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

Riding the yield curve
Buying long-term bonds in anticipation of capital gains as yields fall with the declining maturity of the bonds.

Right
A short-lived (typically less than 90 days) call option for purchasing additional stock in a firm, issued by the firm to all its shareholders on a pro rata basis.

Rights offering
Issuance of 'rights' to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise issue additional common stock.

Rights-on
Shares trading with rights attached to them.

Rings
Trading arenas located on the floor of an exchange in which traders execute orders. Sometimes called a pit.

Risk
Typically defined as the standard deviation of the return on total investment. Degree of uncertainty of return on an asset.

Risk arbitrage
Speculation on perceived mispriced securities, usually in connection with merger and acquisition deals. Mike Donatelli, John Demasi, Frank Cohane, and Scott Lewis are all hardcore arbs. They had a huge BT/MCI position in the summer of 1997, and came out smelling like roses.

Risk averse
A risk-averse investor is one who, when faced with two investments with the same expected return but two different risks, prefers the one with the lower risk.

Risk classes
Groups of projects that have approximately the same amount of risk.

Risk controlled arbitrage
A self-funding, self-hedged series of transactions that generally utilize mortgage securities as the primary assets.

Risk indexes
Categories of risk used to calculate fundamental beta, including (1) market variability, (2) earnings variability, (3) low valuation, (4) immaturity and smallness, (5) growth orientation, and (6) financial risk.

Risk lover
A person willing to accept lower expected returns on prospects with higher amounts of risk.

Risk management
The process of identifying and evaluating risks and selecting and managing techniques to adapt to risk exposures.

Risk neutral
Insensitive to risk.

Risk premium
The reward for holding the risky market portfolio rather than the risk-free asset. The spread between Treasury and non-Treasury bonds of comparable maturity.

Risk premium approach
The most common approach for tactical asset allocation to determine the relative valuation of asset classes based on expected returns.

Risk prone
Willing to pay money to transfer risk from others.

Risk-adjusted profitability
A probability used to determine a 'sure' expected value (sometimes called a certainty equivalent) that would be equivalent to the actual risky expected value.

Risk-adjusted return
Return earned on an asset normalized for the amount of risk associated with that asset.

Risk-free asset
An asset whose future return is known today with certainty.

Risk-free rate
The rate earned on a riskless asset.

Riskless arbitrage
The simultaneous purchase and sale of the same asset to yield a profit.

Riskless or risk-free asset
An asset whose future return is known today with certainty. The risk free asset is commonly defined as short-term obligations of the U.S. government.

Riskless rate
The rate earned on a riskless investment, typically the rate earned on the 90-day U.S. Treasury Bill.

Riskless rate of return
The rate earned on a riskless asset.

Risky asset
An asset whose future return is uncertain.

Roll over
Reinvest funds received from a maturing security in a new issue of the same or a similar security.

Rollover
Most term loans in the Euromarket are made on a rollover basis, which means that the loan is periodically repriced at an agreed spread over the appropriate, currently prevailing LIBO rate.

Round lot
A trading order typically of 100 shares of a stock or some multiple of 100. Related: odd lot.

Round-trip transactions costs
Costs of completing a transaction, including commissions, market impact costs, and taxes.

Round-turn
Procedure by which the Long or short position of an individual is offset by an opposite transaction or by accepting or making delivery of the actual financial instrument or physical commodity.

Rule 144a
SEC rule allowing qualified institutional buyers to buy and trade unregistered securities.

Rule 415
Rule enacted in 1982 that permits firms to file shelf registration statements.

Run
A run consists of a series of bid and offer quotes for different securities or maturities. Dealers give to and ask for runs from each other.

Safe harbor lease
A lease to transfer tax benefits of ownership (depreciation and debt tax shield) from the lessee, if the lessee could not use them, to a lessor that could use them.

Safekeep
For a fee, bankers will hold in their vault, clip coupons on, and present for payment at maturity bonds and money market instruments.

Safety cushion
In a contingent immunization strategy, the difference between the initially available immunization level and the safety-net return.

Safety-net return
The minimum available return that will trigger an immunization strategy in a contingent immunization strategy.

Sale and lease-back
Sale of an existing asset to a financial institution that then leases it back to the user. Related: lease.

Sales charge
The fee charged by a mutual fund when purchasing shares, usually payable as a commission to marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It represents the difference, if any, between the share purchase price and the share net asset value.

Sales forecast
A key input to a firm's financial planning process. External sales forecasts are based on historical experience, statistical analysis, and consideration of various macroeconomic factors.

Sales-type lease
An arrangement whereby a firm leases its own equipment, such as IBM leasing its own computers, thereby competing with an independent leasing company.

Salvage value
Scrap value of plant and equipment.

Samurai bond
A yen-denominated bond issued in Tokyo by a non-Japanese borrower. Related: bulldog bond and Yankee bond.

Samurai market
The foreign market in Japan.

Savings and Loan association
National- or state-chartered institution that accepts savings deposits and invests the bulk of the funds thus received in mortgages.

Savings deposits
Accounts that pay interest, typically at below-market interest rates, that do not have a specific maturity, and that usually can be withdrawn upon demand.

SBIC
Small Business Investment Company.

Scale
A bank that offers to pay different rates of interest on CDs of varying rates is said to 'post a scale.' Commercial paper dealers also post scales.

Scale enhancing
Describes a project that is in the same risk class as the whole firm.

Scale in
When a trader or investor gradually takes a position in a security or market over time.

Scalp
To trade for small gains. It normally involves establishing and liquidating a position quickly, usually within the same day.

Scenario analysis
The use of horizon analysis to project bond total returns under different reinvestment rates and future market yields.

Scheduled cash flows
The mortgage principal and interest payments due to be paid under the terms of the mortgage not including possible prepayments.

Search costs
Costs associated with locating a counterparty to a trade, including explicit costs (such as advertising) and implicit costs (such as the value of time). Related:information costs.

Seasoned datings
Extended credit for customers who order goods in periods other than peak seasons.

Seasoned issue
Issue of a security for which there is an existing market. Related: Unseasoned issue.

Seasoned new issue
A new issue of stock after the company's securities have previously been issued. A seasoned new issue of common stock can be made by using a cash offer or a rights offer.

SEC
The Securities and Exchange Commission, the primary federal regulatory agency of the securities industry.

Second pass regression
A cross-sectional regression of portfolio returns on betas. The estimated slope is the measurement of the reward for bearing systematic risk during the period analyzed.

Secondary issue
(1) Procedure for selling blocks of seasoned issues of stocks. (2) More generally, sale of already issued stock.

Secondary market
The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. The New York stock Exchange, as well as all other stock exchanges, the bond markets, etc., are secondary markets. Seasoned securities are traded in the secondary market.

Section 482
United States Department of Treasury regulations governing transfer prices.

Sector
Refers to a group of securities that are similar with respect to maturity, type, rating, industry, and/or coupon.

Secured debt
Debt that, in the event of default, has first claim on specified assets.

Securities & Exchange Commission
The SEC is a federal agency that regulates the U.S.financial markets.

Securities analysts
Related:financial analysts

Securitization
The process of creating a passthrough, such as the mortgage pass-through security, by which the pooled assets become standard securities backed by those assets. Also, refers to the replacement of nonmarketable loans and/or cash flows provided by financial intermediaries with negotiable securities issued in the public capital markets.

Security
Piece of paper that proves ownership of stocks, bonds and other investments.

Security characteristic line
A plot of the excess return on a security over the risk-free rate as a function of the excess return on the market.

Security deposit (initial)
Synonymous with the term margin. A cash amount of funds that must be deposited with the broker for each contract as a guarantee of fulfillment of the futures contract. It is not considered as part payment or purchase. Related: margin

Security deposit (maintenance)
Related:Maintenance margin security market line (SML). A description of the risk return relationship for individual securities, expressed in a form similar to the capital market line.

Security market line
Line representing the relationship between expected return and market risk.

Security market plane
A plane that shows the equilibrium between expected return and the beta coefficient of more than one factor.

Security selection
See: security selection decision.

Security selection decision
Choosing the particular securities to include in a portfolio.

Self-liquidating loan
Loan to finance current assets, The sale of the current assets provides the cash to repay the loan.

Self-selection
Consequence of a contract that induces only one group (e.g. low risk individuals) to participate.

Sell hedge
Related: short hedge.

Sell limit order
Conditional trading order that indicates that a, security may be sold at the designated price or higher. Related: buy limit order.

Sell-side analyst
Also called a Wall Street analyst, a financial analyst who works for a brokerage firm and whose recommendations are passed on to the brokerage firm's customers.

Selling group
All banks involved in selling or marketing a new issue of stock or bonds

Selling short
If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.

Semi-strong form efficiency
A form of pricing efficiency where the price of the security fully reflects all public information (including, but not limited to, historical price and trading patterns). Compare weak form efficiency and strong form efficiency.

Senior debt
Debt that, in the event of bankruptcy, must be repaid before subordinated debt receives any payment.

Seniority
The order of repayment. In the event of bankruptcy, senior debt must be repaid before subordinated debt is repaid.

Sensitivity analysis
Analysis of the effect on a project's profitability due to changes in sales, cost, and so on.

Separation property
The property that portfolio choice can be separated into two independent tasks: 1) determination of the optimal risky portfolio, which is a purely technical problem, and 2) the personal choice of the best mix of the risky portfolio and the risk-free asset.

Separation theorem
The value of an investment to an individual is not dependent on consumption preferences. All investors will want to accept or reject the same investment projects by using the NPV rule, regardless of personal preference.

Serial bonds
Corporate bonds arranged so that specified principal amounts become due on specified dates. Related: term bonds.

Serial covariance
The covariance between a variable and the lagged value of the variable; the same as autocovariance.

Series
Options: All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price. Stocks: shares which have common characteristics, such as rights to ownership and voting, dividends, par value, etc. In the case of many foreign shares, one series may be owned only by citizens of the country in which the stock is registered.

Series bond
Bond that may be issued in several series under the same indenture.

Set of contracts perspective
View of corporation as a set of contracting relationships, among individuals who have conflicting objectives, such as shareholders or managers. The corporation is a legal contrivance that serves as the nexus for the contracting relationships.

Settlement
When payment is made for a trade.

Settlement date
The date on which payment is made to settle a trade. For stocks traded on US exchanges, settlement is currently 3 business days after the trade. For mutual funds, settlement usually occurs in the U.S.the day following the trade. In some regional markets, foreign shares may require months to settle.

Settlement price
A figure determined by the closing range which is used to calculate gains and losses in futures market accounts. Settlement prices are used to determine gains, losses, margin calls, and invoice prices for deliveries. Related: closing range.

Settlement rate
The rate suggested in Financial Accounting Standard Board (FASB) 87 for discounting the obligations of a pension plan. The rate at which the pension benefits could be effectively settled off the pension plan wished to terminate its pension obligation.

Share repurchase
Program by which a corporation buys back its own shares in the open market. It is usually done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases earnings per share, it tends to elevate the market value of the remaining shares held by stockholders.

Shareholders' equity
This is a company's total assets minus total liabilities. A company's net worth is the same thing.