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: 2680

Binomial option pricing model
An option pricing model in which the underlying asset can take on only two possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Black market
An illegal market.

Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the standard deviation of the stock return.

Blanket inventory lien
A secured loan that gives the lender a lien against all the borrower's inventories.

Block house
Brokerage firms that help to find potential buyers or sellers of large block trades.

Block trade
A large trading order, defined on the New York Stock Exchange as an order that consists of 10,000 shares of a given stock or a total market value of $200,000 or more.

Block voting
A group of shareholders banding together to vote their shares in a single block.

Blocked currency
A currency that is not freely convertible to other currencies due to exchange controls.

Blow-off top
A steep and rapid increase in price followed by a steep and rapid drop. This is an indicator seen in charts and used in technical analysis of stock price and market trends.

Blue-chip company
Large and creditworthy company.

Blue-sky laws
State laws covering the issue and trading of securities.

The return an investment manager is compared to for performance evaluation.

Standard terms and conditions.

Bonds are debt and are issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.

Bond agreement
A contract for privately placed debt.

Bond covenant
A contractual provision in a bond indenture. A positive covenant requires certain actions, and a negative covenant limits certain actions.

Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.

Bond indenture
The contract that sets forth the promises of a corporate bond issuer and the rights of investors.

Bond indexing
Designing a portfolio so that its performance will match the performance of some bond index.

Bond points
A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.

Bond value
With respect to convertible bonds, the value the security would have if it were not convertible apart from the conversion option.

Bond-equivalent basis
The method used for computing the bond-equivalent yield.

Bond-equivalent yield
The annualized yield to maturity computed by doubling the semiannual yield.

A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the manager's control--such as the interest rate environment and client-imposed duration policy constraints--and those that the management process contributes to, such as interest rate management, sector/quality allocations, and individual bond selection.

Charging a lot more for an asset than it's worth.

A banker or trader's positions.

Book cash
A firm's cash balance as reported in its financial statements. Also called ledger cash.

Book profit
The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.

Book runner
The managing underwriter for a new issue. The book runner maintains the book of securities sold.

Book value
A company's book value is its total assets minus intangible assets and liabilities, such as debt. A company's book value might be more or less than its market value.

Book value per share
The ratio of stockholder equity to the average number of common shares. Book value per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation (and not necessarily market valuation).

Book-entry securities
The Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the Fed in the names of member banks, which in turn keep records of the securities they own as well as those they are holding for customers. In the case of other securities where a book-entry has developed, engraved securities do exist somewhere in quite a few cases. These securities do not move from holder to holder…

A process of creating a theoretical spot rate curve , using one yield projection as the basis for the yield of the next maturity.

To obtain or receive money on loan with the promise or understanding that it will be repaid.

Borrower fallout
In the mortgage pipeline, the risk that prospective borrowers of loans committed to be closed will elect to withdraw from the contract.

Bottom-up equity management style
A management style that de-emphasizes the significance of economic and market cycles, focusing instead on the analysis of individual stocks.

Bought deal
Security issue where one or two underwriters buy the entire issue.

A term of French origin used to refer to stock markets.

A term signifying the extent an underwriter's commitment in a new issue, e.g., major bracket or minor bracket.

Brady bonds
Bonds issued by emerging countries under a debt reduction plan.

An operation in a foreign country incorporated in the home country.

A rapid and sharp price decline.

Break-even analysis
An analysis of the level of sales at which a project would make zero profit.

Break-even lease payment
The lease payment at which a party to a prospective lease is indifferent between entering and not entering into the lease arrangement.

Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of a predetermined benchmark MBS coupon. Used to identify for coupons higher than the benchmark coupon the prepayment rate that will produce the same CFY as that of the benchmark coupon; and for coupons lower than the benchmark coupon the lowest prepayment rate that will do so.

Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering into and not entering into the transaction.

Break-even time
Related: Premium payback period.

A rise in a security's price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing move in the same direction. Can be used by technical analysts as a buy or sell indicator.

Bretton Woods Agreement
An agreement signed by the original United Nations members in 1944 that established the International Monetary Fund (IMF) and the post-World War II international monetary system of fixed exchange rates.

Bridge financing
Interim financing of one sort or another used to solidify a position until more permanent financing is arranged.

British clearers
The large clearing banks that dominate deposit taking and short-term lending in the domestic sterling market.

An individual who is paid a commission for executing customer orders. Either a floor broker who executes orders on the floor of the exchange, or an upstairs broker who handles retail customers and their orders.

Broker loan rate
Related: Call money rate.

Brokered market
A market where an intermediary offers search services to buyers and sellers.

Bubble theory
Security prices sometimes move wildly above their true values.

Slang for one million dollars.

A detailed schedule of financial activity, such as an advertising budget, a sales budget, or a capital budget.

Budget deficit
The amount by which government spending exceeds government revenues.

Builder buydown loan
A mortgage loan on newly developed property that the builder subsidizes during the early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

An investor who thinks the market will rise. Related: bear.

Bull CD, Bear CD
A bull CD pays its holder a specified percentage of the increase in return on a specified market index while guaranteeing a minimum rate of return. A bear CD pays the holder a fraction of any fall in a given market index.

Bull market
Any market in which prices are in an upward trend.

Bull spread
A spread strategy in which an investor buys an out-of-the-money put option, financing it by selling an out-of-the money call option on the same underlying.

Bull-bear bond
Bond whose principal repayment is linked to the price of another security. The bonds are issued in two tranches: in the first tranche repayment increases with the price of the other security, and in the second tranche repayment decreases with the price of the other security.

Bulldog bond
Foreign bond issue made in London.

Bulldog market
The foreign market in the United Kingdom.

Bullet contract
A guaranteed investment contract purchased with a single (one-shot) premium. Related: Window contract.

Bullet loan
A bank term loan that calls for no amortization.

Bullet strategy
A strategy in which a portfolio is constructed so that the maturities of its securities are highly concentrated at one point on the yield curve.

Bullish, bearish
Words used to describe investor attitudes. Bullish refers to an optimistic outlook while bearish means a pessimistic outlook.

Bundling, unbundling
A trend allowing creation of securities either by combining primitive and derivative securities into one composite hybrid or by separating returns on an asset into classes.

Business cycle
Repetitive cycles of economic expansion and recession.

Business failure
A business that has terminated with a loss to creditors.

Business risk
The risk that the cash flow of an issuer will be impaired because of adverse economic conditions, making it difficult for the issuer to meet its operating expenses.

Busted convertible
Related: Fixed-income equivalent.

Butterfly shift
A non-parallel shift in the yield curve involving the height of the curve.

To purchase an asset; taking a long position.

Buy in
To cover, offset or close out a short position. Related: evening up, liquidation.

Buy limit order
A conditional trading order that indicates a security may be purchased only at the designated price or lower. Related: Sell limit order.

Buy on close
To buy at the end of the trading session at a price within the closing range.

Buy on margin
A transaction in which an investor borrows to buy additional shares, using the shares themselves as collateral.

Buy on opening
To buy at the beginning of a trading session at a price within the opening range.

Buy-and-hold strategy
A passive investment strategy with no active buying and selling of stocks from the time the portfolio is created until the end of the investment horizon.

Another term for a repo.

Buy-side analyst
A financial analyst employed by a non-brokerage firm, typically one of the larger money management firms that purchase securities on their own accounts.

Mortgages in which monthly payments consist of principal and interest, with portions of these payments during the early period of the loan being provided by a third party to reduce the borrower's monthly payments.

Buying the index
Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the same return.

Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is done with borrowed money.

Exchange rate between British pounds sterling and the U.S.$.

List of new issues scheduled to come to market shortly.

Calendar effect
The tendency of stocks to perform differently at different times, including such anomalies as the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.

An option that gives the right to buy the underlying futures contract.

Call an option
To exercise a call option.

Call date
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.

Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Call option
An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.

Call price
The price for which a bond can be repaid before maturity under a call provision.

Call protection
A feature of some callable bonds that establishes an initial period when the bonds may not be called.