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A stock trades ex-dividend on or after the ex-dividend date (ex-date). At this point, the
person who owns the security on the ex-dividend date will be awarded the payment,
regardless of who currently holds the stock. After the ex-date has been declared, the
stock will usually drop in price by the amount of the expected dividend.
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What is a 'Factor'
A factor is a financial intermediary that purchases receivables from a company. A factor
is essentially a funding source that agrees to pay the company the value of
the invoice less a discount for commission and fees. The factor advances most of the
invoiced amount to the company immediately and the balance upon receipt of funds
from the invoiced party.
What is 'Greenmail'
Greenmail is the practice of buying a voting stake in a company with the threat of
a hostile takeover to force the target company to buy back the stake at a premium. In
the area of mergers and acquisitions, the greenmail payment is made in an attempt to
stop the takeover bid. The target company is forced to repurchase the stock at a
substantial premium to thwart the takeover.
Hedge (finance)
A hedge is an investment position intended to offset potential losses or gains that may be incurred
by a companion investment. In simple language, a hedge is a risk management technique used to
reduce any substantial losses or gains suffered by an individual or an organization.
A hedge can be constructed from many types of financial instruments, including stocks, exchange-
traded funds, insurance, forward contracts, swaps, options, gambles,[1] many types of over-the-
counter and derivative products, and futures contracts.
Public futures markets were established in the 19th century[2] to allow transparent, standardized, and
efficient hedging of agricultural commodity prices; they have since expanded to include futures
contracts for hedging the values of energy, precious metals, foreign currency, and interest
rate fluctuations.
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In reality, most people are considered to be noise traders, as very few actually
make investment decisions solely using fundamental analysis.
Furthermore, technical analysis is considered to be a part of noise trading
because the data is unrelated to the fundamentals of a company.00
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What is a 'Covenant'
A covenant is a promise in an indenture, or any other formal debt agreement, that
certain activities will or will not be carried out. Covenants in finance most often relate to
terms in a financial contracting, such as a loan document stating the limits at which the
borrower can further lend. Covenants are put in place by lenders to protect themselves
from borrowers defaulting on their obligations due to financial actions detrimental to
themselves or the business.
Affirmative Covenants
An affirmative, or positive, covenant is a clause in a loan contract that requires a
borrower to perform specific actions. Examples of affirmative covenants include
requirements to maintain adequate levels of insurance, to furnish audited financial
statements to the lender, compliance with applicable laws, and maintenance of proper
accounting books and credit rating, if applicable. A violation of affirmative covenants
ordinarily results in outright default. Certain loan contracts may contain clauses that
provide a borrower with a grace period to remedy the violation. If not corrected,
creditors are entitled to announce default and demand immediate repayment of principal
and any accrued interest.
Negative Covenants
Negative covenants are put in place to make borrowers refrain from certain actions that
could result in the deterioration of their credit standing and ability to repay existing debt.
The most common forms of negative covenants are financial ratios that a borrower must
maintain as of the date of the financial statements. For instance, most loan agreements
require a ratio of total debt to a certain measure of earnings not to exceed a maximum
amount, which ensures that a company does not burden itself with more debt than it can
afford to service. Another common negative covenant is an interest coverage ratio,
which says that earnings before interest and taxes (EBIT) must be greater in proportion
to interest payments by a certain number of times. The ratio puts a check on a borrower
to make sure that he generates enough earnings to afford paying interest.
A stock split is also known as a forward stock split. In the UK, a stock split is referred to
as a scrip issue, bonus issue, capitalization issue, or free issue.
A member-owned cooperative that provides safe and secure financial transactions for
its members. Established in 1973, the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) uses a standardized proprietary communications platform
to facilitate the transmission of information about financial transactions. This
information, including payment instructions, is securely exchanged between financial
institutions.
What is a 'Spread'
A spread is the difference between the bid and the ask price of a security or asset.
2. An options position established by purchasing one option and selling another option
of the same class but of a different series.
a) Supply or "float" (the total number of shares outstanding that are available to trade)
b) Demand or interest in a stock c) Total trading activity of the stock
2. For a stock option, the spread would be the difference between the strike price and
the market value.
For the party selling the security and agreeing to repurchase it in the future, it is a repo;
for the party on the other end of the transaction, buying the security and agreeing to sell
in the future, it is a reverse repurchase agreement.
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What is a 'Swap'
A swap is a derivative contract through which two parties exchange financial
instruments. These instruments can be almost anything, but most swaps involve
cash flows based on a notional principal amount that both parties agree to.
Usually, the principal does not change hands. Each cash flow comprises of
one leg of the swap. One cash flow is generally fixed, while the other is variable,
that is, based on a a benchmark interest rate, floating currency exchange rate, or
index price.
The most common kind of swap is an interest rate swap. Swaps do not trade on
exchanges, and retail investors do not generally engage in swaps. Rather, swaps
are over-the-counter contracts between businesses or financial institutions.
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What is 'Yield To Maturity (YTM)'
Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held
until it matures. Yield to maturity is considered a long-term bond yield, but is
expressed as an annual rate. In other words, it is the internal rate of return (IRR)
of an investment in a bond if the investor holds the bond until maturity and if all
payments are made as scheduled.
Some zero-coupon bonds are issued as such, while others are bonds that have been
stripped of their coupons by a financial institution and then repackaged as zero-coupon
bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend to
fluctuate in price much more than coupon bonds.