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Glossary |
Glossary This glossary is limited to the lingo used in introductory and intermediate finance textbooks as well as the business press. It's unique as it tries to provide further supplementary examples and illustrations through the use of "Finance By Example Archives," "Bloopers & Blunders," and links to other relevant material. Here are more comprehensive finance glossary sites:
0-9|A|B|C|D|E|F|G|H|I|J|K|L|M|N|O|P|Q|R|S|T|U|V|W|Y|Z 0-9 12(b)-1 Fee Fee assessed to shareholders by the mutual fund for some of its promotional expenses. A 12b-1 fee must be specifically registered as such with the Securities and Exchange Commission and the fact that such charges are levied must be disclosed. 30-Year T-Bonds Bonds issued by the Treasury that have a maturity of 30 years at time of issue. 90-Day T-Bill Bills issued by T (Treasury), with maturity of 90 days at time of issue. - A -A/P See Accounts Payable. A/R See Accounts Receivable Accounting Manipulations
Accounts Payable (Payables) Money owed to suppliers. Accounts Receivable (Receivables) Money owed by customers. Acquisition See Mergers ACRS (Accelerated Cost Recovery System) Schedule of depreciation rates allowed for tax purposes. ADR (American Depository Receipts) A security, created by a U.S. bank, that evidences ownership to a specified number of shares of a foreign security held in a depositary in the issuing company's country of domicile. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities. U.S. investors often prefer ADRs to direct purchase of foreign shares because of the ready availability of price information, lower transaction costs, and timely dividend distribution. More info. Agency Costs Costs to the firm associated with the potential for conflict of interest between management and shareholders when these two groups are different. Agency Theory Theory concerning the relationship between a principal (shareholder) and an agent of the principal (company's managers). It involves the nature of the costs of resolving conflicts between the principals and agents. Airport Finance Reference to books on finance that you might find at airports, with titles like "How To Buy a House with Zero Down," or "All you need is $5,000 to Make a Million in One Year," or "Which Investments are Best in 1990's." AMEX American Stock Exchange. Amortized Loans Loans that are paid off in equal periodic payments. Annuity Investment that generates a stream of equal cash flows. Anti-takeover Tactics
Arb Arbitrage See arbitrage Arbitrage (risk arbitrage) Simultaneous purchase of a security and sale of another to generate a risk-free profit. Arbitrageur A person involved in arbitrage. Arrearage An overdue payment, generally referring to omitted preferred stock dividends. Ask The highest price anyone wants to pay for the security at a given time. Asset Allocation The process of determining the optimal division of an investor's portfolio among different assets. Most frequently this refers to allocations between debt, equity, and cash.
Asset Backed Securities
Assets Anything that the firm owns. Asymmetric Information One group has more information about, say, on the well being of the company, than another. An example would be managers having more intimate knowledge about the company than a typical shareholder. Average Maturity The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life. Average Tax Rate The rate calculated by dividing the total tax liability by the entity's taxable income. 0-9|A|B|C|D|E|F|G|H|I|J|K|L|M|N|O|P|Q|R|S|T|U|V|W|Y|Z - B -bad Things that individuals prefer to avoid if possible, i.e., would accept only if they are compensated for accepting. For example, rational investors would not invest in risky assets unless they get compensated an amount that it commensurate with the riskiness of the asset. Thus, risk is said to be bad. Another example would be pollution. Balance Sheet A basic accounting statement that represents the financial position of a firm on a given date. Balanced mutual fund This is a mutual fund that buys common stock, preferred stock and bonds. Bankers' Acceptance A draft drawn on a specific bank by a seller of goods to obtain payment of goods that have been sold to a customer. The customer maintains an account with that specific bank. Bankruptcy Re-organization under "Chapter 11." Basis Point .01 percent. Used to measure changes in yields of bonds. Bear Market General decline in security prices. Beginning Net Asset Value The market value of a fund share on a predetermined start date. Best Ask The lowest quoted offer of all competing Market Makers to sell a particular stock at any given time. Best Bid The highest quoted bid of all competing Market Makers to buy a particular stock at any given time. Best Effort Purchase A method of selling newly issued securities whereby the underwriters are expected to sell as many securities as possible. They are not obligated to sell the entire subscription. Also see "firm commitment." Beta A relative (to a benchmark) measure of risk. Measures of an asset's non-diversifiable -- market-- risk. See also systematic risk.
Bid The lowest price anyone wants to sell the security for at a given time. (See: Ask, and Bid-Ask Spread) Bid-Ask Spread The difference between the bid and the ask for a security at a given time.
Big Board refers to the New York Stock Exchange (NYSE). Bill Debt that has less than 1-year maturity at time of issue. Blue Chips The stocks in the Dow Jones Industrial Average. Bond Long-Term IOU whereby the holder (lender or buyer) is promised to receive fixed payments over a pre-specified time period. Corporate bonds are one of the available instruments that companies can resort to for their financing needs. Bond Par Value The face value ($1,000) that is to be returned to a bondholder at maturity. Bond Covenants
Book to Bill This is the semiconductor book to bill ratio. It reports on the amount of semiconductor chips that are booked for delivery as compared with those that companies already have billed for. Book Value The depreciated value of a company's assets (original cost less accumulated depreciation) less the outstanding liabilities. Broker A person who facilitates transactions (buy and sell) in the secondary market. Brokerage Commission The amount of money your brokerage house would charge for a given transaction (buy/sell). This is how these firms make their living. Brokers Calls Individuals who buy stocks on margin borrow part of the funds to pay for the stocks they buy from their broker. The broker in turn may borrow the funds from a bank, agreeing to repay the bank immediately (on call) if the bank requests it. The rate paid on such loans is usually about 1% higher than the rate on short-term Treasury bills. Bubbles See Efficient Market Hypothesis (EMH) Bull Market A market with the general prices advancing. Bullish One who believes the general market will rise. (See: Bear) Buyback When a firm repurchases its own stock from the public.
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