Copy of `New York Times - Business and Finance Glossary`

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New York Times - Business and Finance Glossary
Category: Economy and Finance
Date & country: 11/09/2007, USA
Words: 2691

Asset-backed security
A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate.

Asset-based financing
Methods of financing in which lenders and equity investors look principally to the cash flow from a particular asset or set of assets for a return on, and the return of, their financing.

Asset-coverage test
A bond indenture restriction that permits additional borrowing on if the ratio of assets to debt does not fall below a specified minimum.

Asset-equity ratio
The ratio of total assets to stockholder equity.

Asset-liability management
Also called surplus management, the task of managing funds of a financial institution to accomplish the two goals of a financial institution: (1) to earn an adequate return on funds invested and (2) to maintain a comfortable surplus of assets beyond liabilities.

A firm's productive resources.

Assets requirements
A common element of a financial plan that describes projected capital spending and the proposed uses of net working capital.

The receipt of an exercise notice by an options writer that requires the writer to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

Asymmetric information
Information that is known to some people but not to other people.

Asymmetric taxes
A situation wherein participants in a transaction have different net tax rates.

A lack of equivalence between two things, such as the unequal tax treatment of interest expense and dividend payments.

An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

Attribute bias
The tendency of stocks preferred by the dividend discount model to share certain equity attributes such as low price-earnings ratios, high dividend yield, high book-value ratio or membership in a particular industry sector.

Auction markets
Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange.

Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every seven weeks through a Dutch auction.

Auditor's report
A section of an annual report containing the auditor's opinion about the veracity of the financial statements.

Authorized shares
Number of shares authorized for issuance by a firm's corporate charter.

The correlation of a variable with itself over successive time intervals.

Automated Clearing House (ACH)
A collection of 32 regional electronic interbank networks used to process transactions electronically with a guaranteed one-day bank collection float.

Automatic stay
The restricting of liability holders from collection efforts of collateral seizure, which is automatically imposed when a firm files for bankruptcy under Chapter 11.

Using past data to predict future data.

Availability float
Checks deposited by a company that have not yet been cleared.

An arithmetic mean of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA's stocks, and divides the results by a predetermined number, the divisor.

Average (across-day) measures
An estimation of price that uses the average or representative price of a large number of trades.

Average accounting return
The average project earnings after taxes and depreciation divided by the average book value of the investment during its life.

Average age of accounts receivable
The weighted-average age of all of the firm's outstanding invoices.

Average cost of capital
A firm's required payout to the bondholders and to the stockholders expressed as a percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total required cost of capital by the total amount of contributed capital.

Average life
Also referred to as the weighted-average life (WAL). The average number of years that each dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal paydowns.

Average maturity
The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life.

Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.

Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.

A trade, quote, or market that does not originate with the dealer in question, e.g., 'the bid is 98-10 away from me.'

Back fee
The fee paid on the extension date if the buyer wishes to continue the option.

Back office
Brokerage house clerical operations that support, but do not include, the trading of stocks and other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory compliance.

Back-end loan fund
A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from 4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a designated time, such as one year. The commission decreases the longer the investor holds the shares. The formal name for the back-end load is the contingent deferred sales charge, or CDSC.

Back-to-back financing
An intercompany loan channeled through a bank.

Back-to-back loan
A loan in which two companies in separate countries borrow each other's currency for a specific time period and repay the other's currency at an agreed upon maturity.

(1) When bond yields and prices fall, the market is said to back-up. (2) When an investor swaps out of one security into another of shorter current maturity he is said to back up.

A market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month. This situation may occur in when the costs of storing the product until eventual delivery are effectively subtracted from the price today. The opposite of contango.

Baker Plan
A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased financing from the World Bank and continued lending from commercial banks.

Balance of payments
A statistical compilation formulated by a sovereign nation of all economic transactions between residents of that nation and residents of all other nations during a stipulated period of time, usually a calendar year.

Balance of trade
Net flow of goods (exports minus imports) between countries.

Balance sheet
Also called the statement of financial condition, it is a summary of the assets, liabilities, and owners' equity.

Balance sheet exposure
See:accounting exposure.

Balance sheet identity
Total Assets = Total Liabilities + Total Stockholders' Equity

Balanced fund
An investment company that invests in stocks and bonds. The same as a balanced mutual fund.

Balanced mutual fund
This is a fund that buys common stock, preferred stock and bonds. The same as a balanced fund.

Balloon maturity
Any large principal payment due at maturity for a bond or loan with or without a a sinking fund requirement.

BAN (Bank anticipation notes)
Notes issued by states and municipalities to obtain interim financing for projects that will eventually be funded long term through the sale of a bond issue.

In the words of Warren Buffet, Bill Bane Sr., is, 'a great American and one of the last real traders around. I like to call him 'Salvo.'' His wife, Carol, is a huge NASCAR fan, and in her own words 'delights in pulling the legs off central bankers.' Cooper Bane, son number two, is a thriving artiste who specializes in making art that is much better than the stuff most folks are doing. Jackson, son number three, is a world renowned master chef and plans on opening a restaurant. Bill Bane Jr., son…

Bank collection float
The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.

Bank discount basis
A convention used for quoting bids and offers for treasury bills in terms of annualized yield , based on a 360-day year.

Bank draft
A draft addressed to a bank.

Bank line
Line of credit granted by a bank to a customer.

Bank wire
A computer message system linking major banks. It is used not for effecting payments, but as a mechanism to advise the receiving bank of some action that has occurred, e.g. the payment by a customer of funds into that bank's account.

Banker's acceptance
A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds. They are commonly used in international transactions.

State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from the stockholders to the bondholders.

Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Bankruptcy risk
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.

Bankruptcy view
The argument that expected bankruptcy costs preclude firms from being financed entirely with debt.

Slang for one million dollars.

Barbell strategy
A strategy in which the maturities of the securities included in the portfolio are concentrated at two extremes.

Bargain-purchase-price option
Gives the lessee the option to purchase the asset at a price below fair market value when the lease expires.

Barrier options
Contracts with trigger points that, when crossed, automatically generate buying or selling of other options. These are very exotic options.

Base interest rate
Related: Benchmark interest rate.

Base probability of loss
The probability of not achieving a portfolio expected return.

Basic balance
In a balance of payments, the basic balance is the net balance of the combination of the current account and the capital account.

Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.

Basic IRR rule
Accept the project if IRR is greater than the discount rate; reject the project is lower than the discount rate.

Regarding a futures contract, the difference between the cash price and the futures price observed in the market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.

Basis point
In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis points greater than an interest rate of 4.5%.

Basis price
Price expressed in terms of yield to maturity or annual rate of return.

Basis risk
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for price risk.

Basket options
Packages that involve the exchange of more than two currencies against a base currency at expiration. The basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange for a base currency, either at the prevailing spot market rate or at a prearranged rate of exchange. A basket option is generally used by multinational corporations with multicurrency cash flows since it is generally cheaper to buy an option on a basket of currencies than to buy indi…

Basket trades
Related: Program trades.

An investor who believes a stock or the overall market will decline. A bear market is a prolonged period of falling stock prices, usually by 20% or more. Related: bull.

Bear market
Any market in which prices are in a declining trend.

Bear raid
A situation in which large traders sell positions with the intention of driving prices down.

Bearer bond
bonds that are not registered on the books of the issuer. Such bonds are held in physical form by the owner, who receives interest payments by physically detaching coupons from the bond certificate and delivering them to the paying agent.

Before-tax profit margin
The ratio of net income before taxes to net sales.

An international trade policy of competitive devaluations and increased protective barriers where one country seeks to gain at the expense of its trading partners.

Beggar-thy-neighbor devaluation
A devaluation that is designed to cheapen a nation's currency and thereby increase its exports at other countries' expense and reduce imports. Such devaluations often lead to trade wars.

Bellwether issues
Related:Benchmark issues.

The performance of a predetermined set of securities, for comparison purposes. Such sets may be based on published indexes or may be customized to suit an investment strategy.

Benchmark error
Use of an inappropriate proxy for the true market portfolio.

Benchmark interest rate
Also called the base interest rate, it is the minimum interest rate investors will demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on a comparable-maturity Treasury security that was most recently issued ('on-the-run').

Benchmark issues
Also called on-the-run or current coupon issues or bellwether issues. In the secondary market, it's the most recently auctioned Treasury issues for each maturity.

Best-efforts sale
A method of securities distribution/ underwriting in which the securities firm agrees to sell as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm holding any unsold shares in its own account if necessary).

Best-interests-of-creditors test
The requirement that a claim holder voting against a plan of reorganization must receive at least as much as he would have if the debtor were liquidated.

Beta (Mutual Funds)
The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means the fund's total return is likely to move up or down 70% of the market change; 1.3 means total return is likely to move up or down 30% more than the market. Beta is referred to as an index of the systematic risk due to general market conditions that cannot be diversified away.

Beta equation (Mutual Funds)
The beta of a fund is determined as follows: [(n) (sum of (xy)) ]-[ (sum of x) (sum of y)] [(n) (sum of (xx)) ]-[ (sum of x) (sum of x)] where: n = # of observations (36 months) x = rate of return for the S&P 500 Index y = rate of return for the fund

Beta equation (Stocks)
The beta of a stock is determined as follows: [(n) (sum of (xy)) ]-[(sum of x) (sum of y)] [(n) (sum of (xx)) ]-[(sum of x) (sum of x)] where: n = # of observations (24-60 months) x = rate of return for the S&P 500 Index y = rate of return for the stock

Biased expectations theories
Related: pure expectations theory.

Bid price
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically speaking, this is the available price at which an investor can sell shares of stock. Related: Ask , offer.

Bid-asked spread
The difference between the bid and asked prices.

A firm or person that wants to buy a firm or security.

Big Bang
The term applied to the liberalization in 1986 of the London Stock Exchange in which trading was automated with the use of computers.

Big Board
A nickname for the New York Stock Exchange. Also known as The Exchange. More than 2,000 common and preferred stocks are traded. Founded in 1792, the NYSE is the oldest exchange in the United States, and the largest. It is located on Wall Street in New York City.

Bill of exchange
General term for a document demanding payment.

Bill of lading
A contract between the exporter and a transportation company in which the latter agrees to transport the goods under specified conditions which limit its liability. It is the exporter's receipt for the goods as well as proof that goods have been or will be received.