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


Embedded option
An option that is part of the structure of a bond that provides either the bondholder or issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security.

Emerging markets
The financial markets of developing economies.

Employee stock fund
A firm-sponsored program that enables employees to purchase shares of the firm's common stock on a preferential basis.

End-of-year convention
Treating cash flows as if they occur at the end of a year as opposed to the date convention. Under the end-of-year convention, the present is time 0, the end of year 1 occurs one year hence, etc.

Endogenous variable
A value determined within the context of a model.

Endowment funds
Investment funds established for the support of institutions such as colleges, private schools, museums, hospitals, and foundations. The investment income may be used for the operation of the institution and for capital expenditures.

Enhanced indexing
Also called indexing plus, an indexing strategy whose objective is to exceed or replicate the total return performance of some predetermined index.

Enhancement
An innovation that has a positive impact on one or more of a firm's existing products.

Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the return offered to compensate for a perceived level of risk, each point on the line is a balanced market condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a unit change in risk.

Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest rate.

Equipment trust certificates
Certificates issued by a trust that was formed to purchase an asset and lease it to a lessee. When the last of the certificates has been repaid, title of ownership of the asset reverts to the lessee.

Equity
Represents ownership interest in a firm. Also the residual dollar value of a futures trading account, assuming its liquidation at the going market price.

Equity cap
An agreement in which one party, for an upfront premium, agrees to compensate the other at specific time periods if a designated stock market benchmark is greater than a predetermined level.

Equity claim
Also called a residual claim, a claim to a share of earnings after debt obligation have been satisfied.

Equity collar
The simultaneous purchase of an equity floor and sale of an equity cap.

Equity contribution agreement
An agreement to contribute equity to a project under certain specified conditions.

Equity floor
An agreement in which one party agrees to pay the other at specific time periods if a specific stock market benchmark is less than a predetermined level.

Equity kicker
Used to refer to warrants because they are usually issued attached to privately placed bonds.

Equity market
Related:Stock market

Equity multiplier
Total assets divided by total common stockholders' equity; the amount of total assets per dollar of stockholders' equity.

Equity options
Securities that give the holder the right to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.

Equity swap
A swap in which the cash flows that are exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate swap.

Equity-linked policies
Related: Variable life

Equityholders
Those holding shares of the firm's equity.

Equivalent annual annuity
The equivalent amount per year for some number of years that has a present value equal to a given amount.

Equivalent annual benefit
The equivalent annual annuity for the net present value of an investment project.

Equivalent annual cash flow
Annuity with the same net present value as the company's proposed investment.

Equivalent annual cost
The equivalent cost per year of owning an asset over its entire life.

Equivalent bond yield
Annual yield on a short-term, non-interest bearing security calculated so as to be comparable to yields quoted on coupon securities.

Equivalent loan
Given the after-tax stream associated with a lease, the maximum amount of conventional debt that the same period-by-period after-tax debt service stream is capable of supporting.

Equivalent taxable yield
The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-exempt issue.

Erosion
An innovation that has a negative impact on one or more of a firm's existing assets.

Ethics
Standards of conduct or moral judgement.

Euro CDs
CDs issued by a U.S. bank branch or foreign bank located outside the U.S. Almost all Euro CDs are issued in London.

Euro lines
Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.

Euro straight
A fixed-rate coupon Eurobond.

Euro-commercial paper
Short-term notes with maturities up to 360 days that are issued by companies in international money markets.

Euro-medium term note (Euro-MTN)
A non-underwritten Euronote issued directly to the market. Euro-MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are under five years.

Euro-note
Short- to medium-term debt instrument sold in the Eurocurrency market.

Eurobank
A bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.

Eurocredits
Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and government borrowers.

Eurocurrency deposit
A short-term fixed rate time deposit denominated in a currency other than the local currency (i.e. US$ deposited in a London bank).

Eurocurrency market
The money market for borrowing and lending currencies that are held in the form of deposits in banks located outside the countries of the currencies issued as legal tender.

Eurodollar bonds
Eurobonds denominated in U.S.dollars.

Euroequity issues
Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate. Euromarket. Related: external market

European Currency Unit (ECU)
An index of foreign exchange consisting of about 10 European currencies, originally devised in 1979.

European Monetary System (EMS)
An exchange arrangement formed in 1979 that involves the currencies of European Union member countries.

European option
Option that may be exercised only at the expiration date. Related: american option.

European Union (EU)
An economic association of European countries founded by the Treaty of Rome in 1957 as a common market for six nations. It was known as the European Community before 1993 and is comprised of 15 European countries. Its goals are a single market for goods and services without any economic barriers and a common currency with one monetary authority. The EU was known as the European Community until January 1, 1994.

European-style option
An option contract that can only be exercised on the expiration date.

Euroyen bonds
Eurobonds denominated in Japanese yen.

Evaluation period
The time interval over which a money manager's performance is evaluated.

Evening up
Buying or selling to offset an existing market position.

Event risk
The risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.

Event study
A statistical study that examines how the release of information affects prices at a particular time.

Events of default
Contractually specified events that allow lenders to demand immediate repayment of a debt.

Evergreen credit
Revolving credit without maturity.

Ex post return
Related: Holding period return

Ex-dividend
This literally means 'without dividend.' The buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend.

Ex-dividend date
The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. This date set by the NYSE (and generally followed on other US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is marked with an x in newspaper listings on that date.

Ex-rights
In connection with a rights offering, shares of stock that are trading without the rights attached.

Ex-rights date
The date on which a share of common stock begins trading ex-rights.

Exact matching
A bond portfolio management strategy that involves finding the lowest cost portfolio generating cash inflows exactly equal to cash outflows that are being financed by investment.

Exante return
The expected return of a portfolio based on the expected returns of its component assets and their weights.

Except for opinion
An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas of the company's operations because of restrictions imposed by management or other conditions beyond the auditor's control.

Excess reserves
Any excess of actual reserves above required reserves.

Excess returns
Also called abnormal returns, returns in excess of those required by some asset pricing model.

Exchange
The marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and the National Association of Securities Dealers (NASDAQ)

Exchange controls
Governmental restrictions on the purchase of foreign currencies by domestic citizens or on the purchase of the local domestic currency by foreigners.

Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.

Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.

Exchange offer
An offer by the firm to give one security, such as a bond or preferred stock, in exchange for another security, such as shares of common stock.

Exchange rate
The price of one country's currency expressed in another country's currency.

Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their currency exchange rates within an agreed upon range with respect to other member countries.

Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency exchange rates.

Exchange risk
The variability of a firm's value that results from unexpected exchange rate changes or the extent to which the present value of a firm is expected to change as a result of a given currency's appreciation or depreciation.

Exchangeable Security
Security that grants the security holder the right to exchange the security for the common stock of a firm other than the issuer of the security.

Exclusionary self-tender
The firm makes a tender offer for a given amount of its own stock while excluding targeted stockholders.

Execution
The process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between 1 (mutual funds) and 5 (stocks) days after an order is executed. Settlement times for exchange listed stocks are in the process of being reduced to three days in the U. S.

Execution costs
The difference between the execution price of a security and the price that would have existed in the absence of a trade, which can be further divided into market impact costs and market timing costs.

Exempt securities
Instruments exempt from the registration requirements of the Securities Act of 1933 or the margin requirements of the SEC Act of 1934. Such securities include government bonds, agencies, munis, commercial paper, and private placements.

Exercise
To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.

Exercise price
The price at which the underlying future or options contract may be bought or sold.

Exercise value
The amount of advantage over a current market transaction provided by an in-the-money option.

Exercising the option
The act buying or selling the underlying asset via the option contract.

Exogenous variable
A variable whose value is determined outside the model in which it is used. Also called a parameter.

Expectations hypothesis theories
Theories of the term structure of interest rates which include the pure expectations theory, the liquidity theory of the term structure, and the preferred habitat theory. These theories hold that each forward rate equals the expected future interest rate for the relevant period. These three theories differ, however, on whether other factors also affect forward rates, and how.

Expected future cash flows
Projected future cash flows associated with an asset of decision.

Expected future return
The return that is expected to be earned on an asset in the future. Also called the expected return.

Expected return
The return expected on a risky asset based on a probability distribution for the possible rates of return. Expected return equals some risk free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P500 and historic U.S. Treasury bond) multiplied by the assets beta.

Expected return on investment
The return one can expect to earn on an investment. See: capital asset pricing model.

Expected return-beta relationship
Implication of the CAPM that security risk premiums will be proportional to beta.

Expected value
The weighted average of a probability distribution.

Expense ratio
The percentage of the assets that were spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1 (distribution and advertising ) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). the SAI is available to shareholders on request. Neither the expense ra…

Expensed
Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year.

Expiration
The time when the option contract ceases to exist (expires).

Expiration cycle
An expiration cycle relates to the dates on which options on a particular security expire. A given option will be placed in 1 of 3 cycles, the January cycle, the February cycle, or the March cycle. At any point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2 in far-term months.

Expiration date
The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the 3rd Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.

Export-Import Bank (Ex-Im Bank)
The U.S. federal government agency that extends trade credits to U.S. companies to facilitate the financing of U.S. exports.

Exposure netting
Offsetting exposures in one currency with exposures in the same or another currency, where exchange rates are expected to move in such a way that losses or gains on the first exposed position should be offset by gains or losses on the second currency exposure.