Financial Terminology Definition of The Financial Term

A
Financial
Terminology
Definition of the Financial Term
AAA
A rating agency rating that is given to the best quality of debt obligation, usually
given if the possibility of principal as well as interest payments default is very low.
AAF
Asset Allocation Fund - A fund kept by investment companies to support the
changes in portfolio positions, by reallocating assets according to changing market
conditions.
AAGR
Average Annual Growth Rate - The arithmetic mean (average) of the growth of
investment value (portfolio value), over a period of years, to yield a particular rate
that will give growth information at first glance.
AAR
Average Annual Return - The percentile metric used to measure historical returns
on an investment or portfolio and to evaluate the quality of potential investments.
Abandonment
Value
This is the liquidation value of a project. In other words, if the project were to be
liquidated at this very instant, at this very state of progress, the amount earned on
its sale is termed as the abandonment value of the project.
ABB
Activity Based Budgeting - When the budgetary allocations are activity based, i.e.
finances are allotted on the basis of activities, the budget is termed as activity
based budgets.
ABM
Activity Based Management - The management style that identifies and analyzes
individual activities, based on their costing, profitability and drivers, is known as
activity based management.
ABS
Asset Backed Securities - These are the securities that derive their values from an
underlying asset or pool of assets. In other words, a financial security backed by
any other form, like a lease, loan or receivables is an asset backed security.
Absolute Return
This is an assets result or performance, irrespective of any comparisons with other
assets in the same asset class.
ACATS
The Automated Customer Account Transfer Service is a central processing system
that supports the timely transfer of customer accounts, between various
participant institutions.
ACB
Adjusted Cost Base - It is the cost calculation used when calculating an asset value
for tax debt purposes.
ACRS
The Accelerated Cost Recover System is the historical calculation of depreciation
for tax and accounting purposes. MACRS (Modified ACRS) is a similar system based
on the current method.
Accord and
Satisfaction
This is the full and final payment, which is incidentally less than the total amount
owed, made for the full settlement of an outstanding debt.
Accounting Noise
When the financial situation of a firm is made to look better or worse than it
actually is, by twisting the GAAP (Generally Accepted Accounting Principles) rules,
it is known as accounting noise.
Accredited
Investors
"Refers to an individual whose net worth, or joint net worth with a spouse, exceeds
USD 1,000,000; or whose individual income exceeded USD 200,000 or whose joint
income with a spouse exceeded USD 300,000 in each of the 2 most recent years
and can be expected to meet that income in the current year." - Campbell R
Harvey
Accrued Market
Discount
A discount bond that is redeemable at par, rises in its market value as it
approaches maturity (keeping market interest rates constant) and this market
value rise is termed as accrued market discount.
Accumulation
Phase
This is the time period where an accumulated pool of finance is generated by an
investor, by building up his savings.
Across the Board
When all the stocks, in all the diverse sectors, move in one direction together, due
to a trend or movement, it is termed as an across the board bull or bear run.
Act of God Bond
Act of god bond, or catastrophe bond, is an insurance company bond that links its
principal and interest to all the losses incurred by the company, because of natural
disasters.
Active Bond
When a bond is traded with a relatively high frequency and in relatively higher
volumes, the bond is known as an active bond.
Active Bond
Crowd
Unlike the cabinet crowd (that do not take active part in the bond market), the
active bond crowd comprises all those investors that actively trade in large
volumes, in the bond market.
Active Box
When securities are kept aside, to remain available as a collateral for loans or
margins, they are termed to be in an active box.
Active Investing
Investing in short or long positions in an ongoing frequency, such that you are
never in a 'non-invested' state, is termed as active investing.
Active
Management
When investments are undertaken with the specific objectives that they should
earn higher return than the set benchmark, the investing process is termed as
active management.
Active-Participant
Status
If you have participated in an employer sponsored retirement plan, you hold an
active-participant status.
Actuals
These are the actual, physical commodities that form the basis for futures trading
contracts.
Adjustment
Frequency
The frequency of interest rate change in an adjustable rate mortgage contract is
termed as adjustment frequency.
ADR
ADR stands for American Depository Receipt and is a negotiable certificate given
by a U.S. bank accounting for the number of foreign stock shares issued on a U.S.
stock exchange.
Advance Directive
Advance directives give an individual to decide on his own critical care now, for
when he may not have the power to do so.
Aggressive A mutual fund that aims to achieve the highest possible growth rates (by obviously
Growth Fund undertaking more risk) is termed as an aggressive growth fund.
Algorithmic
Trading
When transactional decisions are made by utilizing very advanced mathematical
decision-making models, the policy followed is termed as algorithmic trading.
Alligator Spread
If a spread turns out to be unprofitable even during favorable market movements,
usually due to huge commissions, it is called an alligator spread.
Alternative Order
When two separate orders are simultaneously placed on one security, with a
caveat that one's execution automatically cancels the other, the orders are termed
as alternative orders.
Angel Bond
Investment grade bonds that pay lower interest rates because the issuing
companies have a high credit rating are termed as angel bonds.
Annuity
Investment that grow at a particular interest and pays out amortized payments
over a certain period after the investment period are termed annuities.
Arbitrage Bond
These are municipality issued lower rate debt securities that are issued just before
the call dates on their higher rate debt securities, to gain an interest rate
advantage.
Assessed Value These are dollar values of properties used for tax assessments.
Assignable
Contract
This futures contract allows the holder to confer his or her rights on another third
party.
Automated
Clearing House -
ACH
This is an electronic, automated, funds transfer system, and is run by the National
Automated Clearing House Association.
Axe
Axe is a term used to convey the interest a trader shows in a bond buying or
selling process.
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B

Finance
Terminology
B2B
B2B stands for business to business and is the terms used to describe two
businesses trade with each other.
Baby Bond This is any bond issued with a less than USD 1,000 par value.
Baccalaureate Bond
These are zero coupon bonds aimed at helping families save for tuition fees
through added tax benefits.
Bankruptcy
Financing
The high risk high interest rate financing undertaken by a company while under
a Chapter 11 Bankruptcy process is termed bankruptcy financing.
Bar Chart
This chart is a vertical representation of price activity of a security over a period
of time and is a very popular analysis toll with technical analysts.
Barrier Option
This is an option whose payoff depends on whether the underlying stock has
crossed or reached a preset barrier price.
Basket Option
When an option is based on a basket of commodities, currencies or securities i.e.
the underlying commodity of not one but a basket of many, the option is called a
basket option.
Bermuda Option
This is an option that can only be exercised on a predetermined day of every
month.
Binomial Option
Pricing Model
Developed by Cox, et al., in 1979, this model provides a mathematical valuation
of an option at each point in time, under simplified assumptions.
Black Friday
September 24, 1869 was deemed a Black Friday in the pages of stock market
history because of a catastrophic stock market crash.
Bond Option
When an option contract is made with bonds as the underlying asset, the
contract is termed as a bond option contract.
Bonus Share
When a company decides to allot additional shares to already existing
shareholders, instead of a dividend payout, it is termed as a bonus share issue.
Bootstrapping
This is a procedure that uses market figures to calculate zero coupon yield
curves.
Bottom Fisher
A bottom fisher is an investor who shops for bargain stocks i.e., the stocks that
have seen a significant price drop in recent times.
Bracket Creep
This is the term used to refer to an increase in income taxes without any
increase in real incomes, because of inflation.
Bucketing
Also referred to as bucket shop, this is an unscrupulous activity aimed at making
short term profit, by a broker confirming the execution of an order without
actually doing so in reality.
Bunny Bond
This type of bond gives investors the option to invest the coupon payments in
other bonds of same coupon and maturity.
Butterfly Spread
A bull and bear spread combination strategy that uses three strike prices and
limits both, the risk and the profit potential, is called a butterfly spread.
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C

Financial
Terminology
Calculation
Agent
A calculation agent is the party that calculates the value of a derivative. In case of a
swap agreement the calculation agent calculates the amount owed. If two or more
calculation agents are sharing responsibility, they are called co-calculation agents.
Calendar Year
Based on the Gregorian calendar, a calendar year refers to the period from January
1 to December 31. A calendar year will be the time period used to determine an
individual's or a corporation's financial information, in order to calculate taxes.
Call Premium
The amount that is paid by the issuer of a callable fixed-income debt security to the
holder of the security, when the issuer calls the security.
Call Ratio
Backspread
It is a strategic investment plan wherein, various options are combined in order to
have minimum loss potential and mixed profit potential.
CAMEL Rating
System
International bank supervisory authorities rate institutions and banks on six factors
- Capital adequacy, Asset quality, Management quality, Earnings, Liquidity and
Sensitivity to market risks.
Candlestick
It refers to a price chart that will display the high, low, open and close price for
every single day over a period of time for a specific security.
Capital
Capital is a vague term that usually refers to the financial resources and assets of a
company including the likes of land and buildings and plant and machinery.
Capital Note
These are the fixed income products that companies issue in lieu of short-term
debt. These are generally unsecured debts and the company's credit rating helps in
backing these notes.
Captive Fund
These are usually held by investment banks, insurance companies and institutional
asset managers. These funds deal solely with the institution that has ownership and
provides them with investment services.
Carbon Trade
It is a concept that was developed as a result of the Kyoto Protocol. Carbon trading
is the trading of emission rights of Green House Gases (GHG) between nations.
Carried Interest
Without contributing any initial funds, the general partners of private equities and
hedge funds receive a share of the profits as compensation. This amount is known
as the carried interest.
Carrying Charge
There are certain costs to be incurred while holding a financial instrument. These
charges usually include insurance, storage costs and other related costs. The cost
associated with holding a financial instrument is known as carrying charge.
Casino Finance
Any strategy adopted for investment that is seen to carry high risk is known as
casino finance.
Catalyst
As the scientific meaning of the term catalyst, its financial usage also implies
something that causes or initiates a particular event to happen.
Certificate of
Indebtedness
The United States Treasury issues a short-term fixed income security known as
certificate of indebtedness. These certificates take no longer than one year to
mature.
Chastity Bond
It is a bond that acts as a discouraging agent for unwanted takeovers. Immediately
after the takeover, the new company will be forced to pay the bondholders, as the
chastity bond matures when a takeover occurs.
Closed End
Lease
It is a lease agreement that places no obligation on the lessee to purchase the asset
at the end of the lease period. This form of lease is also called "true lease",
"walkaway lease" or "net lease".
Cold Calling Cold calling is a technique used by brokers and agents to gain new business
opportunities and clients by approaching potential clients randomly.
Commodity Pool
Similar to a mutual fund, a commodity pool collects contributions by investors and
uses them in futures and commodity options trading. Investors make small
contributions and as a result, bear low risks.
Contract Market
Also known as designated exchange, it refers to any platform of trade that trades in
specific options or futures contracts.
Conversion
It refers to the exchange of a convertible asset (like a convertible bond) into
another type of asset at a fixed price, on or before a fixed date.
Convertible
Debenture
A debenture that can be converted into any other asset at some point of time is
called a convertible debenture.
Corporate
Finance
Any activity or task that deals with the financial and monetary dimension of a
company is called corporate finance. Mergers and acquisitions to procurement of
raw materials can all be included under corporate finance.
Corporate Tax
It is a tax or a levy instilled upon a company, and the amount of the tax will depend
on the levels of profit achieved by the firm.
Credit Crunch
Credit crunch refers to a financial scenario wherein investment capital becomes very
difficult to obtain. The price of debt products rises up considerably as the banks and
lenders become very cautious and conservative.
Creative
Destruction
Joseph Schumpeter came up with this term in his work, "Capitalism, Socialism and
Democracy". He said,"Creative destruction is a process of industrial mutation that
incessantly revolutionizes the economic structure from within, incessantly
destroying the old one, incessantly creating a new one".
Currency
It is issued by the Government and widely accepted as a medium of exchange. It
includes coins and paper notes and is circulated freely within an economy. It forms
the basis for any form of trade.
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D

Financial
Terminology
DAC
It is normally used in the insurance industry where the company defers sales costs
related to attaining a new customer over the term of insurance contract.
DAIO
Down-and-In Option Mean is a type of a knock in option where the payoff is decided
by the price of the underlying asset falling to the barrier level price.
DAOO
It is a kind of a knock out barrier option that stops its existence when the price of
the underlying asset does not reach the barrier level. The investor has the authority
to use their European call or put option on the exercised price mentioned in the
contract if the price of the underlying asset does not reach the barrier price.
Dark Cloud
Cover
It is a pattern where the black candlestick follows a white candlestick in the
candlestick charting. It can be a sign of a future bearish trend.
DAT
It means direct access trading where one client can trade directly with another client.
It can be called an expert in trading and exchange without any broker or middleman
or a market on Nasdaq.
Date Certain
Date certain is considered to be a legal binding which ascertains the date on which
the actions specified in the contract can be reasonably accomplished or completed.
Dated Date
It is a date at which the interest begins to accrue or accumulate on a fixed income
security. If the issuance date of the fixed income security is the same as the dated
date then the dated date is also known as the issue date.
Day Stock
Trader
The stock trader makes an abundant amount of trade each day and holds his
position for a very short time (from hours to minutes). Most of the trades are
entered and closed out within the same day.
Day-Count
Convention
Each bond market has its own day-count convention. It is a system which is used to
determine the number of days between two coupon dates and is essential in
calculating the accrued interest and current value if the next coupon payment is less
than a full coupon period away.
Day's to Cover
Day's to cover is also known as "Short Interest Ratio". It can be calculated as: Days
To Cover= Current Short Interest/Average Daily Share Volume. It is the
measurement of the issued shares of a particular company that are presently shorted
and are expressed as number of days necessary to close out all the short positions.
DCF
Discounted Cash Flow is a valuation method used to estimate the profitability of a
particular investment option. DCF analysis uses future free cash flow projections and
discounts them, using weighted average cost of capital, to get the present value
used to analyze the competence of investment.
DDM
It is a process to value the price of a stock using estimated dividends and
discounting them back to the current value. The stock is considered to be
undervalued if the DDM value is higher than the current trading value of the shares.
It can be calculated as: Value of Stock = Dividend Per Share/difference of Discount
Rate and Dividend Growth Rate.
Dead Cat
Bounce
It means a short term or temporary recovery from a long time decline or bear
market, after which the market continues to fall.
Dead Flow
Dead flow is the rate at which the new proposals flow to the underwriters of an
investment bank. These proposals include takeovers, acquisitions, mergers, public
offerings of securities (IPO), etc.
Death Cross
Death Cross is a crossover due the security's average long haul moving, breaking
above its average short term moving or level of support.
Death Spiral
It is a type of loan given to the company by the investors in exchange for convertible
debt. The original shareholders might lose the control on the company in this case.
Convertible debt is like convertible bonds that allow investors to convert bonds into
stocks at a rate lower to the current market rate.
Debit Spread
Debit Spread means when the investor trades on the same fundamental security
with two options and different market prices. The lowest premium option is sold and
the higher priced option is purchased at the same time.
Debt Equity
Ratio
Debt equity ratio is the measurement of the company's financial position which is
calculated by dividing the total liabilities and the shareholder's equity. It estimates or
measures the proportion of debt and equity the company is using, for financing its
assets.
DECS
Debt Exchangeable for Common Stock - DECS is a debt instrument which renders a
long call on the company which is issuing the stock and coupon payments consisting
of a short put option to the holder.
Debt Overhang
Debt overhang indicates a circumstance when the debt stock of a country surpasses
the future capacity of the country to repay it.
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E

Financial
Terminology
E-Mini (Stock Index
Futures)
These are electronically traded futures contracts that are available in a wide
range of indices and are traded on the Chicago Mercantile Exchange.
Early Exercise
Early exercise is done when an option or a security is exercised before its
maturity.
Earmarking
'Flagged' or 'Marked' funds that are set aside for a particular period of time or for
a particular event or purpose are said to be earmarked funds or capital.
Earned Income
Legitimate income that comes from an active participation in trade or business is
termed as earned income. Wages, salaries, tips, commissions, and bonuses come
under the 'earned income' umbrella.
Earnings Retention
Setting aside a percentage of net earnings to be reinvested in the business as
opposed to being used to pay out dividends is called earnings retention.
Earning the Points
As opposite to losing the points, earning the points is a term used to describe a
situation where, a trader gains through a difference in buy and sell prices, when
he agrees to sell at one price now and to buy for less in the future.
Eat Well Sleep Well
This refers to the risk return trade off that every trader must face, the choice of
whether he wishes to eat well (high return with high risk borne) or sleep well
(low risk borne, yielding lesser return).
Eat Your Own Dog
Food
When a company uses its own products (self manufactured) for day-to-day
operations, it is said to be eating its own dog food.
Echo Bubble
A smaller bubble that follows an earlier prominent bubble (a post bubble rally) is
termed as an echo bubble.
Economic
Forecasting
This involves projecting the future state of the economy using various
mathematical and statistical models.
Effective Duration
When a bond has embedded option on it, they are valued using their effective
duration.
Electronic
Commerce - E
Commerce
This is a business model that allows firms to transact via an electronic network.
Electronic Filing - E
File
When tax returns are filed over the Internet, using online tax filing forms and tax
preparation software, the process is called E Filing.
Embedded Options
A normal option is traded separately from the underlying security but an
embedded option is traded together with it, i.e. the option and the underlying
security are inseparable.
Employee
Contribution Plan
These are company sponsored retirement plans where contributions or deposits
are deducted from the employee's pay and some companies match these
payments with the same amount from their own pockets.
Equity Income
Income that is earned through investments in stocks is termed as equity income.
In the mutual funds context, equity incomes are incomes earned from
investments in high quality companies with a history of rich and reliable dividend
distributions.
Equivalent Annual
Cost
A cost that is used to evaluate projects with different life spans, equivalent
annual cost is the present value of all costs of a project divided by the annuity
factor for the project life.
Erasure Guarantee
This guarantee is made by accredited financial institution to lend authenticity and
legitimacy to any changes made to bonds and securities.
ESOP
Employee Stock Ownership Plans or ESOPs are the employee benefit plans that
offer the employer company's stocks to employees to keep them focused on their
company and generate an interest in them to keep the company's stock value
appreciating.
Estate Freeze
When an estate owner transfers his stock to a company in return for preferred
shares, with the aim to circumvent tax consequences, the asset management
strategy is termed as an estate freeze.
Eurobond
When a bond is issued in a currency other than its home currency (currency of
the country from where it is issued), it is termed as a Eurobond.
Eurocredit
When a lending bank issues a loan of large denominations, in a currency other
than its national currency, it is said to be giving out Eurocredit.
Eurodollar
These avoid all Federal Reserve Board regulations as these are the dollar
denominated deposits at foreign banks or foreign branches of American banks.
These securities allow buyers to benefit, or lose, from variations in currency
exchange rates.
European Option
Unlike an American option that can be exercised anytime within its maturity
period, European options can only be exercised at the end of their lives.
Exit Strategy
These are the strategies or methods to pull out investment from a certain
project.
Exotic Options
When an option differs from standard American or European options on things
like underlying asset, payoff calculations, etc., it is termed as an exotic option.
Extrinsic Value
The extrinsic value of an option is nothing but the difference between the actual
option price and its intrinsic value.
[Top]

F

Financial
Terminology
Fair Market Value
The fair price that any asset would fetch in the market place considering that all
parties have reasonable knowledge of the asset and a reasonable period is taken
for the transaction completion, is termed as that asset's fair market value.
Fair Weather
Fund
Unlike a foul weather fund, a fair weather fund has the tendency to outperform a
bull market and under perform in a bear market.
Fairway Bond
Till the embedded index or the underlying interest rate option on a bond remains
within a particular range, a fairway bond continues accruing interest.
Family of Funds
A group of mutual funds, covering a wide range of categories as well as
investment objectives, all offered by one investment or mutual fund company, is
called a family of funds.
Featherbedding
This is the term used to describe a labor union strategy which requires an
employer to hire more people than needed for a particular task.
Feeder Fund A fund which has all of its investing routed via or done by a master fund.
Fifty Percent
Principle
This principle predicts a 1/2 or 2/3 of price change correction before an observed
trend shows it.
Fill or Kill - FOK
This is a type of order or transaction that requires a transaction to be filled
completely or be canceled. Examples are market orders or limit orders.
Financial
Engineering
This involves creating new financial products by redesigning and repackaging
existing financial instruments.
Financial Porn
This is a financial slang, used to describe excessive, sensationalist media coverage
of financial news, that triggers excessive buying and affects overall finances of the
investors.
Fire Sale
A fire sale is a good time to buy a security as it occurs when the market prices for
the security are at a low.
First-Time Home
Buyer
'First time home buyer' is a term used to describe a buyer who's buying residential
property for the first time ever.
Fixed Annuity
This annuity entails the annuitant receiving a fixed dollar payment all through his
life, till he dies. Get your fixed annuities explained.
Flat Yield Curve
This yield curve signifies that an investor cannot gain any extra compensation for
holding on to an investment as both the short and long term rates are exactly the
same.
Floater
Also known as 'floating rate debt', floaters are debt instruments with varying
coupon rates, that change according to market conditions.
Floating Rate
Note - FRN
Also known as floaters, these are variable interest rate notes, with interest rate
adjustments made every 6 months or so.
Flower Bond
These are fixed income products that were purchased at discount with the
objective of paying the federal estate taxes when they mature.
Force Majeure
French term with literal translation as 'greater force'. It is used in contracts to
escape the liability for natural and unavoidable disasters.
Foreclosure
A foreclosure entails the seizure and sale of property stipulated in the mortgage
loan contract of a debtor who has been unable to pay his principal or interest on
time.
Foreign Bond
A bond issued in the domestic market, in domestic currency denominations, but by
a foreign country issuer, is termed as a foreign bond.
Fortune 500
An annual list compiled using the latest figures, of the 500 largest companies in
the United States.
Free On Board -
FOB
In a FOB contract, it is the seller's obligation to deliver goods on board a
designated vessel.
Full-Service
Broker
A broker that offers a full range of services like research, advice, retirement and
tax planning, etc. at a higher price than other normal brokers, is called a full
service broker.
Futures Exchange
This is the market place that trades futures contracts and options on futures
contracts.
[Top]

G

Finance
Terminology
Finance Definitions
G-5
G-5 is the group of 5 most industrialized nations, i.e. France, Germany, Japan, UK
and US.
G-7 G-7 is a group of countries which include the G-5 along with Canada and Italy.
Gain Gain is the excess of income over expenses.
GATT GATT is the acronym for General Agreement on Tariffs and Trade. GATT was the
agreement on trade between countries till 1995. It is now replaced by the WTO.
GDR
GDR is the acronym for Global Depository Receipts. It is a bank certificate which is
issued by more than one country for investing in shares of a foreign country.
GIC GIC is the acronym for Guaranteed Investment Contract.
Gilt Edged Bond
A gilt edged bond is the bond issued by a blue-chip company and is generally
assumed to have secured returns.
GIP GIP is the acronym for Gibraltar Pound.
Global Bond A global bond is a bond which is issued in more than one country at the same time.
Global Financial
System
Global Financial System comprises institutions and regulations which act on an
international level as opposed to a regional or a national level.
Global Fund
A Global fund is a type of mutual fund of which at least 25% of the total portfolio is
comprised foreign securities.
Golden
Handshake
A golden handshake is a severance package given to an employee if the employee
loses his job
Go Long
A person is said to be going 'long' when he invests in a security or any other
financial product and intends to hold on to it, for a longer period of time till its value
increases and the investor can sell it off at a profit.
Go Short
Going short is a futures contract which commits you to deliver or sell a product
which is underlined in the contract.
Gray Market
Gray market is the sale of securities that are not officially issued to firms other than
the underwriting syndicate.
GTM
GTM is the acronym for 'good this month'. It is an order to buy or sell a security at
a certain price. The order expires at the end of that calendar month if the price
does not become available.
GTQ GTQ is the acronym for Guatemala Quetzal.
Guaranteed Bond
A guaranteed bond is a bond issued by one firm, and the payment of interest and
principal on the bond is guaranteed by another firm
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H

Finance
Terminology
Finance Definitions
Hard Loan
A hard loan is a foreign loan which is paid in the currency of a nation which has
stability and economic strength.
Hedge
Hedge means to invest in a low risk investment option so that the risk of adverse
price movement for a high risk asset is reduced.
Heir
Heir is the person appointed to inherit the assets and liabilities of the deceased, as
specified in the will of the deceased.
Held to Maturity
Securities
Held to maturity are those securities which the firm has the ability and the intent
to hold until they mature.
High Beta Index
High beta index is the index which comprises all the high beta companies on the
stock market.
HKD HKD is the acronym for Hong Kong Dollar
HLT HLT is the acronym for Highly Leveraged Transaction.
HNL HNL is the acronym for Honduran Lempira.
Hobby Loss
Hobby loss is the non-deductible loss made on activities for personal pleasure and
not business activities.
Hockey Stick
Bidding
Hockey stick bidding is when a trader offers an extremely high price for small
portion of the goods.
Holding Period
A holding period refers to the expected amount of time for which an investor holds
on to an investment.
Hot Money
Hot money is the money which flows between the financial markets regularly in
the search of the highest short term interest rates.
Hounding Analysts
Hounding analysts is when the hedge fund managers relentlessly persuade the
analysts to change the rating on a stock.
House Poor
House poor are those individuals that spend a very large part of their income on
home ownership and maintenance.
Household
Expense
Household expense is the sum of the total money spent on general living
expenses.
Housing Bond
Housing bonds are those bonds which are secured by mortgage repayments on
rental properties or homes.
Housing Market
Index
Housing market index is the index of the 300 biggest housing builders in the
United States. The performance of these builders is generally used to measure the
performance of the housing industry.
HUD HUD is the acronym for US department of Housing and Development.
HUF HUF is the acronym for Hungarian Forint.
Hypothecation Hypothecation is when a person places a mortgage as a collateral for a loan.
[Top]

I

Finance
Terminology
Finance Definitions
IB IB is the acronym for Introducing Broker
IBES IBES is the acronym for Institutional Brokers' Estimate System
Iceberg Order
Iceberg order is a large order which is divided into smaller single lots to hide
the actual order quantity.
IMF IMF is the acronym for International Monetary Fund.
Immediate Payment
Annuity
An immediate payment annuity is a contract that is purchased with one
payment and has a specified payment plan which starts immediately on
purchase.
Impact Fee
An impact fee is a fee which is imposed on property developers by the
municipalities for new infrastructure that is being built or increased due to new
property development.
Implied Repo Rate
Implied repo rate is the rate of return which is earned by simultaneously selling
bond futures or forward contract, and then buying an actual bond of the same
amount in the cash market by using borrowed money.
Import
Import are the goods and services purchased by the home country from
another country.
Incentive Stock
Option
Incentive stock option is the part of the total share capital of the employing
company which is given to the employee as a performance bonus.
Income
Income is the money which comes in, on account of selling goods or providing
services.
Income Bond
Income bond is a type of bond which only promises to repay the face value of
the bond. The coupon payments on this type of bond depend on earnings of
the issuing company.
Index Amortization
Note
Index amortization note is a financial instrument whose payment schedule is
determined by the prevailing interest rates.
Index Arbitrage
Index arbitraging is an investment strategy which aims to profit from the
differences between actual and theoretical futures prices of the same stock
index. This can be done by simultaneously buying (or selling) a stock index
future while selling (or buying) the stocks in the index.
Index Option Index option is either the call or the put option on a financial index.
Industrial
Development
Revenue Bonds
(IDRB)
IDRBs are a debt instrument issued on behalf of a private sector company by a
municipality. The funds generated from an IRDB issue are used for building
factories, acquiring tools, etc.
Inflation
Inflation is the increase in the prices of goods in a country. It also represents
the fall in the purchasing power of a currency.
Inheritance
Inheritance is the assets and liabilities which the legal heir inherits from the
deceased.
Initial Public Offering Initial public offering is when a business entity offers a share of its ownership
(IPO) to the general public for the first time.
Installment Debt
Installment debt is the debt issued by the lender with the stipulation that a
certain part of the principal and interest should be returned periodically in the
form of installments.
Insurance
When one entity assumes the risk of a business loss of another entity for a
periodic payment, it is known as insurance.
Interest Rate Ceiling
Interest rate ceiling is the maximum interest that one entity can charge
another according to the terms specified in the contract.
Internal Revenue
Service
Internal revenue service is the department of the US government which has
the responsibility of enforcing and collecting taxes.
International Bond International bonds are those bonds which are issued by a non domestic entity.
[Top]

J

Financial
Terminology
JAJO
An acronym that stands for the names of four months, January, April, July and
October. These four months are very important for dividend paying companies, as
they announce dividends and also because JAJO is an option cycle as well.
JIC
An acronym for 'just in case'. In finance, it can signify a strategy of keeping a high
inventory level in an attempt to safeguard against the loss of order. It is a
precautionary measure to provide safeguard against the loss of sales due to lack of
inventory. 'JIT', on the other hand is a complete opposite to this strategy, which
stands for 'just in time'. This strategy involves producing goods only when orders for
them have been received instead of keeping a high level of inventory of products.
JMD JMD is the abbreviation or ISO currency code for Jamaican Dollar.
Job Hunting
Expenses
These are the expenses incurred in the course of finding a new job, in same or
similar line of work. Job hunting expenses are usually deductible from taxable
income on fulfilling certain conditions, regardless of the fact whether one finds a new
job. But, expenses are not deducted, if it is the first job of the individual after
completing education.
Joint and
Survivor
Annuity
Also known as 'joint life annuity', it is an annuity that pays a lifetime income to two
or more beneficiaries, usually the annuitant and his or her spouse.
Joint Bond
A bond that is guaranteed by the issuer and another party. Generally, the bonds
issued by a subsidiary company are also guaranteed by the parent company.
Joint Owned
Property
A property owned by more than one party, so that even at the death of one owner,
the property does not pass on to the decedent's heir. Instead, the property
continues to be owned by the other owners.
Joint Return A combined income tax return filing made by a married couple.
Jonestown
Defense
An extremely defensive tactic, where a company in order to thwart a hostile
takeover attempt resorts to such strategies that may ruin it. The term got its
peculiar name from 'Jonestown massacre' that took place in 1978. Also known as
'suicide pill', which is again an extreme version of 'poison pill'.
Joseph Effect
It is the idea that movements in a time series follow larger statistical trends and
cycles more often than being random. Joseph effect uses Hurst component in order
to determine whether a series of movements is a part of trend and cycle or has
occurred randomly. According to Joseph effect, a series of movements that falls
between 0 to 0.5 of Hurst range are larger and more random that what are
considered to be normal random movements. On the other hand, those movements
with 0.5 value are random, while those falling between 0.5 and 1 are part of a long
term trend.
JPY
Abbreviation for Japanese Yen, which is the third most traded currency in the foreign
exchange market. The first two most traded currencies are U.S. Dollar and Euro.
JTIC
It stands for 'Joint Tenants In Common', which refers to a type of brokerage account
owned by two or more owners. But, none of the account holders has the rights of
survivorship so that a surviving tenant cannot claim the rights of the deceased
owner. Instead, the asset is distributed as per the stipulations made in the written
will by the deceased person.
JTWROS
It an acronym for 'Joint Tenancy with the Right of Survivorship'. It differs from the
joint tenants in common in the sense that survivorship right is granted to the owners
of the property. In 'joint tenancy with right of ownership', each owner has equal
share on the property and he or she has the right to sell his individual share without
the approval of the other owners. In case, one of the owner dies, the property does
not become part of a decedent's estate. Instead, it continues to be owned by the
other owners and it is divided equally among them.
Jumbo CD
Jumbo CDs are certificates of deposit with very large denominations, that can vary
from USD 100,000 to even USD 1 million or more, which are generally bought and
sold by large institutional investors. The rates paid on jumbo CD are higher than
that paid for smaller CDs and they may or may not be negotiable.
Jumbo Loan
A mortgage loan of a very high amount, usually USD 1 billion or more, which
exceeds the conforming loan limit fixed by the Office of Federal Housing Enterprise
Oversight (OFHEO). As such, a high amount of loan carries a much higher risk than
normal loans and hence not considered as eligible to be guaranteed or securitized
and purchased by the Fannie Mae or Freddie Mac corporations.
Junior (Issue)
An issue or debt, which is subordinate to issue of another firm in terms of claims on
dividends, interest, security and principal.
Junk Bond
A high risk bond, which is ranked below investment good by the major bond rating
agencies. Such rating is usually given to the bonds when the bond issuer is
undergoing financial problems, for which it may not be able to pay interest or repay
the entire loan. The bond issuer usually offers a very high interest rate on such
bonds in order to offset the high risk of default.
[Top]

K

Financial
Terminology
Kangaroos A term used for Australian stocks.
Kappa
It is the ratio of the Dollar price change in the price of an option to a 1 percent
change in the expected price volatility, and is mostly used in regression analysis.
Keepwell
Agreement
An agreement between a parent company and its subsidiary, whereby the parent
company guarantees financing to the subsidiary for a definite time period. This
method helps the subsidiaries to maintain their solvency and increase their
creditworthiness in order to borrow from banks and other creditors.
Keiretsu
A Japanese term that is used to refer to a grouping of financial and industrial
corporations, which is based on cooperation and cross-shareholding. The members of
a keiretsu share knowledge and also own stakes in one another's corporations in
order to ensure mutual security and success. In corporate world, keiretsu is often
used for a Japanese form of corporate organization.
Keltner Channel
An indicator named after Chester W. Keltner, a grain trader and author. This is a
market analysis indicator, which is used for measuring stock movements in relation
to an upper and lower moving-average band and thereby for predicting market
trend.
Keogh Plan
A retirement plan for self-employed and individuals working in unincorporated
businesses, where they can keep a specified amount of their pre-tax income. No tax
is imposed on the contributions as well as the investment earning of this account,
until withdrawals are made during retirement. Keogh plan is a federally approved
retirement program and there are several types of investment opportunities like
mutual funds, certificate of deposit, etc., that are offered.
KES It is the abbreviation or ISO code used for Kenyan Shilling.
Key Rate
Duration
Key rate duration is the measure of portfolio or security sensitivity. It basically
measures the value of a portfolio or a security's sensitivity in relation to a 1%
change in the yield for a given maturity, while holding all other maturities constant.
Kickback
Kickback refers to payment of something of value, either money or favor to an
individual, in order to influence his or her action or decision in the favor of the
person paying the kickback. A kickback can be legal or illegal, but usually it is
practiced in secret. An example is the reduction in commission charges for investors
trading frequently.
Kicker
An additional feature like a right, warrant or equity participation that is added to a
debt instrument in addition to usual interest payment so as to make it more
marketable and desirable to prospective investors. But, in real estate, kicker can be
an additional expense apart from usual interest payment that is required to be paid,
for getting a loan approved.
Kicking the
Tires
It is a slang used for referring to the act of doing grassroots research before
investing. Both investors and fund managers do some preliminary research like
calling or visiting a company or questioning a broker or a financial and investment
advisor, etc. prior to making any investment. The term got its peculiar name from
the common habit of people to kick the front tire of an automobile that they are
intending to purchase while the salesperson makes his pitch.
Kiddie Tax
It is the federal tax that is imposed on investment income of individuals under 17
years old, when it exceeds a yearly threshold. Tax is levied at the guardian's rate on
the extra income above the threshold level. Kiddie tax law was originated in the year
1986 and was originally applicable for investment income earned by individuals
under the age of 14 years in an attempt to prevent the practice of shifting income to
children's name to take advantage of the lower tax rate.
Killer
Application
A term used for software applications, which are considered much more effective
than their competitors and hence the name 'killer application'.
Killer Bees
A term used for individuals or organizations like investment bankers that help
publicly traded companies to thwart hostile takeover attempts with the help of some
defensive strategies.
KMF It is the abbreviation or ISO code for the currency, Comoros Franc.
Knock-In
Option
A type of barrier option which remains latent until a certain price level is reached
before expiration, after which it becomes a normal option.
Knock-Out
Option
An option that loses its value or worth when the price of the underlying asset or
currency exceeds a specified price level.
Kondratiev
Wave
An economic theory that states that capitalist economies are vulnerable to larger
business cycles (or economic fluctuations) with much longer phases than common
business cycles. Such large business cycles or 'supercycles' can last for 50 to 60
years. This theory was propounded by Soviet economist Nikolai Kondratiev.
KPW KPW stands for the currency for North Korea, known as North Korean Won.
KRW It is the currency abbreviation for South Korean Won.
KWD It is the abbreviation for Kuwaiti Dinar.
KYC
An abbreviation for 'Know Your Client', which is a standard form in the investment
industry. It enables the investment advisor to know important information about
their clients like financial position, risk tolerance, etc., so that advisors can decide
what type of investment can suit their clients.
KYD
KYD is the abbreviation for Cayman Islands Dollar, which is the currency of Cayman
Islands.
KZT It is the abbreviation for Kazakhstan Tenge, the currency of Kazakhstan.
[Top]

L

Financial
Terminology
Ladder Option
An option where investors can lock-in gains on the underlying asset or security,
once its price reaches a predetermined price level.
Lady Godiva
Accounting
Principles - LGAP
It refers to a theoretical set of accounting principles which require disclosure of all
information by the corporations, including those which are usually not reported
under the generally accepted accounting principles.
Lady Macbeth
Strategy
A corporate merger or takeover strategy, where a third party secures the trust of
the targeted company by posing as a white knight, but then joins the hostile
acquirer or bidder.
Laffer Curve
Laffer curve is an invention of Arthur Laffer, an American economist, which
describes the relationship between tax rate and tax revenue. It asserts that an
increase in tax rate is not always associated with an increase in tax revenue.
According to this concept, when tax rate increases from low levels to high levels,
tax revenue also increases. But after a certain point, increase in tax rate brings
about a reduction in tax revenue. This concept assumes that after a certain point,
increase in tax rate discourages hard work and thereby reduces tax revenue.
LAK It is the abbreviation for 'Lao kip', which is the currency of Laos.
Lambda
It is the ratio of change in option price to a 1% change in option volatility.
Basically, it is the partial derivative of option price with respect to option
volatility.
Lame Duck A term used for an individual who has defaulted or gone bankrupt.
Last Trading Day The last day for trading or closing a futures contract.
Late-Day Trading
Purchasing or selling securities after the trading day has been closed, but
recording them to have occurred before the closing of the market, which is
regarded as an unethical practice.
LBO
LBO stands for 'leveraged buyout', which is a method of acquiring a company
with a substantial amount of borrowed money. Usually, the acquiring company
uses its own assets as well as the assets of the acquired company as 'collateral'
to secure such a large loan.
LBP An abbreviation for Lebanese Pound, the currency of Lebanon.
Leprechaun Leader
A term used for a mischievous corporate manager or executive, who is believed
to possess buried treasure just like the 'elf leprechaun' of Irish folklore.
Letter of Credit
A document or letter given by a bank that guarantees that payment will be made
to the seller on time. If the buyer fails to make the payment, then the bank that
gives the letter of credit has to pay the entire or the remaining amount for the
purchase.
LIBOR An acronym for London Interbank Offered Rate, which is the standard rate for
calculating rates for adjustable-rate loans. LIBOR is based on the rate of interest
at which borrowing and lending of unsecured funds are carried out by banks
among each other.
Lifestyle Fund
An investment fund with an individual specific asset mix, as determined by the
factors like level of risk aversion, age, purpose of investment, etc.
Loan Sharking
'Loan shark' refers to the person who charges an interest rate that is much higher
than the legal rate that is charged for loan. So, loan sharking is the term for act
of charging an exorbitant or illegal interest rate on loans. Also known as 'usury'.
Lobster Trap
A plan or strategy employed for fending off a hostile takeover, whereby the
company prevents anyone with more than 10% ownership from converting its
convertible securities like convertible bonds, warrants, etc., into voting stocks.
Lump-Sum
Distribution
A single payment for the full amount due is termed as lump-sum distribution.
LYON
Liquid yield option note or LYON is the terms used for a zero coupon bond, which
is callable, putable as well as convertible.
[Top]

M

Financial
Terminology
M&M - Modigliani-
Miller Theorem
This is a financial theory given by Modigliani and Miller which claims that a firm's
market value depends on its future earning power and risk of underlying assets
and not on financing decisions and dividend declaration.
Macaroni Defense
This is a defense against takeover attempts in which the company issues a large
number of bonds on the condition of high value redemption if the company is
ever taken over. It is also known as poison pill.
Macaulay Duration
This is a specialized formula used for building up an immunization strategy or to
measure how sensitive a bond price is to changes in the interest rates.
Managed Money
To save himself the trouble of buying and selling his own securities, if an
investor hires a qualified investment professional to do so for a fee, he is said to
have managed money.
Margin of Safety
This is an investing principle that states that an investor should only buy a
security if the market price is significantly lower than its intrinsic value.
Marginal Tax Rate
The amount of tax paid on every additional dollar is termed as the marginal tax
rate.
Market Arbitrage
Theoretically, earning a riskless profit with zero investment, by simultaneously
buying a security in one market and selling the same in another is termed as a
market arbitrage.
Market
Cannibalization
When a new product of a company eats away the demand of another product of
the same company, it is termed as market cannibalization.
Market Jitters
The cautious, wary feeling of nervousness, gripping the investment market in
times of uncertainty, is called market jitters.
Market Momentum
This is a measure of market sentiment and is calculated by multiplying the
change in market index value with the aggregate trading volumes.
Market Risk
Premium
This serves as the slope of the security market line (SML) and is the difference
between the expected return on market portfolio and the risk free rate.
Market Timing
This is the act of market direction prediction, using technical analysis of
indicators and fundamentals.
Marquee Asset
Also referred to as a trophy asset, a marquee asset is a company's most
profitable asset, i.e. the asset that makes the largest contribution to the
company's bottom line.
Matador Bond
This is a Peseta denominated foreign bond, issued in Spain by a non-Spanish
company.
McClellan Oscillator
This is an indicator of market breadth from the difference between the number
of advancing and declining issues on the NYSE.
Mini Perm
This is a short term financing that is usually payable between 3 to 5 years. It is
generally used to pay off income earning commercial and construction
properties.
Minus Tick
Also known as downtick or zero minus tick, a minus tick denotes a trade that
occurs at a price lower than the immediately preceding one.
Modern Portfolio
Theory - MPT
This is a theory that gives out ways for optimal portfolio construction to give out
maximum rewards for a given market risk level.
Monday Effect
This is a theory that holds the thought that stock market behavior on Mondays
will show the same trend followed on the previous Friday.
Money Laundering
When large amounts of illegally earned money, e.g., drug trafficking or terrorist
activities, is shown as money obtained from legitimate sources, it is called
money laundering.
Mortgage Broker
Commercial mortgage brokers facilitate the transactions of mortgage bankers by
bringing mortgage borrowers and mortgage lenders together to make a deal.
Mothballing
A production strategy where a production facility is kept functional for whenever
a production need arises, even though production is not taking place there, at
this point of time.
Moving Average
Chart
This is a technical analysis tool that tracks price movements of a security or a
commodity.
Municipal Bond Fund
This is a mutual fund that invests in municipal bonds, i.e. bonds issued to
finance the expenditures of state, municipality, county or special purpose
districts.
Mutual Fund
Liquidity Ratio
The cash relative to total assets ratio for a mutual fund that is published
monthly by the Investment Company Institute is called mutual fund liquidity
ratio.
[Top]

N

Financial
Terminology
Naked Option
'Naked puts' and 'naked calls' are both naked option. Naked options are
basically, options with no underlying security positions to support them.
Negative
Amortization
When the installments paid by the debtor, fail to cover the interest on the
principal, the principal balance increases and this is termed as negative
amortization.
Negative Gearing
When money is borrowed to buy an investment asset, with the investment not
making enough money to even cover the interest expenses and other
maintenance costs, it is termed as negative gearing.
Negative Pledge
Clause
Also called the covenant of equal coverage, this negative covenant stops the
corporation from pledging any assets that can lessen the security of its lenders.
Negotiated Market
A secondary market transaction where prices of the securities traded are
negotiated between the buyers and the sellers.
Nervous Nellie
A nervous Nellie is a jittery investor who is not comfortable with the risks of
investing.
Nest Egg
A nest egg is an accumulation of money, set aside for a specific purpose or event
in the future.
Net 30 A term that suggests that the final payment is due within 30 days.
Net Asset Value -
NAV
It gives the fund value, by dividing the total value of all securities in the portfolio
(less any liabilities) by the number of outstanding fund shares.
Net Position
The status of the trader's overall position after netting all his long positions and
short positions in various securities is called his net position.
Net Present Value
Rule
This is an investment rule that states that, an investment can only be accepted if
its net present value (NPV) is greater than 0. An NPV less than 0 signifies that
the investment will actually decrease shareholder's wealth instead of increasing
it.
New Home Sales
This is an economic indicator of the price and quantity statistics of newly built
home sales.
No Doc Loan or No
Doc Mortgage
No documentation loans or mortgages require no disclosure of income and assets
on the loan application, but they often carry higher interest rates and down
payments.
Noise Trader Risk
Noise trader risks are the risks associated with market price volatility, faced by
the noise trader.
Nominal Yield
Spread
The percentile or basis point spread that equates the yield on the Treasury yield
curve to the discount factor is known as the nominal yield spread.
Non-recourse Debt
When any debt is free of personal liability and the debtor's liability is limited to
the asset offered as collateral, the debt is called non-recourse debt.
Normal
Backwardation
This is the opposite of Contango and happens when the price of all futures
contracts on the commodity are price higher than all the spot contracts.
Nostro Account
An account of a local bank in a foreign bank, in a foreign currency is termed as a
nostro account. Similarly, a vostro account in an account in a correspondent
bank, on behalf of a foreign bank and is also sometimes known as a loro
account.
Not-Held Order
A limit order or a market order that gives the broker the freedom to execute the
order at his discretion, at a price he considers to be the best possible one.
Nova/Ursa Ratio
This is a sentiment indicator that shows whether a trend is bullish or bearish, and
is based on the Nova and Ursa funds of the Rydex Fund Group.
[Top]

O

Financial Terminology Definition of the Financial Term
Obligation Bond
This is a municipal bond with a face value higher than the value of the
asset who's mortgage it is used to secure.
October Effect This theory predicts a general stock price decline in the month of October.
Odd Lot Theory
This is a technical analysis tool to predict buy and sell timing. Since the
theory assumes that small, individual investors are mostly wrong, it is a
buy time when odd lot sales are up and a good sell time when odd lot buys
are increasing.
Omega
Omega, the third derivative of the option price and the first derivative of
gamma, is a measure of option value changes with respect to changes in
the price of the underlying asset.
Open Listing
When a real estate asset or property is listed simultaneously with multiple
real estate agents, it is said to be an open listing.
Open-End Indenture
Unlike a closed collateral, where one bond can only be backed by one single
collateral, an open end indenture allows one collateral to back many
different bond issues.
Optimization
This term is used in technical analysis to signify a trading system
adjustment that makes it more efficient and effective.
Option Chain Quotations for a list of all options on one underlying security, when bundled
together, are called option chains.
Options Backdating
When an option is dated for a date before the company actually grants it, it
is called options backdating.
Ordinary Annuity
These signify a steady, fixed cash flow stream, at the end of each period,
over a fixed amount of time.
Original Issue Discount
Bond (OID Bond)
The discount on par value (difference between the redemption price and
issue price) at the time of bond issue is termed as an original issue
discount, and such a bond is called an original issue discount bond.
OTC Options
When options are traded in over-the-counter market, with participants
given the freedom to choose their characteristics, the options thus traded
are called OTC Options.
Outperform
Also known as 'market outperform', 'moderate buy' and 'accumulate', the
term outperform is used for a stock that is currently giving more returns
than the overall market returns.
Overcollateralization
(OC)
As the principal underlying a pool of assets always exceeds the principal on
a security by 10 to 20 percent, an overcollateralization is done to get a
better debt rating.
Overtrading
Also known as churning, overtrading is the excessive buying and selling of
securities on an investor's behalf, that a broker does in order to increase
the commissions he receives.
Overvalued
As a result of an emotional buying push, if a company or stock is valued
more in the market, than the valuation that comes from its future income
earning potential or its P/E ratio, the company or stock is said to be
overvalued.
[Top]

P

Financial
Terminology
Package Deal
It is an order that contains many exchange or deposit items that are completed
simultaneously or individually. It helps the traders to ensure specific prices or times
to mature for multiple assets.
Paired Shares
These are stocks of two sister concern companies, that is, different companies
under the same management. There shares are sold as one unit and mostly appear
on the same certificate.
Paper Millionaire
The large total market value of the assets owned by an individual that helps achieve
a high net worth is known as a paper millionaire. This is a phenomenon that is
observed when investors buy marketable securities which are later on bid up to a
much higher price on the open market. Although, called paper millionaire, the
individual is not safe until the shares are liquidated.
Pari-passu
This is a Latin term which is translated as 'without partiality'. This term is used to
describe two securities or obligations that have equal rights to payments.
Participating
Preferred Stock
The type of stock where an additional dividend based on predetermined conditions,
that is paid along with the normally specified rate that are to be received by
preferred dividends, is known as participating preferred stock. The additional
dividends are paid only to preferred shareholders, if the common shareholders
receive dividends that exceed a specified per-share amount. The preferred stock
holders also have a right to receive the stock's purchasing price and also the pro-
rata share of any remaining proceeds that the common shareholder's receive in
case of liquidation.
Payout Ratio
The shareholders receiving an earning paid out in dividends is known as payout
ratio. The payout ratio is used by the investors to determine what the company
does with their earnings. The pay out ratio is calculated as: Payout Ratio =
Dividends per Share/ Earnings per Share
Peer Perform
The investment rating in which a security that is expected to provide returns which
are consistent with the securities provided by other companies within its sector and
is used by analyst is known as peer perform. This is a neutral assessment and can
predict the movement of security along with similar companies.
Penalty Bid
The part of early IPO trading that is provided by the lead underwriter or other
members of a syndicate with a bid or offer to purchase securities. There are
restrictions imposed on the bids and when used, the broker that offers shares back
to the underwriter, is assessed for penalty. Thus, penalty bid is created to avoid and
deter investors to 'flip' IPO shares soon after start of trading.
Penny Stock
The stocks that trade at comparatively low price and market capitalization, mainly
outside the major market exchanges are known as penny stock. These are the types
of stocks that are speculative and high risk due to their lack of liquidity, large bid-
ask spreads, small capitalization and limited following and disclosure. These stocks
are mostly traded over the counter through the pink sheets and OTCBB.
Performance
Based Index
The stock index in which all dividends and other cash events are paid out to
shareholders is known as performance based index. The performance based index
added in any dividend amounts to the net share price before calculating the index
return, during the performance measurements over a given period of time.
Perpetual
Preferred Stock
The stock without a maturity date is known as perpetual preferred stock. The
redemption privileges on such shares are always provided to the issuers of
perpetual stock. The dividends are paid indefinitely on the issued perpetual
preferred stocks.
Piggyback
Warrants
The acquired additional warrants that are gained after the exercise of primary
warrants are known as piggyback warrants.
Pink Sheets
These are the daily publications of bid and ask prices of the over-the-counter (OTC)
stocks including the market makers trading them, compiled by the National
Quotation Bureau. The companies that are quoted in the pink sheets do not need to
meet the minimum requirements or file the SEC like the companies on a stock
exchange. Pink sheets are also known as the OTC trading.
Pricing Power
The change in a firm's product price that leads to an effect on the quantity demand
of that product is known as pricing power. This economic term is based on the 'Price
Elasticity of Demand'.
Profit Warning
The advice issued by a company regarding the earnings that won't be meeting the
exceptions of the analysts is known as profit warnings.
Proxy Materials
The documents related to the methods and procedures outlined by a public
company, regulated by the Securities and Exchange Commission is known as proxy
materials. The shareholders and solicit votes are kept informed about the corporate
decisions like election of directors and other corporate actions with the help of these
documents.
Pullback
The movement of a price when it falls from its peak is known as pullback. The fall
back is seen as a reversal of the prevailing upward trend and a signal of slight
pause in the upward momentum.
Pure Play
The company that concentrates on only one line of business or the stock prices of a
company that mutually relate to the fortunes of a specific investing strategy are
known as pure play.
Puttable
Common Stock
The option given to investors by the common stock to put the stock back into the
company at a predetermined rate is known as puttable common stock.
[Top]

Q

Financial
Terminology
Q
This is a Nasdaq stock symbol. It represents a particular stock that is involved in
bankruptcy proceedings.
QQQQ
This is a Nasdaq ticker symbol for the Nasdaq 100 trust. This is an ETF trading
with the Nasdaq. The tech sector is offered broad exposure by this security
tracking the Nasdaq 100 Index. This index consists of 100 actively traded and
the largest non-financial stocks on the Nasdaq. QQQQ was formerly known as
the QQQ, and is also known as the 'cubes' or 'quadruple-Qs'.
Quadrix
The variables (more than 100) used in a stock valuation system in seven major
categories, to help determine the value of a stock. A weighted average of all 100
variables is used to determine the overall score for a particular stock.
Qualified Dividend
This is a type of dividend that applies the capital gains tax rates. The regular
income tax rates are usually higher than these tax rates.
Qualified Domestic
Institutional
Investor (QDII)
A qualified domestic institutional investor is an institutional investor that has
met certain qualifications to be able to invest in securities that are outside the
home country.
Qualifying
Disposition
A sale, transfer or exchange of stock, qualifying for favorable tax treatment for
the employee selling the stock that are obtained through a qualified stock option
incentive plan, like the incentive stock option (ISO) plans and employee stock
purchase plans (ESPP) is known as qualifying disposition. The employee should
sell the stock at least one year after receiving the stock and two years after
receiving the incentive stock option (ISO) or at the start of the ESPP offering
period to gain a qualifying disposition.
Quarter On Quarter
(QOQ)
This is a measuring technique used to calculate the change occurring between
one financial quarter and the previous financial quarter. This helps give an idea
to the investors regarding the growth of a company over each quarter.
Quarter To Date
(QTD)
The capturing of all the necessary company activities in a time interval, that
occurs between the beginning of the current quarter and the time in which the
data is gathered. This technique allows the company management to
understand the shaping up of the quarter before the end of entire quarter
period.
Quarterly Earnings
Report
The quarterly filings by the public companies that include earning reports like
net income, earnings per share, earnings from continuing operations and net
sales, to report their performance. The quarterly earnings report are filed before
the end of each quarter. January, April, July and October are the months when
companies usually file their quarterly earnings report.
Quarterly Income
Preferred Securities
The limited partnership shares that exist only for the purpose of issuing
preferred securities and lending the proceeds of the sales towards the parent
company are known as Quarterly Income Preferred Securities.
Quorum
The level of an individual with a vested interest in a company to make
proceedings that are accepted by the corporate charter is known as quorum.
Quote
The price at which a security or commodity is traded that is mutually agreed by
the buyer and seller and at which transaction of some amount takes place.
Definition no.2: It is the current price of a bid or ask quote that is used to buy
or sell shares. The quality and the price are shown using the bid quote, at which
a current buyer is willing to purchase shares. The ask quote is used to show the
amount that current participant is willing to sell shares for. It is also known as
'quoted price' for an asset.
[Top]

R

Financial
Terminology
R This is a Nasdaq stock symbol. It specifies that the stock has rights.
Random Walk
Theory
This is a theory that states that stock price changes have same distribution and are
independent of each other. The past trends of a stock price or market cannot be
applied in prediction of the future trend of the stock.
Reaction
The typical downward movement in the price of security once the price rises
previously is known as reaction.
Real Time Quote
The actual price of a security quoted at the moment in time is known as real time
quote. They are instantaneous without any delay, whereas, the quotes displayed
on various websites are delayed by 15 to 20 minutes. These quotes are known as
delayed quotes.
Record High
The highest price level reached by a security, commodity or index during trading
that will go down in history are known as record high. The measurement of record
high starts with trading and is updated whenever the last record high is exceeded.
These are nominal values that do not account for inflation.
Record Low
The lowest price level reached by a security, commodity or index during trading
that will be mentioned in history is known as record low. The record low is reached
during a trading day. It is recorded even if it was the closing price. These are
nominal values that do not account for inflation.
Rectangle
The pattern resembling a rectangle on a chart when the price of a security trades
within a bound range where the levels of resistance and support are parallel to
each other is known as rectangle.
Red Flag
The security with potential problems is indicated with a red flag. It refers to a stock
with undesirable characteristics that stand out in a stock, to an analyst. The
method to identify red flags depends on the investment methodology implied.
Regulation T (Reg
T)
The customer cash accounts and the amounts that can be extended to customers
by brokerage firms and dealers for purchasing securities that are governed by the
Federal Reserve Board regulation is known as regulation T or Reg T.
Renounceable
Right
Renounceable rights are stocks having a value and are trade-able. These are
issued by a corporation to shareholders to purchase more shares from the
corporation's stocks at a discount.
Repackaging
The purchase of all the public firm common stocks with a leverage loan into private
stocks by a private equity firm is known as repackaging. The company is 'dressed
up' by the private equity firm before making it public again via an initial public
offering.
Reprice
Exchange of stocks that no longer are in for money, with stocks that are currently
at the money is known as reprice. Investors are helped by exchanging worthless
options for options that have high value.
Restricted Stock
The kind of sales restrictions on insider holdings is known as restricted stocks. The
trading of such stocks should be carried out in compliance with the special SEC
regulations. The section 1244 of the Internal Revenue Code outlines the
regulations to be followed.
Return On
Average Equity
(ROAE)
The adapted version of the return on equity (ROE) where the shareholder's equity
is changed to average shareholder's equity is known as Return On Average Equity
(ROAE)
Risk Measures
The historical predictors of investment risk and volatility and the components in
the modern portfolio theory (MPT) statistical measures is known as risk measures.
Reverse Stock
Split
The increase in par value of stocks or earnings per share by reduction in the
number of a corporation's shares outstanding. The market value of the total
number of shares does not change.
Revlon Rule
During the forthcoming sale of a company, the company's board of directors should
conduct the proceedings in a manner that will be able to yield the maximum
benefits for the shareholders. According to the legal precedence, once the number
of situations like cash based acquisitions and the requisite financing available with
the bidding parties are fulfilled, the highest bid should be chosen by the board of
directors.
Rights
The entitlement of stockholder's to purchase new shares issued by the corporation
at a predetermined price less than the current market price in proportion to the
number of shares already owned is known as rights. The rights issued have a short
validity period, after which they expire.
[Top]

S

Financial
Terminology
S This is a Nasdaq stock symbol. It indicates the shares of beneficial interest.
Sales per Share
The ratio of total revenue earned per share over 12 months. The total revenue
earned in a fiscal year by the weighted average of shares outstanding for the fiscal
year is used to calculate the sales per share. It is also known as 'revenue per share'.
Sales per Share= (Total Revenue/Sales)/ Average Shares Outstanding.
Seasoned Issue
An established company that has earned a good reputation with its existing shares
that have stable price movements and substantial trading volume, issues securities
that are known as seasoned issue.
Secondary
Liquidity
The public offering as a part of liquidity when shares are distributed to retail and
institutional investors, is known as secondary liquidity. The shares are then sold off
to other interested buyers by these secondary parties.
Secular Market
The rise and fall of particular investment or asset class over a period of time caused
by a market that is driven by forces that are in place over many years. The strong
investor sentiment drives prices higher in a secular bull market and weal sentiment
causes selling pressure in a secular bear market.
Securities Fraud
The misrepresentation of the investments by a person or company that help
investors make decisions is known as securities fraud. False information, bad advice,
withholding information, etc. is used to misinterpret information in this type of white
collar crime.
Seed Capital
The fund raised from company founder's personal assets, friends, family, etc. to
start a new business is known as seed capital.
Settlement
Period
The time period given to parties that is required to satisfy the transaction's
obligations between the settlement date and the transaction date. The seller must
deliver the security within the settlement period and the buyer must settle all
payments within the settlement period.
Share Capital
The cash or other considerations that help raise funds by issue of shares is known as
share capital. The share capital increases every time the company sells new shares
to public in return for cash.
Short Selling
The sale of security that is not owned by the seller or the sale that is completed by
the delivery of a security borrowed by the seller, is called short selling.
Small Cap
The stocks with a small market capitalization are known as small cap. The
capitalization of a company that is between USD 300 million to USD 2 billion comes
under small cap.
Speculative
Capital
The investors earmarking funds for the purpose of speculation is known as
speculative capital. Extreme volatility and a high probability of loss is associated with
speculative capital.
Split Off
The stock of a subsidiary that is exchanged for shares on a parent company in a type
of corporate reorganization is known as split off.
Stock
A security type which can signify the ownership in a capital and claim on
corporation's assets and earnings is known as stocks.
Synthetic
Dividend
The dividend-like payment stream that resembles the periodic cash receipts from a
dividend-paying stock that is created by an investor with certain financial securities
is known as a synthetic dividend.
[Top]

T

Financial
Terminology
T This is a Nasdaq stock symbol. It specifies that the stock has warrants or rights.
Takeover
When a corporate company makes a bid for an acquiree, it is known as takeover.
The acquiring company makes an offer for the outstanding shares of the targeted
company that are publicly traded.
Technical
Bankruptcy
It is a condition in which a company or a person, that has defaulted on financial
obligations, would be declared bankrupt, if the creditors move the court.
Tender Offer
The offer of purchasing a few or all the shareholder's shares in a corporation is
known as a tender offer. The price offered is mostly slightly higher than the market
price.
Theoretical Dow
Jones Index
The assumption used to calculate all index components to hit their high or low at
the same time during the day is known as Dow Jones Index (DJIA).
Thin Market
The market with low number of buyers and sellers, with very few transactions is
known as a thin market. The prices in a thin market are more volatile and assets
are less liquid. It is also known as a 'narrow market'.
Tick Index
The number of stocks that are trading on an uptick subtracted by the number of
stocks trading on a downtick is called tick index.
Timing Risk
The risk taken by an investor in buying or selling a stock based on future price
predictions is known as timing risk. The potential beneficial movements missed,
are explained under timing risk, that may occur due to an error in timing.
Top-Down
Analysis
The analysis of macro-economic trends and then analysis of the details of the
micro components is known as top-down analysis.
Total Stock Fund
The stocks of every security trading on a certain exchange is held by a mutual fund
seeking to replicate the broad market, investing in a certain country or passing
basic thresholds of size or trading volume.
Trading Dollars
The slang to describe a company that spends money that is equal to the amount of
money required in making the product developed by it.
Transparency
The ready access to any financial information regarding a company, related to its
price levels, market depth and audited financial reports available to the investors is
known as transparency.
Trend Trading
The strategy to gain control using the analysis of an asset's momentum in a
particular direction is known as trend trading.
Turnover
The number of times an asset is replaced during one financial year is known as
turnover in the books of accounting. It is also the number of shares traded over a
period of time, as the total shares percentage in a portfolio or of an exchange is
known as turnover.
Two-Way Quote
The type of quote that gives security bid and the ask price, and the would-be
traders are informed of the current price at which they could buy or sell the
security.
[Top]

U

Financial
Terminology
US Treasury
The US Treasury is the department that is responsible for the revenue of the U.S.
government. However, its tasks are not limited to the same. It is also
responsible for collection of taxes, management of government funds and
printing of bills. This department is also responsible for overseeing all the banks
running in the United States of America.
UBTI
UBTI is the abbreviation for Unrelated Business Taxable Income. It is the income
generated by any tax exempted entity (for example, Individual Retirement
Arrangement) through taxable activities.
UCITS
UCITS stands for 'Undertakings for the Collective Investment of Transferable
Securities'. The distribution and management of unit trusts among the European
countries is taken care of, by this public limited company.
UGMA
UGMA is the abbreviation for Uniform Gifts to Minors Act. This is an act that
allows minors to own property. This happens in special cases. If a person gives
out thousands of dollars through IRS to a minor, then this act allows the minor
to retain the same without the need of an attorney setting up a special trust.
Unadjusted Basis
Unadjusted basis is used such that the original cost of the property is considered,
leaving out the salvage. This basis is basically used for depreciation purposes.
Uncommitted
Facility
It is one of the most sought after credit facility. In the uncommitted facility, the
institution lending the credit is under no restriction regarding the same.
Under Reporting
It is an illegal process that is done to avoid payment of taxes. Under reporting is
the deliberate showing of income less than what has been actually earned.
Undercapitalization
A company is said to be in undercapitalization when it does not have sufficient
cash to conduct its business smoothly. It is also not in a condition to pay its
creditors. When a company goes through undercapitalization, the chances of it
going bankrupt increases.
Universe of
Securities
A set of securities with a common feature is called the universe of securities. The
common feature can be the index, the market capitalization or the industry.
Unsecured Creditor
An unsecured creditor is one who lends out capital without specified assets as
collateral. This is one of the most unsecured ways of lending out the loan as the
borrower has nothing to lose if he defaults on the loan.
Upside/Downside
Ratio
The ratio of the volume of advancing NYSE issues to the volume of declining
NYSE issues gives the Upside/Downside Ratio.
Upstairs Trade
If the listing exchange does not execute the trade in a listed stock, it is called
upstairs trade.
Uptick Volume
Uptick volume is the volume of a security that trades at a price higher than its
usual price.
Usury
Usury is the illegal practice of lending out money at a rate higher than that
allowed by the law.
UT
A UT or Unit Trust is an unincorporated mutual fund structure that allows funds
to hold assets and pass profits to the individual owners, rather than reinvesting
them back into the fund.
UTMA
UTMA stands for Uniform Transfers to Minors Act. It is the act that allows minors
to accept gifts other than cash (e.g., Real estate) The UTMA in short can be
considered as an extension to the UGMA.
[Top]

V

Financial
Terminology
Valuation
The process of determining the value of an asset is called valuation. There are
various processes for doing the same. These process can be subjective as well as
objective.
VAMI
VAMI is the abbreviation for Value Added Monthly Index. It is given by Previous
VAMI x (1 + Current Rate of Return). It is the index that is used to chart the
monthly performance of a hypothetical USD 1000 investment.
Value Fund
Value Fund is one of the three main mutual fund types. It holds the stocks that are
considered to be undervalued in price and are likely to pay dividends.
VAT
Value Added Tax or VAT is the tax that is paid by the consume on purchasing a
product. It is a type of consumption tax, which includes value added to the product
at any stage of its production.
Vertical Spread
If a trader purchases and sells two options of the same type with the same
expiration dates and different strike rates at the same time, then the strategy is
referred to as the Vertical Spread.
Venture Capital
The type of capital that is provided for early-stage, high-potential, growth
companies is referred to as venture capital.
Viager
Viager is also known as Reverse Annuity Mortgage or Charitable Remainder Trust.
When a property is sold on reverse annuity basis, the real estate agreement made
is called Viager.
Volatility Quote
Volatility Quote is a type of quoting option. It is the type of quoting when the bids
and asks are not quoted according to the prices but rather on the implied
volatilities.
Volatility Smile
The graph between the strike price and implied volatility of a group of options which
have the same expiry date.
Voluntary
Compliance
Voluntary compliance is the assumption that considers that the tax payers will show
their incomes honestly and pay their complete taxes that they need to.
Voodoo
Accounting
All forms of accounting mainly target on inflating revenue or hiding expenses. In the
method of voodoo accounting, the principle of conservatism is not followed.
Voodoo
Economics
The term used for Reaganomics or the policies made by President Ronald Reagan's.
This term was first used by George H. W. Bush.
VPT
A VPT or Volume Price Trend indicator is a technical indicator that consists of a
cumulative volume line that shows the addition or subtraction of change in share
price trend and current volume depending upon the upward or downward trend of
the market.
Vulture
Capitalist
Vulture capitalist is the slang for venture capitalist. It is used when an investor
deprives the inventor of an invention for what he has created using the capital from
the capitalist.
Vulture Fund
When a fund buys securities in distressed investments, it is referred to as vulture
fund. The distressed investments can include equities that are in or near
bankruptcy.
[Top]

W

Financial
Terminology
W It is a NASDAQ symbol that means that a particular security is a warrant.
W2 Form
The form send by the employer to the employee and the IRS which contains the
annual wages and the amount of taxes withheld from the employee's paycheck is
called the W2 form.
W4 Form
A form filled up by the employee and submitted to the employer which exactly
indicates the employee's tax situation. It gives the employer the correct amount of
tax that needs to be cut from the employee's paycheck.
WAI
WAI or Wealth Added Index is a metric system that attempts to measure the wealth
created or destroyed for the shareholders of a company. This was a metric system
designed by Stern Stewart & Co. which takes into account more variables than just
the profits or share growth of the company.
War Bond
War bond is the type of debt security that is issued by the government for the
purpose of financing military operations during war times. The citizens of the
country are appealed to get the same and its interest rates are lower than the
market rate.
Warrant
Coverage
Warrant Coverage is an agreement between a company and its shareholders in
which the company issues warrants equal to some percentage of the dollar amount
of the shareholders investment.
Warrant
Premium
Warrant premium is the premium paid for the rights associated with a warrant.
Wash
When two events happen such that their impacts nullify each other, it is referred to
as wash. For example, in terms of investment, when the profits equal the losses, the
situation is referred to as wash.
Wasting Asset A wasting asset can be defined as a derivative security that loses value with time.
Wave
When a day's market activity goes against the weekly market tide, it is referred to
as a wave.
Weak Hands
Weak hands is often used for retail traders in the forex market, who abide by the
rule that when a pattern is broken, get out. Alternatively, it is also used for the
situation when future contract holders intend not to receive delivery of the
underlying.
Weak Sister
The stock that performs the worst in a company's portfolio is referred to as weak
sister.
Working Capital
The difference between a company's assets and liabilities at a point of time is
referred to as the working capital. This amount gives an idea of the company's
financial health at that point of time.
Workout Period
The time span within which the discrepancies in fixed income securities are
adjusted.
WTO
WTO stands for the World Trade Organization. This is an international organization
that handles or deals with the rules for the trades between different nations.
[Top]

X

Financial Terminology Definition of the Financial Term
X X is the NASDAQ stock symbol for mutual fund.
XD XD is a symbol for those securities for which the trading is ex-dividend.
XDIS A security trading X distribution is signified by the symbol XDIS.
XRT For a security trading X rights, the symbol XRT is used to signify the same.
XW If a security is trading X warrant, it is signified by the symbol XW.
[Top]

Y

Financial
Terminology
Yankee CD
In the term Yankee CD, CD stands for Certificate of Deposit. It is the certificate
issued in the US market by the branches of foreign banks. These certificates usually
have a face value of USD 100,000.
Yard Yard is a slang word used for one billion dollars or one billion units of any currency.
Yellow Knight
When a company attempts to take over another, but ends up in a discussion of
merging with the other company, it is referred to as a yellow knight.
Yellow Sheet
A U.S. bulletin that gives information on OTC bonds like the updated bid and ask
prices.
Yield
The income return on an investment that is represented annually as a percentage
based on the investment cost is referred to as the yield from that investment.
Yield to Call
The yield to call is the yield of the bond or note that holds the security until the call
date. This yield remains valid if, and only if, the security is called prior to maturity.
YOY
A YOY or Year over Year is a method of evaluating two or more investments to see
their year wise performance. This method is generally applied at the same time
period every year to see if the company's performance is improving or degrading.
[Top]

Z

Financial
Terminology
Zero Minus Tick
A Zero Minus Tick is one in which the trades occur such that the last trade is at the
same value as the preceding trade and the trade preceding the previous trade is at
a lower cost.
Zero Plus Tick
A Zero Plus Tick is referred to the situation in which a security trade is executed at
the same price as the preceding trade but at a higher price than the last trade of a
different price.
Zero-Coupon
Bond
Zero-coupon bond is also referred to as Accrual bond. The debt security which does
not pay any interest, but is traded at a discount, such that at the maturity of the
bond it renders profit.
Zero-Sum Game
Zero-Sum Game is the situation in which losses incurred by one of the participant
is exactly equal to the profit of the other participant. In other word, the wealth is
just shifted from one participant to the game.
ZZZZ Best
ZZZZ Best was a company owned by Barry Minkow in 1980s. It went public in 1986
and through forgery and theft the company reached a mark of US USD 200 million.

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