Test 1 Cfa Glossary C

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CBOE volatility index

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a measure of near-term market volatility as conveyed by S&P stock index options price

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cd equivalent yield (2)

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a yield on a basis comparable to the quoted yield on an interest bearing money market instrument that pays interest on a 360-day basis; the annualized holding period yield assuming a 360 day year

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call

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an option that give the holder the right to buy an underlying asset from another party at a fixed price over a specific period of time

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call market

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a market in which trades occur only at a particular time and place

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call money rate

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the interest rate that buyers pay for their margin loan

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call protection

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the time during which the issuer of the bond is not allowed to exercise the call option

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callable bond

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a bond containing an embedded call option that gives the issuer the right to buy the bond back from the investor at specified prices on pre-determined days

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callable common shares

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shares that give the issuing company the option (or right), but not the obligation to buy back the shares from investors at a call price that is no specified when the shares are originally issued

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candlestick chart (5)

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- a price chart with four bits of data for each time interval
- open and closing price (candle)
- body of candle is shaded if opening price was higher than closing price
- body is clear if the opening price was lower than closing price
- vertical lines known as wicks or shadows extend from the top and bottom of the candle to indicate the high and low prices for the intervals

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cannibalization

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occurs when an investment takes customers and sales away from anothe rpart of the company

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cap

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- a contract on an interst rate whereby at periodic payment dates the writer of the cap pays the difference between the market interest rate and a specified cap rate if and only if this difference is positive. This is equivalent to a stream of call options on the interest rate
- a combination of interest rate call options designed to hedge a borrower against rate increase on a floating-rate loan

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capacity

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the ability of the borrower to make its debt payments on time

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capital account

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a component of the balance of payments account that measures transfers of capital

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capital allocation line (CAL)

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a graph line that describes the combinations of expected return and standard deviation of return available to an investor from combining the optimal portfolio of risky assets with risk-free assets

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capital asset pricing model (CAPM)

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an equation describing the expected return on any asset (or portfolio) as linear function of its beta relative to the market portfolio

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capital budgeting

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the allocation of funds to relatively long-range projects or investments

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capital consumption allowance

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a measure of the wear and tear (depreciation) of the capital stock that occurs in teh production of goods and services

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capital deepening investment

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increases the stock of capital relative to labor

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capital expenditure

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expenditure on physical capital (fixed assets)

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capital market expectations

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an investors expectations concerning the risk and return prospects of asset classes

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capital market line (CML)

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the line with an intercept point equal to the risk free rate that is tangent to the efficient frontier when a risk-free asset is available for investment

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capital market securities

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securities with maturities at issuance longer than one year

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capital markets

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financial markets that trade securities of longer duration, such as bond and equities.

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capital rationing

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a capital rationing environment assumes that the company has a fixed amount of funds to invest

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capital restrictions

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controls placed on foreigners' ability to own domestic assets and/or domestic residents ability to own foreign assets

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capital stock

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the accumulated amount of buildings, machinery and equipment used to produce goods and services

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capital structure

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the mix of debt and equity that a company uses to finance its' business; a company's specific mixture of long-term financing

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capital-indexed bonds

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type of index-linked bond. The coupon rate is fixed but is applied to a principal amount that increases in line with increases in the index during the bonds life

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caplet

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each component call option in a cap

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captive finance subsidiary

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a wholly-owned subsidiary of a company that is established to provide financing of the sales of the parent company.

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carrying amount

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the amount to which an asset or liability is valued according to account principals

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carrying value

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the net amount shown for an asset or liability on the balance sheet; book value may also refer to the company's excess of total assets over total liabilities. For a bond, the purchase price plus (or minus) the amortized amount of the discount (or permium).

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cartel

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participants in collusive agreement that are made openly and formaly

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cash

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in accounting contexts cash on hand and demand deposits held in banks and similar accounts that can be used in payment of obligations

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cash conversion cycle

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a financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to days of inventory on hand + days of sales outstandings -number of days of payables

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what is another word for cash conversion cycle

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net operating cycle

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what are cash equivalents

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very liquid short term investments, usuallying maturing in 90 days of rless

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cash flow additivity principle

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the principle that dollar amounts indexed at the same point in time are additive

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cash flow from operating activities

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the net amount of cash provided from operating activities

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cash flow from operations

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the net amount of cash provided from operating activities

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cash flow yield

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the internal rate of return on a series of cash flows

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cash market secuities

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money market securities settled on a "same day" or "cash settlement basis" basis

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cash settlement

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a procedure used in certain derivative transactions that specifies that the long and short parties engage in the equivalent cash value of a delivery transaction

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central bank funds market

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the market in which deposit taking banks that have an excess reserve with their national central bank can loan money to banks that need funds for maturities ranging from overnight to one year.

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what is the central bank funds market called in us

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Federal funds or feds funds

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central bank funds rate

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interest rates at which central bank funds are bought (borrowed) and sold (lent) for maturities ranging from overnight to one year.

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central banks

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the dominant bank in a country usually with official or semi-official governmental status

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certificate of deposit

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an instrument that represents a specified amount of funds on deposit with a bank for a specified maturity and interest rate
- issued in small or large denominations and can be negotiable or non-negotiable

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change in polarity principle

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a tenet of technical analysis that once a support level is breached it becomes a resistance level. The same holds true for resistance levels once they become breached they become support levels

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change in quantity supplied

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a movement along a given supply curve

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change in supply

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a shift in the supply curve

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change of control put

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a covenant giving bondholders the right to require the isser to buy back their debt often at par or at some small premium to par value in the even that the borrower is acquired

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character

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the quality of debt issuer's management

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chart of accounts

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a list of accounts used in an entity's accounting system

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cheapest-to-deliver bonds

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a bond in which the amount received for delivering the bond is largest compared with the amount paid in the market for the bond.

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classified balance sheet

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a balance sheet organized so as to group together the various assets and liabilities into subcategories

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clawback

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a requirement that the GP return any funds distributed as incentive fees until the LPs have received back their initial investment and a percentage of profit

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clearing

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the process by which exchange verifies the execution of transactions and records the participants identities

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clearing instructions

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instructions that indicate how to arrange the final settlement ("Clearing") of a trade

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clearinghouse

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an entity associated with a futures market that acts as middlemen between the contracting parties and guarantees to each party the performance of the other

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closed economy

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an economy that does not trade with other countries

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synonym for closed aconomy

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autarkic economy

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closed end fund

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a mutual fund in which no new investment money is accepted. new investors invest by buying existing shares and investors in the fund liquidate by selling their shares to other investors

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coefficient of variation

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the ratio of a set of observations standard deviation to the observations mean value

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coincident economic indicators

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turning points that are usually close to those of the overall economy; they are believed to have value for identifying the economy's present state

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continuation patterns

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a type of pattern used in technical analysis to predict the resumption of a market trend that was in place prior to the formation of a pattern

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continuous random variable

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a random variable for which the range of possible outcomes is the real line (all real numbers between -infinity and + infinity or some subset of the real line)

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continuous time

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time though of as advancing in extremely small increments

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continuous trading market

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a market in which trades can be arranged and executed any time the market is open

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continuously compounded return

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the natural logarithm of 1 plus the holding period return, or equivalently the natural logarithm of the ending price over the begining price

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contra account

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an account that offsets another account

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contraction

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the period of a business cycle after the peak and before the trough often called a recession or if exceptionally severe a depression

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contractionary

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tending to cause the real economy to contract

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contractionary fiscal policy

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a fiscal policy that has the objective to make the real economy contract

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contribution margin

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the amount available for fixed costs and profit after paying variable costs
- revenue minus variable costs

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what is a conventional bond also called

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plain vanilla bond

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conventional cash flow

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a conventional cash flow pattern is one with an initial outflow followed by a series of inflows

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convergence

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the tendency for differences in output per capita across countries to diminish over time; in technical analysis a term that describes the case when an indicator moves in the same manner as the security being analyzed.

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conversion factor

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an adjustment used to facilitate delivery on bond futures contracts in which any of a number of bonds with different characterstics are eligible for delivery

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conversion price

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- for a convertible bond the price per share at which the bond can be converted into shares

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conversion ratio

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for convertible bond, the number of common shares that each bond can be converted into

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conversion value

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for a convertible bond, the current share price multiplied by the conversion ratio

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convertible bond

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bond that gives the bondholder the right to exchange the bond for a specified number of common shares in the issuing company.

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convertible preference shares

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a type of equity security that entitles shareholders to convert their shares into a specified number of cmmon shares

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convexity adjustment

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for a bond, one half of the annual or approximate convexity statistic multipled by the change in the yield-to-maturity squared

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core inflation

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the inflation rate calculated based on a price index of goods and services except food and energy

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cost averaging

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the periodic investment of a fixed amount of money

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cost of capital

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the rate of return that suppliers of capital require as compensation for their contribution of capital

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cost of debt

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the cost of debt financing to a company such as when it issues a bond or takes out a bank loan

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cost of goods sold

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for a given period equal to beginning inventory minus ending inventory plus the cost of goods acquired or produced during the period

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cost of preferred stock

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the cost to a company of issuing preferred stockl the dividend yield that a company must commit to pay preferred stockholders

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cost recovery method

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a method of revenue recognition in which the seller does not report any profit until the cash amounts paid by the buyer- including principal and interest on any financing from the seller- are greater than all the sellers costs for the merchandise sold

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cost structure

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the mix of a company's variable costs and fixed costs

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cost-push

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type of inflation in which rising costs, usually wages, compel businesses to rais prices generally

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counterparty risk

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the risk that the other party to a contract will fail to honor the terms of the contract

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cournot assumption

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assumption in which each firm determines its profit maximizing production level assuming that the other firms output will not change

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covariance

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a measure of the co-movement (linear Association) between two random variables

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covariance matrix

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a matrix or square array whose entries are covariances;

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what is another term for covariance matrix

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variance-covariance matrix

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covenants

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the terms and conditions of lending agreements that the issuer must comply with; they specify the actions tha tan issuer is obligated to perform (affirmative covenant) or prohibited from performing (negative covanent)

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covered bond

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debt obligation secured by a segregated pool of assets call the cover pool. The issuer must maintain teh value of the cover pool. In the event of a default, bond holders have recourse against both the issuer and covered pool

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credit

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- with respect to double-entry accounting, a credit records increases in liability, owners' equity, and revenue accounts or decreases in asset accounts;
- with respect to borrowing, teh willingness and ability of the borrower to make promised payments on the borrowing

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credit analysis

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the evaluation of credit risk, the evaluation of hte creditworthiness of a borrower or counter party

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credit curve

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a curve showing the relationship between time to maturity and yield spread for an issuer with comparable bonds of various maturities outstanding, usually upward sloping

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credit default swap

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a type of credit derivative in which one party, the credit protection buyer who is seeking credit protection against a third party , makes a series of regularly scheduled paymnets to the other party, the credit protection seller. The seller makes no payments until a credit event occurs.

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credit derivatives

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a contract in which one party has the right to claim a payment from another party in the event that a specific credit event occurs over the life of the contract

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credit enhancements

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provisions that may be used to reduce the credit risk of a bond issue

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credit migration risk

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the risk that a bond issuer's credit worthiness deteriorates, or migrates lower, leading, investors, to believe the risk of default is higher

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what is credit migration risk also called

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down-grade risk

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credit risk

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the risk of loss caused by a counterparty's or debtor's failure to make a promsied payment

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what is credit risk also called

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default risk

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credit scoring model

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a statistical model used to classify borrowers according to credit risk

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credit spread option

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an option on the yield spread on a bond

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credit-linked coupon bond

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a bond for which the coupon changes when the bond's credit rating changes

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credit-linked notes

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fixed income security in which the holder of the security has the right to withhold payments of the full amount due to maturity if a credit event occurs

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cross-default provisions

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provisions whereby events of default such as non-payment of interest on one bond trigger default on all outstanding debt; implies the same default probability for all issues

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cross-price elasticity of demand

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the percent change in quantity demanded for a given small change in the price of another good; the responsiveness of the demand for product A that is associated with the changed in price of product B.

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cross sectional analysis

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analysis that involves comparisons across individuals in a group ove ra given time period or at a given point in time

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cross-sectional data

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observations over individual units at a point in time as opposed to time-series data

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crossing networks

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trading systems that match buyers and sellers who are willing to trade at prices obtained from other markets

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crowding out

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the thesis that government borrowing may divert private sector investments from taking place

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cumulative distribution function

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a function giving the probability that a random variable is less than or equal to a specified value

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cumulative preference shares

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preference shares for which any dividends that are not paid accrue and must be paid in full before dividends on common shares can be paid

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cumulative relative frequency

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for data grouped into intervals, the fraction of total observations that are less than the value of the upper limit of a stated interval

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cumulative voting

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voting that allows shareholders to direct their total voting rights to specific candidates as opposed to having to allocate their voting rights evenly among all candidates

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currency option bonds

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bonds that give the bondholder the right to choose the currency in which he or she wants to receive interest payments and principal repayments

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currency swap

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a swap in which each party makes interest payments to the other in different curriencies

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current account

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a component of the balance of payments account that measures the flow of goods and services

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current assets (liquid assets)

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assets that are expected to be consumed or converted into cash in the near future typically one year or less

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current cost

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with reference to assets, the amount of cash or cash equivalents that would have to be paid to buy the same or an equivalent asset today
with reference to liabilities; the undiscounted amount of cash or cash equivalents that would be required to settle the obligation today.

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current government spending

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with respect to government expenditures, spending on goods and services that are provided on a regular, recurring basis including health, education and defense.

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current liabilities

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short-term obligations such as accounts payable, wages payable, or accrued liabilities, that are expected to be settled in the near future, typlically one year or less

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current ratio

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a liquidity ratio calculated as current assets divided by current liabilities

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current yield

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the sum of the coupon payments recieved over the year divided by the flat price

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what is current yield also called

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- income yield
- interest yield
- running yield

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curve duration

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the sensitivity of the bond price (or the market value of a financial asset or liability) with respect to a benchmark yeild curve

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customs union

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extends the free trade area by not only allowing free movement of goods and services among members but also creating a common trade policy against non members

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cyclical companies

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companies with sales and profits that regularly expand and contract with the business cycle or state of economy.