - firm offer

Answer 42

An undertaking to buy(firm bid) or sell(firm offer) a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the seller in the case of a firm bid or the buyer in the case of a firm offer.

Question 43

First-in-first-out (FIFO)

Answer 43

Inventory items acquired earliest are sold first.

Question 44

First mortgage bonds

Answer 44

The senior securities of a company as they constitute a first charge on the company's assets, earnings and undertakings before unsecured current liabilities are paid.

Question 45

Fiscal agent

Answer 45

An investment dealer appointed by a company or government to advise it in financial matters and to manage the underwriting of its securities.

Question 46

Fiscal policy

Answer 46

The policy pursued by the federal government to influence economic growth through the use of taxation and gevernment spending to smooth out the fluctuations of the business cycle.

Question 47

Fixed asset

Answer 47

A tangible long term asset such as land, builing or machinery, held for use rather than for processing or resale. A balance sheet category.

Question 48

Fixed exchange rate regime

Answer 48

A country whose central bank maintains the domestic currency at a fixed level against another currency or a composite of other currencies.

Question 49

Flat

Answer 49

Means that the quoted maket price of a bond or debenture is its total cost (as opposed to an accrued interest transaction). Bonds and debentures in default of interest trade flat.

Question 50

Floating exchange rate regime

Answer 50

A country whose central bank allows market forces alone to determine the value of its currency, but will intervene if it thinks the move in the exchange rate is excessive or disorderly.

Question 51

Floating rate

Answer 51

A term used to describe the interest payments negotiated in a particular contract. In this case, a floating rate is one that is based on an administered rate, such as prime rate. For example, the rate for a particular note may be 2% over prime.

Question 52

Floating rate debentures

Answer 52

A type of debenture that offers protection to investors during periods of very volatile interest rates. For example, when interest rates are rising, the interest paid on floating rate debentures is adjusted upward every six months.

Question 53

Forced conversion

Answer 53

When a company's stick rises in value above the conversion price a company may force the convertible security holder to exchange the security for stock by calling back the security. Faced with recieving a lower call price (par plus a call premium) or higher valued shares the investor is forced to convert into common shares.

Question 54

Foreign bond

Answer 54

If a Canadian company issues debt securities in another country, denominated in that foreign country's currency, the bond is known as a foreign bond. A bond issued in the U.S payable in U.S dollars is known as a foreing bond or a Yankee bond.

Question 55

Foreign Pay

Answer 55

A Canadian debt security issued in Canada but pays interest and principle in a foreign currency is known as a foreign pay bond. This type of security allows Canadians to take advantage of possible shifts in currency values.

Question 56

Forward

Answer 56

A forward contract is similar to a futures contract but trades on a OTC basis. The seller agrees to deliver a specified commodity or financial instument at a specific price sometime in the future. The terms of a forward contract ate not standerdized but are negotiated at the time of trade. There may be no secondary market.

Question 57

Frictional unemployment

Answer 57

Unemployment that results from normal labour turnover, from people entering and leaving the workforce and from the ongoing creation and destruction of jobs.

Question 58

Front running

Answer 58

Making a practice, directly or indirectly, of taking the opposite side of the market to clients, or effecting a trade for the advisor's own account prior to effecting a trade for a client.

Question 59

Fully diluted earnings per share

Answer 59

Earnings per common share calculated on the assumption that all convertible securities are converted into common shares and all outstanding rights, warrants, options and contingent issues are excercised.

Question 60

Full employment

Answer 60

The level of unemployment due solely to both frictional and structural factors, or when cyclical unemployment is zero.

Question 61

Funded debt

Answer 61

All outstanding bonds, debentures, notes and similar debt instruments of a company not due for at least one year.

Question 62

FundServ

Answer 62

An industry organization that administers segregated fund offerings as well as provides clearing and settlement services to mutual funds.

Question 63

Future income taxes

Answer 63

Income tax that would otherwise be payable currently, but which is deferred by using larger allowable deductions in calculating taxable income than those used in calculating net income in the financial statements. An acceptable practice, it is usually the result of timing differences and represents differences in accounting reporting guidelines and tax reporting guidelines.

Question 64

Futures

Answer 64

A contract in which the seller agrees to deliver a specified commodity or financial instrument at a specified price some time in the future. A future contract is traded on a recognized exchange. Unlike a forward contract, the terms of the contract are standardized by the exchange and there is a secondary market.

Question 65

GAAP

Answer 65

Acronym for Generally Accepted Accounting Principles which are conventions, procedures and guidlines for accounting practices.

Question 66

Good delivery form

Answer 66

When a security is sold it must be delivered to the broker properly endorsed, not mutilated and with (if any) coupons attached. To avoid these diffilculties and as a general practice most securities are held in street form with the broker.

Question 67

Good faith money

Answer 67

A deposit of money by the buyer or seller of a futures product which acts as a financial gaurantee as to the fulfilment of the contractual obligation of the futures contract. Also called a performance bond or margin.

Question 68

Good through order

Answer 68

An order to buy or sell that is good for a specified number of days and then is automatically cancelled if it has not been filled.

Question 69

Goodwill

Answer 69

Generally understood to represent the value of a well respected business - its name, customer relations, emolyee relations, among others. Considered an intangible asset on the balance sheet.

Question 70

Greensheet

Answer 70

Bonds issued by a crown corporation but gauranteed by the applicable govenment as to interest and principal payments.

Question 71

Grey market

Answer 71

A colloquialism used to describe the unlisted if, as, and when market for newly issued but as of yet, unlisted securities. It is an over the counter market.

Question 72

Gross National Product (GNP)

Answer 72

The value of all goods and sevices produced by Canadian nationals, whether at home or abroad. It is equal to GDP plus profits and interest on Canadian ivestments in other countries, minus profits and interest paid to foreign holders of Canadian investments.

Question 73

Gross profit margin

Answer 73

A profitability ratio that shows the company's rate of profit after allowing for cost of goods sold.

Question 74

Guaranteed amount

Answer 74

The minimum amount payable under death benefits or maturity guarantees provided for under the term of the segregate fund contract.

Question 75

Guaranteed bonds

Answer 75

Bonds issued by a crown corporation but guaranteed by the applicable government as to interest and principal payments.

Question 76

Gauranteed income supplement (GIS)

Answer 76

A pension payable to OAS recipients with no other or limited income.

Question 77

Guaranteed investment certificate (GIC)

Answer 77

A deposit instrument most commonly available from trust companies, requiring a minimum investment at a predetermined rate of interest for a stated term. Generally non redeemable prior to maturity but there can be exceptions.

Question 78

Guaranteed investment fund (GIF)

Answer 78

A type of segregated fund whose underlying asset is a mutual fund. GIFs are often described as consisting of mutual funds with segregated fund "wrappers".

Question 79

Hedge

Answer 79

A protective manoeuvre; a transaction intended to reduce the risk of loss from price fluctuations.

Question 80

High saling

Answer 80

Deliberately causing the last sale of the day in a security to be higher than waranted by the prevailing market conditions (also referred to as window dressing)

Question 81

High water mark

Answer 81

Used in context of how a hedge fund manager is compensated. The high water mark sets the bar above which the fund manager is paid a portion of the profits earned for the fund.

Question 82

Holding period return

Answer 82

A transactional rate of return measure that takes into account all cash flows and increases or decreases in a security's value for any time frame. Time frames can be greater or less than a year.

Question 83

Hypothecate

Answer 83

To pledge securities as collateral for a loan. Referred to as collateral assignment or hypotec in Quebec for segregated funds.

Question 84

Income bond

Answer 84

Generally, an income bond promises to repay principal but to pay interest only when earned. In some cases, unpaid interest on an income bond may accumulate as a claim against the company when the bond matures.

Question 85

Income splitting

Answer 85

A tax planning strategy whereby the higher earning spouse transfers income to the lower earning spouse to reduce taxable income.

Question 86

Income trust

Answer 86

A type of investment trust that holds investments in the operating assets of the company. Income from these operating asset flows through to the trust, which in turn passes on the income to the trust unitholders.

Question 87

Income tax act (ITA)

Answer 87

The legislation dictating the prosess and collection of federal tax in Canada, administered by the Canadian Customs and revenue Agency.

Question 88

Indexing

Answer 88

A portfolio manament style that involves buying and holding a portfolio of securities that matched, closely or exactly, the composition of a benchmark index.

Question 89

Index participation unit

Answer 89

Shares of an ETF that trade on a major stock exchange. Like index mutual funds, index participation units are designed to match the performance of a certain index by investing in the constituent companies included in that index. Like the stocks in which they invest, shares can be traded throughout the trading day.

Question 90

Individual variable insurance contract (IVIC)

Answer 90

The term used in the IVIC guidelines to describe a segregated fund contract.

Question 91

Inflation

Answer 91

A generalized, sustained trend of rising prices.

Question 92

Inflation rate

Answer 92

The rate of change in prices.

Question 93

Inflation rate risk

Answer 93

The risk that the value of financial assets and the purchasing power if income will decline due to the impact of inflation on the real returns produced by those financial assets.

Question 94

Information circular

Answer 94

Document sent to shareholders with a proxy, providing details of matters to come before a shareholders meeting.

Question 95

Initial sales charge

Answer 95

A commision paid to the financial advisor at the time that the policy is purchased. This type of sales charge is also known as as acquisition fee or a front-end load.

Question 96

Insider

Answer 96

All directors and senior officers of a corporation and those who may also be presumed to have access to non public or inside information concerning the company; also anyone owning more than 10% of the voting shares in a corporation.

Question 97

Insider report

Answer 97

A report of all transactions in the shares of a company by those considered to be insiders of the company and submitted each month to securities commisions.

Question 98

Instalment debentures

Answer 98

A bond or debenture issue in which a predetermined amount of principal matures each year.

Question 99

Instalment receipts

Answer 99

A new issue of stock sold with the obligation that buyers will pay the issue price in a specified series of instalment payment intead of one lump sum payment . Also known as partially paid shares.

Question 100

Insured asset allocation

Answer 100

An asset allocation strategy whereby there is a base portfolio value below which the portfolio is not allowed to drop.

Question 101

Integrated asset allocation

Answer 101

An asset allocation strategy that refers to an all-encompassing strategy that includes consideration of capital market expectations and client risk toleranc.

Question 102

Intangible assets

Answer 102

An asset having no physical dubstance (e.g. goodwill, patents, franchises, copyrights)

Question 103

In-the-money

Answer 103

A call option is in the money if its strike price is below the current market price of the underlying security. A put option is in the money if its strike price is above the current market price of the underlying security. The in the money amount is the options intrinsic value.

Question 104

Interest coverage ratio

Answer 104

A debt ratio that tests the ability of a company to pay the interest charges on its debt and indicates how many times these charges are covered based upon earnings available to pay them

Question 105

Interest rate risk

Answer 105

The risk that changes in interest rates will adversely affect the value of an investor's portfolio. For example, a portfolio with a large holding of long term bonds is vulnerable to significant loss from changes in interest rates

Question 106

International monetary fund (IMF)

Answer 106

Entity whose purpose is to promote cooperation and collaboration on international monetary and trade issues.