Glossary

Abandonment - The People who have control on the property give it up on there own!!

Abandonment Option - When a party cancels an investment prematurely or before time!!

ABC Agreement - a written contract between an employee & a brokerage firm emphasizing the clause that the firm can purchase an NYSE card for that employee!!

Ability to pay - The ability of a person in debt to make interest and principal payments on it.

Abnormal returns - It is a part of the return that is not affected in anyway by the market influences. It is actually the distinction between the actual return and the return which is decided by the movement in the markets.

Absolute advantage - Absolute advantage is a condition by virtue of which the output of all the goods and services produced for a lower input is higher than that of any other region or country.

Absolute form of purchasing power parity - It is in effect a theory that says that the prices and the rates of a particular product in two different countries should come out to be the same when measured by a common currency. Sometimes it is also known as the "law of one price".

Absolute physical life - The period of a product beyond which it cannot be used or is unable to be used is called absolute physical life.

Absolute Priority - When there is a bankruptcy case, there is a rule that states that the senior creditors will be remunerated fully and then the junior creditors. That is called absolute priority.

Absorbed - it is a term that's often used in general sense in equities. The market has reached a point where it cannot absorb more financial adjustments.

Abusive Tax Shelter - It is a partnership which is limitedly available and is dished out by the IRS judges to people who claim illegal tax deductions.

Accelerated cost recovery system (ACRS) - It is a schedule of rates that depreciated which is allowed exclusively for tax related issues.

Acceleration clause - It is a contract which clearly states that if a certain specific actions transpire, then the unpaid balance would be due and payable. These actions maybe varied. Like the failure to make the interest payments month to month.

Accelerated depreciation - A method of depreciation which is able to produce comparatively large deductions in the formative and early years of a product's life is known as Accelerated depreciation.

Acceptance - It is a sort of a contract or a written agreement that is initiated when a person accepts the draft at the time of withdrawal and writes ACCEPTED on it. He is liable to be held responsible as the acceptor of the payment on its maturity.

Accommodative monetary policy - The Federal revenue system instigates a policy by virtue of which they increase the sum of money available with banks for public lending.

Account - If we are talking in terms of book keeping, and then it means that the ledger which depicts the assets, the liabilities is known as the account. If we talk about investment banking, then it might mean the status or the amount of securities owned & sold by both the clients to an underwriting authority. In the context of securities, it depicts the bond between a broker and a client, which makes the broker the buying and selling representative on behalf of the client.

Account ad valorem duty - it is an imported merchandise tax which is often expressed in the terms of a percentage.

Baby bond - This bond has a value lesser than $1000.

Back away - in the terminology of general equities, it means to withdraw from a previous pending transaction or interest. In terms of people who are market makers in a given band of security, it means to make an offer with the minimum bidding.

Back fee - if a buyer wishes to continue with an existing option, he has to pay an amount to get an extension. That is called back fee.

Back months - in the context of continuing with an option with an eye on the future, it means to target the months of the contract with the farthest expiration date.

Back office - Clerical operations in some broker firms which support the trading of securities such as stocks and other securities. All the record keeping and the various confirmations in writing are maintained in the back office.

Back on the shelf - in terms of general equity, it might mean an order which has been cancelled permanently. It might also mean that a customer has some amount of interest in a particular stock.

Back taxes - overdue taxes that have not been previously paid on time are referred to as back taxes.

Back up - when a particular bond's yield rises considerably and at the same time, the price plummets down, it is a called back up. Also, if a person who is presently in an option of security decides to hop on to another option of shorter maturity, it is called as back up.

"Back up the truck- if put in simple words, it means that a very large buyer is approaching."

Backdating - in the language of mutual funds, it maybe described as a component which allows a fund holder to use a previous date on a letter of intent, thereby enabling him to invest in a mutual fund for which he can attain a reduced sales charge.

Backed in - In general equities, if a situation arises that due to the results of some unwarranted events, purchase can be made at a discount and sales can be cracked at a premium, it is known as backed in.

Back-end load fund - it is a mutual fund scheme which charges the investors a fee if they want to sell or redeem their shares. Typically ranging from 4% to 6%. The longer the investor holds his share, the commission keeps on decreasing.

Back testing - it effectively creates an imaginary portfolio by applying the selection criteria for the current assets for previous time periods.

Back to back financing - when two companies interlink a loan channeled through a common bank.

Back to back loan - schemes in which two countries exchange each other's currency for a periodic time interval and agree to return it on a fixed maturity date.

Back up line of credit - a scheme by virtue of which the issuer pays a certain fee to the bank. An assurance fund obtained by a paper issuer to protect any sort of default on the CP investor.

Cabinet crowd - in this procedure, the NYSE team trades bonds with a comparatively low daily volume.

Cabinet security - a stock or a bond which is listed amongst the major exchanges and also has a low daily volume of trade.

Cable - the exchange rate between the U.S dollar and the Pound sterling of U.K

CAC 40 index - a broad index which boasts of about 40 of the top 100 largest companies in the forward segment of the Paris Bourse.

Cage - in a brokerage firm, there is a section dedicated to the receiving and the disbursing of funds. It is called as a cage.

Calendar - broadly classified as a list or information of new issues slotted to come to the market soon.

Calendar effect - the tendency of stocks to fluctuate and behave differently at different intervals of time is known as calendar effect.

Calendar spread - it is an interesting process by virtue of which the sale and purchase of the products of the same class takes place amidst the same prices but with different expiration dates.

Call - An option by virtue of which a holder has the right to buy an underlying asset.

Call date - it is a date which is set prior to maturity, and during which the issues of a bond may surrender part of the bond for a specified call price.

Call feature - an agreement between the buyer of the bond and the issuer pertaining to the schedule and the price of redemption before its maturity.

Call loan - a loan which can be repaid on demand is known as a call loan. It is also known as broker loan.

Call money rate - it is basically nothing but the rate of interest the bank charges a broker to help finance margin loans required by investors.

Call option - it is an option that gives its holder a special right to purchase any number of shares of a specific underlying stock at a given strike price on a specified expiration date.

Call premium - there is a particular par value associated with a bond of preferred stock. It is paid to the holders to redeem the share before its actual maturity. The premium levied on that sum is called call premium.

Call price - the price which is specified at the time of issue, by virtue of which the issuer may surrender the bond at a specific rate.

Call protection - A feature of some callable bonds for an initial period, which implies that the bond may not be called.

D - Fifth letter of a Nasdaq stock symbol specifying that it is a new issue, such as the result of a reverse split.

DCF - See: Discounted cash flows

DDM - See: Discounted dividend model

DISC - See: Domestic International Sales Corporation

DNR Order - See: Do Not Reduce Order

DOT - See: Designated order turnaround system

DRP - See: Dividend reinvestment plan

DTC - See: Depository transfer check

DTC - See: Depository Trust Company

Daily price limit - The level at which many commodity, futures, and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract.

Daisy chain - Manipulation of the market by traders to create the illusion of active volume to attract investors.

Date of issue - Used in the context of bonds to refer to the date on which a bond is issued and when interest accrues to the bondholder. Used in the context of stocks to refer to the date trading begins on a new stock issued to the public.

Date of payment - Date dividend checks are mailed.

Date of record - Date on which holders of record in a firm's stock ledger are designated as the recipients of either dividends or stock rights.

Dated date - The date one uses to calculate accrued interest on various debt instruments, specifically bonds.

Dates convention - Treating cash flows as being received on exact dates-date 0, date 1, and so forth-as opposed to the end-of-year convention.

Dating - Credit extension beyond normal terms of a credit supplier.

Dawn raid - A term of British origin used to describe the purchase of all available shares of a target company at the market's open by a raider. A dawn raid is a surprise technique that allows the raider to gain a substantial share of the target company before the target company knows what is happening

Day around order - A day order that supersedes (cancels and replaces) the previous order by altering its size or price limit.

Day of deposit to day of withdrawal account - A bank account that pays interest according to the number of days that the money is actually on deposit.

Day loan - A loan from a bank to a broker prior to the delivery of securities. Upon the delivery of the securities, a day loan becomes a regular broker call loan for which securities serve as collateral.

Day order - In the context of general equities, request from a customer to either buy or sell stock, that, if not cancelled or executed the day it is placed, expires automatically. All orders are day orders unless otherwise specified. Traders often make calls before the opening to check for renewals.

Day trading - Establishing and liquidating the same position or positions within one day's trading.

Days in receivables - Average collection period.

Days' sales in inventory ratio - The average number of days' worth of sales that is held in inventory.

Days' sales outstanding - Average collection period.

De facto - Existing in actual fact although not by official recognition.

Dead cat bounce - A small upmove in a bear market.

Deal flow - In investment banking, the rate at which new deals are referred to a brokerage firm.

Deal stock - Stock subject to merger or acquisition, either publicly announced or rumored.

Dealer - An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). Individual or firm acting as a principal in a securities transaction. Principals are market makers in securities, and thus trade for their own account and risk. Antithesis of broker. See: Agency.

Dealer loan - Overnight, collateralized loan from a money market bank made to a dealer financing his position by borrowing.

Dealer market - Where traderss specializing in particular commodities buy and sell assets for their own accounts.

Dealer options - Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.

Dealer's spread - See: markdown; underwriting spread.

Dear money - British term for tight money.

Death-backed bonds - Bonds backed by loans of a policyholder against a life insurance policy. The policyholder will repay the loans while alive or with the benefits from the insurance policy upon death.

Death play - A stock strategy that buys stock on the belief that a key executive will die, the company will be dissolved, and shares will command a higher price at their private market value.

Death Valley Curve - In venture capital, refers to the period before a new company starts generating revenues, when it is difficult for the company to raise money.

Debenture - Any debt obligation backed strictly by the borrower's integrity, e.g. an unsecured bond. A debenture is documented in an indenture.

Debenture bond - An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt. Compare subordinated debenture bond and collateral trust bonds.

Debenture stock - A type of stock that makes fixed payments at scheduled intervals of time. Debenture stock differs from a debenture in that it has the status of equity, not debt, in liquidation.

Debit balance - The amount that is owed to a broker by a margin customer for loans the customer uses to buy securities.

Debit spread - Applies to derivative products. Difference in the value of two options, when the value of the option bought exceeds the value of the one sold. One buys a "debit spread." Antithesis of a credit spread.

Debt - Money borrowed.

Debt bomb - A default on debt and obligations by a major financial institution that disrupts the stability of the economic system.

Debt capacity - Ability to borrow. The amount a firm can borrow up to the point where the firm value no longer increases.

Debt ceiling - See: Debt limit

Debt displacement - The amount of borrowing that leasing displaces. Firms that do a lot of leasing are curtailed in their debt capacity.

Debt/equity ratio - Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholder equity.

Debt instrument - An asset requiring fixed dollar payments, such as a government or corporate bond.

Debt leverage - Amplification of the return earned on equity when an investment or firm is financed partially with borrowed money.

Debt limit - The maximum amount that a municipality can borrow.

Debt limitation - A bond covenant that restricts the firm's ability to incur additional indebtedness in some way.

Debt market - The market for trading debt instruments.

Debt ratio - Total debt divided by total assets.

Debt relief - Reducing the principal and/or interest payments on Less developed country loans.

Debt retirement - The complete repayment of debt. See: Sinking fund.

Debt securities - IOUs created through loan-type transactions-commercial paper, bank CDs, bills, bonds, and other instruments.

Debt service - Interest payment plus repayments of principal to creditors (retirement of debt).

Debt service coverage - The ratio of cash flow available to the borrower to the annual interest and principal payments on a loan or other debt.

Debt-service coverage ratio - Earnings before interest and income taxes, divided by interest expense plus the quantity of principal repayments divided by one minus the tax rate.

Debt service parity approach - Payment alternatives that provide the firm with the exact same schedule of after-tax debt payments (including both interest and principal).

Debt swap - A set of transactions in which a firm buys a country's dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity. Also called a debt-equity swap.

Debtholder - See: Bondholder

Debtor - Borrower of money.

Debtor in possession - A firm that continues to operate under the Chapter 11 bankruptcy process.

Debtor-in-possession financing - New debt obtained by a firm during the Chapter 11 bankruptcy process.

Decile rank - Performance over time, rated on a scale of 1-10. 1 indicates that a mutual fund's return is in the top 10% of funds being compared; while 3 means the return is in the top 30%.

Decimal trading - The quotation and trading of stock prices in decimals, as opposed to the quotation of stock prices in fractions of a dollar.

Decision tree - Schematic way of representing alternative sequential decisions and the possible outcomes from these decisions.

Declaration date - The date on which a firm's directors meet and announce the date and amount of the next dividend.

Declare - The Board of Directors motion to authorize dividend payments.

Dedicated capital - Total par value (number of shares issued, multiplied by the par value of each share). Also called dedicated value.

Dedicating a portfolio - Related: Cash flow matching

Dedication strategy - Refers to multiperiod cash-flow matching.

Deduction - An expense that is allowable as a reduction of gross taxable income by the IRS e.g., charity donations.

Deductive reasoning - Using known fact to draw a conclusion about a specific situation.

Deed of trust - See: Indenture

Deep-discount bond - A bond issued with a very low coupon or no coupon that sell at a price far below par value. A bond that has no coupon is called a zero-coupon bond.

Deep in/out of the money - A call option with an exercise price substantially below the underlying stock's market price (deep in the money) or substantially above the market price (deep out of the money). Also put option with an exercise price substantially above the underlying stock's market price (deep in the money) or substantially below the underlying stock's market price (deep out of the money).

Default - Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.

Default premium - A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.

Default risk - The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by commercial rating companies).

Defeasance - The setting aside by a borrower of cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offsetting cash or bonds are removed from the balance sheet.

Defensive securities - Low-risk stocks or bonds that will provide a predictable and safe return on an investor's money.

Deferred account - A type of account that delays taxes on that account until some later date.

Deferred annuities - Tax-advantaged life insurance products. Deferred annuities offer deferral of taxes with the option of withdrawing one's funds in the form of life annuity.

Deferred call - A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.

Deferred charge - An expenditure treated as an asset that carries forward until it becomes pertinent to the business at hand, e.g., advance rent payment.

Deferred compensation - An amount that has been earned but is not actually paid until a later date, typically through a payment plan, pension, or stock option plan.

Deferred equity - A common term for convertible bonds, which recognizes their equity component and the expectation that the bond will ultimately be converted into shares of common stock.

Deferred futures - The most distant months of a futures contract.

Deferred interest bond - A bond that pays interest at a later date, usually in one lump sum, effectively reinvesting interest earned over the life of the bond. See: Zero coupon bond.

Deferred nominal life Annuity - A monthly fixed-dollar payment beginning at retirement age. It is nominal because the payment is fixed in a dollar amount at any particular time, up to and including retirement.

Deferred payment annuity - An annuity that stipulates payments be made to the annuitant at a later date, such as when the annuitant reaches a certain age.

Deferred taxes - A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.

Deficiency letter - Notification from the SEC to a prospective issuer of securities that revisions or additions need to be made to the preliminary prospectus.

Deficit - An excess of liabilities over assets, of losses over profits, or of expenditure over income.

Deficit spending - When government spending overwhelms government revenue resulting in government borrowing. See: Deficit financing.

Defined asset fund - A unit investment trust consisting of a fixed portfolio of securities, including blue chips, REITs, or high-yielding stocks on a major exchange such as the NYSE or FTSE.

Defined benefit plan - A pension plan obliging the sponsor to make specified dollar payments to qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor. Related: Defined contribution plan

Defined contribution plan - A pension plan whoae sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan

Deflation - Decline in the prices of goods and services. Antithesis of inflation.

Deflator - A statistical factor used to convert current dollar purchasing power into inflation-adjusted purchasing power. Enabling the comparison of prices while accounting for inflation in two different time periods.

Delayed issuance pool - Refers to mortgage backed securities (MBS) that at the time of issuance were collateralized by seasoned loans originated prior to the MBS pool issue date.

Delayed opening - Postponement of the start of trading in a stock until correction of a gross imbalance in buy and sell orders. Such an imbalance is likely to follow on the heels of a significant event such as a takeover offer. See: Suspended trading.

Delayed settlement/delivery - In the context of general equities, transaction in which a contract is settled in excess of five full business days. Seller's option. See: Dividend play, settlement.

Delinquency - Failure to make a payment on a debt or obligation by the specified due date.

Delisting - Removal of a company's security from listing on an exchange because the firm has not abided by specific regulations.

Deliver - The sale of a futures or forward contract may require the seller to deliver the commodity.

Deliverable bills - The Treasury bills that fulfill a set of guidelines set forth by the exchange on which the bills are traded.

Deliverable instrument - The asset in a forward contract that will be delivered in the future at an agreed-upon price.

Delivery - The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.

Delivery date - Date by which a seller must fulfill the obligations of a forward or futures contract.

Delivery notice - The written notice given by the seller of its intention to make delivery against an open, short futures position on a particular date. Related: Notice day.

Delivery options - The options available to the seller of an interest rate futures contract, including the quality option, the timing option, and the wild card option. Delivery options mean that the buyer is uncertain of which Treasury bond will be delivered or when it will be delivered.

Delivery points - Locaations designated by futures exchanges at which the financial instrument or commodity covered by a futures contract may be delivered in fulfillment of such a contract.

Delivery price - The price fixed by the clearinghouse at which deliveries on futures are invoiced; also the price at which the futures contract is settled when deliveries are made.

Delivery versus payment - A transaction in which the buyer's payment for securities is due at the time of delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be made by bank wire, check, or direct credit to an account.

Delta - The ratio of the change in price of a call option to the change in price of the underlying stock. Also called the hedge ratio. Applies to derivative products. Measure of the relationship between an option price and the underlying futures contract or stock price. For a call option, a delta of 0.50 means a half-point rise in premium for every dollar that the stock goes up. As options near expiration, in-the-money call option contracts approach a delta of 1.0, while in the money put options approach a delta of -1. See: hedge ratio, neutral hedge.

Delta hedge - A dynamic hedging strategy using options that calls for constant adjustment of the number of options used, as a function of the delta of the option.

Delta neutral - Describes value of a portfolio not affected by changes in the value of the asset on which the options are written.

Demand deposits - Checking accounts that pay no interest and from which funds can be withdrawn upon demand.

Demand line of credit - A bank line of credit that enables a customer to borrow on a daily or on-demand basis.

Demand loan - A loan which can be called by the lender at any time and carries no set maturity date.

Demand master notes - Short-term securities that are repayable immediately upon the holder's demand.

Demand-pull inflation - A theory of inflation or price increases resulting from so-called excess demand. Related: Cost-push inflation.

Demand shock - An event that affects the demand for goods and services in an economy.

Denomination - Corresponds to the face value of currency units, coins, and securities.

Dependent - Acceptance of a capital budgeting project contingent on the acceptance of another project.

Deposit insurance - See: FDIC: Federal Deposit Insurance Corporation

Depository Institutions Deregulation and Monetary Control Act - The 1980 federal legislation that ended the regulation of the banking industry.

Depository preferred - Device enabling an issuer to circumvent an arbitrary corporate limit on the number of preferred shares issuable. Applies mainly to convertible securities.

Depository receipt - See: ADR American Depository Receipt

Depository transfer check (DTC) - Check made out directly by a local bank to a particular firm or person.

Depository Trust Company (DTC) - DTC is a user-owned securities depository that accepts deposits of eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in its custody, and provides for withdrawals of securities from its custody. Central securities repository where stock and bond certificates are exchanged. Most of these exchanges now take place electronically, and few paper certificates actually change hands. The DTC is a member of the Federal Reserve System and is owned by most of the brokerage houses on Wall Street and the NYSE

Depreciate - To allocate the purchase cost of an asset over its life.

Depreciated cost - In terms of economics: The measure of cost of capital consumption during production, e.g., machine and equipment wear.

In terms of finance - The process of amortization of fixed assets (equipment) to spread the cost over the depreciable life of the assets.

Depreciation - A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets.

Depreciation tax shield - The value of the tax write-off on depreciation of plant and equipment.

Depressed market - Market in which supply overwhelms demand, leading to weak and lower prices.

Depressed price - In the context of stocks, stock whose market price is low in comparison to stocks in its sector.

Depression - Period when excess aggregate supply overwhelms aggregate demand, resulting in falling prices, unemployment problems, and economic contraction.

Deregulation - The reduction of government's role in controlling markets, which lead to freer markets, and presumably a more efficient marketplace.

Derivative instruments - Contracts such as options and futures whose price is derived from the price of an underlying financial asset.

Derivative markets - Markets for derivative instruments.

Derivative security - A financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlying asset.

Descending tops - A chart pattern which in which each successive peak in a security's price is lower than the preceding peak over a period of time. Antithesis of ascending tops.

Designated order turnaround system (DOT) - Computerized order entry system that allows orders to buy or sell large baskets of stock to be transmitted immediately to the specialist on the exchange, where execution will occur quickly, depending on the basket size. Also used for odd-lot transactions to occur at the prices and quantities available. See: AOS.

Desk - The New York Federal Reserve Bank's trading desk (or securities department) where all transactions of the Federal Reserve System are executed in the money market or the government securities market.

Detachable warrant - A warrant entitles the holder to buy a given number of shares of stock at a stipulated price. A detachable warrant is one that may be sold separately from the package it may have originally been issued with (usually a bond).

Deterministic models - Liability-matching models that assume that the liability payments and the asset cash flows are known with certainty. Related: Stochastic models.

Detrend - To remove the general drift, tendency, or bent of a set of statistical data as related to time. Often accomplished by regressing a variable or a time index and perhaps time-squared and capturing the residuals.

Deutsche Börse AG (DBAG) - Deutsche Börse AG (DBAG) is the operating company for the German cash and derivatives markets. It has four subsidiaries: Deutsche Börse Clearing AG, Deutsche Börse Systems AG, Frankfurter Wertpapierbörse (FWB), and the derivatives market, EUREX Deutschland (formerly the Deutsche Terminbörse ).

Devaluation - A decrease in the spot price of a currency. Often initiated by a government announcement.

Diagonal spread - An options strategy requiring a long and a short position in the same class of option at different strike prices and different expiration dates. For example, two puts or two calls in the same stock. See: Calendar spread; vertical spread.

Dialing and smiling - See: Cold calling

Dialing for dollars - A term used to describe the practice of cold calling, but which has negative implications as it is frequently applied to salespeople selling speculative or fraudulent investments.

Diamonds - Units of interest in the diamonds trust, a unit investment trust that serves as an index to the Dow Jones Industrial Average in that its holdings consist of the 30 component stocks of the Dow.

Diff - Short version of Euro rate differential, which is a Chicago Mercantile Exchange Futures contract that is founded on the interest rate spread between the U.S. dollar and the British pound, the German mark, or the Japanese yen.

Difference from S&P - A mutual fund's return minus the change in the Standard & Poor's 500 index for the same time period. A notation of -5.00 means the fund return is 5 percentage points less than the gain in the S&P, while 0.00 means that the fund and the S&P have the same return.

Differential - A small charge, typically 1/8 point, added to the purchase price and subtracted from the selling price by the dealer for odd-lot quantities.

Differential disclosure - The practice of reporting conflicting or markedly different information in official corporate statements including annual and quarterly reports and 10-Ks and 10-Qs.

Differential swap - Swap between two LIBOR rates of interest, e.g., yen LIBOR for dollar LIBOR Payments are in one currency.

Diffusion process - A conception of the way a stock's price changes that assumes that the price takes on all intermediate values.

Digits deleted - Designation on securities exchange tape meaning that because the tape has been delayed, some digits have been dropped (e.g., 26 1/2 becomes 6 1/2).

Dilution - Diminution in the proportion of income to which each share is entitled.

Dilution protection - Standard provision that changes the conversion ratio in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholder's potential equity position. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value.

Dilutive effect - Result of a transaction that decreases earnings per common share (EPS).

Dip - Slight drop in securities prices after a sustained uptrend. Analystsoften advise investors to buy on dips, meaning to buy when a price is momentarily weak. See: Correction, break, crash.

Direct estimate method - A method of cash budgeting based on detailed estimates of cash receipts and cash disbursements category by category.

Direct investment - The purchase of a controlling interest in a company or at least enough interest to have enough influence to direct the course of the company.

Direct lease - Contract in which a lessor purchases new equipment from the manufacturer and leases it to the lessee.

Direct overhead - A fraction of overhead costs devoted to the manufacturing sector of a firm to cover expenses such as rent and utilities.

Direct paper - Commercial paper sold directly by the issuer to investors.

Direct participation program - An investment program enabling investors to directly participate in the cash_flow and tax benefits of the partnership invested in by the investor, typically a form of passive investment.

Direct placement - Selling a new issue not by offering it for sale publicly, but by placing it with one of several institutional investors.

Direct quote - For foreign exchange, the number of U.S. dollars needed to buy one unit of a foreign currency.

Direct search market - Buyers and sellers seek each other directly and transact directly.

Direct stock-purchase programs - Investors purchase securities directly from the issuer.

Director - See: Board of directors.

Directorship - Used in the context of general equities. Stock status whereby a trader may not maintain positions in the security, due to an investment bank employee serving as a director on the corporation's board of directors done to avoid conflicts of interest; signified by a flashing "D" on Quotron. Contrast to restricted.

Dirty float - A system of floating exchange rates in which a government may intervene to change the direction of the value of the country's currency.

Dirty price - Bond price including accrued interest, i.e., the price paid by the bond buyer.

Dirty stock - A stock that fails to fulfill prerequisites to attain good delivery status.

Disability income insurance - An insurance policy that insures a worker in the event of an occupational mishap resulting in disability. Insurance benefits compensate the injured worker for lost pay.

Disbursement float - A decrease in book cash but no immediate change in bank cash, generated by checks written by the firm.

Discharge of bankruptcy - The termination of bankruptcy proceedings, resulting in cancellation of the debtor's obligations.

Discharge of lien - An order terminating a lien on property.

Disclaimer of opinion - An auditor's statement that does not express any opinion regarding the company's financial condition.

Disclosure - A company's release of all information pertaining to the company's business activity, regardless of how that information may influence investors.

Discontinued operations - Divisions of a business that have been sold or written off and that no longer are maintained by the business.

Discount - Convertible: Difference between gross parity and a given convertible price. Most often invoked when a redemption is expected before the next coupon payment, making it liable for accrued interest. Antithesis of premium.

General: Information that has already been taken into account and is built into a stock or market. - Straight equity: Price lower than that of the last sale or inside market.

Discount bond - Debt sold for less than its principal value. If a discount bond pays no coupon, it is called a zero coupon bond.

Discount broker - A brokerage house featuring relatively low commission rates in comparison to a full-service broker.

Discount factor - Present value of $1 received at a stated future date.

Discount period - The period during which a customer can deduct the discount from the net amount of the bill when making payment.

Discount rate - The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

Discount securities - Non-interest-bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g., U.S. Treasury bills.

Discount window - Facility provided by the Fed enabling member banks to borrow reserves against collateral in the form of governments or other acceptable paper.

Discount yield - The yield or annual interest rate on a security sold to an investor at a discount. A bond that is sold at $4875 that matures to $5000 has a discount of $125. To calculate the discount yield: (discount divided by the face value of the security) multiplied by the (number of days in the year divided by the number of days to maturity).

Discounted basis - To sell below maturity value, so that the difference makes up all or part of the interest.

Discounted cash flow (DCF) - Future cash flows multiplied by discount factors to obtain present values.

Discounted dividend model (DDM) - A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends.

Discounted payback period rule - An investment decision rule in which cash flows are discounted at an interest rate and one determines how long it takes for the sum of the discounted cash flows to equal the initial investment.

Discounted in/by market - Unannounced information that is widely accepted or anticipated, and hence is already taken into account in the pricing of the security/ market (e.g., poor earnings).

Discounting - Calculating the present value of a future amount. Discounting is opposite to compounding.

Discounting the news - An adjustment of a stock's price as speculators bid the price up or down in anticipation of news about the company, whether good or bad.

Discrete compounding - Compounding the time value of money for separate time intervals.

Discrete random variable - A random variable that can take only a certain specified set of individual possible values-for example, the positive integers 1, 2, 3, . . .

Discrete variable - Variable like 1, 2, 3. Bond ratings are examples of discrete classifications.

Discretionary account - Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.

Discretionary cash flow - Cash flow that is available after the funding of all positive net present value (NPV) capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.

Discretionary income - The amount of income a consumer has available after purchasing essentials such as food and shelter.

Discretionary order - A type of buy order that gives the broker the freedom and power to make the execution at any time and price that is seen fit and reasonable, given the investor's goals.

Discretionary trust - In the context of mutual funds, refers to a mutual fund or unit trust whose management decides on the best way to use the assets without restriction to a specific type of security.

In the context of trusts, refers to a personal trust in which a trustee has the power of decision as to how much income or principal each beneficiary receives.

Discriminant analysis - A statistical process that links the probability of default to a specified set of financial ratios.

Dishonor - A refusal to pay.

Disinflation - A decrease in the rate of inflation.

Disintermediation - Withdrawal of funds from a financial institution in order to invest them directly.

Disinvestment - A reduction in capital investment reflected by a decrease in capital goods and a company's decision not to replace depleted capital goods.

Disposable income - The amount of personal income an individual has after taxes and government fees, which can be spent on necessities, or non-essentials, or be saved.

Distress sale - The selling of assets under adverse conditions, e.g., an investor may have to sell securities to cover a margin call.

Distributed - As new Treasury issues in dealers' hands are said to be distributed.

Distributing syndicate - A syndicate consisting of a number of brokerage firms or investment bankers that work together to sell and disperse a large lot of securities.

Distribution - Selling a large lot of a security in such a way that the security price is not heavily influenced.

Distribution area - An established price range in which a stock has been trading in for a significant amount of time. See: Accumulation area.

Distribution period - The few days between the board of directors' declaration of a stock dividend (declaration date) and the date of record, or the date an individual must own shares to be entitled to a dividend.

Distribution plan - A mutual fund's plan to charge distribution costs such as advertising to the investors of the fund.

Distribution stock - A small amount of a specific stock that forms part of a larger block of stock that is sold small amount by small amount so as not to disrupt the stock's market price.

Distributions - Payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some corporations offer Dividend Reinvestment Plans (DRP).

Divergence - When two or more averages or indexes fail to show confirming trends.

Diversifiable risk - Related: Unsystematic risk

Diversification - Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk.

Diversified investment company - An investment vehicle such as a mutual fund that invests in an assortment of securities.

Divestiture - A complete asset or investment disposal such as outright sale or liquidation.

Dividend - A portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

Dividend in arrears - Accumulated dividends on cumulative preferred stock that are deemed payable to the current holder.

Dividend capture - See: Dividend rollover plan

Dividend clawback - An arrangement under which sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.

Dividend clientele - A group of shareholders who prefer that the firm follow a particular dividend policy. Such a preference may be based on comparable tax situations.

Dividend Discount Model (DDM) - A method to value the common stock of a company that is based on the present value of the expected future dividends.

Dividend growth model - An approach that assumes dividends grow at a constant rate in perpetuity. The value of the stock equals next year's dividends divided by the difference between the required rate of return and the assumed constant growth rate in dividends.

Dividend limitation - A bond covenant that restricts in some way the firm's ability to pay cash dividends.

Dividend payout ratio - Percentage of earnings paid out as dividends.

Dividend policy - Standards by which a firm determines the amount of money it will pay as dividends.

Dividend rate - The fixed or floating rate paid on preferred stock based on par value.

Dividend record - S&P publication stating companies' payment histories and corporate policies.

Dividend Reinvestment Plan (DRP) - Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.

Dividend requirement - The annual earnings minimum required for payment of dividends on a preferred stock.

Dividend rights - A shareholder's rights to receive per-share dividends identical to those other shareholders receive.

Dividend rollover plan - An investment strategy that entails the purchase and selling of a stock right before its ex-dividend date in order to collect the dividends paid out by the stock and capture a trade profit.

Dividend trade roll/play - Used for listed equity securities. Method of buying and selling stocks around their ex-dividend dates so as to collect the dividend (which is 80% tax-exempt) offset by a fully-taxable capital loss. Predicated on the 80% current exemption that some corporations receive on dividend income.

Dividend yield (Funds) - Indicated yield represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased a year ago. Reflects effect of sales charges (at current rates), but not redemption charges.

Dividend yield (Stocks) - Indicated yield represents annual dividends divided by current stock price.

Dividends payable - The declared dividend dollar amount that a company is obligated to pay.

Dividends per share - Dividend paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.

Dividends-received deduction - A corporate tax deduction on income allowed by company A that is in ownership of shares of company B and receives dividends on the shares of company B.

DM - Deutsche (German) marks.

Deutsche Terminbörse (DTB) - Formerly the German financial futures and options market. Merged with the Swiss Options and Financial Futures Exchange (SOFFEX) in 1998 to form EUREX, the European derivatives exchange.

Divisor - Used in construction of stock indices. Suppose you have 10 stocks in an index, each worth $10 and the index is at 100. Now suppose you want to replace one of the stocks with another stock (reshuffling happens). Suppose that the new stock to be included is worth $20. So the total value of the index is 110 after the swapping. But we really shouldn't have an increase in value because nothing has happened - other than switching two constituents. So, what people do is to change the divisor. In this case, the divisor goes from 1 to 1.10. Notice that the value of the index, 110/1.1 is now exactly 100 - which is where we began from.

Do Not Increase (DNI) - A restriction that an investor places on a good til' cancelled order to prevent an order increase in the case of a stock dividend or stock split.

Do Not Reduce Order (DNR Order) - Limit order to buy or to sell, or a stop limit order to sell that is not to be reduced by the amount of an ordinary cash dividend on the ex-dividend date. A "do not reduce order" applies only to ordinary cash dividends, and not stock dividends or rights.

Doctrine of sovereign immunity - Principle that a nation may not be tried in another country without its consent.

Documented discount notes - Commercial paper backed by normal bank lines of credit plus a letter of credit from a bank stating that it will pay off the paper at maturity if the borrower defaults. Such paper is also referred to as L.O.C. paper.

Dogs of the Dow - T 10 stocks of the 30 on the Dow Jones Industrial Average with the most depressed prices and consequently the highest yields. The investor buying these stocks speculates that they will bounce back over a one-year period.

Dollar bears - Traders who capitalize on a falling dollar by buying other foreign currencies directly.

Dollar bonds - Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with "U.S. Dollar" bonds, a common term of reference in the Eurobond market.

Dollar cost averaging - See: Constant dollar plan

Dollar drain - The impact of importing from foreign countries more than exporting to them. The money required to finance the import purchases removes dollars from the importing nation.

Dollar duration - The product of modified duration and the initial price.

Dollar price of a bond - Percentage of face value at which a bond is quoted.

Dollar return - The return realized on a portfolio for any evaluation period, including (1) the change in market value of the portfolio and (2) any distributions made from the portfolio during that period.

Dollar roll - Similar to the reverse repurchase agreement-a simultaneous agreement to sell a security held in a portfolio with purchase of a similar security at a future date at an agreed-upon price.

Dollar safety margin - The dollar equivalent of the safety cushion for a portfolio in a contingent immunization strategy.

Dollar shortage - Results when a nation importing U.S. goods cannot pay for them without the aid of the United States.

Dollar-weighted rate of return - Also called the internal rate of return; the interest rate that makes the present value of the cash flows from all the subperiods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

Domestic corporation - A corporation that is conducting business and is based in the country in which it is established, as opposed to a foreign corporation.

Domestic International Sales Corporation (DISC) - A US corporation that receives a tax incentive for export activities.

Domestic market - A nation's internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation. Compare external market and foreign market.

Donor - One who gives property or assets to someone else through the vehicle of a trust.

Don't fight the tape - Phrase advising not to trade against the market trend. If stock prices are rising, do not sell.

Don't know (DK, DKed) - "Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.

Double auction market - Systems by which listed securities are bought and sold through brokers on the securities exchanges, as distinguished from the OTC market, where trades are negotiated. Unlike the conventional auction with one auctioneer and many buyers, double auction markets consist of many sellers and many buyers.

Double auction system - A market consisting of many sellers and many buyers, as opposed to a conventional auction with one market maker and many buyers.

Double-barreled - Describes backing of the principal and interest of a smaller municipal revenue bond the large municipal entity.

Double bottom - A term used in technical analysis to refer to the drop of a stock's price, a rebound, and then a drop back to the same level as the original drop.

Double-declining-balance depreciation method (DDB) - An accounting methodology in which depreciation is accelerated to twice the rate of annual depreciation by the straight-line method.

Double-declining-balance depreciation - Method of accelerated depreciation.

Double dip - Used for listed equity securities. Dividend roll in which the "dividend capturer" already owns the stock cum dividend .

Double-dip lease - A cross-border lease in which the different rules of the lessor's and lessee's countries let both parties be treated as the owner of the leased equipment for tax purposes.

Double-tax agreement - Agreement between two countries that taxes paid abroad can be offset against domestic taxes levied on foreign dividends.

Double taxation - Government taxation of the same money twice; specifically, taxation of earnings at the corporate level and dividends at the stockholder level.

Double top - A term used in technical analysis to refer to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise.

Double up - A stock buying strategy that doubles the risk when the price moves in the opposite direction from the direcetion the investor hoped for. For example, an investor with confidence in ABC buys 1000 shares at $100 and another 1000 shares when the price declines to $90.

Double witching day - A trading day when of two related classes of options and futures expire, resulting in a variety of arbitrage strategies to close out positions.

Doubling option - A sinking fund provision that may allow repurchase of twice the required number of bonds at the sinking fund call price.

Dow dividend theory - See: Dogs of the Dow.

Dow Jones Industrial Average - The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including, stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies, and commodities.

Dow Theory - Used in the context of general equities. Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows.

Down round - Refers to a round of venture capital financing that is raised at a lower firm valuation than the previous round.

Down-and-in option - Barrier option that comes into existence if asset price hits a predetermined price level.

Down-and-out option - Barrier option that expires if asset price hits a predetermined price level.

Downgrade - A negative change in ratings for a stock, or other rated security.

Downside risk - The risk that a security will decline in value in includng the implications of risk.

Downsizing - A company's reduction in the number of employees, number of bureaucratic levels, and overall size in an attempt to increase efficiency and profitability.

Downstream - The transfer of corporate activity from the larger parent to the smaller subsidiary.

Downtick - Move down in a particular stock. On U.S. stock exchanges, you cannot sell a stock short on a downtick.

Downturn - The transition point between a rising, expanding economy to a falling, contracting one.

Draining reserves - Federal Reserve System's course of action to tighten the money supply by (1) raising a bank's minimum reserve requirements, (2) selling bonds in the open market, (3) raising the rate at which banks borrow from the Fed.

Draft - An unconventional order in writing-signed by a person, usually the exporter, and addressed to the importer-ordering the importer or the importer's agent to pay, on demand (sight draft) or at a fixed future date (time draft) the amount specified on the face of the draft.

Draw a call - In the context of general equities, provoking a customer indication/inquiry/order by up or doing large amount of the volume in a stock.

Drawback - A tax or duty rebate on imported goods that are exported at a later date.

Dressing up a portfolio - Money managers' strategy to make transactions for the sole purpose of making a portfolio look good to the investor near the end of a reporting period. See: Window dressing

Drip feed - The continual investment of capital in a small and growing company as the company needs it, rather than investing a lump sum at the company's inception.

Drive-by VC - A type of venture capitalist. In the usual model, the venture capitalist (VC) is involved in management and mentoring of the startup. A drive-by VC invests in a portfolio of startups and is often quick to exit.

Drop - Refers to over-the-counter trading. Remove from O.T.C. trading list; hence, no longer making a market in a security.

Drop, The - In a dollar roll transaction, the difference between the sale price of a mortgage-backed pass-through, and its repurchase price on a future date at a predetermined price.

Drop-dead day - The date on which a deadline is final, with no exceptions.

Drop-dead fee - A term of British origin referring to fee that must be paid if a deal falls through because of financing issues.

Drop lock - The fixing of the interest rate on a floating-rate note or preferred stock if it falls to a specified level.

Dual banking - Describes United States custom in which a bank is chartered by the state or federal government.

Dual-currency issues - Eurobonds that pay coupon interest in one currency but pay the principal in a different currency.

Dual listing - Listing of a security on more than one exchange, thus increasing the competition for bid and offer prices, the liquidity of the securities, and the length time the stock can be traded daily (if listed on both the east and west coasts.) See: Listed security.

Dual-purpose fund - A closed-end fund consisting of two classes of shares. The two classes are preferred shares, on which shareholders receive all the dividends and interest from the portfolio, and common shares, on which shareholders receive all the capital gains.

Dual syndicate equity offering - An international equity placement that splits the offering is split into two tranches - domestic and foreign - and each tranche is handled by a separate lead manager.

Dual trading - The custom of a trader on the commodities market to deal for its own account and the investor's account at the same time.

Due bill - An instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Occasionally used in the bill market.

Due date - Date on which a debt must be paid.

Due dilengence - An internal audit of a target frim by an acquiring firm. Offers are often made contingent upon resolution of the due diligence process.

Due diligence meeting - Meeting legally required to be held by an underwriter to enable brokers to question a new issuer about an upcoming issue.

Due-on-sale clause - A mortgage contract clause stipulating that the borrower to pay off the full remaining principal on a mortgage if the mortgaged property is sold before the mortgage is paid off.

Dumping - In the context of general equities, offering large amounts of stock with little or no concern for price or market effect.

Duplicative portfolio - Applies mainly to derivative products. Basket of stocks that imitates the price movement of another set of securities (e.g., S&P 500 index).

Dupont system of financial control - Expressing return on assets (ROA) in terms of the profit margin and asset turnover.

Duration - A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.

Dutch auction - Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions. Often used in risk arbitrage. The price of an item (stock) is gradually lowered until it elicits a responsive bid (government T-bills) or offer (corporate repurchase) and is sold. In a corporate repurchase, the company sets a range of prices within which shareholders are invited to tender their shares. The tender offer is open for a specific period of time (i.e., 20 days), and the quantity of stock to be purchased is stated as well, subject to prorating if more shares are tendered than can be legally purchased under the stated terms (often an additional amount equal to 20% of outstanding shares can be purchased). Compare to double auction system.

Dutch auction preferred stock - A form of adjustable-rate preferred stock in which the dividend is ascertained in a Dutch auction process by corporate bidders every seven weeks.

Duty - A tax on imports, exports, or consumption goods.

Dwarfs - Fannie Mae-issued mortgage-backed securities pool that has an original maturity of 15 years.

Dynamic asset allocation - An asset allocation strategy in which the asset mix is shifted in response to changing market conditions, as in a portfolio insurance strategy, for example.

Dynamic hedging - A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to insure the value of a portfolio using a synthetic put option.

E - Fifth letter of a Nasdaq stock symbol specifying that an issue has not met the reporting date for the company's SEC regulatory filing requirements.

EAFE index - See: European Australian and Far East index

EASD - See: European Association of Securities Dealers

EBIAT - See: Earnings Before Interest after Taxes

EBIT - See: Earnings Before Interest and Taxes

EBITD - See: Earnings Before Interest, Taxes and Depreciation

EBITDA - See: Earnings Before Interest, Taxes, Depreciation, and Amortization

EBT - See: Earnings Before Taxes

ECU - See: European Currency Unit

EDI - See: Electronic Data Interchange

EM - See: Effective margin

EMS - See: European Monetary System

EOE - See: European Options Exchange

EOQ - See: Economic Order Quantity

EM - See: Effective Margin

ERM - See: Exchange Rate Mechanism

ESOP - See: Employee Stock Ownership Plan

EU - See: European Union

EUREX - The European derivatives exchange formed in 1998 by a merger of the Deutsche Terminbörse (DTB) and the Swiss Options and Financial Futures Exchange (SOFFEX).

Each way - A broker's commission from his or her involvement on both the purchase and the sale side of a security.

Early withdrawal penalty - Penalty paid by the holder of a fixed-term investment penalizing an investor who withdraws money before the agreed-upon maturity date.

Earn-out - Refers to an additional payment in a merger or acquisition that is not part of the original acquisition cost, which is based on the acquired company's future earnings relative to a level determined by the merger agreement.

Earned income credit - A tax credit for taxpayers with children.

Earned surplus - See: Retained earnings

Earnest money - Money given to a seller by a buyer to demonstrate the buyer's good faith. If the deal falls through, the deposit is usually forfeited.

Earning asset - An asset that generates income, e.g., income from rental property.

Earning power - Earnings before interest and taxes (EBIT) divided by total assets.

Earnings - Net income for the company during a period.

Earnings before interest after taxes (EBIAT) - A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest plus cash income taxes. Equivalent to EBIT minus cash taxes.

Earnings before interest and, taxes (EBIT) - A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes.

Earnings before interest, taxes, and depreciation (EBITD) - A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation expenses are not included in the costs.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) - A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.

Earnings before taxes (EBT) - A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of income taxes.

Earnings momentum - An increase in the earnings per share growth rate from one reporting period to the next.

Earnings per share (EPS) - A company's profit divided by its number of outstanding shares. If a company earning $2 million in one year had $2 million shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term.

Earnings-price ratio - See: Earnings yield

Earnings retention ratio - Plowback rate.

Earnings surprises - Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES Negative earnings surprises generally have a greater adverse effect on stock prices than a reciprocal positive earnings surprise.

Earnings yield - The ratio of earnings per share, after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the price-earnings ratio. It is the total twelve months, earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage terms. We often look at earnings yield because this avoids the problem of zero earnings in the denominator of the price-earning ratio.

Easy money - See: Tight money

Eating stock - When an underwriter can't find buyers for a stock and therefore has to buy them for his own account.

ECN - See: Emerging company marketplace

Economic assumptions - General market environment a firm expects to operate in over the life of a financial plan.

Economic defeasance - See: In-substance defeasance

Economic dependence - When the costs and/or revenues of one project depend on those of another.

Economic earnings - The real flow of cash that a firm could pay out forever in the absence of any change in the firm's productive capacity.

Economic exposure - The extent to which the value of a firm will change because of an exchange rate change.

Economic growth rate - The annual percentage rate of change in the Gross National Product.

Economic income - Cash flow plus change in present value.

Economic indicators - The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate.

Economic order quantity (EOQ) - The order quantity that minimizes total inventory costs.

Economic rents - Profits in excess of the competitive level.

Economic risk - In project financing, the risk that the project's output will not be salable at a price that will cover the project's operating and maintenance costs and its debt service requirements.

Economic surplus - For any entity, the difference between the market value of all its assets and the market value of its liabilities.

Economic union - An agreement between two or more countries that allows the free movement of capital, labor, and all goods and services, and involves the harmonization and unification of social, fiscal, and monetary policies.

Economics - The study of the economy. See also: Macroeconomics; microeconomics; Keynesian economics, monetarism, and supply-side economics.

Economies of scale - The decrease in the marginal cost of production as a firm's extent of operations expands.

Economies of scope - Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.

EDGAR - The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.

Edge corporations - Specialized banking institutions, authorized and chartered by the Federal Reserve Board of Goverors in the U.S., that are allowed to engage in transactions of a foreign or international character. They are not subject to restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to organize and own an edge corporation.

Education IRA - A type of individual retirement account enabling the contribution of up to $500 per year for each child up to the age of 18 by the parents in the family.

Effective annual interest rate - An annual measure of the time value of money that fully reflects the effects of compounding.

Effective annual yield - Annualized interest rate on a security computed using compound interest techniques.

Effective call price - The strike price in a market redemption provision plus the accrued interest to the redemption date.

Effective convexity - The convexity of a bond calculated using cash flows that change with yields.

Effective date - In an interest rate swap, the date the swap begins accruing interest.

Effective debt - The total debt owed by a firm to its creditors.

Effective duration - The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bond's price-taking into account that expected cash flows will change as interest rates change due to the embedded option.

Effective margin (EM) - Used with SAT performance measures, the amount equal to the net earned spread, or margin of income, on assets in excess of financing costs for a given interest rate and prepayment rate scenario.

Effective net worth - Net worth plus subordinated debt.

Effective rate - A measure of the time value of money that fully reflects the effects of compounding.

Effective sale - A sale based on the most recent round-lot price, which determines the price of the next odd lot. The difference created between the last round-lot price and the odd-lot price is referred to as the odd-lot differential.

Effective spread - The gross underwriting spread adjusted for the impact that a common stock offering's announcement has on the firm's share price.

Effective tax rate - The net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.

Efficiency - The degree and speed with which a market accurately incorporates information into prices.

Efficient capital market - A market in which new information is very quickly reflected accurately in share prices.

Efficient diversification - The organizing principle of modern portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any particular level of portfolio risk.

Efficient frontier - The combinations of securities portfolios that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return. Pioneered by Harry Markowitz.

Efficient Market Hypothesis - States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all information on past prices), semistrong form (stock prices reflect all publicly available information), and strong form (stock prices reflect all relevant information including insider information).

Efficient portfolio - A portfolio that provides the greatest expected return for a given level of risk (i.e., standard deviation), or, equivalently, the lowest risk for a given expected return.

Efficient set - Graph representing a set of portfolios that maximize expected return at each level of portfolio risk.

Eighth[-ed] - Used in the context of general equities. A specialist or another broker is bidding higher or offering lower than we are, often topping or undercutting us by an eighth.

Either/or facility - An agreement permitting a bank customer to borrow either domestic dollars from the bank's head office or Eurodollars from one of its foreign branches.

Either-or order - Used in the context of general equities. See: Alternative order.

Either-way market - In the interbank Eurodollar deposit market, an either-way market is one in which the bid and offered rates are identical.

Elasticity of demand and supply - The degree of buyers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of demand to price, e.g., luxury goods. Goods with a small value of elasticity (less than 1) have a demand that is insensitive to price, e.g., food.

Elasticity of an option - Percentage change in the value of an option given a 1% change in the value of the option's underlying stock.

Elect - The conversion of a conditional order into a market order.

Electronic data interchange (EDI) - The direct exchange of information electronically, from one firm's computer to another firm's computer in a structured format.

Electronic depository transfers - The transfer of funds between bank accounts through the Automated Clearing House (ACH) system.

Elephants - A term used to refer to large institutional investors.

Eleven bond index - An index based on the average yield of 11 municipal bonds that mature in 20 years and carry an average AA rating. The eleven bonds used to calculate the index are also found in the 20 bond index, which serves as a benchmark in tracking municipal bond yields.

Eligible bankers' acceptances - In the BA market, an acceptance may be referred to as eligible because it is acceptable by the Fed as collateral at the discount window and/or because the accepting bank can sell it without incurring a reserve requirement.

Elliott Wave Theory - Technical market timing strategy that predicts price movements on the basis of historical price wave patterns and their underlying psychological motives. Robert Prechter is a famous Elliott Wave theorist.

Elves - A term the host uses to refer to guests on the PBS television show, "Wall Street Week", who are technical analysts attempting to predict the direction of stock prices over the next six months.

Embedded option - An option that is part of the structure of a bond that gives either the bondholder or the issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security.

Emergency fund - A reserve of cash kept available to meet the costs of any unexpected financial emergencies.

Emergency Home Finance Act of 1970 - The federal legislation creating the Federal Home Loan Mortgage Corporation, a partially government-run program initiated to stimulate the development of a secondary mortgage market and expand mortgages available to veterans and other groups.

Emerging Company Marketplace (ECM) - A service once offered by the American Stock Exchange to help small growth companies fulfill special listing requirements. The service is no longer available.

Emerging markets - The financial markets of developing economies.

Emerging Markets Free index (EMF) - A Morgan Stanley Capital International index created to track stock markets in selected emerging markets that are open to foreign investment like Argentina, Chile, Jordan, Malaysia, Mexico, Philippines, and Thailand.

Employee Retirement Income Security Act (ERISA) - The law that regulates the operation of private pensions and benefit plans.

Employee stock fund - A firm-sponsored program that enables employees to purchase shares of the firm's common stock on a preferential basis.

Employee stock ownership plan (ESOP) - A company contributes to a trust fund that buys stock on behalf of employees.

Empty head and pure heart test - Securities and Exchange Commission rule that allows only the bidder of a tender offer to trade in the stock while possessing inside information.

Encumbered - A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank's holding of a home mortgage encumbers property.

End-of-year convention - Treating cash flows as if they occur at the end of a year as opposed to the date convention. Under the end-of-year convention, the present is time 0, the end of year 1 occurs one year hence; and so on.

Endogenous variable - A value determined within the context of a model. Related: Exogenous variable.

Endorse - Transfering asset ownership by signing the back of the asset's certificate.

Endowment - Gift of money or property to a specified institution for a specified purpose.

Endowment funds - Investment funds established for the support of institutions such as colleges, private schools, museums, hospitals, and foundations. The investment income may be used for the operation of the institution and for capital expenditures.

Energy mutual fund - Mutual fund investing in energy stocks only, e.g., oil and gas companies.

Enhanced indexing - Also called indexing-plus, an indexing strategy whose objective is to exceed or replicate the total return performance of some predetermined index.

Enhancement - An innovation that has a positive impact on one or more of a firm's existing products.

Enterprise - A business firm.

Entrepreneur - A person starting a new company who takes on the risks associated with starting the enterprise, which may require venture capital to cover start-up costs.

Environmental fund - A mutual fund that invests strictly in stocks of companies that are environmentally friendly and/or have the goal of environmental betterment. The investors are trying to support and profit from opportunities related to the environmental movement.

EPS - See: Earnings per share

Equal dollar swap - Selling common stock/convertibles in one company and reinvesting the proceeds in as many shares of (1) another type of security issued by the company, or (2) another security of the same type but of another company — as can be bought with the proceeds of the sale. See: Equal shares swap.

Equal shares swap - Applies mainly to convertible securities. Selling the underlying common and reinvesting the proceeds in as much of the convertible as can be converted into the number of shares of common just sold. See equal dollar swap.

Equalizing dividend - Special dividends received by investors of a firm for income the investor lost because the firm altered the dividends payment schedule.

Equilibrium market price of risk - The slope of the capital market line (CML). Since the C.M.L. represents the expected return offered to compensate for a perceived level of risk, each point on the line is a balanced market condition, or equilibrium. The slope of the line determines the additional expected return needed to compensate for a unit change in risk. The equation of the CML is defined by the capital asset pricing model.

Equilibrium price - The price when the supply of goods matches demand.

Equilibrium rate of interest - The interest rate that clears the market. Also called the trade-clearing interest rate.

Equipment leasing partnership - A limited partnership that receives income and tax benefits such as depreciation costs by purchasing equipment and leasing it to other parties.

Equipment trust certificates - Certificates issued by a trust that is formed to purchase an asset and lease it to a lessee. When the last of the certificates has been repaid, title and ownership of the asset transfers to the lessee.

Equitable owner - The beneficiary of a property held in a trust.

Equity - Ownership interest in a firm. Also, the residual dollar value of a futures trading account, assuming its liquidation is at the going trade price. In real estate, dollar difference between what a property could be sold for and debts claimed against it. In a brokerage account, equity equals the value of the account's securities minus any debit balance in a margin account. Equity is also shorthand for stock market investments.

Equity cap - An agreement in which one party, for an up-front premium, agrees to pay the other at specific time periods if a designated stock market benchmark tops a predetermined level.

Equity claim - Also called a residual claim; a claim to a share of earnings after debt obligations have been satisfied.

Equity collar - The simultaneous purchase of an equity floor and sale of an equity cap.

Equity contribution agreement - An agreement to contribute equity to a project under certain specified conditions.

Equity floor - An agreement in which one party agrees to pay the other at specific time periods if a specific stock market benchmark falls below a predetermined level.

Equity funding - An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, give the investor the advantages of insurance protection with the growth potential of a mutual fund.

Equity kicker - Stock warrants issued attached to privately placed bonds.

Equity-linked policies - Related: Variable life

Equity market - Related: stock market

Equity multiplier - Total assets divided by total common stockholders' equity; the total assets per dollar of stockholders' equity.

Equity options - Securities that give the holder the right (but not the obligation) to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.

Equity REIT - A Real Estate Investment Trust that assumes ownership status in the property it invests in enabling investors of the REIT to earn dividends on rental income from the property and appreciation in property resale. Antithesis of a Mortgage REIT.

Equity swap - A swap in which the cash flows exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or floating rate). Related: Interest rate swap.

Equityholders - Stockholders; those holding shares of the firm's equity.

Equivalent annual annuity - The amount per year for some number of years that has a present value equal to a given amount.

Equivalent annual benefit - The annual annuity with the same value as the net present value of an investment project.

Equivalent annual cash flow - Annuity with the same net present value as the company's proposed investment.

Equivalent annual cost - The cost per year of owning an asset over its entire life.

Equivalent bond yield - Annual yield on a short-term, noninterest-bearing security calculated for comparison to yields quoted on coupon securities.

Equivalent loan - Given the after-tax stream associated with a lease, the maximum amount of conventional debt that the same period-by-period after-tax debt service stream is capable of supporting.

Equivalent taxable yield - The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-exempt issue.

Erosion - A negative impact on one or more of a firm's existing assets.

Escalator clause - Provision in a contract allowing cost increases to be passed on. In an employment contract, for example an escalator clause may call for wage increases in line with inflation.

Escrow - Property or money held by a third party until the agreed upon obligations of a contract are met.

Escrow receipt - A document provided by a bank in options trading to guarantee that the underlying security is on deposit and available for potential delivery.

Escrowed to Maturity (ETM) - Holding of the proceeds from a new bond issue to pay off an existing bond issue at its maturation date.

Essential purpose (or function) bond - See: Public purpose bond

Estate tax - A federal or state tax imposed on an individual's assets inherited by heirs.

Ethical fund - See: Social conscious mutual fund.

Ethics - Standards of conduct or moral judgment.

Euro - Originally for a deposit outside one's home country but in the home country currency. This terminology is confusing now since the new European currency unit, also called the Euro, was introduced on January 1, 1999.

Euro CDs - CDs issued by a U.S. bank branch or foreign bank located outside the U.S. Almost all Euro CDs are issued in London.

Euro lines - Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.

Euro straight - A fixed-rate coupon Eurobond.

Eurobank - A bank that regularly accepts foreign currency-denominated deposits and makes foreign currency loans.

Eurobond - A bond that is (1) underwritten by an international syndicate, (2) issued simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single country.

Euroclear - One of two principal clearing systems in the Eurobond market. It began operations in 1968, is located in Brussels, and is managed by Morgan Guaranty Bank. Applies mainly to international equities. European clearing organization that functions much like the DTC

Euro-commercial paper - Short-term notes with maturities up to 360 days that are issued by companies in international money markets.

Eurocredits - Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and government borrowers.

Eurocurrency - Instrument issued outside your country, but denominated in your currency. A Eurodollar is a Certificate of Deposit in U.S. dollars in some other country (though mainly traded in London). A Euroyen is a CD in yen outside Japan.

Eurocurrency deposit - A short-term fixed-rate time deposit denominated in a currency other than the local currency (i.e., U.S. dollars deposited in a London bank).

Eurocurrency market - The money market for borrowing and lending currencies that are held in the form of deposits in banks located outside the countries where the currencies are issued as legal tender.

Eurodollar - Refers to a certificate of deposit in U.S. dollars in a bank that is not located in the U.S. Most of the Eurodollar deposits are in London banks, but Eurodeposits may be anywhere other than the U.S. Similarly, a Euroyen or Euro DM deposit represents a CD in yen or DM outside Japan and Germany, respectively.

Eurodollar bonds - Eurobonds denominated in U.S.dollars.

Eurodollar certificate of deposit - A certificate of deposit paying interest and principal in dollars, but issued by a bank outside the United States, usually in Europe.

Euroequity issues - Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate. Related: External market.

Euro-medium term note (Euro-MTN) - A nonunderwritten Euronote issued directly to the market. Euro-MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are under five years.

Euro.NM - Created on March 1, 1996, Euro.NM is a pan-European network of regulated markets dedicated to growth companies, regardless of their sector of activity or country of origin. Euro.NM member exchanges and their respective new markets consist of the Paris Stock Exchange (Le Nouveau Marché), the Deutsche Börse AG (Neuer Markt), the Amsterdam Exchanges (NMAX), and the Brussels Stock Exchange (Euro.NM Belgium).

Euro-note - Short- to medium-term debt instrument sold in the Eurocurrency market.

Euroyen bonds - Eurobonds denominated in Japanese yen.

Europea, Australia, and Far East index (EAFE index) - Stock index, computed by Morgan Stanley Capital International.

European Association of Securities Dealers Automated Quotation (EASDAQ) - European equivalent of NASDAQS.

European Central Bank (ECB) - Bank created to monitor the monetary policy of the 11 countries that have converted to the Euro from their local currencies. The 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.

European Currency Unit (ECU) - An index of foreign exchange consisting of European currencies, originally devised in 1979. See also: Euro.

European Monetary System (EMS) - An exchange arrangement formed in 1979 that governs the currencies of European Union member countries.

European option - Option that may be exercised only at the expiration date. Related: American option.

European Options Exchange (EOE) - Now AEX-Optiebeurs. See: Amsterdam Exchanges (AEX).

European-style exercise - A method of exercising options contracts in which the buyer can exercise the contract on the last day before expiration.

European-style option - An option contract that can be exercised only on the expiration date.

European Union (EU) - An economic association of European countries founded by the Treaty of Rome in 1957 as a common market for six nations. It was known as the European Community until January 1, 1994 and currently comprises 15 European countries. Its goals are a single market for goods and services without any economic barriers, and a common currency with one monetary authority.

Evaluation period - The time interval over which funds assess a money manager's performance.

Evening up - Buying or selling to offset an existing market position.

Event risk - The risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover, or corporate restructuring.

Event study - A statistical study that examines how the release of information affects prices at a particular time.

Events of default - Contractually specified events that allow lenders to demand immediate repayment of a debt.

Evergreen credit - Revolving credit without maturity.

Evergreen funding - A British term referring to the gradual injection of capital into a new or existing enterprise.

Ex-all - The sale of a security without the privileges associated with the security such as dividends, voting rights, or warrants.

Ex ante return - The expected return or anticipated return of an asset or portfolio.

Ex-dividend - This literally means "without dividend." The buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend. It is the interval between the record date and the payment date during which the stock trades without its dividend-the buyer of a stock selling ex-dividend does not receive the recently declared dividend. Antithesis of cum dividend (with dividend).

Ex-dividend date - The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. The date set by the NYSE (and generally followed on other U.S. exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is denoted by an x in newspaper listings on that date.

Ex-legal - A municipal bond offered without a law firm's legal opinion. As the majority of bonds are issued with legal opinions.

Ex-pit transaction - The purchase of commodities off the exchange's floor.

Ex post return - Related: Holding-period return

Ex-rights - Shares of stock that are trading without rights attached.

Ex-rights date - The date on which a share of common stock begins trading ex-rights.

Ex-stock dividends - The time period between the announcement of a stock dividend and its actual payment. The buyer of shares during this time period does is not entitled to the dividend.

Ex-warrants - Describes a stock sale in which the buyer is not entitled to the warrant accompanying the stock.

Exact interest - Interest paid based on the basis of a 365-day/year schedule by a bank or other financial institution as opposed to a 360-day basis (ordinary interest). Difference can be material when large principal sums of money are involved.

Exact matching - A bond portfolio management strategy that involves finding the lowest cost portfolio generating cash inflows exactly equal to cash outflows that are being financed by investment.

Except for opinion - An auditor's opinion reflecting the fact that the auditor is unable to audit certain areas of the company's operations because of restrictions imposed by management or other conditions beyond the auditor's control.

Excess kurtosis - Kurtosis measures the "fatness" of the tails of a distribution. Excess kurtosis means that distribution has fatter tails than a normal distribution. Fat tails means there is a higher than normal probability of big positive and negative returns realizations.

Excess margin - Equity present in an individual's account above the legal minimum required for a margin account or the maintenance requirement at a brokerage firm.

Excess profits tax - Additional federal taxes placed on the earnings of a business, used only in time of national emergency such as war.

Excess reserves - Actual reserves that exceed required reserves.

Excess return on the market portfolio - Difference between the return on the market portfolio and the riskless rate.

Excess returns - Difference between asset return and riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.

Exchange - A marketplace in which shares, options and futures on stocks, bonds, commodities, and indexes are traded. Principal U.S. stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and National Association of Securities Dealers Automatic Quotation System (NASDAQS).

Exchange, The - A nickname for the New York Stock Exchange. Also known as the Big Board, where more than 2000 common and preferred stocks are traded. The exchange is the oldest in the United States, founded in 1792, and the largest. It is located on Wall Street in New York City.

Exchange of assets - Acquisition of another company by purchase of its assets in exchange for cash or stock.

Exchange controls - Government restrictions on the purchase of foreign currencies by domestic citizens or on the purchase of the local domestic currency by foreigners.

Exchange distribution - A sale on an exchange floor of a large block of stock in a single transaction. A broker bunches a large number of buy orders and sells the block all at once. The broker receives a special commission from the seller.

Exchange fund (also known as swap fund) - Investment vehicle introduced in 1999 that appeals to wealthy investors with large holdings in a single stock who want to diversify without paying capital gains taxes. These funds allow investors to exchange their stock for shares in the diversified portfolio of stocks in a tax-free transaction.

Exchange members - See: Member firm; seat

Exchange offer - An offer by a firm to give one security, such as a bond or preferred stock, in exchange for another security, such as shares of common stock.

Exchange privilege - A mutual fund shareholder's right to switch from one fund to another within one fund family, usually at no additional charge.

Exchange rate - The price of one country's currency expressed in another country's currency.

Exchange Rate Mechanism (ERM) - The methodology by which members of the EMS maintain their currency exchange rates within an agreed-upon range with respect to other member countries.

Exchange rate risk - Also called currency risk; the risk that an investment's value will change because of currency exchange rates.

Exchange risk - The variability of a firm's value that results from unexpected exchange rate changes, or the extent to which the present value of a firm is expected to change as a result of a given currency's appreciation or depreciation.

Exchange of stock - Acquisition of another company by purchase of its stock in exchange for cash or shares.

Exchangeable - Applies mainly to convertible securities. Means the issuer, if so stated, may substitute a convertible debenture for an existing convertible preferred with identical terms. Most often used when a corporation has an immediate need for equity capital and a low tax rate, and expects either or both conditions to change. This would make the debenture less attractive if the interest tax-deductibility is lost.

Exchangeable instrument - Applies mainly to convertible securities. Bond or preferred stock that may be exchangeable into the common stock of a different public corporation.

Exchangeable Security - Investment instrument that grants its holder the right to exchange it for the common stock of a firm other than the issuer of the instrument.

Excise tax - Federal or state tax placed on the sale or manufacture of a commodity, typically a luxury item e.g., alcohol.

Exclusionary self-tender - A firm's offer to buy a given amount of its own stock while excluding targeted stockholders.

Exclusive - In the context of general equities, having sole possession of the customer order/indication; not in competition with other dealers.

Execution - The process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between one (mutual funds) and five (stocks) days after an order is executed. Settlement times for exchange-listed stocks are in the process of being reduced to three days in the U. S. The time varies greatly across countries. In France, for example settlements are only once per month.

Execution costs - The difference between the execution price of a security and the price that would have existed in the absence of a trade, which can be further divided into market impact costs and market timing costs.

Exempt securities - Instrumentsexempt from the registration requirements of the Securities Act of 1933 or the margin requirements of the SEC Act of 1934. Such securities include government bonds, agencies, munis, commercial paper, and private placements.

Exemption - Direct reductions from gross income allowed by the IRS.

Exercise - To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.

Exercise limit - Cap on the number of option contracts of any one class of contract. that can be exercised within a five-day period contract. Stock option's exercise limit is typically 2000 contracts.

Exercise notice - A broker's notification a client want to exercise a right to buy or sell (depending on the type of contract) the underlying security of the option contract.

Exercise price - The price at which the security underlying a future or options contract may be bought or sold.

Exercise value - The amount of advantage over a current market transaction provided by an in-the-money option.

Exercising the option - The act of buying or selling the underlying asset via the option contract.

Exhaust price - The low price at which a broker must liquidate a client's holding in a stock purchased in a margin account in order to meet a margin call when the client cannot meet the call.

Exim bank - See: Export-Import Bank

Exit fee - See: Back-end load

Exogenous variable - A variable whose value is determined outside the model in which it is used. Related: Endogenous variable

Exotic option - Refers to options that are more complex than simple puts or call options. For example, a Caput is a call option on a put option.

Expectations hypothesis theories - Theories of the term structure of interest rates, which include the pure expectations theory; the liquidity theory of the term structure, and the preferred habitat theory. These theories hold that each forward rate equals the expected future interest rate for the relevant period. These three theories differ, however, on whether other factors also affect forward rates, and how.

Expectations theory of forward exchange rates - A theory of foreign exchange rates that states that the expected future spot foreign exchange rate t periods from now equals the current t-period forward exchange rate.

Expected dividend yield - Total amount of dividends received during the life of a futures contract or total dividends received for holding a particular stock one year. See: Current yield.

Expected future cash flows - Projected future cash flows associated with an asset.

Expected future return - The return that is expected to be earned on an asset in the future. Also called the expected return.

Expected return - The expected return on a risky asset, given a probability distribution for the possible rates of return. Expected return equals some risk-free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by the assets beta. The conditional expected return varies through time as a function of current market information.

Expected return-beta relationship - Implication of the CAPM that security risk premiums will be proportional to beta.

Expected return on investment - The return one can expect to earn on an investment. See: Capital asset pricing model.

Expected value - The weighted average of a probability distribution. Also known as the mean value.

Expected value of perfect information - The expected value if the future uncertain outcomes could be known minus the expected value with no additional information.

Expense ratio - The percentage of the assets that are spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs, and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (OER).

Expensed - Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year.

Experience rating - A technique insurance companies use to determine the correct price of a policy premium.

Expiration - The time an option contract lapses.

Expiration cycle - Dates on which options on a particular security expire. A given option will be placed in one of three cycles; the January cycle, the February cycle, or the March cycle. At any time, an option has contracts with four expiration dates outstanding: two in near-term months and two in far-term months. Last day on which an option may be exercised.

Expiration date - The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the thrid Friday of the expiration month; brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.

Exploding term sheet - Venture capital jargon. Often a proposed term sheet, might explode or be null and void in a fixed period set to negotiate the final contract.

Export-Import Bank (Ex-Im Bank) - The U.S. federal government agency that extends trade credits to U.S. companies to facilitate the financing of U.S. exports.

Exposure netting - Offsetting exposures in one currency with exposures in the same or another currency, when exchange rates are expected to move in such a way that losses or gains on the first exposed position should be offset by gains or losses on the second currency exposure.

Expropriation - The official seizure by a government of private property. Any government has the right to seize such property, according to international law, if prompt and adequate compensation is given.

Expunge - Used in the context of general equities. Remove any trace of an Autex indication's existence at any time. See: Cancel.

Extendable bond - Bond whose maturity can be extended at the option of the lender or issuer.

Extendable notes - Note with maturity that can be extended by mutual agreement between the issuer and investors.

Extension - Voluntary arrangements to restructure a firm's debt, under which the payment date is postponed.

Extension date - The day on which the first option either expires or is extended.

Extension swap - Extending maturity through a swap, e.g. selling a 2-year note and buying one with a slightly longer current maturity.

External efficiency - Related: Pricing efficiency

External finance - Funding that is not generated by a firm's operations: new borrowing or a stock issue.

External funds - Funds originating from a source outside the corporation to increase cash flow and to aid in expansion efforts, e.g., bank loan or bond offering.

External market - Also referred to as the international market, the offshore market, or, more popularly, the Euromarket. A mechanism for trading securities that at issuance (1) are offered simultaneously to investors in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: Internal market.

Extinguish - Retire or pay off debt.

Extraordinary call - Early redemption of a revenue bond because the revenue source paying the interest on the bond has been eliminated or has disappeared.

Extraordinary item - An unusual and unexpected one-time event that must be explained to shareholders in an annual or quarterly report, e.g., employee fraud, a lawsuit, etc.

Extra or special dividends - A dividend that is paid in addition to a firm's established or expected quarterly dividend.

Extraordinary positive value - A positive net present value.

Extrapolative statistical models - Models that apply a formula to historical data and project results for a future period. Such models include the simple linear trend model, the simple exponential model, and the simple autoregressive model.