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

The wordlist doesn't exist anymore, or, the website doesn't exist anymore. On this page you can find a copy of the original information. The information may have been taken offline because it is outdated.

New York Times - Business and Finance Glossary Category: Economy and Finance Date & country: 11/09/2007, USA Words: 2680

Open position
A net long or short position whose value will change with a change in prices.

Open repo
A repo with no definite term. The agreement is made on a day-to-day basis and either the borrower or the lender may choose to terminate. The rate paid is higher than on overnight repo and is subject to adjustment if rates move.

Open-end fund
Also called a mutual fund, an investment company that stands ready to sell new shares to the public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of its portfolio, which is computed daily at the close of the market.

Open-end mortgage
Mortgage against which additional debts may be issued. Related: closed-end mortgage.

Open-market operation
Purchase or sale of government securities by the monetary authorities to increase or decrease the domestic money supply.

Open-market purchase operation
A systematic program of repurchasing shares of stock in market transactions at current market prices, in competition with other prospective investors.

Open-outcry
The method of trading used at futures exchanges, typically involving calling out the specific details of a buy or sell order, so that the information is available to all traders.

Opening price
The range of prices at which the first bids and offers were made or first transactions were completed.

Opening purchase
A transaction in which the purchaser's intention is to create or increase a long position in a given series of options.

Opening sale
A transaction in which the seller's intention is to create or increase a short position in a given series of options.

Opening, the
The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made 'at the opening'. Related: Close, the

Operating cash flow
Earnings before depreciation minus taxes. It measures the cash generated from operations, not counting capital spending or working capital requirements.

Operating cycle
The average time intervening between the acquisition of materials or services and the final cash realization from those acquisitions.

Operating exposure
Degree to which exchange rate changes, in combination with price changes, will alter a company's future operating cash flows.

Operating lease
Short-term, cancelable lease. A type of lease in which the period of contract is less than the life of the equipment and the lessor pays all maintenance and servicing costs.

Operating leverage
Fixed operating costs, so-called because they accentuate variations in profits.

Operating profit margin
The ratio of operating margin to net sales.

Operating risk
The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk.

Operationally efficient market
Also called an internally efficient market, one in which investors can obtain transactions services that reflect the true costs associated with furnishing those services.

Opinion shopping
A practice prohibited by the SEC which involves attempts by a corporation to obtain reporting objectives by following questionable accounting principles with the help of a pliable auditor willing to go along with the desired treatment.

Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in comparable financial securities.

Opportunity costs
The difference in the performance of an actual investment and a desired investment adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able to implement all desired trades. Most valuable alternative that is given up.

Opportunity set
The possible expected return and standard deviation pairs of all portfolios that can be constructed from a given set of assets.

Optimal contract
The contract that balances the three types of agency costs (contracting, monitoring, and misbehavior) against one another to minimize the total cost.

Optimal portfolio
An efficient portfolio most preferred by an investor because its risk/reward characteristics approximate the investor's utility function. A portfolio that maximizes an investor's preferences with respect to return and risk.

Optimal redemption provision
Provision of a bond indenture that governs the issuer's ability to call the bonds for redemption prior to their scheduled maturity date.

Optimization approach to indexing
An approach to indexing which seeks to Optimize some objective, such as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.

Option
Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock's price will go down below the price set by the option. An option is part of a class of securities called derivatives, so named because …

Option elasticity
The percentage increase in an option's value given a 1% change in the value of the underlying security.

Option not to deliver
In the mortgage pipeline, an additional hedge placed in tandem with the forward or substitute sale.

Option premium
The option price.

Option price
Also called the option premium, the price paid by the buyer of the options contract for the right to buy or sell a security at a specified price in the future.

Option seller
Also called the option writer , the party who grants a right to trade a security at a given price in the future.

Option writer
Option seller.

Option-adjusted spread (OAS)
(1) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market price. (2) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread.

Options contract
A contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date).

Options contract multiple
A constant, set at $100, which when multiplied by the cash index value gives the dollar value of the stock index underlying an option. That is, dollar value of the underlying stock index = cash index value x $100 (the options contract multiple).

Options on physicals
Interest rate options written on fixed-income securities, as opposed to those written on interest rate futures contracts.

Organized exchange
A securities marketplace wherein purchasers and sellers regularly gather to trade securities according to the formal rules adopted by the exchange.

Original face value
The principal amount of the mortgage as of its issue date.

Original margin
The margin needed to cover a specific new position. Related: Margin, security deposit (initial)

Original maturity
Maturity at issue. For example, a five year note has an original maturity of 5 years; one year later it has a maturity of 4 years.

Origination
The making of mortgage loans.

OTC
See: over-the-counter.

Other capital
In the balance of payments, other capital is a residual category that groups all the capital transactions that have not been included in direct investment, portfolio investment, and reserves categories. It is divided into long-term capital and short-term capital and, because of its residual status, can differ from country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a year or more like bank loans and mortgages. Other short-term capital inclu…

Other current assets
Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year.

Other long term liabilities
Value of leases, future employee benefits, deferred taxes and other obligations not requiring interest payments that must be paid over a period of more than 1 year.

Other sources
Amount of funds generated during the period from operations by sources other than depreciation or deferred taxes. Part of Free cash flow calculation.

Out-of-the-money option
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.

Outright rate
Actual forward rate expressed in dollars per currency unit, or vice versa.

Outsourcing
The practice of purchasing a significant percentage of intermediate components from outside suppliers.

Outstanding share capital
Issued share capital less the par value of shares that are held in the company's treasury.

Outstanding shares
Shares that are currently owned by investors.

Over-the-counter market (OTC)
A decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked together by telephones and computer screens. The market is for securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks.

Overbought\oversold indicator
An indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to reaction.

Overfunded pension plan
A pension plan that has a positive surplus (i.e., assets exceed liabilities).

Overlay strategy
A strategy of using futures for asset allocation by pension sponsors to avoid disrupting the activities of money managers.

Overnight delivery risk
A risk brought about because differences in time zones between settlement centers require that payment or delivery on one side of a transaction be made without knowing until the next day whether the funds have been received in an account on the other side. Particularly apparent where delivery takes place in Europe for payment in dollars in New York.

Overnight repo
A repurchase agreement with a term of one day.

Overperform
When a security is expected to appreciate at a rate faster than the overall market.

Overreaction hypothesis
The supposition that investors overreact to unanticipated news, resulting in exaggerated movement in stock prices followed by corrections.

Overshooting
The tendency of a pool of MBSs to reflect an especially high rate or prepayments the first time it crosses the threshold for refinancing, especially if two or more years have passed since the date of issue without the WAC of the pool having crossed the refinancing threshold.

Oversubscribed issue
Investors are not able to buy all of the shares or bonds they want, so underwriters must allocate the shares or bonds among investors. This occurs when a new issue is underpriced or in great demand because of growth prospects.

Oversubscription privilege
In a rights issue, arrangement by which shareholders are given the right to apply for any shares that are not taken up.

Pac-Man strategy
Takeover defense strategy in which the prospective acquiree retaliates against the acquirer's tender offer by launching its own tender offer for the other firm.

Pairoff
A buy-back to offset and effectively liquidate a prior sale of securities.

Paper
Money market instruments, commercial paper and other.

Paper gain (loss)
Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of current market price to original cost.

Par value
Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.

Parallel loan
A process whereby two companies in different countries borrow each other's currency for a specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing foreign exchange risk. Also referred to as back-to-back loans.

Parallel shift in the yield curve
A shift in the yield curve in which the change in the yield on all maturities is the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as well. Related: Non-parallel shift in the yield curve.

Parameter
A representation that characterizes a part of a model (e.g. a growth rate), the value of which is determined outside of the model. See: exogenous variable.

Parity value
Related:conversion value

Participating fees
The portion of total fees in a syndicated credit that go to the participating banks.

Participating GIC
A guaranteed investment contract where the policyholder is not guaranteed a crediting rate, but instead receives a return based on the actual experience of the portfolio managed by the life company.

Partnership
Shared ownership among two or more individuals, some of whom may, but do not necessarily, have limited liability. See: general partnership, limited partnership, and master limited partnership.

Pass-through coupon rate
The interest rate paid on a securitized pool of assets, which is less than the rate paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.

Pass-through rate
The net interest rate passed through to investors after deducting servicing, management, and guarantee fees from the gross mortgage coupon.

Pass-through securities
A pool of fixed-income securities backed by a package of assets (i.e. mortgages) where the holder receives the principal and interest payments. Related: mortgage pass-through security

Passive investment management
Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.

Passive investment strategy
See: passive management.

Passive portfolio
A market index portfolio.

Passive portfolio strategy
A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities. Related: active portfolio strategy

Path dependent option
An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset.

Pay-up
The loss of cash resulting from a swap into higher price bonds or the need/willingness of a bank or other borrower to pay a higher rate of interest to get funds.

Payable through drafts
A method of making payment that is used to maintain control over payments made on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft to the payer, which must approve it and return it to the bank before payment can be received.

Payables
Related: Accounts payable.

Payback
The length of time it takes to recover the initial cost of a project, without regard to the time value of money.

Paydown
In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that of those sold.

Payment date
The date on which each shareholder of record will be sent a check for the declared dividend.

Payment float
Company-written checks that have not yet cleared.

Payment-In-Kind (PIK) bond
A bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or in the form of additional bonds.

Payments netting
Reducing fund transfers between affiliates to only a netted amount. Netting can be done on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).

Payments pattern
Describes the lagged collection pattern of receivables, for instance the probability that a 72-day-old account will still be unpaid when it is 73-days-old.

Payout ratio
Generally, the proportion of earnings paid out to the common stockholders as cash dividends. More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.

Peak
The transition from the end of an economic expansion to the start of a contraction.

Pension plan
A fund that is established for the payment of retirement benefits.

Pension sponsors
Organizations that have established a pension plan.

Perfect capital market
A market in which there are never any arbitrage opportunities.

Perfect competition
An idealized market environment in which every market participant is too small to affect the market price by acting on its own.