DISCOVERING FINANCE

A Dictionary of Financial Jargons

Mohammad Riaz Uddin
B.B.A. Major in Finance
Dept. of Finance & Banking
University of Dhaka.

Md. Shafiul Alam (Shamol)

B.B.A. Major in Finance
Dept. of Finance & Banking
University of Dhaka.

Md. Shareef Mahmood Khan Mohammad Faisal Ahammad

B.B.A. Major in Finance
B.B.A. Major in Finance
Dept. of Finance & Banking
Dept. of Finance & Banking
University of Dhaka.
University of Dhaka.

Reviewers:
Mr. Md. Atiqur Rahman Khan
B.B.S.(Hons); M.B.A.(Finance)
University of Rajshahi.

Mr. M. Azizur Rahman Shuman

B.Sc.(Civil Engr.); BIT, Chittagong
M.B.A.(Finance);
IBA, University of Dhaka.

Prasnanir Publications
1/3 Girda Urdu Road, Bakshi Bazar, Dhaka - 1211.
Phone: 9668386, 9672572.

Published By:

Prasnanir Publications
1/3 Girda Urdu Road, Bakshi Bazar, Dhaka - 1211.
Phone: 9668386, 9672572.
2002 by Prasnanir Publications. Dhaka. All rights reserved by the authors & the
publisher. No part of this book can be reproduced in any form, by mimeograph or any
other means, without permission in writing by them.

First Edition - July 2002.

Edited By: Md. Nasir Uddin

Price: Tk. 120.00 (One Hundred Twenty) only.

Preface
Discovering Finance is our first publication but not the last
one. Students and professionals in the field of finance are the target
groups of this dictionary. The purpose of the dictionary is to enable
the readers to find quickly a definition of a topic of finance without
having to seek for it among the mass of materials in a number of
textbooks.
We have divided the whole job into five broad divisions.
The dictionary will help the readers to have knowledge about
abbreviations and equations related to finance along with
terminologies. Besides, they will have an idea about the Nobel
Laureates in Economics (Finance). Moreover, the last part will
provide them an insight into the financial institutions of
Bangladesh.
We feel gratitude to Mr. Al-haz M. A. Salam for
publishing our dictionary. We gratefully acknowledge Mr. Md.
Atiqur Rahman Khan of Prime Bank Limited and Mr. M. Azizur
Rahman Shuman of Premier Bank Limited because they have been
at great pains to work as reviewer inspite of their busy time. We
would also like to acknowledge the help of Mr. Fakhruddin
Ahmed Patwary of Bangladesh Bank, Mr. Q. A. F. M. Serazul
Islam of Shadharon Bima Corporation, Mr. M. Mustafizur
Rahman Bhuiyan of Janata Insurance Company Limited and Kazi
Arifuzzaman of Uttara Finance and Investments Limited.
We cant but remind our heartiest and most honorable
teacher Mr. Muhammad Mujibul Kabir for his instantaneous help
and assistance in every aspect.
We accept that our reviewers cannot be held liable for any
errors. Such errors are entirely of our own making, though we will
undoubtly blame each other for them. Suggestions, comments,
criticisms, and corrections from the readers are welcomed.
The Authors
discoveringfinance@yahoo.co.in

Contents
@ A-Z
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Abbreviations and Acronyms

Frequently Used Equations
Nobel Laureates in Economics (finance)
Financial Institutions of Bangladesh
Bibliography

DISCOVERING FINANCE

A
Abandonment value
The value of a project if the projects assets were sold externally; or
alternatively its opportunity value if the assets were employed else
where in the same firm.
ABC method of inventory control
Method that controls expensive inventory items more closely than less
expensive items.
Abnormal return
The difference between an actual return and a benchmark or expected
return or normal return based on the markets return and concern
securitys relationship with the market.
Absolute form of purchasing power parity
A theory that prices of products of two different countries should be
equal when measured by a common currency. Also called the "law of
one price."
Absorption costing
The process of costing products or activities by taking into account the
total costs incurred in producing the products or services.
Accelerated depreciation
The method of depreciation that writes off the cost of a capital asset
faster than the write-off under straight-line depreciation method. The
three principal methods of accelerated depreciation are (a) sum-ofyears-digits, (b) double declining balance, and (c) units of production.
Acceleration clause
A clause found in an installment financing agreement, which gives the
lender the right to demand immediate payment for any unpaid balance
of debt if a certain event occurs, such as when the borrower fails to
make a timely installment payment.
Accession
The right of an owner to have the advantages of property ownership,
which includes air rights, mineral rights, and manmade improvements.
It can be a natural process, such as a changing river course adding land
or through the purchase of adjacent land.
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DISCOVERING FINANCE

Accounting profit
A firms net income as reported on its income statement.
Accounting rate of return
Calculated by dividing the average income after taxes by the initial
outlay of a project.
Accounts payable
The amounts due to suppliers of goods and services of an organization.
Accounts receivable turnover
The ratio of net credit sales to average accounts receivable, which is a
measure of how quickly customers pay their bills.
Accounts receivable
Amounts of money owed to a firm by customers who have bought
goods or services on credit. A current asset, the accounts receivable
amount is also called receivables.
Accreting swap
An interest rate swap in which the notional principal amount increases
in a predetermined way over time.
Accrual accounting
A method of accounting in which revenue is recognized when earned
and expenses are recognized when incurred without regard to the
timing of cash receipts and expenditures. Antithesis of cash basis
accounting.
Accruals
Liabilities for services received for which payment has yet to be made.
Examples include accrued wages, accrued taxes, and accrued interest.
Accrued expenses
Amounts owed but not yet paid for wages, taxes, interests, and
dividends. The accrued expenses account is a short-term or current
liability.
Accumulated benefit obligation
An approximate measure of the liability of a pension plan in the event
of a termination at the date the calculation is performed.
Accumulated profits tax
A tax on earnings kept in a firm to prevent the higher personal income
tax rate that would obtain if profits were paid out as dividends to the
owners.
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Accumulation
In the context of corporate finance, refers to profits that are added to
the capital base of the company rather than paid out as dividends. See
Accumulated profits tax. In the context of investments, refers to the
purchase by an institutional broker of a large number of shares over a
period of time in order to avoid pushing the price of that share up. In
the context of mutual funds, refers to the regular investing of a fixed
amount while reinvesting dividends and capital gains.
Acid test ratio
A measure of liquidity, defined as current assets less inventories
divided by current liabilities. It is a variation of current ratio. Also
called quick ratio.
Acquiree
A firm that is being acquired.
Acquirer
A firm or individual that is acquiring something.
Acquisition cost
The price (including the closing costs) to purchase another company or
property. In the context of investments, it refers to price plus brokerage
commissions, of a security, or the sales charge applied to load funds.
Acquisition financing
Financing to buy own or another company.
Acquisition of assets
A merger or consolidation in which an acquirer purchases the selling
firm's assets.
Acquisition of stock
A merger or consolidation in which an acquirer purchases the
acquiree's stock.
Acquisition
When a firm buys another firm.
Active investment strategy
A strategy of regular buying and selling assets that is based on the
belief that they are mispriced by and in the market where they are
traded.
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DISCOVERING FINANCE

Active management
Attempts to identify mispriced securities, or to forecast broad market
trends.
Active portfolio strategy
A strategy that uses available information and forecasting techniques to
seek better performance than a buy and hold portfolio.
Actual growth rate
The rate of sales growth during a given year in conformity with the
previous year.
Actuary
A professional who is specialized in the field of insurance.
Additional funds needed
Funds that a firm must raise externally through borrowing or by selling
new stock.
Additions to net working capital
Component of cash flow of firm, along with operating cash flow and
capital spending.
Add-on clause
In financing agreements, a clause in a security agreement that allows
the lender to attach future-acquired assets as security (collateral) for an
existing obligation without further action on the part of the lender.
Adjustable rate mortgage
Mortgage that requires payments that adjust periodically according to
market interest rates.
Adjusted income statement approach
An approach to cash flows in generating the cash forecast in which the
forecast starts with projected net income on an accrual basis and adjusts
to a cash basis.
Adjusted present value
The sum of the discounted value of a projects operating cash flows
(assuming equity financing) plus the value of any tax-shield benefits of
interest associated with the projects financing minus any flotation
costs. So, APV= Unlevered project value + Value of project financing.
Advance commitment
A promise to sell an asset before the seller has lined up purchase of the
asset. This seller can offset risk by purchasing a futures contract to fix
the sales price.
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DISCOVERING FINANCE

After market
The market for a new security offering immediately after it is sold to
the public.
After-tax cash flow
Total cash generated by an investment annually, defined as profit after
tax plus depreciation or equivalently, operating income after tax plus
the tax rate times depreciation.
After-tax cost of debt
The relevant cost of new debt, taking into account the tax deductibility
of interest; used to calculate the WACC.
Agency costs
Costs of resolving the conflicts of interest among stockholders,
bondholders, and managers. They include the costs of providing
managers with an incentive to maximize shareholders wealth and then
monitoring their behaviour, and the cost of protecting bondholders
from shareholders. Agency costs borne by stockholders.
Agency problem
Conflicts of interest among stockholders, bondholders, and managers.
Agency theory
The theory of the relationship between principals and agents. It
involves the nature of the costs of resolving conflicts of interest
between principals and agents.
Agent
A person who sells or places an asset for another party. An agent
works on a commission or fee basis. Investment bankers sometimes act
as agents for their clients.
Aggregate demand
Total demand (for goods and services) in an economy for a given price
level. In an open economy (with government) it is modeled as AD = C
+ I + G + (X-M). Where C = Consumption, I = Investment, G =
Government Expenditure, X = Exports, M = Imports. An aggregate
demand curve is negatively sloped, i.e. the higher the price, the lower
the demand.

DISCOVERING FINANCE

Aggregate supply
Total supply (of goods and services) in an economy that firms produce
for given price levels. The elasticity of a supply curve may vary at
different levels of output, i.e. at low levels of output, an economy might
have spare capacity, hence can produce more easily for increased
demand. At higher levels of output, however (perhaps as the economy
nears full employment), aggregate supply might be less responsive to
higher demand, as there is less capacity (e.g. shortages).
Aggregation
Process in corporate financial planning whereby the smaller investment
proposals of each of the firms operational units are added up and in
effect treated as a big picture.
Aggressive financing strategy
Plan by which the firm finances its seasonal needs with short-term
funds and its permanent needs with long-term funds.
Aging accounts receivable
The process of classifying accounts receivable by their age outstanding
as of a given date.
Allotment
The number of securities assigned to each of the participants in an
underwriting syndicate.
Alpha
Measure of risk-adjusted performance. An alpha is usually generated
by regressing the security or mutual fund's excess return on the S&P
500 excess return. The beta adjusts for the risk (the slope coefficient).
The alpha is the intercept. For example, suppose the mutual fund has a
return of 25%, and the short-term interest rate is 5% (excess return is
20%). During the same time, the market excess return is 9%. Suppose
the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The
expected excess return given the risk is 2 9%=18%. The actual excess
return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also
known as the Jensen Index. Related Risk-adjusted return.
Alternative mortgage instruments
Variations of mortgage instruments such as adjustable-rate and
variable-rate mortgages, graduated-payment mortgages, reverseannuity mortgages, and several seldom-used variations.
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DISCOVERING FINANCE

Altman Z-score
Predicts whether or not a company is likely to enter into bankruptcy
within one or two years. Edward Altman developed the "Altman Zscore" by examining 85 manufacturing companies. Later, additional
"Z-Scores" were developed for private manufacturing companies (ZScore - Model A) and another for general/service firms (Z-Score Model B). Venture Line selects the "Z-Score" appropriate for each firm
based upon the questionnaire input from the listing company. A "ZScore" is only as valid as the data from which it was derived i.e. if a
company has altered or falsified their financial records/books, a "ZScore" derived from those "cooked books" is of lesser use.
Original "Z-score" [For Public Manufacturer] If the "ZScore" is 3.0 or above - bankruptcy is not likely. If the "ZScore" is 1.8 or less - bankruptcy is likely. A score between
1.8 and 3.0 is the gray area.
Model A "Z-score" [For Private Manufacturer] "Model A" of
Altman's Z-Score is appropriate for a private manufacturing
firm. "Model A" should not be applied to other companies. A
"Z-Score of 2.90 or above indicates that bankruptcy is not
likely, but a "Z-Score" of 1.23 or below is a strong indicator
that bankruptcy is likely.
Model B "Z-score" [For Private General Firm] Edward
Altman developed this version of the "Altman Z-Score" to
predict the likelihood of a privately owned non-manufacturing
company going bankrupt within one or two years. "Model B"
of Altman's "Z-Score" is appropriate for a private general
(non-manufacturing) firm. Model B should not be applied to
other companies. A "Z-Score" of 1.10 or lower indicates that
bankruptcy is likely, while a score of 2.60 or above can be an
indicator that bankruptcy is not likely. A score between the
two is the gray area.
Amalgamation
The joining of two or more businesses, also called merger.
American option
An option that may be exercised at any time up to and including the
expiration date. See also European option.
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American Stock Exchange

Stock exchange with the third highest volume of trading in the US
Located at 86 Trinity Place in downtown Manhattan. The bulk of
trading on AMEX consists of index options (computer technology
index, institutional index, major market index) and shares of small to
medium-sized companies are predominant. Recently merged with
NASDAQ.
Amortization schedule
The printed table of the payments to be made on an amortized loan
showing the date and amount of each payment; the amount of each
payment which will be applied to interest and to principal and the
balance of principal still outstanding on the loan after the payment is
made.
Amortization
Process of writing off or liquidating an asset or loan periodically on an
installment basis.
Amortized mortgage
Mortgage where the interest and principal have been fully repaid by the
mortgage.
Amortizing interest rate swap
Swap in which the principal or notional amount rises (falls) as interest
rates rise (decline).
Anaconda mortgage
A specific kind of mortgage containing a clause that states that it
secures all debts owed to the mortgagee by the mortgagor and applies
to rules of the mortgage to all such debts.
Analysis of variance
The technique for conducting a test which provides the inputs for an Ftest on the hypothesis that all of the coefficients in the regression model
are simultaneously equal.
Analyst
Employee of a brokerage or fund management house who studies
companies and makes buy-and-sell recommendations on stocks of these
companies.
Angel investor
A private wealthy individual that has no association with a venture
capital firm, investment fund, etc. The "angel" invests private money
into what he/she believes to be promising opportunities i.e. normally
start-up companies.
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DISCOVERING FINANCE

Annual clean ups

The requirement that for a certain number of days annually, borrowers
under a line of credit carry a zero loan balance (i.e. owe the bank
nothing).
Annual effective yield
Synonymous to annual percentage yield.
Annual meeting
Meeting of stockholders held once in a year at which the managers of a
company report to the stockholders on the year's results.
Annual percentage rate
A measure of the effective rate on a loan. It is the periodic rate times
the number of periods in a year. For example, a 2.5% quarterly return
has an APR of 10%.
Annual percentage yield
The effective, or true, annual rate of return. The APY is the rate
actually earned or paid in one year, taking into account the effect of
compounding. The APY is calculated by taking one plus the periodic
rate and raising it to the number of periods in a year.
Annual rate of return
There are many ways of calculating the annual rate of return. If the rate
of return is calculated on a monthly basis, we sometimes multiply this
by 12 to express an annual rate of return. This is often called the annual
percentage rate (APR).
Annual report
Yearly record of a publicly held company's financial condition. It
includes a description of the firm's operations, as well as balance sheet,
income statement, and cash flow statement information. SEC rules
require that it will be distributed to all shareholders.
Annualize
A statistical technique whereby figures covering a period of less than
one year are extended to cover a 12-month period. The technique, to be
accurate, must take seasonal variations into consideration.
Annualized holding period return
The annual rate of return that when compounded T times, would have
given the same T period holding return as actually occurred from
period 1 to period T.
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DISCOVERING FINANCE

Annuitant
An individual who receives benefits from an annuity.
Annuity due
An annuity with n payments, where the first payment is made at time t
= 0, and the last payment is made at time t = n - 1.
Annuity factor
Present value of Tk.1 paid for each of t periods.
Annuity in advance
An annuity with an immediate initial payment.
Annuity in arrears
An annuity with a first payment one full period hence, rather than
immediately. i.e., the first payment occurs on date 1 rather than on date
0.
Annuity starting date
The date when an annuitant starts receiving payments from an annuity.
Annuity
A series of uniform receives (payments) for a specific number of years,
which results from an initial deposit (receipts).
Anomalies
Security price relationships that appear to contradict a well-regarded
hypothesis; in this case, the efficient market hypothesis.
Anticipated holding period
The period of time an individual expects to hold an asset.
Anticipation transfers
A method of reducing the float within the transfer process. The transfer
is initiated based on anticipated (not actual) balances in the depository
bank.
Appraisal right
A right of shareholders in a merger to demand the payment of a fair
price for their shares, as determined independently.
Appreciation
Increase in the value of an asset.
Arbitrage activity
In the securities industry, the purchasing of undervalued shares and the
resale of these shares for a higher profit when the price is overvalued or
value is more than the purchasing price.
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Arbitrage Pricing Theory

An alternative model to the Capital Asset Pricing Model (CAPM)
developed by Stephen Ross and based purely on arbitrage arguments.
The APT implies that there are multiple risk factors that need to be
taken into account rather than single risk factor when calculating riskadjusted performance or alpha.
Arbitrage
The simultaneous buying and selling of a security at two different
prices in two different markets, resulting in profits without risk.
Perfectly efficient markets present no arbitrage opportunities. Perfectly
efficient markets seldom exist, but, arbitrage opportunities are often
precluded because of transaction costs.
Arbitrageur
One who profits from the differences in price, when the same or
extremely similar security, currency, or commodity is traded on two or
more markets. The arbitrageur profits by simultaneously purchasing
and selling these securities to take advantage of pricing differentials
(spreads) created by market conditions. See also Risk arbitrage,
convertible arbitrage, index arbitrage, and international arbitrage.
Arithmetic mean
A measure of mean annual rates of return equal to the sum of annual
holding period rates of return divided by the number of years.
Arrearage
Overdue payment; frequently, omitted dividends on preferred stocks.
Articles of incorporation
A document that establishes a corporation and specifies the rights and
limitations of the business entity.
Articles of partnership
An agreement between the partners in a business that specifies the
ownership interest of each, the method of distributing profits, and the
means for withdrawing from the partnership.
Asian call option
A call option exercisable only at maturity and having a strike price
equal to the average value of the underlying stock price during the life
of the option.
Ask price
Price at which a broker is willing to sell a specific security.
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Asset allocation
The process of deciding how to distribute an investors wealth among
different asset classes for investment purposes.
Asset depreciation range
The expected physical life of an asset. Generally the midpoint of the
ADR is utilized to determine what class an asset falls into for
depreciation purpose.
Asset management account
Brokerage account involving various services for investors, such as
investment of cash balances and check-writing privileges.
Asset management ratios
A set of ratios that measures how effectively a firm is managing its
assets.
Asset plays
Firms that have valuable assets not currently reflected in the stock
price.
Asset pricing model
A model for determining the required or expected rate of return on an
asset. See Also Capital Asset Pricing Model and Arbitrage Pricing
Theory.
Asset requirements
A common element of a financial plan that describes projected capital
spending and the proposed uses of net working capital.
Asset securitization
The process by which a financial institution pools loan and sells
securities backed by those loans.
Asset stripping
A strategy of acquiring a firm, breaking it into divisions, segmenting
the divisions, and then selling them separately.
Asset swap
The use of an interest rate swap to change the cash flow characteristics
of assets.
Asset utilization ratios
A group of ratios that measures the speed at which the firm is turning
over or utilizing its assets. We measure inventory turnover, fixed asset
turnover, total asset turnover, and the average time it takes to collect
accounts receivable.
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Asset/liability management
The task of managing the funds of a financial institution to accomplish
the two goals of a financial institution (1) to earn an adequate return
on funds invested and (2) to maintain a comfortable surplus of assets
beyond liabilities. Also called surplus management.
Asset
Anything owned by an individual or a business, which has commercial
or exchange value. Assets may consist of specific property or claims
against others, in contrast to obligations due others.
Asset-backed securities
Public offerings against some type of asset-linked debts bundled
together, such as credit card receivables or mortgages.
Assignment of mortgage
The transfer of a mortgage from the old owner to the new owner.
Assignment
A relatively inexpensive way of liquidating a failing firm that does not
involve going through the courts.
Asymmetric information
Information that is known to some people but not to other people.
At the money
A special case of an option where the exercise price and the price of the
underlying asset are identical.
At-firm float
The time a check spends at the firm before it is forwarded to the bank.
ATM
A computerized machine that enables customers to withdraw cash from
their current accounts, especially outside normal banking hours.
Attribution analysis
An assessment technique designed to establish whether a managers
performance relative to a benchmark resulted from market timing or
security selection skills.
Auction markets
Markets in which the prevailing price is determined through the free
interaction of prospective buyers and sellers, as on the floor of the stock
exchange.
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Auctioneer
A market participant who facilitates trades by seeking bids from buyers
and sellers that establish the market-clearing amount to be traded and
the price that makes amount demanded equal amount offered.
Audit
An examination of a company's accounting and financial records and
supporting documents by an accounting professional, such as a CPA or
FCA or ACA.
Auditor's report
A section of an annual report that includes the auditor's opinion about
the veracity of the financial statements.
Autarky
Absence of a cross-border trade in models of international trade.
Authority bond
A bond issued by a government agency or a corporation created to
manage a revenue-producing public enterprise. The difference between
an authority bond and a municipal bond is that margin protections may
be incorporated in the authority bond contract as well as in the
legislation that enables the authority.
Authorized shares
Number of shares authorized for issuance by a firm's corporate charter.
Autocorrelation test
A test of the efficient market hypothesis that compares security price
changes over time to check for predictable correlation patterns.
Autocorrelation
The correlation between members of series of observations of a
variable over successive time intervals. Sometimes called serial
correlation.
Automated bond system
The computerized system that records bids and offers for inactively
traded bonds until they are cancelled or executed on the NYSE.
Automated clearing house
A collection of regional electronic inter-bank networks used to process
transactions electronically with a guaranteed one-day bank collection
float.
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Automated clearinghouse electronic transfer

Electronic version of the depository transfer check, and can be used
between banks that participate in the automated clearinghouse system.
Auto-Regressive Conditional Heteroskedasticity (ARCH)
A nonlinear stochastic process, where the variance is time-varying, and
a function of the past variance. ARCH processes have frequency
distributions which have high peaks at the mean and fat-tails, much like
fractal distributions. The Generalized ARCH (GARCH) model is also
widely used.
Average collection period
Average amount of time required to collect an account receivable. Also
referred to as days sales outstanding.
Average cost of capital
A firms required payout to the bondholders and the stockholders
expressed as a percentage of capital contributed to the firm. Average
cost of capital is computed by dividing the total required cost of capital
by the total amount of contributed capital.
Average rate of return
Synonymous to accounting rate of return.
Average tax rate
Tax paid divided by taxable income.

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B
Back office
The folks behind the scenes in brokerages and trading houses. These
teams support the day-to-day trading operations (e.g. trade settlement,
trade confirmation, legal compliance, record keeping and daily profit
and loss calculation).
Back testing
A method of testing a quantitative model in which computers are used
to examine the composition and returns of portfolios based on historical
data to determine if the selected strategy would have worked in the
past.
Back-end load fund
A mutual fund that charges investors a fee to sell (redeem) shares often
ranges from 4% to 6%. Some back-end load funds impose a full
commission if the shares are redeemed within a designated length of
time, such as one year. The commission decreases, the longer the
investor holds the shares. The formal name for the back-end load is the
contingent deferred sales charge, or CDSC.
Back-end load
A redemption or exit fee incurred when one sells his or her shares.
Back-to-back financing
An intercompany loan channeled through a bank.
Back-to-back loan
A loan in which two companies in separate countries borrow each
other's currency for a specific time period and repay the other's
currency at an agreed-upon maturity.
Backup Line of Credit
A bank assurance of funds obtained by an issuer of commercial paper
to protect the CP investor from default. The issuer pays a commitment
fee to the bank.
Backwardation
A market condition in which futures prices are lower in the distant
delivery months than in the nearest delivery month. This may occur
when the costs of storing the product until eventual delivery are
effectively subtracted from the price today. The opposite of contango.
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Bad debt
An open account balance or loan receivable that has proven to be
uncollectible and is written off.
Balance of payments
All transactions involving a country's trade in goods and services, as
well as all capital transactions (borrowing, lending) between one
country and the rest of the world over a given period of time. The
balance of payment includes all transactions, i.e. individuals,
companies and the public sector.
Balance of trade
Part of a country's balance of payments that covers trade in goods and
services (imports and exports) with the rest of the world over a given
period of time. If exports are higher than imports, there is a trade
surplus. If exports are less than imports, there is a trade deficit.
Balance sheet
A financial snapshot, taken at a point in time of all the assets the
company owns and all the claims against those assets. The amounts
shown on a balance sheet are generally the historic cost of items and
not their current values.
Balanced budget multiplier
The concept, which is concerned with the aggregate economic effects
that derive from changes in tax collections and in governmental
exhaustive expenditures in the same direction and by the same amount.
Balloon payment mortgage
Mortgage that requires payments for a three to five year period; at the
end of the period, full payment of the principal.
Balloon payment
A payment on debt that is much larger than other payments. The
ultimate balloon payment is the entire principal at maturity.
Bank discount method
An annualized interest rate assuming simple interest, a 360-day year
and using the face value of the security rather than the purchase price to
compute return per taka invested.
Bank holding company
A firm that owns one or more banks, usually by holding all or most of
the equity shares of those banks.
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Bank reconciliation
The verification of a bank statement balance and the depositors
checkbook balance.
Bank run
Surprise simultaneous (and usually large) cash withdrawals from a
bank brought about by loss in depositor confidence, and fear that the
bank will close. A run on a bank can quite easily force closure given
that reserve requirements (i.e. deposits banks are obliged to hold in
reserve) are usually a small proportion of total deposits received.
Bankers acceptance
The short-term promissory notes for which a bank (by having
accepted them) promises to pay the holder the face amount at
maturity.
Bankruptcy costs
Costs related to the use of the bankruptcy mechanism.
Bankruptcy risk
The risk that a firm will be unable to meet its debt obligations. Also
referred to as default or insolvency risk.
Bankruptcy
The legal mechanism by which creditors take the lead over a company
after that company could not meet it's debt commitments.
Bar chart
A plot of daily stock price plotted against time.
Barbell strategy
A fixed income strategy in which the maturity's of the securities
included in the portfolio are concentrated at two extremes.
Barefoot pilgrim
A slang term for an unsophisticated investor who has lost everything on
the stock market.
Bargain-purchase price option
An option which gives the lessee the right to purchase the asset at a
price below fair market value when the lease expires.
Barter
A form of trading where the parties are accepting goods as payment
rather than cash.
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DISCOVERING FINANCE

Base period
A particular period of time used for comparative purposes when
measuring economic data.
Basis earnings per share
Earnings per share unadjusted for dilution.
Basis rate swap
An interest rate swap in which both parties exchange floating-rate
payments based on a different money market reference rate.
Basis risk
Risk attributable to uncertain movements in the spread between a
futures price and a spot price.
Basis
The difference between the spot price of the underlying asset and the
futures contract price at any point in time.
Baumol model
The model used to address temporary investment decisions where the
firm is assumed to receive cash periodically but to pay out cash
continuously at a steady rate.
BCG product portfolio matrix
A tool for strategic planning and resource allocation that analyses
firms/products on the basis of relative market share and industry
growth rate. It classifies products/firms into four broad categories Stars, Question marks, Cash Cows, and Dogs.
Bear hug
Hostile takeover attempt in which the acquirer offers an exceptionally
large premium over the market value of the acquiree's share so as to
squeeze (hug) the target into acceptance.
Bear market
Any market in which prices exhibit a declining trend. For a prolonged
period, usually falling by 20% or more.
Bear
An investor who believes a stock or the overall market will decline. A
bear market is a prolonged period of falling stock prices, usually by
20% or more.
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DISCOVERING FINANCE

Bearer bond
An unregistered bond for which ownership is determined by
possession. The holder receives interest payments by clipping coupons
attached to the security and sending them to the issuer for payment.
Bearer securities
Securities that are not registered on the books of the issuing
corporation. Payments are made to whoever presents the appropriate
coupon. Bearer securities facilitate tax avoidance.
Behavioral finance
The study of investment behavior, based on the belief that investors do
not always act rationally.
Benchmark error
Situation where an inappropriate or incorrect benchmark is used to
compare and assess portfolio returns and management.
Benchmark portfolio
A comparison standard of risk and assets included in the policy
statement and similar to the investors risk preference and investment
needs, which can be used to evaluate the investment performance of the
portfolio manager.
Benchmark risk-adjusted discount rate method
A method used to reflect either total risk or systematic risk through
determining the appropriate risk premium by comparing the risk of the
marginal cash flow with that of traded assets and employing the
markets required returns for traded assets of comparable risk.
Beneficiary
The person in whose favor a letter of credit is issued or a draft is drawn.
Benefit-cost ratio
Synonymous to profitability index.
Beranek model
The model used to address temporary investment decisions where the
firm is hypothesized to receive cash steadily but to pay out cash
periodically.
Best effort offering
A security offering in which the investment bankers agree to use only
their best efforts to sell the issuers securities. The investment bankers
do not commit to purchase any unsold securities.
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DISCOVERING FINANCE

Best-efforts agreement
Arrangement in which the investment banking firm does not guarantee
a price on securities to be issued by a corporation, but states only that it
will give its best effort to sell the securities at a reasonable price.
Beta coefficient
A measure of the extent to which the returns on a specific stock move
with the stock market.
Beta
The measure of an asset's risk in relation to the market (for example,
the S&P500) or to an alternative benchmark or factors. Roughly
speaking, a security with a beta of 1.5, will have move, on average, 1.5
times the market return. More precisely, that stock's excess return (over
and above a short-term money market rate) is expected to move 1.5
times the market excess return. According to asset pricing theory, beta
represents the systematic risk that cannot be diversified away. When
using beta, there are a number of issues that you need to be aware of
(1) betas may change through time; (2) betas may be different
depending on the direction of the market (i.e. betas may be greater for
down moves in the market rather than up moves); (3) the estimated beta
will be biased if the security does not frequently trade; (4) the beta is
not necessarily a complete measure of risk (you may need multiple
betas). Also, note that the beta is a measure of co-movement, not
volatility. It is possible for a security to have a zero beta and higher
volatility than the market.
Bid price
The price at which the specialist or dealer offers to buy shares.
Bid-ask spread
The difference between a dealer's bid and asked price.
Bidder
A firm or person that wants to buy a firm or security.
Bidding buyer
In the context of general equities, a nonaggressive buyer who prefers to
await a natural seller in the hope of paying a lower price.
Bidding through the market
In the context of general equities, aggressive willingness to purchase a
security at a premium to the inside market.
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DISCOVERING FINANCE

Big bang theory

The theory that the larger the relative revision in expected cash flows,
the larger the security price revaluation implication of the information
release.
Big bang
Deregulatory event in London in 1986 that allowed investment firms
trading in the United States and Japan to trade in London and
eliminated the fixed commission structure on security transactions.
Big bath
The practice that once management encounters a loss year, additional
steps are taken to add to the magnitude of the loss, for example, by
further writing down of assets or by creating provisions for possible
future losses.
Bill of exchange
A negotiable instrument where three parties are involved one party
draws an order on the second party to pay a sum certain to a third party
at a stated future time. A check is a bill of exchange payable on demand
one party writes a check directing a bank (second party) to pay the
payee (third party) sum certain on demand.
Bill of lading
The contract between the owner of the goods and the cargo carrier to
move the goods to a specified destination. A clean bill of lading is
issued by the carrier verifying receipt of the merchandise in apparent
good condition (without visually apparent damage or defect). Bills of
lading can sometimes be made to cover the whole trip, or separate bills
of lading can be prepared for each carrier. Ocean shipments generally
require an Inland Bill of Lading covering land transportation to the port
and an Ocean Bill of Lading covering the ship portion. Bills of lading
are negotiable while cargo is in transit.
Binomial option pricing model
A valuation equation that assumes the price of the underlying asset
changes through a series of discrete upward or downward movements.
Black economy
All economic activity that is not officially recorded, i.e. not declared
for tax purposes. It tends to be more prevalent in the service sectors of
economies. Black economies tend to grow in situations of significant
state intervention, often as a response to economic crisis. In countries
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DISCOVERING FINANCE

with large black economies, state (official) statistics tend to be

inaccurate. The black economy sometimes referred to as the shadow
economy.
Black Friday
A precipitous drop in a financial market. The original Black Friday
occurred on September 24, 1869, when prospectors attempted to corner
the gold market.
Black knight
A person or firm that makes an unwelcome takeover bid for a company.
Black market
An illegal market.
Black Monday
Refers to October 19, 1987, when the Dow Jones Industrial Average
fell 508 points on the heels of sharp drops the previous week. On
Monday, October 27, 1997, the Dow dropped 554 points. While the
point drop set a new record, the percentage decline was substantially
less than in 1987.
Black Thursday
October 24 1929, the day of Wall Street crash.
Black Wednesday
Wednesday 16 September 1992, when Sterling left the Exchange Rate
Mechanism, which led to a 15% fall in its value against the
Deutschmark. The Chancellor of the Exchequer and the Prime Minister,
having previously described this measure as a betrayal of our future,
were called upon to resign, but not do so.
Black-Scholes option-pricing model
A valuation equation that assumes the price of the underlying asset
changes continuously through the options expiration date by a
statistical process known as geometric Brownian motion. It was
developed by Fischer Black and Myron Scholes in 1973.
Blanket inventory lien
A secured loan that gives the lender a lien against all the borrowers
inventories.
Blanket mortgage
A mortgage where one loan is secured against more than one parcel of
land.
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Block transactions
Large transactions in which at least 10,000 shares of stock are bought
or sold.
Blue chip company
Large and creditworthy company. Used in the context of general
equities. Company renowned for the quality and wide acceptance of its
products or services, and for its ability to make money and pay
dividends.
Blue Sky Laws
State laws aimed at regulating the sale of securities within the state and
thereby protecting investors.
Bona fide
In good faith; without dishonesty; sincere; with integrity
Bond agreement
A contract for privately placed debt.
Bond equivalent yield
Bond yield calculated using simple rather than compound interest.
Bond indenture
A legal document specifying the rights and obligations of both the
issuing firm and the bondholders.
Bond price volatility
The percentage changes in bond prices over time.
Bond rating
A rating based on the possibility of default by a bond issuer. The
ratings range from AAA (highly unlikely to default) to D (in default).
Bond swap
An active bond portfolio management strategy that exchanges one
position for another to take advantage of some difference between
them.
Bond
A security that obligates the issuer to make specified payments to the
holder over a period of time.
Bonded warehouse
A warehouse authorized by customs officials for the storage of goods
on which payment of duty is deferred until the goods are removed.
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DISCOVERING FINANCE

Bonding
Generally used by service companies as a guarantee to their clients that
they have the necessary ability and financial tracking to meet their
obligations. Bonds are also used to guarantee payment of duty for
governments customs entry.
Bonus shares
Dividend paid in the form of equity shares and not in cash.
Book cash
A firm's cash balance as reported in its financial statements.
Book runner
The managing underwriter for a new issue. The book runner maintains
the book of securities sold.
Book value per share
Per share accounting equity value of a firm. Total accounting equity
divided by the number of outstanding shares.
Book value
The reported stockholders equity of a company, less the liquidating
value of any preferred shares.
Book-entry transaction
A transaction in which no actual paper or certificate is created. All
transactions simply take place on the books via computer entries.
Bootstrap
The start-up of a company with very little capital.
Bottom up approach
An investment strategy that first seeks individual companies with
attractive investment potential, then proceeds to consider the larger
economic and industry trends affecting those companies.
Bought deal
An underwriting arrangement whereby an investment banking firm or
group of firms offers to buy an entire issue from the issuer.
Breadth
A measure of the extent to which movement in a market index is
reflected widely in the price movements of all the stocks in the market.
The common measure of breadth is the spread between the number of
stocks that advance and decline in price. If advances outnumber
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DISCOVERING FINANCE

declines by a wide margin, then the market is viewed as being stronger

because the rally is widespread. These breadth numbers also are
reported daily in the Wall Street Journal.
Break-even analysis
An analytical technique for studying the relationship among fixed cost,
variable cost, profits and sales volume.
Break-even lease payment
The lease payment at which a party to a prospective lease is indifferent
between entering and not entering into a lease arrangement.
Break-even point
The sales volume required so that total revenues and total costs are
equal; may be expressed in units or in sales taka.
Breakthrough innovation
A new product with some technological changes.
Break-up value
The value one could realize by dividing a multibusiness company into a
number of separate enterprises and disposing of each individually.
Bridge loan
Funds provided as temporary financing until other sources of long term
funds can be obtained; commonly provided by securities firms to firms
experiencing leveraged buyouts. Also called bridge finance.
Broad money
An informal name of M3.
Broker
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.
Also, person who acts as an intermediary between a buyer and seller,
usually charging a commission. A "broker" who specializes in stocks,
bonds, commodities, or options acts as an agent and must be registered
with the exchange where the securities are traded. Antithesis of dealer.
Brokered market
A market in which an intermediary offers search services to buyers and
sellers.
Bubble theory
Theory states that security prices sometimes move wildly above their
true values, or the price falls sharply until the "bubble bursts".
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Bucket shop
An illegal brokerage firm that accepts customer orders but does not
attain immediate executions. A bucket shop broker promises the
customer a certain price, but waits until a price discrepancy is present
and the trade is advantageous to the firm and then keeps the difference
as profit. Alternatively, the broker may never fill the customer's order
but keep the money.
Budget deficit
The amount by which spending exceeds revenues.
Budget mortgage
A mortgage in which the borrower is required to make periodic
payments not only for interest and principal, but also for insurance
premiums and realty tax installments.
Budget surplus
The amount by which revenues exceed spending.
Budget
Projected financial statements used to compare with actual performance
to stimulate improvements in the use of company resources in a
planning and control process.
Budgeting
The process of planning future operations and controlling operations by
comparing actual results with planned expectations.
Bulge-bracket firms
Investment banking firms that because of their size, reputation,
presence in key markets, and customer base are viewed as the premier
firms.
Bull market
Any market in which prices are in an upward trend.
Bull
A dealer on a stock exchange, currency market, or commodity market
who expects prices to rise.
Bullet bond
A bond where no principal payments are made until maturity date.
Bullet loan
Loan structured so that interest payments and the loan principal are to
be paid off in one lump sum at a specified future date.
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DISCOVERING FINANCE

Bullet payment
The final repayment of a loan, which consists of the whole of sum
borrowed.
Bullet strategy
A fixed income strategy in which a portfolio is constructed so that the
maturities of its securities are highly concentrated at one point on the
yield curve.
Bullet swap
An interest rate swap in which the notional principal amount does not
vary over the life of the swap.
Bullet
A security, offering a fixed interest and maturing on a fixed date.
Bullion
Gold, silver, or some other precious metal used in bulk, i.e. in the form
of bars or ingots rather than in coin. Central bank of a country uses gold
bullion in the settlement of international debts.
Bullish
An optimistic outlook of an investor, while bearish means a pessimistic
outlook.
Bundling
Combining more than one security into a composite security.
Burn rate
The rate at which a start-up company expends venture capital to finance
overhead costs prior to the generation of positive cash flow.
Business combination
Synonymous to merger.
Business cycle
A recurrent cycle of growth, decline, recession, and recovery in the
economic activity of a capitalist country.
Business failure
A business that has terminated with a loss to creditors.
Business finance
The art and science of managing money. It is the act or process of
accumulation and utilization of funds to accomplish a firms ultimate
goal.
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Business plan
A written plan used to chart a new or ongoing business strategies, sales
projections, and key personnel in order to obtain financing and / or to
provide a strategic foundation under which a business can grow.
Business risk
The risk related to the inability of the firm to hold its competitive
position and maintain stability and growth in earnings.
Bust-up takeover
A leveraged buyout in which the buyer sells off the assets of the target
company to repay the debt that financed the takeover.
Buy limit order
A conditional trading order that indicates a security may be purchased
only at the designated price or lower.
Buy on close
Buying at the end of the trading session at a price within the closing
range.
Buy on opening
Buying at the beginning of a trading session at a price within the
opening range.
Buy order
An order to a broker to purchase a specific quantity of a security.
Buy stop order
A buy order not to be executed until the market price rises to the stop
price. Once the security has broken through that price, the order is then
treated as a market order. Also known as a suspended market order.
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.
Buy-and-write strategy
An option strategy that calls for the purchase of stocks and the writing
of covered call options on them.
Buyers over
A market in which the sellers have sold all they wish to sell but there
are still buyers. This is clearly a strong market, with an inclination for
prices to rise.
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Buying on margin
A transaction in which an investor borrows to buy shares using the
shares themselves, as collateral.
Buy-side analyst
A financial analyst employed by a nonbrokerage firm, typically one of
the larger money management firms that purchases securities on its
own account.

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C
Call feature
Part of the indenture agreement between the bond issuer and buyer
describing the schedule and price of redemptions prior to maturity.
Call market
A market in which trading for individual stocks takes place only at
specified times. All the bids and asks available at the time are
combined and the market administrators specify a single price that will
possibly clear the market at that time.
Call money rate
The interest rate banks charge a broker for the funding of loans to
investors who buy on margin. Also known as the broker loan rate.
Call money
Money put into the money market that can be called at short notice.
Call option
A contract that gives the holder the right to purchase a specified
quantity of the underlying asset at a predetermined price (the exercise
price) on or before a fixed expiration date.
Call premium
Difference between a bonds call price and its par value.
Call price of a bond
Amount at which a firm has the right to repurchase its bonds or
debentures before the stated maturity date. The call price is always set
at equal to or more than the par value.
Call protected
Describes a bond that is not allowed to be called, usually for a certain
early period in the life of the bond.
Call provision
A written agreement between an issuing corporation and its
bondholders that gives the corporation the option to redeem the bond at
a specified price before the maturity date.
Call risk
The disadvantages associated with the early retirement of a bond issue.
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Call
A demand for a payment due on nil or partly paid stocks.
Callable bond
A bond that is subject to be repurchased at a stated call price before
maturity.
Calling refunding
A procedure by which a company issues a bond with a high coupon rate
when market interest rates are high, and if interest rates later fall, it
retires the high-coupon debt and issue new bonds at a lower coupon
rate to reduce interest payments.
CAMEL rating
A system that assigns a numerical rating to bank based on examiner
judgment regarding the banks capital adequacy (C), asset condition
(A), management quality (M) , earnings record (E) and liquidity
position (L).
CAPEX
An acronym for capital expenditure.
Capital adequacy
The ability of a bank to meet the needs of their depositors and other
creditors in terms of available finds.
Capital allocation line
A line showing the maximum expected return for a given level of risk
for all portfolios containing both risk-free asset and risky assets, given
the portfolio managers assumptions about expected returns and the
variances and covariances of expected returns.
Capital appreciation funds
A mutual fund designed for maximum capital appreciation that places
its money in companies with high growth rates.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
expected return, and serves as a model for the pricing of risky
securities. The CAPM asserts that the only risk that is priced by rational
investors is systematic risk, because that risk cannot be eliminated by
diversification. The CAPM says that the expected return of a security
or a portfolio is equal to the rate on a risk-free security plus a risk
premium multiplied by the assets systematic risk. The theory was
developed by William Sharpe (1964) and John Lintner (1965).
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Capital asset
A long-term asset that is not purchased or sold in the normal course of
business. Generally, it includes fixed assets, e.g., land, buildings,
equipment, fixtures and furniture.
Capital budget
The estimated amount planned to be expended for capital items in a
given fiscal period. Capital items are fixed assets such as facilities and
equipment, the cost of which is normally written off over a number of
fiscal periods. The capital budget, however, is limited to the
expenditures that will be made within the fiscal year comparable to the
related operating budgets.
Capital budgeting
The process of identifying analyzing and selecting investment projects
whose returns (cash flows) are expected to extend beyond one year.
Capital component
One of the types of capital used by firms to raise money.
Capital consumption adjustment
Adjustment to historical-cost depreciation to correct for understatement
during inflation.
Capital expenditure
Outlay required for acquiring a fixed asset from which benefits would
be available beyond one year.
Capital gain
An increase in the capital value of an asset between the time of its
acquisition by its owner and its sale by that owner.
Capital lease
A lease that does not usually provide for maintenance services, is not
cancellable, and is fully amortized over its life.
Capital loss
A loss arising from the disposal, loss, or destruction of a capital asset or
firm a long-term liability.
Capital market line
The line from the intercept point that represents the risk-free rate
tangent to the original efficient frontier; it becomes the new efficient
frontier since investments on this line dominate all the portfolios on the
original Markowitz efficient frontier.
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Capital market
A financial market involving institutions that deals with securities with
a life of more than one year.
Capital outflow uncertainty
The uncertainty regarding the timing of cash disbursements related to
the firms major capital expenditure and construction programs.
Capital rationing
A situation in which due to financial constraints, the limited funds are
allocated to a number of mutually exclusive capital budgeting projects.
Capital stock
The ownership shares of a corporation authorized by its articles of
incorporation, including preferred and common stock.
Capital structure theory
A theory that addresses the relative importance of debt and equity in
the overall financing of the firm.
Capital structure
The mix of the liabilities and stockholders' equity side of the balance
sheet, especially the ratio of debt to equity and the mixture of short and
long maturities.
Capital
The total amount of money or other resources owned or used to acquire
future income or benefits.
Capitalization rate
Synonymous to discount rate.
Capitalization
The statement of capital within the firm - either in the form of cash,
common stock, long-term debt, or in some combination of all three. It
is possible to have too much capital (in which case the firm is
overcapitalized) or too little capital (in which case the firm is
undercapitalized). See also Market capitalization.
Caption
An option on an interest rate cap.
Captive finance subsidiary
Wholly owned subsidiary of finance company whose primary purpose
is to finance sales of each parent companys products and purchase
receivables of the parent company.
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Carry-back; carry forward

For income tax purposes, losses that can be carried back or forward to
reduce average taxable income.
Carrying cost
The cost to hold an asset, usually inventory. For inventory, carrying
costs include such items as interest, warehousing costs, insurance and
material-handling expenses.
Cash & equivalents
All cash, marketable securities, and other near-cash items excluding
sinking funds.
Cash account
A brokerage account that settles transactions on a cash-basis rather than
credit-basis.
Cash basis of accounting
The accounting basis in which revenue and expenses are recorded in
the period they are actually received or expended in cash. Use of the
cash basis generally is not considered to be in conformity with
generally accepted accounting principles (GAAP) and is therefore used
only in selected situations, such as for very small businesses and (when
permitted) for income tax reporting. See also Accrual basis.
Cash before delivery
Under this term of sale the customer is required to pay before the
delivery of the goods or services.
Cash bonus
Bonus money paid to management for meeting stated performance
goals.
Cash budget
A forecasted summary of a firm's expected cash inflows and cash
outflows as well as its expected cash and loan balances.
Cash concentration
The movement of cash from lockbox or field banks into the firms
central cash pool residing in a concentration bank.
Cash conversion cycle
The length of time between a firm's purchase of inventory and the
receipt of cash from accounts receivable. Also called cash cycle.
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Cash cow
A company or division of a company that generates a steady and
significant amount of free cash flow. This type of company pays out
most of its earnings per share to stockholders as dividends.
Cash cycle
The amount of time elapsed from the point when an outlay is made to
purchase raw materials to the point when cash is collected from the sale
of the finished product using the raw material.
Cash discount period
The period of time during which a cash discount can be taken for early
payment.
Cash discount
A percentage (%) reduction in sales or purchase price allowed for early
payment of invoices. It is an incentive for credit customers to pay
invoices in a timely fashion.
Cash flow coverage ratio
The number of times that financial obligations (for example interests,
principal payments, preferred stock dividends, and rental payments) are
covered by earnings before interest, taxes, rental payments, and
depreciation.
Cash flow cycle
The periodic transformation of cash through working capital and fixed
assets back to cash.
Cash flow forecast
An estimation of the flows in and out of the firms cash account over a
particular period of time, usually a quarter, month, week, or day.
Cash flow from financing activities
Cash flow that is generated (or reduced) from the sale or repurchase of
securities or the payment of cash dividends. It is the third section
presented in the statement of cash flows.
Cash flow from investing activities
Cash flow that is generated (or reduced) from sale or purchase of longterm securities or plant and equipments. It is the second section
presented in the statement of cash flows.
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Cash flow from operating activities

Cash flow information that is determined by adjusting net income for
such items as depreciation expense, changes in current assets and
liabilities, and other items. It is the first section presented in the
statement of cash flows.
Cash flow matching
Matching cash flows from a fixed-income portfolio with an obligation.
Cash flow principle
Principle of investment evaluation stating that only actual movements
of cash are relevant and should be listed on the date they move.
Cash flow statement
Simply expands and rearranges the sources and uses statement, placing
each source or use into one of three broad categories financing,
investments, and operations.
Cash flow time line
Line depicting the operating activities and cash flows for a firm over a
particular period.
Cash flow underwriting
Method by which insurance companies adopt insurance premiums to
interest rates.
Cash flow
The movement of money into or out of a cash account over a specific
period of time.
Cash forecast
Synonymous to cash budget.
Cash management
The efficient management of cash in a business in order to put the cash
to work more quickly and to keep the cash in applications that produce
income, such as the use of lock boxes for payments.
Cash offer
Proposal, either hostile or friendly, to acquire a target company through
the payment of cash for the stock of the target.
Cash on delivery
The term of sale in which cash is required to be paid upon delivery of
goods or services. Under this term of sale, no credit is offered.
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Cash out
A situation where a firm runs out of cash and cannot readily sell
marketable securities.
Cash ratio
Synonymous to liquidity ratio.
Cash turnover
The number of times per year the firms cash is turned to a marketable
product and then back into cash.
Cash
The ready currency to which all liquid assets can be reduced.
Central liquidity facility
Facility that acts as a lender for credit unions to accommodate seasonal
funding and specialized needs or to boost liquidity.
Central-bank rate
The rate at which the central bank will buy securities from or make
loans to the discount houses.
CEO
An acronym for Chief Executive Officer. The CEO is the principal
individual responsible for the activities of a company.
Certainty-equivalent
An amount that would be accepted today (risk free) in lieu of a chance
to receive a possibly higher, but uncertain amount in future.
Certificates of deposit
Instruments issued by banks that require minimum deposits for
specified terms and that pay higher rates of interest than deposit
accounts.
Ceteris paribus
Simply means "all other things being equal".
CFO
An acronym for Chief Financial Officer. The CFO is the officer in a
corporation responsible for handling funds, signing checks, the keeping
of financial records, and financial planning for the company.
Characteristic line
The line relating the expected return on a security to different returns
on the market portfolio. The slope of this line is beta.
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Chartered Financial Analyst

An experienced financial analyst who has passed examinations in
economics, financial accounting, portfolio management, security
analysis, and standards of conduct given by the Institute of Chartered
Financial Analysts.
Chartist
A technical analyst who charts the patterns of stocks, bonds, and
commodities to find trends in patterns of trading used to advise clients.
Related technical analysts.
Chattel mortgage
A lien on specifically identified personal property (assets other than
real estate) backing a loan.
Cheap money
A monetary policy in which loans are easy to obtain with a lower rate
of interest.
Checking account
A bank account upon which checks can be drawn.
Cheque
A printed form on which instructions are given to a bank to pay a stated
sum to a named recipient.
Chinese wall
A notional information barrier between the parts of a business,
especially between the market-making part of a stockbroking firm and
the broking part. It would clearly not be in investors' interest for
brokers to persuade their clients to buy investments from them for no
other reason than that the market makers in the firm, expecting a fall in
price, were anxious to sell them.
Chip card
A type of debit card that incorporates a microchip in order to store
information regarding the transactions for which it is used.
Circuit breaker
Measures instituted by stock exchanges to stop trading temporarily
when the market has fallen by a certain percentage in a specified
period. They are intended to prevent a market free fall by permitting
buy and sell orders to rebalance.
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DISCOVERING FINANCE

Classified stock
The division of stock into more than one class of common stock,
usually called Class A and Class B. The specific features of each class,
which are set out in the charter and bylaws, usually give certain
advantages to the Class A shares, such as increased voting power.
Clearing fee
The sum charged by the agency affiliated to a commodity exchange for
settling the exchange's transaction.
Clearing float
The delay between the deposit of a check by the payee and the actual
availability of the funds.
Clearing House Inter-bank Payments System
An automated clearing system used primarily for international
payments. The British counterpart is known as CHAPS.
Clearing
The exchanging of checks, and balancing of accounts between banks.
Clientele effect
The theory that a firm will attract stockholders whose preferences with
respect to the payment and stability of dividends correspond to the
payment pattern and stability of the firm itself.
Close off the top
Financial jargon meaning to foreclose the possibility of additional debt
financing.
Close price
The price of a share or commodity when the margin between the bid
and offer prices is narrow.
Closed end fund
An investment company that sells shares like any other corporation and
usually does not redeem its shares.
Closely owned stock
All common stock of a firm owned by a small group of investors such
as a family.
Coefficient of determination
Square of the correlation coefficient, measuring the percentage of the
variance in the dependent variable that is explained by the independent
variable.
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DISCOVERING FINANCE

Coefficient of variation
A relative measure of dispersion equal to the standard deviation divided
by the mean.
Coincident indicators
A set of economic variables whose values reach peaks and troughs at
about the same time as the aggregate economy.
Co-insurance effect
Refers to the fact that the merger of two firms decreases the probability
of default on either's debt.
Collar
A derivative that limits the effects of (foreign currency or interest rate)
fluctuations beyond a predetermined range.
Collateral mortgage obligation
A debt security based on a pool of mortgage loans that provides a
relatively stable stream of payments for a relatively predictable term.
Collateral trust bond
A bond secured by stocks, notes, bonds, or other kinds of financial
instruments.
Collateral
Security which is offered to the lender by the borrower, usually in the
form of an asset such as accounts receivable or inventory.
Collection float
The delay between the time when a payer or customer deducts a
payment from the checking account ledger and the time when the payee
or vendor actually receives the funds in a spendable form.
Collection period
A ratio measure of control of accounts receivable, defined as accounts
receivable divided by credit sales per day.
Collection policies
The procedures for collecting a firms accounts receivable when they
are due.
Collection rate uncertainty
The uncertainty regarding the firms actual future collection patterns of
receivables.
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DISCOVERING FINANCE

Combined cost of capital

Synonymous to cost of capital.
Combined enterprise
An accounting entity that results from a business combination.
Combined leverage
The total or combined impact of operating and financial leverage.
Combinee
A constituent company other than the combinor in a business
combination.
Combinor
A constituent company entering into a combination whose owners as a
group ends up with control of the ownership interests in the combined
enterprise.
Commercial bank
A financial institution that accepts deposits and may use the proceeds
of those deposits to make loans.
Commercial paper
Short-term, unsecured promissory note, generally issued by large
corporations with credit standing in the open market that represents the
obligation of issuing company.
Commercial property
As opposed to residential or industrial property. Property zoned,
designed or intended for use retail, office, or similar users.
Commingled funds
Investment pools managed by banks and insurance companies for trust
or retirement accounts that are too small to warrant managing on a
separate basis.
Commission broker
A broker on the floor of an exchange who acts as agent for a particular
brokerage house and buys and sells stocks for the brokerage house on a
commission basis.
Commitment fee
A fee charged by the lender for agreeing to hold credit available.
Commitment letter
An agreement that the lender sends to a mortgage loan applicant that
commits the lender to provide funds to the applicant.
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DISCOVERING FINANCE

Committed costs
Costs that must be incurred in order for a firm to accomplish its longrange organizational goals. These costs can't be easily modified from
one year to the next.
Commodity swap
A swap transaction in which one of the cash flows is tied to a fixed
price for a commodity and the other is based on a fluctuating
commodity index level.
Common size financial statement
A statement in which all items are expressed as a percentage of a base
figure in order to control size differences and it is useful for the
purposes of analyzing trends and changing relationship among financial
statement items. For example, all items in each year's income statement
could be presented as a percentage of net sales.
Common stock equity
The ownership interest in the firm. It may be represented by new shares
or retained earnings. The same as net worth.
Common stock equivalent
Warrants, options, and any convertible securities that pay less than twothirds of the average Aa bond yield at the time of issue.
Comparable
Entity that is used for comparisons and has similarity at least in supply
side, demand side, capital market attributes or legal ownership.
Compensating balance
Non-interest-bearing demand deposits that must be maintained by a
firm to compensate a bank for services provided credit lines, or loans.
Competitive bidding underwriting
An underwriting arrangement in which the issuer announces the terms
of the issue, and interested parties submit bids for the entire issue.
Competitive market
A market that brings about the efficient production of a good or service
at the lowest possible cost.
Competitive offer
Method of selecting an investment banker for a new issue by offering
the securities to the underwriter bidding highest.
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DISCOVERING FINANCE

Complete portfolio
The entire portfolio, including risky and risk-free assets.
Complexity
The property of an asset that represents a combination of two or more
simpler assets.
Composite (risk adjusted) measures of portfolio performance
Portfolio performance measures that combine return and risk into one
calculation.
Composite cost of capital
Synonymous to cost of capital.
Composite indexes of general economic activity
Leading, coincident, and lagging indicators of economic activity.
Composition
An informal method of reorganization that voluntarily reduces
creditors claims on the debtor firm.
Compound interest
Interest paid on any previous interest earned, as well as on the principal
borrowed (lent).
Compounded method
A financial forecasting method that is used when a particular financial
variable is expected to grow at a steady growth rate over time.
Compounded semi-annually
A compounding method that compounds every six months. For
example, a five year investment in which interest is compounded semiannually would indicate an n value equal to 10 and an i value at onehalf the annual rate.
Compounding
The process of determining the value of a cash flow or series of cash
flows some time in the future when compound interest is applied.
Comprehensive budget
A series of budgets for all activities of a firm for the budget period,
generally one year.
Comptroller
The corporate manager responsible for the firm's accounting activities.
Sometimes referred to as the controller (which means the same thing).
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DISCOVERING FINANCE

Concave curve
A figure where a straight line connecting any two points on the curve
lies entirely under the curve.
Concentration account
A single centralized account into which funds collected at regional
locations (lockboxes) are transferred.
Concentration banking
The use of decentralized collection centers to speed up the collection of
receivables.
Concentration bank
A larger bank to which a firm channels fund from its local collection
banks which operates lockboxes.
Concentration ratio
Concentration margin divided by total sales revenue.
Concentration services
Movement of cash from different lockbox locations into a single
concentration account from which disbursements and investments are
made.
Conditional sales contract
An arrangement whereby the firm retains legal ownership of the goods
until the customer has completed payment.
Conduits
Entities that pool mortgages and sell interests in these pools to
investors.
Confidence Index
Ratio of the yield of top-rated corporate bonds to the yield on
intermediate grade bonds.
Confidence indicator
Measures of investors faith in a market or economy. A weakening
confidence indicator supposedly suggests bearishness.
Conforming mortgage
A mortgage loan that meets the underwriting standards allowing an
agency to include it in a pool of mortgages that is collateral for a
mortgage pass-through security.
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Conglomerate acquisition
An acquisition where the acquiring firm and the acquired firm are not
related to each other. The acquisition of a food products firm by a
computer firm would be considered a conglomerate acquisition.
Conglomerate diversification
Ownership of operations in a number of functionally unrelated business
activities.
Conglomerate
A corporation that is made up of many diverse, often unrelated
divisions. This form of organization is thought to reduce risk, but may
create problems of coordination.
Consensus forecast
The mean of all financial analysts' forecasts for a company.
Conservative financing strategy
Plan by which the firm finances all projected funds needs with longterm funds and uses short-term financing only for emergencies or
unexpected outflows.
Consol
A bond that never matures; perpetuity in the form of bond.
Consolidated tax return
An income tax return that combines the income statement of several
affiliated firms.
Consolidation
The combination of two or more firms into an entirely new firm. The
old firm ceases to exist. Though technically different, the terms merger
(where firm survives) and consolidation tend to be used
interchangeably.
Consortium
Combination of two or more large companies formed on a temporary
basis to quote for a large project.
Constant amortization mortgage loan
A mortgage loan in which the payments on CAMs are determined first
by computing a constant amount of each monthly payment and then
interest is computed on the monthly loan balance and added to the
monthly amount of amortization.
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DISCOVERING FINANCE

Constant growth dividend discount model

A form of the dividend discount model that assumes dividends will
grow at a constant rate.
Constant payment mortgage loan
A mortgage loan in which the payments on CPMs are determined by
computing a constant monthly payment on the original loan amount at a
fixed rate of interest for a given time period.
Constant purchasing power
The amount of a currency required over time to purchase a stable
basket of physical assets.
Constituent companies
The business enterprises that enter into a combination.
Construction loan
A structured, short-term loan to a builder or developer to allow for the
development of land. Funds are advanced at certain stages of the
development project to pay for specific expenses, fees or costs.
Consumer credit
Credit granted to consumers for purchasing goods.
Consumer finance companies
Finance companies that concentrate on direct loans to consumers.
Consumer price index
An index measure of the price level equal to the sum of prices of a
number of commodities purchased by consumers weighted by the
proportion each represents in a typical consumers budget.
Consumer surplus
A measure of welfare that consumers derive from the consumption of
goods and services, or the benefits they derive from the exchange of
goods. Consumer surplus is calculated as the difference between what
consumers are willing to pay for a good or service (indicated by the
position of the demand curve) and what they actually pay (the market
price). The level of consumer surplus is indicated by the area below the
demand curve and above the existing price in the market.
Contagion effects
Adverse effects of a single firm that become contagious throughout the
industry.
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DISCOVERING FINANCE

Contango
A situation in a futures market where the current contract price is
greater than the current spot price for the underlying asset.
Contingency
An event that may (or may not) happen in the future, a condition that
must be fulfilled before a contract becomes firm and binding.
Contingent claim
Claim whose value is directly dependent on or is contingent on the
value of its underlying assets.
Contingent immunization
A strategy that immunizes a portfolio if necessary to guarantee a
minimum acceptable return but otherwise allows active management.
Contingent liability
Debt obligations that will not come due unless certain events occur
(such as borrower default or the exercise of product warranties).
Contingent obligation
A financial instrument whose issuer pledges to pay if certain events
(such as default on a loan) occur; for example, federal deposit
insurance is a contingent obligation of the US government, payable if a
bank fails.
Continuous compounding
Compounding of interest an infinite number of times per year at
intervals of microsecond.
Contra brokers
The brokers on the buy side of a sell order or the sell side of a buy
order.
Contribution margin
An amount available to cover fixed costs for the period and provide a
profit or net income. Mathematically, contribution margin is the
difference between sales revenue per unit and variable costs per unit.
Control ratio
Ratio indicating managements control of a particular current asset or
liability.
Controlled disbursement
A system in which the firm directs checks to be drawn on a bank (or
branch bank) that is able to give early or mid-morning notification of
the total taka amount of checks that will be presented against its
account that day.
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DISCOVERING FINANCE

Controller
Synonymous to comptroller.
Controlling
The process of comparing actual results with plans and taking
corrective action where necessary, when results differ significantly
from the plan.
Conventional investment project
One in which an initial outlay is followed by a series of cash inflows.
Conventional mortgage
A mortgage loan based solely on the credit of the borrower and on the
collateral for the mortgage.
Convergence property
The convergence of futures prices and spot prices at the maturity of the
futures contract.
Conversion premium
The excess of the market value of the convertible security over its
equity value if immediately converted into common stock. It is
typically expressed as a percentage of the equity value.
Conversion price
Applies mainly to convertible securities. Taka value at which
convertible bonds, debentures, or preferred stock can be converted into
common stock, as specified when the convertible is issued.
Conversion ratio
Relationship that determines how many shares of common stock will
be received in exchange for each convertible bond or preferred stock
when a conversion takes place. It applies mainly to convertible
securities.
Conversion value
The value of a convertible security if it is converted immediately. Also
called stock value.
Conversion
In the context of securities, the exchange of a convertible security such
as a bond into stock. In the context of mutual funds, the free exchange
of mutual fund shares from one fund to another in a single family.
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DISCOVERING FINANCE

Convertibility clause
Provision that allows investors to convert a bond into a specified
number of common shares.
Convertibility
The ability to exchange a currency without government restrictions or
controls.
Convertible arbitrage
A practice, usually of buying a convertible bond and shorting a
percentage of the equivalent underlying common shares, to create a
positive cash flow position (with expected returns above the riskless
rate) in a static environment and benefits from capital appreciation
should the convertible's premium. This form of investing is far from
riskless and requires constant monitoring.
Convertible bond
Bond that can be converted into another form of security, typically
common stock, at the option of the holder at a specified price for a
specified period of time.
Convertible preferred stock
Preferred stock that can be converted into common stock at the option
of the holder.
Convertible price
The contractually specified price per share at which a convertible
security can be converted into shares of common stock.
Convertible security
A security that can be converted into common stock at the option of the
security holder; includes convertible bonds and convertible preferred
stock.
Convex curve
A figure where a straight line connecting any two points lies totally
above the curve.
Convexity
A measure of the degree to which the relationship between a bonds
price and yield departs from a straight line.
Corporate bond
Long-term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity.
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Corporate finance
One of the three areas of the discipline of finance. It deals with the
operation of the firm (both the investment decision and the financing
decision) from the firm's point of view.
Corporate restructuring
Any major episodic change in a companys capital or ownership
structure.
Corporate stock repurchase
A corporation may repurchase its shares in the market as an alternative
to paying a cash dividend. Earnings per will grow up, and, if the priceearnings ratio remains the same, the stockholder will receive the same
taka benefit as through a cash dividend. A corporation may also justify
the repurchase of its stock because it is at a very low price or to
maintain constant demand for the shares. Reacquired shares may be
used for employee options or as part of a tender offer in a merger or
acquisition. Firms may also reacquire part of their shares as protective
device against being taken over as a merger candidate.
Corporation tax
The tax payable by corporations.
Corporation
Form of business organization that is created as a distinct legal
person composed of one or more individuals or legal entities. Major
features of a corporation include limited liability, ease of ownership
transfer, and perpetual succession.
Correlation coefficient
A standardized statistical measure of the dependence of two random
variables, defined as the covariance divided by the standard deviations
of two variables.
Correspondent bank
A bank having communications and business links with the seller's
bank.
Cost accounting
A branch of accounting that provides information to help the
management of a firm to evaluate production costs and efficiency.
Cost of capital
The minimum required rate of return to leave the market price of shares
unchanged. A weighted average cost of the firms individual sources of
capital.
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DISCOVERING FINANCE

Cost of contracting
The cost of analyzing and arranging a contract for the performance of
certain tasks.
Cost of equity capital
The required return on the companys common stock in capital
markets. It is also called the equity holders required rate of return
because it is what equity holders can expect to obtain in the capital
market. It is a cost from the firms perspective.
Cost of goods sold
The total cost of buying raw materials, and paying for all the factors
that go into producing finished goods.
Cost of ordering
The cost component in the inventory decision model that represents the
expenditure for acquiring new inventory.
Cost of preferred stock
The rate of return investors require on the firms preferred stock. It is
calculated as the preferred dividend divided by the net issuing price.
Cost of retained earnings
The rate of return required by stockholders or a firms common stock.
Cost-benefit analysis
The method of measuring the benefits anticipated from a decision by
determining the cost of the decision, then deciding whether the benefit
outweighs the cost of that decision.
Cost-of-living lease
A lease where yearly increases are tied to the cost of living index.
Cost-push inflation
A rise in prices of goods by the firms in order to maintain or protect
profit margins after their costs have gone up.
Cost-volume-profit analysis
A technique for evaluating the effect of changes in cost and volume on
profit.
Country risk
Uncertainty due to the possibility of major political or economic
change in the country where an investment is located. It is also called
political risk.
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Coupon bond
A bond featuring coupons that must be presented to the issuer in order
to receive interest payments.
Coupon rate
The interest rate specified on interest coupons attached to bonds.
Annual interest received equals coupon rate times the par value of
bonds.
Coupon reinvestment risk
The component of interest rate risk due to the uncertainty of the rate at
which coupon payments will be reinvested.
Coupon
Indicates the interest payment on a debt security. It is the coupon rate
times the par value that indicates the interest payments on a debt
security.
Covariance matrix
A matrix or square array whose entries are covariances, noting that
variance is a special case of covariance.
Covariance
A statistical measure of the degree to which random variables move
together. Covariance becomes positive when positive and negative
deviations exist at similar times and vice versa. Covariance becomes
zero when deviations are unrelated.
Covenant (protective covenant)
Provision in a debt agreement requiring the borrower to do, or not to
do, something.
Coverage ratios
Ratios used to test the adequacy of cash flows generated through
earnings for the purposes of meeting debt and lease obligations,
including the interest coverage ratio and the fixed-charge coverage
ratio.
Covered call
A strategy involving the sale of a call option to supplement a long
position in an underlying asset.
Covered interest arbitrage
Act of capitalizing on higher foreign interest rates while covering the
position with a simultaneous forward sale.
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Credit agency ratings

Ratings based on buyers financial strength and payment to seller,
issued by firms engaged in the business of collecting and selling creditrelated information to seller.
Credit analysis
The process of determining whether a credit applicant meets the firms
standard and what amount of credit the applicant should receive.
Credit bureau
An organization that gathers financial information about individuals
and businesses. More specifically, the credit history, character, and
reputation of borrowers are collected and furnished to subscribers
(merchants and financial institutions) upon request.
Credit card
A card enabling the holder to obtain goods and services on credit at
specified suppliers including travel, meals, and hotel accommodation,
up to a specified maximum amount, payment being made monthly to
the issuer of the card. Cards are issued, after the applicants
creditworthiness has been considered. The main advantage of credit
cards is that they economise the use of cash, and so can be regarded as
the latest stage in the development of money.
Credit crunch
A period during which banks are less willing to extend credit; normally
results from an increased probability that some borrowers will default
on loans.
Credit instrument
Device by which a firm offers credit, such as an invoice, a promissory
note, or a conditional sales contract.
Credit investigation problem
The problem associated with the amount of information that should be
gathered on each applicant regarding credit-granting decision.
Credit management
The decision about the terms of sale and granting credit. It starts where
the management of inventory ends and ends where the management of
cash begins. Synonymous to accounts receivable management.
Credit period
The total length of time over which credit is extended to a customer.
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Credit rating
Rating of an issued bond based on the perceived likelihood of default
as assigned by commercial rating companies. It is also called quality
rating.
Credit risk
The risk that an issuer of debt securities or a borrower may default on
his or her obligations or that the payment may not be made on a
negotiable instrument.
Credit risk-based capital guidelines
Capital requirements for a depository institution that are based on the
credit risk of its assets.
Credit sale without discount
The term of sale in which goods or services are sold on credit but no
discount is offered for timely repayments of the loan.
Credit standard
The minimum quality of credit worthiness of a credit applicant that is
acceptable to the firm.
Credit terms
The repayment provisions that are parts of a credit arrangement. An
example would be a 2/10, net 30 arrangement in which the customer
may deduct 2 percent from the invoice price if payment takes place in
the first 10 days; otherwise, the full amount is due.
Credit union
A not-for-profit institution that is operated as a cooperative and offers
financial services such as low-interest loans, to its members.
Credit with discount
Under this term of sale, a cash discount is offered if payments are made
within a designated time or otherwise net amount must be paid within
the rest of the credit period. Thus the credit term stands something like
this 2/10-n/30 (read as two ten net thirty) which means a 2% cash
discount will be given if payments are made within 10 days or
otherwise payments shall be made in net amount in 30 days.
Credit-granting decision
Determining which of the selling firms credit applicants will be
allowed to purchase goods and services on credit, which will be
required to pay cash.
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Credit-scoring system
The use of a discriminant equation to classify loan applicants according
to the probability of their repaying their loans, based on customer
characteristics (such as their credit rating or length of employment).
Creditworthiness
Eligibility of an individual or firm to borrow money.
Cross hedge
A trading strategy in which the price volatility of a commodity or
security position is hedged with a forward or futures contract based on
a different underlying asset or different settlement terms.
Cross rates
The relationship between two foreign currencies expressed in terms of
a third currency.
Cross sectional analysis
Analysis where comparisons of one entity with other entities are made
at the same point in time.
Crossover price
The price at which the yield to maturity equals the yield to call. Above
this price, yield to call is the appropriate yield measure; below this
price, yield to maturity is the appropriate yield measure.
Cross-sectional data
Observations over individual units at a point in time, as opposed to
time-series data.
Crowding-out effect
Phenomenon that occurs when insufficient loanable funds are available
for potential borrowers, such as corporations and individuals, as a result
of excessive borrowing by the Treasury, because limited loanable funds
are available to satisfy all borrowers, interest rates rise in response to
the increased demand for funds, which crowds some potential
borrowers out to the market.
Crown jewels
An anti takeover tactic in which major assets (the crown jewels) are
sold by a firm when faced with a takeover threat.
Cum dividend
With dividend.
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Cumulative abnormal return

Sum of the differences between the expected return on a stock
(systematic risk multiplied by the realized market return) and the actual
return often used to evaluate the impact of news on a stock price.
Cumulative dividend
Dividend on preferred stock that takes priority over dividend payments
on common stock. Dividends may not be paid on the common stock
until all past dividends on the preferred stock have been paid.
Cumulative preferred stock
Preferred stock containing the requirement that any unpaid preferred
dividends accumulate and be paid in full before common dividends
may be distributed.
Cumulative voting
A system of voting for directors of a corporation in which shareholder's
total number of votes is equal to the number of shares held times the
number of candidates.
Currency call option
Contract that grants the owner the right to purchase a specified
currency for a specified price, within a specified period of time.
Currency futures contract
Standardized contract that specifies an amount of a particular currency
to be exchanged on a specified date and at a specified exchange rate.
Currency put option
Contract that grants the owner the right to sell a specified currency for a
specified price, within a specified period of time.
Currency swap
An agreement that allows the periodic swap of one currency for another
at specified exchange rates; it essentially represents a series of forward
contacts.
Current assets
Assets of a company that are reasonably expected to be realized in
cash, or sold, or consumed during the normal operating cycle of the
business (usually one year). Such assets include cash, accounts
receivable and money due usually within one year, short-term
investments, government bonds, inventories, and prepaid expenses.
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Current cost accounting

One of two methods of inflation-adjusted accounting approved by the
FASB in 1979. Financial statements are adjusted to the present, using
current cost data, rather than an index. This optional information may
be shown in the firms annual report.
Current liability
Amount owed for salaries, interest, accounts payable and other debts
due within 1 year.
Current portion of long-term debt
The portion of long-term debt that is payable within one year.
Current ratio
Indicator of short-term debt-paying ability, determined by dividing
current assets by current liabilities. The higher the ratio, the more liquid
the firm is.
Current yield
The yearly taka interest or dividend payment divided by the current
market price.
Current-dollar accounting
System of inflation accounting in which historical-cost items are
restated to adjust for changes in the price of a specific item.
Currently available standards
Standards that allow for the fact that some inefficiency is inescapable.
Cut-off point
In the capital budgeting process, the minimum rate of return on
acceptable investment opportunities.
Cyclical industries
Industries with above-average sensitivity to the state of the economy.
Cyclical stock
A stock with a high beta; its gains typically exceed those of a rising
market and its losses typically exceed those of a falling market.
Cyclicals
Firms with sales and profits that regularly expand and contract along
with the business cycle.

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D
Data mining
The practice of finding forecasting models by extensive searching
through databases for patterns or trading rules; repeatedly drilling in
the same data until statistical significance is discovered.
Date of record
Date on which holders of record in a firm's stock ledger are designated
as the recipients of either dividends or stock rights.
Dates convention
Treating cash flows as being received on exact dates - date 0, date 1,
and so forth - as opposed to the end-of-year convention.
Day traders
Traders of financial futures contacts who close out their contracts on
the same day that they initiate them.
Day's sales in cash
A measure of managements control of cash balances, defined as cash
dividend divided by sales per day.
Day's sales outstanding
The ratio calculated by dividing accounts receivable by average sales
per day; indicating the average length of time it takes the firm to collect
for credit sales.
Dealer market
A market where traders specializing in particular assets buy and sell for
their own accounts. The spread between dealers buy (or bid) prices
and sell (or ask) prices are the source of profit.
Dealer paper
A form of commercial paper that is distributed to lenders through an
intermediate dealer network. It is normally sold by industrial
companies, utility firms, or financial companies that too small to have
their own selling network.
Dealers
Participants in the market who transact security trades over the counter
from their own inventory of stocks and bonds. Since they stand ready to
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buy and sell their securities at quoted prices, they are often referred to
as market makers.
Dealing rate
Synonymous to central bank rate.
Dear money
A monetary policy in which loans are difficult to obtain and only
available at high rates of interest.
Debenture bond
A bond not secured by a specific pledge of property, but giving the
bondholder the claim of general creditors on all assets of the issuer not
pledged specifically to secure other debt.
Debentures
Bonds that promise payments of interest and principal but pledge no
specific assets. Holders of a debenture have first claim on the issuers
income and unpledged assets. These bonds are known as unsecured
bonds also.
Debit card
A payment mechanism that allows for payment of a purchase by an
immediate charge against the purchasers account at the financial
institution that sponsors the card.
Debt (liability)
An obligation to pay cash or other goods or to provide services to
another.
Debt capacity
The maximum amount of debt (and other fixed-charge financing) that a
firm can adequately service.
Debt instrument
An asset requiring fixed taka payments, such as a government or
corporate bond.
Debt ratio
The ratio of total debt to total assets. It is a measure of the proportion of
total assets provided by the firms creditors.
Debt rescheduling
A negotiation concerning outstanding loans in which the debtor has
repayment difficulties.
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DISCOVERING FINANCE

Debt service
Interest payments plus repayments of principal to creditors, that is,
retirement of debt.
Debt swap
The exchange of an outstanding loan to a third party between one bank
and another.
Debt utilization ratios
A group of ratios that indicates to what extent debt is being used and
the prudence with which it is being managed. Calculations include debt
to total assets, times interest earned, and fixed charge coverage.
Debtor-in-possession
A company that files for protection under the bankruptcy acts and
continues to operate its business under the supervision of court.
Debt-to-assets ratio
A measure of financial leverage of a firm defined as long-term debt
divided by total assets.
Debt-to-equity ratio
A benchmark indicator of financial leverage of a firm. It is derived by
dividing long-term debt by common stockholders' equity.
Deciles
Quantiles that divide the data into 10 equal parts.
Decision tree
A tabular or graphical analysis that lays out the sequence of decisions
that are to be made and highlights the differences between choices. The
presentation resembles branches on a tree.
Declaration date
Date on which the board of directors passes a resolution to payout a
dividend of a specified amount to all qualified holders of record on
specified date.
Declining-balance depreciation method
An accelerated depreciation method in which an asset's book value is
multiplied by a constant depreciation rate (such as double the straightline percentage, in the case of double-declining-balance.). Unlike the
straight line and the sum of the digits methods, both of which use the
original basis to calculate the depreciation each year, the double
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DISCOVERING FINANCE

declining balance uses a fixed percentage of the prior year's basis to

calculate depreciation. The percentage rate is 2/N where N is the life of
the asset. With this method, the basis never becomes zero.
Consequently, it is standard practice to switch to another depreciation
method as the basis decreases. Usually the taxpayer will convert to the
straight line method when the annual depreciation from the declining
balance becomes less than the straight line.
Dedicated capital
Total par value (number of shares issued multiplied by the par value of
each share). Also called dedicated value.
Dedication
A portfolio management technique in which the portfolios cash flows
are used to retire a set of liabilities over time. Also known as cash flow
matching.
Deep discount bond
A bond issued with a very low coupon or no coupon and selling at a
price far below par value. When the bond has no coupon, it is also
called a pure discount or original-issue-discount bond.
Deep pockets
A person or an organization having substantial financial resources.
Default premium
The increment to promised yield that compensates the investor for
default risk.
Default risk
The risk of failing to make a contractually promised payment.
Default
To fail to make a payment when due.
Defeasance
A debt-restructuring tool that enables a firm to remove debt from its
balance sheet by establishing an irrevocable trust that will generate
future cash flows sufficient to service the decreased debt.
Defensive companies
Firms whose future earnings are likely to withstand an economic
downturn.
Defensive industries
Industries with below average sensitivity to the state of the economy.
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Defensive open market operations

Operations implemented to offset the impact of other market conditions
that affect the level of funds.
Defensive stock
A stock whose return is not expected to decline as much as that of the
overall market during a bear market.
Deferred annuity
An annuity that will not begin until some time in the future.
Deferred callable bonds
Bonds that have a period of call protection. That is, there is an initial
time during which these bonds are not callable.
Deferred income tax
Liability that estimates future tax payable if the tax basis of income
measurement 'catches up' to the accounting basis.
Deferred tax liability
An estimated amount of future income taxes that may become payable
from income already earned but not yet recognized for tax reporting
purpose.
Deferred taxes
A liability that represents the accumulated difference between the
income tax expense reported on the firms books and income tax
actually paid. It arises because depreciation is calculated differently for
financial reporting than for tax reporting.
Deficit units
Individual, corporate, or government units that need to borrow funds.
Defined benefit plan
Pension plan in which contributions are dictated by the benefits that
will eventually be provided.
Deflation
A general fall in the level of prices of goods and services throughout an
economy. Antithesis of inflation.
Deflationary gap
A situation when the overall level of national income falls well below
the economy's potential output, and is often accompanied by recession
and a falling rate of inflation.
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DISCOVERING FINANCE

Degree of financial leverage

The percent change in EPS that results from a given percent change in
EBIT.
Degree of operating leverage
The percentage change in net operating income (NOI) associated with a
given percentage change in sales.
Degree of total leverage
The percent change in EPS resulting from a change in sales.
Delta
The relationship between an option price and the underlying futures
contract or stock price when trading securities. In general usage, it is
the difference between two empirical data points, e.g. the delta between
4 and 6 is 2.
Demand deposit
A checking account that pays no interest and can be withdrawn upon
demand.
Demand shock
An event that affects the demand for goods and services in the
economy.
Demand-pull inflation
A rise in the prices of goods & services caused by an excess demand
for goods and services over supply in the economy as a whole. This
comes about as a result of high (excessive) growth in aggregate
demand.
Denomination
The size, in units of money, of a loan or debt security.
Dependent (contingent) project
A project whose acceptance depends on the one or more other projects.
Deposit computation period
The period over which a bank must calculate its actual reserves in order
to determine whether it has met the required reserve ratio.
Deposit transfer
Procedure of handling failures of savings institutions; the deposits of a
failing institutions are transferred to a healthy depository institutions
for a fee.
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Depository institutions
Financial institutions that acquire a bulk of their funds by offering their
liabilities to the public in the form of deposits.
Depository transfer check
A non-negotiable check payable to a single company account at a
concentration bank.
Depreciation tax shield
Portion of an investment that can be deducted from taxable income.
Depreciation
The systematic allocation of the cost of a capital asset over a period of
time for financial reporting purposes, tax purposes or bond.
Depression
A prolonged period of sluggish economic activity that is characterized
by little productivity, little or no amounts of new capital investment,
large number of business failures, extensive unemployment, deflation,
and a very low income level among workers.
Derivative security
An instrument whose market value ultimately depends upon, or derives
from, the value of a more fundamental investment vehicle called the
underlying asset or security. Examples of derivatives are futures,
warrants, options, swaps etc.
Devaluation
A deliberate downward adjustment in the official exchange rate that is
managed or pegged by the authorities against a specified benchmark,
such as another currency or basket of currencies.
Development financing
Financing to rapidly expand the business.
Differential cash flow
Synonymous to incremental cash flow.
Differential disclosure
Arises when there are differences in the content or timing of
information provided to individual recipients. For example, firm has to
provide detailed & updated information to lenders than to shareholders.
Differential return measure
Jensens measure of portfolio performance calculated as the difference
between what the portfolio actually earned and what it was expected to
earn given its level of systematic risk.
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Diluted earnings per share

Earnings per share, including common stock, preferred stock,
unexercised stock options, and some convertible debt. Diluted earnings
per share are usually a more accurate reflection of the company's real
earning power.
Dilution
The reduction in any per share item (such as earning per share or book
value per share) due to an increase in the number of shares outstanding
either through new issue or conversion of outstanding securities.
Direct cost
The portion of cost that is directly expended in providing a product or
service for sale and is included in the calculation of cost of goods sold,
e.g. labor and inventory.
Direct expense
The portion of expense that is directly expended in providing a product
or service for sale and is included in the calculation of cost of goods
sold, e.g. labor and inventory.
Direct investments
The investments made by financial intermediaries; these assets can be
loans or securities.
Direct lease
A lease under which a lessor buys equipment form a manufacturer and
leases it to a lessee.
Direct paper
Synonymous to finance paper.
Direct search market
A least organized market where buyers and sellers must seek each other
out directly.
Dirty float
System whereby exchange rates are market determined without
boundaries, but subject to government interventions.
Disbursement float
The delay between the time when a firm deducts a payment from its
checking account ledger and the time when funds are actually
withdrawn from its account.
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Disbursement management
Efficient paying out of the concentrated cash.
Disclosure regulation
The regulation that requires issuers of securities to make public a large
amount of financial information to actual and potential investors.
Discount broker
A brokerage house that typically, only executes buy and sell orders for
his or her customers, with reduced commissions. The major difference
between a full-service and discount broker is that the former provides
opinions, guidance, and other investment-related services while the
later usually does not.
Discount rate
Interest rate used to convert future values to present value
(capitalization rate).
Discount window
A method by which a central bank supplies a banking system with
short-term funds, either by purchasing Treasury bills or by making
secured loans.
Discounted cash flow method
A technique of analyzing a series of future payments or receipts or both
by using present value analysis.
Discounted cash flow rate of return
Synonymous to internal rate of return (IRR).
Discounted cash flow
A sum of money today having the same value as a future stream of cash
receipts or disbursements.
Discounted loan
A loan in which the calculated interest payment is subtracted or
discounted in advance. Because this lowers the amount of available
funds and effective interest rate is increased.
Discounting
Process of finding the present value of a future cash flow or a series of
cash flows; the reverse of compounding.
Discrete theory of seasonality
Theory for the computation of interim net income for firms with
seasonality where each interim period is treated as an independent
reporting period. See also Integral theory.
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Discriminant analysis
A statistical process that links the probability of default to a specified
set of financial ratios.
Diseconomies of scale
A situation when a firms costs are more than double in response to a
doubling of output.
Disinflation
A levelling off or slowdown of price increases.
Disintermediation
Process in which savers transfer funds from intermediaries to
alternative Investments with market-determined rates.
Distribution
Starting with data on relatively long periods and breaking it down into
smaller periods.
Diversifiable risk
The portion of an assets risk attributable to firm-specific, random
events that can be eliminated through diversification.
Diversification benefits
Benefits occurring when portfolio standard deviation of return can be
reduced without decreasing expected return.
Diversification
Dividing investment funds among a variety of securities with different
risk, reward, and correlation statistics so as to minimize unsystematic
risk.
Diversified activity merger
Combination of at least two totally unrelated firms. See also
Conglomerate diversification.
Divestiture
The divestment of a portion of the enterprise or the firm as a whole.
Dividend capitalization
Since most closely held companies do not pay dividends, when using
dividend capitalization valuators must first determine dividend-paying
capacity of a business. Dividend paying capacity based on average net
income and on average cash flow is used. To determine dividendpaying capacity, near term capital needs, expansion plans, debt
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DISCOVERING FINANCE

repayment, operation cushion, contractual requirements, past dividend

paying history of a business and dividends of a comparable company
should be investigated. After analyzing these factors, percent of
average net income and of average cash flow that can be used for the
payment of dividends can be estimated. What also must be determined
is the dividend yield, which can best be determined by analyzing
comparable companies. As with the price earnings ratio method, this
usually produces a subjective result.
Dividend capture
Synonymous to dividend rollover plan.
Dividend clientele
A group of shareholders who prefer that the firm follows a particular
dividend policy. Such a preference may be based on comparable tax
situations.
Dividend decision
Concerns with the percentage of earning paid to stockholders in cash
dividends, the stability of absolute dividends over time, stock
dividends, and the repurchase of stock. This decision simply states the
distribution of return of investment in a business.
Dividend discount model
A model for determining the estimated price of a stock by discounting
all future dividends.
Dividend growth model
An approach that assumes dividends grow at a constant rate in
perpetuity. The value of the stock equals next year's dividends divided
by the difference between the required rate of return and the assumed
constant growth rate in dividends.
Dividend mandate
A document in which a shareholder of a company notifies the company
to whom dividends are to be paid.
Dividend payment date
The day on which a stockholder of record will receive his or her
dividend.
Dividend payout ratio
A measure of the level of dividends distributed by a firm, defined as
dividends divided by earnings.
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Dividend per share

Amount of cash paid to share holders expressed as taka per share.
Dividend reinvestment plans
Plans that provide the stockholders with an opportunity to buy
additional shares of stock with cash dividends paid by the company.
Dividend rollover plan
An investment strategy that entails the purchase and selling of a stock
right before its ex-dividend date in order to collect the dividends paid
out by the stock and capture a trade profit.
Dividend valuation model
Synonymous to dividend discount model.
Dividend yield
The percentage returns that a stockholder will receive on dividends
alone. It equals dividend per share divided by current market price per
share.
Dividends
The portion of a corporation's earnings which is paid to the
stockholders.
Divisibility
The property of an asset that allows it to be divided into small units.
Double declining depreciation method
An accounting methodology in which depreciation is accelerated to
twice the rate of annual depreciation by the straight-line method.
Dow Jones Industrial Average
A price-weighted average of stock prices of 30 large U.S. firms such as
AT&T, IBM, and Coca-Cola etc.
Dow Theory
A technique that attempts to discern long and short-term trends in stock
market prices.
Downtick
A price decline in a transaction price compared to the previous
transaction price.
Draft
A signed, written order by which the first party (drawer) instructs a
second party (drawee) to pay a specified amount of money to a third
party (payee). The drawer and payee are often one and the same.
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Dual banking system

Regulatory framework of the banking system composed of federal and
state regulators.
Dual trading
Exists when common stock of one security is traded on more than one
stock exchange. This practice is quite common between NYSE-listed
companies and regional exchanges.
Dual-rate mortgage
A mortgage design in which the mortgage payments are lower than for
a traditional mortgage but then rise smoothly at the rate of inflation, if
any, achieving mortgage payments approximately level in terms of
purchasing power. Also called inflation-proof mortgage.
Due diligence
Duty of an underwriter to assure that there are no misstatement or
omissions of fact in the registration statement or prospectus. In other
sense, it refers to an internal audit of a target firm by an acquiring firm.
Dummy variable
A variable which takes on the value of 1 if a particular condition is true
and 0 if that condition, is false.
Dumping
The selling of merchandise in a foreign country at, or, below cost in
order to seize market share.
Duopoly
A form of imperfect competition where there are only two producers of
a commodity.
Duopsony
A market in which there are only two buyers for a commodity or
service.
Dupont analysis
An analysis of profitability that breaks down return on assets between
the profit margin and asset turnover. The second or modified version
shows how return on assets is translated into return on equity through
the amount of debt that the firm has. Actually return on assets is
divided by to arrive at return on equity.
Dupont chart
A chart designed to show the relationships among return on investment,
asset turnover, the profit margin, and leverage.
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Duration gap
Difference between the average duration of a banks assets versus its
liabilities.
Duration
A measure of the effective maturity of a bond, defined as the weighted
average of the times until each payment, with weights proportional to
the present value of the payment.
Dutch auction preferred stock
A preferred stock security that matures every seven weeks and is sold
(reauctioned) at a subsequent bidding. The concept of Dutch auction
means the stock is issued to the bidder willing to accept the lowest
yield and then to the next lowest bidder and so on until all the preferred
stock is sold.
Dutch auction
An auction process for a new offering of securities in which bidders
indicate the amount they are willing to buy and winning bidders agree
to pay the lowest accepted bid price (or equivalently, the highest
accepted bid yield).
Dynamic asset allocation
Switching between risky and low-risk investment positions over time in
response to changing expectations.
Dynamic inventory problem
The problem associated with the goods that have value beyond the
initial period; they do not lose their value completely over time.
Inventory situation such as that faced by a service station in
determining how much gasoline to purchase are dynamic inventory
problem.
Dynamic open market operations
Operations implemented to increase or decrease the level of funds.

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E
E/P ratio
The reciprocal of the P/E ratio.
EAFE index
The Europe, Australia, and Far East Index, a value weighted index of
the equity performance of major foreign markets.
Early stage financing
One of the first financings obtained by a company.
Earning power
Permanent income of a firm free of unusual, extraordinary or
nonrecurring items.
Earnings (income, net income, net profit, profit)
The excess of revenues over all related expenses for a given period.
Earnings multiplier
The P/E ratio for a stock.
Earnings per share
A measure of common shares claim on earnings, defined as the total
earnings available for a firms common stockholders divided by the
number of shares of common stock outstanding.
Earnings surprises
The difference between a firms actual earnings and its expected
earnings.
Earnings yield
Earnings per share divided by stock price.
Easy money
Synonymous to cheap money.
Econometrics
The quantitative science of predicting the economy.
Economic assumption
Economic environment in which the firm expects to reside over the life
of the financial plan.
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DISCOVERING FINANCE

Economic income
States cash flow plus change in present value.
Economic order quantity
The quantity of an inventory item to order so that total inventory costs
are minimized over the firms planning period.
Economic risk
Synonymous to business risk.
Economic value added
A technique for focusing on a firms return on capital in order to
determine if stockholders are being rewarded. Suppose a division
produces a 11% return on capital invested. Given the risk of the
division's business line would have. If investors would usually require
13% on capital invested, the division destroyed shareholder value by
the EVA metric.
Economies of scale
The benefits of size in which the average unit cost falls as volume
increases.
Economies of scope
Occurs when one firm produces two outputs than two specialized firms
could produce.
Effective duration
A duration that allows for the fact that the cash flow might change
when interest rates change.
Effective interest rate
The actual rate of interest earned (paid) after adjusting the nominal rate
for factors such as the number of compounding periods per year.
Efficient frontier
The set of portfolios on the minimum variance frontier, but with
maximum expected return for each given level of standard deviation.
Efficient market hypothesis
The theory that the public availability of relevant information about
issuers of securities will lead to a correct pricing of those securities if
they are freely traded in properly functioning markets. It states three
opinions-i) the prices of securities fully reflect available information. ii)
Investors buying bonds and stocks in an efficient market should expect
to obtain an equilibrium rate if return. iii) Firms should expect to
receive the fair value for the securities they sell.
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Efficient market
A market in which asset prices instantaneously reflect new information.
Efficient portfolio
A portfolio with the highest level of expected return for a given level of
risk or a portfolio with the lowest risk for a given level of expected
return.
Efficient set
The set of portfolios generated by Markowitz portfolio model.
Elective expensing
Writing off an asset in the year of purchase for tax purposes rather than
depreciating it over the life of the asset. This procedure is primarily
beneficial to small business because its availability is phased out when
asset purchases become large.
Electronic commerce
The exchange of business information in an electronic (non-paper)
format.
Electronic data interchange
The movements of business data electronically in a structured,
computer-readable format.
Electronic funds transfer
The electronic movements of information between two depository
institutions resulting in a value (money) transfer.
Embedded option
An option in a bond issue granted to either the bondholder or the issuer.
Emerging markets
Markets of less developed countries, characterized by high risks and
potentially large returns.
End of month
Indicates the credit period for all purchases made within a given month
begins on the first day of the month immediately following.
Entrepreneur
The person who assumes the financial risk of the initiation, operation
and management of a given business or undertaking. He/She is
primarily a financial and/or professional risk taker almost to the
extreme.
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EPS Indifference point

The level of sales at which EPS will be the same whether the firm uses
debt or common stock financing.
Equally weighted index
An index computed from a simple average of returns.
Equilibrium interest rate
The rate at which the amount investors wish to borrow is equal to the
amount investors wish to lend.
Equipment loan
A loan used for the purchase of capital equipment.
Equipment trust certificate
A form of borrowing secured by property such that title to the property
is held in trust until the debt obligation is paid off.
Equity (owners equity, net worth, shareholders equity)
Ownership interest of common and preferred stockholders in a
company. On a balance sheet, equity equals total assets less all
liabilities.
Equity carve-out
The public sale of stock in a subsidiary in which the parent usually
retains majority control.
Equity multiplier (TA/Equity)
A measure of the Assets owned by the company divided by the claims
of the owners (Equity). The equity multiplier shows the amount of
assets owned by the firm for each taka of owner claims held by
stockholders. The equity multiplier is also called financial leverage.
The equity multiplier shows the amount of assets owned by the firm for
each taka of owner claims held by stockholders.
Equity risk premium
The difference between stocks return and the risk-free rate.
Equity swap
Swap arrangement involving the exchange of interest payment for
payments linked to the degree of change in a stock index.
Equity-derivative securities
Securities that derive their value in whole or in part by having a claim
on the underlying common stock.
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Equivalent annual cost

The net present value of cost divided by an annuity factor that has the
same life as the investment.
Equivalent loan
The amount of the loan that makes leasing equivalent to buying with
debt financing in terms of debt capacity reduction.
Equivalent taxable yield
The yield that must be offered on a taxable bond in order to realize a
certain tax-exempt yield.
Erosion
cash-flow amount transferred to a new project from customers and
sales of other products of the firm.
Estate
The entire group of assets owned by an individual at the time of his or
her death. The estate includes all funds, personal effects, interests in
business enterprises, titles to property-real estate and chattels, and
evidences of ownership such as stocks, bonds and mortgages owned,
notes receivable, etc. All claims against an estate must be duly filed
with the Executor or Administrator of the estate, and approved by the
court of law under which the will is being probated or the line of
heritage is being determined before the indebtedness may be satisfied.
Euro credit market
Market in which banks provide medium term loans in foreign
currencies.
Eurobonds
Bonds denominated in a currency not native to the country in which
they are issued.
Euro-commercial paper
Securities issued in Europe without the backing of a bank syndicate.
Eurocurrency market
Market made up of several banks that accept large deposits and provide
short-term loans in foreign currencies.
Eurodollar deposit
A U.S. dollar denominated deposit with a bank outside the United
States.
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European option
An option contract that can only be exercised on its expiration date.
Event risk
An increase in the perceived risk of default on bonds resulting from the
restructuring of debt or an acquisition.
Event study
An empirical analysis of stock price behavior surrounding a particular
event.
Ex rights date
The date at which stock purchase rights are no longer transferred to the
purchaser of the stock.
Ex-ante real interest rate
Real interest rate that is anticipated (equal to the nominal interest rate
minus the expected inflation rate).
Ex-ante
Analyzing or forecasting what will happen.
Excess reserves
The amount of a banks reserves that is in excess of its required
reserves.
Excess return
The extra return that investors receive for the risk taken.
Exchange rate mechanism
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
The risk that an investment's value will change because of currency
exchange rates.
Exchange rate
The rate at which domestic currency can be converted into foreign
currency.
Excise tax
A tax on the manufacture, sale, or consumption of specified
commodities.
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Exclusionary self tender

A tender offer whereby a firm makes a tender offer for a given amount
of its own stock while excluding targeted stockholders.
Ex-dividend date
Date four business days before the date of record for a security. An
individual purchasing stock before the ex-dividend date will receive the
current dividend.
Ex-dividend
Purchase of shares in which the buyer is not entitled to the forthcoming
dividend. The ex-rights or ex-dividend date is generally four business
days before the date of record.
Execution costs
The difference between the execution price of a stock and the price that
would have existed in the absence of the trade. It includes market ( or
price) impact and market timing costs.
Exercise date
The date on which the holder of a traded option can be called on to
implement the option contact. It is normally after three, six, or nine
months.
Exercise price
Price at which the holder of an option can buy (in the case of a call
option) or sell (in the case of a put option) the underlying stock; also
known as the striking price.
Exotic option
Designed to have payoffs that differ from those of standard contract
options. Three such non-standard contracts are Asian, lookback, and
digital options.
Expectations theory
A theory of the determination of term structure of interest rate which
holds that the differences in per-period required returns among
securities of various maturity dates reflect expectations that inflation
will change over time.
Expected return
The return that is expected on a risky asset, given a probability
distribution for the possible rates of return. Expected return equals
some risk-free rate (generally the prevailing Treasury note or bond rate)
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plus a risk premium (the difference between the historic market return,
based upon a well diversified index such as the S&P 500 and the
historic Treasury bond) multiplied by the assets beta. The conditional
expected return varies through time as a function of current market
information.
Expected value
A representative value from a probability distribution arrived at by
multiplying each outcome by the associated probability and summing
up the values.
Expense stop
A contract whereby the lessor of a lease agreement is required to pay
operating expenses up to a specified amount.
Expiration date
Generally the date an option expires.
Explicit bankruptcy costs
Specific costs incurred during the bankruptcy process such as legal
fees, court costs, consultants' fees, and document preparation expenses.
Ex-post real interest rate
Real interest rate that occurred in a previous period (normal interest
rate minus the inflation rate in that period)
Ex-post
Analyzing or understanding what already happened.
Expropriate
The action of a country in taking away or modifying the property rights
of a corporation or individual.
Ex-right
Synonymous to ex-dividend.
Extendable swap
Swap of fixed payments for floating payments that contains an
extendable feature allowing the party making fixed payments to extend
the swap period if desired.
Extension
An out-of-court settlement in which creditors agree to allow the firm
more time to meet its financial obligations. A new repayment schedule
will be developed, subject to the acceptance of creditors.
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External finance
Funding that is not generated by a firm's operations rather new
borrowing or stock issue.
External funds
Funds originating from a source outside the corporation for the purpose
of increasing cash flow and aiding expansion efforts, e.g., bank loan or
bond offering.
External reorganization
Reorganization under the formal bankruptcy laws, in which a merger
partner is found for the distressed firm. Ideally, the distressed firm
should be merged with a strong firm in its own industry, although this
is not always possible.
Externalities
Economic actions undertaken by producers and consumers that exert
external economic effect on other producers or consumers which
escape the price mechanism. Such nonprice effects are also called
spillovers or neighborhood effects.
Extinguishment of debt
Retire or pay off debt.
Extra or special dividend
A dividend that is paid in addition to a firm's established or expected
quarterly dividend.
Extra-ordinary items
Unusual and unexpected one-time events that must be explained to
shareholders in an annual or quarterly report, e.g., write down for a
discontinued operation, employee fraud, a lawsuit, or other one-time
events. Results are often presented with and without these items. The
logic of excluding these items is that investors a better notion of future
performance if one-time events are excluded.

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DISCOVERING FINANCE

F
Face value
The amount that an issuer agrees to pay at the maturity date.
Synonymous to maturity value or par value.
Factor model
Used to depict the behavior of security prices by identifying major
factors in the economy that affect large numbers of securities.
Factor
Firm that purchases accounts receivable at a discount and is responsible
for processing and collecting on the balances of these accounts; finance
companies commonly have subsidiaries that serve as factors.
Factoring accounts receivable
The outright sale of account receivable at a discount to a factor or other
financial institution in order to obtain funds, e.g., if somebody owes
you Tk.12,000 payable within a year, a factoring lender may pay you
Tk.10,000 for the debt. You receive Tk.10,000 cash quickly, but at the
cost of the Tk.2,000 discount.
Fair market value
Amount at which common stock would change hands between a
willing buyer and a willing seller, both having knowledge of the
relevant facts. Synonymous to market price.
Fallout risk
A type of mortgage pipeline risk that is generally created when the
terms of the loan to be originated are set at the same time the sale terms
are established. The risk is that either of the two parties, borrower or
investor fails to close and the loan "falls out" of the pipeline.
Fama, Eugene F.
Finance professor at the University of Chicago. Developer of the
Efficient Markets Hypothesis. Also developed the three-factor asset
pricing model in 1992.
Farm mortgage
A mortgage secured against agricultural land.
Fast growers
Small and aggressive new firms with annual growth rates in the
neighbourhood of 20% to 25%.
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DISCOVERING FINANCE

Feasible portfolio
A portfolio that an investor can construct, given the assets available.
Federal Reserve System
An independent U.S. government agency responsible for the nations
money and banking system.
Fee simple estate
An estate whose holder can divide up the fee into lesser estates and sell,
lease or borrow against them.
Fiat money
Nonconvertible paper money.
Fictitious credit
A margin account's credit balance. Fictitious credit exists after the
proceeds from a short sale are accounted for with respect to the margin
requirement. The proceeds from the short sale are reflected as a credit,
but must stay in the account to serve as security for the loan of
securities made in a short sale, and are therefore inaccessible to the
client for withdrawal.
Fidelity bond
A contract under which a bonding company agrees to reimburse a firm
if a specified managers dishonest act results in a financial loss to the
firm.
Field warehouse receipts
A method of financing inventories in which a warehouse is established
at the place of business of the borrowing firm. It happens when the
inventory subject to collateral is of such nature as to be considered
difficult to remove (coal for example) from the place of the borrower.
Fill or kill order
An order to buy or sell shares that must be executed immediately or be
cancelled.
Filter rule
A rule for buying and selling stocks according to the stocks price
movements.
Finance company
A company whose business and primary function is to make loans to
individuals, while not receiving deposits like a bank.
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DISCOVERING FINANCE

Finance paper
A form of commercial paper that is sold directly to the lender by the
finance company. It is also referred to as direct paper.
Finance
The art and science of managing money which is concerned with the
process, institutions, markets and instruments involved in the transfer
of money among and between individuals, businesses, and
governments.
Financial Accounting Standards Board (FASB)
Official rulemaking body in the accounting profession.
Financial accounting
The area of accounting concerned with reporting financial information
to interested external parties.
Financial analysis
Synonymous to financial statement analysis.
Financial assets
Claims on real assets or the income generated by them. Examples of
financial assets are stocks, bonds etc.
Financial break-even analysis
A method of determining the operating income (EBIT) the firm needs
to just cover all of its fixed financing costs and produce earrings per
share equal to zero.
Financial break-even point
The point at which earning per share (EPS) equals zero.
Financial capital
Common stock, preferred stock, and retained earnings. Financial capital
appears on the corporate balance sheet under long-term liabilities and
equity.
Financial control
The phase in which financial plans are implemented; control deals with
the feedback and adjustment process required to ensure adherence to
plans and modification of unforeseen changes.
Financial disclosures
Presentations of financial information to the investment community.
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DISCOVERING FINANCE

Financial distress costs

Legal and administrative costs of liquidation or reorganization (direct
costs); an impaired ability to do business and an incentive toward
selfish strategies such as taking large risks, under investing, and
milking the property (indirect cost).
Financial distress
Severe liquidity problems that cannot be resolved without a sizeable
rescaling of the entity's operations or structure.
Financial EDI (FEDI)
The movement of financially related electronic information between a
company and its bank or between banks.
Financial engineering
Combining or carving up existing instruments to create new financial
products.
Financial equilibrium
A situation where the ending balance of liquidities of a firm is positive.
Ending balance of liquidities is the sum of beginning balance of
liquidities and change of liquidities during a year.
Financial flexibility
The ability to raise sufficient capital to meet company needs under a
wide variety of future contingencies.
Financial forecasting
The estimation of the future level of a financial variable, often a cash
flow, asset level, or liability level.
Financial futures
Futures contracts on financial assets.
Financial institution
A financial enterprise that may perform one of several financial
services such as accepting deposits, brokering securities, managing
funds, or underwriting securities.
Financial intermediaries
Institutions that connect borrowers and lenders by accepting funds from
lenders and loaning funds to borrowers. These financial intermediaries
include banks, investment companies, insurance companies, or credit
unions. Financial intermediaries issue their own securities to raise
funds to purchase securities of other corporations.
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DISCOVERING FINANCE

Financial lease
Synonymous to capital lease.
Financial leverage
Extent to which a firm relies on debt. Financial leverage is measured
by the ratio of long -term debt to long-term debt plus equity.
Financial management
Deals with acquisition and allocation of resources among the firm's
present and potential activities and projects.
Financial manager
A person who actively manages the financial affairs of any type of
business, whether financial or non-financial, private or public, profitseeking or not-for-profit.
Financial market
The system in which communication networks, financial institutions
and relevant rules and regulations are established and activated in order
to facilitate smooth flow of funds and corresponding financial
instruments/assets. Alternatively, financial market is a mechanism
designed to facilitate the exchange of financial assets by bringing
buyers and sellers of securities together.
Financial planning
The projection of sales, income and assets based on alternative
production and marketing strategies, as well as the determination of the
resources needed to achieve these projections.
Financial ratio
An index that relates two accounts numbers and is obtained dividing
one number by the other.
Financial risk management
Managing future income variability due to the companys financing.
Also, managing the uncertainty due to possible losses in the financial
markets.
Financial risk
The uncertainty of future incomes due to the companys financing.
Financial statement analysis
The study of relationships within a set of financial statements at a point
in time and with trends in these relationships over time.
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DISCOVERING FINANCE

Financial statements
The principal published financial data about a company, primarily the
balance sheet and income statement.
Financial structure
Synonymous to capital structure.
Financial sweetener
Usually refers to equity options, such as warrants or conversion
privileges, attached to a debt security. The sweetener lowers the interest
cost to the corporation.
Financial system
A system which deals with the supply and utilization of funds to
different economic units in most efficient manner within the
institutional framework on most favorable terms and conditions.
Financial year
Any year connected with finance, such as a company's accounting
period or a year for which budgets are made up.
Financing decision
Concerns with determining the best financing mix or capital structure
for the firm. An optimal financing mix should exist in which market
price per share could be maximized.
Finished goods inventory
Items that have been produced but not yet sold.
Firm commitment
The procedure by which the issuing firm sells the securities to the
underwriting syndicate for the public offering price less a spread that
serves as compensation to the underwriters.
First mortgage bond
Bond that has first claim on specified assets as collateral.
First principle of investment decision making
An investment project is worth undertaking only if is increases the
range of choices in the financial markets. To do this, it must be at least
as desirable as what is available to shareholders in the financial
markets.
First-differencing
The procedure of subtracting the value of the time series in the first
prior period from the current value of the time series.
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DISCOVERING FINANCE

First-in, first-out
An inventory cost flow whereby the first goods purchased are assumed
to be the first goods sold so that the ending inventory consists of the
most recently purchased goods.
Fiscal policy
Government spending and taxing for the specific purpose of stabilizing
the economy.
Fiscal year
The declared accounting year for a company, but it is not necessarily in
conformance to a calendar year (January through December). However,
it does cover twelve months, 52 weeks, 365 days. For example, the
Bangladesh Government fiscal year ends June 30, i.e. July 1 through
June 30 is the fiscal or accounting year.
Fisher effect
Proposition that the nominal rate of interest should approximately equal
the real rate of interest plus a premium for expected inflation.
Fishers separation theorem
Theory that the value of an investment to an individual is not dependent
on consumption preferences. That is, investors will want to accept or
reject the same investment projects by using the NPV rule, regardless
of personal preference. Also referred to as portfolio separation theorem.
Five Cs of credit
Five characteristics that are used to form a judgment about a customer's
creditworthiness character, capacity, capital, collateral, and conditions.
Five-transaction strategy
A strategy for investing the funds which involves one deposit and four
withdrawals from the investment account.
Fixed assets turnover ratio
The ratio of sales to net fixed assets.
Fixed assets
The assets of a permanent nature required for the normal conduct of a
business, and which will not normally be converted into cash during the
ensuring fiscal period. For example, furniture, fixtures, land, and
buildings are all fixed assets. However, accounts receivable and
inventory are not.
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DISCOVERING FINANCE

Fixed charge coverage ratio

The ratio expands the TIE ratio to include the firms annual long-term
lease payments and sinking fund payments.
Fixed cost
Any cost that does not vary over the observation period with change in
volume.
Fixed rate mortgage
Mortgage that requires payments based on a fixed interest rate.
Fixed rate
The interest rate, which is not allowed to vary.
Fixed-income securities
Securities that promise either a fixed stream of income or a stream of
income that is determined according to a specified formula. For
example, a corporate bond typically would promise that the bondholder
would receive a fixed amount of interest each year.
Flat lease
A lease where the cost is fixed for a specific period of time.
Float
The difference between bank cash and book cash. Float represents the
net effect of check in the process of collection, or clearing. Positive
float means the firms bank cash is greater than its book cash until the
checks presentation. The sum of disbursement float and collection
float is net float.
Floating lien
A lenders claim on the borrowers general inventory as collateral for a
secured loan, i.e., it does not specify any asset to be used as security
collateral.
Floating rate notes
Short to intermediate term bonds with regularly scheduled coupon
payments linked to a variable interest rate, most often LIBOR.
Floating rate
The interest rate, which is allowed to float or vary.
Floor agreement
A contract that on each settlement date, pays the holder the greater of
the difference between the floor rate and the reference rate or zero; it is
equivalent to a series of put options on the reference rate.
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DISCOVERING FINANCE

Floor brokers
Independent members of an exchange who act as brokers for other
members.
Floor planning
Arrangement used to finance inventory. A finance company buys the
inventory, which is then held in trust by the user.
Floor traders
Members of a futures exchange who trade futures contracts for their
own account.
Floor value
Usually equal to the pure bond value. A convertible bond will not sell
at less than its floor value even when its conversion value is below the
pure bond value.
Flotation cost
The cost associated with issuing securities such as underwriting, legal,
listing and printing fees.
Flow-of-funds accounts
Reports on the amount of funds channeled to and from various sectors.
Forcing conversion
Strategy in which a company forces owners of a convertible security to
convert by calling the security at a time when its call price is below its
conversion value.
Forecasting
Making projections about future performance on the basis of historical
and current conditions data.
Foreclosure
The legal right of a lender of money if the borrower fails to repay the
money or part of it on the due date.
Foreign exchange exposure
The risk that unexpected changes in exchange rates will impose a loss
of some kind on the exposed party. With transaction exposure, the loss
is to reported income; with accounting exposure, the loss is to net
worth; and with economic exposure, the loss is to the market value of
the entity.

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DISCOVERING FINANCE

Foreign market
A classification of the global financial market. It is the financial market
of a country where the securities of issuers not domiciled in the country
are sold and traded. It is part of the internal or national market.
Formal sources of fund
Synonymous to institutional sources of fund.
Forms of pricing efficiency
Types of pricing efficiency determined by the various types of
information believed to be impounded or imbedded in the prices of
publicly traded securities; known as the weak form, the semi-strong
form, and the strong form.
Forward contract
An agreement between two counterparties that requires the exchange
of a commodity or security at a fixed time in the future at a
predetermined price.
Forward market
A market that facilitates the trade of some commodity, security, or
foreign exchange at a fixed price for future delivery.
Forward rate
In the context of term structure of interest rates, the markets forecast of
the future interest rate. In the context of foreign exchange, the exchange
rate at which a specified currency can be purchased or sold for a
specified future point of time.
Forward swap
Involves an exchange of interest payments that does not begin until a
specified future point in time.
Founders shares
Stock owned by the original founders of a company. It often carries
special voting rights that allow the founders to maintain voting
privileges in excess of their proportionate ownership.
Fourth market
The direct trading of stocks between two transactors without the use of
a broker.
Franchising
Allowing another party to use a product or service under the owners
name.
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DISCOVERING FINANCE

Free cash flow

The cash flow available to a company after financing all worth-while
investments; defined as operating income after tax plus depreciation
less investment. The presence of large free cash flow is said to be
attractive to a corporate raider.
Free market
A market that is free from government interference, prices rising and
falling in accordance with supply and demand.
Free rider
When a person is not excluded from the benefits given by the
government for which he or she did not pay voluntarily, that person is
said to be a free rider. Alternatively, a follower who avoids the cost and
expense of finding the best course of action simply by mimicking the
behavior of a leader who made these investments.
Freehold estate
An estate which doesn't have any termination period.
Freely floating system
System whereby exchange rates are market determined, without any
government intervention.
Freeze-out
Pressure applied to minority shareholders of a company that has been
taken over, to sell their stock to the new owners.
French, Kenneth R.
Developed the three-factor asset pricing model in 1992. Finance
Professor in MIT.
Front-end load
A commission or sales charge paid, when one purchase the shares.
Fronting loan
A parent companys loan to a foreign subsidiary channeled through a
financial intermediary, usually a large international bank. The bank
fronts for the parent in extending the loan to the foreign affiliate.
Frozen convertible
Convertible security that has been outstanding for several years and
whose holders cannot be forced to convert because its conversion value
is below its call price. See also Forcing conversion.
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DISCOVERING FINANCE

Full service broker

A broker who provides clients an all-inclusive selection of services
such as advice on security selection and financial planning.
Full-payout lease
Synonymous to financial lease.
Full-service lease
Synonymous to net lease.
Fund manager (investment manager)
An employee of one of the larger institutions, such as an insurance
company, investment trust, or pension fund, who manages its
investment fund. The fund manager decides which investments the
fund shall hold, in accordance with the specified aims of the fund, e.g.
high income, maximum growth, etc.
Fundamental analysis
A form of security analysis that seeks to determine the intrinsic value
of securities based on underlying economic factors. According to this
analysis, the market price of a share is dependent upon certain
fundamental or key factors such as the earnings, dividends, capital
structure, firm size, risk, growth potential and so on.
Fundamental beta
The product of a statistical model to predict the fundamental risk of a
security using not only price data but also other market-related and
financial data.
Fundamental descriptors
In the model for calculating fundamental beta, ratios in risk indexes
other than market variability, which rely on financial data other than
price data.
Fundamental forecasting
Forecasting based on fundamental relationships between economic
variables and exchange rates.
Fundamental information
Information relating to the economic state of a company or economy.
In market analysis, fundamental information is related to the earnings
prospects of the firm only.

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DISCOVERING FINANCE

Funds
Any means of payment. Along with cash flow, fund is one of the most
frequently misused words in finance.
Future value of annuity
The sum of the future value of a series of consecutive equal payments.
Future value
The value at some future time of a present amount of money, or a series
of payments evaluated at a given interest rate.
Futures contract
An agreement that provides for the future exchange of a particular asset
at a specified delivery date in exchange for a specified payment at the
time of delivery. The long position is held by the trader who commits
to purchase. The short position is held by the trader who commits to
sell. Futures differ from forward contract in their standardization,
exchange trading, margin requirements, and daily settling (marking to
market).
Futures margin
The earnest money deposit made by a transactor to ensure the
completion of a contract.

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DISCOVERING FINANCE

G
Gains to net debtors
Increase in debtors wealth due to a decline in the purchasing power of
liabilities.
Gap ratio
The value of rate-sensitive assets divided by the value of rate-sensitive
liabilities.
Gap
The rate-sensitive assets minus rate-sensitive liabilities.
Gearing
The proportion of the capital employed of a company which is financed
by lenders rather than shareholders
General cash offer
A public issue of a security that is sold to all interest investors, rather
than only to existing shareholders.
General obligation bonds
Bonds that provide payments that are supported by the municipal
governments ability to tax.
Generally accepted accounting principles
Accounting principles formulated by the Financial Accounting
Standards Board and used to construct financial statements.
Geometric mean
An average obtained by calculating the nth root of a set of n numbers.
Global crowding out
Situation in which excessive government borrowing in one country can
cause higher interest rates in other countries.
Global fund
A mutual fund that can invest anywhere in the world, including the
U.S.
Global minimum variance portfolio
Portfolio that has the lowest risk of any feasible portfolio.
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DISCOVERING FINANCE

Goal congruence
A concept under which the segment managers goals are in conformity
with the goals of the company as a whole.
Going private transactions
Publicly owned stock in a firm is replaced with complete equity
ownership by a private group.
Going-concern value
The amount at which a firm can be sold for as a continuing operating
business.
Gold card
A credit card that enables its holder to various benefits in addition to
those offered to standard cardholders. These cards are associated with
higher annual charges.
Golden handshake
A lump sum tax-free payment made by a company to an executive who
is forced to retire before the expiry of a service contract, as a result of
merger, takeover, or any other reason.
Golden parachute
Compensation paid to top level management by a target firm if a
takeover attempts.
Goodwill
The intangible possession which enables a business to continue to earn
a profit that is in excess of the normal or basic rate of profit earned by
other businesses of similar type. Goodwill of a business may be due to
a particularly favorable location, its reputation in the community, or the
quality of its employer and employees. The evidence that goodwill
exists is the proven ability to earn excess profits. Goodwill is created
on the books of a newly purchased company to the extent that the
purchase price of the company is greater than the value of its net
tangible assets.
Gordon model
A valuation model in which the value of a firm is equal to the present
value of all future dividends expected over the life of the firm.
Graduated payment mortgage loan
A mortgage loan in which the payments are lower in the initial years of
the loan and then gradually increase at a predetermined rate as
borrower incomes are expected to rise over time.
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DISCOVERING FINANCE

Graduated-payment mortgage
Mortgage that allows borrowers to initially make small payments on
the mortgage; the payments are increased on a graduated basis.
Greenmail
The purchase of a large number of shares in a company, which are then
sold back to the company at a premium over the market price in return
for a promise not to launch a bid for the company. It is sometimes
called graymail.
Gross domestic product
The market value of goods and services produced over time including
the income of foreign corporations and foreign residents working in the
country, but excluding the income of residents and corporations
overseas.
Gross interest expense
Interest paid on deposits and on other borrowed funds.
Gross interest income
Interest income generated from all assets.
Gross lease
A lease agreement where all the operating expenses are paid by the
lessor, and he or she bears the risk of all unexpected changes in
operating expenses.
Gross national product
Measurement of the total income of an economy. It is equal to G.D.P.
plus the income abroad accruing to domestic residents minus income
generated in domestic market accruing to non-residents.
Gross profit margin
Gross profit divided by sales, which is equal to each sales taka left over
after paying for the cost of goods sold.
Gross profit
Total profit before expenses have been deducted.
Gross rent multiplier
The ratio of sale price of a property to monthly rental income.
Gross spread (or underwriter discount)
The difference between the price at which a security is reoffered to the
public and the price paid by the underwriter to the issuer.
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DISCOVERING FINANCE

Gross working capital

The firms investment in current assets (like cash and marketable
securities, receivables, and inventory).
Ground lease
A lease of land, as opposed to a lease of a building.
Growing-equity mortgage
Mortgage where the initial monthly payments are low and increase over
time. Synonymous to GPM.
Growth company
A company that consistently has the opportunities and ability to invest
in projects that provide rates of return that exceed the firms cost of
capital. Earnings of this company are higher than those of average
firms.
Growth funds
Mutual funds containing stock of firms that are expected to grow at a
higher than average rate; for investors who are willing to accept a
moderate degree of risk.
Growth industries
Industries with expected earnings growth significantly above the
average of all industries.
Guarantee mortgage
A land loan that has a third party added to provide added assurance that
the obligations under the loan will be met.
Guaranteed investment contract
A product sold by a life insurance company, which obliges the
company to guarantee an interest rate, or a specific amount of
investment, up to some specific maturity date.

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H
Hard currency
A freely convertible currency that is not expected to depreciate in value
in the foreseeable future.
Harvesting
Selling the business outright to either an employee or outsider.
Hedge ratio
The ratio of options written to shares of stock held long in a riskless
portfolio.
Hedge
A strategy to offset investment risk. A perfect hedge is one that
eliminates all possibility of gain or loss due to future movements of the
hedged variable.
Hedged portfolio
A portfolio consisting of a long position in the stock and a long
position in the put option on the stock, so as to be riskless and produce
a return that equals the risk-free interest rate.
Hedgers
Participants in financial futures markets who take positions in contracts
to reduce their exposure to risk.
Hedging (maturity matching) approach
A method of financing where each asset would be offset with a
financing instrument of same approximate maturity.
Hedging
A strategy that negates, in whole or in part, the risk associated with a
decision.
Highly leveraged transaction
Credit provided that results in a debt-to-assets ratio of at least 75
percent.
High-tech stocks
Stocks of companies operating in high-technology fields.

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High-yield funds
Mutual funds composed of bonds that offer high yields and have a
relatively high degree of credit risk.
Hire purchase
A buying method in which the purchaser takes possession of goods as
soon as an initial installment of the price has been paid, and ownership
is obtained after all the subsequent installments have been completed.
Historical cost accounting
An accounting principle requiring all financial statement items to be
based on original cost. It is usually based upon the taka amount
originally exchanged in an arm's-length transaction; an amount
assumed to reflect the fair market value of an item at the transaction
date.
Historical-cost depreciation
Depreciation based on the amount originally paid for the asset.
Holder-of-record date
Stockholders owning the stock on the holder-of-record date are entitled
to receive a dividend. In order to be listed as an owner on the corporate
books, the investor must have bought the stock before it went exdividend.
Holding company
A corporation that owns enough voting stock in another firm to control
management and operations by influencing or electing its board of
directors.
Holding period return
The total return from an investment, including all sources of income,
for a given period of time.
Holding period yield
The total return from income and capital appreciation over a stated
holding period; the holding period return on a bond.
Holding period
Length of time that an individual holds a security.
Homemade dividend
Indicates that an individual investor can undo corporate dividend policy
by re-investing excess dividends or selling of shares of stock to receive
a desired cash flow.
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DISCOVERING FINANCE

Homemade leverage
The use of leverage directly by investors in place of corporate leverage.
Here the idea is that as long as individuals borrow (or lend) on the same
terms as the firm, they can duplicate the effects of corporate leverage
on their own. Thus, if levered firms are priced too high, rational
investors will simply borrow on personal accounts to buy shares in
unlevered firms. Homemade leverage is part of the initial Modigliani
and Miller approach.
Homogeneous expectations
Idea that all individuals have the same beliefs concerning future
investments, profits and dividends.
Horizon analysis
Forecast of bond returns based largely on a prediction of the yield
curve at the end of the investment horizon.
Horizon return
Bond returns to be earned based on assumptions about reinvestment
rates.
Horizontal acquisition
An acquisition of a firm in the same industry as the acquiring firm. The
firms compete with each other in their product market.
Horizontal integration
The acquisition of a competitor.
Horizontal merger
A merger involving two or more firms in the same industry that are
both at the same stage in the production cycle; that is, two or more
competitors.
Horizontal price movement
Stock price movement within a narrow price range over an extended
period of time that creates the appearance of a relatively straight line on
a graph of the stock's price.
Horizontal spread
The simultaneous purchase and sale of two options that differ only in
their expiration dates.
Hostile takeover
A takeover of a company against the wishes of the current management
and the board of directors by an acquiring company or raider.
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DISCOVERING FINANCE

Hot money
Money that moves across country borders in response to interest rate
differences and that moves away when the interest rate differential
disappears.
Human capital
The unique capabilities and expertise of individuals.
Humped yield curve
A yield curve in which intermediate rates are higher than both shortand long-term rates.
Hurdle rate
The minimum required rate of return on an investment in a discounted
cash flow analysis; the rate at which the project is acceptable.
Hybrid instrument
A package containing two or more different kinds of risk management
instruments that are usually interactive.
Hybrid mortgage
A form of mortgage in which the compensation to the lender may
include receiving income directly from the use of the property.
Hybrid security
A convertible security whose optioned common stock is trading in a
middle range, causing the convertible security to trade with the
characteristics of both a fixed income security and a common stock
instrument.
Hypothecation
The pledging of securities to brokers as collateral for loans made to
cover short sales or purchase securities. In banking, it is one kind of
continuous credit where the title of goods belongs to the bank but the
possession of goods belongs to the borrower.

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I
Ideal standards
Standards that can be achieved only with absolute peak performance
and efficiency under perfect conditions.
Immunization
A bond portfolio management technique to make worth unaffected by
interest rate movements.
Impact lag
Time lag between the time when a policy is implemented by the
government and the time when the policy has an effect on the economy.
Imperfect markets
Markets in which buyers and sellers of securities do not have full
access to information and cannot always break down securities to the
precise size they desire.
Implementation lag
Time lag between the time when the government recognizes a problem
and the time when it implements a policy to resolve the problem.
In the money
Describes a call option whose premium is above the exercise price or a
put option whose premium is below the exercise price.
Income bonds
Debentures that stipulate interest payments only if the issuer earns the
income to make the payments by specified dates.
Income funds
Mutual funds composed of bonds that offer periodic coupon payments.
Income smoothing
The practice that the management recognizes losses or defers gains in a
good year and the management defers losses or recognizes gains in a
bad year.
Income statement
A summary of a firms revenues and expenses over a specified period,
ending with net income or loss for the period, according to accepted
accounting principles.
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DISCOVERING FINANCE

Incremental cash flows

Changes in cash flows, usually resulting from a decision.
Incremental cost of capital
The average cost of the additional capital raised during a period of
time.
Incremental depreciation
The depreciation on a new asset minus the depreciation on an old asset.
Incremental depreciation is multiplied times the tax rate to determine
its tax shield benefit.
Incremental IRR
IRR on the incremental investment from choosing a larger project
instead of a smaller project.
Indenture
A complex and lengthy legal agreement, also called the deed of trust,
between the corporation issuing bonds and the bondholders,
establishing the terms of the bond issue and naming the trustee.
Independent project
A project whose acceptance or rejection is independent of the
acceptance or rejection of other projects.
Index analysis
An analysis of percentage financial statements where all balance sheet
or income statement figures for a base year equal 100% and subsequent
financial statement items are expressed as percentages of their values in
the base year.
Index arbitrage
An investment/trading strategy that exploits divergences between actual
and theoretical futures prices. An example is the simultaneous buying
(selling) of stock index futures (i.e., S&P 500) while selling (buying)
the underlying stocks of that index, capturing as profit the temporarily
inflated basis between these two baskets.
Index fund
Investment fund designed to match the returns on a stock market index
whose portfolio matches that of a broad-based index such as the S&P
500 and whose performance therefore mirrors the market as represented
by that index.
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Index
Statistical composite that measures changes in the economy or in
financial markets, often expressed in percentage changes from a base
year or from the previous month. Indexes measure the ups and downs
of stock, bond, and some commodities markets, in terms of market
prices and weighting of companies of the index.
Indexed lease
A rental agreement where the amount of the rent to be paid changes in
accordance with changes in a specified index (i.e. the cost of living
index).
Indexed loan
Any loan whose interest rate is adjusted in accordance with a rate
published by an independent third party (an "index").
Indexing
A passive bond portfolio management strategy that seeks to match the
composition, and therefore the performance, of a selected market index.
Indifference curve
The expression in a graph of a utility function, where the horizontal
axis measures risk and the vertical axis measures expected return. The
curve connects all portfolios with the same utility.
Indirect investment
An investment that an investor has by holding a claim on a financial
intermediary that has made direct investment.
Industry life cycle
Stages through which firms typically pass as they mature.
Industry
A group of firms whose products are perfect substitutes for each other
to a common group of buyers and which are very poor substitutes for
all other products in the economy.
Inefficient portfolio
Group of assets dominated by at least one other portfolio under the
mean variance rule. For example, if A has both lower return and higher
volatility than B, we say A is dominated by B.
Infant industry argument
Argument that industries in the developing and emerging sectors of the
economy need protection against international competition in order to
establish themselves.
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Inflation escalator clause

A clause in a contract providing for increases or decreases in inflation
based on fluctuation in the cost of living, production cost, and so forth.
Inflation premium
An extra return required as compensation for expected inflation.
Inflation rate
The rate at which the general level of prices for goods and services is
rising throughout an economy.
Inflationary gap
Occurs when aggregate demand exceeds output potential. This often
results in higher prices (inflation) as well as a worsening trade balance
(as goods are imported).
Informal line of credit
Financing arrangement that allows a business to borrow up to a
specified amount within a specified period of time.
Informal sources of fund
Synonymous to non-institutional sources of fund.
Information asymmetry
Condition that information is known to some, but not all participants.
Information content of dividends
This theory of dividends assumes that dividends provide information
about the financial health and economic expectations of the company.
If this is true, corporations must actively manage their dividends to
provide the market with information.
Information costs
Costs associated with assessing the value of a financial asset.
Initial margin
A margin deposit established by a customer with a brokerage firm
before a transaction can be executed.
Initial public offering
The mechanism of offering shares of a specific firm for the first time
for public subscription.
Inside information
Non public knowledge about a corporation possessed by corporate
officers, major owners, or other individuals with privileged access to
information about the firm.
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Insider trading
The purchase and sale of a firms securities by its officers (among
others) who are seeking to benefit from their knowledge of non-public
information about the firms financial prospects.
Insolvency
The condition of having debts greater than the realizable value of ones
assets.
Installment loans
Loans to individuals to finance purchases of cars and household
products.
Instinet
An electronic trading network, part of the fourth market.
Institutional investors
Large investors who manage large portfolios of securities such as
pension funds or mutual funds, investment companies, bank trust
departments, life insurance companies, and so forth.
Institutional mortgage
A loan secured against real property offered to the landowner by a
bank, credit union, trust company or other accredited financial
organization. Antithesis to private mortgage.
Institutional sources of fund
These are the components of the formal financial market, for example
commercial banks, Investment banks, insurance companies, capital
market, specialized institutions etc.
Insurance
Guarding against property loss or damage making payments in the form
of premiums to an insurance company, which pays an agreed-upon sum
to the insured in the event of loss.
Insured mortgage
A loan secured against land for which an insurance policy exists
promising to compensate the lender for all losses and costs resulting
from the borrower's failure to meet her obligations under the loan
agreement.
Insured plans
Pension plans that are used to purchase annuity policies so that the life
insurance companies can provide benefits to employees upon
retirement.
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Integer programming
Variant of linear programming in which the solution values must be
integers.
Integral theory of seasonality
Theory for the computation of interim net income for firms with
seasonality where each interim period is treated as an integral part of
the fiscal year. See also Discrete theory.
Intellectual property rights
Patents, copyrights, and proprietary technologies and processes that
may be the basis of a company's competitive advantage.
Inter-bank market
A market for funds in which only banks participate.
Interest factor
The tabular value to insert into the various present value and future
value formulas. It is based on the number of periods (n) and the interest
rate (i).
Interest on interest
The process by which bond coupons are reinvested to earn interest.
Interest rate cap
Ceiling interest rate imposed on a loan designed to protect the borrower
from an unacceptable rise in the interest cost of a loan.
Interest rate collar
The purchase of an interest rate cap and the simultaneous sale of an
interest rate floor; puts brackets around the movement of a loan rate so
that it cannot rise above the cap or fall below the floor.
Interest rate floor
Minimum interest rate below which the interest cost of a loan normally
cannot fall, thus protecting the lender from additional lost revenue if
market interest rates move lower.
Interest rate futures
Financial futures contracts on debt securities such as Treasury bill,
notes payables, or bonds.
Interest rate options
Option contracts on fixed-income securities such as treasury bonds.
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Interest rate parity

Theory that suggests the forward discount (on premium) is dependent
on the interest rate differential between the two countries of concern.
Interest rate risk
The uncertainty of returns on an investment due to possible changes in
interest rates over time for the change of economic condition of a
country drastically.
Interest rate swap
An agreement calling for the periodic exchange of cash flows, one
based on an interest rate that remains fixed for the life of the contract
and the other that is linked to a variable-rate index.
Interest subsidy
A firms deduction of the interest payments on its debt from its
earnings before it calculates its tax bill under tax law.
Interest
Money paid (earned) for the use of money.
Interest-on-interest
Bond income from reinvestment of coupon payments.
Interest-sensitive industries
Industries particularly sensitive to expectations about changes in
interest rates.
Interim dividend
The declaration and payment of a dividend prior to annual earnings
determination.
Interim financing
A short-term loan made to a company on the condition that a takeout
will follow with long-term or intermediate financing.
Interim statement
A financial statement that reflects only a limited period of a company's
financial statement, not the entire fiscal year.
Inter-market spread swap
Switching from one segment of the bond market to another.
Inter-market trading system
An electronic system that is part of the national market system and that
displays the court posted on the exchanges where a stock is listed, as
well as OTC market, and provides for inter-market executions.
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Internal financing
Funds that come from internally generated cash flow. It equals net
income plus depreciation minus dividend.
Internal market
A classification of a global financial market composed of two parts the
domestic market and the foreign market. Also called national market.
Internal rate of return
The rate of return that equates the present value of future cash flows to
the initial investment on the project.
Internal reorganization
Reorganization under the formal bankruptcy laws. New management
may be brought in and a redesign of the capital structure may be
implemented.
Internal sources of financing
The funds that originate from business operation. These may originate
from a variety of forms such as retained earnings, general reserve,
sinking fund, depreciation provision etc.
International arbitrage
Simultaneous buying and selling of foreign securities to capture the
profit potential created by time, currency, and settlement
inconsistencies that varies across international borders.
International diversification
Achieving diversification through many different foreign investments
that are influenced by a variety of factors.
International Finance Corporation
An affiliate of the World Bank established with the sole purpose of
providing partial seed capital for private ventures around the world.
Whenever a multinational company has difficulty raising equity capital
due to lack of adequate private risk capital, the firm may explore the
possibility of selling equity or debt (totally up to 25 percent) to the
International Finance Corporation.
International mutual fund
Portfolio of international stock created and managed by financial
institution; individuals can invest in international stock by purchasing
shares of an international mutual fund.
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Interpolation
Estimation of an unknown number that lies somewhere between two
known numbers.
Intrinsic value
The present value of a firm's expected future net cash flows discounted
by the required rate of return.
Inventory profits
Profits generated as a result of an inflationary economy, in which old
inventory is sold at large profits because of increasing prices. This is
particularly prevalent under FIFO accounting.
Inventory turnover ratio
The ratio calculated by dividing cost of goods sold by inventories. It
tells, how many times inventory is turned over into receivables through
sales during the year.
Investment banks
Financial intermediaries who perform a variety of services, including
aiding in the sale of securities, facilitating mergers and other corporate
reorganizations, acting as brokers to both individual and institutional
clients, and trading for their own accounts.
Investment club
A group of investors who, by pooling their resources, are able to make
more frequent and larger investments on a stock exchange often being
able to reduce brokerage and to spread the risk of serious loss. The
popularity of investment clubs has waned with the rise of unit trusts
and investment trusts, both of which have the advantages of
professional management.
Investment company
A firm that sells shares of the company and uses the proceeds to buy
stocks, bonds, or other financial instruments.
Investment decision
Concerns with the allocation of capital to investment proposals, whose
benefits are to be realized in the future. It also includes the reallocation
of capital when an asset no longer economically justifies the capital
committed to it.
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Investment focus
Decisions taken by shareholders & other investors where the emphasis
is put on choosing a portfolio of securities that is consistent with the
preferences of the investors for risk, return, dividend yield, liquidity &
so on.
Investment grade bond
A bond rated BBB and above by Standard and Poors, or Baa and
above by Moody's.
Investment grade securities
Securities those are rated as medium quality or higher by rating
agencies.
Investment opportunity schedule (IOS)
A graph of the firms investment opportunities ranked in order of the
projects internal rates of return.
Investment policy
The first step in the portfolio management process, involving investors
objectives, constraints and preferences.
Investment software
Computer software that helps investors make investment decisions by
identifying situations that meet programmed parameters.
Investment tax credit
Proportion of new capital investment that could be used to reduce a
company's tax bill.
Investment trust
A company that invests the funds provided by shareholders in a wide
variety of securities. It makes its profits from the income and capital
gains provided by these securities. Also called Investment Company.
Investment valuation model
The basic mathematical technique of finance that calculates the value
of an investment as the present value of all future cash flows expected
to be generated by the investment.
Investment
The current commitment of taka for a period of time in order to derive
future payments that will compensate the investor for the time the funds
are committed, the expected rate of inflation, and the uncertainty of
future payments.
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Invoice
Bill prepared by a seller of goods or services and submitted to the
purchaser. It lists the items bought, prices, and terms of sale.
IRR rule
An investment decision rule that accepts an investment for which the
IRR is greater than the opportunity cost of capital. It is wise to also
consider net present value for project evaluation.
Irrelevance result
The MM theorem that a firms capital structure is irrelevant to the
firms value.
Issued share capital
Total amount of shares that have been issued.
Issued stock
Shares of common stock put forth into circulation which may be more
in number than shares of outstanding stock.
Issuer
An entity that puts a financial asset in the marketplace.
Issuing house
A financial institution, usually a merchant bank that specializes in the
flotation of private companies securities on a stock exchange.

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J
January effect
Refers to the historical pattern that stock prices rise in the first few days
of January. Studies have suggested, this holds only for smallcapitalization stocks. In recent years, there is less evidence of a January
effect.
Jensen measure
An absolute measure of a portfolios risk-adjusted performance,
computed as the intercept in a regression equation where the excess
returns to a managers portfolio and the market index are the dependent
and independent variables respectively.
Jensen, Michael C.
Eugene Fama's graduate student, and published "The Performance of
Mutual Funds in the Period 1945-1965," in the Journal of Finance,
1965. This was the first study of actively managed mutual funds that
documented their investment professionals' failure to outperform the
appropriate market indexes. Also developed the idea of the Agency
Theory and Free Cash Flow. Finance professor at the Harvard
University.
Job lot
A collection of diverse things, such as stocks or shares, sold together as
one lot one all-inclusive price.
Jobber
A term for a market maker.
Jobbers turn
The difference between the price at which the jobber is prepared to buy
and the price at which the jobber is prepared to sell. Also called spread.
Johnson, Ramon E.
Developer of the idea of Leasing. Finance professor at the University of
Utah.
Joint stock company
A form of business organization that falls between a corporation and a
partnership. The company sells stock, and its shareholders are free to
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sell their stocks, but shareholders are not liable for all debts of the
company.
Joint venture
Two or more companies forming a new company.
Jumbo loan
A mortgage loan that is nonconforming because the amount of the loan
is greater than the maximum permissible loan specified by an agency.
Junior bonds
Synonymous to subordinate bonds.
Junior lien
A lien subordinated to a previous lien.
Junior mortgage
An overlying mortgage that is subordinate to a prior mortgage in the
order of priority.
Junk bond
A high-risk, high-yield (often unsecured) bond rated below investment
grade.
Junk commercial paper
Low-rated commercial paper that are issued by the companies facing
financial distress.
Just in time
An approach to inventory management and control in which inventories
are acquired and inserted in production at the exact times they are
needed.

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K
Kerb market
Any informal market, such as one for dealing in securities not listed on
a stock exchange.
Keynesian growth model
Model in which a long run growth path for an economy is traced out by
the relations between saving, investing and the level of output.
Keynesian macroeconomics
The theory that shows how a market-based capitalist economy may
reach equilibrium with large scale unemployment and how government
spending may be used to raise it out of this to a new equilibrium at the
full-employment level of output.
Keynesian theory
Theory that suggests how the government can improve economic
conditions as related to monetary policy; the theory explains how the
money supply can be adjusted to affect interest rates and the economy.
Kicker
An additional feature of a debt obligation that increases its
marketability and attractiveness to investors.
Killer bees
Those who aid a company in fending off a takeover bid, usually
investment bankers who devise strategies to make the target less
attractive or more difficult to acquire.
Kiting
The practice of depositing and drawing checks at two or more banks
and taking advantage of the time it takes for the second bank to collect
funds from the first bank. Also refers to illegally increasing the face
value of a check by changing the numbers on the check. In the context
of securities, refers to the manipulation and inflation of stock prices.
Knock-out option
An option that is worthless at expiration if the underlying commodity
or currency price reaches a specific price level.

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Know your customer

An ethical foundation of securities brokers that an adviser who
recommends the purchase or sale of any security to a customer, must
believe that the recommendation is suitable for the customer, given the
customer's financial situation.
Kurtosis
Measures the fatness of the tails of a probability distribution. A fattailed distribution has higher-than-normal chances of a big positive or
negative realization. Kurtosis should not be confused with skewness,
which measures the fatness of one tail. Kurtosis is sometimes referred
to as the volatility of volatility.

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L
Lagrangian multiplier
The Lagrange multiplier lambda () approximates the marginal impact
on the objective function caused by a small change in the constant of
the constraint.
Laissez-faire
Doctrine that a government should not interfere with business and
economic affairs.
Lambda
The ratio of a change in the option price to a small change in the option
volatility. It is the partial derivative of the option price with respect to
the option volatility.
Last in, first out
Inventory costing method whereby last items into inventory are first
items out.
Law of large numbers
The mean of a random sample approaches the mean (expected value) of
the population as sample size increases.
Law of one price
An economic rule stating that a given security must have the same price
no matter how the security is created. If the payoff of a security can be
synthetically created by a package of other securities, the implication is
that the price of the package and the price of the security whose payoff
it replicates must be equal. If it is unequal, an arbitrage opportunity
would present itself.
Lead manager
The commercial or investment bank with the primary responsibility for
organizing syndicated bank credit or bond issued. The lead manager
recruits additional lending or underwriting banks, negotiates terms of
the issue with the issuer, and assesses market conditions.
Lead time
The difference in the time between the time an order is placed and the
time it is received.
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Leader
A stock or group of stocks that is the first to move in a market upsurge
or downturn.
Lease renewal option
Agreement specified in the lease, which provides the tenant the option
to renew the lease for a given time period upon the expiration of the
initial lease. Most lease options include the landlord's right to increase
the rent upon renewal.
Lease with option to purchase
A lease agreement containing an option for the lessee to purchase the
leased property.
Lease
A contractual arrangement whereby the owner of any asset allows the
other party to the agreement to use the full services & benefits of the
said asset in exchange of some periodic payments.
Leasehold estate
An estate which has a specific termination period.
Leasehold mortgage
Mortgage collateralized by a tenant's interest, usually structural
improvements, in a lease parcel of property. A leasehold mortgage is
subordinate to the landlord's land lease since it is a second lien by order
of priority on the property.
Ledger cash
A firms cash balance as reported in its financial statements. Also
called book cash.
Legal bankruptcy
A legal proceeding for liquidation or reorganizing a business.
Legislative risk
Risk associated with the changes in the regulatory environment in
which markets operate.
Lemon
An investment with poor results.
Leptokurtosis
The condition of a probability density curve to have fatter tails and a
higher peak at the mean than the normal distribution.
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Lessee
The receiver of the services of the assets under a lease contract.
Lessor
The owner of assets that are being leased.
Letter of credit
A letter from one bank to anther authorizing the payment of a certain
sum to the person named in the letter on certain specific requirements.
It is frequently used to guarantee payment of an obligation.
Letter stock
Privately placed common stock, so-called because the SEC requires a
letter from the purchaser stating that the stock is not intended for resale.
Level production
Equal monthly production used to smooth out production schedules and
employ manpower and equipment more efficiently and at a lower cost.
Leverage buyout
Takeover of a company by using borrowed funds, usually by a group
including some members of existing management.
Leverage measure
Measure of financial leverages; defined as assets divided by equity.
Leverage ratio
Measures of the relative value of stockholders, capitalization, and
creditors obligations, and of the firm's ability to pay financing charges.
Value of firm's debt to the total value of the firm (debt plus stockholder
capitalization).
Leverage
The use of fixed costs in an attempt to increase (or lever up)
profitability.
Leveraged equity
Stock in a firm that relies on financial leverage. Holders of leveraged
equity face the benefits and costs of using debt.
Leveraged lease
A lease arrangement where the lessee contracts to make periodic
payments over the basic lease period while the lessors asset is partly
financed by a long-term lender or lenders. The lessor, however, is the
borrower.
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Liability
An obligatory payment to a supplier of a good, a service or funds.
LIBOR
Lending rate among banks in the London market.
Lien
The legal right to keep somebody elses property as security for a debt.
Life estate
A limited right in a property, to use or occupy the property for the life
of the person holding the estate after which title reverts to the grantor or
a named third party.
Life insurance policy
The contract that sets out the terms of life insurance coverage.
Life insurance
An insurance policy that pays a monetary benefit to the insured or the
insured person's survivors after death.
Limit order
An order to buy a stock at or below a specified price, or to sell a stock
at or above a specified price. For instance, you could tell a broker "buy
me 100 shares of XYZ Corp at Tk.55 or less" or "sell 100 shares of
XYZ at Tk.65 or better" The customer specifies a price, and the order
can be executed only if the market reaches or betters that price. A
conditional trading order designed to avoid the danger of adverse
unexpected price changes.
Limited partnership
A special form of partnership to limit liability for most of the partners.
Under this arrangement, one or more partners are designated as general
partners and have unlimited liability for the debts of the firm, while the
other partners are designated as limited partners and only liable for
their initial contribution.
Line of credit
An arrangement whereby a financial institution (bank or insurance
company) commits itself to lend up to a specified maximum amount of
funds during a specified period.
Linear programming
Technique for finding the maximum value of some equation, subject to
stated linear constraints.
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Linear regression
A statistical technique for fitting a straight line to a set of data points.
Linter's observations
John Linter's work (1956) suggested that dividend policy is related to a
target level of dividends and the speed of adjustment of change in
dividends.
Liquid asset
An asset that can be easily converted into cash without significant loss
of its original value.
Liquidating dividend
Payment by a firm to its owners from capital rather than from earnings.
Liquidation value
The amount of money that could be realized if an asset or a group of
assets (e.g., a firm) is sold separately from its operating organization.
Liquidation
Termination of the firm as a going concern. Liquidation involves
selling the assets of the firm for salvage value.
Liquidity preference theory
The theory that, all else equal, lenders prefer to make short-term loans
rather than long-term loans; hence they will lend short-term funds at
lower rates than long-term funds.
Liquidity premium theory
Theory that suggests the yield to maturity is higher for liquid securities,
other things being equal.
Liquidity premium
A premium added to the rate on a security if the security cannot be
converted to cash on short notice and at close to the original cost.
Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial
obligations on time, such as the ratio of current assets to current
liabilities.
Liquidity risk
The risk that arises from the difficulty of selling an asset in a timely
manner. It can be thought of as the difference between the "true value"
of the asset and the likely price, less commissions.
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Liquidity
The ability of an asset to be converted into cash without a significant
price concession.
Listing rules
Requirements, including minimum shares outstanding, market value,
and income, that are laid down by an exchange for any stock to be
listed for trading.
Load funds
Mutual funds that have a sales charge imposed by brokerage firms that
sell the funds.
Load
A sales commission charged on a mutual fund.
Loan commitment fee
An amount paid to a lender for the purpose of making funds available
over a specified period of time at a certain rate of interest.
Loan commitment
Written promise to make a loan, outlining amount and terms, by
lending institution to borrower.
Loan loss provision
A reserve account established by bank in anticipation of loan losses in
the future.
Loan participation
Arrangement in which several banks pool funds to provide a loan to a
corporation.
Loan
Money lent on condition that it is repayable, either in installments or all
at once, on agreed dates usually with an agreed rate of interest.
Loanable funds theory
Theory that suggests the market interest rate is determined by the
factors that control the supply and demand for loanable funds.
Loan-to-value ratio
Ratio of loan amount requested and the estimated property value.

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Locational arbitrage
Arbitrage intended to capitalize on a price (such as foreign exchange
rate quote) discrepancy between two locations.
Lock in
A restriction on a shareholder to sell the share at a time.
Lockbox system
An arrangement to speed up collection of receivables through
decentralization.
Lockbox
A post office box maintained by a firms bank that is used as a
receiving point for customer remittances.
Long bond
Bond with a long current maturity. The "long bond" is the 30-year US
Treasury bond.
Long hedge
A long position in a forward or futures contract used to offset the price
volatility of a short position in the underlying asset.
Long position
The buyer of a commodity or security or, for a forward contract, the
counterparty who will be the eventual buyer of the underlying asset.
Long-term debt ratio
The ratio of long-term debt to total capitalization.
Long-term debt
An obligation having a maturity of more than one year from the date it
was issued.
Long-term equity anticipations
Stock options with relatively long-term expiration dates.
Long-term funds
The sum of the firms long-term debt and shareholders equity.
Lots
In the context of general equities, these blocks or portions of trades
express a specific transaction in a stock at a certain time, often
implying execution at the same price (e.g., "I traded 40m in two lots of
10 and four lots of 5.").
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Low coupon bonds

Bonds that pay low coupon payments; most of the expected return to
investors is attributed to the large discount in the bonds price.
Low-load fund
A mutual fund that imposes a moderate front-end sales charge when the
investor buys the fund, typically about 3 to 4 percent.
Lump sum
A sum of money paid at once, rather than in installments.
Lumpy assets
Assets that cannot be acquired in small increments; instead, they must
be obtained in large, discrete amounts.

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M
M1
Definition of the money supply; composed of currency held by the
public plus checking accounts.
M2
Definition of the money supply; composed of M1 plus savings
accounts, small time deposits, money market deposit account and some
other items.
M3
Definition of the money supply; composed of M2 plus large time
deposits and other items.
Macaulay duration
A measure of the weighted average time to maturity of a bond.
Macroeconomics
The helicopter, top-down view of an economy, i.e. the study of the
economy as a whole.
Mail float
The delay between the time when a payer mails a payment and the time
when the payee receives it.
Maintenance margin
The required proportion that the investors equity value must be to the
total market value of the stock. If the proportion drops below this
percent, the investor will receive a margin call.
Majority voting
The system whereby, in the election of the board of directors, each
stockholder is entitled to one vote for each share of stock owned, and
he or she can vote all shares for each director.
Make a market
The obligation of a specialist to offer to buy and sell shares of assigned
stocks. It is assumed that this makes the market liquid because the
specialist assumes the role of a buyer or investor if they wish to sell and
seller if they wish to buy.
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Managed fund
An investment portfolio of one or more clients entrusted to a manager
who decides how to invest it.
Management buyout
A leverage buyout (LBO) in which pre-buyout management ends up
with a substantial equity position.
Management by exception
A concept used in responsibility accounting under which management
concentrates its time and effort in exceptional (or problems) situations.
Management
A collective group of individuals who direct the operations of an entity.
Managerial (real) option
Management flexibility to make future decisions that affect a projects
expected cash flow's life or future acceptance.
Managerial finance
The area of finance concerned with the duties of the financial manager
in the business firm.
Managing investment banker
An investment banker who is responsible for the pricing, prospectus
development, and legal work involved in the sale of a new issue of
securities.
Manipulation
An illegal operation. Buying or selling a security for the purpose of
creating a false or misleading appearance of active trading or for the
purpose of raising or depressing the price to induce purchase or sale by
others.
Margin account
A leverageable account in which stocks can be purchased for a
combination of cash and a loan. The loan in the margin account is
collateralized by the stock; if the value of the stock drops sufficiently,
the owner will be asked to either put in more cash, or sell a portion of
the stock.
Margin call
Call from a broker to participants in futures contracts (or other
investments) informing them that they must increase their margin.
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Margin of safety
The difference in sales between the present sales volume and the sales
volume at the break-even point. It may be calculated either in sales taka
or units.
Margin requirement
The proportion of invested funds that can be borrowed versus paid in
cash; set by the central bank.
Margin
The percent of cost a buyer pays in cash for a security, borrowing the
balance from the broker.
Marginal cost of capital schedule
A graph that relates the firms weighted average cost of each taka of
capital to the total amount of new capital raised.
Marginal cost of capital
Synonymous to incremental cost of capital.
Marginal principle of retained earnings
The principle that a corporation must be able to earn higher return on
its retained earnings than a stockholder would receive after payment of
taxes on the distributed dividends.
Marginal tax rate
The tax applicable to the last unit of income.
Marked to market
The daily settlement of obligations on futures positions.
Market anomalies
Techniques or strategies that appear to be contrary to an efficient
market.
Market capacity
Synonymous to market capitalization.
Market capitalization rate
The market-consensus estimate of the appropriate discount rate for a
firms cash flows.
Market capitalization
Price per share of stock multiplied by the number of shares outstanding.
Market data
Primarily stock price and volume information.
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Market efficiency
Markets are considered to be efficient when (1) prices adjust rapidly to
new information; (2) there is a continuous market, in which each
successive trade is made at a price close to the previous price (the faster
the price responds to new information and the smaller the differences in
price changes, the more efficient the market); and (3) the market can
absorb large taka amounts of securities without destabilizing the prices.
Market extension merger
Combination of at least two firms with similar products in different
geographic markets.
Market failure
The inability of a competitive market to remain so without the help of
government, or the inability of an uncompetitive market, if not aided by
government, to become competitive.
Market impact cost
A form of execution resulting from the bid as spread and price
concession demanded by dealers in the stock to mitigate their risks that
an investor's demand for the stock is motivated by information that the
investor may have that is not embodied in the stocks price.
Market index
A market measure that consists of weighted values of the components
that make up certain list of companies. A stock market tracks the
performance of certain stocks by weighting them according to their
prices and the number of outstanding shares by a particular formula.
Market makers
Individuals who facilitate the trading of stocks by standing ready to buy
or sell specific stocks in response to customer orders made through a
telecommunication network.
Market micro-structure
Process by which securities are traded.
Market model
The model that states that the return on a security depends on the return
on the market portfolio and the extent of the security's responsiveness
as measured by beta. The return also depends on conditions that are
unique to the firm. The market model can be graphed as a line fitted to
a plot of asset returns against returns on the market portfolio. This
relationship is sometimes called the single-index model.
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Market order
An order to buy or sell shares immediately at the best available price.
Market portfolio
A portfolio consisting of all assets available to investors, with each
asset held in proportion to its market value relative to the total market
value of all assets.
Market price
The amount of money that a willing buyer pays to acquire something
from a willing seller, when a buyer and seller are independent and
when such an exchange is motivated by only commercial consideration.
Market risk premium
Synonymous to risk premium.
Market risk
Risk that the stock market experiences lower prices in response to
adverse economic condition or pessimistic expectation.
Market segmentation theory
The theory that each borrower and lender has a preferred maturity and
that the slope of the yield curve depends on the supply of and demand
for funds in the long-term market relative to the short-term market.
Market to book value ratio
The ratio of a stocks market price to its book value.
Market value maximization
The concept of maximizing the wealth of shareholders. This calls for
recognition not only of earnings per share but also how they will be
valued in the marketplace.
Market value ratios
A set of ratios that relate the firms stock price to its earnings and book
value per share.
Market value
The price at which willing buyers and sellers trade a firm's asset.
Market
A mechanism where buyers and sellers buy and sell their resources, and
goods and services.
Marketability (or liquidity)
The ability to sell a significant volume of securities in a short period of
time in the secondary market without significant price concession.
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Marketable securities
Short term, interest earning, money market instruments used by the
firm to obtain a return on temporarily idle funds.
Market-based forecasting
Process of developing forecasting from market indicators.
Marketed claims
Claims that can be bought and sold in financial markets, such as those
of stockholders and bondholders.
Marking the market
The daily settlement of obligations on futures positions.
Markowitz decision rule
A decision rule for choosing between two investments based on their
means and variances.
Markowitz diversification
A strategy that seeks to combine in a portfolio assets with returns that
are less than perfectly positively correlated, in an effort to lower
portfolio risk (variance) without sacrificing return. See also naive
diversification.
Markowitz efficient frontier
The graphical depiction of the Markowitz efficient set of portfolios
representing the boundary of the set of feasible portfolios that have the
maximum return for a given level of risk. Any portfolio above the
frontier cannot be achieved. Any below the frontier are dominated by
Markowitz efficient portfolios.
Markowitz efficient portfolio
A portfolio that has the highest expected return at a given level of risk.
Also called a mean-variance efficient portfolio.
Markowitz, Harry M.
Nobel laureate in economics. Father of modern portfolio theory.
Master budget
Synonymous to comprehensive budget.
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Matched funding
Strategy in which investment decisions are made with the objective of
matching planned outflow payments.
Mathematical programming
An operations research technique that solves problems in which an
optimal value is sought subject to specified constraints. Mathematical
programming models include linear programming, quadratic
programming, and dynamic programming.
Maturity preference theory
A theory of the determination of term structure of interest rate, which
holds that the shape of the yield curve is merely a reflection of the
differences in interest rate risk among maturities.
Maturity risk premium
A premium that reflects interest rate risk bonds with longer maturity
have greater interest rate risk.
Maturity strategy
A portfolio management strategy employed to reduce the interest rate
risk of a bond portfolio by matching the maturity of the portfolio with
its investment horizon. For example, if the investment horizon is 5
years, the portfolio manager would construct a portfolio that will
mature in 5 years.
Mean
The expected value of a random variable.
Mean-variance analysis
Analysis of investment opportunities based on their means, variances
and covariances.
Mechanistic hypothesis of equity valuation
A hypothesis that states that the capital market is fixated on reported
earnings, without any consideration paid to the accounting methods
used to compute reported earnings, or the sources of gain or loss
underlying reported earnings.
Meckling, William H.
Developed the Agency Theory in 1976. Finance Professor at the
University of Rochester.
Median
The middle number or the arithmetic mean of the middle two numbers
in a set of numbers arranging in an ascending or descending scale.
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Medium of exchange
The monetary or financial item that is generally accepted in payment
for goods, services, and capital transactions, and that serves as a store
of value.
Merchant banks
Banks that provide not only all the consumer and commercial services a
regular bank provides but also offer credit, investment, and consulting
services in an attempt to satisfy all the financial-service needs of their
clients.
Merger premium
The part of a buyout or exchange offer that represents a value over and
above the market value of the acquired firm.
Merger
The combination of two or more companies in which only one firm
survives as a legal entity.
Microeconomics
Analysis of the behavior of individual economic units such as
companies, industries, or households.
Milking the property
A selfish investment strategy where extra dividend or other distribution
is paid out in times of financial distress, leaving less in the firm for the
bond holders.
Miller and Modigliani's irrelevance proposition
Theory that if financial markets are perfect, corporate financial policy
(including hedging policy) is irrelevant.
Miller, Merton
Nobel Laureate and co-author of the famous Miller-Modigliani
theorems. Finance professor at the University of Chicago.
Miller-Orr model
The model used to address temporary investment decisions where it is
assumed that net cash flows are normally distributed with a mean of
zero, that there is no correlation of the cash flows across time.
Mineral lease
A contract between the owner of a property and another party allowing
the other party to explore and exploit any mineral deposits found on the
property for a limited period of time in return for a periodic payment.
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Minimum variance portfolio

The portfolio of risky assets with the lowest possible variance. By
definition, this portfolio must have the lowest possible standard
deviation.
Minimum-guaranteed percentage lease
A lease whereby the landlord is paid periodic rent as a percentage of
the gross (or net) sales of the tenant of the premises but where the
tenant agrees that the rental payments shall not drop below a specified
amount.
Minimum-variance frontier
Graph of the lowest possible portfolio variance that is attainable for a
given portfolio expected return.
Minimum-variance portfolio
The portfolio of risky assets with lowest variance.
Minority interest
The interest or percentage ownership of a group of stockholders who,
in total, own less than 50% of the shares in the corporation.
Mixed cost
Cost that contains both fixed and variable elements.
Mixed forecasting
The use of a combination of forecasting techniques, resulting in a
weighted average of the various forecasts developed.
MM proposition I (with corporate taxes)
A proposition of Modigliani and Miller (MM), which states that the
value of the firm is the value of an all-equity firm plus the tax rate
times the value of the debt.
MM Proposition I (without corporate tax)
A proposition of Modigliani and Miller (MM) which states that a firm
cannot change the total value of it's outstanding securities by changing
its capital structure proportions. Also called an irrelevance result.
MM Proposition II (with corporate taxes)
A proposition of Modigliani and Miller (MM), which states that there is
a positive relation between the expected return on equity and leverage.
MM Proposition II (without corporate tax)
A proposition of Modigliani and Miller (MM) that states that the cost
of equity is a linear function of firm's debt-equity ratio.
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Modern quantity theory of money

Theory that suggests an increase in the quantity of money leads to a
predicable increase in the value of goods produced.
Modified accelerated cost recovery system
A system that specifies the allowable depreciation recovery period for
different types of assets. The normal recovery period is generally
shorter than the physical life of the asset.
Momentum investing
Investing on the basis of recent movements in the price of a stock.
Monetarists
Economists who advocate a stable low growth in the money supply.
Monetary aggregate
A sum of monetary items that helps to measure the amount of money
available to the economy at any time.
Monetary base
The most basic monetary aggregate, also termed high-powered money,
defined as currency in circulation (or coins and bank notes held by the
public) plus the total reserves in the banking system.
Monetary policy
Management of the money supply and the resultant interest rates by the
central bank of a country.
Monetize
Establish as legal tender, or, to purchase public or private debt and
thereby free moneys for other uses that money that would have been
devoted to debt service.
Monetizing the debt
Action of the central bank to increase the money supply to offset any
increased demand for funds resulting from a larger budget deficit.
Money at call and short notice
Interest-earning secured loan that is repayable on demand or short
notice.
Money market deposit account
Deposit account that pays interest and allows limited checking and does
not specify a maturity.
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Money market instruments

All government securities and short-term corporate obligations.
Money market mutual fund
A type of mutual fund that sells its shares to buy short-term securities
(portfolio of various popular marketable securities, having instant
liquidity, competitive yields, and low transaction costs) and then
converts the profits into additional shares for its shareholders.
Money market preferred stock
Preferred stock having a dividend rate that is reset at auction after
certain intervals (e.g. every 49 days).
Money market yield
An yield equal to the annualized holding period yield, assuming a 360day year, rMM = HPY * (360/t).
Money market
A financial market that facilitates the flow of short-term funds.
Money
A medium of exchange that functions as a unit of account and a store of
value.
Monitoring receivables
Mechanism for assessing the accuracy and stability of the estimates
used in making the terms of sale and credit-granting decisions.
Monopolistic competition
Market structure similar to perfect competition but individual firm has
some degree of monopoly power in price-setting. Such a market is
characterized by many sellers - each producing differentiated products
(that are not perfect substitutes for one another). There is freedom of
entry and exit, but only in the long run.
Monopoly
In the case of a perfect monopoly, the firm has full market share, i.e. a
single seller of a product in a given market. In reality, a firm which has
more than 25% of total market share is more or less considered to be a
monopoly.
Monopsony
A market where a dominant or single buyer can influence the prices
significantly at which he or she purchases factor inputs. A monopsony
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can occur in different kinds of markets, e.g. in the labour market, there
could be a situation of one firm which dominates hiring and firing.
Monte Carlo method
A sensitivity analysis of the effects of using random combinations of
probabilities applicable to two or more factors that affect the outcomes
of business decisions.
Month-to-month lease
A leasing arrangement whereby no written lease obligates the lessee to
a fixed term, although appropriate notice of moving or eviction may
still apply.
Mortgage bonds
Bonds that pledge specific assets such as buildings and equipment. The
proceeds from the sale of these assets are used to pay off bondholders
in case of bankruptcy.
Mortgage company
A company authorized to engage in the business of creating mortgages
and selling them to investors.
Mortgage instrument
A written mortgage document which states the terms of the mortgage
including the interest rate, length of payments, payment dates and
remedies the bank is entitled to in the event of the mortgagor's failure
to pay as required including late charges.
Mortgage market
A collection of markets, which includes a primary market, or
origination market, and a secondary market where mortgages trade.
Mortgage originator
In a mortgage loan transaction, this is the original lender.
Mortgage REIT
Type of real estate investment trust (REIT) that does not own property
but gives construction or permanent mortgage loans for major projects.
Mortgage servicing
Activities including collecting monthly payments from mortgagors and
forwarding proceeds to owners of the loan, sending payment notices to
mortgagors, reminding mortgagors when payments are overdue,
maintaining records of mortgage balances, furnishing tax information
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to mortgagors, administering an escrow account for real estate taxes

and insurance purposes, and if necessary, initiating foreclosure
proceedings.
Mortgage
A loan secured by the collateral of some specified real estate property,
which obliges the borrower to make a predetermined series of
payments.
Mortgage-backed securities
Securities backed by mortgages that are commonly sold and purchased
by savings institutions.
Mortgagee
The lender/investor in a mortgage loan.
Mortgagor
The borrower in a mortgage loan.
Moving average
The continually recalculating average of security prices for a period,
often 200 days, to serve as an indication of the general trend of prices
and also as a benchmark price.
Multinational corporation
A firm doing business across its national borders. Some definitions
require a minimum percentage (often 30 percent or more) of a firms
business activities to be carried on outside its national borders.
Multiple dependencies
A financial forecasting technique where the variable is thought to
depend on more than one factor; not just sales or some other variable
but a combination of several variables.
Multiple IRRs
The situation in which a project has two or more IRRs.
Multiple listing
The listing of a stock on an exchange in its home country and on an
exchange in at least one other country.
Multiple regressions
The estimated relationship between a dependent variable and more than
one explanatory variable.
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Multiple-discriminant analysis (MDA)

Statistical technique for distinguishing between two groups on the basis
of their observed characteristics.
Multiples
Synonymous to price earnings ratio.
Municipal bond index futures
Futures contract allowing for the future purchase or sale of municipal
bonds at a specified price.
Municipal bonds
Tax-exempt bonds issued by state and local governments.
Mutual company
A corporation that is owned by a group of members and that distributes
income in proportion to the amount of business that members do with
the company.
Mutual fund theorem
A result associated with the CAPM, asserting that investors will choose
to invest their entire risky portfolio in a market-index or mutual fund.
Mutual fund
An investment company that pools money from shareholders and
invests in a variety of securities, including stocks, bonds, and money
market securities. A mutual fund ordinarily stands ready to buy back
(redeem) its shares at their current net asset value, which depends on
the market value of the fund's portfolio of securities at the time. Mutual
funds generally continuously offer new shares to investors.
Mutual to stock conversion
Procedure by savings institutions to shift the ownership structure from
depositors to shareholders.
Mutually exclusive project
A project whose acceptance precludes the acceptance of one or more
alternative projects. Acceptance of one project will rule out the
acceptance of the other.
Myopic hypothesis of equity valuation
A hypothesis that states that the capital market has a short-run focus on
the current quarters or the current years reported earnings, rather than
a focus on a multiyear horizon period.
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N
Naive diversification
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. See also
Markowitz diversification.
Narrow money
An informal name for M1, or sometimes M2.
NASDAQ
The computer-linked price quotation system for the OTC market.
Near money
An asset that is immediately transferable and may be used to settle
some but not all debts, for example, bill of exchange.
Negative amortization
When the periodic payments on a loan are not sufficient to pay the
interest which has accumulated during the previous period resulting in
an increase rather than a decrease in the amount owing on the
mortgage.
Negative covenant
Part of the indenture or loan agreement that limits or prohibits actions
that the company may take.
Negotiable certificate of deposit
A large-denomination investment in a negotiable time deposit at a
commercial bank or savings institution paying a fixed or variable rate
of interest for a specified time period.
Negotiable order of withdrawal (NOW) accounts
Deposit accounts that allow unlimited checking and pay interest.
Negotiated market
A market involving dealers, such as the OTC.
Negotiated offer
The issuing firm negotiates a deal with one underwriter to offer a new
issue rather than taking competitive bidding.
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Net asset value per share

The market value of an investment companys assets after deducting
liabilities, divided by the number of shares outstanding.
Net cash balance
Beginning cash balance plus cash receipts minus cash disbursements.
Net cash flow
The cash, a business generates, as distinct from the earnings - a
laudable objective.
Net change in cash
Calculated by adding cash from operating, investing, and financing
activities and foreign exchange effects from the statement of cash
flows.
Net exposure
In the context of futures markets, the difference between asset and
liability position.
Net float
The difference in taka between the balance shown in a firms (or
individuals) checkbook balance and the balance on the banks books.
Net income approach
States that it is assumed the firm can raise all the funds it desires at a
constant cost of debt and equity. Since debt tends to have a lower cost
than equity, the more debt utilized, the lower the overall cost of capital
and the higher the valuation of the firm.
Net interest margin
Estimated as interest revenues minus interest expenses, divided by
assets.
Net investment
Gross, or total investment minus depreciation.
Net lease
A rental agreement wherein the tenant pays a portion of the expenses of
the property in addition to the rent set out in the agreement; the
landlord receives the full amount of the rent paid with no liability for
expenses.
Net national product
The gross national product less depreciation during a specified period.
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Net present value

The difference between the present value of future cash flows
associated with a project and the present value of the initial investments
to acquire that project.
Net profit margin
Ratio that measures net income per taka of sales; it is calculated by
dividing net income by sales.
Net profit
The profit of an organization when all receipts and expenses have been
taken into account.
Net working capital
The portion of firms current assets financed with long term funds. It
equals current asset minus current liabilities.
Net worth
The value of an organization when its liabilities have been deducted
from the value of its assets.
Net-net-net lease
A lease agreement where the tenant is required to pay for property
taxes, insurance and maintenance in addition to rent. In this case, the
tenant bears the entire risk of unexpected changes in operating
expenses.
Netting
Reducing transfers of funds between subsidiaries or separate companies
to a net amount.
Neutrality
A principle which is defined in terms of the imposition taxes in such a
manner that they do not charge private sector, allocational behavior.
Nikkei 225 Stock Average
A market index based on 225 of the largest companies on the Tokyo
Stock Exchange.
Noise traders
Uniformed investors whose buy and sell positions push the stock price
away from its fundamental value.
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Noise trading
Theory used to explain that stock prices may deviate from their
fundamental values as a result of the buy and sell; positions of
informed investors (called noise traders); a market correction may
not eliminate the discrepancy if the informed traders are unwilling to
capitalize on the discrepancy (because of uncertainty surrounding the
stocks fundamental value).
No-load fund
A mutual fund that does not impose a sales commission.
Nominal (stated) interest rate
A rate of interest quoted for a year that has not been adjusted for
frequency of compounding. If interest is compounded more than once a
year, the effective interest rate will be higher than the nominal rate.
Nominal cash flow
A cash flow expressed in nominal terms if the actual taka to be received
are given.
Nominal GDP
GDP in current taka without any inflationary adjustment.
Nominal yield
A return equal to the coupon rate on a bond.
Nonconforming mortgage
A mortgage that does not meet the underwriting standards for inclusion
in a pool that is collateral for a mortgage pass-through security issued
or guaranteed by an agency.
Non-depository financial institutions
Financial institutions that generate funds from sources other than
deposits such as by issuing securities, and then lend the funds to
individuals and small businesses.
Non-diversifiable risk
The relevant portion of an assets risk attributable to factors that affect
all firms; it cannot be eliminated through diversification.
Non-financial corporation
A firm not in the banking or financial service industry. The term would
primarily apply to manufacturing, wholesaling, and retail firms.
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Non-institutional sources of fund

No existence of formal financial market. These are family members,
relatives, friends, professional lenders, spontaneous financing and so
on.
Non-interest expenses
Expenses those are unrelated to interest payments on deposits or
borrowed funds, such as salaries and office equipments.
Non-interest income
Income resulting from fees charged or services provided.
Nonlinear break-even analysis
Break-even analysis based on the assumption that cost and revenue
relationships to quantity may vary at different levels of operation.
Non-marketed claims
Claims that cannot be easily bought and sold in financial markets such
as those of the government and litigants in lawsuits.
Nonproductive 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.
Nonpublic information
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.
Non-recourse
Antithesis of recourse.
Non-systematic risk
Risk attributable to factors unique to a security.
Normal distribution
Symmetric bell-shaped frequency distribution that can be defined by its
mean and standard deviation.
Normal yield curve
An upward-sloping yield curve that shows the long-term interest rates
are higher than short-term rates.
Normality
The way things are under normal circumstances.
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Normalization of earnings
The process of determining the earning power of a firm. For having an
idea about the earning power of a firm, reported net income should be
examined for possible adjustments.
Normalized income
Earnings that have been adjusted in order to take into account the effect
of cycles in the economy.
Normative economics
Deals with the problem of which system works the best.
Nostro account
A bank account conducted by a local bank with a bank in another
country, usually in the currency of the country.
Note issuance facility
Commitment in which a bank agrees to purchase the commercial paper
of a firm if the firm cannot place its paper in the market at an
acceptable interest rate.
Notes payable
A trade credit financing arrangement where the buyer is asked to sign a
note that evidences his debt to the seller. This arrangement is employed
where the seller wants the buyer to recognize his debt formally.
Notes to 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.
Notional income
Income that is not received as such, but nevertheless has a value, which
can be converted into cash terms for taxation purposes.
Notional principal
Value to which interest rates from interest rate swaps are applied to
determine the interest payments involved.
NPV profile
A graph showing the relationship between a projects NPV and the
discount rate employed.
NPV rule
An investment decision rule that accepts an investment if the
investments NPV is positive.
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O
Odd lot
A trading order for less than 100 shares of stock. Compare round lot.
Odd-lot dealers
Brokers who combine odd lots of securities from multiple buy or sell
orders into round lots and execute transactions in those round lots.
Odd-lot theory
The theory that net buying of small investors is a bearish signal for a
stock.
Off-balance sheet financing
Hidden form of debt without being shown as a liability.
Old-line factoring
Factoring arrangement that provides collection, insurance, and finance
for accounts receivable.
Oligopoly
A market that is dominated by a few producers each of which has some
influence/control over the market. Notable is interdependence of price
and output decisions between these companies. If one company wishes
to raise prices, it has to consider how the other dominant players will
react.
Oligopsony
A market characterized by a small number of large buyers who control
all purchases and therefore the market price of a good or service.
Open account
A trade credit financing arrangement where the seller ships goods to the
buyer along with an invoice that specifies the goods shipped, the price,
the total amount due, and the terms of the sale. The main feature of
open account credit is that the buyer doesnt sign a formal debt
instrument evidencing the amount that he owes the seller. The seller
extends the credit based upon his credit investigation of the buyer.
Open economy
An economy that is exposed to open to international trade in goods and
services, as well as international capital flows, i.e. it has liberalized
current and capital accounts.
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Open market desk

Division of the New York Federal District Bank that is responsible for
conducting open market operations.
Open market operations
The purchase and sale of government and other securities by a central
bank in order to influence domestic liquidity conditions. An open
market purchase injects liquidity; an open market sale reduces liquidity.
Open order
Order to buy or sell shares remains in effect until the broker is notified
otherwise. Also known as good till cancelled.
Open-end fund
Mutual fund that continually creates new shares on demand. Mutual
fund shareholders buy the funds at net asset value and may redeem
them at any time at the prevailing market prices.
Operating activities
Sequence of events and decisions that create the firms cash inflows
and cash outflows. These activities include buying and payment for raw
materials, manufacturing and selling a product, and collecting cash.
Operating assets
Another term for working capital.
Operating break-even analysis
A method of determining the point at which sales will just cover
operating costs; that is, the point at which the firms production and
sales operations will break even.
Operating break-even point
The level of production and sales where operating income is zero; it is
the point where revenues from sales just equal total operating costs.
Operating cash flows
Earnings before depreciation minus taxes. Measures the cash generated
from operations, not counting capital spending or working capital
requirements.
Operating cycle
The average time between the acquisition of materials or services and
the final cash realization from that acquisition; or, the time interval
between the arrival of inventory stock and the date when cash is
collected from receivables.
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Operating leverage
The existence of fixed operating costs, such that a change in sales will
produce a larger change in operating income (EBIT).
Operational lease
A cancelable contractual arrangement whereby the lessee agrees to
make the periodic payments to the lessor for five or fewer years for an
assets services.
Operational risk
The risk of losses because of inadequate management or controls.
Opportunity cost of float
The lost opportunity for investment, caused by mail float, at-firm float,
clearing float, is called the opportunity cost of capital. It is determined
by multiplying the total float in taka times the required rate of return.
Opportunity cost
The cost associated with opportunities that are foregone by not putting
the firms resources to their highest value use.
Opportunity set
The possible expected return-standard deviation parts of all portfolios
that can be constructed from a given set of assets. Also called feasible
set.
Optimal portfolio
The portfolio on the efficient frontier that has the highest utility for a
given investor. It lies at the point of tangency between the efficient
frontier and the curve with the investors highest possible utility.
Optimal social allocation
Point for the society where marginal cost equal to average revenues.
Optimum capital structure
A capital structure with the best possible mix of debt, preferred stock
and common equity. The optimum mix should provide the lowest
possible cost of capital to the firm.
Optimum terms of sale
A set of terms of sale for a product or service that results in the highest
possible net present value to the selling from that product or service.
Option premium
Price paid for an option contract.
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Option
An agreement that gives one party the unilateral right to buy (call
option) or sell (put option) a specified quantity at a specified price (the
exercise price) until a specified maturity date.
Order point
The order quantity to which inventory must fall in order to signal that
an order must be placed to replenish an item.
Order
Instruction to a broker/dealer to buy, sell, deliver, or receive securities
or commodities that commits the issuer of the "order" to the terms
specified.
Ordinary innovation
A new product with little technological change.
Organized exchange
Visible marketplace for secondary market transactions.
Original issue discount bonds
Synonymous to zero-coupon bond.
Origination fee
A fee expressed in points that a mortgage originator charges the
borrower for originating the loan.
Origination
Decisions by a firm (with the help of a securities firm) on how much
stock or bonds to issue, the type of stock (or bonds) to be issued, and
the price at which the stock (or bonds) should be sold.
Out of the money
A call option whose premium is below the exercise price or a put
option whose premium is above the exercise price.
Outlier
An observation which appears to be inconsistent with the reminder of
that set of data.
Outsourcing
Subcontracting a certain business operation to an outside firm instead
of doing it in-house.
Outstanding stock
Shares of common stock currently under ownership of the firms
shareholders.
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Over subscribed issue

Investors are not able to buy all the shares they want, so underwriters
must allocate the shares among investors. This occurs when a new issue
is underpriced.
Over subscription privilege
Allows shareholders to purchase unsubscribed shares in rights offering
at the subscription price
Over the counter market
Market used to facilitate transactions of securities not listed on
organized exchanges.
Overdraft
A method of borrowing from a bank where the borrower is given
permission by his/her banker to draw checks for an agreed sum for a
specified period in excess of the amount standing to the credit of
his/her account.
Overhead
The costs associated with providing and maintaining a manufacturing
or working environment. For example, renting the building, heating and
lighting the working area, supervision costs and maintenance of the
facilities. It includes indirect labor and indirect material costs.
Overly optimistic
Firms that disclose information more than mandated which has a
chance of being false or misleading.
Overnight loan
A loan made by a bank to a bill broker to enable the broker to take up
bill of exchange. Initially the loan will be repayable the following day
but it is usually renewable. If it is not, the broker must turn to the lender
of last resort, i.e. the Bangladesh Bank.
Overnight repo
A method of overcoming a short-term shortage of funds on the money
market using repurchase agreement on an overnight basis.

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P
Package mortgage
A mortgage on a house and property in the house.
Pac-man strategy
A form of tender offer under which the firm under attack becomes the
attacker.
Paid-in capital
Capital received from investors in exchange for stock, but not stock
from capital generated from earnings or donated. This account includes
capital stock and contributions of stockholders credited to accounts
other than capital stock. It would also include surplus resulting from
recapitalization.
Par value
A relatively useless value arbitrarily placed on stock in the corporate
charter. It is the stated, face or nominal value of a security.
Parallel bonds
Fixed income instruments denominated in the respective currencies of
the countries where they are placed.
Parallel loan
A process whereby two companies in different countries borrow each
other's currency for a specific period of time, and repay the other's
currency at an agreed maturity for the purpose of reducing foreign
exchange risk. Also referred to as back-to-back loans.
Parameter
A model is a combination of variables, such as GDP growth, and
coefficients which multiply these variables. The coefficients are often
estimated from the data. These coefficients are called parameters.
Parent company
A company that controls subsidiaries through its ownership of voting
stock, as well as runs its own business.
Pareto efficiency
An allocation of goods and services in which one person must be made
worse off in order to make another person better off.
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Parking
Putting money into safe investments such as money market investments
while deciding where to invest the money.
Participating convertible preferred stock
Preferred stock that can be converted into common stock at the option
of the holder. In contrast, to the usual preferred stock, the value of the
preferred stock is refunded to the holder. That is, one gets conversion
plus the value of the stock.
Participating dividend
Dividend received from ownership of participating preferred stock.
Participating life insurance policy
Life insurance that pays dividends to policyholders depending on the
company's success as provided by few claims and profitable
underwritings and investments.
Participating preferred stock
Preferred stock that provides the holder with a specified dividend plus
the right to additional earnings under specified conditions.
Participation certificates
Certificates sold by the Federal Home Loan Mortgage Association; the
proceeds are used to purchase conventional mortgages from financial
institutions.
Participation loan
A large loan made by a group of lenders, that enables a borrower to
obtain financing above the legal lending limit of an individual lender.
Partner
Business associate who shares equity in a firm.
Partnership
Shared ownership among two or more individuals, some of whom may,
but do not necessarily, have limited liability with respect to obligations
of the group.
Pass through securities
Pools of loans (such as home mortgage loans) sold in one package.
Owners of pass through receive all of the principal and interest
payments made by the borrowers.
Passive bond
A bond without any interest yield.
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Passive investment strategy

Investment strategy that takes market prices of securities as set rather
than attempting to beat the market by exploiting superior information
or insight. Passive managers act to maintain an appropriate risk-return
balance given market opportunities.
Passive management
Buying and holding a diversified portfolio without attempting to
identify mispriced securities.
Pass-through coupon rate
The interest rate paid on a securitized pool of assets, which is less than
the rate paid on the underlying loans by an amount equal to the
servicing and guaranteeing fees.
Patent
Grants holder protection from others making, using, or selling similar
idea.
Pay back period
The period of time required for cumulative expected cash flows from
an investment project to equal the initial cash outflow. It does not
consider the time-value-of-money concept.
Pay out ratio
The percentage share of earnings paid out to the shareholders in the
form of cash dividend.
Payable through draft
A check-like instrument that is drawn against the payor and not against
a bank as is a check. After a PTD is presented to a bank, the payor gets
to decide whether to honor or refuse payment.
Payment mechanism
A financial arrangement by which the buyer of a commodity pays the
seller with some form of money.
Payment pattern approach
A receipt forecasting method where the analyst determines (using
historical data) the proportion of customers that pay at various times
after the date of sale, and from this information he/she forecasts future
receipts.
Payment pattern
Describes the lag collection pattern of receivables, for instance the
probability that a 72-day-old account will still be unpaid when it is 73
days old.
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Payment-in-kind bond
A form of deferred coupon structure that gives the issuer an option to
pay cash at a coupon payment date or to give the bond holder a similar
bond.
Payment-to-income ratio
Ratio of the monthly payment on the loan amount being applied for
plus other housing expenses and the borrower's income.
Peak
The transition from the end of an expansion to the start of a contraction.
Pecking-order view (of capital structure)
The argument that external financing transactions costs, especially
those associated with the problem of adverse selection, create a
dynamic environment in which firms have a preference, or peckingorder of preferred sources of financing, when all else is equal.
Internally generated funds are the most preferred, followed by new
debt, and debt-equity hybrids. Finally, new equity is at the least
preferred source.
Peer group comparison
A method of measuring portfolio performance by collecting the returns
produced by a representative universe of investors over a specific
period of time and displaying them in a simple box plot format.
Pegging
Making transactions in a security, currency, or commodity in order to
stabilize or target its value through market intervention.
Pension fund
A fund set up to pay the pension benefits of a company's workers after
retirement.
Percentage lease
A rental agreement in which the tenant's monthly payment is a
percentage of the gross sales of the tenant's business (although a
minimum payment is usually set out in the agreement).
Percentiles
Quantiles that divide the data into 100 equal parts.

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Perfect competition
A competitive marketplace where there are many competing firms
producing homogeneous (similar) products and barriers to entry and
exit in the long run are absent. Perfect competition is characterized by
the absence of any one firm that may be large enough to exert an
influence on the market price and conditions. In the long-run
equilibrium, only normal profits are made.
Perfect market assumptions
Conditions under which the law of one price holds. The assumptions
include frictionless markets, rational investors, and equal access to
market prices and information.
Perfect markets
Markets in which all information about any securities for sale would be
freely and continuously available to investors. Furthermore, all
securities for sale could be broken down into any size desired by
investors, and transaction costs would be nonexistent.
Performance attribution
A part of portfolio evaluation that seeks to determine why success or
failure occurred.
Performance presentation standards
A comprehensive set of reporting guidelines created by the Association
for Investment Management and Research (AIMR), in an effort to fulfil
the call for uniform, accurate, and consistent performance reporting.
Performance report
A document that shows budgeted expectations, actual results, and
deviations from the budget for some segment of the firm.
Performance shares
Shares of stock given to management as a result of meeting stated
performance goals.
Permanent current assets
Current assets that will not be reduced or converted to cash within the
normal operating cycle of the firm. Even if from a strict accounting
standpoint the assets should be removed from the current assets
category, they generally are not.
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Permanent need
Financing requirements for the firms fixed assets plus the permanent
portion of the firms current needs.
Permanent working capital
The amount of current assets required to meet a firms long-term
minimum needs.
Perpetual preferred stock
Preferred stock that does not have any maturity date.
Perpetuity
An annuity with an infinite life, making continual annual payments.
Perquisites
Management amenities such as big office, a company car, or expenseaccount meals. Perks are agency costs of equity, because managers of
the firm are agents of the stockholders.
Petty cash
The amount of cash that an organization keeps in notes or coins on its
premises to pay small items of expense.
Physical capital
Capital that has physical existence and used for long-term investment
decision, such as land, machinery etc.
Pie model of capital structure
A model of the debt-equity ratio of a firm, graphically depicted in slices
of a pie that represents the value of the firm in the capital markets.
Pink Sheets
The US National Quotation Bureau publications listing the bid and ask
prices of the securities available on the over-the-counter markets.
Pipeline risk
In mortgage lending, the risk associated with originating mortgages.
Plain vanilla swap
The periodic exchanges of fixed-rate payments for floating-rate
payments.
Planning horizon
The length of time it takes to conceive, develop, and complete a project
and to recover the cost of the project on a discounted cash flow basis.
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Pledge
The use of a firms assets (A/C receivable) as security, or collateral, to
obtain a short-term loan.
Plowback ratio
The proportion of the firm's earning that is reinvested in the business.
Plug
A variable that handles financial slack in the financial plan.
Point-and-figure chart
A plot of stock prices showing only significant price changes.
Point-of-sales terminals
Computer terminals in retail stores that either allow digital input or use
optical scanners. The terminals may be used for inventory control or
other purposes.
Poison pill
A device used by a company to make itself less attractive as a takeover
candidate. Its poison, so to speak, is released when the buyer takes a
sufficient bite of the target firm.
Poison puts
Provisions allowing bondholders to cash in certain takeover situations.
Pooling of interest
Accounting method of reporting acquisitions under which the balance
sheets of the two companies are simply added together item by item.
Portfolio insurance
Program trading combined with the trading of stock index future to
hedge against market movements.
Portfolio management
The second step in the investment decision process, involving the
management of a group of assets (i.e., a portfolio) as a unit.
Portfolio weights
Percentages of portfolio funds invested in each security, summing to 1.
Portfolio
Holding of more than one stock, bond, real estate asset or other asset by
an investor.

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Position traders
Traders of financial futures contracts who maintain their futures
positions for relatively long periods before closing them out.
Positive covenants
Part of the indenture or loan agreement that specifies the actions that
the company must abide by.
Positive economics
Deals with the cause and effect statements. It is a tool used in
normative economics.
Post
Particular place on the floor of an exchange where transactions in
stocks listed on the exchange occur.
Postaudit
Evaluation of an investment project after it has been undertaken.
Pre-authorized debit
The transfer of funds from a payors bank account on a specified date
to the payees bank account; the transfer is limited by the payee with
the payors advance authorization.
Precautionary motive
A desire to hold cash in order to be able to deal effectively with
unexpected events that require cash outlay.
Pre-emptive right
Priority given to a particular group of people to purchase newly issued
stock before other investors are given the opportunity to purchase the
stock.
Preferred habitat theory
A biased expectations theory which believes that the term structure
reflects the expectation of the future path of interest rates as well as risk
premium. The theory rejects the assertion that the risk premium must
rise uniformly with maturity, but instead profits that to the extent that
the demand for and supply of funds do not match for a given maturity
range, some participants will shift to maturities showing the opposite
imbalances, as long as they are compensated by an appropriate risk
premium whose magnitude will reflect the extent of aversion to either
price or reinvestment risk.
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Preferred stock
A special form of stock having a fixed periodic dividend that must be
paid prior to payment of any common stock dividends.
Prepayment clause
A provision in a promissory note, mortgage, or deed of trust allowing
the borrower the privilege of providing payment full before maturity
without penalty.
Prepayment penalty
Penalty that is imposed to the borrower, if the borrower desires to
prepay the loan.
Prepayment risk
The risk that the loan will be prepaid when interest rates fall below the
loan contract rate.
Present value interest factor
Factor that represents the present value of Tk.1 for a specified period
and interest rate.
Present value
The current value of a future amount of money, or a series of payments,
evaluated at a given interest rate.
Price / sales ratio
A companys total market value divided by its sales.
Price discovery process
An economic function of financial markets that signals how the funds
in the economy should be allocated among financial assets.
Price earning ratio
The ratio of the price per share to earnings per share; shows the taka
amount investors will pay for Tk.1 of current earnings.
Price level adjusted mortgage
An adjustable or variable payment loan that uses the rate of inflation as
an index.
Price pegging
A process, by which an underwriting syndicate places orders to buy an
underwritten security in order to keep the demand for the issue, and
therefore the price at the desired level.
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Price takers
Individuals who respond to rates and prices by acting as though they
have no influence on them.
Price to book value ratio
The ratio of stock price to per share stockholders equity.
Price-level-adjusted mortgage
Similar to the traditional mortgage except that monthly payments are
designed to be level in purchasing power rather than in nominal terms,
and that the fixed rate is the real rate rather than the nominal rate.
Price-weighted series
An indicator series calculated as an arithmetic average of the current
prices of the sampled securities.
Primary market
Financial market in which securities are initially issued; the only
market in which the issuer is directly involved in the transaction.
Prime rate
The lowest interest rate charged by lending banks for business loans to
their most important and reliable business borrowers.
Principal
The amount of money on which interest is paid.
Private placement
A new issue sold directly to a small group of investors; usually
institutions without using underwriting services.
Privatization
Process of converting government ownership of business to private
ownership.
Probability distribution
A function that describes all the values a random variable can take and
the probability associated with each. Also called a probability function.
Probit and logit models
Models that estimate the probability of a zero-one discrete outcome,
given the values of the independent variables used to explain that
outcome.
Processing float
The delay between the receipt of a check by the payee and its deposit in
the firms account.
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Producer surplus
Difference between price at which producers are willing and able to
supply a good (indicated by the position of the supply curve) and the
price they actually receive when selling it. Surplus represented by area
above the supply curve and below the market price.
Product extension merger
Combination of two firms with non-competing products.
Production opportunities
The return available within an economy from investment in productive
(cash-generating) assets.
Profit maximization
One of the objectives of Financial Management. Here profit
maximization means accounting profit maximization. But, nevertheless,
it is not the ultimate objective of a firm.
Profitability index
The ratio of a projects future net cash flows to the projects initial cash
outflow.
Profitability ratios
A group of ratios showing the effect of liquidity, asset management,
and debt management on operating results.
Profitability
The relationship between revenues and costs.
Program (or basket) trading
The computer-assisted and simultaneous sale (or purchase) of shares in
a large number of stocks.
Progressive taxes
Tax system under which the proportion of income paid in tax rises as
income rises. Direct taxes are hence progressive taxes. With a
progressive tax, the marginal rate of tax exceeds the average rate of tax.
One of the effects of a progressive tax is that it makes the post tax
distribution less dispersed than the pre-tax distribution.
Project financing
A variety of financing arrangements for large individual investment
projects.

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Projective funding
Strategy that offers pension fund managers some flexibilities in
constructing a pension portfolio that can benefit from expected market
and interest rate movements.
Promissory note
An unconditional promise between a maker and a payee whereby the
maker agrees to pay a certain sum of money either on demand or on a
specific date. Synonymous to notes payable.
Proportion of another account
A forecasting technique that is used to project financial variables that
are expected to vary directly with the level of another variable.
Proportional taxes
Tax system under which the proportion of income paid in tax remains
constant as income changes. With proportional taxes, the marginal rate
of tax equals the average rate of tax.
Prospectus
A pamphlet that discloses relevant financial data on the firm and
provisions applicable to the security.
Protectionism
Notion that governments should protect domestic industry from import
competition by means of tariffs, quotas, and other trade barriers.
Protective covenants
Restrictions enforced by a bond indenture that protect the bondholders
from an increase in risk; such restrictions may include limits on the
dividends paid, the salaries paid, and the additional debt the firm can
issue.
Protective put
A strategy in which a put option is purchased as a supplement to a long
position in an underlying asset or portfolio of assets.
Proximate cause
The dominant and effective cause for an event or chain of events that
results in a claim on an insurance policy.
Proxy battle/contest
The attempt by a management group to gain control of management of
a firm through the solicitation of a sufficient number of corporate votes.
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Proxy statement
A statement conferring the votes of a stockholder or stockholders to
another party or parties.
Proxy
A grant of authority by the shareholder to transfer his or her voting
rights to someone else.
Prudence concept
A principle of accounting designed to ensure that unrealized profits are
not distributed to shareholders by way of dividend. According to this
principle, unrealized profits are not taken account of until they realized;
on the other hand foreseeable losses are taken account of as soon as
they can be foreseen.
Public bond
A long-term, fixed-obligation debt security in a convenient, affordable
denomination for sale to individuals and financial institutions.
Public finance markets
Markets in which national, state, and local governments raise money
for highways, education, welfare, and other public activities.
Public finance
The financing of the goods and services provided by national and local
government through taxation and other means.
Public order
An order to buy or sell shares of an exchange listed stock that a
member firm is executing for one of its customers.
Public placement
The sale of securities to the public through the investment bankerunderwriter process. Public placements must be registered with the
Securities and Exchange Commission.
Public warehousing
A financing arrangement for inventory management in which
inventory, used as collateral, is stored with and controlled by an
independent warehousing company.
Purchase accounting
Method of reporting acquisitions requiring that the assets of the
acquired firm be reported at their fair market value on the books of the
acquiring firm.
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Purchasing power parity

Theory that suggests exchange rates adjust, on average, by a percentage
that reflects the inflation differential between the two countries of
concern.
Purchasing power risk
The risk attached to potential purchasing power of the expected cash
flow. Also called inflation risk.
Pure expectation theory
Theory suggesting that the shape of the yield curve is determined solely
by interest rates.
Pure play
An investment concentrated in one line of business. The extreme
opposite of a pure play would be an investment in a conglomerate.
Pure yield pickup swap
Moving to higher-yield bonds, usually with longer maturities.
Pure-play technique
Finding a firm engaged solely in the line of business represented by the
project and then using that firms beta as an estimate of the
nondiversifiable risk of the project.
Put bond
A bond that the holder may choose either to exchange for par value at
some date or to extend for a given number of years.
Put option
The right to sell an asset at a specified exercise price on or before a
specified expiration date.
Put/call ratio
Ratio of put options to call options outstanding on a stock.
Putable bonds
Bonds that grant the bondholder the right to sell the issue back to the
issuer at par value on designated dates.
Putable swap
Swap of fixed-rate payments for floating rate payments whereby the
party making floating-rate payments has the right to terminate the
swap.
Put-call parity
The relationships that must exist in an efficient market between the
prices for put and call options having the same underlying asset,
exercise price, and expiration date.
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Q
Q ratio
Market value of firm's assets divided by replacement value of firm's
assets. Also known as Tobins Q ratio.
Quality of earnings
The degree of conservatism in a firms reported earnings. For example,
increased earnings due to increased sales and cost controls, as
compared to artificial profits created by inflation of inventory or other
asset prices.
Quantile
In a frequency distribution, the value at or below which a stated
fraction of the data lies.
Quantitative analysis
An assessment of specific measurable securities or investment factors,
such as cost of capital, value of assets; and projections of sales, costs,
earnings, and profits. Combined with more subjective or qualitative
considerations (such as management effectiveness), quantitative
analysis can enhance investment decisions and portfolios.
Quantitative research
Use of advanced econometric and mathematical valuation models to
identify the firms with the best possible prospectives. Antithesis of
qualitative research.
Quarterly compounding
Compounding of interest over four periods within the year.
Quartiles
Quantiles that divide the data into 4 equal parts.
Quasi-contract
A legally binding obligation that one party has to another, as
determined by a court, although no formal contract exists between
them.
Quid pro quo
An arrangement allowing a firm to use research from another firm at no
cost in exchange for executing all of its trades with the firm that
provides the research.
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Quintiles
Quantiles that divide the data into 5 equal parts.
Quote price
Price at which a broker is willing to sell.

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R
Random walk
Theory that states that the price of a stock follows a random walk,
meaning that, security price changes from one period to next are
independent and identically distributed. That is, the behavior of stock
market prices is unpredictable and that there is no relationship between
the present price of a stock and its future price. It is also known as
efficient market theory.
Range of earnings chart
Graph relating earnings per share (EPS) to earnings before interest and
taxes (EBIT) under alternative financing options.
Range
The high and low prices, or high and low bids and offers, recorded
during a specified time.
Ratchet effect
An irreversible change to an economic variable, such as prices, wages,
exchange rates, etc. For example, once a price or wage has been forced
up by some temporary economic pressure, it is unlikely to fall back
when the pressures is reduced. This rise may be reflected in parallel
sympathetic rises throughout the economy, this fuelling inflation.
Rate anticipation swap
A switch made in response to forecasts of interest rate changes.
Ratio analysis
A way of expressing relationships between a firm's accounting numbers
and their trends over time that analysts use to establish values and
evaluate risks.
Raw materials inventory
Items purchased by the firm for use in the manufacture of a finished
product.
Ready cash
Synonymous to debit card.
Real assets
Assets used to produce goods and services. Examples of real assets are
land, buildings, machines, knowledge etc.
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Real estate agent

A trained professional involved in the purchase, sale and marketing of
real property. The "listing agent" acts for the vendor, the "selling agent"
for the successful purchaser.
Real estate broker
A real estate professional who is licensed to run a real estate firm, to
hold trust funds, etc.
Real estate commission
The fee paid to the real estate agents after a transaction.
Real estate investment trusts
Investment funds that hold portfolios of real estate investments.
Real estate
Term for land and all fixtures to land, including buildings and other
improvements.
Real GDP
Inflation adjusted GDP stated in current taka.
Real rate of interest
Minimum rate of interest that must be earned to allure the investor to
invest the resources. Alternatively it is the nominal interest rate
adjusted for inflation.
Real rate of return
The rate of return that an investor demands for giving up the current
use of his or her funds on a noninflation-adjusted basis. It is payment
for forgoing current consumption.
Realized compound yield
Yield earned based on actual reinvestment rates.
Realized gain/loss
A capital gain or loss on securities held in a portfolio that has become
actual by the sale or other type of surrender of one or many securities.
Realized income
The earning or income related to a transaction as distinguished from a
paper gain.
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Rebalancing
Realigning the proportions of assets in a portfolio as needed. As
interest rates and asset durations continually change, managers must
rebalance that is change the composition of the portfolio of fixed
income assets to realign its duration with the duration to the obligation.
Re-capitalization
An alternation of a firms capital structure. For example, a firm may
sell bonds in order to acquire cash necessary to repurchase some of its
outstanding common stock.
Receipts and disbursements approach
An approach to cash flows in generating the cash forecast where the
amounts of cash expected to be received and disbursed by the firm over
the periods chosen for the forecast.
Recognition lag
Lag time between when a problem arises and when it is recognized by
the government.
Recourse
The basis on which accounts receivables are sold to a factor with the
understanding that the factor shall not bear credit risks on the purchased
accounts.
Red herring
A preliminary prospectus that must be filed by the firm attempting to
sell the securities to the Securities and Exchange Commission,
describing the issue and the prospects of the company.
Redeemable
Eligible for redemption under the terms of an indenture.
Redemption charge
The commission a mutual fund charges an investor who is redeeming
shares. For example, a 2% redemption charge (also called a back end
load) on the sale of shares valued at Tk.100 will result in payment of
Tk.98 (or 98% of the value) to the investor. This charge may decline or
be eliminated as shares are held for longer time periods.
Redemption date
The date on which a bond matures or is redeemed.
Redemption
Repayment of a debt security or preferred stock issue, at or before
maturity, at par or at a premium price.
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Refunding
The process of replacing outstanding bonds, typically to issue new
securities at a lower interest rate than those replaced.
Registered bonds
Bonds that require the issuer to maintain records of who owns the
bonds and automatically send coupon payments.
Registered competitive market makers
Members of an exchange who are allowed to use their memberships to
buy or sell for their own account within the specific trading obligations
set down by the exchange.
Registrar
The appointed agent of a company whose task is to keep a register of a
share and stockholders of that company. The functions of registrar are
often performed by a subsidiary company of a bank
Registration fee
Small fees charged by a company whose shares are quoted on a stock
exchange when it is requested to register the name of a new owner of
shares.
Regressive taxes
Tax system for which the proportion of income paid in tax decreases as
income rises. In the case of a regressive tax, those in lower income
groups tend to face a higher tax burden than those in higher income
groups. Indirect taxes are an example.
Regular cash dividend
Cash payment by firm to its shareholders.
Regulation Q
Bank regulation that limits the interest rate banks could pay on deposit.
Regulatory risk
The risk that regulators will change the rules so as to impact the
earnings of financial institutions unfavourably.
Reimbursement
To pay back to someone, e.g. to pay an employee for travel expenses
that was paid by the employee out of that employees own personal
funds.

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Reinsurance
Manner by which insurance companies can allocate a portion of their
return and risk to other insurance companies, which share in insuring
large policies.
Reinvestment rate risk
The risk that a decline in interest rates will lead to lower income when
bonds mature and funds are reinvested.
Reinvestment rate
The rate of return at which cash flows from an investment are
reinvested.
Relative strength
Recent performance of a given stock or industry compared to that of a
broader market index.
Relevant cost
Cost that is pertinent to the decision being made.
Remainder
A future interest in property which only takes effect either at a certain
time or upon the occurrence of a certain event, commonly the death of
the life tenant; a future interest that is effective and enjoyable after the
termination of another estate. For example, Polok conveys land to Riaz
for life, remainder to Shamol and his heirs.
Remote disbursement
A system in which the firm directs checks to be drawn on a bank that is
geographically remote from its customer so as to maximize checkclearing time.
Rental
The periodic payments made by the lessee to the lessor for using the
lessors asset.
Reorder point
The level of inventory at which order for its replenishment should be
placed.
Re-organization
Financial restructuring of a failed firm. Both the firm's asset structure
and its financial structure are changed to reflect their true value and
claims are settled.
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Repatriation earnings
Earnings returned to the multinational parent company in the form of
dividends.
Replacement decision
The capital budgeting decision on whether to replace an old asset with
a new one.
Replacement value
The cost of replacing all assets of a company.
Repurchase agreement
An agreement with a commitment by the seller (dealer) to buy a
security back from the purchaser (customer) at a specified price at a
designated future date. Also called a Repo, it represents a collateralized
short-term loan for which, where the collateral may be a Treasury
security, money market instrument or mortgage-backed security.
Required rate of return
The return that compensates investors for their time, the expected rate
of inflation, and the uncertainty of the return.
Reserve borrowing capacity
The ability to borrow money at a reasonable cost when good
investment opportunities arise; firms often use less debt than specified
by the MM optimal capital structure to ensure that they can obtain debt
capital later if they need to do so.
Reserve price
The price below which a seller is not prepared to sell, especially at an
auction.
Reserve requirement ratio
Percentage of deposit that commercial banks must maintain as required
reserves. This ratio is sometimes used by the central bank as monetary
policy tool.
Reserve requirements
The percentage of deposits that, by central banks rules, depository
institutions must keep in the form of cash or deposits in central bank.
Reserves
The sum of the cash and deposits in the central bank that a depository
institution holds for the purpose of meeting reserve requirements.
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Residual claim
Claim to a share of earnings after debt obligations have been satisfied.
Residual dividend approach
An approach that suggests a firm to pay dividends if and only if
acceptable investment opportunities for those funds are currently
unavailable.
Residual income security
A security that has last claim on company income. Usually the
beneficiary of company growth.
Residual profits
An alternative to return on investment as a measure of profit centre
performance, defined as income less the annual cost of the capital
employed by the profit centre.
Resistance level
A price level above which, it is supposedly unlikely for a stock or stock
index to rise.
Responsibility accounting
A system under which managers are given decision making authority
and responsibility for each activity occurring within a specific area of
the company.
Restrictive covenants
Provisions that place constraints on the operations of borrowers, such
as restriction on working capital, fixed assets, future borrowing and
payment of dividend.
Restructuring
The changes in the capital structure (liability and equity on the balance
sheet), the selling of low-profit-margin divisions with the proceeds
reinvested in better investment opportunities. Sometimes it involves the
removal of the current management team to large reduction in the
workforce. Restructuring has also included mergers and acquisitions.
Retail banking
Mass-market banking in which personal and domestic customers use
local branches of the commercial banks. It typically offers a wide range
of such services as personal loans, mortgages, pensions, and insurance
as well as providing current accounts and savings accounts.
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Retail price index

The measurement of the change in prices of a sample of retail goods
and services in an economy. The sample chosen is aimed at being
representative of the retail sector. In the calculation of indices,
thousands of prices are taken for each period and indexed. A weighted
average of these indices then makes up the overall price index.
Weightings are calculated according to retail sector patterns.
Retail repo
A repurchase agreement involving a loan to a bank rather than to a
company or an individual
Retained earnings
The amount of earnings retained and reinvested in a business and not
distributed to stockholder as dividends. This fund is typically used for
further expansion of business.
Retention rate
The percentage of present earnings held back or retained by a
corporation, or one minus the dividend payout rate. Also called the
retention ratio.
Return on assets
A measure of the productivity of assets, defined as income divided by
total assets. A superior but less common definition includes interest
expense and preferred dividends in the numerator.
Return on equity
Indicator of profitability. Determined by dividing net income by
common stockholder equity. Result is shown as a percentage. Investors
use ROE as a measure of how a company is using its money. ROE may
be decomposed into return on assets (ROA) multiplied by financial
leverage (total assets/total equity).
Return on invested capital
A fundamental measure of the earning power of a company that is
unaffected by the way the company is financed. It is equal to earnings
before interest and tax times 1 minus the tax rate, all divided by debt
plus equity.
Return on investment
The productivity of an investment or a profit center, defined as income
divided by book value of investment or profit center.
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Revenue bond
A bond issued by a municipality to finance either a project or an
enterprise in which the issuer pledges to the bondholders the revenues
generated by the operation of the projects financed. Examples are
hospital revenue bonds and sewer revenue bonds.
Reverse repo
The purchase of securities by one party from another with an agreement
to sell them in the future.
Reverse stock split
A method used to raise the market price of a firms stock by
exchanging a certain number of outstanding shares for a one new share
of stock.
Reversibility
The property of the costs of buying and selling an asset that determines
how quickly an investor can buy it and turn it back into cash.
Reversion
The right to possession (or any other interest) of the remainder of an
estate for a transferor (grantor or testator) commencing upon the
expiration or termination of such estate; the right of a transferor of real
property to repossess it. For example, Rasel leases a home to Polok.
Poloks interest in the property is leasehold and Rasels interest is
reversion. Upon expiration or termination of the lease, Rasel has the
right to possession (reversion).
Revolving collateral
Accounts receivable or inventory that changes from day to day.
Revolving credit agreement
A formal, legal commitment to extend credit up to some maximum
amount over a stated period.
Revolving credit loan
Synonymous to revolving L/C.
Revolving line of credit
In commercial banking, it is a contractual agreement between a bank
and, usually, a company where the bank agrees to provide loans up to a
specified maximum over a specified period, usually a year or more. In
consumer banking, it is a loan account requiring monthly payments less
than the full amount of the loan, and the balance is carried forward with
a finance charge on that balance.
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Reward-to-variability ratio
Sharpes measure of portfolio performance calculated as the ratio of
excess portfolio return to the standard deviation.
Reward-to-volatility ratio
Treynors measure of portfolio performance calculated as the ratio of
excess portfolio return to beta.
Rights of absolute priority
Specification in bankruptcy law stating that each class of claimants
with a prior claim on assets in liquidation will be paid off in full before
any junior claimants receive anything.
Rights offering
Sale of new securities where existing stockholders are given preference
in purchasing new securities up to the proportion of common shares
that they already owned.
Rights-on
The situation in which the purchase of a share of common stock
includes a right attached to the stock.
Risk arbitrage
Traditionally, the simultaneous purchase of stock in a company being
acquired and the sale of stock of the acquirer. Modern risk arbitrage
focuses on capturing the spreads between the market value of an
announced takeover target and the eventual price at which the acquirer
will buy the target's shares.
Risk averse
Seeking to avoid risk.
Risk aversion
An unwillingness to bear risk without compensation of some form.
Risk free rate
The rate of return one would earn on a virtually riskless investment
such as a government bond.
Risk neutrality
Means that investors are indifferent to whether risk is high, low or even
absent.
Risk premium
The excess return on the risky asset that is the difference between
expected return on risky assets and the return on risk free assets.
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Risk transfer
The act of hedging a financial position so as to move some risk to
another party.
Risk
The chance that actual outcomes may differ from those expected.
Risk-adjusted discount rate
A required return (discount rate) that is increased relative to the firms
overall cost of capital for projects or groups showing greater than
average risk and decreased for projects or groups showing less that
average risk.
Risk-return trade-off
A phenomena stating assets with higher expected returns have greater
risk and vice-versa.
Roll-over CD
A package of successive certificates of deposit.
Roll-over debt
A medium or long term bank loan in which the rate of interest varies
with short term money market rates (such as LIBOR) because the bank
has raised the loan by short term money market or inter-bank market
borrowing.
Ross, Stephen
Developer of the Arbitrage Pricing Theory. Finance professor at MIT.
Round lot
Typically, 100 shares of a stock.
Roundtripping
A transaction that enables a company to borrow money from one
source and lend it at a profit to another, by taking advantage of shortterm rise interest rates.
Royalty
A payment for the right to use intellectual property or natural resources.
Running broker
A bill broker who does not himself discount bills of exchange but acts
between bill owners and discount houses or banks for a commission.

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S
Safety (of principal)
The likelihood of getting back the same amount of taka one originally
invested (principal).
Safety stock
The minimum level of inventory that provides a caution against the
possibility of being out -of- stock because of change in demand.
Sale & lease back
An arrangement whereby a firm sells its existing assets to a financial
company that then leases them back to the firm. This is often done to
generate cash.
Sales (revenue)
The inflow of resources to a business for a period from sale of goods or
provision of services.
Sales finance companies
Finance companies that concentrate on purchasing credit contracts from
retailers and dealers.
Sales forecast
A forecast of a firm's unit and taka sales for some future period;
generally based on recent sales trends plus forecasts of the economic
prospects for the nation, region, industry and so forth.
Sales mix
The combination of a firm's products, each expressed as a percentage of
total sales taka.
Salvage value
The value of a capital asset at the end of a specified period. It is the
current market price of an asset being considered for replacement in a
capital budgeting problem.
Saturday night special
A merger tender offer that is made just before the market closes for the
weekend and takes the target companys officers by surprise.
Savings deposit
An account that pays interest, does not have a specific maturity, and
can usually be withdrawn upon demand.
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Savings institutions
Depository institutions which offer deposits accounts to surplus units,
and they transfer deposited funds to deficit units by providing loans.
Scale enhancing
A project that is in the same risk class as the whole firm.
Scenario analysis
Analysis of the effect on the project of different scenarios, each
scenario involving a confluence of factors.
Schedule transfers system
A system for frequent transfer in which firm decides a predetermined
time pattern of transfers from the depository bank to the concentration
bank.
Scheduling
Starting with data on relatively short periods and aggregating into
longer periods.
Scorched earth
The disposal, by sale or by spin-off to shareholders, of one or more
business segments.
Search costs
Costs in locating counterparty to a transaction.
Seasonal dating
Credit terms that encourage the buyer of seasonal products to take
delivery before the peak sales period and to defer payment until after
the peak sales period.
Seasonal need
Financing requirements for temporary current assets.
Seasoned new issue
New issues of stock after the companys securities have previously
been issued. A seasoned new issue of common stock can be made by
using a cash offer or a rights offer.
Seat on an exchange
Term for membership in an organized stock exchange.
Secondary market
Financial market in which already issued securities (securities of
primary markets that are not new issues) are traded.
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Secondary public offering

A new stock offering by a specific firm that already has stock
outstanding.
Secondary trading
The buying and selling of publicly owned securities in secondary
markets, such as the New York Stock Exchange and the over-thecounter markets.
Secured creditor
A creditor whose obligation is backed by the pledge of some assets. In
liquidation, the secured creditor receives the cash from the sale of the
pledged assets to the extent of his or her loan.
Secured debt
A general category of debt that indicates the loan was obtained by
pledging assets as collateral. It has many forms and usually offers some
protective features to a given class of bondholders.
Securities and Exchange Commission
Government agency that regulates securities market.
Securities firms
Firms that provide brokerage services and investment banking services.
Securitization
Pooling loans into standardized securities backed by those loans, which
can then be traded like any other security.
Security (collateral)
Asset(s) pledged by a borrower to ensure repayment of a loan. If the
borrower defaults, the lender may sell the security to pay off the loan.
Security analysis
The first part of the investment decision process, involving the
valuation and analysis of individual securities.
Security market line
The line that shows the relationship between risks as measured by beta
and required rate of return for individual securities. SML E(r) = Rf +
[E (Rm) Rf] where is the market factor sensitivity and E (Rm)
Rf is the market risk premium.
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Security return variability

The ratio between the abnormal return of a security in a specified
period and the variance of abnormal return in a non-announcement
period.
Security Selection
Decision that includes choice of specific securities within each asset
class.
Seed capital
Usually a relatively small amount of funds needed to prove concepts
and finance feasibility studies.
Segmented market theory
Theory that suggests investors and borrowers choose securities with
maturities that satisfy their forecasted cash needs.
Self financing
Denotes a company that is able to finance its capital expenditure from
undistributed profit rather than borrowing.
Self-amortizing mortgage loan
A loan which will be paid off by the end of its term, such that its term
equals its amortization period.
Self-liquidating assets
Assets that are converted to cash within the normal operating cycle of
the firm. An example is the purchase and sale of seasonal inventory.
Self-liquidating loan
A loan in which the use of funds will ensure a built-in or automatic
repayment scheme.
Sell-off
The sale of a division of a company, known as a partial sell-off, or the
company as a whole, known as a voluntary liquidation.
Semiannual compounding
Compounding of interest over two periods within the year.
Semi-strong form efficiency
Efficient market hypothesis that states that stock prices already reflect
all publicly available information.
Semi-variable costs
Costs that are partially fixed but still change somewhat as volume
changes. Examples are utilities and repairs and maintenance.
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Semi-variance
A measure of dispersion which is obtained by calculating the average
of the squared deviations below the mean.
Senior creditor
Any creditor with a claim on income or assets prior to that of general
creditors.
Senior debt/note
Loan or debt securities that have a claim prior to junior obligations and
equity on a corporations assets in the event of liquidation.
Seniority
The order of repayment. In the event of bankruptcy, senior debt must
be repaid before subordinate debt receives any payment.
Sensitivity analysis
A method of estimating the effect of variation in individual input
variable on important outcome variables. Sensitivity analysis involves
asking what if questions regarding the effect of one variable in a
financial situation.
Separation principle/property
The property, introduced by James Tobin (1958), that portfolio choice
can be divided into two independent tasks - (1) Determination of the
optimal risky portfolio, which is a purely mathematical problem, and
(2) the personal choice of the best mix of the optimal risky portfolio
and the risk-free asset, which depends on a person's degree of risk
aversion.
Separation theorem
Synonymous to two fund separation theorem.
Serial bond
A bond issue in which specified principal amounts become due on
specified date.
Share premium
The difference between the higher prices paid for a share of stock and
the stocks face amount when it was issued.
Shared appreciation mortgage
A mortgage under which the lender receives an agreed upon percentage
of the appreciation in the value of the home used as collateral for the
loan.
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Shareholder activism
Actions taken by the shareholders to correct a firms deficiencies so
that the stock price may improve.
Shareholder wealth maximization
Maximization of the wealth of the firms shareholders through
achieving the highest possible value for the firm in the marketplace. It
is the overriding or primary objective of the firm and should influence
all decisions of financial managers.
Shark repellent
Defences employed by a company to ward off potential takeover
bidders-the sharks.
Shelf registration
A procedure whereby a company is permitted to register securities it
plans to sell over the next two years. These securities then are sold
piecemeal whenever the company chooses.
Shirking
The tendency to do less work when the return is smaller. Owners may
have more incentive to shirk if they issue equity as opposed to debt,
because they retain less ownership interest in the company and
therefore, may receive a smaller return. Thus shirking is considered
agency cost of equity.
Short hedge
The sale of financial futures contracts to hedge against a possible
increase in interest rates.
Short interest theory
The theory that a large interest in short positions in stocks will precede
a rise in the market prices, because the short positions must eventually
be covered by purchases of the stock.
Short interest
The total number of shares currently sold short in the market.
Short position
The seller of a commodity or security or for a forward contract, the
counterparty who will be the eventual seller of the underlying asset.
Short run operating activities
Events and decisions concerning the short-term finance of a firm, such
as how much inventory to order and whether to offer cash terms or
credit terms to customer.
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Short sale
The sale of borrowed securities with the intention of repurchasing them
later at a lower price and earning the difference.
Short settlement
Trade settlement made prior to the standard five-day period due to
customer request.
Short term financing
Short term fund arrangement whose maturity period is or less than one
year.
Side effects
Effects of a proposed project on other parts of the firm.
Sight draft
A commercial draft demanding immediate payment.
Signal
An action taken by a firms management that provides clues to
investors about how management views the firms prospects.
Signalling approach (on dividend policy)
The argument that dividend changes are important signals to investors
about changes in management's expectation about future earnings.
Signalling approach
Approach to the determination of optimal capital structure asserting
that insiders in a firm have information that the market does not;
therefore the choice of capital structure by insiders can signal
information to outsiders and change the value of the firm. This theory is
also called the asymmetric information approach.
Signature loan
A loan secured by the borrower with nothing more than the signature of
that borrower.
Simple interest
Interest paid (earned) on only the original amount, or principal,
borrowed (lent).
Simulation analysis
A method of assessing the total risk (variability) of outcomes based on
variation in all the uncertain input variables taken simultaneously.
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Simulation
A statistical based approach used to get a feel for risk by applying
predetermined probability distributions and random numbers to
estimate risky outcomes.
Single index model
A model that relates returns on each security to the returns on a market
index.
Single-country fund
Investment companies, primarily closed-end funds, concentrating on
the securities of a single country.
Sinking fund requirement/provision
A condition included in some corporate bond indentures that requires
the issuer to retire a specified portion of debt each year.
Sinking fund
A fund to which money is added on a regular basis that is used to
ensure investors confidence that promised payments will be made and
that is used to redeem debt securities or preferred stock issues.
Sinking-fund factor
Reciprocal of interest factor for compounding annuities.
Size effect
The observed tendency for smaller firms to have higher stock returns
than large firms.
Skewed distribution
Probability distribution in which an unequal number of observations lie
below (negative skew) or above (positive skew) the mean.
Skewness
Negative skewness means there is a substantial probability of a big
negative return. Positive skewness means that there is a greater-thannormal probability of a big positive return.
Slow growers
Large and aging companies that grow only slightly faster than the broad
economy.
Small card
A plastic card that contains electronically stored information enabling
its user to access to a system, usually for obtaining cash from an ATM.
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Smoothing
See income smoothing.
Society of Worldwide Inter-bank Financial Telecommunications
(SWIFT)
The major international financial telecommunications network that
transmits international payment instructions as well as other financial
messages.
Soft costs
Those extraneous costs that are not readily foreseen or budgeted for
example legal fees, loan fees and interest, etc.
Soft currency
Currency of a country that is expected to drop in value relative to other
currencies.
Sole proprietorship
A form of business organization. The distinguishing characteristics of a
sole proprietorship include only one owner for the business (hence,
"sole") and the business is unincorporated.
Specialists
Individuals who facilitate the trading of stock on the SEC by taking
positions in specific stock; they stand ready to buy or sell these stocks
on the trading floor.
Speculation
Purchasing risky investments that present the possibility of large
profits, but also pose a higher-than-average possibility of loss. A
profitable strategy over the long period if undertaken by professionals
who hedge their portfolios to control the amount of risk.
Speculative grade bond
A bond rated BB or lower by Standard and Poors, or Ba or lower by
Moody's, or an unrated bond.
Speculative motive
A desire to hold cash in order to be poised to exploit any attractive
investment opportunity requiring a cash expenditure that might arise.
Speculator
One who attempts to anticipate price changes and, through buying and
selling contracts, aims to make profits. A speculator does not use the
market in connection with the production, processing, marketing, or
handling of a product.
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Spin-off
A form of divestiture resulting in a subsidiary or division becoming an
independent company. Ordinarily, shares in the new company are
distributed to the parent companys shareholders on a pro rata basis.
Spontaneous financing
Financing that arises from the normal operations of the firm. The two
major short-term sources are accounts payable and accruals.
Spot commodity
A commodity traded with the expectation that it will actually be
delivered to the buyer, as contrasted with to a future contract that will
usually expire without any physical delivery actually taking place. Spot
commodities are traded in the spot market.
Spot exchange rate
Exchange rate between two currencies for immediate delivery.
Spot market
The market in which a financial asset trades for immediate delivery.
Also called cash market.
Spot method
A financial forecasting method where it is assumed that the variable to
be forecast is independent of all other variables or predetermined.
Spot trade
An agreement on the exchange rate today for settlement in two days.
Spread income
A depository institutions margin of profit which is the difference
between the rate earned on assets (loans & securities) and the cost of
funds (deposits & other resources).
Spread
(1) The gap between bid and ask prices of a stock or other security. (2)
The simultaneous purchase and sale of separate futures or options
contracts for the same commodity for delivery in different months. (3)
Difference between the price at which an underwriter buys an issue
from a firm and the price at which the underwriter sells it to the public.
(4) The price an issuer pays above a benchmark fixed-income yield to
borrow money.
Stag
A person who applies for shares in new issues in the hope that the price
when trading begins will be higher than the issue price.
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Stalwarts
Large, well-known firms, who grow faster than the slow growers, but
are not in the very rapid growth start-up stage.
Stand-alone principle
Investment principle that states a firm should accept or reject a project
by comparing it with securities in the same risk class.
Standard and Poors (S&P) 500
A value-weighted index of 500 large-capitalization common stocks
selected from a broad cross section of U.S. industry groups.
Standard cost
The expected cost of producing one unit. It is, in effect a budget for one
unit.
Standard deviation
A measure of dispersion which is simply the square root of variance of
data.
Standard industrial classification
A worldwide used classification of business by type of economic
activity. A one-to-four digit code number is assigned depending upon
how narrowly the business is defined.
Standardized unexpected earnings
A variable used in the selection of common stocks, calculated as the
ratio of unexpected earnings to standardization factor.
Standby fee
Amount paid to an underwriter who agrees to purchase any stock that is
not subscribed to the public investor in a right offering.
Standby letter of credit
Agreement that backs a customers financial obligation.
Standby underwriting
An agreement whereby an underwriter agrees to purchase any stock
that is not purchased by the public investors.
Standstill agreement
An agreement between to countries in which a debt owed by one to the
other is held in abeyance until a specified date in the future.
Start-up capital
Financing that involved in developing and selling some initial products
to determine if commercial sales are feasible.
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Stated interest rate

Synonymous to nominal interest rate.
Statement of retained earnings
A statement reporting the change in the firm's retained earnings as a
result of the income generated and retained during the year. The
balance sheet figure for retained earnings is the sum of the earnings
retained for each year the firm has been in business.
Statement of sources and uses of fund
Statement with the sources & the uses of financial funds during a
certain period. This statement is drawn up conform to corrected
accounting principles.
Static inventory problem
The problem related to the goods that have a one-period life; there can
be no carryover of goods from one period to the next. For example,
decision involve the number of newspaper to print is static inventory
problem.
Static theory of capital structure
Theory that the firm's capital structure is determined by a trade-off of
the value of tax shields against the costs of bankruptcy.
Statutory lien
An involuntary lien, which is created by law rather than by contract.
Statutory liens include tax liens, judgment liens, etc.
Statutory meeting
A meting held in accordance with the Companies Act 1994.
Statutory report
A report required to be made by statute. This normally refers to be laid
before the members of a company by the Companies Act 1994.
Step lease
A type of lease that outlines or stipulates the expected annual increases
in the tenant's base rent based on an approximation of what the landlord
believes what the landlords expenses may be.
Stepped preference share
A preference share that earns a predetermined income, which rises
steadily by a set amount each year to the winding-up date; there is also
a predetermined capital growth.
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Step-up bond
A form of deferred coupon structure in which the coupon rate is low for
an initial period and then increases to a higher coupon rate thereafter.
Step-variable cost
One that changes as a particular activity changes, but not in direct
proportion to changes in the activity.
Stewardship focus
Decisions taken by shareholders & other investors where the emphasis
is put on monitoring the behavior of management & attempting to
affect its behavior in a way deemed appropriate.
Stock dividend
Payment of a dividend in the form of stock rather than cash. A stock
dividend comes from treasury stock, increasing the number of shares
outstanding and reduces the value of each share.
Stock exchanges
Secondary markets where already-issued securities are bought and sold
by members.
Stock index option
Provides the right to trade a specified stock index at a specified price by
specified expiration date.
Stock options
Incentive allowing management to purchase stock at a given fixed
price.
Stock out cost
Cost incurred when immediate service is required but inventory is
unavailable.
Stock out
Not having enough items in inventory to fill an order.
Stock split
An increase in the number of shares outstanding by reducing the par
value of the stock; for example, a 2-for-1 stock split where par value
per share is reduced by one-half.
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Stockholders
The true owners of the firm by virtue of their equity in the form of
common or preferred stock.
Stone model
The model used to address temporary investment decisions where a
transaction is made if the sum of the current balance and the expected
future cash flows falls outside the inner control limits; otherwise the
transaction is foregone.
Stop basis
Refers to over-the-counter trading. Method of entering an OTC trade
into the trader's position without reporting the trade on the OTC tape.
Stop loss order
An order to buy or sell at the market when a definite price is reached,
either above (on a buy) or below (on a sell) the price that prevailed
when the order was given.
Stop-limit order
A stop order that designates a price limit. Unlike the stop order, which
becomes a market order once the stop is reached, the stop-limit order
becomes a limit order.
Straddle
Purchase or sale of an equal number of puts and calls with the same
terms at the same time. See also Spread.
Straight voting
A voting system where the shareholder may cast all of his or her votes
for each candidate for the board of directors.
Straight-line depreciation
Amortizing or apportioning an equal amount of depreciation in each
accounting period.
Stranded plant
A cost that has been incurred, but can not be reversed. Usually referred
to as a sunk cost.
Strategic alliance
An agreement between two or more independent firms to cooperate in
order to achieve some specific commercial objectives.

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Strategic planning
The activity of defining what you want to accomplish in your business
and then identifying the path that will allow you to reach your goal in
the most efficient and sensible manner.
Stretching accounts payable
Paying bills as late as possible without damaging ones credit rating.
Such a strategy can reduce the cost of forgoing a cash discount.
Although this strategy is financially attractive, it may cause a firm to
violate the stated agreement.
Striking price
Price at which the put option or call option can be exercised. Also
called the exercise price.
Strip
A triple option on a share or commodity market, consisting of one call
option and two put options at the same price and for the same period.
Stripped bond
A bond that can be subdivided into a series of zero-coupon bonds.
Stripper
A successful raider who, once the target is acquired, sell off some of
the assets of the target company.
Strong-form efficiency
Theory that suggests that a security price reflects all relevant
information including inside information. See also Semi strong-form
efficiency, weak-form efficiency.
Style analysis
An attempt to explain the variability in the observed returns to a
security portfolio in terms of the movements in the returns to a series of
benchmark portfolios designed to capture the essence of a particular
security characteristic such as size, value and growth.
Style grid
A graph used to classify and display the investment style that best
defines the nature of a security portfolio.
Sublease
Lease agreement between the lessee (one who leases property from
another) of an original lease and a new lessee. The new lessee is the
subtenant because he is renting from the original tenant rather than the
owner.
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Sublet
In real estate, it refers to the leasing of space within a leased facility by
the original lessee.
Subordinate bond
Determines that, in case of default, entitle holders to claims on the
issuers assets only after the claims of holders of senior debentures and
mortgage bonds are satisfied.
Subordinate debt
A debt where there is a pecking order determining the sequence in
which a company will pay off its debt instruments, subordinate (or
junior) issues will not be repaid until unsubordinated (or senior) debt
has been repaid in full.
Subordination clauses
Restrictions on additional firm borrowing that stipulate that senior
bondholders will be paid first in the event of bankruptcy.
Subordination
All subsequent or less important creditors agree to wait until all claims
of the senior debt are satisfied prior to having their claims satisfied.
Subsidiary
A company which has more than half of its voting shares owned by
another company (the parent company).
Substitution swap
Exchange of one bond for a bond with similar attributes but more
attractively priced.
Subvention
The provision of assistance or financial support such as an endowment
or a subsidy from a government or foundation.
Sum-of-the-years digits (SYD)
The accelerated depreciation method in which a constant balance (cost
minus salvage value) is multiplied by a declining depreciation rate.
Sunk cost
A cost that has already occurred and cannot be recovered. Because
sunk costs are in the past, such costs should be ignored when deciding
whether to accept or reject a project.
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Super DOT
An electronic order-routing system for NYSE-listed securities.
Super majority amendment
A defensive tactic that requires 80 percent of the shareholders to
approve a merger.
Supermajority
Provision in a companys charter requiring a majority of, say, 80
percent of shareholders to approve certain changes, such as a merger.
Supernormal growth
Superior growth a firm may achieve during its early years, before
leveling off to normal growth. Supernormal growth is often achieved
by firms in emerging industries.
Supply shock
An event that influences production capacity and costs in the economy.
Support level
A price level below which, it is supposedly unlikely for a stock or stock
index to fall.
Sustainable growth rate
The maximum rate at which company sales can increase without
depleting financial resources. In other words, sustainable growth rate is
the only growth rate possible with preset values for variables like profit
margin, payout ratio, debt-equity ratio, and asset utilization ratio, if the
firm issues no new equity.
Swap assignment
Synonymous to swap sale.
Swap book
A swap bank's portfolio of swaps, usually arranged by currency and
maturity.
Swap buy back
The sale of an interest rate swap by one counterparty to the other,
effectively ending the swap.
Swap fund
See Exchange fund
Swap option
See swaption. Related Quality option.
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Swap rate
The difference between the sale price and the price to repurchase it in a
swap.
Swap reversal
A secondary market transaction in the swap market in which a party
that wants to close out a swap position arranges for an additional swap
in which the maturity on the new swap is equal to the time remaining of
the original swap.
Swap sale
A secondary market transaction in the swap market in which a party
that wishes to close out the original swap finds another party that is
willing to accept its obligations under the swap. Also called a swap
assignment.
Swap
An arrangement in which two entities lend to each other on different
terms, e.g., in different currencies, and/or at different interest rates,
fixed or floating.
Swaption
Options on interest rate swaps. The buyer of a swaption has the right to
enter into an interest rate swap agreement by some specified date in the
future. The swaption agreement will specify whether the buyer of the
swaption will be a fixed-rate receiver or a fixed-rate payer. The writer
of the swaption becomes the counterparty to the swap if the buyer
exercises.
Sweat equity
An increase in equity created by the labour of the owner.
Sweep account
Account providing that a bank invests all the excess available funds at
the close of each business day for the firm.
Sweetener
A feature of a security that makes it more attractive to potential
purchasers.
Symmetric information
The situation in which investors and managers have identical
information about the firms prospects.
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Syndicate
A group of investment banking companies that agrees to cooperate in a
joint venture to underwrite an offering of securities for resale to the
public.
Syndicated loan
A very large loan made to one borrower by a group of banks headed by
one lead bank, which usually takes only a small percentage of the loan
itself, syndicating the rest to other bank and financial institutions. The
loans are usually made on a small margin. The borrower can reserve the
right to know the names of all the members of the syndicate. If the
borrower states which banks are to be included it is known as a club
deal.
Synergy
Economies realized in a merger where the performance of the
combined firm exceeds that of its previously separate parts. The
2+2=5 effect.
Systematic risk
Risk that is attributable to market movements and cannot be diversified
away.

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T
Take a bath
To sustain a loss on either a speculation or an investment.
Take a position
To buy or sell short; that is to own or to owe some amount on an asset
or derivative security.
Take over
The acquisition of another company that may (from the viewpoint of
the acquired firms management) take the form of a friendly or
unfriendly merger.
Take-or-pay contract
An agreement that obligates the purchaser to take any product that is
offered (and pay the cash purchase price) or pays a specified amount if
the product is not taken.
Tangible asset
An asset whose value depends on particular physical properties. These
include reproducible assets such as buildings or machinery and nonreproducible assets such as land, a mine, or a work of art. Also called
real assets. Converse of Intangible asset.
Target cash balance
Optimal amount of cash for a firm to hold, considering the trade-off
between the opportunity costs of holding too much cash and the trading
costs of holding too little.
Target firm
The acquired firm in the context of merger and acquisition.
Target payout ratio
A firms long-run dividend to earnings ratio. The firms policy is to
attempt to pay out a certain percentage of earnings, but it pays a stated
taka dividend and adjusts it to the target as increases in earnings occur.
Targeted repurchase
The firm buys back its own stock from a potential bidder, usually at a
substantial premium, to forestall a takeover attempt.
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Tax credit
A direct reduction in tax allowed for expenses such as child care and
R&D for building low-income housing.
Tax holiday
A period during which a company is excused from paying taxes as an
export incentive or an incentive to start up a new industry.
Tax loss carry-back & carry-forward
Losses that can be carried backward or forward in time to offset taxable
income in a given year.
Tax shield
The reduction in a company's tax bills caused by an increase in a taxdeductible expense, usually depreciation or interest. The magnitude of
the tax shield equals the tax rate times increase in the tax deductible
expense.
Tax status
The exposure of gains or payments from an asset to taxation by various
governmental units.
Tax swap
Swapping two similar bonds to receive a tax benefit.
Tax
A levy imposed by the government or its designated agencies upon any
individual or enterprise for the goods or services supplied or facilitate
development or for authorizing to do some act under the authority of
that government.
Taxable income
Gross income minus exemptions and allowable deductions as set forth
in the Income Tax Ordinance.
Teaser rate
A lower interest rate charged on an adjustable or variable rate mortgage
for a brief, introductory period as an inducement to the borrower to
accept the loan from the lender.
Technical analysis
A form of security analysis which attempts to forecasts the movements
in the prices of securities based primarily on historical price and
volume trends in those securities. This theory assumes that past patterns
of price behavior in industrial securities will tend to recur in future.
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Technical analyst
Investor who follows a strategy of selecting stocks solely on the basis
of price patterns of trading volume. Also called chartist.
Technical insolvency
Business failure that occurs when a firm is unable to pay its liabilities
as they due.
Technological Innovation
A new product with significant technological advancement.
Temporary working capital
The amount of current assets that varies with seasonal requirement.
Tenant
A lessee, possessing property under a rental agreement.
Tender offer
An offer to buy current shareholders stock at a specified price, often
with the objective of gaining control of the company. The offer is often
made by another company and usually for more than the present market
value.
Tenor
Maturity of a loan.
Term life insurance
A contract that provides a death benefit but no cash build up or
investment component. The premium remains constant only for a
specified term of years, and the policy is usually renewable at the end
of each term.
Term loan
A bank loan, typically with a floating interest rate, for a specified
amount that matures in between one and ten years and requires a
specified repayment schedule.
Term structure of interest rates
The term structure that shows the relative level of short-term and longterm interest rates at a point in time.
Terminal warehouse receipt
A receipt for the deposit of goods in a public warehouse that a lender
holds as collateral for a loan.
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Terms of exchange
The buyout ratio or terms of trade in a merger or an acquisition.
Thickness
A term referring to the frequency of transactions in a particular asset.
Thin market
A market where an asset is the subject of few trades on a regular or
continuing basis.
Third market
Term for the trading of shares or listed stocks on the OTC market.
Three fund separation theorem
Theory which states that investors will hold portfolios chosen from
three funds the riskless asset, the market portfolio, and a portfolio
chosen so that its returns are perfectly negatively correlated with the
riskless asset. The third fund is necessary to hedge against unforeseen
changes in the future risk-free rate.
Three-sector economy
The economy consists of three sectors - business, government, and
house holds. Typically, households have been major suppliers of funds,
while business and government have been users of funds.
Three-transaction strategy
A strategy for investing the funds which involves one investment
transaction and two disinvestment transaction.
Tick
The minimum price movement for the asset underlying a forward or
futures contract; for Treasury bonds, one tick equals 1/32 of 1 percent
of par value.
Tight money
A term to indicate time periods in which financing may be difficult to
find and interest rates may be quite high by normal standards.
Synonymous to dear money.
Time deposit
An interest-paying account that has a fixed maturity date, often called a
certificate of deposit.
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Time-interest earned ratio

A coverage ratio computed by dividing earnings before interest and tax
(EBIT) by interest charges; measures the ability of the firm to meet its
annual interest payments.
Time-series analysis
Analysis where comparisons of one entity are made at different points
in time.
Time-series data
Observations of a variable over time.
Time-weighted rate of return
Measures the actual rate of return earned by the portfolio manager.
Title
Documents, records, and acts that prove ownership.
Tobin's Q
Market value of assets divided by replacement value of assets. A
Tobin's Q ratio greater than 1 indicates the firm has done well with its
investment decisions. Named after James Tobin, Yale University
economist.
Top down approach
An investment approach that first seeks to define major economic and
industry trends, and then proceeds to identify specific companies that
are likely to benefit from those trends.
Total assets turnover ratio
The ratio calculated by dividing sales by total assets.
Total market capitalization
The total market value of all of a firm's outstanding securities.
Total risk
The total variability of returns from a decision.
Trade acceptance
Written demand that has been accepted by an industrial company to pay
a given sum at a future date.
Trade credit
Inter-firm debt arising through credit sales and recorded as an account
receivable by the seller and as an account payable by the buyer.
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Trade liabilities
Money owed to suppliers.
Trademark
A distinguishing word, name, or symbol used to identify a product.
Trading volume activity
The ratio between number of shares of a firm traded and number of
shares of that firm outstanding during a specified period.
Trading volume
The number of shares transacted every day. As there is a seller for
every buyer, one can think of the trading volume as half of the number
of shares transacted. That is, if A sells 100 shares to B, the volume is
100 shares.
Trading
Buying and selling of securities.
Traditional approach to cost of capital
States that the cost of capital initially declines with the increased use of
low-cost debt but it eventually goes up due to the greater risk
associated with increasing debt.
Traditional approach to the credit-granting decision
An approach where the analyst synthesize all information that has been
collected and reach a judgment regarding the applicants
creditworthiness.
Traditional view (of dividend policy)
An argument that, "within reason," investors prefer higher dividends to
lower dividends because the dividend is sure but future capital gains are
uncertain.
Tranches
Related securities that are offered at the same time but have different
risk, reward, and/or maturity.
Transaction costs
The time, effort, and money necessary, including such things as
commission fees and the cost of physically moving the asset from seller
to buyer. Transaction costs should also include the bid/ask spread as
well as price impact costs (for example a large sell order could lower
the price).
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Transaction exposure
Foreign exchange gains and losses resulting from actual international
transactions. These may be hedged through the foreign exchange
market, the money market, or the currency futures market.
Transaction motive
A desire to hold cash in order to conduct cash-based transactions.
Transactions balances
Cash balances held to pay for planned corporate expenditures such as
supplies, payrolls and taxes, as well as the infrequent acquisitions of
long-term fixed assets.
Transfer payment
A payment made or income received in which no goods or services are
being paid for. Pensions, unemployment benefits, subsidies to framers
etc, are transfer payments; they are excluded in calculating gross
national product.
Translation exposure
The foreign-located assets and liabilities of a multinational corporation
which are denominated in foreign currency units and are exposed to
losses and gains due to changing exchange rates. It is also called
accounting exposure.
Treasurer
The corporate officer responsible for designing and implementing a
firm's financing and investing activities.
Treasury bills (T-bills)
Short-term, non-interest-bearing obligations of the government treasury
issued at a discount and redeemed at maturity for full face value.
Treasury bonds
Long-term (more than 10 years original maturity) obligations of the
government treasury.
Treasury notes
Medium-term (2-10 years original maturity) obligations of the
government treasury.
Treasury stock
Common stock that has been repurchased and is held by the issuing
company.
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Trend analysis
An analysis of a firms financial ratios over time; used to determine the
improvement or deterioration in its financial situation.
Trend line
A technical chart line that depicts the past movement of a security and
that is used in an attempt to help predict future price movements.
Trend statement
Choosing one year as a base and then expressing the statement items of
subsequent years relative to their value in the base year.
Trend
The general direction of the market.
Treynor Index
A measure of the excess return per unit of risk, where excess return is
defined as the difference between the portfolio's return and the risk-free
rate of return over the same evaluation period and where the unit of risk
is the portfolio's beta. Named after Jack Treynor.
Trigger point system
A system in which the firm transfers all or part of the balance once the
balance of collected funds in the depository bank reaches some
predetermined level.
Trimming
A technique where the sample is made free from outlier problem by
deleting the top N and the bottom N observations.
Trough
The transition point between recession and recovery.
True interest rate
Synonymous to effective interest rate.
Trust receipts
A security device acknowledging that the borrower holds specifically
identified inventory and proceeds from its sale in trust for the lender.
Trustee
A paid individual, corporation, or commercial bank trust department
that acts as the third party to a bond indenture in order to ensure that the
issuer does not default on its contractual responsibilities to the
bondholders.
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Turnaround cost
The total cost of buying and later selling an asset. Also called the round
trip cost.
Turnarounds
Firms that are
in bankruptcy or soon might be. If they can recover
from what might appear to be imminent disaster, they can offer
tremendous investment returns.
Turnkey contract
A project that allows a lessee or purchaser of an investment, building,
machinery, etc, to begin business or operation by merely turning the
key to the front door or to start the machinery; a ready-to-occupy or
ready-to-operate condition.
Turnover method
Forecasting methodology in which it is assumed that receivables will
all be collected based on the average turnover of the receivables of the
firm.
Turnover
The total sales figure of an organization for a stated period.
12b-1 fee
A fee charged by some funds, named after the SEC rule that permits it.
Such fees pay for distribution costs, such as advertising, or for brokers
commissions. The funds prospectus details any 12b-1 charges that
apply.
Two finger approach
Putting consecutive two-year balance sheet of a firm side-by-side and
quickly run away two fingers down the columns in search of big
changes. It gives an essence of sources & uses statement.
Two fund separation theorem
Theory which states that each investor will have a utility-maximizing
portfolio that is a combination of the risk-free asset and a portfolio (or
fund) of risky assets that is determined by the line drawn from the riskfree rate of return tangent to the investors efficient set of risky assets.
Two-stage dividend discount model
A variation of the constant growth dividend discount model in which a
short-term supernormal growth period is followed by a long-term
constant growth period.
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Two-state option pricing model

A pricing equation allowing an underlying asset to assume only two
possible (discrete) values in the next time period for each value it can
take on in the preceding time period. Also called the binomial option
pricing model.
Two-step buyout
An acquisition plan in which the acquiring company attempts to gain
control by offering a very high cash price for 51 % of the shares of the
target company. At the same time, the acquiring company announces a
second lower price that will be paid, either in cash, stocks, or bonds, at
a subsequent point in time.
Two-transaction strategy
A strategy for investing the funds which involves one investment of
funds and one disinvestment of funds.

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U
Uberrima fides
The basis of all insurance contracts meaning utmost good faith.
Ultra vires
Act of an official or corporation for which there is no authority.
Unbundling
Breaking up and allocating the cash flows from one security to create
several new securities.
Uncovered call
A short call option position, in which the writer does not own shares of
underlying stock represented by his option contracts. Riskier for the
writer than a covered call, in which he or she owns the underlying
stock. If the purchaser of the call exercises the option, the writer would
be forced to buy the stock at market price.
Uncovered put
A short put option position, in which the writer does not have a
corresponding short stock position or has not deposited, in a cash
account, cash or cash equivalents equal to the exercise value of the put.
In this case, the writer of the put is obliged to purchase the stock at a
pre-set price if the option buyer chooses to exercise it. In this case, the
writer's risk is unlimited.
Under-pricing
Issuing of securities below the fair market value.
Underwriters
Investment bankers that purchase securities from the issuing company
and resell them.
Underwriting spread
The difference between the price that a selling corporation receives for
an issue of securities and the price at which the issue is sold to the
public. This is the fee that investment bankers and others receive for
selling securities.
Underwriting syndicate
A group of investment bankers that is formed to share the risk of a
security offering and also to facilitate the distribution of the securities.
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Underwriting
A process by which investment banker purchases shares from an issuer
and sells it to the public.
Unit investment trusts
Pools of money invested in a portfolio that is fixed for the life of the
fund.
Universal life insurance
A whole life insurance product whose investment component pays a
competitive interest rate rather than the below-market crediting rate.
Unquoted company
A company whose securities are not normally available to the public on
a stock exchange.
Unrealized income
Profit which has been made but not yet realized or collected through a
transaction, such as a stock which has risen in value but is still being
held. Also called unrealized gain or unrealized profit or paper gain or
book profit.
Unseasoned new issue
Also called initial public offering (IPO).
Unsecured creditor
A person who is owed money by an organization but who has not
arranged that in the event of non-payment, specific assets would be
available as a fund out of which that person could be paid in priority to
other creditors.
Unsecured debt
A debt that is not covered by any kind of collateral.
Unsystematic risk
The risk that is unique to a company such as a strike, the outcome of
unfavourable litigation, or a natural catastrophe that can be eliminated
through diversification. Also called the diversifiable risk or residual
risk.
Upstairs market
The informal but extensive arrangement employing electronic
communication system that institutional investors and securities firms
have developed to accommodate their typically large trades.
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Utility function
A mathematical expression that assigns a value to all possible choices.
In portfolio theory, the utility function expresses the preferences of
economic entities with respect to perceived risk and expected return.

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V
Valium holiday
A colloquial name for a non-trading day on a stock exchange or other
commercial market i.e. money market.
Value added tax (VAT)
A consumption tax where taxes are levied at each step of a
manufacturing process where value is added to that product at that
point in the manufacturing cycle; as well as at the point where the
consumer purchases the end product.
Value analysis
Developing a new idea by evaluating the worth of aspects of ideas.
Value
The worth of a thing. The term is usually preceded by the word, or
words such as 'fair" or "fair market", and it is usually defined in the
document where it is found. Not all value for an item is the same, i.e.
value is usually perceived.
Value-weighted series
An indicator series calculated as the total market value of the securities
in the sample.
Variable costs
Costs that change in total in direct proportion to changes in specific
activity.
Variable life insurance policy
A whole life insurance policy that provides a death benefit dependent
on the insured's portfolio market value at the time of death.
Variable rate bonds
Bonds whose coupon rates adjust to market interest rates over time.
Variance
A measure of dispersion of a set of data points around their mean value.
The mathematical expectation of the average squared deviations from
the mean. The square root of the variance is the standard deviation.
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Vault cash
Cash kept on hand in a bank or depository institution's vault in order to
meet day-to-day business needs. It can be considered as part of the
institution's required reserves.
Venture capital
A professionally managed pool of equity capital used for early-stage
financing and managed by professional management bodies.
Vertical acquisition
Buying or taking over a firm in the same industry in which the acquired
firm and the acquiring firm represent different steps in the production
process. The acquisition by an airline company of a travel agency
would be a vertical acquisition.
Vertical merger
A merger involving two or more firms in the same industry but at
different stages in the production cycle. For example, the firm being
acquired serves as a supplier to the firm doing the acquiring.
Vertical spread
Simultaneous purchase and sale of two options that differ only in their
exercise price. See horizontal spread.
Voluntary bankruptcy
The legal proceedings that follows a petition of bankruptcy.
Voluntary disclosure
Disclosure of financial statements information not mandated by the
regulatory forces.
Voluntary liquidation
Liquidation proceedings that are supported by the company's
shareholders.
Vostro account
A bank account held by foreign bank with a local bank.
Voting shares
Shares of a company that entitle their owner to vote at the annual
general meeting and any extraordinary meeting of the company.

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W
Waiting period
Time during which the Securities and Exchange Commission studies a
firms registration statement. During this time the firm may distribute a
preliminary prospectus.
Warehouse fee
Charge to a borrower to cover the costs of the lender taking short-term
loans from other lenders to cover the borrower's mortgage.
Warehouse receipt loan
A lending arrangement under which the lender receives control of the
pledged collateral which is warehoused by a designated agent in the
lenders behalf.
Warehouse
A large building used for receiving and storing goods, materials or
merchandise.
Warehousing
The process of assembling mortgages for sale to the secondary
mortgage market.
Warrant
A security that gives the holder the right but not obligation to buy
shares of common stock directly from a company at a fixed price for a
given time period.
Weak market
A market with few buyers and many sellers and a declining trend in
prices.
Weak-form efficiency
Theory that suggests that a security price reflects all market-related
data, such as historical security price movements and volume of
securities traded. See also Semi strong-form efficiency, strong-form
efficiency.
Wealth maximization
Maximization of the value of the shareholders. Value is represented by
the market price of the companys common stock, which, in turn, is a
reflection of the firms investment, financing & dividend decisions.
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Weighted average cost of capital

A weighted average of the after-tax required rates of return on the
firms common stock, preferred stock, and long-term debt where the
weights are the fraction of each source of financing in the firms target
capital structure.
Weighted average maturity
A measure of the level of interest rate risk calculated by weighting cash
flows by the time to receipt and multiplying by the fraction of total
present value represented by the cash flow at that time.
White knight
A person or firm that makes a welcome takeover bid for a company on
improved terms to replace an unacceptable and unwelcome bid from a
black knight. If a company is the target for a takeover bid from a source
of which it does not approve or on terms that it does not find attractive,
it will often seek a white knight, whom it sees as a more suitable owner
for the company, in the hope that a more attractive bid will be made .
Whole life Insurance
A contract with both insurance and investment components (1) it pays
off a stated amount upon the death of the insured, and (2) it
accumulates a cash value that the policyholder can redeem or borrow
against.
Wholesale deposit
A large deposit obtained by a bank, financial institution or large
corporate business.
Wholly owned subsidiary
An entity whose parent owns virtually 100% of its common stock.
Window dressing
Trading activity near the end of a quarter or fiscal year that is designed
to improve the appearance of a portfolio to be presented to clients or
shareholders. For example, a portfolio manager may sell losing
positions so as to display only positions that have gained in value.
Window
An opportunity to borrow or invest that may be only temporary and
should therefore be taken while it is available.
Winners curse
Problem faced by uninformed bidders. For example, in an initial public
offering, uninformed participants are likely to receive larger allotments
of issues that informed participants know are overpriced.
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Winsorizing
A technique where the sample is made free from outlier problem by
changing the value of the extreme observations to the value of the
nearest observation not viewed as 'suspect'.
WIP
An acronym for Work in Process/Progress. Usually refers to inventory
that has value added from labor or additional processing. When
considered for inventory value, the value of the raw material plus the
value added component is accounted for in determining the value of
that inventory at that point in the process.
Wire transfer
A generic term for electronic funds transfer using a two-way
communications system, like Fed wire.
Work in process inventory
All items currently in production.
Working capital cycle
The loop which starts at the cash and marketable securities account,
goes through the current accruals accounts as direct labor and materials
are purchased and used to produce inventory, which is in turn sold and
generates accounts receivable, which are finally collected to replenish
cash.
Working capital management
The management of the firms short-term assets and liabilities,
individually and in aggregate. Credit management, cash management,
inventory management, accounts payable management, all are parts of
the management of working capital.
Working capital ratio
Working capital expressed as a percentage of sales.
Working capital turnover
Shows how efficiently working capital is employed, measuring the
amount of net revenue generated per taka of working capital.
Working capital
The difference between current assets and current liabilities (excluding
short-term debt). Current assets may or may not include cash and cash
equivalents, depending on the company.
214

DISCOVERING FINANCE

Wrap account
An investment consulting relationship for management of a client's
funds by one or more money managers, that bills all fees and
commissions in one comprehensive fee charged quarterly.
Writ
An order issued by a court.
Write out
The procedure used when a specialist makes a trade involving his own
inventory, on one hand, and a floor broker's order, on the other. The
broker must first complete the trade with the specialist, who then
transacts a separate trade with the customer.
Write-off
Charging an asset amount to expense or loss, such as through the use of
depreciation and amortization of assets.
Writer
The seller of an option contract.
Written-down value
The value of an asset for accounting purposes after deducting amounts
for depreciation or in the case of tax computations, for capital
allowances.

215

DISCOVERING FINANCE

Y
Yield curve
Curve depicting the relationship between yields and maturities of
securities. A normal yield curve is upward sloping.
Yield illusion
The erroneous expectation that a bond will provide its stated yield to
maturity without recognizing the implicit reinvestment assumption
related to coupon payments.
Yield spread
The difference between the promised yields of alternative bond issues
or market segments at a given time relative to yields on treasury issues
of equal maturity.
Yield to maturity
A measure of the average rate of return that will be earned on a bond if
held to maturity. The term is used interchangeably with market rate of
interest.
Yield
The promised rate of return on an investment under certain
assumptions.
Yo-Yo stock
A volatile stock that rises and falls quickly.

216

DISCOVERING FINANCE

Z
Zebra
A discounted zero coupon bond in which the accrued income is taxed
annually rather than on redemption.
Zero balance account
A corporate checking account in which a zero balance is maintained.
The account requires a master (parent) account from which funds are
drawn to cover negative balances or to which excess balances are sent.
Zero coupon convertible debenture/security
A zero coupon bond that is convertible into the common stock of the
issuing company after the common stock reaches a certain price.
Zero-coupon bond or pure discount bonds
A bond that pays its par value at maturity, but no periodic interest
payments. Its yield is determined by the difference between its par
value and its discounted purchase price.
ZETA
A risk evaluation model developed by Zeta Services Inc. The ZETA
SCORE tells a user how much a company resembles firms that have
been poor credit risks, i.e. firms that have recently filed bankruptcy
petitions.
Z-scoring
Synonymous to Altman Z-score.

217

DISCOVERING FINANCE

AB B R E V I AT I O N S & AC R O N Y M S
ABO
ABS
ACA
ACH
ACMA
ACT
ADFC
ADR
AFN
AGI
AGM
AICPA
AIMR
AM
AMEX
AMU
ANOVA
APR
APT
APV
APY
AR
ARCH
ARM
ARPS
ARR
ASB
AST
AT&T
ATM
AUM
BAs
BCG
BG
BHBFC

: Accumulated Benefit Obligation

: Automated Bond System
: Associate of Chartered Accountants
: Automated Clearing House
: Associate of Cost & Management Accountants
: Advance Corporation Tax
: Agricultural Development Finance Corporation
: Asset depreciation range
: Additional Funds Needed
: Adjusted Gross Income
: Annual General Meeting
: American Institute of Certified Public Accountants
: Association of Investment Management & Research
: Arithmetic Mean
: American Stock Exchange
: Asian Monetary Unit
: Analysis of Variance
: Annual Percentage Rate
: Arbitrage Pricing Theory
: Adjusted Present Value
: Annual Percentage Yield
: Abnormal Return
: Auto-Regressive Conditional Heteroskedasticity
: Adjustable Rate Mortgage
: Adjustable-Rate Preferred Stock
: Accounting Rate of Return
: Accounting Standard Board
: Automated Screen Trading
: American Telephone & Telegraph
: Automated Teller Machine
: Assets Under Management
: Bankers Acceptance
: Boston Consulting Group
: Bank Guarantee
: Bangladesh House Building Finance Corporation
219

DISCOVERING FINANCE

BIBM
BIS
BKB
BMRE
BRDB
BSB
BSBL
BSCIC
BSRS
BSTI
BV/ME
C&F
CA
CAD
CAGR
CAL
CAM
CAMEL
CAMPS
CAP Rate
CAP
CAPEX
CAPM
CAR
CARDs
CATS
CBA
CBD
CBD
CCA
CCI
CDs
CDSC
CE
CEO

: Bangladesh Institute of Bank Management

: Bank for International Settlements
: Bangladesh Krishi Bank
: Balancing, Modernizing, Replacement & Expansion
: Bangladesh Rural Development Board
: Bangladesh Shilpa Bank
: Bangladesh Samabaya Bank Limited
: Bangladesh Small & Cottage Industries Corporation
: Bangladesh Shilpa Rin Shangstha
: Bangladesh Standard and Testing Institute
: Book Value to Market Equity
: Cost and Freight
: Consumers Association
: Cash Against Documents
: Compound Annual Growth Rate
: Capital Allocation Line
: Constant Amortization Mortgage
: Capital adequacy, Asset quality, Management,
Earnings, and Liquidity
: Cumulative Auction Market Preferred Stocks
: Capitalization Rate
: Common Agricultural Policy
: Capital Expenditure
: Capital Asset Pricing Model
: Compound Annual Return or Cumulative Abnormal
Return
: Certificates for Amortizing Revolving Debt
: Certificates of Accrual on Treasury Securities
: Collective Bargaining Agent
: Cash Before Delivery
: Central Business District
: Current-Cost Accounting
: Controller of Capital Issues
: Certificates of Deposit
: Contingent Deferred Sales Charge
: Certainty Equivalent
: Chief Executive Officer
220

DISCOVERING FINANCE

CET
CFA
CFAT
CFBT
CFC
CFF
CFI
CFM
CFO
CFO
CFP
CGT
CHAPS
ChFC
CHIPS
CIB
CIF
CIO
CISCO
CLO
CML
CMO
CNAR
COD
COGS
CP
CPI
CPM
CPM
CQS
CRD
CREF
CRF
CRISL
CRP
CRSP
CRV

: Common External Tariff

: Chartered Financial Analyst
: Cash flow after taxes
: Cash flow before taxes
: Common Fund for Commodities
: Cash Flow from Financing
: Cash Flow from Investments
: Certified in Financial Management
: Cash Flow from Operations
: Chief Financial Officer
: Certified Financial Planner
: Capital-Gains Tax
: Clearing House Automated Payments System
: Chartered Financial Consultant
: Clearing House Interbank Payments System
: Credit Information Bureau
: Cost, Insurance and Freight
: Chief Information Officer
: City Group for Smaller Companies
: Commercial Loan Officer
: Capital Market Line
: Collateralized Mortgage Obligation
: Compounded Net Annual Rate
: Cash on Delivery
: Cost of Goods Sold
: Commercial Paper
: Consumer Price Index
: Constant Payment Mortgage
: Critical Path Method
: Consolidated Quotation Service
: Central Registration Depository
: Commingled Real Estate Fund.
: Clean Report on Funding
: Credit Rating & Investment Services Ltd
: Certified Risk Professionals
: Center for Research in Security Prices
: Certificate of Reasonable Value
221

DISCOVERING FINANCE

CSE
CSS
CTA
CTM
CU
CV
CVP
DA
DCF
DCR
DDM
DFL
DJIA
DOL
DPP
DPS
DRIP
DSE
DSO
DSP
DSR
DTC
EAT
EBIT
EBT
EC
ECN
ECP
EDI
EFT
EFTA
EGM
EIN
EIR
EMH
EMS
EMT

: Chittagong Stock Exchange

: Credit Scoring System
: Cumulative Translation Adjustment
: Corporate Treasury Manager
: Credit Union.
: Coefficient of Variation
: Cost-Volume-Profit (analysis)
: Discretionary Account
: Discounted Cash Flows
: Debt Coverage Ratio.
: Dividend Discount Model
: Degree of Financial Leverage
: Dow Jones Industrial Average
: Degree of Operating Leverage
: Direct Participation Program
: Dividend per Share
: Dividend Reinvestment Plan
: Dhaka Stock Exchange
: Days Sales Outstanding
: Direct Stock Purchase
: Debt Service Ratio
: Depository Transfer Checks
: Earning After Tax
: Earning Before Interest & Tax
: Earning Before Tax
: Electronic Commerce
: Electronic Communications Network
: Euro Commercial Paper
: Electronic Data Interchange
: Electronic Fund Transfer
: European Free Trade Association
: Extra-ordinary General Meeting
: Employee Identification Number
: Effective Interest Rate
: Efficient Market Hypothesis
: European Monetary System
: Efficient Market Theory
222

DISCOVERING FINANCE

EMU
ENAR
EOM
EOMAD
EOQ
EPP
EPS
ERM
ESOP
ESPP
EU
EVA
FASB
FC
FCA
FCIA
FCMA
FDI
FDIC
FDR
FECDBA
FEDI
FERA
FHA
FIBOR
FIFO
FOB
FOK
FOM
FOR
FRA
FRC
FRCD
FRM
FRN
FRS

: European Monetary Union

: Equivalent Nominal Annual Rate
: End of Month
: End of Month after Delivery
: Economic Order Quantity
: Executive Pension Plan
: Earning Per Share
: Exchange Rate Mechanism
: Employee Stock Ownership Plan
: Employee Stock Purchase Plan
: European Union.
: Economic Value Added
: Financial Accounting Standard Board
: Floatation Cost
: Fellow of Chartered Accountants
: Foreign Credit Insurance Association
: Fellow of Cost & Management Accountants
: Foreign Direct Investment
: Federal Deposit Insurance Corporation.
: Fixed Deposit Receipt
: Foreign Exchange and Currency Deposit Brokers
Association
: Financial EDI
: Foreign Exchange Regulation Act
: Federal Housing Administration
: Frankfurt Interbank Offer Rate
: First-in, First-out
: Free on Board
: Fill or Kill order
: Finnish Options Market
: Free on Rail
: Forward Rate Agreement
: Financial Reporting Council
: FloatingRate Certificate of Deposit
: Fixed Interest Rate Mortgage
: Floating Rate Note
: Federal Reserve System.
223

DISCOVERING FINANCE

FSA
FSA
FSBR
FSRP
FSS
FTEY
FV
FVA
FVIF
FVIFA
FX
FXA
FYE
GAAP
GAB
GARP
GATT
GDP
GEM
GIC
GIM
GM
GNMA
GNP
GO
GPM
GPPS
HLT
HPR
HPY
HRM
IAS
IASC
IBEL
IBES

: Forward Spread Agreement

: Flexible Spending Account
: Financial Statement and Budget Report
: Financial Sector Reform Program
: Financial Spread Sheet
: Fully Taxable Equivalent Yield
: Future Value
: Future (compounded) Value of an (ordinary)
Annuity
: Future Value Interest Factor
: Future Value Interest Factor of an (ordinary)
Annuity
: Foreign Exchange
: Foreign Exchange Agreement
: Fiscal Year End
: Generally Accepted Accounting Principles
: General Arrangement to Borrow
: Global Association for Risk Professionals
: General Agreement on Tariffs and Trade
: Gross Domestic Product
: Growing-Equity Mortgage
: Guaranteed Investment Contract
: Gross Income Multiplier.
: Geometric Mean
: Government National Mortgage Association
: Gross National Product
: General Obligation
: Graduated Payment Mortgage
: Global Performance Presentation Standards
: Highly Leveraged Transaction
: Holding Period Return
: Holding Period Yield
: Human Resource Management
: International Accounting Standards
: International Accounting Standards committee
: Interest Bearing Eligible Liabilities
: Institutional Brokers Estimate System
224

DISCOVERING FINANCE

IBF
IBRD

: International Banking Facility

: International Bank for Reconstruction and
Development
IC
: Information Coefficient
ICAEW
: Institute of Chartered Accountants of England &
Wales
ICB
: Investment Corporation of Bangladesh
ICC
: International Chamber of Commerce
ICFA
: Institute of Chartered Financial Analysts
IDLC
: Industrial Development Leasing Company
IDR
: International Depository Receipt
IF
: Interest Factor
IFA
: Independent Financial Adviser
IFC
: International Finance Corporation
IM
: Information Memorandum
IMF
: International Monetary Fund
IMM
: International Monetary Market
IMRO
: Investment Management Regulatory Organization
IOC order : Immediate or Canceled Order
IOM
: Index and Option Market
IOS
: Investment Opportunity Schedule
IOSCO
: International Organization of Securities
Commissions
IOU
: I Owe to You
IPDCB
: Industrial Promotion & Development Company of
Bangladesh
IPL
: Investment Product Line
IPO
: Initial Public Offerings
IRA
: Individual Retirement Account
IRB
: Industrial Revenue Bond
IRR
: Internal Rate of Return
IRRRL
: Interest Rate Reduction Reliance Loans.
IRS
: Internal Revenue Service
ISDA
: International Swap Dealers Association
ISE
: International Stock Exchange
ISMA
: International Security Market Association
ISO
: International Standards Organization
225

DISCOVERING FINANCE

ITM
IVM
JIT
L/C
LBO
LCM
LESPs
LIBID
LIBOR
LIFO
LLC
LP
LP
LRA
LRR
LYON
M&A
MACRS
MBO
MCT
ME
MIP
MIP
MKT
MLR
MMC
MMDA
MMFs
MMP
MOC
MPT
MQP
MRP
MRS
MRT
MRTS

: In-the-Money
: Investment Valuation Model
: Just In Time
: Letter of Credit
: Leverage Buyout
: Lower of Cost or Market
: Long-term Equity Anticipations
: London Inter-bank Bid Rate
: London Inter-bank Offer Rate
: Last-in, First-out
: Limited Liability Company
: Linear Programming
: Liquidity Premium
: Lending Risk Analysis
: Lagged Reserve Requirement
: Liquid Yield Option Note
: Merger and Acquisition
: Modified Accelerated Cost Recovery System
: Management Buyout
: Mainstream Corporate Tax
: Market value of Equity
: Marine Insurance Policy
: Monthly Investment Plan or Maximum Investment
Plan
: Market Order
: Minimum Lending Rate
: Monopolies and Mergers Commission
: Money-Market Deposit Account
: Money Market Mutual Funds
: Money Market Preferred Stock
: Market on Close order
: Marginal Propensity to Tax
: Mandatory Quote Period
: Maturity Risk Premium
: Marginal Rate of Substitution
: Marginal Rate of Transformation
: Marginal Rate of Technical Substitution
226

DISCOVERING FINANCE

MTFA
MTN
MVA
NASD
NASDAQ
NAV
NBR
NCBs
NCD
NCREIF
NDP
NDTS
NGO
NIC
NIR
NIT
NMS
NMS
NOI
NOM
NOW
NP
NPD
NPM
NPV
NRV
NSB
NSC
NSCC
NWC
NYSE
OCC
OCC
OECD
OID

: Medium Term Financial Assistance

: Medium Term Loan
: Market Value Added
: National Association of Security Dealers
: National Association of Securities Dealers
Automatic Quotation
: Net Asset Value
: National Board of Revenue
: Nationalized Commercial Banks
: Negotiable Certificates of Deposit
: National Council of Real Estate Investment
Fiduciaries.
: Net Domestic Product
: Non-Debt Tax-Shields
: Non Government Organization
: Net Interest Cost
: Note Insurance Facility
: Negative Income Tax
: National Market System
: Normal Market Size
: Net Operating Income.
: Net Operating Margin
: Negotiable Order of Withdrawal
: Nominal Payments
: Nominal Payments Deflated.
: Net Profit Margin
: Net Present Value
: Net Realizable Value
: National Savings Bank
: National Savings Certificate
: National Securities Clearing Corporation
: Net Working Capital
: New York Stock Exchange
: Office of the Comptroller of the Currency.
: Option Clearing Corporation
: Organization for Economic Development
: Original Issue Discount
227

DISCOVERING FINANCE

OMX
OPM
OTC
OTM
OTT
P/B
P/E
P/S
PBO
PBP
PCBs
PEP
PERC
PERT
PI
PIBOR
PIC
PIK
PIN
PINC
PLAM
PMT
PN
POH
POM
POSB
PPBS
PPI
PPI
PPP
PPS
PSBR
PSI
PTD
PV
PVA
PVGO

: Option Market Index

: Option Pricing Model
: Over the Counter market
: Out of the Money (options)
: Over the Top (warrant)
: Price/Book Ratio
: Price/Earning Ratio
: Price/Sales Ratio
: Projected Benefit Obligation
: Payback Period
: Private Commercial Banks
: Pension Equity Plan
: Preferred Equity Redemption Cumulative stock
: Program Evaluation Review Technique
: Profitability Index
: Paris Inter-bank Offer Rate
: Public Limited Companies
: Pay-in-kind bond
: Personal Identification Number
: Property Income Certificate
: Price Level Adjusted Mortgage
: Post Market Trading
: Project Note
: Pecking-Order Hypothesis
: Public Order Member
: Post Office Savings Bank
: Planning-Programming-Budgeting Systems
: Producer Price Index
: Policy Proof of Interest
: Purchase Power Parity
: Performance Presentation Standards
: Public Sector Borrowing Requirement
: Pre-Shipment Inspection
: Payable Through Draft
: Present Value
: Present Value of an (ordinary) Annuity
: Present Value of Growth Opportunities
228

DISCOVERING FINANCE

PVIF
PVIFA
QUIPS
RADR
RAKUB
RCMMs
RCY
REIT
RFR
RFT
RIE
RJSC
ROA
ROCE
ROE
ROI
ROIC
ROT
RP
RP
RPB
RSI
RPI
RPs
RUF
RVAR
RVOL
S&L
SAFE
SAM
SAS
SAYE
SCM
SEAQ
SEATS
SEBI
SEC
SER
SFF
SGM
SHRM
SIB
SIC
SML
SOES

: Present Value Interest Factor

: Present Value Interest Factor of Annuity
: Quarterly Income Preferred Securities
: Risk-Adjusted Discount Rate
: Rajshahi Krishi Unnayan Bank
: Registered Competitive Market Makers
: Realized Compound Yield
: Real Estate Investment Trust
: Risk Free Rate
: Registered Floor Trader
: Recognized Investment Exchange
: Registrar of Joint Stock Companies
: Return on Assets
: Return on Capital Employed
: Return on Equity
: Return on Investment
: Return on Invested Capital
: Registered Options Trader
: Real Payments
: Risk Premium
: Recognized Professional Body
: Relative Strength Indicator (technical analysis)
: Retail Price Index
: Repurchase Agreements (repos)
: Revolving Underwriting Facilities
: Reward-to-variability ratio
: Reward-to-volatility ratio
: Savings and Loan association
: Simulation Analysis of Financial Exposure
: Shared Appreciation Mortgage.
: Statement for Auditing Standards
: Save As You Earn
: Smaller Companies Market
: Stock Exchange Automated Quotations system
: Stock Exchange Alternative Trading Service
: Securities & Exchange Board of India
: Securities & Exchange Commission
: Securities and Exchange Rules
: Sinking-Fund Factor
: Statutory General Meeting
: Strategic Human Resource Management
: Securities and Investment Board
: Standard Industrial Classification
: Security Market Line
: Small Order Execution System
229

DISCOVERING FINANCE

SPACE
SPAM
SPSS
SRO
SRO
SRV
SSAP
STD
STMS
SVE
SWIFT

ULC
ULS
UPC
USM
UTA
VA
VAT
VLA
VRDB
VRM
WACC
WC
WDV
WIP
WTO
XD
YTC
YTM

: Strategic position and action evaluation.

: Standard Portfolio Analysis of Margin
: Statistical Package for Social Science
: Self Regulating Organization
: Statutory Regulatory Order
: Security Return Variability
: Statements of Standard Accounting Practice
: Short Term Deposit
: Short Time Monetary Support
: Standardized Unexpected Earnings
: Society for Worldwide Interbank Financial
Telecommunications
: Strengths, Weaknesses, Opportunities & Threats
: Sum-of-the-years digits
: Travelers Cheque
: Total Interest Carry.
: Treasury Investment Growth Receipts
: Total Loan Factor.
: Tax and Price Index
: Total quality Management
: Total Return
: Trading Volume Activity
: Time-Weighted rate of Return
: Uniform Commercial Code
: Uniform Customs and Practices for Documentary
Credit
: United Leasing Company
: Unsecured Loans
: Utility Possibility Curve
: Unlisted Security Market
: Unit Trust Association
: Veterans Affairs
: Value Added Tax
: Value Line Arithmetic index
: Valuable Rate Demand Bond
: Variable Rate Mortgage
: Weighted Average Cost of Capital
: Working Capital
: Written Down Value
: Work in Progress / Work in Process
: World Trade Organization
: Ex Dividend
: Yield to Call
: Yield to Maturity

ZBA

: Zero Balance Account

SWOT
SYD
TC
TIC
TIGRs
TLF
TPI
TQM
TR
TVA
TWR
UCC
UCPDC

230

DISCOVERING FINANCE

FRE Q UE NTLY US E D E Q U ATI O NS

Time Value of Money:
1.

FVn PV(1 i) n PV(FVIFi ,n )

n

2.
3.

1
n
PV FVn
FVn (1 i) FVn (PVIFi ,n )
1 i
1
PVIFi ,n
FVIFi ,n

6.

(1 i) n 1
i
1
1
(1 i) n
P VIFAi ,n
i
FVA n PMT(FVIFAi ,n )

7.

FVA n ,DUE PMT[FVIFA i ,n (DUE) ] PMT[(FVIFA i ,n )(1 i)]

8.

PVAn PMT(PVIFAi,n )

9.

PVAn ,DUE PMT[PVIFAi,n (DUE)] PMT[(PVIFAi ,n )(1 i)]

4.

5.

FVIFA i ,n

10. PVPERPETUITY

Payment
PMT

Interestrate
i
t

n
n
1
11. PVUnevenstream CFt
CFt (PVIFi ,t )
1 i
t 1
t 1

12. FVUnevenstream CFt (1 i) n t CFt (FVIFi ,n t )

t 1

13. FVn PV1 SIMPLE

m

t 1

mn

14. Effective annual rate 1 SIMPLE 1

m

iSIMPLE
15. Periodic rate i PER
m
16. iSIMPLE APR Periodicrate m

17. FVn PV ein

18. PV FVn e in

231

DISCOVERING FINANCE

Valuation of long-term securities:

Bond:

VPerpetual Bond
t 1

I
I

(1 k d ) t k d

VFinite maturity Bond

t 1

I
MV

I(PVIFAk d ,n ) MV(PVIFk d ,n )
(1 k d ) t (1 k d ) n

MV
VZero CouponBond
MV(PVIFkd ,n )
(1 k d ) n
VSemiannual compounding

I2
kd
1

MV
kd
1

2n

Preferred stock:

VNotCallable
t 1

VCallable
t 1

Dp
(1 k p )
Dp

(1 k p ) t

Dp
kp

call price
(1 k p ) n

Common Stock:
No growth: V

D1
ke

Constant growth: V
t 1

D0 (1 g) t
D1

(1 k e ) t
(k e g)

Equilibrium formulae:
1.

SML: R j R F (RPM ) j R F E(R M ) R F j

2.

CML: E(R P ) R F

E(R M ) R F
(R P )
(R M )

Portfolio formulae:
n

1.

Expected rate of return, E(X i ) Pij R ij

2.

Variance, i pij (R ij R i )

3.

Risk premium for stock j = RPj RPM j

j1

232

DISCOVERING FINANCE

Y2 Y1
Slope coefficient in RPj RPM j
X 2 X1

4.

Beta,

5.

Beta of the portfolio, P w j j

j1

6.

7.
8.

Standard deviation,

Covariance, Covij =

p (R
i

i 1

R)2

Ri Ri R j R j

Correlation coefficient, ik ik
i k
N

9.

Portfolio return, R p w i R i
i 1

10. Portfolio risk, p

w i w jij
i 1 j1

11. Coefficient of variation, CV

12. Semi-variance, SV pi (R i R )2

Capital budgeting techniques formulae:

1.

2.

3.

Net Present Value,

n
CFt
CF1
CF2
CFn
NPV CF0

...

1
2
n
(1 k ) (1 k )
(1 k )
(
1
k) t
t 0
Internal Rate of Return, IRR:
CF1
CF2
CFn
CF0

...
0
(1 IRR)1 (1 IRR) 2
(1 IRR) n
Payback period =

Unrecovered cost at start year

Year before full recoveryof originalinvestment

Total cash flow duringyear

4.

Profitability Index/Benefit cost ratio, BCR

Valuation of firms:
1.

Without tax, VL VU

2.
3.

With corporate tax, VL VU TC BL

With corporate and personal taxes,
(1 TC )(1 Tg )
VL VU BL 1

(1 TP )

233

PVB
I

DISCOVERING FINANCE

Others:
1.

2.
3.
4.
5.

Average daily sales, ADS =

AnnualSales UnitsSold Sales Price

360
360
Receivables
Days Sales Outstanding, DSO =
ADS
Annual Savings = Credit sales per day Decrease in collection
delays Opportunity cost
Total cost of cash balances = Holding costs + Transaction costs
Net Income
Earning per share, EPS =
Number of shares outstan ding

Total Dividend
Number of shares outstan ding

6.

Dividend per share, DPS =

7.

Dividend payout ratio =

8.

Financial leverage multiplier =

9.

Interest Expense Rate =

DP S
EP S

Total Asset
Common Equity

Interest Expense
Total Assets

Income Taxes

10. Tax retention rate = 100%

Net
Before tax

Dividend
11. Dividend yield =
Market price of share
12. Holding period return, HPR =
EndingPrice BeginningPrice Cash Dividend
BeginningPrice
13. Equivalent pretax yield on a taxable
Yieldon tax - free investment
investment
1 - Marginaltax rate
14. Yield on a tax-free investment

Pretax yieldon a taxable investment

1 - Marginaltax rate

15. Full capacity

sales

Sales level
Percentageof capacityused to generatesales level

16. Degree of operating leverage

234

Percentagechangein NOI
Percentagechangein Sales

DISCOVERING FINANCE

17. Degree of financial leverage

Percentagechangein EPS
Percentagechangein EBIT

18. Degree of total leverage = DOL DFL

19. Mean absolute deviation, MAD p ii R i R
20. Range, R g R h R l
21. Economic Order Quantity, EOQ

2O T
C PP

22. Reorder Point = (Lead time in weeks Weekly usage) Goods in

transit

Symbols used in equations

VL Market value of levered firm
VU Market value of unlevered firm
TC Corporate tax rate

BL Market value of debt

TP Personal tax rate

Tg Capital gain tax

n

=The sum of all elements from 1 to n

i 1

O = Fixed cost of placing and receiving an order

T = Annual sales in units
C = Annual carrying costs expressed as a percentage of average inventory value
PP = Purchase price of per unit of raw materials
PVB = Present value of benefits
I = Initial investment
CML = Capital market line
SML = Security market line
Rj = Return on security j
RPj Risk premium on the jth stock
235

DISCOVERING FINANCE

RPM E(R M ) R F Market risk premium

j Beta coefficient of the jth stock

p Beta of the portfolio

w j Proportion of each security in a portfolio

i, k Correlation between security i and k

i, k Covariance between security i and k
i Standard deviation of security i
k Standard deviation of security k

CF0 = Initial cash flow

Ri = Actual return on security i

E(R M ) Required rate of return on a portfolio consisting of all stocks which

is also the market portfolio.

R F = Risk-free rate of return.

R h Highest possible outcome
R l Lowest possible outcome
p i Probability associated with the ith outcome

Arithmetic average

(R i R ) (R i R ) when R i R and 0 when R i R

EPS = Earning Per Share
EBIT = Earning Before Interest & Tax
NOI = Net operating income
DOL = Degree of Operating Leverage
DFL = Degree of Financial Leverage
Kd = Before-tax cost of debt
Ke = Cost of equity capital
Ki = After-tax cost of debt
Ko = Overall cost of capital
Kp = Cost of preferred stock
236

DISCOVERING FINANCE

n = Number of Periods
r = Interest Rate of Return
g = Growth Rate
FVn = Future value in n years
FVAn = Future (compounded) value of an (ordinary) annuity for n years
FVIF = Future value interest factor for a lump sum
FVIFA = Future value interest factor for an (ordinary) annuity
PV = Present Value
i = Interest rate
PVIF = Present value interest factor for a lump sum
PVIFA = Present value interest factor for an (ordinary) annuity
PMT = Payment
PVAn = Present (compounded) value of an (ordinary) annuity for n years
CFt = Cash flow in period t
APR = Annual percentage rate
MV = Market value of security
Dp = Dividend on preferred stock
D0 = Dividend on base year
D1 = Dividend after one year

237

DISCOVERING FINANCE

Common Financial Ratios:

Liquidity
Name
Current
Ratio
Quick Ratio

Formula
Current Asset
Current Liabilities
Current Asset Inventories
Current Liabilities

Interpretation
Measures ability to meet
current debts with current
assets
Measures ability to meet
current debts with mostliquid current assets
Measures the ability to

Cash Ratio

Cash & MarketableSecurities meet current debts with

Current Liabilities
the most liquid cash and

marketable securities

Leverage
Name

Formula

Debt-toEquity Ratio

Total Debt
Shareholders' Equity

Debt-toTotal Asset

Total Debt
Total Assets

Interpretation
Indicates the extent to
which debt financing is
used relative to equity
financing
Shows the extent to which
the firm is using borrowed
money

Coverage
Name
Interest
Coverage
Ratio

Formula
EBIT
Interest Expense

Interpretation
Indicates ability to cover
interest charges; tells
number of times interest is
earned

Activity
Name

Formula

Receivable
Turnover

Annualnet credit sales

Re ceivables

Average
Collection
Period

365
Re ceivablesTurnover

238

Interpretation
Measures how many times
the receivables have been
turned over (into cash)
during the year; provides
into quality of the
receivables
Average number of days
receivables are
outstanding before being
collected

DISCOVERING FINANCE

Inventory
Turnover
Ratio

Average
Inventory
Processing
Period
Payables
Turnover
Ratio
Payable
Payment
Period

Cost of goodssold
Inventory

365
InventoryTurnover

Cost of goods sold

Average trade payables
365
PayablesTurnover

Total Asset
Turnover

Net sales
Total Assets

Fixed Asset
Turnover

Net sales
Average Net Fixed Assets

Equity
Turnover

Net sales
Average Equity

Measures how many times

the inventory has been
turned over (sold) during
the year; provides insight
into liquidity of inventory
and tendency to overstock
Average number of days
the inventory is held
before it is turned into
accounts receivables
through sales
Measures how many times
the payables have been
turned over
Indicates how many days
a firm gets to pay it's
payables
Measures relative
efficiency of total assets
to generate sales
Measures relative
efficiency of total fixed
assets to generate sales
Measures the ability to
generate sales from its
average equity invested

Profitability
Name
Gross Profit
Margin
Operating
Profit
Margin

Formula
Gross profit
Net sales
Operatingprofit
Net sales

Net Profit
Margin

Net profit after taxes

Net sales

Return on
Investment

Net profit after taxes

Total Assets

239

Interpretation
Indicates the basic cost
structure of the firm
Indicates the business risk
for a firm
Measures profitability
with respect to sales
generated; net income per
taka of sales
Measures overall
effectiveness in
generating profits with

DISCOVERING FINANCE

Return on
Equity
Return on
Owner's
Equity

Net profit after taxes

Shareholders Equity

Net Income - Preferred Dividend

Shareholders Equity

240

available assets; earning

power of invested capital
Measures earning power
on shareholders' bookvalue investment
Reflects the rate of return
on the equity capital
provided by the owners;
measurement of financial
risk assumed by the
common stockholders

DISCOVERING FINANCE

NO BE L L AU RE ATE S I N E CO NOM I CS
( FI N AN CE )
Nobel Laureate

Year

Awarded for
Empirical macroeconomic theories
where he analyses financial markets

Tobin, James

1981

and their relations to expenditure

decisions, employment, production
and prices

Modigliani, Franco

1985

Markowitz, Harry M.

1990

Miller, Merton H.

1990

Sharpe, William F.

1990

Merton, Robert

1997

Analysis of household savings and

financial markets
Pioneering theories on managing
investment portfolios and corporate
finances
Pioneering contribution to
economic sciences by developing a

Scholes, Myron S.

1997

new method of determining the

value of derivatives

Ackerlof, George A.

2001

Spence, A. Michael

2001

Stiglitz, Joseph E.

2001

Analysis of markets with

asymmetric information

241

DISCOVERING FINANCE

F I N AN C I AL I N S T I T U T I O N S
O F B AN G L AD E S H
Central Bank: Bangladesh Bank
Nationalized Commercial Banks:
1.
2.
3.
4.
5.

Agrani Bank
Bank of Small Industries & Commerce Bangladesh Limited
Janata Bank
Rupali Bank Limited
Sonali Bank

Private Commercial Banks (Local):

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.

Al-Arafa Islami Bank Limited

Al-Baraka Bank Bangladesh Limited
Arab Bangladesh Bank Limited
Bangladesh Commerce Bank Limited
Bank Asia Limited
BRAC Bank Limited
Dhaka Bank Limited
Dutch-Bangla Bank Limited
Eastern Bank Limited
Export Import Bank of Bangladesh Limited
First Security Bank Limited
International Finance Investment & Commerce Bank Limited
Islami Bank Bangladesh Limited
Jamuna Bank Limited
Mercantile Bank Limited
Mutual Trust Bank Limited
National Bank Limited
National Credit & Commerce Bank Limited
One Bank Limited
Prime Bank Limited
Pubali Bank Limited
242

DISCOVERING FINANCE

22.
23.
24.
25.
26.
27.
28.
29.
30.

Shahjalal Bank Limited

Social Investment Bank Limited
South East Bank Limited
Standard Bank Limited
The City Bank Limited
The Premier Bank Limited
The Trust Bank Limited
United Commercial Bank Limited
Uttara Bank Limited

Private Commercial Banks (Foreign):

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

American Express Bank Limited

Citi Bank NA
Credit Agricole Indosuez (The Bank)
Habib Bank Limited
Hanvit Bank
Muslim Commercial Bank Limited
National Bank of Pakistan
Samil Bank of Bahrain EC (Islamic Bankers)
Standard Chartered Bank
Standard Chartered Grindlays Bank Limited
State Bank of India
The Hong Kong & Shanghai Banking Corporation Limited

Specialized Banks:
1.
2.
3.
4.

Bangladesh Krishi Bank

Bangladesh Shilpa Bank
Bangladesh Shilpa Rin Sangstha
Rajshahi Krishi Unnayan Bank

Specialized Financial Institutions:

1.
2.
3.

Ansar VDP Unnayan Bank

Bangladesh House Building Finance Corporation
Bangladesh Samabaya Bank Limited
243

DISCOVERING FINANCE

4.
5.
6.
7.
8.

Chittagong Stock Exchange Limited

Dhaka Stock Exchange Limited
Grameen Bank
Investment Corporation of Bangladesh
Karmasangsthan Bank

General Insurance Companies:

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.

Agrani Insurance Company Limited

Asia Insurance Limited
Asia Pacific General Insurance Company Limited
Bangladesh General Insurance Company Limited
Bangladesh National Insurance Company Limited
Central Insurance Company Limited
City General Insurance Company Limited
Continental Insurance Limited
Co-operative Insurance Company Limited
Crystal Insurance Company Limited
Desh General Insurance Company Limited
Eastern Insurance Company Limited
Eastland Insurance Company
Express Insurance Limited
Federal Insurance Company Limited
Global Insurance Limited
Green Delta Insurance Company Limited
Islami Commercial Insurance Company Limited
Islami Insurance Company Limited
Janata Insurance Company Limited
Karnafuli Insurance Company Limited
Meghna Insurance Company Limited
Mercantile Insurance Company Limited
Nitol Insurance Company Limited
Northern General Insurance Company Limited
Paramount Insurance Company Limited
Peoples Insurance Company Limited
244

DISCOVERING FINANCE

28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.

Phoenix Insurance Company Limited

Pioneer Insurance Company Limited
Prabhati Insurance Company Limited
Pragati Insurance Limited
Prime Insurance Company Limited
Purabi General Insurance Company Limited
Reliance Insurance Limited
Republic Insurance Company Limited
Rupali Insurance Company Limited
Shadharon Bima Corporation (Nationalized)
Sonar Bangla Insurance Limited
South Asia Insurance Company Limited
Standard Insurance Limited
The Lloyds Insurance Company Limited
Union Insurance Company Limited
United Insurance Company Limited

Life Insurance Companies:

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

American Life Insurance Company

Baira Life Insurance Company Limited
Delta Life Insurance Company Limited
Fareast Life Insurance Company Limited
Golden Life Insurance Company Limited
Homeland Life Insurance Company Limited
Jibon Bima Corporation (Nationalized)
Meghna Life Insurance Company Limited
National Life Insurance Company Limited
Padma Life Insurance Company Limited
Popular Life Insurance Company Limited
Pragati Life Insurance Company Limited
Prime Life Insurance Company Limited
Progressive Life Insurance Company Limited
Rupali Life Insurance Company Limited
Sandhani Life Insurance Company Limited
Sun Life Insurance Company Limited
Sunflower Life Insurance Company Limited
245

DISCOVERING FINANCE

Leasing Institutions:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.

Bahrain Bangladesh Finance and Investment Company

Limited
Bangladesh Finance and Investment Company Limited
Bangladesh House Building Finance Corporation
Bangladesh Industrial Finance Company Limited
Bay Leasing and Investment Limited
Delta-BRAC Housing Finance Company Limited
Fareast Finance and Investment Limited
Fidelity Assets & Securities Company Limited
First Lease International Limited
GSP Finance Company (Bangladesh) Limited
Industrial and Infrastructure Development Finance Company
Limited
Industrial Development Leasing Company of Bangladesh
Limited (IDLC)
Industrial Promotion and Development Company of
Bangladesh Limited (IPDC)
Infrastructure Development Company Limited
International Leasing and Financial Services Limited
Islamic Finance and Investment Limited
MIDAS Financing Limited
National Housing Finance and Investments Limited
Oman Bangladesh Leasing & Finance Ltd.
Peoples Leasing and Financial Services Limited
Phoenix Leasing Company Limited
Premier Leasing International Limited
Prime Finance and Investment Limited
Saudi-Bangladesh Industrial and Agricultural Investment
Company Limited
The UAE-Bangladesh Investment Limited
Union Capital Limited
United Leasing Company Limited
Uttara Finance and Investment Limited
Vanik Bangladesh Limited

246

DISCOVERING FINANCE

247

DISCOVERING FINANCE

248

DISCOVERING FINANCE

Institutional & Legal Infrastructure of Securities Market in

Bangladesh:
Market /

Market

Segments

Players

1. Securities
market

Stock

Regulators
SEC

Exchanges

Laws
Securities & Exchange
Ordinance, 1969
Securities & Exchange
Rules, 1987

2. Issuers

Unlisted

SEC

companies

Companies Act, 1994

Securities & Exchange
Ordinance, 1969

Listed

SEC, DSE

Companies Act, 1994

companies

& CSE

Securities & Exchange

Ordinance, 1969
Securities & Exchange
Rules, 1987

3. Market

Stock Dealers

intermediaries

SEC, DSE

Articles of Association

& CSE

of DSE
Securities & Exchange
Rules, 1987
SEC (Stock Dealers,
Stock Brokers & Sub
Brokers) Regulation,
1994

Stock Brokers

SEC, DSE

Do

& CSE
Sub Brokers /

Stock

Authorized

Dealers,

representatives

Stock
Brokers,
SEC, DSE
& CSE
249

Do

DISCOVERING FINANCE

4. Financial

Underwriters

SEC

intermediaries

SEC Act, 1993

SEC (Merchant Banker
& Portfolio Manager)
Regulations, 1996

Issue managers

SEC

Do

Portfolio

SEC

Do

SEC

Do

SEC

SEC Act, 1993

managers
Investment
Advisers
Investment
Companies

SEC (Mutual Funds)

Regulations, 1996

5. Investors

Custodians

SEC

Do

Trustees

SEC

Do

Bankers to the

Bangladesh

Bank Companies Act,

issue

Bank &

1991

SEC

SEC Act, 1993

Foreign funds /

Bangladesh

Foreign Exchange

Institution

Bank

Regulations Act, 1947

& SEC

Income Tax Ordinance,

1984

Local funds /

Bangladesh

Bank Companies Act,

Institutions

Bank

1991

Controller

Insurance Act, 1938

of

Trusts Act, 1981

Insurance
General public

Income Tax Ordinance,

1984

250

DISCOVERING FINANCE

B I B L I O G R AP H Y
1.
2.
3.
4.
5.
6.

7.

8.

9.

10.

11.

12.
13.
14.

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Bodie, Zvi, Alex Kane, and Alan J. Marcus, 1995, Essentials
of Investments, 2nd edition, Irwin/McGraw-Hill.
Brealey, Richard A. and Stewart C. Myers, 2000, Principles of
Corporate Finance, 6th edition. New York: McGraw-Hill.
Brueggeman, William D., 1997, Real Estate and Investments,
10th edition, Irwin/McGraw-Hill.
Chandra, Prasanna, 1995, Projects: Planning, Analysis,
Selection, Implementation and Review, 4th edition Tata
McGraw-Hill Publishing Company Limited, New Delhi.
Copeland, Thomas E. and J. Fred Weston, 1988, Financial
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Defusco, Richard A., Mcleavey, Dennis W., Pinto, Jerald E.,
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Problems of Introduction to Mathematical Economics, 2nd
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Elton, Edwin J. and Martin J. Gruber, 2001, Modern Portfolio
Theory and Investment Analysis, 5th edition, John Wiley &
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Fabozzi, Frank J., Franco Modigliani and Michael G. Ferri,
1998, Foundations of Financial Markets & Institutions, 2nd
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Foster, George, 1986, Financial Statement Analysis, 2nd
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Higgins, Robert C., 2000, Analysis for Financial
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251

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15. Hisrich, Robert D., and Michael P. Peters, 1998,

Entrepreneurship, 4th edition, Tata McGraw-Hill Publishing
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16. Jones, Charles P., 2000, Investments: Analysis and
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22. Pindyck, Robert S., and Daniel L. Rubinfield, 1995,
Microeconomics, 3rd edition, Prentice Hall of India Private
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24. Reilly, Frank K. and Keith C. Brown, 2000, Investment
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25. Rose, Peter, 1996, Commercial Bank Management, 3rd edition,
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26. Rosen, Harvey S., Public Finance, 6th edition, Irwin/McGrawHill.
27. Ross, Stephen A., Randolph W. Westerfield, and Jeffrey Jaffe,
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28. Scherr, Fredeick C., 1989, Modern Working Capital
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252

DISCOVERING FINANCE

30. The Revolution in Corporate Finance, edited by: Joel M. Stern

and Donald H. Chew, Jr, 1998, 3rd edition, Blackwell
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31. Titard, Pierre L., 1983, Managerial Accounting: An
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Jersey.
34. Van Horne, James C. and John M. Wachowicz, Jr., 1998,
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2. Dhaka University Journal of Business Studies, Volume XII,
XVIII and XXI, Various Issues.
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Finance and Banking, University of Dhaka, Volume 1, 2, 4
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253

DISCOVERING FINANCE

Dictionary:
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Street, Oxford. 1996
2. Henson J. L., 1987, A Dictionary of Economics and
Commerce, 6th edition, McDonald and Evans.
3. Richards, Robert William, 1986, The Dow Jones-Irwin
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5. www.bizmove.com/finance
6. www.bloomberg.com
7. www.buyersresource.com
8. www.duke.edu
9. www.foreignword.com
10. www.homeglossary.com
11. www.homeowners.com
12. www.infoplease.com
13. www.investopedia.com
14. www.money.cnn.com
15. www.moneyextra.com
16. www.prou.net
17. www.quicken.com
18. www.ventureline.com
19. www.ventureline.com
20. www.websiteupgrades.com

254