FINANCIAL GLOSSARY PDF
Preface. This guide provides easy-to-understand definition and explanation of financial terms arranged in alphabetical order. The idea of writing a guide like this. bank (n.): one of a variety of financial intermediaries that accepts deposits and makes loans and/or that engages in brokerage, merger and acquisition consulting. Edition 1 of tutor2u's acclaimed Accounts & Finance Glossary improve standards of financial accounting and reporting, for the benefit of users, preparers and.
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A bail-out, in economics and finance, is a fresh injection of liquidity given to a bankrupt or nearly bankrupt entity, such as a corporation or a bank, in order for it to. the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-. Glossary online through the Sapient Global Markets website. . arm of the Securities Industries and Financial Markets. Association.
The Financial Markets Association in English. The professional umbrella organization for a large number of national associations of foreign exchange dealers cambistes. Indicator of a companys ability to meet its short-term liabilities, calculated like a current ratio by meas- uring a companys current assets relative to its liabilities. Acquisition The purchase by one company of another, for cash, an exchange of shares, or a combination of both.
The process, also known as a takeover, can be friendly and have the agreement of the acquired company. Or it can be hostile, when the target rejects the approach and tries to resist being acquired.
Acting in Concert Investors working together to achieve the same goal, e. Sometimes acting in concert is considered illegal. Also known colloquially as a concert party. Active Fund Management A fund is actively managed when securities selection is based on specific ideas and research about individual com- panies or financial instruments.
The overall composition of the fund mirrors decisions made at the micro level. It is the opposite of passive management in which a fund aims to match the performance of a market or index, and its constituents mirror the composition of that market or index.
Activity indicators include industrial production, capacity utilization and volume of retail sales. Actuals Also called physicals. Refers to the physical commodities available for shipment, storage and manufacture. Actuals available for delivery are traded for cash on a spot or forward basis.
Actuary A specialist in statistics and the mathematics of risk, often focused on insurance risks and premiums. A multilateral development finance institu- tion, with headquarters in Manila, dedicated to reducing poverty in Asia and the Pacific. Owned by member countries, mostly from the region. The form in which shares of foreign companies are usually traded on US stock markets.
An ADR is issued by a US bank and represents a bundle of shares of a foreign corpora- tion held in custody overseas. Trading in ADRs rather than the underlying shares reduces administration and trading costs, both for companies and for investors. AE Greek company title: abbreviation of Anonymi Eteria. A development finance organization based in Abidjan, Ivory Coast. Its aim is to reduce poverty and pro- mote social development among its regional members.
After-hours Dealing Dealing taking place after the official close of business on the trading floor of an investment exchange. AG German company title: abbreviation of Aktiengesellschaft, a joint-stock company.
Agent Bank Bank appointed by members of an international lending syn- dicate to protect lenders interests during the life of a loan. Everything that is consumed by households or governments, exported, or used as an investment good to produce other products. It comprises: investment spending by companies and households local and central government spending on goods and services demand for exports from overseas consumers and companies.
Aggregate Risk Total exposure of a bank to any single customer for both spot and forward contracts. Aggregate Supply Total supply of goods and services in the economy available to meet aggregate demand. The supply consists of domesti- cally produced goods and imports. Called some time after the financial year- end, inviting shareholders to vote acceptance of the companys annual report, balance sheet and final dividend.
Companies often use the meeting to tell shareholders about corporate business prospects in the early months of the new financial year. A UK market for smaller or high-risk companies that do not qualify for a full listing on the London Stock Exchange. Buy signals are interpreted by a sufficiently fast rate of increase while sell signals are indicated by a fast rate of decrease.
It is a capitalization- weighted index consisting of over stocks. Alpha In the context of stock returns, alpha measures the risk-adjusted per- formance of a security or fund. American Option An option which can be exercised at any time during the life of the contract, up to and including the expiry date, in con- trast to European options which can be exercised only on the expiry date.
A variation, called the semi-American, is where options can be exercised on only a set number of dates before expiry. This can be achieved via a purchase or sinking fund. The term is also used to describe the depreciation of fixed assets; the opposite of accretion.
AN Norwegian company title: abbreviation of Ansvarlig Firma. Analyst Generic term used to describe someone who analyses company data, economic data or price charts, in order to make trading recom- mendations. Annual Rate The comparison of the average level of a given rate, e.
The benefit of this measure is that it smoothes out unusually large or small changes that may have occurred for short periods during the year. Annualized Rate An annualized rate plots the change in an indicator over the whole year if the latest monthly or quarterly figure is presumed to persist for the rest of the year.
It is calculated by multiplying one months change by 12 to produce the annualized rate, or one quarters rate by four. Annual Report A status report on the current condition of a company. Issued once a year for shareholders to examine before the annual gen- eral meeting.
Annuity An investment that pays a given stream of income for a fixed period of time. Some annuities pay that income during the lifetime of the holder. Anti-trust Laws US federal legislation to prevent business monopolies and restraint of free trade.
A UK trade association. Organization aimed at promoting regional trade and economic co-operation. US oil industry institution which pro- vides key weekly data on US petroleum consumption and stock levels.
It serves as a rough measure of quality. The higher the API gravity number, the richer the yield in premium refined products.
An oil cargo offered with cost and freight ARA means that ports within this area can be considered for delivery. Arbitrage The action of profiting from the correction of price or yield anomalies in markets. Often this will involve taking a position in one market or instrument and an offsetting position in another.
As prices or yields move back into line, all positions may be profitably closed out. An arbitrageur is an individual or institution practising arbitrage. Arithmetic Average Simple average, equal to the sum of all values divided by the total number of values. Around Par Foreign exchange term used in the forward market when the points are quoted either side of par, i.
A measure used by telephone and media companies. A high ARPU spreads fixed costs and increases profit margins. AS Czech or Slovak company title: abbreviation of Akciova spolecnost. ASA Norwegian company title: abbreviation of Aksjeselaskap.
Ask A market makers price to sell a security, currency or any financial instrument. Also known as an offer. A two-way price comprises the bid and ask.
The difference between the two quotations is the spread. Asset Allocation The process of distributing investment funds among dif- ferent kinds of assets, such as stocks, bonds and cash, to achieve the highest expected returns for the lowest possible risk. Also known colloquially as a concert party. Active Fund Management A fund is actively managed when securities selection is based on specific ideas and research about individual com- panies or financial instruments.
The overall composition of the fund mirrors decisions made at the micro level. It is the opposite of passive management in which a fund aims to match the performance of a market or index, and its constituents mirror the composition of that market or index. Activity Indicators Indicators that show where an economy is in the busi- ness cycle.
Activity indicators include industrial production, capacity utilization and volume of retail sales. Actuals Also called physicals. Refers to the physical commodities available for shipment, storage and manufacture. Actuals available for delivery are traded for cash on a spot or forward basis. Actuary A specialist in statistics and the mathematics of risk, often focused on insurance risks and premiums. A multilateral development finance institu- tion, with headquarters in Manila, dedicated to reducing poverty in Asia and the Pacific.
Owned by member countries, mostly from the region. The form in which shares of foreign companies are usually traded on US stock markets. An ADR is issued by a US bank and represents a bundle of shares of a foreign corpora- tion held in custody overseas.
Trading in ADRs rather than the underlying shares reduces administration and trading costs, both for companies and for investors. AE Greek company title: A development finance organization based in Abidjan, Ivory Coast.
Its aim is to reduce poverty and pro- mote social development among its regional members. Affiliate Two companies are affiliated when one owns less than a majority of the voting stock of the other or if both are subsidiaries of a third company. After-hours Dealing Dealing taking place after the official close of business on the trading floor of an investment exchange. AG German company title: Agent Bank Bank appointed by members of an international lending syn- dicate to protect lenders interests during the life of a loan.
Aggregate Demand Total demand for goods and services in an economy. Everything that is consumed by households or governments, exported, or used as an investment good to produce other products. It comprises: Aggregate Risk Total exposure of a bank to any single customer for both spot and forward contracts. Aggregate Supply Total supply of goods and services in the economy available to meet aggregate demand.
The supply consists of domesti- cally produced goods and imports. Called some time after the financial year- end, inviting shareholders to vote acceptance of the companys annual report, balance sheet and final dividend. Companies often use the meeting to tell shareholders about corporate business prospects in the early months of the new financial year. A UK market for smaller or high-risk companies that do not qualify for a full listing on the London Stock Exchange.
AIMR An international non-profit organization of more than 50, investment practitioners and educators in more than countries, which aims to promote professional excellence and integrity. Alexanders Filter A technical analysis tool that measures the rate of rise or fall in prices in terms of a percentage price rise or fall over a set period.
Buy signals are interpreted by a sufficiently fast rate of increase while sell signals are indicated by a fast rate of decrease. It is a capitalization- weighted index consisting of over stocks. Alpha In the context of stock returns, alpha measures the risk-adjusted per- formance of a security or fund.
American Option An option which can be exercised at any time during the life of the contract, up to and including the expiry date, in con- trast to European options which can be exercised only on the expiry date.
A variation, called the semi-American, is where options can be exercised on only a set number of dates before expiry. Amortization The reduction of principal or debt at regular intervals. This can be achieved via a purchase or sinking fund.
The term is also used to describe the depreciation of fixed assets; the opposite of accretion. Analyst Generic term used to describe someone who analyses company data, economic data or price charts, in order to make trading recom- mendations. Annual Rate The comparison of the average level of a given rate, e.
The benefit of this measure is that it smoothes out unusually large or small changes that may have occurred for short periods during the year. Annualized Rate An annualized rate plots the change in an indicator over the whole year if the latest monthly or quarterly figure is presumed to persist for the rest of the year. It is calculated by multiplying one months change by 12 to produce the annualized rate, or one quarters rate by four. Annual Report A status report on the current condition of a company.
Issued once a year for shareholders to examine before the annual gen- eral meeting. Annuity An investment that pays a given stream of income for a fixed period of time. Some annuities pay that income during the lifetime of the holder.
Anti-trust Laws US federal legislation to prevent business monopolies and restraint of free trade. A UK trade association. Organization aimed at promoting regional trade and economic co-operation. US oil industry institution which pro- vides key weekly data on US petroleum consumption and stock levels. It serves as a rough measure of quality.
The higher the API gravity number, the richer the yield in premium refined products. An oil cargo offered with cost and freight ARA means that ports within this area can be considered for delivery. Arbitrage The action of profiting from the correction of price or yield anomalies in markets.
Often this will involve taking a position in one market or instrument and an offsetting position in another.
As prices or yields move back into line, all positions may be profitably closed out. An arbitrageur is an individual or institution practising arbitrage. Arithmetic Average Simple average, equal to the sum of all values divided by the total number of values.
Around Par Foreign exchange term used in the forward market when the points are quoted either side of par, i. A measure used by telephone and media companies. A high ARPU spreads fixed costs and increases profit margins.
Ask A market makers price to sell a security, currency or any financial instrument. Also known as an offer. A two-way price comprises the bid and ask. The difference between the two quotations is the spread. Asset Allocation The process of distributing investment funds among dif- ferent kinds of assets, such as stocks, bonds and cash, to achieve the highest expected returns for the lowest possible risk.
Asset Management Also known as liability management, this is the func- tion of controlling assets and liabilities to achieve the optimum return and reduce risk. Assets Assets are tangible items of value to a business such as factories, machinery and financial instruments, and intangible items such as goodwill, the title of a newspaper or a products brand name. They appear on the companys balance sheet. Asset Stripping Seeking a profit by buying a company, often when the market price is below the value of the assets, and then selling off all or some of the assets.
Assign To transfer ownership to another party. It usually involves signing a document. In derivatives markets assignment refers to the act of exer- cising an option.
Associate Formed when two or more companies engage in partnership or joint venture projects. At Best A buy or sell order indicating it should be carried out at the best possible price available at that moment.
An automated dispenser of cash and banking services. At Par When a security is selling at a price that is equal to face value.
At the Money An option is described as being at the money when the exer- cise price is approximately the same as the underlying price. At the money options may also be either in or out of the money. The term is used to describe the exercise price nearest to the actual trading price of the underlying financial instrument on which the option is based.
Attributable Profit Total earnings of a company less expenses, attributable to the shareholders. Auction A public sale of a security whereby the issuer invites authorized dealers to make bids in price or yield until the full amount of the issue is sold. Auditors Accountants who carry out the official examination of a com- panys accounts. Authorized Capital The maximum number of shares that can be issued under a firms articles of incorporation. This can be increased only with shareholders approval.
The averaging can be agreed to be taken at any point in the life of the option and readings can be at any specified interval and frequency. Also known as an Asian option. B BA Norwegian company title: BA Bankers Acceptances. Sometimes known as time drafts, these are bearer-form short-term non-interest-bearing notes sold at a discount, redeemed by accepting banks for full face value at maturity. Backlog Orders for goods or services that have not yet been fulfilled.
They can be measured in cash terms, or by the number of days of normal production it would take to clear them. The level of backlogs is an important indicator of whether an economy is growing or not. Falling backlogs may be a sign that new orders are dropping and the old ones are being fulfilled, and that producers are less willing to hold large stocks or inventories. Back Month The futures or options contract being traded that is furthest into the future and is thus furthest from expiry.
Back Office The department in a financial institution that processes deals and handles delivery, settlement and regulatory procedures. Back-to-back Loans Arrangement whereby a loan in one currency is set against a loan in another currency.
It can be used to avoid or overcome exchange risks and exchange controls. Also known as parallel loans. Back-up Facility Typically, a bank line of credit used to provide back-up liquidity should an issuer be unable to bankroll the outstanding com- mercial paper. Backing and Filling Numerous small rises and falls in a market, usually speculative but showing no major overall change in price levels. Backpricing Price-setting method in the metal market, whereby a con- sumer with a long-term contract has the option of fixing the price for a proportion of his contract on the valid LME settlement price.
Backwardation In commodity markets, backwardation is a situation where the cash or near delivery price rises above the price for forward deliv- ery. The forward price is usually higher than the cash price to reflect the added costs of storage and insurance for stocks deliverable at a later date. Shortage of supply is often to blame for backwardation, because demand for the spot or cash product rises sharply, but the futures price stays steady because more supplies are expected in the future.
The opposite of backwardation is contango. Bad Debt When a business recognizes that a debt is unlikely to be repaid, the debt is written off as an expense in the profit and loss account. Balance of Payments A summary record of a countrys net international economic transactions including trade, services, capital movements and unilateral transfers.
Balance of Trade Monetary record of a countrys net imports and exports of physical merchandise.
It can be negative, showing that a country is importing more than it exports, or positive, showing it exports more than it imports. Balance Sheet An accounting statement of a companys assets and liabili- ties, provided for the benefit of shareholders and regulators.
It gives a snapshot, at a specific point of time, of the assets that the company holds and how the assets have been financed. Balanced Budget The situation in a governments budget where its expen- diture matches revenue. Also known as a neutral budget. Balloon Loan A loan that consists of regular monthly payments with one large balloon payment at maturity. Banc Assurance A combination of banking and insurance products offered in continental Europe.
Bank Bill A bill of exchange issued or accepted by a bank. It is thus more acceptable than a normal trade bill of exchange because the risk is less and the discount is accordingly also smaller. Bank Negara Malaysia Malaysias central bank. Bank Return Weekly or monthly statement issued by a central bank sum- marizing its financial position. Bankruptcy A court proceeding in which the assets of an insolvent com- pany or individual are liquidated.
Bar Chart A type of chart, widely used by technical analysts and traders, that represents price information on a vertical bar. The top of the bar is the highest price and the bottom of the bar the lowest.
A dash on the left-hand side of the bar denotes the opening price and a dash on the right-hand side the closing price. Figure 1. Barrels Volume measurement of liquid in the petroleum industry, equal to 42 US gallons or 35 imperial gallons or about 0. Barrels per Day Recognized worldwide as bpd. It is a measure of the flow of crude oil production from a field or producing company or a country.
Barrier Option An option, which is activated or deactivated once the price of the underlying financial instrument reaches a set level, known as the barrier.
It can be categorized into either trigger or knockout options. Days high 25 Closing price Barter The exchange of goods or services where no money is paid. Also known as counter trade. Base Currency The currency that forms the base of a quotation, i. Basel Committee A committee of the Bank for International Settlements that formulates broad supervisory standards for best banking practice and supervision, including setting the minimum capital standards for banks. Basel Rules or Basel Accord Guidelines set by the Basel Committee of the BIS on the amount of capital that banks need to cover risks of default on their loan portfolio, or other problems with their operations.
The riskier the loan portfolio the higher the capital requirements. Base Metals Major industrial non-ferrous metals other than precious metals and minor metals; notably copper, lead, tin, zinc, aluminium, nickel. Any year can be chosen as a base year, but it is generally desirable to use a fairly recent year; widely used in the compilation of macro-economic data.
Basis The difference between a futures prices and the corresponding under- lying cash price. Basis is normally quoted as cash price deducted from futures price of the nearest delivery month.
There is a high degree of correlation between cash and futures prices but the basis is not con- stant. A basis trade exploits the expected movements in basis.
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Basis is likely to reduce and eventually to shrink to nothing as the futures contract approaches its expiry date. Figure 2. Basis Point One hundredth of a percentage point, or 0.
Basis Risk The risk that the price of a future will vary from the price of the underlying cash instrument as expiry approaches. Bear A market player who believes prices will fall.
Bears will sell a financial instrument which they do not own and then make a profit by repur- chasing it at a lower price. The dividends or interest payments are claimed from a paying agent, by presenting coupons clipped from the ownership certificate. Bearer bonds are as portable and almost as anonymous as cash, making them highly desirable to thieves. Bearish Holding a belief that prices will fall. A bearish sentiment in the market will therefore push prices lower.
The opposite of bullish. Bear Market A market in which prices have been falling for a prolonged period. Opposite of a bull market. Bear Raid An attempt to push down the price of a security, usually by short selling.
Bear Trap A false signal that a rising trend will end and that the market will resume previous falls. Short sellers are trapped by rising prices and have to cover their positions by buying stock at higher prices. Bed and Breakfast Deal The sale of a share and its repurchase shortly after the beginning of a new tax year. This allows shareholders to register a capital loss or profit for tax purposes while retaining ownership of the shares. Also known as the Tan Book. Bellwether An instrument or indicator that is generally seen to be an indi- cator of the overall market, economy or sectors performance.
From the lead sheep of a flock, which is belled. Below the Line A term used to describe when an exceptional item is recorded separately in a companys profit and loss account. Benchmark A standard used for comparison. A benchmark security is usu- ally the most recently issued security in good size. It sets the standard for the rest of the market. A benchmark issue is highly liquid.
Beta Beta records how volatile and risky investing in an individual stock is compared with the risk of the equity market as a whole. Beta measures how much the individual stocks excess return the amount it earns in dividends and capital gains compared with a short-term money market rate varies in comparison with movement in the excess return of the market as a whole usually represented by the markets benchmark index.
Beta compares excess return with short-term government paper because the latter investment is regarded as risk free. If the markets excess return rises by one percent and the stocks excess return rises during the same period by the same one percent then the stocks beta is one.
The higher the beta the riskier the stock, reflected in its greater required return. A stock with a beta of more than one tends to be riskier than the market. A stock with a beta of less than one is less risky. High beta stocks tend to be in cyclical sectors such as property and consumer durables.
Low beta stocks, also known as defensive stocks, tend to be in non-cyclical sectors such as food retailing and public utilities. Betas for individual stocks can vary according to whether the overall market direction is upwards or downwards. A stock may be riskier in a falling market than a rising market. Bid A market makers price to buy a security or instrument. BidAsk Quote A two-way price comprises a bid, or the price at which a dealer is willing to buy, and an ask or offer at which a dealer is will- ing to sell.
The bid, by definition, is always below the ask and is always the first quoted price. The difference between the two quotes is known as the spread. A spread between the best bid and best offer is called the touch. Bid Market A market in which there is more interest from buyers than sell- ers. Opposite of offer market. Big Figure The stem of a rate. When quoting a price, dealers may only refer to the points in foreign exchange or to fractions in money markets and omit mention of the big figure.
In the US, the big figure is known as the handle. Big Mac Index A light-hearted index devised by The Economist magazine which compares the price of McDonalds Big Mac burgers, a fast food staple available around the world, as a guide to whether currencies are overvalued or undervalued. Its based on the assumption that similar goods should cost the same wherever they are purchased. If the prices are different there is an anomaly in the valuation of the local currency.
If its out of line then the peso is either overvalued or undervalued on the basis of purchasing-power parity, which says exchange rates should move towards a level which equalizes the price of an identical basket of goods. Critics say the Big Mac index ignores the effects of taxes, profit margins and the price of raw materials in different countries.
Bill A short-term debt instrument with a maturity usually no longer than two years, although terminology varies from country to country. Bill is often a shorthand reference to Treasury bills, which are short-term government debt. Medium-term debt instruments are notes and longer-term instruments are bonds. In some markets a note has a maturity of two to five years and a bond has a maturity longer than five years, but usage varies.
Bill of Exchange Old financial instrument used to finance international trade. A bill of exchange is an order to pay a specified amount of money to the holder of the bill either at a set future date a time draft or on presentation of the bill a sight draft.
Also known as eligible bills, commercial bills, trade bills and BAs. Binary Option An option that pays out a fixed amount if the underlying financial instrument which the option is based reaches the strike level either at expiry, or at any time during the life of the option. Also called all-or-nothing option, digital option or one-touch option. Binomial Model An option pricing formula suggested by Cox, Ross, Rubinstein and Sharpe and used primarily to calculate the value of American-style options.
An international organization that fosters international monetary and financial co-operation and serves as a bank for central banks and international financial organizations. It accepts deposits from central banks and also makes short-term loans to them.
Financial Glossary Reuters .pdf
The BIS is concerned with safeguarding the stability of international financial markets and ensuring that all banks have suffi- cient capital to support their operating needs. It acts as a forum for regular meetings of the central bank governors of the G10 group of major industrialized countries. It allows assessment of the value of a call option at any particular time up to expiry. Black Market Economy Transactions not officially recorded due to tax evasion.
Block Trading Large transactions usually performed by institutional buyers or sellers. Blue Chip Stock A generic term for the stocks of major companies with sound earnings and dividend records and above-average share per- formance. Blue chip stocks are also known as income stock. Named after high-value poker chips, which were traditionally blue. Blue Sky Laws State laws in the United States aimed at protecting the public against securities frauds. They require new issue offerings to be registered and full financial details provided.
The phrase is thought to derive from a reference by a Supreme Court judge that some invest- ment schemes had about as much value as a patch of blue sky. BOE Bank of England. The UKs central bank. Bollinger Bands Used in technical analysis.
Bollinger bands are lines plot- ted one standard deviation above and below the moving average of the closing prices. A standard deviation measures price volatility so these bands narrow and widen in line with volatility narrow in calm markets and wide in volatile markets. The narrowing of the bands often indicates the start of a new trend, which is confirmed when prices break and close out of the band.
Bollinger bands may be used with any price chart but are most commonly used with bar charts. Figure 3. Bolsa A Spanish and Portuguese term for stock exchange. Price movements of XYZ Inc. Time days. Bond A bond is a legal contract in which a government, company or insti- tution the borrower issues an IOU certificate, which promises to pay holders a specific rate of interest for a fixed duration and then redeem the contract at face value on maturity.
In theory bonds are safer than equities because they have a fixed maturity and are repaid before any payments are made to shareholders. But if a company fails, its bond holders suffer just as much as its shareholders. Bond Equivalent Yield A calculation that converts the yield of a money market instrument, such as a Treasury bill, into the equivalent yield of a Treasury bond in order to compare efficiency. Yields on Treasury bills are expressed as a discount from face value and their maturity is often less than a year, so a calculation is needed to convert their yield into the equivalent annual yield of a bond.
Bond Indenture The complete contract specifying all the terms and condi- tions of a bond issue. Bond Washing When a bond-holder sells a security-cum-interest and buys it back after the coupon is paid so as to convert the interest income into a capital gain.
This is worthwhile only where lower tax rates apply to capital gains. Bonus Issue When a company transfers money from its reserves to its per- manent capital it makes a free issue of shares to shareholders. These new shares are then distributed to the existing holders in proportion to their existing holdings. Also known as capitalization issue, a free issue and a scrip issue.
Book A traders record of purchases and sales in one or more financial instru- ments. Talking a book also means a trader commenting favourably or unfavourably on a financial instrument depending on whether he is long or short in that instrument. The books is also a colloquial term referring to the overall accounting records of a business.
Book Building An exercise by an investment bank, which is lead-managing a new issue to ascertain the likely levels of demand for a security at different prices. It is designed to prevent an issue being undersub- scribed because of a large discrepancy between the issue price and the price at which the security starts trading on the secondary market. Book Entry Securities registered by the issuer. This usually occurs in com- puterized form with no physical issues, thereby reducing paperwork, expenses and simplifying transfer of ownership.
Book Price The value at which assets were originally entered in the books of a companys balance sheet. Book Runner The investment firm responsible for looking after the adminis- tration of a new bond issue.
The book runner is responsible for tasks such as inviting others to subscribe and allocating bonds to subscribers. Book Value The value at which fixed assets are listed in the balance sheet. Effectively the original purchase cost minus any allowance for depreciation.
Borrowing Requirement The net amount of money needed by a govern- ment to finance budget deficits and maturing debt. Italian Treasury bills with maturities of three, six and 12 months, issued at a discount.
Bottom Fishing When an investor buys a companys shares at a time when he believes they are unlikely to fall much further. Also, when a com- pany buys up loss-making competitors or purchases their assets. Bottom Line The final cost or result of a project or action.
The term derives from companies profit and loss accounts in which the bottom line shows the extent of the profit or loss after all income and expenses have been accounted for. In contrast with the top line, which shows net sales or total revenues of a company. Bottomry Authority given to a banker to dispose of goods pledged as secu- rity against a loan. For example, the pledging of a ship as collateral against emergency loans needed for repairs, with a commitment to repay the loan on safe completion of the voyage.
If the ships owner fails to repay the loans the bank can exercise bottomry and dispose of the ship. Bottom Up An investment strategy that relies on stock picking, rather than trying to achieve a balanced weighting in various sectors. If a fund uses a bottom-up approach, it will focus on the performance and management of individual companies rather than general economic or market trends. The opposite of top down. Bought Deal Commitment from an underwriter or lead manager to pur- chase the whole issue of a security for resale to the secondary market.
This method transfers the risk of being unable to sell a whole issue at the offering price from the issuer to the underwriter.
Bourse French term for stock exchange. Brady Bonds These bonds originated as syndicated bank credits to devel- oping countries, denominated in the major European currencies. During the economic recession of the early s many developing countries ran out of foreign currency to meet their payments on these loans. To restore confidence in the borrowers, much of this debt was converted into negotiable bonds backed by the US Treasury, under a scheme introduced in by the then US Treasury Secretary Nicholas Brady.
Te Reo Māori Financial Glossary
Break-even Point The level at which an existing position in a market will produce neither a loss nor a gain. In company reporting terms the break-even point is where total sales exactly match total fixed and variable costs, so profit is zero. It can also be used for the point where total turnover exactly matches fixed costs. Breakout A term used in technical analysis to describe when a price climbs above a resistance level usually its previous high or falls below a sup- port level usually its previous low.
Breakouts usually occur when a trend line or formation is broken. Brent Brent blend is a benchmark crude oil from the UK North Sea against which other crude oils are priced. It is widely used as an indicator of the price of oil beyond energy markets. It is traded on forward mar- kets and is the basis of futures and options contracts listed on the International Petroleum Exchange in London.
The system was based on fixed exchange rates combined with temporary financing facilities to overcome crises. In the dollar ceased to be convertible into gold and the Bretton Woods system exchange rate system was superseded by floating currencies. Bridging Bridging, or a bridging loan, is short-term financing made avail- able pending arrangement of intermediate or long-term financing.
Broadening A term used in technical analysis. A price formation with the appearance of a horizontal triangle, with the apex on the left and the base at the right. The trend lines are widening so the base gets wider. Peaks and troughs get successively higher and lower, showing a market that has lost its way. Figure 4. Broken Date Any trading date falling outside the standard periods traded in the forward markets. Also known as odd date.
Broker Brokers act as agents for buyers and sellers, for which they charge a commission, or brokerage. There are two main categories of brokers: Brokerage The commission or fee charged by a broker. In the US, this term is commonly used to refer to a brokerage firm.
Two orders treated as one, the first order being to sell. If done, the buy order becomes valid. French coupon-bearing, fixed-rate Treasury bills with two- and five-year maturities. Troughs become progressively lower.
B2B Business to Business trading of goods and services on the internet. French discount Treasury bills with maturities of 13, 26 and 52 weeks. Occasionally, four- and seven-week BTFs are issued outside the calendar and are similar to the US cash-management bills. Italian fixed-rate Treasury bonds with maturities of between three and 30 years.
Bubble A ramping up of asset prices to such a degree that a major reversal or crash is expected. Bucket Shop A fraudulent brokerage selling overpriced shares with little underlying value. They usually operate by telephone sales, often from another country. Also known as a boiler room, a reference to the cheap premises from which such brokerages work.
A bucket shop can also be a brokerage that accepts commissions to trade shares at a cer- tain price, then carries out the order at a different price to its advantage, pocketing the difference. Budget An itemized forecast of the incomes and expenditure of a govern- ment or company for a given future period.
Budget Deficit The amount by which spending exceeds revenues. It usu- ally refers to government spending and revenues. Budget Surplus The amount by which revenues exceed spending. Buffer Stock Stock of commodities held by an international organization that will aim to stabilize prices and supplies by buying and selling from its stockpile.
Building Society A British financial institution which pools deposits from savers to provide mortgage financing for house purchases. Bulge Bracket The group of underwriters who have sold most of a new securities issue. They usually come first on a tombstone advertisement.
Bull A market player who is confident that share prices will rise and buys a financial instrument with a view to selling it at a higher price. The opposite of a bear. Bulldog Bond A bond denominated in sterling, issued in the UK by a for- eign borrower.
Bullet Bond A bond which pays a fixed rate of interest and is redeemed in full on maturity.
It is also known as a straight or fixed bond because it has no special features. The name derives from the printers symbol of a bullet point or large dot, used to identify the bonds in price lists. Bullish Holding a belief that prices will rise. A bullish sentiment in the market will therefore push prices higher. The opposite of bearish. Bull Market A market in which prices have been rising for a prolonged period, fuelled by the prevalent view that share prices will continue to rise and that higher prices are justified.
The opposite of bear market. Bundesbank The Bundesbank, or Buba as it is sometimes known, is the Frankfurt-based German central bank. Bundesobligationen BOBL German federal government notes with maturities between two and six years, also known as Kassen. Effectively replaced by Schtze in Bunds German federal government bonds issued with maturities of up to 30 years. Bushel A measure of volume. In the UK, it equals 8 imperial gallons or In the US it equals The weight of a bushel varies according to the commodity involved.
Business Cycle Regular fluctuations in overall economic activity over time. The cycle has four distinct elements: Business cycles tend to be anywhere from five to 10 years peak to peak.
Business Risk The risk that a company may not produce the sales and earning growth as forecast. Busted Convertible A convertible issue of little value because the underly- ing stock has fallen below the conversion price.
Potential gains will be seen if the underlying financial instrument on which the option is based remains stable while the risk is limited should the underlying move dramatically. Buy Back The purchase by a company of its own shares in the open market, usually based on the belief that the shares are undervalued and that buying them will provide a better investment return than putting cash into the underlying business of the company.
In theory the buy-back will reduce the number of shares in the market and increase the value of the remaining ones. Also known as a share repur- chase. It effectively returns to the shareholders the cash held in company reserves which already belongs to them. Buy-side Used to describe financial institutions whose primary business is to make investments either for themselves or on behalf of other investors. The opposite of sell-side, the financial institutions whose primary business is trading.
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BVBA Belgian company title: Book Value Per Share. Book value equals total assets minus total liabilities. Book value per share BVPS equals book value divided by the number of shares outstanding. It is the same as shareholders equity. Formula for BVPS: Example The Old Rope Corporation has total assets of 1, million and total liabilities of 1, million.
The difference, million, is Old Ropes book value, which is also known as net asset value or shareholders equity. Both of these indices are capitalization-weighted averages. Cache A cache is a software function that allows frequently accessed data or pages to be stored on a users PC to save time connecting to a net- work. Year-over-year growth rate of an investment over a certain period of time. Call An option that gives the holder the right to buy an underlying instru- ment at an agreed price within a specified time.
The seller or writer has the obligation to sell the underlying instrument if the holder exercises the option. Callable A callable bond gives the holder the right to early redemption at a given redemption price, on a given call date.
Call Money Interest-bearing deposits repayable on demand. This covers both domestic money markets and Euromarket funds. Also known as day-to-day money or sight money. Call Provision A clause in a bonds indenture, granting the issuer the right to buy back all or part of an issue prior to the maturity date. C and F Cost and Freight. A term used to indicate when both the costs of the goods and freight charges are included in the price of a commodity.
Candlestick Chart A type of price chart widely used by technical analysts. Candlesticks capture the same price information as a bar chart: A thick box known as the body of the candle joins the open and close values. Thin lines on either end of the body known as shadows join the high and low prices. If the open value is higher than the close value, the body of the candle is solid or coloured. Conversely, if the close is higher than the open then the body of the candle is clear, white or unshaded.
Figure 5. This European Union policy was designed to stabilize commodity markets within Europe and ensure regular supplies at reasonable prices while guaranteeing farmers income. It is implemented through a complex mix of price support mechanisms and export restrictions.
Cap A derivative that protects the holder from an increase in interest rates. Caps normally have a life of between two and five years and the option can be exercised at regular intervals during that time. Should the underlying interest rate be higher than the strike level for the set period, the holder can exercise the option and receive a cash settle- ment. The size of the settlement is determined by the difference between the strike level and the underlying interest rate.
High Opening Closing. Low Close Opening Low. Time Three days of Two rising Three falling falling prices days days. Capacity Utilization A macro-economic ratio that compares actual output to potential output, the maximum possible production in a given period of time, using existing plant and equipment.
Capital Economists define capital as assets, other than labour and land, that are required for production. In financial markets capital refers to the financing instruments used principally to acquire capital goods in particular it refers to debt instruments and equity. Capital Account An account in the balance of payments that records movements of capital between domestic and foreign residents. The capital account records changes in the asset and liability position of domestic residents.
It covers flows such as loans and investments. Capital Adequacy A requirement for banks to have a minimum amount of capital to support their operations. In , central banks from the G10 countries agreed to move towards one standard of capital ade- quacy.
The BIS Bank for International Settlements rules determine how much and what type of capital commercial banks can raise in the financial markets and what type of loans they are allowed to make. Capital Allowances The amount of expenditure for capital equipment that can be set against tax. Capital Base The issued capital of a company, plus reserves and retained profits.
Capital Controls Government measures that restrict or bar the sending of capital outside a country.
The threat of such controls can cause investors and fund managers to withdraw their funds, a reaction known as capital flight.
Capital Employed Capital used by a particular company in its business. It may refer to net assets but often includes bank loans and overdrafts. Capital Expenditure Payment for the acquisition of a long-term asset. Often known simply as Capex.
Capital Flight The withdrawal of large amounts of money from a country. It may be caused by such things as political instability, currency depreciation, new regulations and taxation or fears of government restrictions on movement of capital. Capital Gain Profit from selling or transferring assets at a higher price than their initial cost. Inflation and currency movements can affect the real capital gain. Capital Intensive A project or production process that uses a relatively large amount of capital.
Capital Investment Investment in capital equipment, such as buildings, plant or machinery. For example, the building of a chemical refinery would be capital intensive and require large capital investment. Capitalization The total market value of a companys issued share capital.
Calculated as the number of shares multiplied by the price of one share. Capitalization Issue An issue of shares free to the shareholders that results from a company transferring money from its reserves to its per- manent capital.
New shares are distributed to the existing holders in proportion to their holdings. Also known as a bonus or scrip issue. Capitalization-weighted Index A weighted average of the price of con- stituent stocks. Each stock is weighted according to its market capitalization relative to the total index.
Capital Loss Loss when the sale of an asset yields less than the acquisition cost. Commercial banks are required to set aside capital equal to eight percent of assets judged to be at risk.
Some assets, such as loans to central banks, carry a zero percent risk weight- ing. At the other extreme, pure corporate loans are judged as being a percent risk. Capital Reserve A part of shareholders funds that comes from a revalua- tion of capital assets and not from the normal operations that are recorded in the profit and loss account.
Capital Risk The risk that a companys share price falls in value or becomes worthless, resulting in a loss of capital. Capital Turnover A measure of how capital intensive a business is. It meas- ures total sales or turnover divided by the capital employed in the business.
The smaller the number the more capital is required for a given amount of sales.
Also known as Asset Turnover. Capitulation A sudden and final wave of selling at the bottom of a bear market, when all the bulls have given up hope of price rises. A model that tracks the relationship between risk and expected return. It stipulates that the return on a risky asset is equal to the risk-free rate plus a risk premium. The risk premium is the stocks beta multiplied by the difference between the market rate of return and the risk-free rate. Capped Note A floating rate instrument with a cap that places a maxi- mum coupon rate on the issue.
Captive Insurance Company An insurance company owned by the com- pany or companies whose risks it insures. Using a captive company brings costs and tax advantages so they are often used when a com- pany considers itself large enough to insure its own risks. Carries A London Metal Exchange term for simultaneously matching pur- chases of one delivery with the sale of another.
In other markets, these are termed straddles or switches. Carrying Charge The cost of holding commodities, over and above the purchase price. It includes the cost of storage in warehouses and insurance against damage. When commodities are due to be delivered to fulfil the terms of a futures contract the carrying cost also includes charges for ensuring their quality, including sampling, weighing and repairing damage.
Also used to describe a futures market where price differentials between delivery months fully reflect insurance, storage and interest costs. Cartel A group of businesses, organizations or countries who agree to influ- ence the price or supply of goods.
Such a group has less power than a monopoly. In the US a cartel is sometimes called a trust. Cash Collective term for ready money coins and banknotes at the bank and in hand, together with short-term deposits and other liquid assets.
Cash and Carry Trade An arbitrage position that typically comprises a long cash position together with a short position in its respective futures contract.
The trader buys the cash or physical commodity, such as coffee, and at the same time sells a futures contract which promises to deliver the same amount of coffee at a future date. This will make him a profit as long as the cash price, plus the cost of storing and insuring the coffee the cost of carry until the futures contract falls due, is less than the money received for selling the futures contract.
Arbitrageurs buy cash and carry the commodity for delivery later against the future contract. Also known as basis trading or buying the basis. Cash Burn The rate at which a new company uses up its cash resources or venture capital when it has yet to produce a positive cash flow. The burn rate is usually expressed as the amount of capital used up per month.
Cash Commodity A physical commodity, such as bags of coffee or bushels of wheat, as distinct to a commodity derivative, such as a future or option, which is a paper contract derived from the physical commodity. Cash Cow Something that generates a strong and steady flow of income, usually a product or a business. Cash Crop A crop grown for sale is a cash crop, whereas a crop grown for food is a subsistence crop.
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Cash Dividend A dividend paid in cash to a companys shareholders. Cash dividends are distributed from current earnings or accumulated profits. Cash Equivalent An asset that is so easily and quickly convertible to cash that holding it is equivalent to holding cash.
A Treasury bill is consid- ered cash equivalent. This term is also used to describe an alternative method of liquidating a position, whereby the seller provides the cash equivalent to the buyer rather than the security itself.
Settling by cash equivalent is a much simpler process than providing the underlying bonds or shares. It is usually done when the counter party to a deal has no interest in owning the underlying securities but wishes to pro- tect himself against interest rate or market moves.
Cash Flow Cash flow is the sum of pre-tax profits and depreciation allowances and is a key figure in a companys financial statement. The term is also used to describe the stream of funds received by a bond holder from the periodic receipt of interest payments. Cash Flow Statement The cash flow, or flow of funds, statement shows how the operations of a company have been financed during the accounting period, and how the financial resources have been used.
Cash Management Bills Treasury bills with maturities ranging from a few days to six months and issued on a discount basis. They are auctioned in the same way as Treasury bills, although not on a regular cycle, and can be announced as late as the auction day itself.
Non-competitive bidding is not authorized for these bills. Cash Markets A generic term used to describe markets in underlying finan- cial instruments such as currencies, bonds and shares, as opposed to markets in derivative instruments such as futures, options and swaps. The term is also widely used in foreign exchange and debt markets to describe trading in debt instruments bills, bonds, bankers accept- ances etc.
Cash Ratios The proportion of cash and related assets to liabilities. A banks cash ratio is that of cash to total deposits. Cash Settlement Cash settlement is the most common method of settling financial futures. It involves closing out the position as opposed to physically delivering the underlying financial instrument or com- modity.
Also used to describe a transaction that settles the same day as the trade day. CD Certificate of Deposit. A CD is a receipt for, and promise to repay, funds deposited at a bank or other financial institution. CDs have a fixed maturity and a specified interest rate. They are quoted on an interest- bearing face-value basis rather than at a discount, and interest is paid at maturity.
An asset-back security which uses a portfolio of bonds or loans as collateral, or security.This can be achieved via a purchase or sinking fund. Chart Points Price points or updates on a chart which are connected to form a continuous line. Asset Stripping Seeking a profit by buying a company, often when the market price is below the value of the assets, and then selling off all or some of the assets.
The higher the API gravity number, the richer the yield in premium refined products. A basis trade exploits the expected movements in basis. An oil cargo offered with cost and freight ARA means that ports within this area can be considered for delivery. Because of the prospect of possible capital gains on the shares, the bond can carry a lower coupon, or nominal rate of inter- est.
Occasionally, four- and seven-week BTFs are issued outside the calendar and are similar to the US cash-management bills. Consolidation Phase A sideways move in a market that generally remains at the same level despite minor rises and falls. A standard deviation measures price volatility so these bands narrow and widen in line with volatility narrow in calm markets and wide in volatile markets.
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