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199 Cards in this Set

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Acceleration Clause
Provision, normally present in an indenture agreement, mortgage or other contract, that the unpaid balance is to become due and payable if specified events of default should occur.

Such events include failure to meet interest, principal or sinking fund payments; insolvency; and nonpayment of taxes on mortgaged property.
Accounts Payable
Amounts owing on open account to creditors for goods and services.

Analysts look at the relationship of accounts payable to purchases for indications of sound day-to-day financial management.
Accounts Receivable
Money owed to a business for merchandise or services sold on open account, a key factor in analyzing a company's liquidity-- its ability to meet current obligations without additional revenues.
Accrual Basis
Accounting method whereby income and expense items are recognized as they are earned or incurred, even though they may not have been received or actually paid in cash.
Adjustable Rate Mortgage (ARM)
Mortgage agreement between a financial institution and a real estate buyer stipulating predetermined adjustments of the interest rate at specified intervals. Mortgage payments are tied to some index outside the control of the bank or savings and loan institution. Adjustments are made regularly, usually at intervals of one, three, or five years. In return for taking some of the risk of a rise in interest rates, borrowers get lower rates at the beginning of the ARM than they would if they took out a fixed rate mortgage covering the same term.

(A homeowner who is worried about sharply rising interest rates should probably choose a fixed rate mortgage, whereas one who thinks rates will rise modestly, stay stable or fall should choose an adjustable rate mortgage)
Alpha (coefficient definition)
Coefficient measuring the portion of an investment's return arising from specific (nonmarket risk). In other words, alpha is a mathematical estimate of the amount of return expected from an investment's inherent values, such as the rate of growth in earnings per share.
American Depository Receipt
Receipt for the shares of a foreign-based corporation held in the vault of a US bank and entitling the shareholder to all dividends and capital gains.
Accounting procedure that gradually reduces the cost value of a limited life or intangible asset through periodic charges to income.

Also refers to the reduction of debt by regular payments of interest and principal sufficient to pay off a loan by maturity.
Form of contract sold by life insurance companies that guarantees a fixed or variable payment to the annuitant at some future time, usually retirement.

(There are fixed and variable annuities)
Profiting from differences in price when the same security, currency, or commodity is traded on two or more markets.
Anything having commercial or exchange value that is owned by a business, institution, or individual.
Asset Backed Securities
Bonds or notes backed by loan paper or accounts receivable originated by banks, credit card companies, or other providers of credit and often "enhanced" by a bank letter of credit or by insurance coverage provided by an institution other than the issuer.
At The Money
At the current price, as an option with an exercise price equal to or near the current price of the stock or underlying futures contract.
Balance of Payments
System of recording all of a country's economic transactions with the rest of the world during a particular time period. Double-entry bookkeeping is used and there can be no surplus or deficit on the overall balance of payments. Typically divided into three accounts: current, capital, and gold; and they can show a surplus or deficit.

Helps a country evaluate its competitive strengths and weaknesses and forecast the strength of its currency.
Bank Holding Company
Company that owns or controls two or more banks or other bank holding companies. Must register with the Board of Governors of the Federal Reserve System.
Beta (coefficient definition)
Coefficient is the covariance of a stock or portfolio in relation to the rest of the stock market.

The Standard & Poor's 500 Stock Index has a beta coefficient of 1. Any stock or portfolio with a higher beta is more volatile than the market, and any with a lower beta can be expected to rise and fall more slowly than the market.

(Conservative investors want low betas, riskier investors want high-betas)
Bid and Asked
Bid is the highest price a prospective buyer is prepared to pay at a particular time for a trading unit of a given security; asked is the lowest price acceptance to a prospective seller of the same security. Together the two prices constitute a quotation, the difference between the two prices is the spread.

"bid and asked" usually refers to unlisted securities traded over the counter.
Blue Sky Law
A kind of law passed by various states to protect investors against securities fraud. These laws require sellers of new stock issues or mutual funds to register their offerings and provide financial details on each issue so that investors can base their judgments on relevant data.
Any interest-bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity.

In finance, it is the obligation of one person to repay a debt taken on by someone else, should that other person default. A bond can also be money or securities deposited as a pledge of good faith.
Balance of Trade
Net difference over a period of time between the value of a country's imports and exports of merchandise. Movable goods such as automobiles, foodstuffs, and apparel are included in the balance of trade; payments abroad for services and for tourism are not. When a country exports more than it imports, it is said to have a favorable balance of trade; when imports predominate the balance is called unfavorable.
Brady Bonds
Public-issue, U.S. dollar-denominated bonds of developing countries, mainly in Latin America , that were exchanged in a restructuring for commercial bank loans in default. Named for former Bush administration Treasury Secretary Nicholas Brady, they are collateralized by U.S. Treasury zero-coupon bonds to ensure principal.
Insurance: person who finds the best insurance deal for a client and then sells the policy to the client.

Real estate: person who represents the seller and gets a commission when the property is sold.

Securities: person who acts as an intermediary between a buyer and a seller, usually charging a commission. A broker who specializes in stocks, bonds, commodities, or options acts as an agent and must be registered with the exchange where the securities are traded.
Business Cycle
Recurrence of periods of expansion (recovery) and contraction (recession) in economic activity with effects on inflation, growth, and employment.
Buy and Hold Strategy
Strategy that calls for accumulating shares in a company over the years. This allows the investor to pay favorable long-term capital gains on profits and requires far less attention than a more active trading strategy.
Buying on Margin
Buying securities with credit available through a relationship with a broker, called a margin account. Arrangements of this kind are closely regulated by the Federal Reserve Board.
Buy Order
In securities trading, an order to a broker to purchase a specified quality of a security at the market price or at another stipulated price.
Call (banking)
Demand to repay a secured loan usually made when the borrower has failed to meet such contractual obligations as timely payments of interest. When a banker calls a loan, the entire principal is due immediately.
Call (bonds)
Right to redeem outstanding bonds before their scheduled maturity. Bonds are usually called when interest rates fall so significantly that the issuer can save money by floating new bonds at lower rates.
Call option
Right to buy 100 shares of a particular stock or stock index at a predetermined price before a preset deadline, in exchange for a premium.

(For buyers who think a stock will go up dramatically, call options permit a profit from a smaller investment than it would take to buy the stock. It can also produce extra income for a seller, who gives up ownership of the stock if the option is exercised).
Call Provision
Clause in a bond's indenture that allows the issuer to redeem the bond before maturity. The call provision will spell out the first call date and whether the bond will be called at par or at a slight premium to par. Some preferred stock issues also have call provisions spelling out the conditions of a redemption.
Cap (bonds)
Highest level interest rate that can be paid on a floating-rate debt instrument.

(for example: a variable-rate note might have a cap of 8%, meaning that the yield cannot exceed 8% even if the general level of interest rates goes much higher than 8%).
Capital Asset
Long-term asset that is not bought or sold in the normal course of business. Generally speaking, the term includes fixed assets -- land, buildings, equipment, furniture and fixtures, and so on.
Capital Asset Pricing Model
Sophisticated model for the relationship between expected risk and expected return. The model is grounded in the theory that investors demand higher returns for higher risks. It says that the return on an asset or a security is equal to the risk-free return-- such as the return on a short-term Treasury security-- plus a risk premium.
Capitalize (5 definitions)
1. Convert a schedule of income into a principal amount, called capitalized value, by dividing by a rate of interest.

2. Issue securities to finance capital outlays (rare)

3. Record capital outlays as additions to asset accounts, not as expenses.

4. Convert a lease obligation to an asset/liability form of expression called a capital lease, that is, to record a leased asset as an owned asset and the lease obligation as borrowed funds.

5. Turn something into one's advantage economically-- for example, sell umbrellas on a rainy day.
Capital Markets
Markets where capital funds-- debt and equity-- are traded. Included are private placement sources of debt and equity as well as organized markets and exchanges.
Maturity (def 1)
Reaching the date at which a debt instrument is due and payable. A bond due to mature on January 1, 2010, will return the bondholder's principal and final interest payment when it reaches maturity on that date. Bond yields are frequently calculated on a Yield-To-Maturity basis.
Merchant bank (def 1)
European financial institution that engages in investment banking, counseling, and negotiating in mergers and acquisitions, and a variety of other services including securities portfolio management for customers, insurance, the acceptance of foreign bills of exchange, dealing in bullion, and participating in commercial ventures.
Combination of two or more companies, where the amount paid over and above the acquired company's book value is carried on the books of the purchaser as goodwill; or a consolidation, where a new company is formed to acquire the net assets of the combining companies.
Misery index
An index that tracks economic conditions including inflation and unemployment. Misery Index = Inflation Rate + Unemployment Rate + Prime Rate
Economist who believes that control of the Money Supply is the key to managing the boom and bust cycles in the economy.
Monetary policy
Actions by the Federal Reserve System to influence the cost and availability of credit, with the goals of promoting economic growth, full employment, price stability, and balanced trade with other countries. Through its monetary policy decisions, the Fed tries to regulate both interest rates and the nation's Money Supply.
Money market
Market for Short-Term Debt Instruments-negotiable certificates of deposit, Eurodollar certificates of deposit, commercial paper, banker's acceptances, Treasury bills, and discount notes of the Federal Home Loan Bank, Federal National Mortgage Association, and Federal Farm Credit System, among others.
Money market fund
Open-ended Mutual Fund that invests in commercial paper, banker's acceptances, repurchase agreements, government securities, certificates of deposit, and other highly liquid and safe securities, and pays money market rates of interest.
Money supply
Total amount of money available for transactions and investment in the economy. The Federal Reserve Board uses various statistical measures to measure the various forms of money that make up the money supply.
Debt instrument giving conditional ownership of an asset, secured by the asset being financed. The borrower gives the lender a mortgage in exchange for the right to use the property while the mortgage is in effect, and agrees to make regular payments of principal and interest.
National Association of Securities Dealers Automated Quotation System. The largest electronic equity securities market in the United States, both in terms of number of listed companies and traded share volume.
Negative pledge clause
Negative covenant or promise in an Indenture agreement that states the corporation will not pledge any of its assets if doing so would result in less security to the debtholders covered under the indenture agreement.
Negotiable instrument
Written order to pay, such as an acceptance, check, bill of exchange, or promissory note, transferable from one person to another, provided certain conditions are met.
Non-cumulative preferred
Preferred Stock issue in which unpaid dividends do not accrue. Such issues contrast with Cumulative Preferred Stock, where unpaid dividends accumulate and must be paid before dividends on common shares.
OPM (def 1)
Other people's money; wall street slang for the use of borrowed funds by individuals or companies to increase the return on invested capital.
Opportunity cost (general)
Highest price or rate of return an alternative course of action would provide
Option (gen)
Right to buy or sell property that is granted in exchange for an agreed upon sum. If the right is not exercised after a specified period, the option expires and the option buyer forfeits the money.
Option price
Market price at which an option contract is trading at any particular time. The price of an option on a stock reflects the fact that it covers 100 shares of a stock. So, for example, an option that is quoted at $7 would cost $700, because it would be an option for 100 shares of stock at a $7 cost per share covered.
Over the counter
A securities market created by dealers who primarily handle trading in securities that are not listed stocks on an organized exchange.
Paid in capital/surplus
The difference between par value of a corporation's outstanding shares of stock and current market value. This value is adjusted downward when a corporation repurchases its own stock.
Equal to the nominal or Face Value of a security.
Penny stock
Defined by the SEC as a security that sold for less than $5 per share and was not listed or authorized for quotation on a NASDAQ market exchange. Penny stocks are issued by companies with a short or erratic history of revenues and earnings, and therefore such stocks are more Volatile than those of large, well-established firms traded on the New York or American stock exchanges.
Transferring property, such as securities or the Cash Surrender Value of life insurance, to a lender or creditor as Collateral for an obligation.
Poison put
Provision in an Indenture giving bondholders the privilege of redemption at Par if certain designated events occur, such as a hostile Takeover, the purchase of a big block of shares, or an excessively large dividend payout.
Poison pill
Strategic move by a takeover-target company to make its stock less attractive to an acquirer. For instance, a firm may issue a new series of Preferred Stock that gives shareholders the right to redeem it at a premium price after a Takeover.
Price earnings ratio
Statistic that equals market price per share divided by earnings per share. It is a good ratio to use in evaluating the investment possibility of a company.
Primary market
Market in which a loan is actually made to the borrower, distinguished from the Secondary Market where securities backed by loan receivables are sold to investors.
Prime rate
Base rate that banks use in pricing commercial loans to their best and most creditworthy customers.
Private placement
Sale of an entire issue of securities to a small group of investors.
Process of converting a publicly operated enterprise into a privately owned and operated entity.
Informational document stating the intent to issue securities, required by the Securities and Exchange Commission. Also called offering circular. A prospectus is the legal document stating the purpose of the security issue, describing in detail the primary business of the issuer and the issuer's financial condition, and listing the principal officers.
Public offering
Offering to the investment public, after registration requirements of the Securities and Exchange Commission (SEC) have been complied with, of new securities, usually by an investment banker or a syndicate made up of several investment bankers, at a public offering price agreed upon between the issuer and the investment bankers.
Put option (option)
Contract that grants the right to sell at a specified price a specific number of shares by a certain date. The put option buyer gains this right in return for payment of an Option Premium. The put option seller grants this right in return for receiving this premium.
Any major changes in a corporation's paid in capital, resulting from issuance of new shares of stock, Reorganization in bankruptcy, or exchange of common stock shares for bonds and notes, as in a Leveraged Buy-Out.
Recourse loan
Loan for which an endorser or guarantor is liable for payment in the event the borrower defaults.
Repayment of a debt security or preferred stock issue by payment of the principal at maturity, or at an earlier date if the issuer calls the security and pays a premium to debt security holders.
Discrimination in the pattern of granting loans, insurance coverage, or other financial benefits. Lenders or insurers who practice redlining "draw a red line" around a troubled area of a city and vow not to lend or insure property in that neighborhood because of poor economic conditions and high default rates.
Process set up by the Securities Exchange Acts of 1933 and 1934 that requires publicly issued securities to be reviewed by the SEC.
Registration statement
Document required by the Securities and Exchange Commission for public offerings of securities. The registration statement, required by the Securities Act of 1933, discloses information on the management and financial condition of the issuer, and describes how the proceeds of the offering will be used.
Decrease, loss, or weakening of a financial statement-related item. For example, if more common shares are issued, the equity interest represented by each common share is reduced.
The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract.
Restructuring of a corporation's financial assets under Chapter 11 of the Bankruptcy Code to return the company to profitability.
Repurchase agreement
Agreement between a seller and a buyer, usually of U.S. Government securities, whereby the seller agrees to repurchase the securities at an agreed upon price and, usually, at a stated time.
Required rate of return
Return required by investors before they will commit money to an investment at a given level of risk. Unless the expected return exceeds the required return, an investment is unacceptable.
Retained earnings
Net profits kept to accumulate in a business after dividends are paid. Also called undistributed profits or earned surplus. Retained earnings are distinguished from contributed capital-capital received in exchange for stock, which is reflected in Capital Stock or Capital Surplus and Donated Stock or Donated Surplus.
Return (finance)
Profit on a securities or capital investment, usually expressed as an annual percentage rate.
Return on equity
Amount, expressed as a percentage, earned on a company's common stock investment for a given period.
Return on investment capital
A calculation used to assess a company's potential to be a quality investment by determining how profitably a company's management is able to allocate capital into its operations.
Return on sales
Net pretax profits as a percentage of Net Sales-a useful measure of overall operational efficiency when compared with prior periods or with other companies in the same line of business.
Reverse split
Procedure whereby a corporation reduces the number of shares outstanding. The total number of shares will have the same market value immediately after the reverse split as before it, but each share will be worth more.
Certificate of Deposit (CD)
Debt instrument issued by a bank which guarantees payment. It legally becomes an obligation for the bank, and the funds to cover it are immediately withdrawn from the depositor's account.
Clear (banking)
Collection of funds on which a check is drawn, and payment of those funds to the holder of the check.
Clear (finance)
Asset not securing a loan and not otherwise encumbered. As a verb, to clear means to make a profit.
Clear (securities)
Comparison of the details of a transaction between brokers prior to settlement; final exchange of securities for cash on delivery.
Close a Position
To eliminate an investment from one's portfolio.
Commercial Paper
short-term obligations with maturities ranging from 2 to 270 days issued by banks, corporations, and other borrowers to investors with temporarily idle cash. Such investments are unsecured and usually discounted, although some are interest-bearing.
Bulk goods such as grains, metals, and foods traded on a commodities exchange on the spot market.
Compound Interest
Interest earned on principal plus interest that was earned earlier.
Something of value that one party gives to another in exchange for a promise or act. In law, a requirement of valid contracts. A consideration can be in the form of money, commodities, or personal services; in many industries the forms have been standardized.
Corporate securities (usually preferred shares or bonds) that are exchangeable for a set number of another form (usually common shares) at a prestated price. Convertibles are appropriate for investors who want higher income than is available from common stock, together with greater appreciation potential than regular bonds offer.
Cornering the Market
Purchasing a security or commodity in such volume that control over its price is achieved. A cornered market in a security would be unhappy news for a short seller, who would have to pay an inflated price to cover. Cornering has been illegal for some years.
Corporate Bond
Debt instrument issued by a private corporation, as distinct from one issued by a government agency or municipality. Corporates typically have four distinguishing features (1) they are taxable (2) they usually have a par value of $1,000 (3) they have a term maturity-- which means they come due all at once -- and are paid for out of a sinking fund accumulated for that purpose; (4) they are traded on major exchanges, with prices published in newspapers.
Cost of Capital
Rate of return that a business could earn if it chose another investment with equivalent risk-- in other words, the opportunity cost of the funds employed as the result of an investment decision. Cost of capital is also calculated using a weighted average of a firm's costs of debt and classes of equity.
Promise in a trust indenture or other formal debt agreement that certain acts will be performed and others refrained from. Designed to protect the lender's interest, covenants cover such matters as working capital, debt-equity ratios, and dividend payments.
Cumulative Preferred
Preferred stock whose dividends if omitted because of insufficient earnings or any other reason accumulate until paid out. They have precedence over common dividends, which cannot be paid as long as cumulative preferred obligation exists. Most preferred stock issued today is cumulative.
Individual or firm acting as principal in a securities transaction. Principals trade for their own account and risk. When buying from a broker acting as a dealer, a customer receives securities from the firm's inventory; the confirmation must disclose this. When specialists trade for their own account, as they must as part of their responsibility for maintaining an orderly market, they act as dealers.
General debt obligation backed only by the integrity of the borrower and documented by an agreement called an indenture. An unsecured bond is a debenture.
1. Money, goods or services that one party is obligated to pay to another in accordance with an expressed or implied agreement. Debt may or may not be secured.

2. General name for bonds, notes, mortgages, and other forms of paper evidencing amounts owed and payable on specific dates or on demand.
Decline in the prices of goods and services.
Lowering of the value of a country's currency relative to gold and/or the currencies of other nations. Devaluation can also result from a rise in value of other currencies relative to the currency of a particular country.
1. Spreading of risk by putting assets in several categories of investments -- stocks, bonds, money market instruments, and precious metals for instance, or several industries, or a mutual fund, with its broad range of stocks in one portfolio.

2. At the corporate level, entering into different business areas, as a conglomerate does.
Distribution of earnings to shareholders, prorated by class of security and paid in the form of money, stock, scrip, or rarely, company products and property. The amount is decided by the board of directors and is usually paid quarterly. Dividends must be declared as income in the year they are received.
Earnings per Share
Portion of a company's profit allocated to each outstanding share of common stock. For instance, a corporation that earned $10M last year and has 10M shares outstanding would report earnings of $1 per share. The figure is calculated after paying taxes and after paying preferred shareholders and bondholders.
Banking: time between the deposit of a check in a bank and payment. Long floats are to the advantage of checkwriters, whose money may earn interest until a check clears. They are to the disadvantage of depositors, who must wait for a check to clear before they have access to the funds.
Forward Contract
Purchase or sale of a specific quantity of a commodity, government security, foreign currency, or other financial instrument at the current or spot price, with delivery and settlement at a specified future date. Because it is a completed contract-- as opposed to an options contract, where the owner has the choice of completing or not completing-- a forward contract can be a cover for the sale of a futures contract.
Futures Contract
Agreement to buy or sell a specific amount of a commodity, a currency, or a financial instrument at a particular price on a stipulated future date. The price is established between buyer and seller on the floor of a commodity exchange, using the open outcry system. A futures contract obligates the seller to sell it, unless the contract is sold to another before settlement date, which may happen if a trader waits to take a profit or cut a loss. This contracts with options trading, in which the option buyer may choose whether or not to exercise the option by the exercise date.
Going Concern Value
Value of a company as an operating business to another company or individual. The excess of going-concern value over asset value, or liquidating value, is the value of the operating organization as distinct from the value of its assets. In acquisition accounting, going-concern value in excess of asset value is treated as an intangible asset, termed goodwill. Goodwill is generally understood to represent the value of a well-respected business name, good customer relations, high employee morale, and other such factors expected to translate into greater than normal earning power.
Gross Domestic Product (GDP)
Market value of the goods and services produced by labor and property in the United States. GDP is made up of consumer and government purchases, private domestic investments, and net exports of goods and services. Figures for GDP are released by the Commerce Department on a quarterly basis. Growth of the US economy is measured by the change in inflation-adjusted GDP, or real GDP.
Gresham's Law
Theory in economics that bad money drives out good money. Specifically, people faced with a choice of two currencies of the same nominal value, one of which is preferable to the other because of mental content or because it resists mutilation, will hoard the good money and spend the bad money, thereby driving the good money out of circulation.
Strategy used to offset investment risk. A perfect hedge is one eliminating the possibility of future gain or loss.

(abbreviated definition)
Revolving credit (commercial)
Contractual agreement between a bank and its customer, usually a company, whereby the bank agrees to make loans up to a specified maximum for a specified period, usually a year or more. As the borrower repays a portion of the loan, an amount equal o the repayment can be borrowed again under the terms of the agreement.
Right of first refusal
Right of someone to be offered a right before it is offered to others.
Risk (general)
With reference to fluctuating market values of securities and portfolios, risk means exposure to uncertainty, which is manifest as variability (or volatility), and is measured by standard deviation.
Risk free return
Yield on a risk-free investment. The 3-month Treasury bill is considered a riskless investment because it is a direct obligation of the U.S. Government and its term is short enough to minimize the risks of inflation and market interest rate changes.
Risk premium
The difference between the risk-free return and the total return from a risky investment.
Sale & leaseback
Form of Lease arrangement in which a company sells an asset to another party-usually an insurance or finance company, a leasing company, a limited partnership, or an institutional investor-in exchange for cash, then contracts to lease the asset for a specified term.
Secondary market
The market where existing loans, marketable securities, stocks, bonds, and other assets are sold to investors, either directly or through an intermediary.
Secured debt
Debt obligation, including bonds, that is guaranteed by the pledge of assets or other collateral.
Securities markets
General term for markets in which securities are traded, including both Organized Securities Exchanges and Over-The-Counter (OTC) markets.
Conversion of bank loans and other assets into marketable securities for sale to investors. Securities offered for sale can be purchased by other depository institutions or nonbank investors. More broadly, corporate financing through Floating Rate Notes and Eurocommercial paper, replacing bank loans as a means of borrowing, is a form of securitization.
Security (investment)
Instrument that signifies an ownership position in a corporation, a creditor relationship with a corporation or governmental body, or rights to ownership such as those represented by an option, etc.
Seed money (venture capital)
A venture capitalist's first contribution toward the financing or capital requirements of a start-up business.
Second round (venture capital)
Intermediate state of venture capital financing coming after the seed money and first rounds, when the company has matured to the point where it might consider a leveraged buyout by management or an IPO.
Mezzanine level (venture capital)
Stage of a company's development just prior to its going public, in venture capital language. Entering at this point provides a lower risk of loss and can look forward to early capital appreciation.
Selling short
Sale of a security or commodity futures contract not owned by the seller; a technique used (1) to take advantage of an anticipated decline in the price or (2) to protect a profit in a Long Position (see Selling Short Against the Box).
Senior security
Security that has claim prior to a junior obligation and Equity on a corporation's assets and earnings.
Share repurchase plan
Program by which a corporation buys back its own shares in the open market. It is usually done when shares are Undervalued.
Shares authorized
Number of shares of stock provided for in the Articles of Incorporation of a company. This figure is ordinarily indicated in the capital accounts section of a company's Balance Sheet and is usually well in excess of the shares Issued and Outstanding.
Short position
Commodities contract in which a trader has agreed to sell a commodity at a future date for a specific price, OR stock shares that an individual has sold short (by delivery of borrowed certificates) and has not covered as of a particular date.
Sinking fund
An accumulation, by a corporation or governmental body, of money invested for the purpose of repaying a debt or replacing equipment.
Small cap
Shorthand for small capitalization stocks or mutual funds holding such stocks. Small cap stocks usually have a market capitalization (number of shares outstanding multiplied by the stock price) of $500 million or less.
The ability of a borrower to pay personal obligations or debt service payments as scheduled, or on demand if not subject to a fixed schedule.
Member of a stock exchange who maintains a fair and orderly market in one or more securities.
Assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. Speculation is a necessary and productive activity.
Spin off
A form of corporate divestiture that results in a subsidiary or division becoming an independent company.
Increase in a corporation's number of outstanding shares of stock without any change in the shareholders' Equity or the aggregate Market Value at the time of the split.
Spot price
Current delivery price of a commodity traded in the Spot Market. Also called cash price.
Spread (stocks / bonds)
(1) difference between the bid and offer price. If a stock is bid at $45 and offered at $46, the spread is $1. This spread narrows or widens according to supply and demand for the security being traded.
Standard & poor's index
Broad-based measurement of changes in stock-market conditions based on the average performance of 500 widely held common stocks; commonly known as the Standard & Poor's 500 (or S&P 500).
New business venture. In Venture Capital parlance, start-up is the earliest stage at which a venture capital investor or investment pool will provide funds to an enterprise, usually on the basis of a business plan detailing the background of the management group along with market and financial Projections.
Stock (def 1)
Ownership of a Corporation represented by shares that are a claim on the corporation's earnings and assets.
Junior in claim on assets to other debt, that is, repayable only after other debts with a higher claim have been satisfied.
Tax exempt security
Obligation whose interest is exempt from taxation by federal, state, and/or local authorities. It is frequently called a Municipal Bond (or simply a municipal), even though it may have been issued by a state government or agency or by a county, town, or other political district or subdivision.
Tender (def 1)
Act of surrendering one's shares in a corporation in response to an offer to buy them at a set price.
Trade deficit or surplus
Excess of imports over exports (trade deficit) or of exports over imports (trade surplus), resulting in a negative or positive Balance of Trade.
Transaction costs
Cost of buying or selling a security, which consists mainly of the brokerage commission, the dealer Markdown or markup, or fee (as would be charged by a bank or broker-dealer to transact Treasuries, for example) but also includes direct taxes, such as the Sec Fee, any state-imposed Transfer Taxes or other direct taxes.
Treasury stock
Stock reacquired by the issuing company and available for Retirement or resale. It is issued but not outstanding. It cannot be voted and it pays or accrues no dividends. It is not included in any of the ratios measuring values per common share.
Situation in which a business does not have enough capital to carry out its normal business functions.
Underwrite (investments)
To assume the risk of buying a New Issue of securities from the issuing corporation or government entity and reselling them to the public, either directly or through dealers. The Underwriter makes a profit on the difference between the price paid to the issuer and the Public Offering Price called the Underwriting Spread.
Underwriting agreement
Agreement between a corporation issuing new securities to be offered to the public and the Managing Underwriter as agent for the Underwriting Group.
Property free and clear of all liens (creditors' claims). When a homeowner pays off his mortgage, for example, the house becomes unencumbered property.
Unissued stock
Shares of a corporation's stock authorized in its charter but not issued. They are shown on the Balance Sheet along with shares Issued and Outstanding.
Placing a value or worth on an asset. Stock analysts determine the value of a company's stock based on the outlook for earnings and the market value of assets on the balance sheet.
Variable interest rate
Interest rate on a loan that rises and falls based on the movement of an underlying index of interest rates.
Venture capital
Important source of financing for Start-Up companies or others embarking on new or Turnaround ventures that entail some investment risk but offer the potential for above average future profits; also called risk capital. Sources of venture capital include wealthy individual investors; subsidiaries of banks and other corporations organized as small business investment companies (SBICs); groups of investment banks and other financing sources who pool investments in venture capital funds or Venture Capital Limited Partnerships.
Characteristic of a security, commodity, or market to rise or fall sharply in price within a short-term period. Also called Variability.
Wasting asset (def 3)
Security with a value that expires at a particular time in the future. An Option contract, for instance, is a wasting asset, because the chances of a favorable move in the underlying stock diminish as the contract approaches expiration, thus reducing the value of the option.
Write off
Charging an Asset amount to expense or loss. The effect of a write-off is to reduce or eliminate the value of the asset and reduce profits.
Zero coupon security
Security that makes no periodic interest payments but instead is sold at a deep discount from its face value. The buyer of such a bond receives the rate of return by the gradual Appreciation of the security, which is redeemed at Face Value on a specified maturity date.
Zero sum game
Situation in which the gains of the winners are matched by the losses of the losers. For example, futures and options trading are zero-sum games because for every investor holding a profitable contract, there is another investor on the other side of the trade who is losing money.
Hedge Fund
Private investment partnership (for U.S. investors) or an off-shore investment corporation (for non-US or tax-exempt investors) in which the general partner has made substantial personal investment, and whose offering memorandum allows for the fund to take both long and short positions, use leverage and derivatives, and invest in many markets. Hedge funds often take large risks on speculative strategies, including program trading, swaps, arbitrage and other market-neutral investing.
Holding company
Corporation that owns enough voting stock in another corporation to influence its board of directors and therefore to control its policies and management. A holding company need ont own a majority of the shares of its subsidiaries or be engaged in similar activities. However, to gain the benefits of tax consolidation, which include tax-free dividends to the parent and the ability to share operating losses, the holding company must own 80% or more of the subsidiary's voting stock.
Hot money
Investment funds capriciously seeking high, short-term yields. Borrowers attracting hot money, such as banks issuing high yielding certificates of deposit, should be prepared to lose it as soon as another borrower offers a higher rate.
Human Capital
Skills acquired by a worker through formal education and experience that improve the worker's productivity and increase his or her income.
Banking: Pledging property to secure a loan. Hypothecation does not transfer title, but it does transfer the right to sell the hypothecated property in the event of default.

Securities: pledging of securities to brokers as collateral for loans made to purchase securities or to cover short sales, called margin loans.
Illiquid (investment)
Investments: not readily convertible into cash, such as a stock, bond, or commodity that is not traded actively and would be difficult to sell at once without taking a large loss. Other assets for which there is not a ready market, and which therefore may take some time to sell, include real estate and collectibles such as rare stamps, coins or antique furniture.
Agree to compensate for damage of loss. The word is used in insurance policies promising that, in the event of a loss, the insured will be restored to the financial position that existed prior to the loss.
Formal agreement, also called a deed of trust, between an issuer of bonds and the bondholder covering such considerations as: (1) form of the bond; (2) amount of the issue; (3) property pledged (if not a debenture issue); (4) protective covenants including any provision for a sinking fund; (5) working capital and current ratio; and (6) redemption rights or call privileges. The indenture also provides for the appointment of a trustee to act on behalf of the bondholders, in accordance with the trust indenture act of 1939.
Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base period or from the previous month.

Indices also measure the ups and downs of stock, bond, and commodities markets, reflecting market prices and the number of shares outstanding for the companies in the index.
Index Fund
Mutual fund that has a portfolio matching that of a broad-based portfolio. This may include the the Dow Jones Industrial Average, Standard & Poor's 500 Index, indices of mid- and small-capitalization stocks, foreign stock indices, and bond indices to name a few.
Individual Retirement Account (IRA)
Personal, tax-deferred, retirement account that an employed person can set up with a deposit limited to $4,000 per year ($8,000 for a married couple filing jointly).
Rise in prices of goods and services, as happens when spending increases relative to the supply of goods on the market -- in other words, too much money chasing too few goods.
Initial Public Offering (IPO)
Corporation's first offering of stock to the public. IPO's are almost invariably an opportunity for the existing investors and participating venture capitalists to make big profits, since for the first time their shares will be given a market value reflecting expectations for the company's future growth.
Investment Banker
Firm, acting as an underwriter or agent, that serves as an intermediary between an issuer of securities and the investing public.
Legal entity that has the power to issue and distribute a security. Issuers include corporations, municipalities, foreign and domestic governments and their agencies, and investment trusts. Issuers of stock are responsible for reporting on corporate developments to shareholders and paying dividends once declared. Issuers of bonds are committed to making timely payments of interest and principal to bondholders.
Joint Venture
Agreement by two or more parties to work on a project together. Frequently, a joint venture will be formed when companies with complementary technology wish to create a product or service that takes advantage of the strengths of the participants. A joint venture, which is usually limited to one project, differs from a partnership, which forms the basis for cooperation on many projects.
Junk Bond
Bond with a credit rating of BB or lower by rating agencies. Although commonly used, the term has a pejorative connotation, and issuers and holders prefer the securities be called high-yield bonds. Junk bonds are issued by companies without long track records of sales and earnings or by those with questionable credit strength.
Letter of Credit
(abbreviated L/C) instrument or document issued by a bank guaranteeing the payment of a customer's drafts up to a stated amount for a specified period. It substitutes the bank's credit for the buyers' and eliminates the seller's risk. It is extensively used in international trade.
Leverage (finance)
Debt in relation to equity in a firm's capital structure-- measured by the debt-to-equity ratio.
Leverage (investment)
Means of enhancing return or value without increasing investment. Buying securities on margin is an example of leverage with borrowed money, and extra leverage may be possible if the leveraged security is convertible into common stock.
Leveraged Buyout
(LBO) Takeover of a company, using borrowed funds. Most often, the target company's assets serve as security for the loans taken out by the acquiring firm, which repays the loan out of cash flow of the acquired company. Management may use this technique to regain control by converting a company from public to private.
Limited Liability
Underlying principle of the corporation and the limited partnership in the United States and the limited company in the United Kingdom that liability is limited to an investor's original investment. In contrast, a general partner or the owner of a proprietorship has unlimited liability.
Ability to buy or sell an asset quickly and in large volume without substantially affecting the asset's price.

Liquidity also refers to the ability to convert to cash quickly.
Liquidating Dividend
Distribution of assets in the form of a dividend from a corporation that is going out of business. Such a payment may come when a firm goes bankrupt or when management decides to sell off a company's assets and pass the proceeds on to the shareholders.
Listed Security
Stock or bond that has been accepted for trading by one of the organized and registered securities exchanges in the United States, which list more than 6,000 issues of securities of some 3,500 corporations. Generally the advantages of being listed are that the exchanges provide: (1) an orderly marketplace (2) liquidity (3) fair price determination (4) accurate and continuous reporting on sales and quotations (5) information on listed companies and (6) strict regulations for the protection of security holders.
Transaction wherein an owner of property, called the lender allows another party, the borrower, to use the property. The borrower customarily promises to return the property after a specified period with payment for its use, called interest. The documentation of the promise is called a promissory note when the property is cash.
London Interbank Offered Rate (LIBOR)
Rate that the most creditworthy international banks dealing in eurodollars charge each other for large loans. The LIBOR rate is usually the base for other large Eurodollar loans to less creditworthy corporate and government borrowers.
Long Position
1. Ownership of a security, giving the investor the right to transfer ownership to someone else by sale or by gift; the right to receive any income paid by the security; and the right to any profits or losses as the security's value changes.

2. Investor's ownership of securities held by a brokerage firm.
Management Buyout
Purchase of all of a company's publicly held shares by the existing management, which takes the company private. Usually, management will have to pay a premium over the current market price to entice public shareholders to go along with the deal.
Management Fee
Charge against investor assets for managing the portfolio of an open- or closed-end mutual fund as well as for such services as shareholder relations or administration. The fee, as disclosed in the prospectus, is a fixed percentage of the fund's net asset value, typically between 0.5% and 2% per year. The fee also applies to a managed account. The management fee is deducted automatically from a shareholder's assets once a year.
Managing Underwriter
Leading-- and originating-- investment banking firm of an underwriting group organized for the purchase and distribution of a new issue of securities. The agreement among underwriters authorizes the managing underwriter, or syndicate manager, to act as agent for the group in purchasing, carrying and distributing the issue as well as complying with all federal and state requirements; to form the selling group; to determine the allocation of securities to each member; to make sales to the selling group at a specified discount rfom the public offering price; to engage in open market transactions during the underwriting period to stabilize the market price of the security; and to borrow for the syndicate account to cover costs.
Margin (general)
Amount a customer deposits with a broker when borrowing from the broker to buy securities. Under Federal Reserve Board regulations, the initial margin required since 1945 has ranged from 50 to 100 percent of the security's purchase price.
Marginal Cost
Increase or decrease in the total costs of a business firm as the result of one or more or less unit of output. Also called incremental cost or differential cost.
Market Capitalization
Value of a corporation as determined by the market price of its issued and outstanding common stock. It is calculated by multiplying the number of outstanding shares by the current market price of a share. Institutional investors often use market capitalization as one investment criterion, requiring, for example, that a company have a market capitalization of $100 million or more to qualify as an investment.