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

Discrete compoundingM
Compounding the time value of money for discrete time intervals.

Discrete random variable
A random variable that can take only a certain specified set of discrete possible values - for example, the positive integers 1, 2, 3, . . .

Discretionary account
Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.

Discretionary cash flow
Cash flow that is available after the funding of all positive NPV capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.

Discriminant analysis
A statistical process that links the probability of default to a specified set of financial ratios.

Disintermediation
Withdrawal of funds from a financial institution in order to invest them directly.

Distributed
After a Treasury auction, there will be many new issues in dealer's hands. As those issues are sold, it is said that they are distributed.

Distributions
Payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some Corporations offer Dividend Reinvestment Plans (DRP).

Divergence
When two or more averages or indices fail to show confirming trends.

Diversifiable risk
Related: unsystematic risk.

Diversification
Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk.

Dividend
A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

Dividend clawback
With respect to a project financing, an arrangement under which the sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.

Dividend clientele
A group of shareholders who prefer that the firm follow a particular dividend policy. For example, such a preference is often based on comparable tax situations.

Dividend discount model (DDM)
A model for valuing the common stock of a company, based on the present value of the expected cash flows.

Dividend growth model
A model wherein dividends are assumed to be at a constant rate in perpetuity.

Dividend limitation
A bond covenant that restricts in some way the firm's ability to pay cash dividends.

Dividend payout ratio
Percentage of earnings paid out as dividends.

Dividend policy
An established guide for the firm to determine the amount of money it will pay as dividends.

Dividend rate
The fixed or floating rate paid on preferred stock based on par value.

Dividend reinvestment plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.

Dividend rights
A shareholders' rights to receive per-share dividends identical to those other shareholders receive.

Dividend yield (Funds)
Indicated yield represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not redemption charges.

Dividend yield (Stocks)
Indicated yield represents annual dividends divided by current stock price.

Dividends per share
Amount of cash paid to shareholders expressed as dollars per share.

Dividends per share
Dividends paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.

DM
Deutsche (German) marks.

Doctrine of sovereign immunity
Doctrine that says a nation may not be tried in the courts of another country without its consent.

Documented discount notes
Commercial paper backed by normal bank lines plus a letter of credit from a bank stating that it will pay off the paper at maturity if the borrower does not. Such paper is also referred to as LOC (letter of credit) paper.

Dollar bonds
Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with 'U.S. Dollar' bonds, a common term of reference in the Eurobond market.

Dollar duration
The product of modified duration and the initial price.

Dollar price of a bond
Percentage of face value at which a bond is quoted.

Dollar return
The return realized on a portfolio for any evaluation period, including (1) the change in market value of the portfolio and (2) any distributions made from the portfolio during that period.

Dollar roll
Similar to the reverse repurchase agreement - a simultaneous agreement to sell a security held in a portfolio with purchase of a similar security at a future date at an agreed-upon price.

Dollar safety margin
The dollar equivalent of the safety cushion for a portfolio in a contingent immunization strategy.

Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

Domestic market
Part of a nation's internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation. Compare external market and foreign market.

Don't know (DK, Dked)
Don't know the trade. A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.

Double-dip lease
A cross-border lease in which the disparate rules of the lessor's and lessee's countries let both parties be treated as the owner of the leased equipment for tax purposes.

Double-tax agreement
Agreement between two countries that taxes paid abroad can be offset against domestic taxes levied on foreign dividends.

Doubling option
A sinking fund provision that may allow repurchase of twice the required number of bonds at the sinking fund call price.

Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S.companies are performing. There are thousands of investment indexes around the world for stocks, bonds, currencies and commodities.

Down-and-in option
Barrier option that comes into existence if asset price hits a barrier.

Down-and-out option
Barrier option that expires if asset price hits a barrier.

Downgrade
A classic negative change in ratings for a stock, and or other rated security.

Draft
An unconventional order in writing - signed by a person, usually the exporter, and addressed to the importer - ordering the importer or the importer's agent to pay, on demand (sight draft) or at a fixed future date (time draft), the amount specified on its face.

Drop lock
An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed if it falls to a specified level.

Drop, the
With the dollar roll transaction the difference between the sale price of a mortgage-backed pass-through, and its re-purchase price on a future date at a predetermined price.

Dual syndicate equity offering
An international equity placement where the offering is split into two tranches - domestic and foreign - and each tranche is handled by a separate lead manager.

Dual-currency issues
Eurobonds that pay coupon interest in one currency but pay the principal in a different currency.

Due bill
An instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Occasionally used in the bill market.

Dupont system of financial control
Highlights the fact that return on assets (ROA) can be expressed in terms of the profit margin and asset turnover.

Duration
A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

Dutch auction
Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions.

Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.

Dynamic hedging
A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to insure the value of a portfolio using a synthetic put option.

EAFE index
The European, Australian, and Far East stock index, computed by Morgan Stanley.

Earning power
Earnings before interest and taxes (EBIT) divided by total assets.

Earnings
Net income for the company during the period.

Earnings per share (EPS)
EPS, as it is called, is a company's profit divided by its number of outstanding shares. If a company earned $2 million in one year had 2 million shares of stock outstanding, its EPS would be $1 per share. The company often uses a weighted average of shares outstanding over the reporting term.

Earnings retention ratio
Plowback rate.

Earnings surprises
Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES. Negative earnings surprises generally have a greater adverse affect on stock prices than the reciprocal positive earnings surprise on stock prices.

Earnings yield
The ratio of earnings per share after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage.

Economic assumptions
Economic environment in which the firm expects to reside over the life of the financial plan.

Economic defeasance
See: in-substance defeasance.

Economic dependence
Exists when the costs and/or revenues of one project depend on those of another.

Economic earnings
The real flow of cash that a firm could pay out forever in the absence of any change in the firm's productive capacity.

Economic exposure
The extent to which the value of the firm will change because of an exchange rate change.

Economic income
Cash flow plus change in present value.

Economic order quantity (EOQ)
The order quantity that minimizes total inventory costs.

Economic rents
Profits in excess of the competitive level.

Economic risk
In project financing, the risk that the project's output will not be salable at a price that will cover the project's operating and maintenance costs and its debt service requirements.

Economic surplus
For any entity, the difference between the market value of all its assets and the market value of its liabilities.

Economic union
An agreement between two or more countries that allows the free movement of capital, labor, all goods and services, and involves the harmonization and unification of social, fiscal, and monetary policies.

Economies of scale
The decrease in the marginal cost of production as a plant's scale of operations increases.

Economies of scope
Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.

EDGAR
The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.

Edge corporations
Specialized banking institutions, authorized and chartered by the Federal Reserve Board in the U.S., which are allowed to engage in transactions that have a foreign or international character. They are not subject to any restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to organize and own and Edge corporation.

Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of compounding.

Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.

Effective call price
The strike price in an optional redemption provision plus the accrued interest to the redemption date.

Effective convexity
The convexity of a bond calculated with cash flows that change with yields.

Effective date
In an interest rate swap, the date the swap begins accruing interest.

Effective duration
The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bond's price taking into account the expected cash flows will change as interest rates change due to the embedded option.

Effective margin (EM)
Used with SAT performance measures, the amount equaling the net earned spread, or margin, of income on the assets in excess of financing costs for a given interest rate and prepayment rate scenario.

Effective rate
A measure of the time value of money that fully reflects the effects of compounding.

Effective spread
The gross underwriting spread adjusted for the impact of the announcement of the common stock offering on the firm's share price.

Efficiency
Reflects the amount of wasted energy.

Efficient capital market
A market in which new information is very quickly reflected accurately in share prices.

Efficient diversification
The organizing principle of modern portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any level of portfolio risk.

Efficient frontier
The combinations of securities portfolios that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return.

Efficient Market Hypothesis
In general the hypothesis states that all relevant information is fully and immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock…

Efficient portfolio
A portfolio that provides the greatest expected return for a given level of risk (i.e. standard deviation), or equivalently, the lowest risk for a given expected return.

Efficient set
Graph representing a set of portfolios that maximize expected return at each level of portfolio risk.

Either-or facility
An agreement permitting a bank customer to borrow either domestic dollars from the bank's head office or Eurodollars from one of its foreign branches.

Either-way market
In the interbank Eurodollar deposit market, an either-way market is one in which the bid and offered rates are identical.

Elasticity of an option
Percentage change in the value of an option given a 1% change in the value of the option's underlying stock.

Electronic data interchange (EDI)
The exchange of information electronically, directly from one firm's computer to another firm's computer, in a structured format.

Electronic depository transfers
The transfer of funds between bank accounts through the Automated Clearing House (ACH) system.

Eligible bankers' acceptances
In the BA market, an acceptance may be referred to as eligible because it is acceptable by the Fed as collateral at the discount window and/or because the accepting bank can sell it without incurring a reserve requirement.