A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
A brief description is provided for each term. 

A
Accounts Payable (Payables) : Money owed to suppliers.

Accounts Receivable (Receivables) : Money owed by customers.

Acquisition See Mergers

ACRS (Accelerated Cost Recovery System): Schedule of depreciation rates allowed for tax purposes.

Actuarial risk: A type of risk, typically associated with insurance.

American option: An option which can be exercised prior to its expiration date.

Annuity Investment: that generates a stream of equal cash flows.

Arb Arbitrage: See arbitrage

Arbitrage (risk arbitrage) :Simultaneous purchase of a security and sale of another to generate a risk-free profit.

Arbitrage: A transaction which generates a risk-free profit.

Arbitrage FreeModel A type of financial model which generates market scenarios which entail no arbitrage opportunities.

Arbitrageur: A person involved in arbitrage.

ARCH: A technique for projecting future implied volatilities.

Asian option: An option whose pay-off depends on the average value of an underlier over a specified period.

Ask: The highest price anyone wants to pay for the security at a given time.

Asset Allocation: The process of determining the optimal division of an investor's portfolio among different assets. Most frequently this refers to allocations between debt, equity, and cash.
asset/liability management A risk management technique for protecting an institution's capital.
asset-backed security A securitized interest in a pool of assets.

Assets: Anything that the firm owns.

At-the-money : A condition where the value of an option's underlier matches the option's strike price.

Average Maturity :The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life.

Average option: An option whose pay-off depends on the average value of an underlier over a specified period.

Average Tax Rate: The rate calculated by dividing the total tax liability by the entity's taxable income.

B [Top]

Backwardation: A condition where spot prices exceed forward prices.

Balance Sheet: A basic accounting statement that represents the financial position of a firm on a given date.

Balanced Mutual Fund :This is a mutual fund that buys common stock, preferred stock and bonds. 

Bankers' Acceptance :A draft drawn on a specific bank by a seller of goods to obtain payment of goods that have been sold to a customer. The customer maintains an account with that specific bank.

Barrier option : A type of path-dependent option.

Base currency : The currency in which a risk is quantified.

Basis Point: .01 percent. Used to measure changes in yields of bonds.

Basis Risk: Risk from changes in spreads.

Bear Market General decline in security prices.

Beginning Net Asset Value :The market value of a fund share on a predetermined start date.

Best Effort Purchase:A method of selling newly issued securities whereby the underwriters are expected to sell as many securities as possible. They are not obligated to sell the entire subscription. Also see "firm commitment." 

Beta: A relative (to a benchmark) measure of risk. Measures of an asset's non-diversifiable -- market-- risk. See also systematic risk.

Bid: The lowest price anyone wants to sell the security for at a given time. (See: Ask, and Bid-Ask Spread)

Bid-Ask Spread :The difference between the bid and the ask for a security at a given time.

Bilateral Netting :Netting between two parties.

Bill Debt: that has less than 1-year maturity at time of issue.

Binary Option: A type of option which features a discontinuous pay-off.

Black-Scholes Theory :The first successful theory for pricing financial options.

Bond Long-Term IOU :whereby the holder (lender or buyer) is promised to receive fixed payments over a pre-specified time period. Corporate bonds are one of the available instruments that companies can resort to for their financing needs.

Bond Par Value :The face value that is to be returned to a bondholder at maturity.

Book Value:The depreciated value of a company's assets (original cost less accumulated depreciation) less the outstanding liabilities.

Broker: A person who facilitates transactions (buy and sell) in the secondary market.

Brokerage Commission :The amount of money your brokerage house would charge for a given transaction (buy/sell). This is how these firms make their living.

Bull Market General : increase in security prices.

Bullish :One who believes the general market will rise. (See: Bear)

Buyback: When a firm repurchases its own stock from the public.

C [Top]

Call Option: An option to purchase an asset.

Call Premium :The difference between the call price and the security's value.

Call Provision: A provision that entitles the corporation to repurchase its bonds or preferred stock from their holders at stated prices over specified periods.

Callable Bond :A bond which may be terminated prior to maturity by its issuer.

Cap : A derivative instrument which is linked to interest rates.

Capital Asset : All property used in conducting a business other than assets held primarily for sale in the ordinary course of business or depreciable, and real property used in conducting a business.

Capital Asset Pricing Model (CAPM) : An equation relating an asset's relative riskiness (beta) to its required return. 

Capital At Risk :A measure of market risk.

Capital Budgeting : The decision-making process with respect to investment in fixed-assets. It involves measuring the additional cash flows associated with investment proposals and evaluating the viability of those proposed investment.

Capital Gains or Loss :The profit or loss made when an asset is sold for more than the purchase price is a capital gain. If the sale price is less than the purchase price, this is a capital loss.

Capital Market Line :A line which describes the optimal relationship between risk and reward for an investment portfolio.

Capital Markets :Markets for long-term financial securities.

Capital Rationing : Shortage of funds that forces a company to choose between projects.
Capital Structure Mix of different securities issued by a company.

Capitalization: A company's amount of capital. Usually measured as the sum of a company's market value of equity and debt.

Cash Budget: A detailed plan of future cash flows. This budget is composed of four elements: cash receipts, cash disbursements, net change in cash for the period, and new financing needed.

CD (Certificate of Deposit): Receipts for funds deposited in bank or S&L for a fixed period. The funds earn a fixed interest rate.

Chaebols South Korea's industrial giants.

Change: This shows the change in price of a security from the previous day's closing price. 

Characteristic Line :The line of "bet fit" through a series of historical returns for the firm's stock relative to the market returns. The slope of this line, called beta, represents the average movement of the firm's stock returns in response to a change in the market's returns.

Cheap :An asset is said to be cheap when it is worth (intrinsic value) more than its market value.

Closed-End Fund :An investment fund that does not stand ready to purchase its own shares from its owners. Its shares can trade on an exchange.

Closeout Netting A type of netting frequently used with OTC derivative instruments.

Closing Price (alternatively close) :The price at which the last trade took place on a given day in a particular security. 

Collar A type of derivatives position.

Collateral Assets: that are used as security for a loan.

Collateralised Mortgage Obligation A type of mortgage-backed security.

Commercial Paper :Unsecured debt (IOU), issued by large corporations, with maturities (at time of issue) less than a year. They can be traded on OTC.
 
Commission :The broker's fee for purchasing or selling assets.

Commodity :A commodity is food, a metal or another physical substance that investors buy or sell, usually via futures contracts. 

Common Shares :These are securities that represent equity ownership in a company. Common shares typically allow an investor to vote on such matters as the election of board of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. 

Competitive Bid : A mechanism to select a lead investment bank in which investment banks submit a bid representing their compensation. The issuing firm solicits bids on the underwriting and chooses the underwriter who offers the most favorable terms.

Compounding :A process whereby the value of an investment appreciates exponentially over time as interest is earned on interest.

Confidence Interval :A notion from statistics.

Confirmation :A written notice confirming the details of a transaction.

Conglomerate Merger :Merger between two corporations in unrelated business.

Consol :A perpetual bond issued by the British government. Sometimes used as a general term for perpetuity.

Constant Maturity Treasury :A type of yield index.

Consumer Price Index (CPI) :The CPI measures the prices of consumer goods and services and is a measure of the pace of Indian inflation.

Contingency :An event that may or may not occur.

Conversion Ratio :The number of shares of common stock for which a convertible security can be exchanged for.
 
Convertible Bond :Bond that can be converted to equity at a pre-specified conversion ratio.
convexity A measure of second-order exposure to interest rates.

Core Investor :A shareholder or a group of investors that holds enough shares to be able to influence management decisions.

Corporation :A legal entity that functions separate and apart from its owners.
correlated exposure. Exposure to a risk factor, taking into account the impact of correlated risk factors.

Correlation :A notion from probability.

Cost Budgets: Budgets prepared for every major expense category of the firm, such as administrative cost, financing cost, production cost, selling cost, and research and development.
 
Cost of Capital :The rate that must be earned by the company to satisfy all the firm's providers of capital. It is based on the opportunity cost of funds.
Cost of Funds Index A yield index.

CounterParty A party with whom one transacts business.

Coupon Interest Rate The Interest to be annually paid by the issuer of a bond as a percent of per value, which is specified in the contractual agreement.

Covariance :A measure of co-movement between two variables.

Credit Default Swap :A type of credit derivative.

Credit Derivative :A derivative instrument designed to transfer credit risk from one party to another.

Credit Enhancement: Any methodology that reduces the credit exposure of a transaction with a counterparty.

Credit Exposure :Exposure to possible default by a counterparty.

Credit Linked Note : A debt instrument with an imbedded credit derivative.

Credit Risk :The risk that a counterparty may fail to perform on its obligations.

Credit Scoring :A procedure for assigning scores to companies or individuals on the basis of the risk of default.

Credit Spread :A spread in prices or interest rates resulting from credit risk.
Cum dividend With dividend.
Cum Rights With rights.

Cumulative Voting :A shareholder may cast all his or her votes for one candidate for the board of directors. Also see majority voting.

Current Asset :Asset that is expected to be turned into cash within a year.

Current Liability :Liability that is expected to be paid in less than a year.

Custodian :A bank which holds securities on behalf of investors.

Cyclical Stock: The stock of a company whose fortunes are closely tied to the cyclical ups and downs of the economy in general. For example, General Motors is a cyclical stock since its business of selling autos is highly dependent on the general health of the economy. 

D [Top]

Date of Record :The date on which a shareholder must officially own shares in order to be entitled to a dividend.

Day High :This is the highest price that a security has traded at during the day. 

Day Low :This is the lowest price that a security has traded at during the day. 

DCF: Discounted Cash Flows

Dealer :A person (or firm) who facilitates transactions in the secondary market. They make their living on the difference between the prices they pay for the assets in their inventory and what they sell them for.

Debentures :Unsecured debt

Declaration Date :The date on which a firm announces a future dividend payment.

Default Risk Premium (DRP) :The additional return lenders require to compensate them for default risk.

Default Risk :Uncertainty of a firm's ability to meet its debt obligations on time and in full.

Delta :A measure of exposure to an underlier.

Delta Hedge :A hedging position which causes a portfolio to be delta neutral.

Delta Neutral :Having no delta exposure.

Delta-Gamma Value At Risk :A method for estimating value at risk.

Depreciation :(1) Reduction in the book or market value of an asset.
(2) Portion of an investment that can be deducted from taxable income.

Derivative Instrument :A type of financial instrument which derives its value from the value of other financial instruments.

Derivative Security :A financial asset whose value is based on an underlying asset. Options and futures are examples.

Dilution :(1) A decrease in the proportion of income to which each shareholder is entitled,
(2) A decrease in the % ownership of individual shareholders.

Discount :(1) The amount by which a bond or preferred stock may sell below its par value.
(2) The notion that market prices "takes into account@ or include all publicly available relevant information.

Discount Bond :A bond that sells at value below par value.

Discounting :The inverse of compounding. This process is used to determine the present value of a cash flow.

Distribution Date :Date on which the payout of realized capital gains on securities in the fund portfolio occurred.

Diversifiable Risk :The components of an asset's risk that can be eliminated when the asset is combined in a well-diversified portfolio.

Diversification :A technique for managing risk where risk is divided among multiple, uncorrelated exposures.

Dividend :Distribution of wealth by firm to shareholders based on number of shares owned.
Dividend Yield Dividends per share divided by the price of the security.
 
Duration :A measure of exposure to interest rates.

E [Top]

Earnings At Risk :A measure of market risk.

Earnings Per Share (EPS) :Company's earnings divided by the number of shares outstanding.

Earnings Report :A financial statement, also called Income Statement, issued by a company showing its earnings or losses over a given period.
Earnings vs. Value

EBIT :A company's Earnings Before Interest and Taxes.

Ending Net Asset Value :The market value of a fund share on a predetermined end date.
enterprise risk management The process whereby an organization optimizes the manner in which it takes risks.

EPS :See Earnings Per Share

Equity Risk :The risk of owning stock or having some other form of ownership interest.

ERM :See Exchange Rate Mechanism 

Euribor :Euro Interbank Offered Rate.

Eurobonds :Bonds that are marketed internationally.

Eurodollar Future ;A type of futures contract.

Eurodollar Market :A banking market in U.S. dollars outside the U.S.
 
European option :An option which can only be exercised on its expiration date.

Evidence : Few Brokerage Firms Beat the Market Last Year

Exact :Both accurate and precise.

Exchange Rate Mechanism (ERM),: or the currency grid, is a system that limits currency fluctuations to a range of 15 percent in either direction.

Exchange Traded :Traded on an exchange, as opposed to being traded over the counter.

Ex-Dividend Date :The date which determines ownership of stock for the purpose of paying dividends. Owners purchasing shares on or after the ex-dividend date do not receive the dividends. Only owners before this date would be registered to receive the declared dividend. The date is set at four business days prior to the record date. Also see dividend.

Exercise Price :The price at which a call option or put may be exercised. Also called strike price.

Expected Credit Exposure :A measure of potential credit exposure.

Expected return :The average possible return for an investment
.
Expected Value :The mean or average of a random variable.

Exposure :Sensitivity to a source of risk.

External Financing :Financing projects through new issues of securities; debt and/or equity.

Extra Dividend :Dividend that is not expected to be repeated.

F [Top]

Face Value :Value of security shown on certificate. Also called par value, which is typically $1,000.
factor sensitivity A measure of exposure to a single risk factor.

Family of Funds :Group of mutual funds managed by the same investment management company. Each fund typically has a different objective; one may be a growth-oriented stock fund, whereas another may be a bond fund or an index fund. Shareholders in one of the funds can usually switch their money into any of the family's other funds, sometimes at no charge.

Financial Assets :Securities that have a claim on assets.

Financial Distress

Financial Engineering :The design of financial portfolios to achieve specified goals.

Financial Intermediaries :Financial institutions that assist the transfer of savings from economic agents with excess savings to those that need capital for investments.

Financial Investment :Investment in financial assets.

Financial Risk :Additional risk borne by shareholders because of a firm's use of debt.

Financial Risk :Financial exposure to uncertainty.

Financial Risk Management :The process whereby an organization optimizes the manner in which it takes risks.

Firm Specific Risk Uncertainty in returns due to factors specific to the company. See diversifiable risk.

Fixed Assets (overhead) :A cost that is fixed for a given period of time. It is not dependent on the amount of goods and services produced during the period. Tangible fixed assets include real estate, plant and equipment. Intangible assets include patents, trademarks, and customer loyalty.

Float :The float is the number of shares of a security that are outstanding and available for trading by the public.
 
Floatation Cost :The underwriter's revenue associated with assisting a firm in issuing and marketing new securities.

Floater :A type of fixed income instrument.

Floor :A type of derivative instrument which is linked to interest rates.

Forward :An agreement to execute a transaction at some time in the future.

Forward Rate Agreement :A type of forward contract which is linked to interest rates.

FRA :Forward Rate Agreement

Free Cash Flow Value :The value of a firm based on the cash flow available for distributing to any of the providers of long-term capital to the firm. The free cash flows equal operating cash flow less any incremental investments made to support a firm's future growth.

Front Running refers to situations when a manager who has private information about the direction of movement of an asset takes a private position in the asset before purchasing it for the fund.
 
Full-Service Broker :Brokers who provide services in addition to assisting in buying and selling of securities in the secondary market. Services can include providing company profiles and investment strategy recommendations.

Future :An agreement to execute a transaction at some time in the future.

Futures Contract :This is an agreement that allows an investor to buy or sell a commodity, like gold or wheat, or a financial instrument, like a currency, at some time in future. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying asset. These contracts trade on organized futures exchanges.

Futures Exchange :Traded contracts specifying a future date of delivery or receipt of a specific product or asset. The assets include agricultural products like, pork bellies and oranges; metal; and financial instruments and indices. They are used by firms to hedge against potentially unfavorable price changes, and by speculators who hope to benefit from betting on the direction or magnitude of change.

Futures Market :Where futures contracts are traded. 

G [Top]

Gamma :A measure of second-order exposure to an underlier.

GARCH :A technique for projecting future implied volatilities.

Golden Parachute. :A plan devised by existing management stipulating that an acquiring company has to pay executives of the acquired company a substantial sum of money in the event of removing the former. 

Greeks :A set of factor sensitivities frequently used for measuring the exposures of derivative portfolios.

Greenmail :In a typical greenmail, the acquiring firm has already purchased a number of shares of the target firm's stock. Management of the target company offers to buy back the stock, at a price higher than the market. 

Growth :Stocks Stocks of companies that have an opportunity to invest in projects that earn more that the required rate of return.

H [Top]

Hedge :To take offsetting risks.

Hedging :The purchase or sale of a derivative security (such as options or futures) in order to reduce or eliminate risk associated with undesirable price changes of another security.

Heteroscedasticity :Non-constant volatility.

High-Yield Bond :A bond which pays a high yield due to significant credit risk.

Historical Value At Risk A method for estimating value at risk.

Historical Volatility :An estimate of volatility based upon historical data.

Homoscedasticity : Constant volatility.

Horizontal Integration : When firms in the same industry merge. Also referred to as horizontal merger.

Horizontal Merger :Merger between two companies that produce similar products. Also referred to as horizontal integration.
 
Hostile Takeover :A merger or acquisition in which management resists the group initiating the transaction.

Hurdle Rate :The minimum required return on a project.

Hypothecation :The posting of collateral.

I [Top]

Implied Volatility :An estimate of volatility based upon option prices.

Income Stocks :Companies with high dividend yield or no NPV > 0 opportunities.

Incremental :Cash Flows

Indenture :The legal agreement between the firm issuing the bond and the bondholders, providing the specific terms of the loan agreement.

Index :A yardstick to measure change from a base year.

Index :Funds Mutual funds whose objective is to replicate the performance of an index. The most popular equity index is the BSE Sensex.

Inflation :A general increase in prices of goods and services.

Inflationary Premium (IP) :Additional compensation over the T-bill that levers require to compensation them for the risk of expected inflation.

Inflation-Indexed Bonds

Information : Largest IPOs In History

Inside Market :The highest bid and the lowest offer prices among all competing dealers in a Nasdaq security, i.e., the best bid and offer prices.

Insiders :These are directors and senior officers of a corporation -- in effect those who have access to inside information about a company. An insider also is a shareholer who owns more than 10 percent of the voting shares of a company. 

Interest Rate Cap :A derivative instrument which is linked to interest rates.

Interest Rate Floor :A derivative instrument which is linked to interest rates.

Interest Rate Parity :A relationship which must hold between the interest rates of two countries.

Interest Rates

Intermediaries :See Financial Intermediaries.

Internal Financing :Financing projects through retained earnings.

International Diversification

in-the-money :A condition where an option has a positive intrinsic value.

In-the-money Options An option that would be worth exercising if it expired immediately. Also see out-of-the-money options.

Intrinsic Value :A component of the market value of an option.

Inverse Floater: A type of fixed income instrument.

Investment Banks are firms that assist companies in initial sale of securities in primary market.

Investment Company :A company that uses its capital to invest in other companies. There are two types: the closed-end and the open-end, or mutual fund.

Investment-Grade Bonds :Bonds rated Baa or above.

IO :A type of mortgage-backed security.

IP (Inflationary Premium) :Additional return required to compensate asset holders for inflation uncertainty.

IPO (Initial Public Offering) :Securities are offered for the first time to the public.

J [Top]

Junk bond A bond which pays a high yield due to significant credit risk.

K [Top]

Keiretsu Japan's industrial structure. 

Key factor :A risk factor which is used in estimating value at risk.

Knock-In Option :A type of path-dependent option.

KnockOut Option :A type of path-dependent option.

Kurtosis A notion from statistics.

L [Top]

Legal Risk :Risk relating to legal uncertainties

Leptokurtosis :A notion from statistics.

Letter of Credit :Letter from a bank stating that it has established credit in the company's favor.

Leverage The compounding of risks.

Leverage :Use of debt financing. 

(LIBOR) London InterBank Offered Rate. :The lending rate among international banks in London.

Limit Order :When you instruct your broker to buy or sell a given security at a specific price.

Limited Liability :Limitation of a shareholder's losses to the amount invested.

Liquidation Value :The amount that could be realized if an asset were sold independently of the going concern.

Liquidity refers to an investor's ability to convert an asset into cash. The faster the conversion the more liquid the asset. Illiquidity is a risk in that an investor might not be able to convert the asset to cash when most needed. Moreover, having to wait for the sale of an asset can pose an additional risk if the price of the asset decreases while waiting to liquidate.

Liquidity Risk Premium (LP) :The additional return required by investors in securities that cannot be converted into cash at a reasonably predictable price or time.

Liquidity The ability to easily raise needed cash.

Listing :When a company's stock trades on an official exchange.

Load :A commission paid by an investor to a broker for the purchase or sale of a mutual fund.

Lognormal Distribution :A type of probability distribution.

Long Investors who go "long" own stock or another financial security. It is a term that means the opposite of "short." See short selling.

Long Ownership of securities. (See Long)

Long position :A position which entails ownership or effective ownership of an asset.

Long-term Gain :A gain on the sale of a capital asset where the holding period was six months or more and the profit was subject to the long-term capital gains tax.

LP (Liquidity Premium) :Additional return required to compensate investors for purchasing illiquid assets. Also see liquidity.

M [Top]

Macaulay Duration :A technique for calculating duration.

Maintenance Margin :Minimum margin that must be maintained on a futures contract.

Majority Voting :Voting system under which each board of director is voted upon separately. See cumulative voting.

Margin Cash or securities set aside by an investor as evidence for ability to honor a financial commitment.

Margin Collateral.

Marked-to-Market :An arrangement whereby the profits or losses on a futures contract are settled up each day.

Market Order :When an investor instructs his/her broker to buy or sell an asset at the price prevailing in the market. In such a case, the investor, unlike the case of the limit order, does not put any restrictions on price.

Market Portfolio : A theoretical portfolio which comprises all risky assets available to investors.
market risk Risk from changes in market prices.

Market Timing :Ability to determine the time occurrence of peaks and troughs of stock markets.
market value The value at which an asset trades, or would trade in the market.

Marketable Securities Security investments that the firm can quickly convert into cash balances.
mark-to-market credit exposure Credit exposure based upon the current market values of a counterpary's obligations.

Maturity Date :The date on which the last payment on a bond is due.

Maturity Matching :The practice of financing long-term projects with long-term assets, while financing short-term projects with short-term financing.

Maturity Risk Premium (MRP) :Risk associated with interest rate uncertainty. The longer the time to maturity, the higher the premium.

Maximum Credit Exposure : A measure of potential credit exposures.

Mean Reversion :A tendency for a stochastic variable to drift toward a long-term mean level.
mean The average or expected value of a random variable.

Medium-term Note Debt with a typical maturity of 1 to 10 years at the time of issue that is offered by a company.. 

Merger Acquisition in which all assets and liabilities of a company are absorbed by the buyer to form a combined business entity.

MM :Short-hand notation for "millions."

Model Risk Risk from the misuse of financial models.

Modern Portfolio Theory :A body of theory relating to how investors optimize portfolio selections.

Monitoring Costs An agency cost that arises when bondholders take steps to ensure that protective covenants in the bond indenture are adhered to by the firm. Similarly, shareholders take steps to ensure that management is acting in the best interest of the owners, i.e., that managers are maximizing the wealth of shareholders.

Monte Carlo Simulation :A technique of simulation which uses many randomly or "pseudo-randomly" generated scenarios.

Monte Carlo Value At Risk A technique for estimating value at risk.

Moral Hazard :Refers to human nature's increased incentive to take risk when insured.

Morbidity The rate at which people become sick.

Mortality: The rate at which people die.

Mortgage Backed Security :A security interest in a pool of mortgages.

Mutually Exclusive Projects :Two projects that cannot both be undertaken.



N [Top]

NAV (Net Asset Value) :The market value of a fund share, synonymous with a bid price. In the case of no-load funds, the NAV, market price, and offering price are all the same figure, which the public pays to buy shares; load fund market or offer prices are quoted after adding the sales charge to the net asset value. NAV is calculated by most funds after the close of the exchanges each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, then dividing the result (total net assets) by the total number of shares outstanding. The number of shares outstanding can vary each day depending on the number of purchases and redemptions
.
Net Change :The difference between today's price of last trade and the previous day's last price. For mutual funds, it is the difference between today's closing Net Asset Value (NAV) and the previous day's closing.

Net Present Value (NPV) :A project's net contribution to shareholders wealth, which is determined by the present value of a project's cash flows less initial investment.

Net Worth Book value of a company's common stock, surplus, and retained earnings.

Netting :The reduction of offsetting obligations to a single "net" obligation.

Net Working Capital (NWC) :Current assets minus current liabilities.

NL :No Load 

No Load (NL): See Load

Nominal Interest :Rate Interest as expressed in money terms. See real interest rate

Non-Parallel Shifts :A type of yield curve shift.

Normal Distribution :A type of probability distribution.

Note :Unsecured debt with a maturity of up to 10 years at the time of issue.

Notional Amount :The quantity of an underlier to which a derivative contract applies. 

O [Top]

OAS Option-adjusted spread.

Odd Lot refers to buying stocks in a quantity that is not a multiple of 100.

Off-Balance-Sheet Financing :Financing that is not shows as a liability in a company's balance sheet.

OID Debt :Original Issue Discount Debt

Open Order :An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed.

Open The price at which a security opens the trading day.

Open-End Fund A mutual fund that stands ready to redeem stocks and issue new stock. Also see closed-end funds.

Operating Leverage Amount of fixed operating costs.

Operational Risk :Risk from mistakes or failures in operations.

Opportunity Cost of Capital :The expected return that is foregone by investing in a project rather than a financial security with comparable risk.

Option A type of derivative instrument.

Option :The choice to take a specific action in the future. The action considered in finance are the purchase (call option) or sale (put option) of an asset.

Option-Adjusted Spread :A component of a fixed income instrument's yield.

Out-Of-The-Money :A condition where an option has no intrinsic value.

Out-Of-The-Money Option :An option that would not be worth exercising if it matured immediately. See in-the-money option.
outright position An actual, as opposed to effective, long or short position in an asset.

Overbought :Typically a reference to a security or the general market after it exhibits a sharp rise in prices.

Overlay Strategy :A type of derivatives strategy. 

Over-Rewarded :A security whose expected (average) return is above its required return. Also called under-priced.

Oversold :Opposite of overbought.

Over-Valued :An asset whose market value is greater than its intrinsic (formula or theoretical) value.



P [Top]

P/E Ratio :Price to earnings ratio. The price of a share of stock divided by earnings per share of stock for a twelve-month period.

Par :A notion relating to fixed income instruments.

Parallel Shift :A type of yield curve shift.

Passive Management :An investment strategy that does not involve the periodic shuffling of a portfolio's components. A buy-and-hold strategy.

Path Dependence :Dependence on the actual path taken by an underlier over a specified period.

Patient Capital Investors interested in long-term value maximization.

Payment Date :Date on which dividends are paid to registered owners.

Payment Netting :Netting of cash flows.

Payout Ratio :Percent of earnings that is paid out as dividends.

Pension Fund :Assets held in trust to cover the costs of pension benefits to participants.

Pension Plan :A plan established by a firm, labor union, government, or other organization to provide for the payment of benefits to the plan participants over a period of years after retirement.

PIBOR :Paris Interbank Offered Rate.

Platykurtosis A notion from statistics.

PO :A type of mortgage-backed security.

Poison Pill :An anti-takeover plan devised to automatically be activated when the company gets bought over in an unfriendly takeover. A Golden Parachute is one such device. Another might be a plan whereby all the firm's debt becomes due if the current management is removed.

Policy Surrender The early termination of an insurance product by the policyholder.

Portfolio :A combination of assets.

Portfolio Insurance

Portfolio Theory :A body of theory relating to how investors optimize portfolio selections.

Potential Credit Exposure :Possible future credit exposure to a counterparty.

Precise Consistent.

Preemptive Right Common shareholder's right to subscribe to any new issue of stock so as to maintain, undiminished, their fraction of total number of shares outstanding.

Preferred Stock Stock that takes priority over common stock in regard to dividend and liquidation. The dividend is usually fixed at time of issue.

Premium :(1) This generally refers to extra money an investor is willing to pay to buy something. (2) For a bond, a premium is the amount for which the security sells above its par value.

Prepayment :The payment of a debt prior to its being due.

Pre-Settlement Risk :The risk of counterparty default prior to the settlement date of an obligation.

Primary Instrument :A financial instrument whose value is not derived from that of another instrument, but instead is determined by the market.

Primary Market is where firms sell new financial assets typically with the assistance of an investment banker.

Prime Rate :The interest rate that banks charge their "best" clients, , i.e., those with the lowest possibility of default.

Principal :(1) Shareholders; (2) Amount of debt that must be paid at maturity.

Principal Orders Refers to activity by a broker/dealer when buying or selling for its own account and risk.

Private Placement :A direct sale, by the issuing firm, of newly issued securities to a small group of investors.

Probability Distribution :A graph that shows the different possible outcomes of a single variable and the probability of getting the outcome.

Probability Distribution :A notion from probability.

Profit :Taking Selling stock after a period of rising prices to realize the profit. The term is used to explain a downturn in the market.

Promissory Note (PN) : Promise to pay.

Prospectus :Summary of the registration statement providing information to investors on an issue of securities.
Protective Covenants Clauses in a loan agreement aimed at reducing default risk to the bondholders.
Proxy :Statement Information provided to stockholders in conjunction with the solicitation of proxies. (See: Proxy Vote)

Proxy Vote :Vote cast by one person on behalf of another at the company's annual meeting.

Put Option :Option to sell an asset at a specified excise price on or before a specified exercise date. Also see call option.

Put-Call Parity A formula that relates the price of a put to the price of a corresponding call.



Q [Top]

Quanto :A type of derivative instrument.

Quote The highest bid to buy and the lowest offer to sell a security at a given time. (See: Ask, and Bid)

R [Top]

Raiders Investors who attempt to acquire other firms in an unfriendly takeover.

Rally An increase in the price of a stock or the level of the market.

Range Forward :A type of derivatives hedge.

Rate Of Return :A measure of investment performance.

Rating Agency Companies that rate the likelihood of a firm to default on its debt obligations.

Real Assets Tangible assets include: plant and equipment; intangible include: technical expertise, trademarks & patents.

Real Interest Rate Interest :Rate that is adjusted for inflation.

Record Date:Date set by the company when dividends are declared. Owners who are registered on this date receive dividends. Also see ex-dividend date.

Red Herring :A preliminary prospectus.

Refunding :Replacement of existing debt with a new issue of debt.

Regression Analysis :A statistical technique for fitting best line through data.

Regular Dividend :Dividend that is expected to be maintained at regular time intervals.

Rehypothecation :Reuse of collateral received as security for an obligation.

Reinvestment Risk :Risk from uncertainty in the interest rate at which future cash flows may be invested.

Reorganization Financial restructuring of a firm under bankruptcy. Both the firm's assets and its financial structure are modified.

Replacement Cost :A measure of credit exposure.

Repo (Repurchase Agreement) :Purchase of Treasury securities from a securities dealer with an agreement that the dealer will repurchase them at a specified price.

Repurchase Agreement :An agreement to sell and repurchase an asset.

Required Return :Minimum return required by investors to compensate them for assuming risk.

Residual Dividend :An approach to dividends that suggests a firm pay dividends if and only if acceptable investment opportunities for those funds are currently unavailable.

Retained Earnings : Earnings not paid out as dividends.

Return on Equity : See ROE

Rreverse Repo : An agreement to purchase and resell an asset.

Rho :A measure of exposure to interest rates.

Risk :Exposure to uncertainty.

Risk Factor :A random variable whose uncertainty represents a source of risk.

Risk Limit : A procedural tool for managing risk.

Risk Neutrality :A theoretical condition where investors require no compensation for taking risk.

Risk Premium :Additional return, over the risk-free rate, to compensate investors for accepting (holding) risk.

Risk-Free-Rate :A theoretical interest rate at which an investment may earn interest without incurring any risk.

RiskMetrics :A free service offered by JP Morgan.

ROE (Return on Equity)

Round Lot :The purchase or sale of a quantity of stocks that is in multiples of 100, such as 200, 1,000, etc.



S [Top]

Salvage value :Scrap value of a plant or e