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113 Cards in this Set
- Front
- Back
Daily settlement
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See Marking to market.
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Dark pools
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Alternative trading systems that do not display the orders that their clients send to them.
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Data mining (or data snooping)
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The practice of determining a model by extensive searching through a dataset for statistically significant patterns.
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Day order
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An order that is good for the day on which it is submitted. If it has not been filled by the close of business, the order expires unfilled.
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Day trader
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A trader holding a position open somewhat longer than a scalper but closing all positions at the end of the day.
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Days of inventory on hand (DOH)
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An activity ratio equal to the number of days in the period divided by inventory turnover over the period.
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Days of sales outstanding (DSO)
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An activity ratio equal to the number of days in the period divided by receivables turnover.
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Dead cross
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A technical analysis term that describes a situation where a short-term moving average crosses from above a longer-term moving average to below it; this movement is considered bearish.
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Dead-hand provision
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A poison pill provision that allows for the redemption or cancellation of a poison pill provision only by a vote of continuing directors (generally directors who were on the target company’s board prior to the takeover attempt).
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Deadweight loss
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A measure of inefficiency. It is equal to the decrease in total surplus that results from an inefficient level of production.
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Dealers
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A financial intermediary that acts as a principal in trades.
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Dealing securities
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Securities held by banks or other financial intermediaries for trading purposes.
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Debit
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With respect to double-entry accounting, a debit records increases of asset and expense accounts or decreases in liability and owners’ equity accounts.
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Debt covenants
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Agreements between the company as borrower and its creditors.
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Debt incurrence test
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A financial covenant made in conjunction with existing debt that restricts a company’s ability to incur additional debt at the same seniority based on one or more financial tests or conditions.
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Debt rating approach
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A method for estimating a company’s before-tax cost of debt based upon the yield on comparably rated bonds for maturities that closely match that of the company’s existing debt.
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Debt ratings
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An objective measure of the quality and safety of a company’s debt based upon an analysis of the company’s ability to pay the promised cash flows, as well as an analysis of any indentures.
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Debt with warrants
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Debt issued with warrants that give the bond- holder the right to purchase equity at pre-specified terms.
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Debt-to-assets ratio
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A solvency ratio calculated as total debt divided by total assets.
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Debt-to-capital ratio
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A solvency ratio calculated as total debt divided by total debt plus total shareholders’ equity.
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Debt-to-equity ratio
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A solvency ratio calculated as total debt divided by total shareholders’ equity.
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Decentralized risk management
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A system that allows individual units within an organization to manage risk. Decentralization results in duplication of effort but has the advantage of having people closer to the risk be more directly involved in its management.
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Deciles
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Quantiles that divide a distribution into 10 equal parts.
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Decision rule
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With respect to hypothesis testing, the rule according to which the null hypothesis will be rejected or not rejected; involves the comparison of the test statistic to rejection point(s).
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Declaration date
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The day that the corporation issues a statement declaring a specific dividend.
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Deductible temporary differences
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Temporary differences that result in a reduction of or deduction from taxable income in a future period when the balance sheet item is recovered or settled.
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Deep in the money
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Options that are far in-the-money.
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Deep out of the money
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Options that are far out-of-the-money.
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Default risk premium
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An extra return that compensates investors for the possibility that the borrower will fail to make a promised payment at the contracted time and in the contracted amount.
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Defensive company
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A company whose revenues and profits are least affected by fluctuations in the overall economic activity.
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Defensive interval ratio
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A liquidity ratio that estimates the number of days that an entity could meet cash needs from liquid assets; calculated as (cash + short-term marketable investments + receivables) divided by daily cash expenditures.
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Defensive stock
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The shares (stock) of a company whose earnings have below-average sensitivity to the business cycle. Deferred tax assets A balance sheet asset that arises when an excess amount is paid for income taxes relative to accounting profit. The taxable income is higher than accounting profit and income tax payable exceeds tax expense. The company expects to recover the difference during the course of future operations when tax expense exceeds income tax payable.
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Deferred tax liabilities
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A balance sheet liability that arises when a deficit amount is paid for income taxes relative to accounting profit. The taxable income is less than the accounting profit and income tax payable is less than tax expense. The company expects to eliminate the liability over the course of future operations when income tax payable exceeds tax expense.
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Defined-benefit pension plans
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Plan in which the company promises to pay a certain annual amount (defined benefit) to the employee after retirement. The company bears the investment risk of the plan assets.
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Defined-contribution pension plans
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Individual accounts to which an employee and typically the employer makes contributions, generally on a tax-advantaged basis. The amounts of contributions are defined at the outset, but the future value of the benefit is unknown. The employee bears the investment risk of the plan assets.
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Definitive merger agreement
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A contract signed by both parties to a merger that clarifies the details of the transaction, including the terms, warranties, conditions, termination details, and the rights of all parties.
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Degree of confidence
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The probability that a confidence interval includes the unknown population parameter.
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Degree of financial leverage (DFL)
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The ratio of the percentage change in net income to the percentage change in operating income; the sensitivity of the cash flows available to owners when operating income changes.
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Degree of operating leverage (DOL)
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The ratio of the percentage change in operating income to the percentage change in units sold; the sensitivity of operating income to changes in units sold.
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Degree of total leverage
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The ratio of the percentage change in net income to the percentage change in units sold; the sensitivity of the cash flows to owners to changes in the number of units produced and sold.
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Degrees of freedom (df)
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The number of independent observations used.
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Delivery
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A process used in a deliverable forward contract in which the long pays the agreed-upon price to the short, which in turn delivers the underlying asset to the long.
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Delivery option
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The feature of a futures contract giving the short the right to make decisions about what, when, and where to deliver.
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Delta
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The relationship between the option price and the underlying price, which reflects the sensitivity of the price of the option to changes in the price of the underlying.
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Delta hedge
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An option strategy in which a position in an asset is converted to a risk-free position with a position in a specific number of options. The number of options per unit of the underlying changes through time, and the position must be revised to maintain the hedge.
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Delta-normal method
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A measure of VAR equivalent to the analytical method but that refers to the use of delta to estimate the option’s price sensitivity.
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Demand for money
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The relationship between the quantity of money demanded and the interest rate when all other influences on the amount of money that people wish to hold remain the same.
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Demand-pull inflation
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An inflation that results from an initial increase in aggregate demand.
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Dependent
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With reference to events, the property that the probability of one event occurring depends on (is related to) the occurrence of another event.
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Dependent variable
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The variable whose variation about its mean is to be explained by the regression; the left-hand-side variable in a regression equation.
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Depository institution
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A firm that takes deposits from households and firms and makes loans to other households and firms.
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Depository institutions
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Commercial banks, savings and loan banks, credit unions, and similar institutions that raise funds from depositors and other investors and lend it to borrowers.
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Depository receipt
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A security that trades like an ordinary share on a local exchange and represents an economic interest in a foreign company.
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Depreciation
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The process of systematically allocating the cost of long-lived (tangible) assets to the periods during which the assets are expected to provide economic benefits.
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Derivative
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A financial instrument whose value depends on the value of some underlying asset or factor (e.g., a stock price, an interest rate, or exchange rate).
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Derivative pricing rule
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A pricing rule used by crossing networks in which a price is taken (derived) from the price that is current in the asset’s primary market.
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Derivatives dealers
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Commercial and investment banks that make markets in derivatives.
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Derived demand
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Demand for a factor of production, which is derived from the demand for the goods and services produced by that factor.
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Descriptive statistics
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The study of how data can be summarized effectively.
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Designated fair value instruments
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Financial instruments that an entity chooses to measure at fair value per IAS 39 or SFAS 159. Generally, the election to use the fair value option is irrevocable.
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Desired reserve ratio
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The ratio of reserves to deposits that banks want to hold.
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Diff swaps
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A swap in which the payments are based on the difference between interest rates in two countries but payments are made in only a single currency.
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Diffuse prior
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The assumption of equal prior probabilities.
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Diluted EPS
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The EPS that would result if all dilutive securities were converted into common shares.
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Diluted shares
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The number of shares that would be outstanding if all potentially dilutive claims on common shares (e.g., convertible debt, convertible preferred stock, and employee stock options) were exercised.
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Diminishing balance method
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An accelerated depreciation method, i.e., one that allocates a relatively large proportion of the cost of an asset to the early years of the asset’s useful life.
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Diminishing marginal returns
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The tendency for the marginal product of an additional unit of a factor of production to be less than the marginal product of the previous unit of the factor.
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Direct debit program
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An arrangement whereby a customer authorizes a debit to a demand account; typically used by companies to collect routine payments for services.
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Direct financing lease
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A type of finance lease, from a lessor perspective, where the present value of the lease payments (lease receivable) equals the carrying value of the leased asset. The revenues earned by the lessor are financing in nature.
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Direct format (direct method)
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With reference to the cash flow statement, a format for the presentation of the statement in which cash flow from operating activities is shown as operating cash receipts less operating cash disbursements.
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Direct write-off method
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An approach to recognizing credit losses on customer receivables in which the company waits until such time as a customer has defaulted and only then recognizes the loss.
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Dirty-surplus accounting
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Accounting in which some income items are reported as part of stockholders’ equity rather than as gains and losses on the income statement; certain items of comprehensive income bypass the income statement and appear as direct adjustments to shareholders’ equity.
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Dirty-surplus items
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Direct adjustments to shareholders’ equity that bypass the income statement.
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Disbursement float
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The amount of time between check issuance and a check’s clearing back against the company’s account.
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Discount
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To reduce the value of a future payment in allowance for how far away it is in time; to calculate the present value of some future amount. Also, the amount by which an instru- ment is priced below its face value.
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Discount interest
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A procedure for determining the interest on a loan or bond in which the interest is deducted from the face value in advance.
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Discount rate
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The interest rate at which the Fed stands ready to lend reserves to depository institutions.
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Discounted cash flow analysis
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In the context of merger analysis, it is an estimate of a target company’s value found by discounting the company’s expected future free cash flows to the present.
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Discouraged workers
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People who are available and willing to work but have not made specific effort to find a job in the previous four weeks.
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Discrete random variable
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A random variable that can take on at most a countable number of possible values.
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Discrete time
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Time thought of as advancing in distinct finite increments.
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Discretionary fiscal policy
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A fiscal action that is initiated by an act of Congress.
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Discriminant analysis
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A multivariate classification technique used to discriminate between groups, such as companies that either will or will not become bankrupt during some time frame.
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Discriminatory pricing rule
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A pricing rule used in continuous markets in which the limit price of the order or quote that first arrived determines the trade price.
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Diseconomies of scale
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Features of a firm’s technology that lead to rising long-run average cost as output increases.
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Dispersion
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The variability around the central tendency.
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Display size
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The size of an order displayed to public view. Disposable income Aggregate income minus taxes plus transfer payments.
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Divergence
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In technical analysis, a term that describes the case when an indicator moves differently from the security being analyzed.
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Diversification ratio
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The ratio of the standard deviation of an equally weighted portfolio to the standard deviation of a randomly selected security.
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Divestiture
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The sale, liquidation, or spin-off of a division or subsidiary.
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Dividend
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A distribution paid to shareholders based on the number of shares owned.
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Dividend discount model (DDM)
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A present value model that estimates the intrinsic value of an equity share based on the present value of its expected future dividends.
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Dividend discount model based approach
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An approach for estimating a country’s equity risk premium. The market rate of return is estimated as the sum of the dividend yield and the growth rate in dividends for a market index. Subtracting the risk-free rate of return from the estimated market return produces an estimate for the equity risk premium.
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Dividend payout policy
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The strategy a company follows with regard to the amount and timing of dividend payments.
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Dividend payout ratio
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The ratio of cash dividends paid to earnings for a period.
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Dividend yield
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Annual dividends per share divided by share price.
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Dividends per share
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The dollar amount of cash dividends paid during a period per share of common stock.
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Divisor
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A number (denominator) used to determine the value of a price return index. It is initially chosen at the inception of an index and subsequently adjusted by the index provider, as necessary, to avoid changes in the index value that are unrelated to changes in the prices of its constituent securities.
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Dominant strategy equilibrium
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A Nash equilibrium in which the best strategy for each player is to cheat (deny) regardless of the strategy of the other player.
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Double bottoms
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In technical analysis, a reversal pattern that is formed when the price reaches a low, rebounds, and then sells off back to the first low level; used to predict a change from a downtrend to an uptrend.
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Double declining balance depreciation
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An accelerated depreciation method that involves depreciating the asset at double the straight-line rate. This rate is multiplied by the book value of the asset at the beginning of the period (a declining balance) to calculate depreciation expense.
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Double taxation
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Corporate earnings are taxed twice when paid out as dividends. First, corporate earnings are taxed regardless of whether they will be distributed as dividends or retained at the corporate level, and second, dividends are taxed again at the individual shareholder level.
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Double top
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In technical analysis, a reversal pattern that is formed when an uptrend reverses twice at roughly the same high price level; used to predict a change from an uptrend to a downtrend.
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Double-entry accounting
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The accounting system of recording transactions in which every recorded transaction affects at least two accounts so as to keep the basic accounting equation (assets
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Down transition probability
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The probability that an asset’s value moves down in a model of asset price dynamics.
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Downstream
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A transaction between two affiliates, an investor company and an associate company such that the investor company records a profit on its income statement. An example is a sale of inventory by the investor company to the associate.
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Drag on liquidity
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When receipts lag, creating pressure from the decreased available funds.
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Dummy variable
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A type of qualitative variable that takes on a value of 1 if a particular condition is true and 0 if that condition is false.
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Duopoly
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A market structure in which two producers of a good or service compete.
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DuPont analysis
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An approach to decomposing return on investment, e.g., return on equity, as the product of other financial ratios.
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Duration
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A measure of an option-free bond’s average maturity. Specifically, the weighted average maturity of all future cash flows paid by a security, in which the weights are the present value of these cash flows as a fraction of the bond’s price.
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Dutch Book theorem
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A result in probability theory stating that inconsistent probabilities create profit opportunities.
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Dynamic hedging
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A strategy in which a position is hedged by making frequent adjustments to the quantity of the instrument used for hedging in relation to the instrument being hedged.
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