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150 Cards in this Set

  • Front
  • Back
Earnings at risk (EAR)
A variation of VAR that reflects the risk of a company’s earnings instead of its market value.
Earnings expectation management
Attempts by management to influence analysts’ earnings forecasts.
Earnings game
Management’s focus on reporting earnings that meet consensus estimates.
Earnings management activity
Deliberate activity aimed at influencing reporting earnings numbers, often with the goal of placing management in a favorable light; the opportunistic use of accruals to manage earnings.
Earnings per share
The amount of income earned during a period per share of common stock.
Earnings surprise
The portion of a company’s earnings that is unanticipated by investors and, according to the efficient market hypothesis, merits a price adjustment.
Economic depreciation
The change in the market value of capital over a given period.
Economic efficiency
A situation that occurs when the firm produces a given output at the least cost.
Economic exposure
The risk associated with changes in the relative attractiveness of products and services offered for sale, arising out of the competitive effects of changes in exchange rates.
Economic order quantity–reorder point
An approach to managing inventory based on expected demand and the predictability of demand; the ordering point for new inventory is determined based on the costs of ordering and carrying inventory, such that the total cost associated with inventory is minimized.
Economic profit
A firm’s total revenue minus its total cost.
Economic rent
Any surplus—consumer surplus, producer surplus or economic profit. The income received by the owner of a factor of production over and above the amount required to induce that owner to offer the factor for use.
Economies of scale
Features of a firm’s technology that lead to a falling long-run average cost as output increases. In reference to mergers, it is the savings achieved through the consolidation of operations and elimination of duplicate resources.
Economies of scope
Decreases in average total cost that occur when a firm uses specialized resources to produce a range of goods and services.
Effective annual rate
The amount by which a unit of currency will grow in a year with interest on interest included.
Effective annual yield (EAY)
An annualized return that accounts for the effect of interest on interest; EAY is computed by compounding 1 plus the holding period yield forward to one year, then subtracting 1.
Effective interest rate
The borrowing rate or market rate that a company incurs at the time of issuance of a bond.
Efficiency
In statistics, a desirable property of estimators; an efficient estimator is the unbiased estimator with the smallest variance among unbiased estimators of the same parameter.
Efficiency wage
A real wage rate that is set above the equilibrium wage rate and that balances the costs and benefits of this higher wage rate to maximize the firm’s profit.
Efficient frontier
The portion of the minimum-variance frontier beginning with the global minimum-variance portfolio and continuing above it; the graph of the set of portfolios offering the maximum expected return for their level of variance of return.
Efficient portfolio
A portfolio offering the highest expected return for a given level of risk as measured by variance or standard deviation of return.
Elastic demand
Demand with a price elasticity greater than 1; other things remaining the same, the percentage change in the quantity demanded exceeds the percentage change in price.
Elasticity
A measure of sensitivity; the incremental change in one variable with respect to an incremental change in another variable.
Elasticity of supply
The responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same.
Electronic funds transfer
The use of computer networks to conduct financial transactions electronically.
Elliott wave theory
A technical analysis theory that claims that the market follows regular, repeated waves or cycles.
Empirical probability
The probability of an event estimated as a relative frequency of occurrence.
Employment Act of 1946
A landmark Congressional act that recognizes a role for government actions to keep unemployment low, the economy expanding, and inflation in check.
Employment-to-population ratio
The percentage of people of working age who have jobs.
Enhanced derivatives products companies (EDPC)
A type of subsidiary engaged in derivatives transactions that is separated from the parent company in order to have a higher credit rating than the parent company.
Enterprise risk management
A form of centralized risk management that typically encompasses the management of a broad variety of risks, including insurance risk.
Enterprise value
A measure of a company’s total market value from which the value of cash and short-term investments have been subtracted.
Equal weighting
An index weighting method in which an equal weight is assigned to each constituent security at inception.
Equitizing cash
A strategy used to replicate an index. It is also used to take a given amount of cash and turn it into an equity position while maintaining the liquidity provided by the cash.
Equity
Assets less liabilities; the residual interest in the assets after subtracting the liabilities.
Equity carve-out
A form of restructuring that involves the creation of a new legal entity and the sale of equity in it to outsiders.
Equity forward
A contract calling for the purchase of an individual stock, a stock portfolio, or a stock index at a later date at an agreed-upon price.
Equity method
A basis for reporting investment income in which the investing entity recognizes a share of income as earned rather than as dividends when received. These transactions are typically reflected in Investments in Associates or Equity Method Investments.
Equity options
Options on individual stocks; also known as stock options.
Equity risk premium
The expected return on equities minus the risk-free rate; the premium that investors demand for investing in equities.
Equity swap
A swap transaction in which at least one cash flow is tied to the return to an equity portfolio position, often an equity index.
Error autocorrelation
The autocorrelation of the error term.
Error term
The portion of the dependent variable that is not explained by the independent variable(s) in the regression.
Estimate
The particular value calculated from sample observations using an estimator. Estimated (or fitted) parameters With reference to regression analysis, the estimated values of the population intercept and population slope coefficient(s) in a regression.
Estimation
With reference to statistical inference, the subdivision dealing with estimating the value of a population parameter.
Estimator
An estimation formula; the formula used to compute the sample mean and other sample statistics are examples of estimators.
Eurodollar
A dollar deposited outside the United States.
European-style option (or European option)
An option that can only be exercised on its expiration date.
Event
Any outcome or specified set of outcomes of a random variable.
Excess kurtosis
Degree of peakedness (fatness of tails) in excess of the peakedness of the normal distribution.
Excess reserves
A bank’s actual reserves minus its desired reserves.
Exchange for physicals (EFP)
A permissible delivery procedure used by futures market participants, in which the long and short arrange a delivery procedure other than the normal procedures stipulated by the futures exchange.
Exchange ratio
The number of shares that target stockholders are to receive in exchange for each of their shares in the target company.
Exchanges
Places where traders can meet to arrange their trades.
Ex-dividend
Trading ex-dividend refers to shares that no longer carry the right to the next dividend payment.
Ex-dividend date
The first date that a share trades without (i.e. “ex”) the dividend.
Execution instructions
Instructions that indicate how to fill an order.
Exercise or exercising the option
The process of using an option to buy or sell the underlying.
Exercise date
The day that employees actually exercise the options and convert them to stock.
Exercise price (strike price, striking price, or strike)
The fixed price at which an option holder can buy or sell the underlying.
Exercise rate or strike rate
The fixed rate at which the holder of an interest rate option can buy or sell the underlying.
Exercise value
The value obtained if an option is exercised based on current conditions.
Exhaustive
Covering or containing all possible outcomes.
Expected value
The probability-weighted average of the possible outcomes of a random variable.
Expensed
Taken as a deduction in arriving at net income.
Expenses
Outflows of economic resources or increases in liabilities that result in decreases in equity (other than decreases because of distributions to owners); reductions in net assets associated with the creation of revenues.
Experience curve
A curve that shows the direct cost per unit of good or service produced or delivered as a typically declining function of cumulative output.
Expiration date
The date on which a derivative contract expires.
Exposure to foreign exchange risk
The risk of a change in value of an asset or liability denominated in a foreign currency due to a change in exchange rates.
External diseconomies
Factors outside the control of a firm that raise the firm’s costs as the industry produces a larger output.
External economies
Factors beyond the control of a firm that lower the firm’s costs as the industry produces a larger output. External growth Company growth in output or sales that is achieved by buying the necessary resources externally (i.e., achieved through mergers and acquisitions).
Externality
The effect of an investment on other things besides the investment itself.
Extra or special dividend
A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payment.
Face value (also principal, par value, stated value, or maturity value)
The amount of cash payable by a company to the bondholders when the bonds mature; the promised payment at maturity separate from any coupon payment.
Factor
A common or underlying element with which several variables are correlated.
Factor risk premium (or factor price)
The expected return in excess of the risk-free rate for a portfolio with a sensitivity of 1 to one factor and a sensitivity of 0 to all other factors.
Factor sensitivity (also factor betas or factor loadings)
A measure of the response of return to each unit of increase in a factor, holding all other factors constant.
Fair market value
The market price of an asset or liability that trades regularly.
Fair value
The amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction; the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Federal budget
The annual statement of the outlays and tax revenues of the government of the United States, together with the laws and regulations that approve and support those outlays and taxes.
Federal funds rate
The interest rate that the banks charge each other on overnight loans.
Federal Open Market Committee
The main policy-making organ of the Federal Reserve System.
Federal Reserve System (the Fed)
The central bank of the United States.
Fibonacci sequence
A sequence of numbers starting with 0 and 1, and then each subsequent number in the sequence is the sum of the two preceding numbers. In Elliott Wave Theory, it is believed that market waves follow patterns that are the ratios of the numbers in the Fibonacci sequence.
Fiduciary call
A combination of a European call and a risk-free bond that matures on the option expiration day and has a face value equal to the exercise price of the call.
FIFO method
The first in, first out, method of accounting for inventory, which matches sales against the costs of items of inventory in the order in which they were placed in inventory.
Finance lease (capital lease)
Essentially, the purchase of some asset by the buyer (lessee) that is directly financed by the seller (lessor).
Financial analysis
The process of selecting, evaluating, and interpreting financial data in order to formulate an assessment of a company’s present and future financial condition and performance.
Financial distress
Heightened uncertainty regarding a company’s ability to meet its various obligations because of lower or negative earnings.
Financial flexibility
The ability to react and adapt to financial adversities and opportunities.
Financial futures
Futures contracts in which the underlying is a stock, bond, or currency.
Financial leverage
The extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income; also, short for the financial leverage ratio.
Financial leverage ratio
A measure of financial leverage calculated as average total assets divided by average total equity.
Financial reporting quality
The accuracy with which a company’s reported financials reflect its operating performance and their usefulness for forecasting future cash flows.
Financial risk
The risk that environmental, social, or governance risk factors will result in significant costs or other losses to a company and its shareholders; the risk arising from a company’s obligation to meet required payments under its financing agreements.
Financing activities
Activities related to obtaining or repaying capital to be used in the business (e.g., equity and long-term debt).
Firm
An economic unit that hires factors of production and organizes those factors to produce and sell goods and services.
First-differencing
A transformation that subtracts the value of the time series in period t 1 from its value in period t.
First-order serial correlation
Correlation between adjacent observations in a time series.
Fiscal imbalance
The present value of the government’s commitments to pay benefits minus the present value of its tax revenues.
Fiscal policy
The government’s attempt to achieve macroeconomic objectives such as full employment, sustained long-term economic growth, and price level stability by setting and changing tax rates, making transfer payments, and purchasing goods and services.
Fixed asset turnover
An activity ratio calculated as total revenue divided by average net fixed assets.
Fixed charge coverage
A solvency ratio measuring the number of times interest and lease payments are covered by operating income, calculated as (EBIT + lease payments) divided by (interest payments + lease payments).
Fixed costs
Costs that remain at the same level regardless of a company’s level of production and sales.
Fixed price tender offer
Offer made by a company to repurchase a specific number of shares at a fixed price that is typically at a premium to the current market price.
Fixed rate perpetual preferred stock
Nonconvertible, non-callable preferred stock that has a fixed dividend rate and no maturity date.
Fixed-income forward
A forward contract in which the underlying is a bond.
Flags
A technical analysis continuation pattern formed by parallel trendlines, typically over a short period.
Flip-in pill
A poison pill takeover defense that dilutes an acquirer’s ownership in a target by giving other existing target company shareholders the right to buy additional target company shares at a discount.
Flip-over pill
A poison pill takeover defense that gives target company shareholders the right to purchase shares of the acquirer at a significant discount to the market price, which has the effect of causing dilution to all existing acquiring company shareholders.
Float
In the context of customer receipts, the amount of money that is in transit between payments made by customers and the funds that are usable by the company.
Float factor
An estimate of the average number of days it takes deposited checks to clear; average daily float divided by average daily deposit.
Float-adjusted market-capitalization weighting
An index weighting method in which the weight assigned to each constituent security is determined by adjusting its market capitalization for its market float.
Floating-rate loan
A loan in which the interest rate is reset at least once after the starting date.
Floor
A combination of interest rate put options designed to hedge a lender against lower rates on a floating-rate loan.
Floor traders or locals
Market makers that buy and sell by quoting a bid and an ask price. They are the primary providers of liquidity to the market.
Floored swap
A swap in which the floating payments have a lower limit.
Floorlet
Each component put option in a floor.
Flotation cost
Fees charged to companies by investment bankers and other costs associated with raising new capital.
Foreign currency transactions
Transactions that are denominated in a currency other than a company’s functional currency.
Foreign exchange gains (or losses)
Gains (or losses) that occur when the exchange rate changes between the investor’s currency and the currency that foreign securities are denominated in.
Forward contract
An agreement between two parties in which one party, the buyer, agrees to buy from the other party, the seller, an underlying asset at a later date for a price established at the start of the contract.
Forward integration
A merger involving the purchase of a target that is farther along the value or production chain; for example, to acquire a distributor.
Forward price or forward rate
The fixed price or rate at which the transaction scheduled to occur at the expiration of a forward contract will take place. This price is agreed on at the initiation date of the contract.
Forward rate agreement (FRA)
A forward contract calling for one party to make a fixed interest payment and the other to make an interest payment at a rate to be determined at the contract expiration.
Forward swap
A forward contract to enter into a swap.
Four-firm concentration ratio
A measure of market power that is calculated as the percentage of the value of sales accounted for by the four largest firms in an industry.
Free cash flow
The actual cash that would be available to the company’s investors after making all investments necessary to maintain the company as an ongoing enterprise (also referred to as free cash flow to the firm); the internally generated funds that can be distributed to the company’s investors (e.g., shareholders and bondholders) without impairing the value of the company.
Free cash flow hypothesis
The hypothesis that higher debt levels discipline managers by forcing them to make fixed debt service payments and by reducing the company’s free cash flow.
Free cash flow to equity
The cash flow available to a company’s common shareholders after all operating expenses, interest, and principal payments have been made, and necessary investments in working and fixed capital have been made.
Free cash flow to the firm
The cash flow available to the company’s suppliers of capital after all operating expenses have been paid and necessary investments in working capital and fixed capital have been made.
Free float
The number of shares that are readily and freely tradable in the secondary market.
Free-cash-flow-to-equity models
Valuation models based on discounting expected future free cash flow to equity.
Frequency distribution
A tabular display of data summarized into a relatively small number of intervals.
Frequency polygon
A graph of a frequency distribution obtained by drawing straight lines joining successive points representing the class frequencies.
Frictional unemployment
The unemployment that arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs.
Friendly transaction
A potential business combination that is endorsed by the managers of both companies.
Full employment
A situation in which the quantity of labor demanded equals the quantity supplied. At full employment, there is no cyclical unemployment—all unemployment is frictional and structural.
Full-employment equilibrium
A macroeconomic equilibrium in which real GDP equals potential GDP.
Full price
The price of a security with accrued interest.
Functional currency
The currency of the primary economic environment in which an entity operates.
Fundamental analysis
The examination of publicly available information and the formulation of forecasts to estimate the intrinsic value of assets.
Fundamental beta
A beta that is based at least in part on fundamental data for a company.
Fundamental factor models
A multifactor model in which the factors are attributes of stocks or companies that are important in explaining cross-sectional differences in stock prices.
Fundamental (or intrinsic) value
The underlying or true value of an asset based on an analysis of its qualitative and quantitative characteristics.
Fundamental weighting
An index weighting method in which the weight assigned to each constituent security is based on its underlying company’s size. It attempts to address the disadvantages of market-capitalization weighting by using measures that are independent of the constituent security’s price.
Future value (FV)
The amount to which a payment or series of payments will grow by a stated future date.
Futures commission merchants (FCMs)
Individuals or companies that execute futures transactions for other parties off the exchange.
Futures contract
A variation of a forward contract that has essentially the same basic definition but with some additional features, such as a clearinghouse guarantee against credit losses, a daily settlement of gains and losses, and an organized electronic or floor trading facility.
Futures exchange
A legal corporate entity whose shareholders are its members. The members of the exchange have the privilege of executing transactions directly on the exchange.