Accounting & Investement Dictionary
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An alphabetical listing of General terms and items.
Fifth letter in a Nasdaq stock symbol specifying that the issue is the company's third class of preferred shares.
A strategy whereby an investor simply invests in a number of different assets in the hope that the variance of the expected return on the portfolio is lowered. In contrast, mathematical programming can be used to select the best possible investment weights. Related: Markowitz diversification.
An unhedged strategy making exclusive use of one of the following: Short call strategy (selling or writing call options), and short put strategy (selling or writing put options). By themselves, these positions are called naked strategies because they do not involve an offsetting or risk-reducing position in another option or the underlying security. Related: Covered option strategies. Antithesis of covered option.
Writing an option without owning the underlying asset. Holder is naked because holder may have agreed to sell something not owned.
An insurance policy that names specific risks covered by the policy.
An inactive market, which displays large fluctuations in prices due to a low volume of trading.
Reducing the difference between the bid and ask prices of a security.
See: National Association of Securities Dealers
A form required by the NASD of foreign dealers to ensure that firms participating in a new distribution of securities make a bona fide public offering.
See: National Association of Securities Dealers Automatic Quotation System
A group of 2000 companies with relatively small capitalization, which are listed separately and have at least two market makers.
The first electronic stock market listing over 5000 companies. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap Market that trades emerging growth companies.
A Michigan-based association that helps groups establish investment clubs.
Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to comply with the Maloney Act, which provides for the regulation of the OTC market.
An electronic quotation system that provides price quotations to market participants about the more actively traded common stock issues in the OTC market. About 4000 common stock issues are included in the Nasdaq system.
A commercial bank approved by the U.S. Comptroller of the Currency, which is required to be a member of and purchase stocks in the Federal Reserve System.
Federal agency that oversees and insures the federal credit union system, and is funded by its members.
Treasury bills, notes, bonds, and other debt obligations that constitute the debt owed by the federal government.
A nonprofit organization that seeks to help consumers who have taken on too much debt by helping them work out payment plans and supplying credit counseling.
The futures industry self-regulatory organization established in 1982.
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Related: Internal market
Group that advises the SEC on establishing a national exchange market system, which is a highly automated, continuous national exchange, but that preserves the regional exchanges.
Refers to over-the-counter trading. System of trading OTC stocks under the sponsorship of the NASD. Must meet certain criteria for size, profitability and trading activity. More comprehensive information is available for N.M.S. stocks than for non-N.M.S. stocks traded OTC (high, low, and last-sale prices, cumulative volume figures, and bid and ask quotations throughout the day). This is due to the fact that market makers must report the actual price and number of shares in each transaction within 90 seconds verses nonreal-time reporting for non-NMS stocks (thus, last sale prices and minute-to-minute volume updates are not possible).
A service that publishes bid and offer quotes from market makers in OTC transactions.
A clearing corporation that facilitates the settlement of accounts among brokerage firms, exchanges, and other clearing corporations.
Second-largest stock exchange based in India.
A government takeover of a private company.
Used in the context of general equities. Customer buyer or seller, versus a principal or profile interest. Legitimate, real.
Logarithm to the base e (approximately 2.7183).
Assets that are physically consumed or waste away, such as oil, minerals, gravel, and timber.
See: Net asset value
National Credit Union Administration (NCUA): A federal agency that charters and oversees federal credit unions. The NCUA insures deposits at federal credit unions and at some state credit unions against certain losses.
Assets that are easily convertible into cash, such as money market accounts and bank deposits.
The nearest active trading month of a financial or commodity futures market. Related: Deferred futures.
When several futures contracts are considered, the contract with the closest settlement date is called the nearby futures contract. The next (or the "next out") futures contract is the one that settles just after the nearby futures contract. The contract farthest away in time from settlement is called the most distant futures contract.
The expiration date of an option or future that is closest to the present.
A loan repayment schedule in which the outstanding principal balance of the loan increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.
Related: Net financing cost
Occurs when spending in a business is greater than earnings.
A bond characteristic such that the price appreciation will be less than the price depreciation for a large change in yield of a given number of basis points. For example, a fixed-rate mortgage may lose value as rates go down because of prepayments.
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A bond covenant that limits or prohibits certain actions unless the bondholders agree.
Occurs when the price of an MBS moves in the same direction as interest rates.
A proposal to assist taxpayer with below-subsistence-level incomes. After filing a tax return, such persons would receive a subsidy to bring them up above the poverty level.
A bond covenant that requires the borrower to grant lenders a lien equivalent to any liens that may be granted in the future to any other currently unsecured lenders.
Occurs when current liabilities exceed current assets, which can lead to bankruptcy.
When the yield on a short-term security is higher than the yield on a long-term security, partially because high interest rates are creating a greater demand for short-term borrowing.
The tendency of firms that are neglected by security analysts to outperform firms that are the subject of considerable attention.
A security whose title is transferable by delivery . See also: Negotiable instrument.
An unconditional order or promise to pay some amount of money, easily transferable from one party to another.
Demand deposits that pay interest.
A large-denomination CD, generally $1MM or more, that can be sold but cannot be cashed in before maturity.
An unfixed broker's commission that is determined through negotiation, depending on the specifics of the trades performed.
Markets in which each transaction is separately negotiated between buyer and seller (i.e., an investor and a dealer).
An offering of securities for which the terms, including underwriters' compensation, have been negotiated between the issuer and the underwriters.
Determining the terms of an offering by negotiation between the issuer and the underwriter rather than through competitive bidding by underwriting groups.
A securities offering process in which the purchase price paid to the issuer and the public offering price are determined by negotiation rather than through competitive bidding.
Abbreviation for nonequity options, which are options contracts on foreign currencies, debt issues, commodities, and stock indexes.
The gain or loss on a security sale as measured by the selling price of a security less the adjusted cost of acquisition.
The adjusted present value minus the initial cost of an investment.
The net present value of the savings from a refunding.
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The net present value of entering into a lease financing arrangement rather than borrowing the necessary funds and buying the asset.
The difference in total post- and pre-merger market value minus the cost of the merger.
Capital gain after income taxes have been paid.
The value of a fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed-end fund, the market price may vary significantly from the net asset value.
The ownership interest in the assets of an entity; equal total assets minus total liabilities.
A linear approximation of a number, that enables one to operationalize the total impact of leverage on firm value in the capital market imperfections view of capital structure.
The current book value of an asset or liability; that is, its original book value net of any accounting adjustments such as depreciation.
SEC requirement that member firms and nonmember securities broker-dealers maintain a maximum ratio of indebtedness to liquid capital of 15 to 1.
Beginning cash balance plus cash receipts minus cash disbursements.
This is the difference between a day's last trade and the previous day's last trade.
The difference between current assets and current liabilities, also known as working capital.
In balance of payments accounting, net errors and omissions record the statistical discrepancies that arise in gathering balance of payments data.
Also called the cost of carry or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.
Sum of disbursement float and collection float.
A measure of the overall performance of a business entity; equal to revenues minus expenses for the period.
See: Earnings per share
The total amount of interest that will be paid on a debt obligation by a corporate or municipal bond issuer.
Gross, or total, investment minus depreciation.
Income received by an investment company from dividends and interest on investments less administrative expenses, divided by the number of outstanding shares.
A lease arrangement under which the lessee is responsible for all property taxes, maintenance expenses, insurance, and other costs associated with keeping the asset in good working condition.
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A measure of the overall performance of a business entity; equal to revenues minus expenses for the period.
Losses that a firm can take advantage of to reduce taxes.
The ratio of net operating income to net sales.
Antithesis of gross parity. Convertibles: Price of a convertible security including accrued interest. International: Price of international security including commissions, fees, stamp duty, and other transaction costs, translated into U.S. dollar amounts.
The period of time between the end of the discount period and the date payment is due.
The value of the position subtracting the initial cost of setting up the position. For example, if 100 options where purchased for $1 each and the option is currently trading for $9, the value of the net position is $900 - $100 = $800.
The present value of the expected future cash flows minus the cost.
The present value of the total sum of NPVs expected to result from all of the firm's future investments.
A model valuing a firm in which net present value of new investment opportunities is explicitly examined.
An investment is worth making if it has a positive NPV Projects with negative NPVs should be rejected.
The difference between maturity value and discount when a note receivable is discounted.
Net income divided by sales; the amount of each sales dollar left over after all expenses have been paid.
Cash, marketable securities, and accounts receivable less current liabilities.
The selling price of an item less reasonable selling costs.
The net amount that would be received if all receivables considered collectible were collected; equal to total accounts receivable less the allowance for uncollectible accounts; also called the book value of accounts receivable.
Capital gains realized by an investment company minus any capital losses divided by the total number of the company's outstanding shares.
Gross sales less sales discounts and sales returns and allowances.
Refers to over-the-counter trading. Securities deal in which the quoted prices include commissions (i.e., OTC); looked at another way, the buyer and seller do not pay fees or commissions in addition to the print or quotation prices.
The after-tax net cash flow for terminating the project.
All of a company's assets except patents, trademarks, and other intangible assets minus all liabilities and the par value of preferred stock, divided by the number of shares outstanding.
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The amount of tax computed by subtracting tax credits from the gross tax liability.
A securities transaction in which no commissions or extra fees are paid, such as in an initial public offering.
Current assets minus current liabilities. Often simply referred to as working capital.
Common stockholders' equity which consists of common stock, surplus, and retained earnings.
The rate of return on a security minus purchase costs, commissions, or markups.
Reducing transfers of funds between subsidiaries or separate companies to a net amount.
To get or bring in as a net; to clear as profit.
See: Consolidated tape
Hedge that is expected to yield a dollar-neutral result of the combined position, regardless of price change in any part of the hedge securities. For any convertible trading at a premium, this ratio is less than 100%. The higher the convertible premium, the lower a ratio must be to be neutral. See: Delta.
In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not start or end on either a Friday or the day before a holiday.
A broker's document including information about a new client. See: Know your customer.
A stock valued at its highest or lowest price in the last year.
Securities that are publicly offered for the first time, whether in an IPO or as an additional issue of stocks or bonds by a company that is already public.
A security that has just been entered on a stock or bond exchange for trading.
In a Treasury auction, the amount by which the par value of the securities offered exceeds that of those maturing.
Commodities exchange in New York trading futures and options on cotton, frozen concentrated orange juice, and potatoes, as well as interest rate, currency, and index futures and options.
A wholly owned subsidiary of the NYSE that trades futures and futures options on the NYSE composite index.
The world's largest physical commodity futures exchange.
Also known as the Big Board or the Exchange.
Automated, screen-based national trading system based in Wellington.
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The market in which a new issue of securities is first sold to investors. This is not a separate market but refers to a niche of the overall market.
Refers to over-the-counter trading. A news story concerning the stock being considered has recently been posted on one of the news services, such as the Dow Jones News Service or Reuters. A courtesy standard in trading is to mention that "news is out," in case the other party is unaware of the new development.
Transaction in which the contract is settled the day after the trade is executed. See: Settlement date.
The contract settling immediately after the nearby futures contract.
A set or collection of something.
See: National Futures Association
Newly Industrialized Countries, which are countries with high-growth industrial economies, such as Hong Kong and Malaysia.
See: Note issuance facility
Institutional investor' 50 most popular stocks.
Applies mainly to international equities. Price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange started on May 16, 1949. Japanese equivalent of the U.S. Dow.
An NYSE rule requiring that orders for nine bonds or fewer stay on the floor for one hour to seek a market.
Abbreviation for "not meaningful".
See: National Market System
Used in the context of general equities. "No buy or sell interest should be entered into the Autex (advertising) system." Inquirers do not want exposure of an inquiry to affect the price at which they hope to ultimately transact the trade, hence disturbing the customer's picture.
Used for listed equity securities. Not much, if any, stock is being bid for or offered at the present time by customers or the specialist.
Stock that does not have a par value printed on the face of the stock certificate.
A letter from the Securities and Exchange Commission agreeing that the commission will take no civil or criminal action against a party, regarding a specific activity.
A market in which it does not take very complex analysis to figure out how securities are going to perform, such as a strong bull market.
A mutual fund that does not impose a sales commission. Related: Load fund, no-load mutual fund.
An open-end investment company whose shares are sold without a sales charge. There can be other distribution charges, however, such as Article 12B-1 fees. A true no-load fund has neither a sales charge nor a distribution fee.
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Shares that can be purchased from the issuing companies themselves, so that broker fees and commissions can be avoided.
A stock with no par value given in the charter or stock certificate.
Notes over bonds spread. This is the difference in yield between Treasury notes (maturing in 2 to 10 years) and Treasury bonds (maturing in 15 or more years), which is traded using Treasury note and bond futures.
Price and volume fluctuations that can confuse interpretation of market direction. Used in the context of general equities. Stock market activity caused by program trades, dividend rolls, and other phenomena not reflective of general sentiment. Antithesis of real.
In name only. Differences in compounding cause the nominal rate to differ from the effective interest rate. Inflation causes the purchasing power of money to differ from one time to another.
Accounts that are closed to a zero balance at the end of each accounting period; temporary accounts generally appearing on the income statement.
An effective rate per period multiplied by the number of periods in a year. Same as annual percentage rate.
A cash flow expressed in nominal terms if the actual dollars to be received or paid out are given.
Dollars that are not adjusted for inflation.
The actual foreign exchange quotation in contrast to the real exchange rate, which has been adjusted for changes in purchasing power.
The exercise price of a GNMA option contract, which equals the unpaid principal balance multiplied by the adjusted exercise price.
Income that has not been adjusted for inflation and decreasing purchasing power.
The interest rate unadjusted for inflation.
Price quotations on futures for a period in which no actual trading took place.
Used in the context of general equities. Bid and offer prices given by a market maker for the purpose of valuation, not as an invitation to trade; must be specifically identified as such by prefixing the quotes FYI (for your information) or FVO (for valuation only).
The income received from a fixed income security in one year divided by its par value. See also: Coupon rate.
A person or firm to whom securities or other properties are transferred to facilitate transactions, while leaving the customer as the actual owner.
Wealthy, sophisticated investors who do not meet SEC net worth requirements. These investors require less protection because of large financial resources, but only 35 nonaccredited investor can be included per investment.
A preferred stock or bond that cannot be redeemed whenever desired by the issuer.
A cost, such as depreciation, depletion, and amortization, that does not involve any cash outflow.
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Items included in the determination of net income on an accrual basis that do not affect cash; examples are depreciation and amortization.
Investing and financing activities that do not affect cash; if significant, they are disclosed below the statement of cash flows or in the notes to the financial statements.
An exchange member firm that is not able to clear transactions, and must pay another member firm to carry out its clearing operations.
A provision in a number of employment contracts that prohibits an employee from working for a competing firm for a specified number of years after the employee leaves the firm.
In a Treasury auction, bidding for a specific amount of securities at the price, whatever it may turn out to be, equal to the average price of the accepted competitive bids.
A pension plan that is fully paid for by the employer, requiring no employee contributions.
Applies mainly to convertible securities. Type of preferred stock on which unpaid or omitted dividends do not accrue. Omitted dividends are, as a rule, gone forever.
Preferred stock whose holders must forgo dividend payments when the company misses a dividend payment. Related: Cumulative preferred stock.
Any asset that is expected to be held for the whole year, not sold or exchanged, such as real estate, machinery, or a patent.
A liability due in one year.
A personal trust whose trustee has no discretion in deciding how income will be distributed to the beneficiary.
The difficulty of hedging one's human capital (the unique capabilities and expertise of individuals) and employment effort.
Risk that cannot be eliminated by having a large portfolio of many assets.
Physical assets such as real estate and machinery.
Such things as freight, insurance, passenger services, and travel.
Defined benefit pension plans that are not guaranteed by life insurance products. Related: Insured plans.
A note without periodic interest payment, but selling at a discount and maturing at face value. See: Zero-coupon bond.
Claims that cannot be easily bought and sold in the financial markets, such as those of the government and litigants in lawsuits.
Used for listed equity securities. Brokerage firm that is not a member of an organized exchange (NYSE). Such firms execute trades either through member firms, or on regional exchanges where they are members, or in the third market.
A shift in the yield curve in which yields do not change by the same number of basis points for every maturity. Related: Parallel shift in the yield curve.
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Life insurance policy whose policyholders do not receive dividends, because they are not participants in the interest, dividends, and capital gains earned by the insurer on premiums paid.
An asset that is not effectively producing income, such as an overdue loan.
A loan that increases spending power, but is used in business that does not directly increase the economy's output, such as a leveraged buyout loan.
An entity without a profit objective, oriented toward providing services efficiently and effectively.
Information about a company that is not known by the general public, which will have a definite impact on the stock price when released. See: Insider trading.
A loan with securities pledged as collateral, but which is not to be used in securities trading or transactions.
An annuity that does not fall under an IRS-approved pension plan. Contributions are made with after-tax dollars, but earnings can accumulate tax-deferred until withdrawal.
An employee stock option that does not satisfy IRS qualifying rules and therefore is liable for taxation upon exercise .
A bond that has not been rated by a large rating agency, usually because the issue is too small.
In the case of default, the lender has ability to claim assets over and above what the limited partners contributed.
A loan taken by limited partners used to finance their portion of the partnership, which is secured by their ownership in the venture.
A one-time expense or credit shown in a company's financial statement.
Not permitted, under the terms of an indenture, to be redeemed.
Not permitted, under the terms of an indenture, to be refundable.
A tangible asset with unique physical properties, like a parcel of land, a mine, or a work of art.
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called unique risk or diversifiable risk. Systematic risk refers to risk factors common to the entire economy.
Goods and services produced and consumed domestically that are not close substitutes to import or export goods and services.
A security that does not entitle the holder to vote on the corporation's resolutions or elections.
The manner in which retirement benefits are paid out.
Holds that the futures price will be bid down to a level below the expected spot price.
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Related: Standardized value
The investment history of a customer, which is used as a benchmark to test the bona fide public offerings requirement of the allocation of a hot issue.
A system that categorizes the size of transactions that are normal for a particular security and forces market makers to deal within these sizes.
A customized benchmark that includes all the securities from which a manager normally chooses, weighted as the manager would weight them in a portfolio.
A probability distribution for a continuous random variable that forms a symmetrical bell-shaped curve around the mean. This distribution has no skewness or excess kurtosis.
A random variable that has a normal probability distribution.
The age or number of working years after which a pension plan beneficiary can retire and receive unreduced benefits immediately.
See: Round lot.
Earnings that have been adjusted in order to take into account the effect of cycles in the economy.
Making a change in the income account equivalent to the tax savings realized through the use of different depreciation methods for shareholder and income tax purposes, thus washing out the benefits of the tax savings reported as final net income to shareholders.
Refers to over-the-counter trading. Not a registered market maker in the security, especially in OTC and convertibles, or having nothing real to do.
Applies mainly to international equities. Market or limit order in which the customer does not desire to transact automatically at the inside market (market held) but instead has given the trader or floor broker (listed stock) time and price discretion in transacting on a best-efforts basis. This will not hold the broker responsible for missing the price within the limits (limit not held) or obtaining a worse price (market not held). The order is marked "not held, disregard tape/DRT, take time" or bears any such qualifying notation, excluding "or better." See: Held order.
A rating service indicator, neither positive nor negative, showing that a security or company has not been rated.
An organization established for charitable, humanitarian, or educational purposes that is exempt from some taxes and in which no one in profits or losses.
A bank check having insufficient funds to back it.
Debt instruments with initial maturities longer than one year and shorter than 10 years.
A contract for privately placed debt.
An agreement by which a syndicate of banks indicates a willingness to accept short-term notes from borrowers and resell these notes in the Eurocurrency markets.
A debt owed to a creditor, evidenced by an unconditional written promise to pay a certain sum of money on or before a specified future date.
A claim against a debtor, evidenced by an unconditional written promise to pay a certain sum of money on or before a specified future date.
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Explanatory information considered an integral part of the financial statements.
A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements.
A day on which notices of intent to deliver pertaining to a specified delivery month may be issued. Related: Delivery notice.
A notice advertising a new issue of municipal securities and inviting underwriters to submit competitive bids.
The day the option is either exercised or expires.
In an interest rate swap, the predetermined dollar principal on which the exchanged interest payments are based.
An equity market unit of the Paris Bourse that deals solely in innovative, high-growth companies.
Defeasance whereby the firm's debt is cancelled.
See: Negotiable Order of Withdrawal
See: Net present value
A graph of NPV as a function of the discount rate.
NSF (not sufficient funds) check: A check that is not honored by a bank because of insufficient cash in the customer's account.
Collector of historical coins and currencies.
See: New York Stock Exchange
Composite index covering price movements of all new world common stocks listed on the New York Stock Exchange. It is based on the close of the market on December 31, 1965, at a level of 50.00, and is weighted according to the number of shares listed for each issue. Print changes in the index are converted to dollars and cents so as to provide a meaningful measure of changes in the average price of listed stocks. The composite index is supplemented by separate indexes for four industry groups: industrial, transportation, utility, and finance.
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