Financial Places
 
Click here for details

 
Username:
  
Password:  
 

Lost Password

  
Financial Places Home Page
About FP
Advertise Opportunities at Financial Places
Publication Information
News for the financial market
Calendar of Events
Central Banks & Associations
Glossary
  

 

 

 
A - G H - L M - P Q - T U - W X - Z
 

 

A  
Abandoned option  Where an option is neither sold nor exercised but allowed to lapse at expiry.
ABC paper Asset-backed commercial paper.
Above Par Selling for a price in excess of par value.
Absolute pricing model  An asset valuation model that bases prices on economic fundamentals.
Acceptance A time draft on which the drawee has accepted an obligation to make payment.
Accepting house  An organisation that accepts or guarantees bills of exchange and so finances trade deals and goods being shipped. 
Accident insurance Insurance which pays benefits in the event of an accident. Items typically covered are medical expenses and loss of earnings. 
Accident Year  Loss payments and reserves on losses are allocated to the year in which the loss has occurred (accident year). Such losses are monitored in time intervals (e.g. monthly, quarterly, yearly) until all losses are finally settled. The losses allocated to a given accident year are measured against the earned premium income of the same period.
Accidental death insurance Insurance which pays a lump sum in the event of death of the insured.
Account Management Profile System  (AMPS)  A system used by the NYSE staff that provides access to information about listed companies, member firms, and institutions
Account sale  A statement by a commodity broker to a client when a futures transaction is closed out, sometimes referred to as a purchase and sale statement (P&S) 
Accounting reference date  The date to which accounts are prepared for a company. When a company is incorporated, it will usually have an accounting reference date which is the last day of the month in which the anniversary of its incorporation falls. 
Accounting Standards Board  (ASB)  UK body that sets accounting standards. 
Accounts payable  Amounts owed by an organisation or individual to another for goods or services it has received.
Accounts receivable  Amounts due to an organisation or individual from another for goods or services it has supplied.
Accrual  A term used in company accounts where income is due or a cost is incurred during an accounting period but has not been received or paid.
Accrual bond  A type of CMO bond also called a Z bond. This bond is often the last one to mature. It pays no interest while the principal on earlier bonds are being paid. Because this bond accrues interest rather than pay it out, it is analogous to a zero-coupon bond. 
Accrual instrument A money market instrument that accrues interest until it matures.
Accrual rate  The rate of build-up of a pension in a scheme where the calculation is based on salary. 
Accrued benefits  Benefits earned by an employee in respect of his/her pension based on years of service with his/her employer.
Accrued Interest  The amount of interest that has accumulated on a credit agreement, a bond or any other financial instrument.
Accrued-coupon bond A bond that, rather than paying coupons, accrues them to maturity.
Accumulated dividend  Dividend that is due to holders of cumulative preference shares but which has not yet been paid. 
Accumulation  See Catastrophe Exposure and Cumulative Liability. 
Accumulation and maintenance trust  An accumulation and maintenance trust is one in which the beneficiaries will become entitled to the property or at least the income when they reach a certain age. This must not be more than age 25.
Accumulation fund A superannuation fund is where the benefits received by members result from investment earnings to their contributions made on their behalf by employers. 
Accumulation index An index that measures movement in the value of a market, taking into consideration both price movement and income growth. 
Accumulation units  (UK) A type of investment structure where the income from the trust's investments is reinvested into the trust, instead of being paid out to the investors as dividends. 
Accumulation/Distribution Indicator  (ADI)  A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally 'accumulating' (buying) or 'distributing' (selling) a certain stock by identifying divergences between stock price and volume flow.
Acid ratio  See 'acid test'.
Acid test  A financial ratio similar to the current ratio, defined as current assets minus stocks divided by current liabilities.
Acquisition  A term used to describe the takeover of a company by another.
Acquisition Cost  The reinsurer's acquisition cost consists of reinsurance commission, reinsurance brokerage, reinsurance premium tax and other costs (such as fire brigade charges). 
Across the board  A market-wide directional movement or a market condition in which most stocks and sectors are moving in the same direction.
Act of God  An act occasioned exclusively by forces of nature, uncontrolled and uninfluenced by the power of man and which is of such a character that it could not have been prevented or escaped from by any amount of foresight or prudence. E.g. lightning, tempest, perils of the sea, tornadoes, earthquakes.
Active fund  A fund whose objective is to outperform the market average (index) by actively seeking out stocks that will provide superior total return.
Active management When an asset manager makes choices of investment looking to get the best return for his/her clients. This can be done through a bottom-down (investing in sectors) or top-up (stock selection) approach to portfolio management. 
Active market  A loose term denoting that there is a high degree of liquidity in a stock market.
Activities of daily living  (ADL)  An insurance term which refers to the basic things that people need to be able to do in order look after themselves - e.g. wash and feed themselves.
Actuals (to check-Judex) The physical commodity that underlies a futures contract or is traded in the physical.
Actuary  A person trained and specialising in risk, statistics and finance. 
Ad valorem duties  Taxes which are charged as a percentage of the value of an asset. 
A-Day  The introduction on 6 April 2006 of wide-ranging pension reforms designed to simplify and streamline the pension's system.
Additional pension  See 'State Second Pension'
Additional personal allowance  (UK) An additional allowance single people can claim if they are single, separated or widowed and have young children living with them.
Additional rate tax  (UK) A term that applies to trusts without an interest in possession (for example a discretionary trust) and defines the additional rate of tax on income.
Additional voluntary contributions  (AVC)  Additional payments to a tax-deferred savings account or an occupational pension scheme by an employee to boost his/her pension at retirement.
Adjustable Features  Contract terms and conditions which vary according to the performance of contracts, e.g. Contingent Commissions such as sliding scale and profit commissions, variable rates, loss participations. 
Adjustable rate mortgage  (ARM)  (US) A mortgage whose interest rate is can change over the term of the loan according to interest rates on US Treasury securities.
Adjustable-rate preferred stock Stock that pays dividend which is linked to floating interest rates.
Adjusted earnings  If a company's earnings figures are distorted either positively or negatively by exceptional one-off occurrences in the year, its directors can choose to clarify the performance by releasing adjusted earnings. 
Adjusted gross income  (US) A person's income on which federal income tax is calculated.
Administration  A company experiencing financial difficulties may be put into the charge of a court-appointed administrator. Going into administration means the company cannot be wound up without the court's permission.
Administrative receiver  An insolvency practitioner appointed when a company goes into receivership. 
Administrator  An individual or organisation legally appointed by a court to settle the affairs of a deceased person who failed to make a will. 
ADR (American depositary receipt) A negotiable certificate issued by a U.S. bank that represents ownership in the shares of a foreign company trading on US financial markets. ADRs are denominated in U.S. dollars and enable US investors to buy shares in foreign companies without undertaking cross-border transactions. 
Advanced Premium  See Deposit Premium. 
Advisory broker  A broker who not only deals in stocks and shares on behalf of his client, but also advises on what shares should be bought and sold for the portfolio.
Affarsvarlden index  The Swedish equivalent of the Footsie index.
Affidavit  A written statement signed on oath and witnessed by a commissioner for oaths, usually a qualified solicitor.
Affluenza  An extreme form of materialism in which consumers overwork and accumulate high levels of debt to purchase more goods.
After hours deals  Dealings made on a stock exchange after its official closure time. These deals are rolled over and included in the following day's transactions.
Age admitted  A term used on occasions in life assurance policy documents, which indicates that the assured has proven his/her age by showing a birth certificate to the insurance company.
Age allowance An income tax personal allowance available to those aged over 65.
Agency security A security issued by a US federal agency or government sponsored enterprise.
Agent  A person appointed by a principal to act on the latter's behalf in business.
Aggregate Excess of Loss Reinsurance  See Stop Loss Reinsurance. 
Agreement for Sale  A document in which the purchaser agrees to buy a property and the seller agrees to sell it under agreed terms and conditions. Also called sales contract, binder or earnest money contract.
Agricultural property relief  A deduction of either 50% or 100% which is made from the value of land in the UK, Channel Islands or Isle of Man when it is assessed for inheritance tax purposes.
Alimony  Support paid to the dependent spouse after divorce.
All or none  A order to a broker to buy or sell the entire amount of the order in one transaction or not deal at all.
All or nothing  See: 'all or none'
All Ordinaries Price Index More recently called the S&P/All Ordinaries share price index; it is a share price index that measures the market prices of the major stocks listed on the Australian Stock Exchange (ASX).
All paper deal  When one listed company bids for another company (listed or private) and the shareholders of the target company only get shares in the bidding company for their shares in the target company.
Allocated Loss Adjustment Expenses  Loss adjustment expenses identified by a claim file in the insurer’s records, such as attorney’s fees for the investigation of and/or defence of the insured policyholder for the specific claim..
Allocated pension A retirement income arranged through a fund manager that allows an individual to draw a pension from a lump sum investment, which is earning a return.
Allocation notice  A formal notification to the writer of an option from a clearing house that an option has been exercised by an option holder and that the writer is obliged to buy/sell the underlying instrument at the exercise price to meet his/her obligations.
Allotment A method of distributing securities to applicants for a new issue. If an issue is not oversubscribed, each applicant gets whatever they applied for. However in the other case some mechanism has to be used to decide how many shares each applicant gets.
Allotment notice/letter  A confirming document from a company that newly issued shares have been allotted to an applicant.
Allowances  (UK) Tax allowances are concessions by the Inland Revenue which can be used to reduce a person's taxable income. 
ALM Asset-liability management.
Alpha The expected return of a stock or a portfolio if the market rate of return is zero.
Alpha shares  (UK) A term previously given to the most actively traded shares on the London Stock Exchange along with beta, gamma and delta shares. This classification was replaced by the normal market size classification in January 1991.
Alpha transport  Use of a self-financing market neutral strategy to generate alpha in one market while investing in another.
Alternative investment  Investment in items other than stocks, bonds or other securities. For example, wine, art and antiques.
Alternative Investment Market  (AIM)  Formed in 1995 (AIM) is a trading platform for small, young and growing companies from all over the world operated by the London Stock Exchange.
Alternative minimum tax  (AMT)  Part of the federal income tax system in the United States. There are two AMTs, one for individuals and one for corporations.
Alternative option  See: 'rainbow option'
American (-style) option  An option which can be exercised at any time until expiry (unlike European style options which can only be exercised at expiry).
American Association of Individual Investors  (AAII)  An association based in Chicago whose purpose is to provide information about stocks, mutual funds and bonds to individual investors.
American depositary receipt  (ADR)  See ADR.
American exercise A provision which allows an option any time prior to expiration.
American Express  An international company whose services include travel and financial products.
American option An option that can be exercised anytime during the contract, as opposed to the European option which can only be exercised at maturity. The majority of exchange-traded options are American.  
American Stock Exchange  (AMEX)  A stock exchange located in Manhattan where stocks of small to medium sized companies are traded.
American-style exercise  See 'American-style option'.
American-style warrant  A warrant which can be exercised at any time until final expiry.
Amortisation (UK) The accounting process whereby payment of an interest bearing liability done over time through regular instalments that include both principal capital and interest.
Amortization  Gradual debt reduction. Normally, the reduction is made according to a pre-determined schedule for instalment payments.
Amortized Amounts  Amounts such as taxes, fees, charges for service contracts and any prior credit that are included and paid as part of the base monthly payment.
Amount Due at Signing or Delivery  The amount due before the purchaser takes the delivery of the vehicle/vessel which may include security deposit, title registration fees and other charges.
Amount Financed  The amount of a contract (after down payment or trade-in) including all amounts that are financed by a creditor and that are not part of the finance charge. This may include insurance premiums, warranty charges, lender and other fees.
Analyst  A professional working for a fund manager or broker whose job is to analyse key industry sectors (e.g. retail, oil, pharmaceuticals) and determine the prospects for the companies operating in them.
Annual accounts The financial summary of the state of affairs of a company over the course of a year. It includes a profit and loss account, a balance sheet and a statement of cash flows
Annual Aggregate Deductible  A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.
Annual bonus  See 'reversionary bonus'.
Annual compounding  Compounding based on annual crediting of interest.
Annual equivalent rate  (AER)  It is a notional rate that's generally quoted on interest paid on savings and investments.
Annual Exclusion  The value in cash or other assets that may be given as a gift to a recipient each year without incurring a gift tax. 
Annual exemption  Each taxpaying individual in the UK is entitled to an annual exemption on capital gains for the current tax year.
Annual general meeting  (AGM)  A yearly meeting between directors of a company, where shareholders are invited to attend. Subjects normally discussed include audited accounts, election or re-election of directors and dividend payments to shareholders. The equivalent US term is 'Annual Meeting'.
Annual Meeting A yearly meeting between directors of a company, where shareholders are invited to attend. Subjects normally discussed include audited accounts, election or re-election of directors and dividend payments to shareholders. The equivalent US term is 'Annual Meeting'.
Annual percentage rate  (APR)  Yearly interest rate charged on loans or other debits.
Annual rate of return  Return over a period of one year.
Annual report  A report on the operations of a company (including financial statements) prepared once a year for shareholders and presented at its Annual General Meeting for approval.
Annual return  The total annual return on an investment which includes dividend payments and capital gains/losses, excluding transaction costs and taxes.
Annualise A mathematical process where the rate of return on an investment for periods other than a full year are converted into annual terms.
Annualised volatility  A quoting convention for volatility. Resulting volatilities are referred to as annualised volatilities—as opposed to annual volatilities—to alert people to the fact that this is just a quoting convention.
Annuitant  A person in receipt of an annuity.
Annuitize  The commencement of regular payments from capital which has accumulated in an annuity.
Annuity A financial arrangement whereby, by investing a lump sum, the beneficiary receives periodic payments during a period of time. They are often used in the provision of retirement incomes.
Annuity certain  See 'annuity'.
Annuity deferral  Investors can now choose to defer (up to the age of 75) the purchase of an annuity with their pension fund and take an income directly from the fund.
Annuity starting date  The date on which annuity benefit payments start to be paid to an annuitant.
Antithetic variates  A technique of variance reduction for the Monte Carlo method.
Antitrust laws  Laws designed to combat monopolies ("trusts") and other devices to suppress competition.
Appraisal The process through which the monetary value of property that is part of an estate can be established. 
Appreciation The value that an asset gains over a period of time, as opposed to depreciation.
Appropriate personal pension plan  A pension plan in which employer and employee pay full rate National Insurance contributions equivalent to the employee contracting into S2P. This rate will be greater than the rate paid by contracting out of S2P. The difference between these rates, the contracted-out rebate, is paid by the Government into a scheme known as an appropriate personal pension plan which buys pension benefits at retirement age known as protected rights.
Approved delivery facility  Any bank, stockyard, warehouse, depository or other facility that is authorised by an exchange for the delivery of commodities tendered on futures contracts.
Approved investment trust  An investment trust that satisfies certain conditions set by the tax authorities and accordingly is exempt from tax on capital gains made on profits from sales of investments within its portfolio.
Approved list  A list of investments in which a financial institution such as a mutual fund is authorised to invest.
AR process Autoregressive process.
Arbitrage The practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices.
Arbitrage CDO  A CDO sponsored for the purpose of adding value by repackaging collateral.
Arbitrage condition Any relationship that must prevail between certain prices if they are to be arbitrage-free. 
Arbitrage-free model  A type of financial engineering model that generates prices that entail no arbitrage opportunities.
Arbitrage-free pricing  The approach to pricing instruments that underlies essentially all of financial engineering in complete markets.
Arbitrageur A person or organisation that engages in arbitrage.
Arbitration Clause  A clause providing an alternative dispute resolution process to resolve differences between the insurer and the insured without litigation. 
ARCH  Autoregressive conditional heteroskedasticity
Arithmetic mean The arithmetic mean (or simply the mean) of a list of numbers is the sum of all the members of the list divided by the number of items in the list. Also called Average.
Arithmetic random walk It is a simple type of discrete stochastic process whose increments form a white noise. Since a white noise has zero mean, a random walk is a martingale, a stochastic process equivalent to 'fair gamble'.
Arithmetic random walk with drift An arithmetic random walk with a constant drift.
Arithmetic return Simple return.
ARMA process autoregressive moving-average process.
Arms index  The Arms Index is an indicator that uses advancing and declining stocks and their volume to measure intra-day market supply and demand and can be applied over short or longer time periods. It is calculated by dividing the Advance/Decline Ratio by the Upside/Downside Ratio. Also known as Trading Index (TRIN).
Arrearage  An amount on a loan, cumulative preferred stock or any credit instrument that is overdue. 
ARS  Auction rate security.
Arthur Andersen conviction In 2002, accounting firm Arthur Andersen was convicted on a single charge related to its auditing of Enron.
Articles of incorporation  The Articles of Incorporation (sometimes also referred to as the Certificate of Incorporation or the Corporate Charter) are the primary rules governing the management of a corporation, and are filed with a state or other regulatory agency.
Asia Pacific Advisory Committee  (APAC)  Advises on matters involving international capital markets.
Asian option  An Asian option is an option where the payoff is not determined by the underlying price at maturity but by the average underlying price over some pre-set period of time.
ASIC Short for the Australian Securities and Investments Commission, an independent Australian government body that acts as Australia's corporate regulator. ASIC's role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors.
Ask  The lowest price at which a dealer or market maker will sell a security.
Ask price The price at which an asset holder is willing to sell.
Askins, David Manager of the Granite Fund, a hedge fund that failed in 1994.
Asset allocation The process of choosing between assets classes (e.g. shares, bonds, property and commodities) or individual company stocks when constructing a portfolio.
Asset backing The value of a company's assets divided by the number of shares on issue.
Asset play  An investment strategy that seeks to identify companies whose net assets per share are worth significantly more than the current share price.
Asset sensitive If a portfolio has assets which reprice before than its liabilities, it is said to be asset sensitive. This is because near term changes in earnings are going to be driven by interest rate resets on those assets. 
Asset stripping  The practice of acquiring a company then selling parts of it, in the hope that the cash realised from these sales will match the entire acquisition cost.
Asset swap An exchange of two assets, for example the exchange of a fixed asset, such as a Treasury Bond, to a floating asset such as an index fund.
Asset turnover  The ratio of annual sales divided by net assets employed in the business.
Asset value model  A type of default model. 
Asset  Economic resources owned by an individual or entity.
Asset-backed commercial paper  Commercial paper secured by receivables or other assets.
Asset-backed security  An asset-backed security is a type of bond or note that is based on pools of assets.
Asset-based lending  Lending secured by assets.
Asset-liability management  Techniques for protecting a firm's solvency in the context of its liabilities.
Asset-liability risk Risk which is calculated taking into consideration the firms assets against its liabilities and risk exposures. Asset-liability risk is a leveraged form of risk. The capital of most financial institutions is small relative to the firm's assets or liabilities, so small percentage changes in assets or liabilities can translate into large percentage changes in capital.
Asset-or-nothing binary  An asset-or-nothing binary pays the value of the underlier (at expiration) if it expires in the money. It pays nothing otherwise. 
Assignee  A person to whom an asset or right is assigned.
Assignment (assign)  The transfer of ownership of an item from one person to another. 
Assignment form/notice  See 'allocation notice'.
Assignor  A person who assigns an asset or right to another party.
Association of Investment Trust Companies  (AITC)  An association formed in 1932 to represent the interests of investment trust companies. 
Association of Private Client Investment Managers and Stockbrokers  (APCIMS)  An association of firms across the UK and Ireland, which deal in stocks and shares for private investors.
Association of Unit Trusts and Investment Funds  (AUTIF)  It is the trade body representing the UK unit trust and investment funds (mutual funds) industry. 
Assurance  In the UK the term 'assurance' tends to be used where insurance is taken out against a risk which will inevitably occur. The common example of assurance is  life assurance; as death is a risk certain to happen.
Assured  In the UK the assured is a person who has entered into a life assurance contract (policyholder). The person on whose life the policy is taken out is known as the life assured. 
ASX Australian Stock Exchange
At best  In contrast when a client places a 'limit' order he actually dictates the price at which he is willing to buy or sell, and the broker can only make a deal within the limit given.
At limit  An order to buy shares up to a maximum price or sell down to a minimum price.
At par  Selling for a price equal to par value. A bond's price may be above or below par due to changes in interest rates or change in the bond's credit quality.
At quote  The instruction a client gives a broker to obtain a quote on the price for a particular share.
At the market A term used to describe an order where the broker is told by a client to buy or sell a stock at the best obtainable price for the current market.
At the money This describes an option whose exercise price is equal to the current price of the asset underlying the option.
ATM card  A plastic card enabling the holder to access an automated teller machine to obtain cash and statements.
Attachment Point  The value or amount at which excess reinsurance (or insurance) protection comes into effect.
At-the-money A condition in which the price of an option is equal to (or nearly equal to) the market price of the underlying security.
Auction rate security A floating-rate municipal security.
Audit  The official examination of a company's accounts by an independent qualified accountant.
Auditor  A person appointed by a company to perform an audit. In the UK auditors are Chartered Accountants.
Auditor's report  The report produced by a firm of Chartered Accountants which is part of a company's annual Report and Accounts. Auditors are required to certify that the accounts produced by their client companies have been prepared in accordance with normal accounting s
Authorised capital The maximum number of shares that a company is permitted to issue under its constitution.
Authorised share capital/authorised stock The total number of shares a company is authorised to issue by reference to its memorandum and articles of incorporation.
Authority  The concept in technical analysis that a trend in a share price is more meaningful if the number of shares traded (the 'volume') is high. A trend with low volume has less authority.
Autocorrelation A correlation between a component of a stochastic process and itself lagged a certain period of time.
Auto-debit  The process of automatically transferring monthly payments from an existing account to pay for a credit agreement, i.e.. loan or credit card.
Automated pit trading  The automated trading system used by LIFFE, usually for after hours trading.
Automated teller machine  (ATM)  Also known as cash dispenser. 
Automatic Capacity  Capacity provided by treaty reinsurance. 
Automatic trade  A term used by the London Stock Exchange to denote a trade generated by the system through automatic execution.
Autoregressive conditional heteroskedasticity  A category of models for conditionally heteroskedastic processes.
Autoregressive moving-average process A type of stochastic process.
Autoregressive process A type of stochastic process.
Average Directional Movement  (ADX)  It helps to determine if there is a price trend.
Average Market Capitalization  The average capitalization of all stocks in the portfolio. Capitalization or market value of an entire company is calculated by multiplying the number of shares outstanding by the per-share price.
Average Maturity  Stated or dollar-weighted average time remaining until maturity on a fixed-income securities portfolio.
Average option  An average rate option (or average price option) is a cash-settled option whose payoff is based on the difference between the average value of the underlier during the life of the option and a fixed strike.
Average P/E Ratio  P/E is short for the ratio of a company's share price to its per-share earnings.
Average price  A term used by the London Stock Exchange to denote that a transaction was effected at a price based over a given period.
Average price option  An average rate option
Average rate option  A form of Asian option whose payoff is linked to the average underlier value over a specified period.
Average strike option A form of Asian option whose strike equals the average underlier value over a specified period.
Average true range bands  Support/resistance lines that mark off an issue’s average true price range, which is determined by taking an exponential average of the difference between the higher of today’s high and yesterday’s close, and the lower of today’s low and yesterday’s close.
Averaging  Method of accumulating assets by investing a fixed amount in securities at set intervals. Investors buy more shares when the price is low and fewer shares when the price is high.
AW Jones & Co. An early hedge fund formed in 1949.
B  
BA Bankers acceptance A bankers acceptance is a short-term discount instrument that usually arises in the course of international trade. 
Baby bond Bonds with a denomination of less than a $1,000 par value. Baby bonds are a source of funds to corporations that lack access to large institutional markets and bring the bond market within reach of small investors.
Back end load A sales charge or commission paid when an individual sells an investment, such as a mutual fund or an annuity.
Back end load A charge imposed when investors redeem (sell) shares in mutual funds.
Back office Administrative operations that support the trading of stocks and other securities. 
Back spread A delta-neutral spread composed of more long options than short options on the same underlying instrument. 
Back taxes (US) Taxes that have not been paid on the due date or were underreported either by accident or by intention on a past tax return. 
Back testing A system that uses a large historical price database to evaluate a trading system's profitability.
Back to back inheritance tax plan The combination of a life assurance policy and an annuity on the same life.
Back to back loan (UK) A situation where an investment organisation subsequently arranges with a foreign associate bank to lend the equivalent amount of foreign currency to the investment organisation. 
Backfill Practice of adjusting historical values of an index to reflect past performance of an asset which has just been added to the index.
Back-to-Back Cover  When the reinsurance and insurance contract have the same terms and conditions.
Backwardation It is the situation where, and the amount by which, the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery.
Bailouts  A common name for the IMF-coordinated emergency rescue loans to economies in crisis. 
Balance of payments (BOP) A record of all the payments that flow between any individual country and all other countries. It is used to summarise all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers.
Balance of trade (BOT) The difference between a country's exports and imports over a given period of time.
Balance sheet A financial statement which shows the types and composition of a company's assets, liabilities and shareholders' equity at a point in time.
Balance sheet CDO  A CDO (collateralized debt obligations) issued for the purpose of moving assets off the sponsor's balance sheet. Therefore the sponsoring organization that holds loans or debt can remove from its balance sheet. 
Balanced fund A superannuation fund that diversifies its holdings over a range of asset classes such as shares, bonds, property and cash.
Balanced mutual fund (US) A mutual fund which invests in a balance of common stock, bonds and preferred stock with an objective of income provision and some capital appreciation with low risk.
Balloon (US) The final payment on a loan which is significantly larger than those preceding it.
Baltic Exchange A self-regulated London exchange serving world wide interests. It is the world's premier maritime market for ship chartering and sale and purchase. 
Bancassurance The selling of insurance and banking products through the same channel, most commonly through bank branches selling insurance.
Band earnings (UK) Pay between the lower earnings limit and upper earnings limit which is used to determine National Insurance Contributions.
Bank credit (US) The maximum credit an individual may secure from his/her bank.
Bank for International Settlements (BIS) The Bank for International Settlements (or BIS) is an international organisation of central banks based in Basel (Switzerland) which exists to foster cooperation among central banks and other agencies in pursuit of monetary and financial stability.
Bank giro credit (UK) A system in which a paper slip/document instructs a bank branch to credit a sum of money to a specified account at that branch.
Bank insurance fund (US) A fund held by a section of the Federal Deposit Insurance Corporation as deposit insurance for banks excluding thrifts.
Bank line A moral, rather than a contractual commitment by a bank to provide a loan to a borrower up to a stated total amount over a stated period, typically one year.
Bank of England  (BoE) The central bank of the United Kingdom, similar to the Federal reserve in the United States and the Bundesbank in Germany.
Bank run  A crisis which prompts investors to believe that the bank might fail therefore causing massive deposit withdrawals. 
Bank statement A document, issued by a bank to its customers, listing details of debit and credit transactions over a given period.
Banker's acceptance A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. 
Bankers Automated Clearing Services (BACS) (UK) BACS is an APACS clearing company which provides an automated clearing service for payments originated by Settlement Members or those they sponsor.
Banker's draft It is a cheque drawn on the bank (or building society) itself against either a cash deposit or funds taken directly from a person's bank account.
Banker's reference A reference sought from a bank by a company or individual regarding the creditworthiness of another company or individual in order to assess whether or not credit trading terms should be offered.
Banking Act of 1933  The United States Glass-Steagal Act that separated commercial and investment banking and formed the FDIC. 
Bankruptcy When an individual is incapable of settling his/her debts and has been served a bankruptcy order by a court.
Bar chart A chart with rectangular bars of lengths proportional to that value that they represent. Bar charts are used for comparing two or more values. The bars can be horizontally or vertically oriented. Sometimes a stretched graphic is used instead of a solid bar.
Bare trust A trust which allows parents to give capital to a child and have the income from that capital treated as the child's rather than their own. 
Bargain A term used on the London Stock Exchange to describe a share purchase or sale. 
Bargain conditions apply  A term used by the London Stock Exchange to denote that certain conditions were agreed between the two participants at the time of trading.
Bargain issue  A term used by value investors to describe the issue of shares in a company at a price below the per share book value of the company. 
Barings debacle  In February 1995 Britain's oldest merchant bank failed due to unauthorized trading by a single individual at its Singapore office.
Barrier option  Barrier option is a type of financial option where the option to exercise depends on the underlying crossing or reaching a given barrier level.
Barrier warrant  A warrant with an additional 'barrier' clause in the terms. Usually the warrant expires when a barrier level is breached.
Barter  An exchange of products or services between individuals without the involvement of money.
Base currency  In foreign exchange markets, the base currency is the first currency in a currency pair.
Base Premium  See Premium. 
Base rate  The interest rate that British banks charge to their best customers. Similar to the prime rate in the US.
Base rate tracker mortgage  A mortgage in which the rate of interest paid by the borrower follows movements in the base rate.
Basel Accord (1996 Amendment)  An amendment to the 1988 Basel Accord that added capital requirements for market risk.
Basel II  An international accord which established a set of minimal capital requirement for banks, replacing the earlier 1988 Basel Accord.
Basel-IOSCO initiative  An initiative to globally harmonise capital requirements for banks and securities firms. Because of the fundamental differences between banks and securities firms (see: regulatory capital), the initiative soon ran into trouble.
Basic pension  See: 'State Pension'
Basic rate tax  The main rate of income tax in the UK.
Basic state pension  See: 'State pension'.
Basic sum assured  A term used in conjunction with policies such as low cost endowment assurance and low start endowment assurance.
Basis The price difference between the spot price of an asset and the price for the derivatives (e.g., futures and options) relating to that asset.
Basis point  Usually one hundredth of a percentage point used in quoting movements in interest rates of yields on securities.
Basis risk The risk linked to uncertain movements in the spread between a futures price and a spot price. Numerically, it is the amount by which the value of a derivative differs from the value for the asset underlying that derivative.
Basket warrant  A warrant over a group of securities, often within a sector.
Basle committee  Committee set up by the Bank of International Settlements which drew up international capital adequacy standards for banks.
Bear An investor who believes that a particular security or market is headed downward.
Bear call spread  The purchase of a call with a high strike price against the sale of a call with a lower strike price.
Bear hug  A takeover bid which is so generous to the shareholders of the target company that the directors decide to accept the terms rather than face the wrath of their own shareholders.
Bear market  A pessimistic market characterised by falling prices (opposite of bullish market).
Bear put spread  The purchase of a put with a high strike price against the sale of a put with a lower strike price in expectation of declining prices. 
Bear trap  A short-lived reversal of an upward trend, catching out bears and shorters who were hoping to profit from a fall in the share price.
Bearer bond  A bond which does not record its owner's name. Possession of the bond certificate is therefore the only proof of ownership. 
Bearer stocks/shares  Stocks or shares which do not record owner's names and for which the companies do not keep a register of ownership. Possession of the certificate is therefore the only proof of ownership.
Bed and breakfast (UK) The practice of selling shares on one day and buying them back on the next.
Bells and whistles Special features added on to a derivatives instrument or securities issue with the intention of attracting investors or reducing issue costs.
Below par A price below the face value (or par value) of a security.
Benchmark An index measure which compares performance of securities.
Beneficial loan  A loan made by an employer to an employee on which interest is either not charged or is less than the official rate. The difference between the interest charged and the official rate is taxable.
Beneficial owner  The true owner of a security or property which may be registered in another name.
Beneficiary  A natural person or other legal entity who receives money or other benefits from a benefactor.
Beneficiary  A person who benefits from: 1) a trust set up on his/her behalf; 2) the proceeds of a will, or 3) the proceeds of a life insurance policy.
Benefit amount  The amount that will be paid out by a policy.
Benefits in kind  Benefits, excluding salaries, given to employees such as cars, medical insurance and gifts, which are taxed as income.
Bequest  Property given as a gift under the terms of a will (See legacy).
Best advice A requirement by the Financial Services Authority that requires a financial adviser to provide the best advice to his/her clients, having first established a full understanding of the client's financial background. 
Best execution  The Stock Exchange rule that requires brokers to carry out a deal on behalf of a client at the best price available in the market.
Best's Rating The Best's rating system (developed by the rating agency A.M. Best Company) evaluates those factors that affect the overall performance of insurance companies to provide a weighted relative measure of a company's financial strength.
Best's Ratings  Ratings of financial reliability given by Best's Rating Service to insurance companies.
Beta Measures a portfolio’s market risk. By definition, the beta of the market is 1.00. A portfolio with a beta of 1.10 is expected to perform 10% above market during “up” periods, and 10% below market during “down” periods.
Beta value A measurement of the movement of the price of a particular stock compared with the movement of the market as a whole during the same period.
Better-of-two option See: 'rainbow option'
Bid price The price that a prospective buyer is willing to pay for a security.
Bid price  The price at which a market maker will buy a security.
Bid-ask spread The difference between the bid and ask price of a security. 
Bid-offer spread (UK) The difference between the selling price and the purchase price for investments.
Bid-only warrant  A bid-only warrant is a warrant which is 'sold-out' such that it may not be possible to buy any more.
Big Bang  A reference to the major operational changes on the London Stock Exchange which took place on 27th October 1986. 
Big Board Nickname for the New York Stock Exchange.
Big Four  (UK) The four largest clearing banks: Lloyds TSB, Barclays, HSBC and Royal Bank of Scotland.
Big Four  The five four accountancy firms: KPMG, PriceWaterhouseCoopers, Ernst & Young and Deloitte & Touche. 
Bill of exchange  (BE)  An order in writing by one person to another to pay a specified sum to a specified person or bearer on a particular date.
Bill of sale  A formal document for the transference of title to goods from the seller to buyer.
Billing cycle (US) The time between periodic billings for goods and services, typically one month.
Binary option  This is a cash settled option that has a discontinuous payoff.
Binder  1. US: term for temporary cover issued by an insurer or a reinsurer.2. GB: An authority by an underwriter to an agent to grant cover on the underwriter's behalf. See Cover Note. 
Binding Agreement  A reinsurance contract under which the reinsurer allows itself to be bound, within a specified grace period, on any risk that meets the criteria outlined in the contract. 
BIS Bank for International Settlements.
Biweekly mortgage loan  (US) A mortgage whereby the borrower makes a half monthly payment every two weeks instead of the usual 12 monthly payments. 
Black (1976) option pricing formula A pricing formula for European options on commodities, forwards or futures.
Black economy  A hidden segment of a country's economy that operates on barter and numerous unreported private cash transactions.
Black knight  A company (or person) making an unwanted, hostile bid for another company.
Black Monday  Monday 19th October 1987 - the day when the Dow Jones Industrial Average fell a record 508 points affecting markets around the world.
Black Tuesday  Tuesday 29th October 1929 when stock prices on Wall Street crashed.
Black Wednesday  Wednesday 16th 1992 - the day the pound was driven out of the Exchange Rate Mechanism.
Black-Scholes (1973) option pricing formula  The original option pricing formula published by Black and Scholes in their landmark (1973) paper; it is used to price European options on non-dividend-paying stocks.
Black-Scholes option pricing model  The original option pricing formula published by Black and Scholes in their landmark (1973) paper; it is used to price European options on non-dividend-paying stocks.
Black-Scholes Theory  Another name for option pricing theory.
Blended Covers  Prospective reinsurance that combines elements of both traditional and financial reinsurance to limit risk transfer. 
Block A large holding or transaction of shares.
Block trade A large amount of securities being traded, typically at least 10000 shares of stock.
Blow off  The volume of selling increasing rapidly and peaking abruptly.
Blue chip A company on the London Stock Exchange with a large market capitalisation, stable earnings, consistent dividend record, and reputation as a reliable investment.
Blue Chip Stocks  High-quality stock of well-known companies with large market capitalisation, extended records of earnings and dividends, well-respected management, and prospects for continued strong performance. 
Blue sky laws  (US) Name of various state laws enacted to protect the public against securities fraud.
Boesky day November 14, 1986, the day it was announced that Ivan Boesky had pled guilty to insider trading and was cooperating with government investigators.
Boesky, Ivan An insider trader of the 1980s.
Bollinger bands  Bollinger bands, named after their founder John Bollinger, measure the support for, and resistance to price changes of any particular stock.
Bona fide It means 'in good faith'. For example, a person entering in an insurance contract is required to disclose all pertinent information in good faith. Failure to do so could result in breach of contract, making it void. In contemporary English, "bona fides" is sometimes used as a synonym for credentials, background, or documentation of a person's identity.
Bond  The generic name for a tradable loan security issued by governments and companies as a means of raising capital.
Bond anticipation note  (BAN)  (US) A short-term municipal or state note which is repaid from the proceeds of a forthcoming issue.
Bond discount  The difference between a bond's face value and the lower market price.
Bond interest yield  Yield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. 
Bond mutual fund A mutual fund which invests in bonds.
Bond rating  A measure of the quality and safety of a bond, based on the issuer's financial condition.
Bond yield  The interest investors can earn on a bond.
Bond-equivalent yield  A calculation for converting semi-annual, quarterly, or monthly discount-bond or note yields into an annual yield.
Bonus  (US) Money paid by life insurance companies to policyholders based on endowment policies and with-profit bonds.
Bonus issue  See: 'scrip issue'.
Bonus shares Shares issued free by a company to its existing shareholders on a pro-rata entitlement basis.
Book  A record maintained by a trading specialist of buy and sell orders for a given security.
Book entry bond A bond for which ownership records are maintained electronically in lieu of certificates.
Book transfer  Transfer of title from seller to buyer without physical movement of product.
Book value The value of an asset or liability according to its balance sheet account balance.
Bookbuilding  Indications from investors of the numbers of shares at different prices they would be willing to purchase. 
Booking the basis A forward pricing sales arrangement in which the cash price is determined, either by the buyer or seller, within a specified time at a previously agreed-upon basis applied to the then-current futures price.
Books closing date.  The date at which a company's share register is closed off to identify the shareholders and to calculate any entitlement to new issues and dividends.
Books of account  The books in which the transactions of a business are recorded.
Bordereau (Plural: Bordereaux) A method of claim or premium reporting where the insurer simply receives an outline report showing summary information without individual customer details.
Borrower  The individual who enters in a credit agreement with a financial institution.
Bottom fishing  An approach to stock picking which focuses on the search for shares whose prices have dropped extremely low.
Bottom-up analysis Security analysis which focuses firstly on stocks of individual companies, secondly on industry performance and thirdly on the economy as whole. 
Bought deal The purchase of new shares by an underwriter who subsequently attempts to resell to the market for a profit.
Bourse  A French or continental European stock exchange.
Box spread A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. 
Brady bond  A type of bond devised by the US Treasury secretary, Nicholas Brady, in 1989, and issued by a number of Latin American sovereign borrowers to reschedule their international debt.
Breadth  The number of stocks participating in either a rally or a decline.
Break even  The level of a company's sales at which neither a profit nor a loss is made.
Break up value The total value of all a company's separate operations if sold separately.
Breakout  The point at which a price breaks out either above or below a stable established range or trendline. Once the price breaks above its resistance or below its support, its likely to continue in the same direction. Also referred to as a Trendline Violation.
Bretton Woods Agreement An agreement made in Bretton Woods, USA, in 1944 which established a post war fixed currency rate between countries and subsequently the International Monetary Fund (IMF). The fixed exchange rate was replaced in the early 1970s by a floating exchange rate.
Bridge loan (bridging loan)  A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation.
British government stock  See: 'gilt-edged stock' (gilts).
Broad money  The widest of various measures used to gauge the growth of a nations' money supply. It includes all holdings of notes and coin by the public, as well as borrowings by non-bank financial institutions and all holdings in cash management trusts.
Broad tape  Term commonly applied to news wires carrying price and background information on securities and futures markets.
Broker  An individual or institution that charges a fee or commission for executing buy and sell orders submitted by an investor.
Broker (Insurance) An intermediary who negotiates contracts of insurance/reinsurance between an insured and insurer/reinsured and reinsurer on behalf of the insured/reinsured.  
Broker (Real Estate) A licensed real estate professional who receives a commission or fee for bringing buyer and seller together, often assisting in the negotiation of contracts between them. 
Broker to broker  A term used by the London Stock Exchange to denote that a transaction was between two member firms where neither firm is registered as a market maker in the security in question and neither is a designated fund manager.
Broker/Individual  An individual that arranges for the sale/purchase of vehicles/vessels through other parties.
Brokerage An entity that arranges for the sale/purchase of vehicles/vessels through other parties.
Brokerage fee  Commission or fees charged by a broker for conducting transactions on behalf of its clients.
Broker-dealer Any individual or firm in the business of buying and selling securities for itself and others.
Brownian motion A simple continuous stochastic process that is widely used in physics and finance for modelling random behaviour that evolves over time.
Bubble  The phenomenon of rising share prices amid a mood of general euphoria, leading to a 'bursting' and a reversal of prices.
Bubble Act An 18th century English law that severely restricted the formation of new corporations.
Bucket shop  Slang term for a disreputable brokerage firm.
Bucketing  When, in an attempt to make a short-term profit, a broker confirms an order to a client without actually executing it.
Budget account  A bank account set up to control a person's regular expenditure. 
Budget deficit  The gap between government spending and revenue.
Building Code  Local regulations concerning the construction industry.
Building Societies Investor Protection Scheme  (UK) A scheme set up to give limited protection to people with share and/or deposit accounts in authorised building societies which fail.
Building society  Mutual non-profit-making institutions set up to lend money to their members for house purchase. In recent years some of the UK's largest building societies have demutualised and turned themselves into profit-making banks, with their profits being distributed to shareholders rather than their customers.
Buildings insurance  Insurance which covers the policyholder against certain building losses or damages which may occur. 
Bull Someone who believes that prices in markets are going to rise.
Bull/Bear  Terms frequently used to describe the outlook for short-and long-term market performance: Bull refers to the belief that stock prices are likely to rise; Bear refers to the expectation that prices will fall.
Bulldog A foreign bond issued in the United Kingdom.
Bulldog bond  A bond issued in sterling by a foreign institution or government.
Bullet  A bond with a single maturity date and no opportunities for early redemption.
Bullion  Gold or silver in the form of ingots for bulk use.
Bullion coins  Coins made from gold or silver. 
Bullish market An optimistic market characterised by rising prices (opposite of bearish market).
Burn rate  The rate at which a company is spending its cash reserves.
Burning Cost  Ratio of excess losses in comparison to premium income.
Business cycle It refers to recurring cycle of expansion, boom, bust, recession and trough.
Business Expansion Scheme   (UK) A tax-efficient investment vehicle, designed to provide venture capital funds for small businesses. Replaced by the Enterprise Investment Scheme in 1994.
Business property relief  A deduction made from the value of business property when it is assessed for inheritance tax purposes.
Business risk Degree of uncertainty of realising expected future returns for the business resulting from factors other than financial leverage.
Butterfly  Traders use the butterfly strategy when they feel a particular stock will remain neutral during a certain period. By entering into a butterfly trade, the trader is betting that the underlying stock price will remain close to where it is currently.
Butterfly spread An options spread that combines a long strangle with a short straddle.
Buttonwood Agreement  (US) A 1792 trade agreement among the original 24 brokers in New York. The agreement was named for a Buttonwood tree that served as their informal meeting place on Wall Street.
Buy back  The purchase by a listed company of its own shares.
Buy on rumour, sell on the fact  An axiom whose underlying message is that stock market prices rise when there are positive rumours about a company, but often fail to sustain high levels when the facts become known.
Buy-back cover  Specific cover for perils/risks which are excluded from reinsurance contracts.
Buyers Guide  (UK) A document, relevant to life assurance, personal pension and unit trust products, which is given to prospective clients and provides information on the advice given, product's and commission's details. 
Buying price  The price at which units in a unit trust are bought by investors. 
Buy-write Purchase of stock and simultaneous writing of call options against stock position.
Bylaws  Purchase of stock and simultaneous writing of call options against stock position.
C  
Cabinet bid  (CAB)  A facility enabling holders of deep out-of-the-money options to close their positions at a nominal 1/$1 per contract or 1 cent per option.
CAC 40  The main index of the French stock market introduced in 1988 with a base value of 1,000 and made up of France's largest 40 companies by market capitalisation.
CAD Europe's 1993 Capital Adequacy Directive.
CAD II  Update to CAD (1998).
CAD III European regulation implementing the Basel II Accord.
Cadbury Committee  The Cadbury Code is the unofficial name for the first Code of Best Practice on corporate governance, published in 1992.
Cafeteria employee benefit plan  (US) A plan enabling employees to choose from a variety of benefits according to their personal circumstances.
Calendar effect  A theory which states that certain days of the week, weeks of the month, and months of the year are more likely to produce rise or fall in share prices than others.
Calendar spread  An options or futures spread established by simultaneously entering a long and short position on the same underlying asset but with different delivery months.  
Calendar Year  According to the Gregorian calendar, the calendar year begins on January 1 and ends on December 31. For individual and corporate taxation purposes, a calendar year will generally comprise all of the year's financial information used to calculate income tax payable.
Call An option to purchase an asset.
Call date  (US) The date on which a bond may be redeemed by the issuer before maturity.
Call feature See: 'Call provision'
Call option An option that gives the holder the right but not the obligation to purchase an asset for a pre-determined price (the exercise price) at or before the expiration date of the option.
Call option  An option which gives the holder the right but not the obligation to purchase a stated quantity of the underlying instrument at a specified price or before a given date.
Call payment  A payment made by investors for new shares. The term would apply to payments made when a company first floats on the stock exchange and also when it has a rights issue. 
Call premium The difference between a bond's call price and par value.
Call price The price at which a bond is callable.
Call price  (US) The price at which a bond or preferred stock can be redeemed by the issuer. The call price will usually be greater than the par value to compensate the holder for loss of income and ownership. 
Call provision  Feature of some bond indentures allowing the issuing company to redeem bonds prior to maturity by paying holders a premium above face value. 
Call spread  The simultaneous purchase (sale) of a call at one exercise price and sale (purchase) of another call at a higher exercise price. 
Call warrant  Warrants which give their owner the right to buy an underlying instrument and which would normally be used by an investor who thought the price of the underlying asset was due to rise.
Callable bond  A bond which allows the issuer to repurchase the bond for a specified price on certain dates prior to the bond's maturity.
Callable preferred stock Preferred stock that can be called by the issuer.
Cancel  Voiding a buy or sell order.
Cancel former order  (CFO)  Type of order given to a broker.
Cancellation The act of terminating a contract earlier than the scheduled contract expiration. See Termination.
Cancellation period  In financial services, the period after signing a contract during which customers are entitled to cancel their purchase.
Cancellation price  (UK) The lowest possible bid price of units in a unit trust under FSA regulations which is usually lower than the quoted bid price.
Cap A type of derivative instrument that offers protection against rising interest rates.
Capacity  The measure of an insurer's/reinsurer's financial ability to accept risk as well as the maximum amount of business it can write.
Capacity to contract Legal authority to enter into a contract.
Capital  The overall assets of an individual or company minus liabilities.
Capital account  The section of a country’s balance of payments statement with the total of all international purchases and sales of assets including foreign direct investment, portfolio investment, bank loans, other securities and foreign currency holdings. 
Capital account liberalization  The process used by countries to remove restrictions on the flow of foreign capital in to and out of their territories.
Capital adequacy  A measure of the financial strength of a bank or securities firm, usually expressed as a ratio of its capital to its assets. 
Capital allocation Formal allocation of capital charges to a firm's business transactions.
Capital allowance  (UK) A tax allowance for businesses which takes account of depreciation of certain types of business assets such as plant and machinery.
Capital asset pricing model A model describing the relationship between expected risk and expected return for financial assets.
Capital asset pricing model  It is used in finance to determine a theoretically appropriate required rate of return (and therefore the price if expected cash flows can be estimated) of an asset.
Capital assets  Assets purchased as a long-term investment to generate profit.
Capital charge Capital required to support a given business transaction.
Capital controls  Measures to control foreign exchange transactions to manage capital flows.
Capital employed  The value of all the assets employed in a business, including equity and preference capital, fixed and current assets, and gross borrowings.
Capital expenditure  A company's expenditure to acquire capital assets.
Capital flows  The movement of foreign exchange, such as loans, loan repayment, bonds and foreign investment, from one country to another. 
Capital Fulcrum Point  (CFP)  It measures the annual percentage growth rate required from the underlying instrument for investors to do equally well in terms of capital appreciation from its associated warrant.
Capital gains The amount gained through the sale of an asset.
Capital gains tax   Tax payable by the individual taxpayer at rate equivalent to the taxpayer’s highest rate of income tax on gains arising from the sale of securities or other chargeable assets. 
Capital growth The appreciation of the market value of an asset.
Capital growth  The increase in value of an asset or an investment.
Capital market line A line describing the optimal relationship between risk and reward for an investment portfolio.
Capital movement  It covers the difference between the capital which the country has invested in other countries, and the capital invested by other countries in it. Also known as capital account.
Capital ratio The ratio of a firm's capital to its assets.
Capital shares  Shares which entitle the holder to receive the capital appreciation from a split capital investment trust.
Capital structure  (US) The components which form a company's capital such as ordinary shares, preference shares, debentures and loan stock.
Capital structure arbitrage Any trading strategy that seeks to profit from inconsistencies in the relative pricing of a firm's debt and equity.
Capital transfer tax  (CTT)  A UK tax on gifts made by an individual, whether made during their life or after death. Replaced by inheritance tax in 1986.
Capitalisation It refers to a company's share price multiplied by the total number of shares issued by the company.
Capitalisation issue  See 'scrip issue'.
Caplet One of a series of options that comprise an interest rate cap.
CAPM  Capital Asset Pricing Model.
Capped rate mortgage  A mortgage which guarantees the interest rate charged will not rise above a certain level. 
Captive Finance Company  A finance company related to a particular manufacturer or distributor.
Captive Insurer  An insurance company which is wholly-owned by one or more entities (parent organisations); the purpose of a captive is to insure the risks of its parent organisations. 
Captive Reinsurer  A reinsurance company, which is owned by a corporation or association and provides reinsurance capacity for insurance policies taken out by the corporation or the association's members. 
Car benefit  (UK) Where a company provides an employee with a company car which is also used privately.
Carat  A measurement unit which defines the purity of gold. 
Card reader replacement  (CRR)  Wireless device used to report trades and quotes to the market data system. 
Carpetbagger  Someone who becomes an account holder with a building society in the hope that they will benefit from a windfall handout when the building society demutualises.
Carry back  A term applicable to personal pensions regarding tax rules which allow contributions made in the current tax year to be treated as though they were paid in the preceding tax year. 
Carry forward  A term applicable to personal pensions regarding tax rules which allow an individual to make contributions, additional to the current tax year, for the six previous years if maximum contributions have not been made. 
Carrying broker  A member of a commodity exchange through whom another broker or customer elects to clear all or part of his trades.
Carrying charges  Portion of the finance charge in bank loans covering the lender's costs in booking the loan and collecting payments plus a portion of bad debt expense; or broker's charge to customers for a margin account financing securities purchased on credit.
Cartwheel An options spread that is long (short) a ratio call spread and short (long) a ratio put spread.
Carveout A carve-out occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering.
Cash and carry  An arbitrage transaction applied on a futures market where the cash or spot price of for example, a commodity is less than the futures contract price.
Cash and equivalents  The value of assets that can be converted into cash immediately.
Cash card  See 'ATM card'.
Cash CDO Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product.
Cash Equivalents Assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper.
Cash extraction  A defensive strategy using warrants to replace the exposure to assets at a lower price, thereby releasing cash.
Cash flow The amount of money which flows in and out of a business.
Cash flow CDO A CDO whose payments to investors depend on the adequacy of collateral cash flow.
Cash flow matching Structuring a fixed income portfolio so that each day's net cash flow is zero.
Cash flow risk Risk due to uncertainty in future cash flows.
Cash fund  A collective investment scheme which relies on currency trading for its profits.
Cash instrument  An instrument whose value, unlike that of a derivative instrument, is determined directly by the markets.
Cash loan A small, short term loan which is to be repaid by next payday.
Cash management T-bill  A Treasury bill issued with a non-standard maturity.
Cash market  An expression used to describe the market in the underlying instrument (for example, shares, indices, commodities, etc.) on which a futures or options contract is based. 
Cash price The price for cash settlement transactions.
Cash settlement  settlement on the trade date or a derivative instrument as cash settlement if it settles for a cash payment in lieu of physical delivery of an underlier.
Cash surrender value  (US) The value of funds returnable to the insured upon the surrender of a cash value life insurance policy.
Cash trade A security transaction in which settlement with payment and security delivery are to occur on the same day as the trade date.
Cash value life insurance  (US) A life insurance policy which pays a benefit on the death of the insured but which also provides a savings element where benefits are payable before death.
Cashback  A sales incentive, commonly used on mortgages, which gives customers a cash sum as soon as the deal is signed. 
Cash-flow-at-risk A category of cash-flow risk measures.
Cash-or-nothing binary A type of binary option. It pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security.
Cash-settled warrant  Warrants which are not exercised in exchange for a physical asset, but for a cash amount equal to their intrinsic value.
Cash-to-cash cycle  A financial ratio which shows how long a company can finance its own stock. It measures the number of days between the initial cash outflow (when the company pays its suppliers) to the time it receives cash from customers.
Casualty  Term for a type of insurance that is primarily concerned with losses caused by injuries to persons as well as potential legal liability imposed upon the insured as a result of such injuries.
Casualty insurance  Insurance which gives protection to a business or homeowner against property loss, damage and injury to a third party.
Cat mark  See: 'Cat standard'
Cat standard A set of voluntary standards drawn up by the Treasury which companies can choose to adopt for their ISAs.
Catastrophe Exposure  The amount of potential loss an insurance company is exposed to in a single catastrophic event, such as an earthquake or a hurricane, in a certain period of time.
Cauchy distribution It is a continuous probability distribution with the same general shape as a normal distribution except that it has much thicker tails.
Caveat emptor  It implies that a buyer must ensure that goods about to be purchased are free from defects and that he/she bears the risk.
CBO Collateralized bond obligation.
CD  Certificate of deposit.
CDO Collateralized debt obligation.
Cedant  The insurance company protected by pro-rata reinsurance. 
Cede  The process of distributing the sum insured of a risk between reinsurer and reinsured under pro-rata reinsurance contracts. All premiums and losses relating to that risk are distributed in the same proportion. 
Ceding Commission  The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits.
Central bank  The national governing bank of a country, responsible for issuing currency, setting monetary policy, interest rates, exchange rate policy as well as the regulation and supervision of the private banking sector.
Central limit theorem A theorem that explains why the normal distribution plays such an important role in probability theory.
Central register  (UK) A computerised database of investment firms authorised by the Financial Services Authority (FSA).
Central Warrants Trading Service  (CWTS)  It is the automatic execution order book system on the London Stock Exchange.
Certificate of deduction of tax  (UK) A certificate issued by a building society or bank to its customers with interest bearing accounts, in which gross interest, tax deducted and net interest are itemised.
Certificate of deposit  (CD)  A certificate, issued by a bank to a depositor, indicating a sum of money has been deposited for a specified term and on which interest is paid.
Cession  The portion of the sum insured of a risk ceded to a reinsurer by the cedant.
Cession Limit  Restricts the amount of the aggregate sum insured that can be ceded to a pro-rata reinsurance contract. 
CFaR  Cash-flow-at-risk, the cash flow equivalent of Value-at-Risk (VaR). CFaR-based systems determine the maximum shortfall of cash the firm is willing to tolerate.
CFTC Commodity Futures Trading Commission.
CGT Capital gains tax, which is usually paid the profit arising from the sale of an asset.
Chapter 11  In the US, a company can file for protection under Chapter 11 of the country's bankruptcy laws. The company continues to operate under existing management while working with its creditors to reorganise the business. 
Chargeable event  (UK) A transaction which leads to a chargeable gain and which promotes the issuing of a chargeable event certificate. 
Chargeable event certificate (UK specific) A certificate issued on the occurrence of a chargeable event. Details listed include the amount of the gain, number of years over which the gain has occurred, the date the transaction took place and that the certificate should be sent to the Tax Office to establish if a higher rate tax liability exists.
Chargeable gain (UK) The amount chargeable to capital gains tax (CGT) from gains made on the disposal of an asset. In the case of stocks and shares, the investor's gain is the difference between the proceeds of selling the shares and the amount he/she paid for them adjusted for indexation.
Charitable trust  A trust registered with the appropriate authority and which enjoys income tax advantages.
Charities Aid Foundation  A central clearing house for Britain's charities. Allows supporters to make tax-efficient donations to many different charities via a single chequebook or credit card.
Charter abuse An archaic practice of devoting a corporation to some purpose other than that specified in its charter.
Chartist  An investor who plots information about share prices and trading volumes on a chart, looking for patterns. 
Chattels  A term used in wills which refers to the personal possessions of the person who makes the will. 
Cheque account  An account with a bank (or building society) which allows payments by cheque.
Cheque card  A card issued by a bank (or building society), which guarantees the payment of a cheque to the recipient up to a certain value.
Cheque clearing A system which enables cheques to be transmitted between banks in order to transfer funds.
CHESS Clearing House Electronic Sub register System, which computerizes all ASX transactions and settlements.
Chicago Board of Trade  (CBOT)  The world's largest exchange, which trades both financial and commodity futures, with US Treasury bond futures being the most frequently traded instrument.
Chicago Mercantile Exchange  (MERC)  The Chicago Mercantile Exchange (or Merc) was called the Chicago Butter and Egg Board until 1919 and is The world's second-largest exchange for futures and options on futures and  the largest in the U.S.
Chief risk officer  Head of risk management.
Child deferred endowment (UK) An endowment assurance on the life of a child, which can be taken as cash at maturity or converted to a full endowment or whole life assurance.
Child Trust Fund  (CTF)  After 1st September 2002, children born in the UK received a £250 voucher, which is invested and cannot be accessed until they turn 18. 
Children's bonus bond See 'baby bond'.
Chinese wall  An internal division between two departments of a bank or other financial institution whose aim is to avoid conflicts of interest.
Chi-squared distribution A continuous probability distribution related to the normal distribution.
Cholesky algorithm A standard algorithm for calculating a positive definite matrix's Cholesky matrix.
Chooser option  A derivative that converts to a vanilla put or a vanilla call at the holder's choice.
Churning  An unjustified practice employed by some brokers or fund manager to increase their commissions by excessively trading in a client's account. 
Circuit breaker  A defensive regulation which some stock exchanges have to limit the damage of a sharp fall in prices; for example circuit breakers allow the exchange to suspend trading when prices fall sharply.
Citizens advice bureau  (CAB)  (UK) An organisation which gives free advice on an extensive range of civil, legal and consumer matters.
Citron, Robert  Treasurer of Orange County, California whose speculative activities lead to the county's bankruptcy in 1994.
City Code  The rules which govern the management and timing of takeover bids involving companies listed on the London Stock Exchange, written and enforced by the Panel on Takeover and Mergers.
Claim  A demand by the insured/reinsured for an indemnity which is covered under the policy/contract. 
Claim Against an Estate  Refers to a charge against an estate to settle an outstanding obligation, such as bills unpaid at the time of estate owner death.
Claims adjuster  Independent agent or employee of an insurance company who negotiates and settles claims.
Claims-Made Reinsurance  A liability reinsurance contract covering all claims first advised by insureds to the insurer during the term of the reinsurance contract, regardless of when the insured’s loss occurred. 
Clash Cover  A liability non-proportional contract in which the reinsured's retention is higher than the limits on any one reinsured policy. Therefore, the contract is only exposed when two or more liability policies are involved in the same occurrence with an amount greater than the clash cover retention.
Class  All listed options of a particular type (i.e., call or put) on a particular underlying instrument, e.g., all Barclays call options.
Class 1, 2, 3 and 4 National Insurance Contributions (UK) See: 'National Insurance contributions'
Class of Business  Line of business. 
Clean Cut  A method of accounting in pro-rata reinsurance whereby the right of the reinsurer to receive premiums or his liability to pay losses is treated as ceasing upon cancellation of the contract. 
Clean price  A bond price quoted without accrued interest.
Clearing  The process of moving payments between accounts from different banks or branches.
Clearing house A clearing house is an independent financial services company appointed by an exchange that provides clearing and settlement services for financial transactions.
Clearing house automated payment system  (Chaps)  A computerised payment system for clearing cheques in the UK.
Clearing house interbank payment system  (Chips)  A computerised payment system for clearing cheques in New York.
Client agreement  A document issued by an adviser/broker to a client outlining the basis of the relationship and the services for which the adviser/broker is authorised. 
Cliquet option See: 'ratchet option'.
CLO Collateralized loan obligation.
Close company  A company in which the directors control more than half the voting shares, or where such control is exercised by five or fewer people and their associates.
Close market  A securities market in which the difference between bid and offer prices is narrow and which reflects high volume trading in a 'liquid' stock.
Close out A futures transaction where an equal and opposite trade closes an open position. This leaves a trader with what is known as a zero net position.
Closed end fund A collective fund which has a fixed number of issued shares traded on a stock exchange, which will rise and fall in value according to supply and demand like ordinary company shares. In the UK, this is equivalent to an investment trust.
Closed form expression  Closed-form solution.
Closed form VaR Linear VaR.
Closed period The two-month period before a company announces its results in which directors are not allowed to deal in its shares.
Closed-form solution  A formula that can be evaluated in a finite number of standard operations.
Closely held corporation  (US) It refers to a corporation with only a small number of shareholders.
Closeout netting The netting of obligations on derivative instruments that are terminated early.
Closing  Ending a transaction.
Closing Agent/Attorney  A closing agent or attorney assures that all documentation related to the sale of a house has been completed properly.
Closing Costs  All of the costs to the buyer and seller which are associated with the purchase, sale, or refinancing of a property.
Closing price  The closing price is the last price for a tradable instrument at the time the market closes. 
Closing purchase  The purchase of an option, by a writer, which has the same terms as an option which has previously been sold. 
Closing range  A futures expression which refers to a range of closely allied prices at which transactions were conducted at the close of a trading day.
Closing sale  The sale of an option, by a holder, identical to the option which is held. 
Closing Statements  A financial disclosure which includes an account of all funds received and expected at the closing, such as deposits for taxes and mortgage insurance.
CLS Continuous Linked Settlement.
CLS Bank International The bank that settles foreign exchange trades under Continuous Linked Settlement.
CMO Collateralized Mortgage Obligation
Co-Applicant A person who jointly applies for a loan with someone else.
Codicil An addition or other change to an existing will.
Codicil  A document on which changes or additions are made to an existing signed will. 
COFI  Cost of Funds Index.
Cold calling  An approach by a salesperson to a prospect (prospective buyer) either by telephone or in person where no previous contact has been made.
Collar A collar is an investment strategy that uses options to limit the possible range of positive or negative returns on an investment in an underlying asset to a specific range.
Collateral  Assets held to secure an obligation.
Collateral arrangement  An agreement between two parties for the ongoing collateralization of a repo, securities lending, derivative or other transaction.
Collateralized bond obligation  A securitized interest in a portfolio of bonds.
Collateralized debt obligation A securitized interest in a portfolio of bonds, loans or other debt.
Collateralized mortgage obligation A type of mortgage-backed security.
Collecting branch  A banking term which refers to the branch which accepts cheques to be credited to its customers' accounts and subsequently obtains the proceeds from the issuing banks, usually by a clearing arrangement.
Combination  It is a straddle using options with different exercise prices, where both the call and put options used are out of the money.
Combined Lines  Insurance policies providing multiple property, casualty or liability cover. 
Combined Ratio  A measure of profitability used by an insurance company to indicate how well it is performing in its daily operations. 
COMEX  Formerly an abbreviation for the Commodity Exchange in New York and now a division of the New York Mercantile Exchange after its merger with NYMEX. It is the main US market for metals futures and options trading in copper, gold and silver.
Commercial bank A bank that deals with deposits and loans from corporations or large businesses.
Commercial bank  (UK) A retail bank which provides services to companies and individuals in the form of current, deposit and loan accounts as well as other financial services.
Commercial mortgage  A mortgage on a non-residential building occupied by a business.
Commercial paper (US) A short-term note issued by banks and corporations with a range of maturities from 30 to 270 days.
Commercial paper Short-term promissory notes issued primarily by corporations.
Commission  An agent's fee for negotiating a deal or contract.
Commission house  Another term used to describe brokerage firms.
Commitment  An agreement between the lender and the borrower to loan money at a future date subject to terms and conditions.
Commodity Generic term that covers a wide range of items that can be traded, including metals (such as gold, and silver) and agricultural goods (such as wool and wheat).
Commodity Credit Corporation  (CCC)  (US) A US government-owned corporation established in 1933 which supports prices through purchases of excess crops.
Commodity Exchange Act US legislation passed in 1974 forming the Commodity Futures Trading Commission.
Commodity Futures Modernization Act US legislation passed in 2000 clarifying that OTC derivatives markets were to remain largely unregulated.
Commodity Futures Trading Commission  (CFTC) (US) Created by the US Congress in 1974 to regulate exchange trading in futures.
Commodity Trading Advisor  (CTA)  (US) An individual or firm who directly or indirectly advises others about buying or selling futures or futures options. 
Common Account  Reinsurance contract that protects the reinsured and the reinsurer. 
Common stock Non-preferred stock.
Common stock  The US equivalent of 'ordinary share'.
Common stock fund (US) A mutual fund which invests solely in common stocks of companies.
Commutation  The process of settling current outstanding and expected future obligations under a reinsurance contract. 
Commutation Clause  A clause of a reinsurance contract that confirms complete discharge of all future obligations for reinsurance losses incurred by payment of a lump sum. 
Companion bond A bond that takes most of the prepayment in a PAC CMO structure.
Company A legal entity regulated under the Corporations Law.
Company Announcements Office  (CAO)  The department in the London Stock Exchange which is responsible for the Regulatory News Service (RNS). 
Company doctor  A business person who specialises in turning round failing companies.
Company pension scheme See 'occupational pension scheme'.
Company representative (tied agent) (UK) A financial services sales representative who is authorised to give financial advice only on life assurance, pensions and unit trusts offered by his own company.
Compensating balance  (US) The balance required to be kept on deposit at a bank by a borrower when taking out a loan. Should the borrower fail to repay the loan either in full or in part, this balance would be forfeited. 
Complex number A number of the form a + bi, where a and b are real, and i is the imaginary number.
Compliance  The act of complying with rules and regulations.
Compound annual growth rate  (CAGR)  The average rate at which a particular financial parameter compounds up over a period of years.
Compound interest Interest calculated on both the principal and the interest previously accrued.
Compound option An option on an option. The right, but not the obligation to buy or sell the right, but not the obligation to buy (long call) or sell (long put) an underlying asset
Compound reversionary bonus  (UK) A with-profits life assurance bonus, normally added annually to the policy, which is based on the profits of the life company's investments.
Comprehensive insurance  A term used to describe an insurance policy in which a wide range of risks are covered. The name is used mainly in motor insurance.
Compulsory liquidation  Liquidation of a company brought about by a court order, usually as the result of a petition by an unpaid creditor.
Compulsory purchase annuity  (CPA)  See 'annuity'.
Conditional heteroskedasticity  A condition where a stochastic process has non-constant conditional second moments.
Conditional prepayment rate (CPR) A metric of annual prepayment for mortgage-backed securities.
Conditionality  Conditions which must be met before creditors disburse any loans. 
Condominium  A form of property ownership whereby the purchaser receives title to a particular unit and a proportionate interest in certain common areas.
Condor spread Also referred to as a flat-top butterfly, it's an options strategy involving four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike.
Confederation of British Industry  (CBI)  (UK) An independent non-profit making, non party political organisation which represents the interests companies in the UK. 
Conglomerate  A company which owns a number of other companies with widely diversified activities.
Consensus forecast  Aggregated forecasts drawn from a number of different brokers about the likely future earnings of a company.
Consideration  Something of value given by one party to another in return for entering into a contract. To be enforceable under UK law, contracts require that each party has given consideration to the other, however small. Hence the reason for contracts entered into 'for consideration of £1'.
Consolidated Quote System  (CQS)  (US specific) A US system which collects and disseminates, electronically, current bid and asked quotations along with volume, from and to all market centers trading listed stocks.
Consolidated Tape A US high-speed system that continuously provides the last sale price and volume of any securities transaction in listed stocks to the public. All trades in NYSE-listed securities, regardless of the market centre on which such trades occur, are reported to and disseminated on the ticker system.
Consolidated Tape Association  (CTA)  (US specific) Oversees the operations of the US 'consolidated tape', which it developed, under a formal 'CTA Plan' filed with the Securities and Exchange Commission. CTA is an independent, industry-wide organisation.
Consolidated Trade System  (CTS)  (US specific) Receives and disseminates, electronically, listed stock last-sale prices in all markets in which they trade. CTS is under the operational guidance of the Consolidated Tape Association (CTA).
Consolidation  A period where the market trades in a broad sideways pattern within a trend. Consolidations usually follow a strong market gain or fall and occur as buyers and sellers begin digesting the recent price move. 
Consolidation  The process by which a company changes the structure of its share capital by reducing the number of shares on the market therefore increasing the each share. 
Consols  See: 'irredeemable securities'
Consortium bank  A bank jointly owned by a number of other banks. 
Constant dollar plan   (US) A plan which enables investors to accumulate shares in a mutual fund by purchasing them on a regular basis with a fixed dollar amount. In the UK, the same principles apply to savings plans for unit trusts, and the process is called 'pound cost averaging'.
Constitution The document that sets the rules by which a company will operate.
Consumer durables A product such as an automobile or appliance whose life expectancy is at least three years.
Consumer price index  (CPI)  An index which tracks the prices of a variety of goods purchased by an average consumer, including food, clothing, utilities and medical care. 
Consumer Report  Information provided by a credit-reporting agency on a consumer's credit worthiness, and his/her eligibility for credit, insurance or employment. 
Contango The situation where the futures price is above the expected future spot price. Consequently, the price will decline to the spot price before the delivery date.
Contango  A situation in futures trading where the future delivery price is greater than the cash or nearby price.
Contents insurance  (UK) Insurance policy that covers the home contents against damage, destruction and loss.
Contest of a Will  Legal proceedings to prevent or alter distribution of estate assets as described in a will.
Contingency  A condition that must be met before a contract is binding. 
Contingency Cover  Insurance cover for relatively remote possibilities. 
Contingency order  An order to execute a transaction in one security that depends on the price of another security. 
Contingent assurance  (UK) Life assurance where payment of the sum assured depends on conditions other than the death of the life assured. 
Contingent Commission  Commission which is determined by the result of a pro-rata contract, e.g. Profit Commission, Sliding Scale Commission. 
Contingent liabilities  Contingent liabilities are potential obligations that will materialize only if certain events occur in the future, such as lawsuits, disputed claims, cases under appeal, possible tax assessments and contract disputes.
Contingent premium option An option through which the premium is deferred and only paid if the option expires in-the-money.
Contingent voting Voting by preferred stockholders during a suspension of dividend payments.
Continuous Contract  A reinsurance contract that remains in effect until both parties mutually agree to terminate it or one of the parties sends the other a notice of cancellation.
Continuous Linked Settlement A settlement system for foreign exchange trades.
Continuous process A stochastic process that has a term associated with every real number.
Continuous-time Refers to continuous stochastic processes.
Contra  An entry made into an account or statement to nullify a previous entry.
Contra trade  A term used by the London Stock Exchange to denote that a trade was reported for a transaction previously automatically executed through the order book.
Contract formation Process to set up a legally binding contract.
Contract frustration Invalidation of a contract by unforeseen circumstances.
Contract month  The specified month to which a futures or options contract refers. 
Contract note  A note containing details of a stock exchange deal, which is sent by a broker to a client.
Contract of insurance  A contract between an insurer and the insured. 
Contract of Sale  A contract between the purchaser and the seller of a property. 
Contract size  The minimum amount of a commodity or financial instrument which can be traded in a futures or option market. 
Contractarian theory of the firm  The contracts theory of the firm.
Contracted out mixed benefit scheme (COMBS) An occupational pension scheme which has separate defined benefit and money purchase sections and which contracts out on both bases.
Contracted out money purchase scheme  (COMPS)  An occupational pension scheme that is contracted out on a money purchase basis i.e. where the employer pays minimum payments towards protected rights.
Contracted-out salary related scheme  (COSRS)  An occupational pension scheme that is contracted out on a salary related basis i.e. by providing benefits which are broadly equivalent to or better than a minimum standard.
Contracting out  (UK) A term which refers to contracting out of S2P (State Second Pension). A person can contract out by joining an employer's pension scheme which itself is contracted out or through an appropriate personal pension plan. 
Contractors' All Risks  Insurance contract which covers works and damage to property on a site and third party liability. 
Contracts for difference  (CFD) CFDs are a derivative product designed for active traders who want to have extra leverage in their share trading. Instead of paying for purchases in full, they deposit a 'margin' with their broker which goes up and down in line with the rise and fall of their portfolio.
Contracts theory of the firm A theory that defines a firm as a collections of contracts-contracts between shareholders, board members, managers, employees, suppliers and customers. Under this theory, shareholders' stock represents a contract under which they provide capital to board members and receive dividends in return.
Contrarian Investors who think they can make money on the stock market by doing exactly the opposite of what the majority of investors are doing.
Contributions waiver benefit  See: 'waiver of premium'
Control variates  A technique of variance reduction for the Monte Carlo method.
Conventional Loan  Any kind of lender agreement that is not backed in full by the Federal Housing Administration or guaranteed by the Veterans Administration.
Convergence  The movement of a futures price towards that of the underlying instrument as the contract date approaches.
Conversion  The process of converting convertible loan stock into ordinary shares. 
Conversion arbitrage  A risk-free transaction in which an investor purchases a put and sales a call for shares of stock already held. The put and call should have identical exercise prices and expiration dates.
Conversion terms The terms which apply when convertible loan stock are converted into ordinary or preference shares. 
Conversion-forcing call A call of a convertible security by the issuer to force the holder to either accept cash or convert the security.
Convertible arbitrage A market neutral trading strategy that exploits relative mispricing of a firm's convertible bonds.
Convertible bond  Convertibles are bonds issued by companies which can be converted into ordinary shares or preference shares at a given price at a future date. 
Convertible notes Securities that, at the discretion of the holder, are convertible into the ordinary shares of a company at a set price/ratio at specified time in the future.
Convertible preferred stock Preferred stock that can be exchanged for (converted into) shares of common stock.
Convertible term insurance (US) Term life insurance which can be converted into cash value insurance. In the UK, the equivalent convertible term assurance, which can be converted into endowment assurance.
Convexity A factor sensitivities indicating a fixed income portfolio's second order (quadratic) sensitivity to the parallel shifts in the spot cure.
Conveyancing  (UK) The legal transfer of real property from one owner to another. 
Cooling off period  (UK) The period during which a new policyholder can cancel an insurance/assurance policy. 
Coppock Indicator  A technical analysis indicator named after Edwin Coppock, an economist who was asked by the American Episcopalian Church to identify cheap buying opportunities for long-term investors.
Co-Reinsurance  The reinsured retains net and unprotected a share of a reinsurance layer or program. 
Cornish-Fisher expansion A formula for approximating quintiles of a random variable based only on its first few cumulants.
Corporate bond Corporate bonds are issued by companies to raise capital. They are an alternative to issuing new shares on the stock market and are a form of debt finance.
Corporate governance movement  A number of initiatives to reform the governance of corporations.
Corporate risk management Practices that serve to optimise corporate risk.
Corporate warrant  Warrants issued directly by companies or investment trusts, exercisable into their own shares.
Corporation  1) A group of people, such as a guild or city, with a legal collective identity. 2) A joint-stock, limited liability corporation.
Corporation tax (UK) Tax payable by a company on its profits.
Correction  A downward movement in the price of an individual stock, bond, commodity, index or the stock market as a whole.
Correlation  A parameter, related to covariance, that indicates the tendency for two random variables to "move together" of "co-vary."
Correlation matrix A symmetric matrix indicating all the correlations of a random vector.
Corridor warrant  A warrant designed to pay out a fixed amount for as long as an underlying asset price trades within a specified range or 'corridor'.
Co-Signer  An individual, business, entity, or trust that becomes a contractual borrower by signing the loan documents and promissory note with the primary borrower.
Cost basis  The cost price of an asset used to establish capital gains tax liability.
Cost of Funds Index (COFI) A regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans.
Cost, insurance, freight A method for settling physical commodity trades. When a price is quoted CIF, it means that the selling price includes the cost of the goods, the freight or transport costs and also the cost of marine insurance.
Costless collar A collar whose strike prices are set so that the net cost of the collar is zero.
Council tax  (UK) A local taxation system based on property value. There are eight bands of property values and the tax incurred by each dwelling increases in increments from band A to band H. 
Country-specific risk  The risk of holding shares, bonds or other securities whose value are closely linked to particular country.
Coupon  An interest payment made by a bond.
Coupon bond A bond that pays coupons.
Coupon clipping date The date on which a coupon is to be clipped from a bearer bond.
Coupon date The date on which a coupon is paid.
Coupon leverage Refers to the  inclusion of a multiple in the formula for calculating the coupon rate on an inverse floating-rate CMO.
Coupon payments These represent an obligation of the issuer of a bond to pay interest on the bond at regular periods (usually every six months).
Coupon rate A bond's interest payments per dollar of par value.
Coupon strip A Treasury strip formed from a coupon of a Treasury security.
Court of protection  (UK) An office of the Supreme Court whose function is to manage and administer the property and affairs of people who, through mental disorder, are incapable of managing their own financial affairs.
Covariance A parameter that indicates the tendency for two random variables to "move together" of "co-vary."
Covariance matrix A symmetric matrix indicating all the covariances and variances of a random vector.
Covariance stationarity A property of some stochastic processes
Covenant  A formal agreement made in a deed.
Cover  The details of insurance provided by an insurance company to a policyholder.
Cover note  A document confirming that recently-purchased insurance is in force. 
Covered combination  A strategy that allows an investor to receive premium income in exchange for agreeing to double his stock position in the event of a downward price move.
Covered straddle  An option strategy consisting of writing a call and a put with the same strike price and expiration against stocks that the holder owns.
Covered writing  In the case of call writing, covered means having a holding of shares at least equal to that implied by the short call option position, and in the case of put writing, covered means having a cash sum sufficient to take up the underlying security if if assigned on the short put position.
CP rate An average commercial paper rate reported by the Federal Reserve.
CPR  Conditional prepayment rate.
Crack spread  A spread between crude and refined oil prices.
Crash of 1929 One of the most devastating stock market crashes in American history.
Credit  In the trading terms, credit is the value of goods which one company will supply to another before payment is necessary. 
Credit analysis Any process for assessing the credit quality of a counterparty.
Credit analyst A professional who performs credit analysis.
Credit Bureau Inquiry  An item on a consumer report that identifies creditors who have requested a consumer report on the applicant. 
Credit card  A payment card which allows the owner to obtain goods and services without the requirement to pay cash and on credit terms.
Credit clearing  A system for the distribution of bank giro credits and other credits between banks to enable funds to be transferred into specified accounts.
Credit control Methods used by lenders to ensure their customers settle their accounts within the agreed time period.
Credit default swap A swap designed to transfer the credit exposure of fixed income products between parties. Credit default swaps are amongst the most widely traded credit derivative products. 
Credit derivative  A financial instrument used to mitigate risk. It is a contract between two parties allowing the use of a derivative instrument to transfer credit risk from one party to another.
Credit enhancement Any methodology that reduces the credit risk of a transaction with a counterparty.
Credit exposure  The potential for loss in the event of a default.
Credit insurance  A form of insurance designed to protect against default by a debtor.
Credit linked note A type of credit derivative.
Credit note  A note issued to a person or company when goods are returned by them, cancelling the original invoice. 
Credit quality It takes into consideration both the likelihood of a counterparty defaulting as well as possible recovery rates in the event of a default. 
Credit rating A credit rating assesses the credit worthiness of an individual, corporation or a country.
Credit reference agency  An agency that holds information on consumers' credit rating.
Credit Report  A report requested by a lender on the credit standing of a prospective borrower.
Credit risk Risk due to uncertainty in a counterparty's ability to meet its obligations.
Credit scoring It assesses the credit worthiness of an individual.
Credit spread The difference between the yield on the debt securities of a particular corporate or sovereign borrower (or a class of borrowers with a specified credit rating) and the yield of similar maturity Treasury debt securities.
Credit spread  A spread strategy that increases the account's cash balance when it is established. A bull spread with puts and a bear spread with calls are examples of credit spreads.
Credit union  A mutual association formed by people with a common affiliation such as employees, a union or a religious group in which pooled saving are made. 
Creditor days  A ratio used to work out how many days on average it takes a company to pay its creditors. 
Creditors  People or companies who are owed money by debtors.
CREST  An electronic system of settlement for the equities market in the UK and Ireland which was set up in 1996 to replace the Stock Exchange's Talisman system.
Critical illness cover  Insurance which covers the insured against specified critical illnesses such as cancer, heart attack and multiple sclerosis etc. 
Cross correlation A correlation between one component of a stochastic process and another lagged by a certain period of time.
Cross holdings Where one company holds shares in another company.
Cross trade  A term used by the London Stock Exchange to denote that a trade was effected as an agency cross or a riskless principle trade between two member firms at the same price and on the same terms.
Cross-currency derivative A Monte Carlo estimator implemented without variance reduction.
Cubic spline  A real function constructed by piecing together cubic polynomials on consecutive intervals.
Cubic spline interpolation Any of several methods of interpolating with cubic splines.
Cum dividend  When a share is said to be 'cum dividend', it means that it is offered for sale with an entitlement to the next dividend payment attached.
Cum rights  When a company announces a rights issue, existing shareholders get the right to buy new shares usually at a discount to the current share price.
Cumulant A parameter of a random variable similar to a moment.
Cumulative Exposure  The liability potential for multiple policies issued over multiple years by a single company to a single insured being held to apply to continuing injury or damage.
Cumulative Liability  It is the total of the limits of liability of all reinsurance policies that a reinsurer has outstanding on a single risk. 
Cumulative preference shares (UK) When a company fails to pay a dividend, holders of cumulative preference shares are entitled to receive the missed payment when a dividend is next declared. 
Cumulative preferred stock (US) Preferred stock whose dividends may be postponed but not cancelled.
Curing  The process whereby a delinquent borrower is brought back to "current" status
Currency code  Any three letter code used to designate a particular currency.
Currency conversion  A term used by the London Stock Exchange to denote that a trade was executed in one currency but converted for trade reporting.
Currency loan  A term used when money is borrowed in a foreign currency.
Currency risk Losses an investor can incur on an overseas investment as a result of adverse shifts in exchange rates.
Currency swap  A swap in which two loans in different currencies are exchanged.
Currency transactions tax  Tax imposed on foreign exchange transactions to reduce volatility and volume of flows.
Current account  The section of a country’s balance of payments statement which totals international transactions for import and export payments, interest on debts, profits from foreign direct investment and aid grants.
Current Balance  Balance on statement which does not include accrued interest between the last and next payment due.
Current cost accounting  A system designed to adjust accounting for changes in prices that affect a company's assets. 
Current income  (US) Interest, dividend or other income payments received regularly from an investment source.
Current liabilities  Debts owed by a company which are due for settlement within 12 months. 
Current ratio  The ratio of a company's current assets to current liabilities. 
Current yield  It is the ratio of the annual interest payment and the bond's current price
Curvature  A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock.
CUSIP  The trademark for a system that uniquely identifies securities trading in the United States. 
Custodial fees Fees charged by an institution that holds securities on behalf of an investor.
Custodian An institution that holds securities for investors.
Custodian bank  Bank that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client. 
Custody The safekeeping of securities and related services.
Customs and Excise  See: Her Majesty's Customs and Excise'
Cut-Through Clause  The cut-through clause is a provision in a reinsurance agreement which clarifies that, should the primary insurer becomes insolvent, the reinsurer is still liable for its stated share of the loss but that payment will be made directly to the insured and not to the insurer as is normally done.
Cyclical  Cyclical stocks are those companies who earnings tend to ebb and flow according to economic trends.
Cyclical Stocks Stocks whose earnings fluctuate according to the business cycle.
Cylinder A term used to describe a transaction, involving two derivatives, where there is no initial cost bourne by the investor when entering into the position.
D  
Daily change  The daily change in the price of a share or other security, i.e. the difference between the most recent price of a security and the previous day's closing price.
Daily high The highest price reached by a given security or index during a given day.
Daily Interest  Interest that is accrued on a daily basis.
Daily low  The lowest price reached by a given security or index during a given day.
Daily Official List  (DOL)  The daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange.
Daiwa Bank debacle A scandal in 1995 when a trader of T-bonds lost $1.1 billion.
Date of record  (US) The date by which a shareholder must own shares in order to qualify for a dividend.
Dated security  A fixed interest security which has a specified date for repayment (redemption date).
Dawn raid  The practice of buying shares at the beginning of a trading day in the hope that the rest of the market will be slow to react to the buying spree and that the price will therefore not rise until after the raid is complete.
Day order  An order placed with a broker to purchase or sell stock, a commodity or financial instrument at specified price limits. 
Day trader  A trader who buys and sells financial instruments within the same trading day such that all positions will usually be closed before the market close of the trading day.
Day trading  The purchase and sale, or sale and purchase, of a security on the same day. Day traders aim to make small profits on a large number of 'intra-day' transactions.
Days of grace  Additional days which may be allowed by a company to a debtor over and above the due date for payment. For example, a life insurance company may allow days of grace for a policy to be kept in force after the date the premium is due for payment.
Dead cat bounce  A phrase used by traders to describe the phenomenon of any stock to rally before dropping to new lows. 
Dead cross  When the short moving average price of a stock falls below a longer moving average.
Deal  A transaction on a stock exchange by a broker or institution etc.
Deal risk Risk of a planned merger or acquisition failing.
Dealer paper Commercial paper that is distributed through the agency of a commercial paper dealer. This is in contrast directly placed paper, that is distributed directly by the issuer to investors.
Dealing cost  The cost of trading in an asset or security which will vary according to the broker and the tax jurisdiction in which the trade is carried out.
Death and superannuation benefit  (UK) An income tax allowance which can be claimed if certain payments are being made to friendly societies on combined sickness and life insurance policies.
Death benefit  (UK) The amount payable by a life insurance company to the beneficiaries on the death of the insured.
Death duties  (UK) Tax payable on a deceased person's estate.
Death Taxes  A term used to refer to inheritance taxes against property or assets upon the death of the owner.
Debenture  An unsecured corporate bond.
Debit card  A payment card, which enables the holder to pay goods and services.
Debit note  A note issued to a person or company indicating an amount owed.
Debit spread  An option position in which the price of the option bought is greater than the price of the option sold, decreasing the account's cash balance when it is established.
Debt  Money owed by an individual or company to another individual or company.
Debt consolidation  When borrowers who have a number of debts on different credit cards, store cards, overdrafts and loans decide to arrange a single loan to clear all outstanding balances. 
Debt instrument  A promise in writing to repay a debt such as a bond, bill or note.
Debt Management Office  (DMO)  An Executive Agency of the Treasury responsible for issuing gilts to fund the Government's borrowing activities.
Debt refinancing  When a company raise money to pay off existing debt.
Debt security  A security such as a bond or note representing a loan which is repayable at some future date.
Debt standstill  The temporary cessation of debt repayments which allows countries to reorganize and reschedule their debt repayment obligations. 
Debt to equity ratio  The debt to equity ratio is a financial ratio which indicates the relative proportion of equity and debt used to finance a company's assets. It is equal to total debt divided by shareholders' equity. 
Debtor  A person or company who owes money to another person or company. 
Debtor days  A ratio used to work out how many days on average it takes a company to get paid for what it sells. Calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.
Debt-to-equity ratio A financial ratio indicating the relative proportion of equity and debt used to finance a company's assets.
Debt-To-Income Ratio  Debt expenses as a percentage of monthly income. 
Deck  (US) All orders in a floor broker's possession that have not yet been executed.
Declaration date The date on which a dividend is declared by a company's directors. 
Declaratory Judgement Expense  Expenses incurred by an insurer in a declaratory judgement action brought to establish whether there is coverage under a policy. 
Decreasing basis  A cheaper option in which the payout is reduced over the length of the cover period.
Decreasing term assurance  Life assurance for a fixed period of time or specified age in which the sum assured decreases each year.
Dedicated long  An investment or trading strategy of always holding just long positions.
Dedicated long bias An investment or trading strategy of always being net long the overall market.
Dedicated short An investment or trading strategy of always holding just short positions.
Dedicated short bias An investment or trading strategy of always being net short the overall market.
Deductible  Under an insurance policy, the deductible is the maximum amount that an insured person must pay toward his own losses before he can recover from the insurer.
Deductible Buyback (US-specific)  Reinsurance purchased by a reinsured to cover for the deductible required under the reinsurance policy. 
Deduction For tax purposes, the portion of an estate that does not generate tax.
Deduction  (US) An expense allowed by the Internal Revenue Service which is deducted from adjusted gross income to establish taxable income. These include interest payments and state and local taxes. 
Deed  A legal document which transfers ownership of property from one party to another.
Deed of covenant (UK) A signed document by which somebody formally agrees to make payments for a period of several years to a beneficiary.
Deed of trust A deed that establishes a trust. It is used in some loan transactions in place of a mortgage.
Deed of variation  A document allowing beneficiaries to vary the gifts specified in someone's will even after the giver's death.
Deep discount The issue of shares at a price much lower than the current trading price.
Deep in-the-money An option with an exercise price (strike price) significantly below (for a call option) or above (for a put option) the market price of the underlying asset.
Deep out-of-the-money An option with an exercise price (strike price) well above (for a call option) or below (for a put option) the market price of the underlying asset.
Deep out-of-the-money Used to describe an option or warrant that is unlikely to go into-the-money prior to expiration.
Default  A situation when a debtor has not met its legal obligations according to the debt contract, e.g. it has not made a scheduled payment, or violated a covenant (condition) of the debt contract. Default may occur if the debtor is either unwilling or unable to pay their debt.
Default intensity An "instantaneous" rate of default.
Default mode A mode of analysis for a portfolio credit risk model.
Default model A type of model that assess the likelihood of default by the borrower.
Default probability The likelihood that a counterparty will default on an obligation.
Defeasance  The process of rendering a contract or deed null and void following a specified act.
Defensive securities Securities that are steadier than the average stock or bond and provide the investor a safe return on their money. Because of the corporation's business (e.g. utility and food industries), its securities are relatively resistant to general economic changes.
Defensive stocks  The shares of companies that are well-positioned to withstand recession, usually because the goods and services they sell are essential items rather than luxuries. 
Deferment period  A period during which a bond can be either non-callable or non-refundable.
Deferred income  (UK) Also known as income drawdown and flexible pension. See 'personal pension plan'.
Deferred state pension  (UK) When a person defer payment of his/her state pension.
Deferred-coupon bond A bond that pays no coupons for its first few years.
Deferred-interest bond Any of several types of bonds that defer the payment of interest.
Deficit  A budget deficit occurs when an entity spends more money than it takes in. 
Deficit Carry-Forward  See Loss Carry-Forward. 
Defined benefit fund A fund that provides retirement benefits that is set according to an agreement.
Defined contribution fund In a defined contribution fund, the contributions made are defined by the employment contract and by the rules of the fund.
Defined contribution pension plan  A pension plan in which benefits are dependent on contributions to and the growth of the pension fund.
Deflation  A persistent decline in the price of goods and services (the inverse of inflation).
Delinquency  Accounts are classified as delinquent if the minimum contractual monthly amount due is not paid as scheduled.
Delivery The actual transfer of possession of securities from one party to another.
Delivery month  For physically settled futures contracts, the month during which delivery occurs.
Delivery notice  Notification of delivery by a clearing house to a buyer. The notice is initiated by the seller in the form of a 'Notice of Intention to Deliver.'
Delivery price The price to be paid under a forward contract.
Delta  The Greek factor sensitivities measuring a portfolio's first order (linear) sensitivity to the value of an underlier.
Delta approximation A linear approximation for how a portfolio's value will change in response to a small change in an underlier's value.
Delta neutral  A portfolio containing that consists of positions with offsetting positive and negative deltas (exposure to changes in the value of the underlying instrument), and these balance out to bring the net delta of the portfolio to zero.
Delta shares  A term previously given to the shares of smaller companies least traded on the London Stock Exchange, along with alpha, beta and gamma shares. These terms were replaced by the normal market size classification in January 1991.
Delta-gamma approximation A quadratic approximation for how a portfolio's value will change in response to a small change in an underlier's value.
Delta-gamma remapping  A quadratic remapping constructed from a portfolio's deltas and gammas.
Delta-gamma VaR measure Quadratic VaR measure.
Delta-normal VaR Linear VaR.
Demand deposit  A bank account balance to which the holder has instant access. 
Demand loan  (US) A loan, with specific maturity date, which the lender can recall at any time. 
Demerger  A corporate restructuring in which one or more parts of a company split to become independent firms.
Democracy of capitalism A condition in which stock ownership of corporations is fragmented and widely dispersed among numerous investors.
Demutualization The process of changing ownership from the company's members to its shareholders.
Denomination  The face value of currency, coins, and stocks and bonds.
Deposit  For solvency reasons, some national legislations require insurance companies to lodge deposits for premium and loss reserves.
Deposit insurance  A measure introduced by the government to protect deposits, in full or in part, in the event of a "run" on a bank or banks.
Deposit insurance  (US) Financial protection of certain bank and credit union accounts by way of insurance provided by a federal agency. 
Deposit Premium  A type of insurance premium where the insured deposits money with the insurer to obtain perpetual insurance against future losses.
Deposit Protection Scheme  (UK)  A scheme set up to give limited financial protection to people with deposits in authorised banks which fail. The UK Deposit Protection Scheme covers 90% of a bank's total liability to a depositor subject to a set maximum.
Depository bank  (US) A bank organised in the US which provides all the stock transfer and agency services in connection with a depository receipt program. 
Depository Institutions Deregulation and Monetary Control Act of 1980 US legislation that contributed to the deregulation of depository institutions.
Depository Trust Company  (DTC)  (US) The DTC is a national clearing house for the settlement of trade in corporate and municipal securities and performs securities custody-related services for its participating banks and broker-dealers. 
Depreciation  A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence
Depression  A severe recession over a lengthy period.
Depth, market The volume of transactions necessary to move prices.
Derivatives  A type of financial instrument whose value is ‘derived’ from the price of underlying assets (e.g. an interest level or stock market index). They are designed to help companies “hedge” (protect themselves against the risk of price changes) or as speculative investments from which great profits can be made.
Derivatives pricing theory The body of financial theory used by financial engineers to value derivative instruments.
Deterministic Exposure Models  See Probabilistic Exposure Models. 
Deterministic volatility function model  Alternative name for a local volatility model.
Deutsche Aktienindex  (DAX)  The index for the largest 30 German companies quoted on the Frankfurt Stock Exchange.
Deutsche Terminborse  (DTB)  The German derivatives exchange, where the bund, Euromark futures and Dax futures and options contracts are traded.
Devaluation  The reduction in value of a currency in comparison to another.
Diagonal spread An options strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates. 
Differential equations approach An informal name for derivatives pricing models based upon the original Black-Scholes methodology.
Differential swap quanto swap
Digital option  Binary option.
Diluted net asset value A method of calculating the net asset value of a company.
Direct debit  A payment system in which the payer authorises the payee to take funds from his bank account, usually on a monthly basis.
Direct Input Provider  (DIP)  It enables companies to deliver price-sensitive announcements electronically to the London Stock Exchange's Regulatory News Service via a modem link.
Direct paper Commercial paper sold directly to investors by the issuer.
Direct Pay Program  Regular monthly payments which are electronically debited from an account.
Direct purchase  (US) The purchase of shares in an open end mutual fund directly from the fund company rather than through a broker.
Direct Reinsurer  A reinsurer that deals with ceding companies without the use of an intermediary. 
Direct taxation  Taxes which are imposed directly on the individual.
Directional strategy A trading or investment strategy that takes net long or short positions in a market.
Directors' dealings  The purchases and sales made by directors of shares in the publicly quoted companies for which they work. 
Dirty price A bond price quoted with accrued interest.
Disability income insurance (US) Insurance which provides an income to policyholders when they are unable to work due to an illness or injury.
Disclosure  The release of all relevant information by a company or individual in accordance with the requirements of a regulatory authority or a contract.
Discount The amount by which the current value of a share is below its asset backing.
Discount Broker  A discount broker charges a lower fee for executing buy and sell orders on behalf of investors.
Discount curve A graph of discount factors as a function of maturity.
Discount factor  The factor by which a future cash flow must be multiplied in order to obtain its present value.
Discount instrument A money market instrument that pays no coupons and matures according to its face value.
Discount rate  The interest rate at which the US Federal Reserve lends money to member banks.
Discount yield  A convention for calculating yield on a discount instrument.
Discounted cash flow (DCF) It is the current value of a company's free cash flow.
Discounted rate mortgage A mortgage which guarantees the interest rate charged will remain a set number of percentage points below the lender's standard variable rate. The rate changes as base rate moves up and down, but the relationship between base rate and the rate the borrower pays remains constant.
Discounted Stop Loss Cover  Prospective financial reinsurance where the premium is based upon the discounted expected reinsurer's outflow from the liabilities assumed under the contract. 
Discounting The process of calculating the present value of a stream of future cash flows.
Discrete process A stochastic process.
Discrete-time Refers to discrete stochastic processes.
Discretionary account An account whose holder has given an intermediary the authority to make buy and sell decisions on the customer's behalf.
Discretionary broker  A broker who not only deals in stocks and shares on behalf of his client, but who also makes the decisions about what should be bought and sold for the portfolio and has authority to execute those decisions without getting prior approval from the client. 
Disposable income  The amount of income left to an individual after taxes have been paid.
Distance to default A metric of how close debt is to a defaulting.
Distribution period  The period between the date a company's board of directors declares a stock dividend, known as the Declaration Date, and the Date of Record by which the shareholder must officially own shares to be entitled to the dividend.
Divergence A situation in which the price of an asset and an indicator, index or other related asset move in opposite directions.
Diversifiable risk The risk of price change due to the unique circumstances of a specific security, as opposed to the overall market. 
Diversification  A portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all move in the same direction at the same time. 
Dividend  The amount of a company's earnings after tax which is then distributed to shareholders.
Dividend cover  The ratio between a company's earnings and the net dividend paid to shareholders.
Dividend discount model It values the price of a stock by using predicted dividends and discounting them back to present value. 
Dividend growth The amount by which a company's yearly dividends grow compared with the previous year.
Dividend imputation An Australian tax rule where the amount of corporate tax paid by a company is credited to shareholders of that company. The shareholder is assessed on the sum of the total amount of dividend and the imputation credit, but is allowed to claim the imputation credit as a tax rebate.
Dividend payout ratio The percentage of earnings paid out as dividends.
Dividend reinvestment plan  (DRP)  A plan which allows private investors to reinvest cash dividends from their investments cheaply and easily back into the market.
Dividend yield A rate of return measure, which is calculated by dividing the dividend per share by the share's current market price.
Dollar cost averaging  (US) A strategy which enables investors to accumulate shares in stock or a mutual fund by purchasing on a regular basis. When the price is low, more shares will be bought whilst, when the price is high fewer shares are bought. 
Domestic bond  A bond issued in a country for domestic investors. Domestic bonds are denominated in that country's currency and are subject to local regulations.
Domestic CD A certificate of deposit issued by a bank or other financial institution.
Domicile  The country in which a person lives or a company is registered.
Donee/Donor  The recipient of a gift; the giver of a gift.
Double bottom  A technical analysis term used to describe a chart on which the price of a security has made two approximately equal bottoms over a period of time. 
Double indemnity  The guaranteed payout of double the face value of a life insurance policy if the policyholder dies in an accident.
Double taxation  Taxation of corporate earnings and subsequent taxation of dividends.
Double top  A technical analysis term for two successive rises to the same price level.
Dow Jones (The) The Dow Jones Industrial Average is the average of 30 large blue chip US corporations. It has been computed since 1896, a history that has aided its broad recognition across the world.
Dow Jones Industrial Average  One of the main US share indexes which monitors the movement of 30 industrial companies traded on the New York Stock Exchange.
Dow theory  Market theory whereby a major stock market trend must be corroborated by a similar movement in selected industrial and transportation stocks.
Down tick  Refers to a transaction made at a price lower than the preceding transaction.
Draft  An order in writing by one party to another party to pay a specified sum to a third party or bearer on a particular date. 
Drawee The party instructed to make payment by a draft.
Drawer  The party who issues a draft.
Drexel Burnham Lambert The investment bank that dominated the junk bond market of the 1980s.
Drop-Down Clause  A provision that specifies that the excess layer will “drop down” and attach if the limits of the primary layer or the retention are exhausted.
Dual capital trust  See: 'split capital investment trust'
Dual purpose fund (US) A closed end fund with a limited life and two main classes of shares. Holders of preferred shares receive all the income. Common shareholders receive all the fund's assets at expiry after preferred shareholders have been paid their fixed redemption price.
Dual remapping A type of remapping used in value-at-risk measures.
Due date The date when any form of debt instrument becomes payable or matures.
Due diligence The process of checking the accuracy of information contained in a company public statement, such as a prospectus, before recommending that company to others. Is also the act of one company investigating another company before buying its shares.
Due diligence  The investigative process carried out by companies before the acquisition of another firm. It involves checking the company's financial performance and liabilities before the acquisition is finalised.
Duration Measures a bond’s average life on a present-value basis, incorporating yield, coupons, final maturity and call features. 
Duration matching A technique of asset-liability matching.
Dutch auction  Named after the Dutch tulip auctions, this form of auction is one where the auctioneer starts with a high asking price , which is then lowered until a bidder accepts the auctioneers price. 
E  
Each way  Commission earned by a broker on both sale and purchase of a trade.
Ear marking  The practice of setting aside a proportion of the main earner's pension fund on divorce, which will benefit his or her partner. 
Ear stroking  A twist on the phrase 'ear bending' which is used to describe the way that the Bank of England lets the City know what it would like to happen in any given circumstance. 
Early exercise A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Early redemption charge A charge made by the mortgage lender if the borrower terminates a mortgage in advance of the terms of that particular mortgage. This may be a percentage of the total advance, the sum repaid or the balance outstanding.
Early retirement  For company pension schemes, an employee may retire at an early age provided it is authorised by the company. However, the amount of pension payable will be reduced in comparison to the amount payable at normal retirement age.
Early withdrawal penalty A charge imposed on holders of fixed-term investments in the event of withdrawal prior to maturity.
Earned income  Income that comes from work such as a salary or wages, as opposed to unearned income such as bank interest and company dividends.
Earned Premium  The premium earned under an insurance policy is the proportion of premium already paid during a certain period.
Earning asset  Any asset which produces income.
Earnings  The annual profits of a company after deduction of tax, dividends to preference shareholders and bondholders. Earnings are usually expressed on a per-share basis and the earnings per share (EPS) figure is calculated by dividing total earnings by the average number of shares in issue for the relevant accounting period.
Earnings factor  Theoretical earnings figure that is used to calculate state pensions or guaranteed minimum pensions.
Earnings per share (EPS).  Performance measure calculated by dividing a company's net profit after tax by the number issued shares.
Earnings retention ratio The percentage of earnings retained by a company (i.e. not paid out in dividends).
Earnings risk Risk due to uncertainty in future reported earnings.
Earnings yield  The earnings yield is the company's earnings per share as a percentage of the current market price of the share. So if the EPS was 8p and the current market price is 116p, the earnings yield 8/116 x 100 = 6.03%.
Earnings-at-risk A category of earnings risk measures.
East India Companies Several companies formed by European businessmen to exploit the spice trade of the 1600s.
EBIT Earnings before interest and tax. Calculated by taking the pre-tax profit of a company and adding back only the total interest charges which it has paid on debt.
EBITDA   (Earnings before interest, tax, depreciation and amortisation). EBITDA is a common way of measuring a company's profitability.
Ebx-warehouse  A method for settling physical commodity trades.
ECO Equity collateralized obligation.
Economic capital  Capital held for economic (as opposed to regulatory) purposes.
Economic profit Profit in excess of the opportunity cost of capital.
Economic value A generalisation of market value.
Economic value added  (EVA)  A measure of corporate performance which reveals whether a company is earning more or less than the amount which its capital is costing.
Economics  Economics is the social science that studies the production, distribution, and consumption of goods and services.
EDS Equity default swap.
Effective annual yield The annualised interest rate on a security.
Effective Fed funds rate A dollar-weighted average of interest rates paid on overnight Fed funds.
Efficient frontier  A theoretical set of portfolios, each offering an optimal risk-reward trade-off.
Efficient market theory  (EMH)  The theory that claims that the current price of a share reflects everything that is known about the company and its future earnings potential, and that is it impossible to beat the market consistently.
Eifuku Master Fund  A Japanese hedge fund that failed in 2002.
Eigenvalue A concept from linear algebra.
Eigenvector A concept from linear algebra.
Either-or option See: 'rainbow option'
Electronic Data Gathering, Analysis and Retrieval System  (EDGAR)  (US) It performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the US Securities and Exchange Commission (SEC). 
Electronic funds transfer (EFTS)  An electronic payment system in which a plastic card is used to purchase goods or services.
Electronic public offering  (EPO)  An initial public offering, or new issue of shares, in which the process of applying for shares is handled electronically.
Elimination period  (US) The period that elapses between a claim being made and its settlement. 
Embargo  A prohibition by a government on certain or all trade with a foreign nation.
Emergency tax  (UK) A special code used by employers when an employee's tax code is unknown. Individuals allocated this code will only receive a single person's allowance and may pay excessive tax. 
Emerging market debt Debt issued by governments or corporations in emerging countries.
Emerging markets  The stock markets of countries which have a low per-head income compared with the developed world but which nevertheless have functioning stock exchanges.
Emoluments  Total remuneration of an employee or director including salary, bonuses and other benefits.
Employee Retirement Income Security Act  (ERISA)  (US) A federal law which protects participants of private pension plans.
Employee stock ownership plan  (ESOP)  (US) A plan devised to encourage employees to purchase stock in their company, usually at a cheaper price.
Empty set  The set that contains no elements.
Endowment  A permanent fund bestowed upon an individual or institution to be used for a specific purpose.
Endowment assurance  (UK) A fixed-term life assurance policy in which provision is made for premiums to pay for life cover plus a savings/investment element. The policy pays out a sum of money on the death of the life assured or at a specified date (the maturity date) if the life assured survives the term.
Endowment mortgage  (UK) An interest-only mortgage ultimately repaid by the proceeds of an endowment assurance policy which is assigned to the lender providing the mortgage. 
Endowment policy  See: 'endowment assurance'
Enduring power of attorney (UK) A power of attorney which, subject to conditions and safeguards, continues in force even if the maker of the enduring power of attorney (the 'donor') becomes mentally incapable of conducting his/her affairs. 
Enfranchisement  The granting of voting rights to holders of non-voting shares in a company. 
Engraftment  An archaic practice for retiring government debt through a debt-for-equity swap.
Enron debacle In December 2001 Enron filed for bankruptcy in the midst of an accounting scandal.
Enterprise Investment Scheme  (EIS)  It is a series of tax reliefs designed to encourage investments in small unquoted companies.
Enterprise risk management The extension of financial risk management to non-financial risks.
Enterprise value  The value of a company's business rather than the company itself.
Enterprise zone  (UK) A region which offers special tax advantages to businesses (including exemption from business rates) as an incentive; the objective is to boost the area's economic and social development.
Enterprise zone trust A property trust which invests in enterprise zones.
Entitlement issue  An entitlement issue, also known as an open offer, is an offer made by a quoted company to its shareholders inviting them to buy new shares in the company at a set price, which is normally lower than the current market price.
Equal Credit Opportunity Act  A federal law that prohibits discrimination in credit transactions on the basis of race, colour, religion, national origin, sex, marital status, age, source of income, or the exercise of any right under the Consumer Credit Protection Act.
Equilibrium pricing model An asset pricing model based on economic arguments about how prices should behave to maintain market equilibrium.
Equipment Trust Certificate (US) A type of security, generally issued by a railroad, to pay for new equipment. 
Equipment trust certificate  Secured corporate debt issued through a trust to finance transportation equipment.
Equitable owner  The beneficiary designated to receive property held in trust.
Equity (vehicle/vessel)  The value of the vehicle/vessel minus the loan amount.
Equity collateralized obligation A synthetic CDO structured exclusively with equity default swaps.
Equity default swap  A far out-of-the-money equity option structured much like a credit default swap.
Equity financing  Ownership that is securitized as stock that may be held by multiple investors and traded in secondary markets. 
Equity market neutral  A hedge fund strategy that seeks to exploit differences in stock prices by being long and short in stocks within the same sector, industry, market capitalization, country, etc.
Equity options  (UK) Options on the shares of companies. 
Equity release scheme  A scheme designed to allow homeowners to release cash from the value of their property. 
Equity risk premium The excess return that an individual stock or the overall stock market provides over a risk-free rate. 
Equivalent martingale measure  A martingale measure which is equivalent to the "real world" probability measure.
Equivalent measures Equivalent probability measures.
Equivalent strategy  An options strategy which has the same risk-reward profile as another strategy. 
ERNIE  (UK) Electronic Random Number Indicator Equipment, which selects the prizes in the premium bonds monthly draw.
Errors and Omissions Clause  A provision in reinsurance agreements which is intended to neutralize any change in liability or benefits as a result of an inadvertent error by either party. 
Escalating annuity The payment of a regular income, which increases annually by a given amount, by a life company to an annuitant in exchange for a lump sum either for life or shorter periods. The choosing of escalating annuity results in lower income compared with a level annuity over the initial years.
Escrow Account  An amount set up by the lender into which the borrower makes periodic payments for taxes, hazard insurance, assessments, and mortgage insurance premiums. The funds are held in trust by the lender who pays the sums as they become due.
Estate  The totality of the legal rights, interests, entitlements and obligations attaching to property.
Estate agent  An agent who acts in the arrangements of property sales and purchases in return for a commission based on the selling price.
Estate duty  (UK specific) A former tax on a deceased person's estate and the forerunner of capital transfer tax which itself has been superseded by inheritance tax.
Estate tax In the US, a tax imposed by the federal government or state on the net value of a deceased person's estate after deduction of an exclusion. The net proceeds, after estate tax has been paid, pass to the beneficiaries. If the sole beneficiary is a spouse, no tax is payable.
Estimated Maximum Loss  This usually represents the maximum loss on a property insurance envisaged under all but the most extraordinary circumstances. 
Estimated Premium Income  The amount of premium estimated for the contract period to be renewed. 
Ethical investment  The policy of selecting stocks on the grounds of their ethical or environmental credentials.
Ethical Investment Research Service  (EIRIS)  The Ethical Investment Research Service (EIRIS) maintains a database which can be used to select an 'ethically sound' portfolio of stocks.
ETL  Expected tail loss.
Euler's formula A mathematic formula relates the exponential, sine and cosine functions.
Euribor Euro interbank offered rate.
Euro  The successor to the European Currency Unit (ECU), the euro was introduced as a non-physical form in 11 member states on 1st January 1999. The notes and coins for the old currencies, however, continued to be used as legal tender until new notes and coins were introduced on 1 January 2002.
Euro CD A certificate of deposit issued outside a country but denominated in that country's currency.
Euro Depositary Receipt  (EDR)  As with other depositary receipts, the EDR is a certificate representing ownership of the issuer's underlying shares. 
Euro interbank offered rate  Refers to indicative short-term interest rates available for the euro.
Euro medium-term note  A debt instrument structured like a medium-term note and issued in the unregulated Euro markets.
Euro.nm  A pan-European grouping of regulated stock markets dedicated to high growth companies. 
Eurobond  A bond, issued and underwritten by international syndicates of banks and issuing houses and sold to investors outside the country in whose currency it is denominated. A Eurobond is normally payable to the bearer and is free of tax.
Eurocheque scheme  A European payment scheme in which a person  can use eurocheques and a guarantee card where the EC sign is displayed to purchase goods and obtain cash in the local currency of a European country outside his/her country of residence.
Eurocurrency  A currency which is deposited in banks outside its country of origin. 
Eurodollar  US dollar denominated deposits at non-US banks or foreign branches of US banks.
Euromarkets The markets for eurocredits, eurocurrencies and eurobonds - currencies and securities held in Europe and outside their country of origin.
European Association of Securities Dealers Automated Quotation  (EASDAQ)  EASDAQ was set up in 1996 as a pan-European stock market for technology and growth stocks.
European Community (EC)  An international organization of European countries formed after World War II to reduce trade barriers and increase cooperation among its members.
European Currency Unit (ECU)  A weighted average of European Community currencies with weighting tending to be proportional to a country's economy. 
European exercise/option A provision that permits exercise of an option only at expiration.
European Monetary System (EMS)  The monetary system of the EC which attempts to reduce the currency variations between members.
European style option  An option which can only be exercised by the holder at expiration date.
European-style exercise  System of exercising options contracts in which the option buyer can exercise the contract only on the last business day prior to expiration (normally Friday). This system is widely used with index options traded on various U.S. Exchanges.
European-style warrant A warrant which can be exercised only at the final maturity date or at other fixed times.
EVA Economic value added.
Event  Some covers are arranged on an ""any one event"" basis. The primary function of this phrase is to identify those losses which may be aggregated together to form an ultimate net loss in respect of which a claim can be made. 
Event driven strategy Speculative trading strategy that seeks to exploit relative mispricing between securities whose issuers are involved in mergers, divestures, restructurings or other corporate events.
Ex all  Purchase of a security without entitlement to current dividends, rights issues or scrip issues.
Ex coupon  (A)  A bond sold without the right to the next interest payment.
Ex dividend  Purchase of shares without entitlement to current dividends. This entitlement remains with the seller of the shares.
Ex gratia  A payment made out of a sense of moral rather than legal obligation.
Ex Gratia Payment A payment made by the reinsured, despite the fact that it is not liable under the terms of the original policy.
Ex rights  Purchase of shares without entitlement to current rights issues. This entitlement remains with the seller of the shares.
Ex scrip  (UK) Purchase of shares without entitlement to current scrip issues. This entitlement remains with the seller of the shares.
Exceptional items  Costs which affect a company's profit (or loss). They are usually associated with normal activities but are exceptionally high.
Excess  (UK) The specified amount a policyholder must bear before the insurers pay a claim. 
Excess of Loss Reinsurance  A form of reinsurance which, subject to a specified limit, indemnifies the reinsured for the excess/of the deductible that needs to be paid under the reinsurance contract should a claim arise.
Exchange Delivery Settlement Price  (EDSP)  Price determined by the exchange on the last trading day and used to calculate the invoicing amount paid for a futures contract reaching its maturity. 
Exchange for physicals An alternative to physical settlement offered by many futures exchanges.
Exchange for physicals  (EFP)  A transaction in which one party buys the physical commodity and simultaneously sells futures and the other party does the opposite - sells the physical commodity and simultaneously obtains a long futures position.
Exchange Price Input Computer code  (EPIC)  EPIC codes are the abbreviations given to company share quotations (e.g. the EPIC code for Vodafone is VOD). They serve the same function as 'ticker symbols' in the USA.
Exchange Rate Mechanism  (ERM)  The mechanism by which members of the EC formerly operated their currency exchange rates within given upper and lower limits. 
Exchange rates  The price of one country’s currency relative to another.
Exchange risk Another term for currency risk.
Exchange traded Traded on a formal exchange such as the New York Stock Exchange or Chicago Board of Trade.
Exchange traded fund  (ETF)  ETFs are a new kind of collective investment fund competing with investment trusts and unit trusts for investors' money.
Excise duty  (UK) A tax imposed on certain types of products including alcohol and tobacco.
Excise taxes  (US) Federal and state taxes on the sale or production of certain types of products such as alcohol and tobacco.
Exclusion  A clause in an insurance policy which specifies items or conditions not covered.
Ex-coupon Refers to a bond trading too late for the buyer to receive an upcoming coupon.
Ex-coupon date The date on which a bond starts to trade ex-coupon.
Ex-dividend Shares sold ex-dividend entitle the seller to retain the current dividend. 
Ex-dividend date The date on which a stock starts to trade ex-dividend.
Ex-dock A method for settling physical commodity trades.
Execute and eliminate  A particular type of order which a client gives to his broker when buying shares. The client specifies the company he wants to buy shares in, a price, and the number of shares he is prepared to buy at that price.
Execution only broker  A broker who buys and sells shares on the instructions of clients but offers no advice on what clients should buy or sell.
Executive insurance  (US) An insurance policy taken out on the life of a company executive or senior employee whose death would cause significant loss to the company.
Executive pension plan  (EPP)  A pension plan which is tailored for directors and senior executive staff.
Executor  The individual named in a will responsible for carrying out the provisions specified in that will. 
Executrix  The feminine form of executor.
Exempt security A security exempted from certain provisions of US securities laws.
Exemption  (US) An allowable expense subtracted from gross income to reduce income tax liability. 
Exercise  When an option or warrant holder takes up his or her option to buy or sell the underlying instrument he/she is said to exercise the option or warrant.
Exercise notice  A formal notice to the writer of an option from a clearing house that an option has been exercised by an option holder and that the writer is obliged to buy/sell the underlying instrument at the exercise price to meet his/her obligations.
Exercise price  The price set for buying (calling) or selling (putting) the asset underlying an option. 
Exit charge  A fee levied on the sale of an investment, typically a unit trust.
Exit charge  (UK) Instead of making an initial charge, some unit trust companies make a charge if units are cashed in, for example, within five years. In the US this is known as a back end load.
Exit P/E ratio  The Price/Earnings ratio of a company at the time it is taken over by another company.
Exotic derivative A derivative contract that is considered more sophisticated than plain vanilla contracts.
Exotic warrant A warrant with complex exercise terms.
Expectation The expectation of a variable is the same as its expected value, and is also used with both meanings.
Expected default frequency  Default probability calculated for a one-year horizon.
Expected exposure The expected value of credit exposure at some point in the future.
Expected loss Expected value of losses due to default over a specified period.
Expected shortfall  Expected tail loss.
Expected tail loss (ETL) The average portfolio loss, assuming that the loss exceeds some quantile of loss.
Expense Ratio  The portion of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance.
Expenses in employment  When an employee incurs expenses wholly on behalf of his company which are not reimbursed, such expenses can be offset against tax. 
Experience Balance  A feature of a reinsurance contract that keeps track of the revenues and costs between the parties including positive or negative interest return on cash flow.
Experience Rating  Pricing technique to establish the adequate premium for non-proportional reinsurance contracts based on the loss and premium experience of the portfolio in the past. 
Expert investor  A legal term given to an investor whose experience is such that members of the FSA are entitled to assume that he fully understands the nature of the investment he is making.
Expiration date The date when an option or contract expires.
Expiration value  The value of an option at expiration.
Exponential moving average  (EMA)  A moving average that gives extra weight to more recent price data.
Export Credits Guarantee Department  (ECGD)  The government department which helps companies finance exports, mainly by insuring them against the possibility of non-payment by their customers.
Exposure  The proportion of a share portfolio at risk in a certain area. 
Exposure at default  It is an estimation of the extent to which a bank may be exposed to a counterparty in the event of, and at the time of, that counterparty’s default. 
Exposure Curves  Scales that suggest distribution of Ground Up premium throughout the layers in a risk. 
Exposure limit A risk limit based upon some exposure metric of risk.
Exposure Rating  Pricing technique to establish the adequate premium for non-proportional reinsurance contracts in which the original risk premium is split between the reinsured's deductible and the reinsurance cover.
Extended coverage  Insurance which extends the term of a warranty, such as covering repairs on appliances.
Extended Expiration Clause  If the reinsurance should expire while a loss is in progress, this clause states that reinsurers should pay their proportion of the entire loss providing that the loss had commenced before the expiration of the reinsurance. 
Extendible option An option whose expiration may be extended.
Extra Contractual Obligations  In reinsurance, monetary damages awarded to the insured or a third party claimant by a court on the part of the reinsured because the insurer had acted negligent or in bad faith in rejecting a settlement offer or preparing a defence. 
Extra dividend A dividend paid additionally to the normal dividend when profits of a company are particularly high.
Extraordinary general meeting  (EGM)  An EGM is a special meeting of a company and its shareholders which can be called by company directors or anyone with at least 10% of the voting rights on the company's shares.
Extraordinary items  Costs which affect a company's profit (or loss) and are not associated with normal activities.
Extrinsic value  The difference between an option's price and the intrinsic value.
F  
F-3 fund A fund of funds of funds.
Face amount (face value)  The value of a bond (or other debt instrument) that appears on the front, or face, of the certificate. Although a bond's price may change due to market conditions, the face value does not change. At maturity, the issuer redeems the bond at the face value amount.
Face value The price of a bond at maturity. 
Facultative Certificate  The document that formalises a facultative reinsurance cession.
Facultative Obligatory Contract  A contract under which the reinsured may cede risks of a defined class whereas the reinsurer is obliged to accept that risk. 
Facultative Reinsurance  It implies that both the original insurer and the reinsurer have the option of placing/retaining and accepting/rejecting individual risks. 
Fair Market Value  It is a term in both law and accounting to based on an estimate of what a buyer would pay a seller for any piece of property or asset.
Fair value  A rational and unbiased estimate of the potential market price of a good, service, or asset. In accounting, fair value is used as an estimate of the market value of an asset (or liability) for which a market price cannot be determined. In finance this term is used as the theoretical price at which a futures contract should trade to be equivalent to the purchase price of the underlying instrument. In options trading it is also used when referring to intrinsic value.
Fall Back  Part of a loss which is not reimbursed by the pro-rata reinsurers, but falls back into the retention of the cedant. 
Fallen angel  A bond that was investment grade when issued, but has since degraded to junk quality.
False Break Occurs when a market fails to carry on with the breakout, instead quickly reversing and returning to trade within the limits of the previous consolidation. 
Family income benefit  (UK) A type of term assurance in which, following the death of the life assured, instalments, rather than a lump sum, are paid to the beneficiary for the remainder of the policy term. 
Fannie Mae Official name for what was formerly the Federal National Mortgage Association.
Fast Fourier transform  An algorithm for rapidly valuing Fourier transforms.
Fastow, Andrew  The chief financial officer of Enron Corporation until the US Securities and Exchange Commission opened an investigation into his conduct in 2001. Fastow was one of the key figures behind the complex web of off-balance sheet special purpose entities used to conceal their massive losses.
Fat cat  Term used to describe executives who earn high salaries and bonuses.
FDIC Federal Deposit Insurance Corporation
Fed Short for the US Federal Reserve, the US central bank.
Fed funds Deposits held by US banks in accounts at their regional Federal Reserve banks.
Fed funds market A market for unsecured short-term loans of Fed funds.
Fed funds rate A rate of interest payable on overnight loans of Fed funds.
Fed Wire  An electronic funds transfer system maintained by the Federal Reserve.
Federal agency security  (US) A debt instrument with a high level of safety issued by a federal agency.
Federal Deposit Insurance Corporation (FDIC) (US) The federal agency that acts as guarantor for funds deposited in member banks.
Federal Financing Bank  A bank established by the US Congress to consolidate debt issuances by federal agencies.
Federal gift tax  (US) A federal tax levied on gifted property, money or securities. The tax is payable by the donor and based on fair market value of the gift. 
Federal Home Loan Mortgage Corporation (FHLMC) A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of conventional mortgage loans; principal and interest is guaranteed by the federal government through the FHLMC. 
Federal Housing Administration FHA  A division of the Department of Housing and Urban Development, which insures residential mortgage loans made by private lenders.
Federal Insurance Contributions Act  (FICA)  (US) The federal law which directs employers to withhold a proportion of employees' salaries for payment to the government in order to provide future pension and other social security benefits.
Federal National Mortgage Association  (FNMA)  (US) A government-backed corporation which purchases mortgages from lenders and resells them to investors. It is financed by the issue of debt securities. Equity shares, known as Fannie Maes, are traded on the New York Stock Exchange.
Federal Reserve The central bank of the United States.
Federal Reserve Board (US) A board of directors which directs the federal banking system, appointed by the President of the United States and confirmed by the Senate. 
Federal Reserve System (US) The American central banking system which comprises 12 regional Federal Reserve Banks, their branches and all national and state banks within the system. 
Federation Internationale des Bourses de Valeurs (FIBV) The International Federation of Stock Exchanges, a Paris-based organisation that encourages co-operative policies designed to stimulate a freer flow of capital across national boundaries. 
Fee-based adviser An independent financial adviser whose income is derived from fees charged from customers rather than commissions from provider companies. 
Fence  See: 'Collar'.
FFT Fast Fourier transform.
FHC Financial holding company.
Fiber Digital Data Interface  (FDDI)  (US) Trading floor network connecting all trading floor terminals for the NYSE.
Fibonacci ratio  The relationship between two numbers in the Fibonacci sequence. 
Fibonacci Retracements Based on the number sequence developed by an Italian mathematician named Fibonacci - in theory, markets after moving substantially in one direction ‘back pedal’ or ‘correct’ a portion of the initial move. Using the Fibonacci number sequence, markets typically retrace 31.2% or 61.8% of the prior market move. 50% is commonly used as well. These retracement levels are usually used to derive targets for market moves as well as potential support and resistance levels.
Fictitious trading  Wash trading, bucketing, cross trading, or other types of trade to give the appearance of trading where no competitive trade has occurred.
Fiduciary An individual or institution responsible for acting in the best interests of another party to manage his/her assets. A fiduciary is bound by law and duty to put aside personal interests and act in good faith when making decisions for the benefit of another.
Fifty Leaders Index A subset of the S&P/All Ordinaries share index that measures price movements in the 50 leading stocks as listed on the ASX.
Fill or kill  (FOK)  A particular type of order which a client gives to his broker when buying shares that consistes in filling a transaction immediately and completely or not at all.
Final dividend The end of year dividend. In the UK, companies normally pay dividends twice per year, an interim and a final dividend, the latter normally being the larger of the two.
Final results  The results reported by a company for a full financial year.
Final salary  The basis of determining a person's pension entitlement in a final salary scheme and which normally refers to an occupational pension.
Final salary scheme (defined benefit scheme)  A pension scheme in which an employee's pension is based on number of years of service and final salary with each employer. 
Finance house  A company whose main purpose is the financing of hire purchase transactions.
Financial adviser  A professional person qualified to give advice to clients regarding financial products such as life insurance, pensions, mutual funds/unit trusts and taxation.
Financial engineer A practitioner of financial engineering.
Financial engineering  The field of applied finance devoted to the design and pricing of derivative instruments.
Financial futures  Futures contracts where the underlying instruments are financial such as shares, interest rates, currencies and indexes etc.
Financial holding company  A type of holding company authorized under US law following the repeal of Glass-Steagall to hold commercial banks, investment banks and insurance companies as affiliated subsidiaries.
Financial institution  An institution which accepts funds from the public and reinvests in bank deposits, bonds and stocks. These include banks and insurance companies. 
Financial intermediary An institution such as a bank, building society, credit union or insurance company which acts as a middleman between borrowers and lenders.
Financial pager  A pocket-sized pager with data screen which can display a variety of financial information including equities, bonds, futures and market news.
Financial planner  A professional person qualified to give clients financial planning service.
Financial planning  A process of money management that may include any or all of several strategies, including budgeting, tax planning, insurance, retirement and investment.
Financial Quota Share  A form of reinsurance that enables a cedant to increase its statutory surplus by the amount of the ceding commission in the reinsured unearned premium reserve.
Financial Reinsurance  A specialised form of limited liability reinsurance whereby the financial and strategic motivations of the reinsured to effect the transaction take precedence over the risk transfer motivation. Also known as finite-risk reinsurance and non-traditional reinsurance.
Financial risk management  Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit and market risk. 
Financial Services Act 1986  (UK) A Government Act introduced primarily to provide increased protection for investors and to regulate investment business conducted in the UK.
Financial Services Authority  (FSA)  (UK) It replaced the Securities and Investments Board (SIB). The FSA, which came into being on 28th October 1997, carries all regulatory responsibilities for the UK financial services industry. 
Financial Services Compensation Scheme (FSCS)  (UK) The Financial Services Compensation Scheme is the sole financial compensatory scheme set up by the Financial Services Authority (FSA) in December 2001.
Financial Services Modernization Act of 1999 US legislation that revoked the Glass-Steagal separation of investment and commercial banking.
Financial strength  The measure of a company's solvency.
Financial Times Indices  (UK) A wide range of indices including shares, stocks and fixed interest securities published by the Financial Times. 
Financial year  An accounting period covering 12 consecutive months.
Firm specific risk Risk that is linked to investment in a particular firm and which is independent of market risk.
First closing date  The first closing date is one of the milestones in the process by which one company takes over another.
First death insurance  A joint-life insurance policy which pays money to a surviving partner on the first partner's death.
First Loss Policy  A type of partial insurance which covers less than the full value of goods or property at risk. This policy is used commonly in the burglary or theft insurance where the possibility of total loss is extremely remote.
First mortgage A mortgage which carries priority over any subsequent mortgages if the borrower goes into default and his/her assets have to be sold to pay creditors.
First mortgage bond  A fixed income security that has the first mortgage and senior claim on an asset or group of assets.
First notice date The first date on which notice of delivery on a futures contract can be given to the exchange.
First notice day  Notice of intention to deliver a commodity in fulfilment of an expiring futures contract can be given to the clearing house by a seller no earlier than the first notice day.
Fiscal policy  Government policy that seeks to influence general economic activity through control of taxation and government spending.
Fiscal year  A twelve month period used by a company for accounting purposes.
Fixed annuity  (US) An annuity which guarantees payments to an annuitant which are fixed for life or a specific period. Similar to a level annuity in the UK.
Fixed assets Assets of a company such as buildings and machinery which are used over a long period of time for the purpose of generating profits.
Fixed Commission  Commission which is fixed to a certain amount or percentage.
Fixed income arbitrage An investment strategy, generally associated with hedge funds, which consists of the discovery and exploitation of inefficiencies in the pricing of bonds, i.e. instruments from either public or private issuers yielding a contractually fixed stream of income.
Fixed income term structure Refers collectively to a spot curve, forward curve, discount curve, yield curve or any other curve that describes the time value of money.
Fixed interest asset A security such as a Treasury bond that pays a specified cashflow (e.g. six monthly coupon payments) over a specified period, and pays back the face value of the security at maturity.
Fixed premiums  When premiums paid are fixed throughout the life of the policy.
Fixed Rate  An interest rate that remains the same for the term of the loan.
Fixed Rate (Insurance) Reinsurance premium for a non-proportional reinsurance contract defined as a fixed percentage of the reinsured's subject premium. 
Fixed rate mortgage  A type of mortgage where interest repayments to the lender are fixed until maturity or for a specified term.
Fixed strike lookback option  One of two basic forms of lookback options.
Fixed-for-floating swap An interest rate or currency swap in which fixed rate interest payments are swapped for floating rate payments.
Fixed-Income Securities  Debt obligations issued by corporations, governments, or governments agencies which pay a fixed rate of interest over a defined time period. 
Flat (trading) Refers to a bond whose price is quoted as an invoice price instead of a clean price.
Flat Premium/Rate Reinsurance premium for a non-proportional reinsurance contract defined as a fixed absolute amount irrespective of loss experience or portfolio development. 
Flat yield The flat yield of a bond is the annual coupon payment divided by the current price. The major virtue of the flat yield for valuation is that it is extremely simple to calculate.
Flat-top butterfly See: 'condor spread'.
Flexible mortgage account  A combined mortgage and current account.
Flight to quality When investors seek out less risky investments in times of uncertainty.
Float When a company offers its shares to the public and lists on a stock exchange.
Floater A fixed income instrument whose coupon fluctuates with some designated reference rate.
Floating rate bond A bond whose interest rate is reset periodically relative to a specified market rate.
Floating rate CMO A CMO tranch structured as a floater.
Floating rate note A floater issued by a corporate or agency borrower.
Floating strike lookback option One of two basic forms of lookback options.
Floor A type of derivative instrument that offers protection against declining interest rates.
Floorlet One of a series of options that comprise an interest rate floor.
Flotation  When a company lists its shares on a stock market.
Flower bond A type of tax-advantaged bond issued by the US Treasury between 1953 and 1963.
Follow the Fortunes  The main original purpose of this clause was to protect against possible consequences of the reinsured's failure to provide the reinsurer with the documentation required. Nowadays it is interpreted in the sense that the reinsurer follows the reinsured's results arising under insurance policies subject to the exclusions and limitations of the reinsurance contract.
Follow the Settlements  Reinsurances are contracts to indemnify for sums paid in satisfaction of liabilities under an original policy. Therefore the reinsurer is not obliged to pay if the reinsured is not liable under the original policy or if the loss is excluded by the terms of the reinsurance contract.
Following Reinsurer  A reinsurer which follows the lead reinsurer on a cover being placed, accepting or rejecting the terms as presented.
FOMC Abbreviation for the Federal Open Market Committee, which is part of the Fed, and determines interest policy in the US.
Footsie The FTSE 100 Index.
Force majeure  Unforeseeable events, beyond the control of participants in a contract, which may excuse either side from fulfilling its liabilities.
Foreclosure  The procedure by which a homeowner forfeits his property to the lender (mortgagee) following default. 
Foreign bond A bond issued in one country and denominated in that country's currency by a foreign issuer.
Foreign CD A certificate of deposit issued within a country by a domestic branch of a foreign depository institution.
Foreign direct investment (FDI)  The purchase of land, equipment or buildings or the construction of new equipment or buildings by a foreign company. FDI also refers to the purchase of a controlling interest in existing operations and businesses (known as mergers and acquisitions). 
Foreign exchange (Forex) It is currency issued by a foreign government. Foreign exchange is required to pay for imported goods and to meet foreign debt repayment obligations. 
Foreign exchange swap An agreement to exchange stipulated amounts of one currency for another at one or more future dates.
Forward buying contract  An agreement between a buyer and a seller, calling for delivery of a specified amount of a specified asset at a specified future date.
Forward contract An agreement that calls for the future delivery of an asset at a price agreed to by the two parties involved in the contract.
Forward curve  A graph of forward prices/interest rates for different maturities.
Forward dealing  The buying or selling of underlying instruments such as commodities, securities and currencies etc for delivery at a specified future date and a fixed price.
Forward loan A loan that starts in a future date.
Forward price Market price quoted for a forward contract.
Forward pricing  The setting of the price, which then remains fixed for forward dealing. 
Forward rate  The interest rate payable on a forward loan that accumulates interest to maturity.
Forward rate agreement A cash-settled forward contract on a short-term loan.
Forward settlement Trade settlement on some date subsequent to spot settlement.
Forward start option The forward purchase of a standard call option (ie right to buy) or put option (ie right to sell). On the forward start date the strike price of the option will be set at a predetermined level.
Forward trade A trade for settlement on some future date.
Fourier transform An integral transform used in signal processing, physics and financial engineering.
Fourth market  (US) The trading of securities without brokers. 
FRA  Forward rate agreement.
Franchise  A licence, granted by one company (franchisor) to another company or person (franchisee), entitling the franchisee to produce or market a product or service in a specific area. The licence is usually reviewed periodically, typically every 6 months or annually.
Franchisee  The person or company accepting the right, granted by the franchisor to retail or provide services, using the franchisor's trade name or service marks, within the terms set in the franchise agreement.
Franchisor  A person or company who decides to expand the business by giving to selected franchisees the right to do business under their trade or service marks in accordance with the franchise agreement.
Franked dividends Dividends on shares with dividend imputation credits attached.
Franked income (UK) Dividends, paid by UK companies to other companies, with a tax credit reflecting the fact that the company which has paid the dividend has done so out of post tax profits. 
Freddie Mac Nick name for the Federal Home Loan Mortgage Corporation.
Free alongside A method for settling physical commodity trades.
Free asset ratio  (FAR)  The amount by which a company's assets outweigh its liabilities, expressed as a percentage. 
Free assets  The amount by which a company's assets outweigh its liabilities, expressed as a absolute sum.
Free cash flow  The amount of money that a business has at its disposal at any given time after paying out operating costs, interest payments on bank loans and bonds, salaries and other fixed costs.
Free onboard  A method for settling physical commodity trades.
Free standing additional voluntary contributions  (FSAVC)  An employee's pension scheme which is additional to but independent from his occupational pension scheme. 
Freehold  The permanent ownership of land or buildings.
Freeman, Robert Goldman Sachs arbitrager who became embroiled in the 1980's insider trading scandals.
Friendly society  A mutual organisation whose funds, after the deduction of running costs, are owned by its policyholders.
Fringe benefits  Benefits to employees additional to salary such as company cars, expense accounts and private medical insurance.
FRM  Financial risk management.
FRN Floating rate note.
Front end load  A charge imposed by a management company on a mutual fund or unit trust to cover administration costs and commission at the time of purchase.
Fronting Arrangement  The issuance of a policy by one insurer on behalf of another because the second insurer is not licensed in the jurisdiction in which the line of business is being written.
FRS3  The standard promulgated by the Accounting Standards Board which requires that all sources of profit/loss must be included in a company's statement of its headline profit and Earnings Per Share.
FT Eurotop 300  An index of the share prices of the 300 largest European companies.
FT Government Securities  (UK) An index of a range of Government Securities (gilts) prices.
FT Ordinary Share Index (FT 30 Index) (UK) An index of the share prices of 30 leading companies in the UK.
FTSE 100 Index  (FOOTSIE)  (UK) An index of the share prices of the 100 largest companies (by market capitalisation) in the UK which is updated throughout the trading day in real time. The index was started in 1984 with a base of 1,000. See also FTSE Actuaries All-Share Index.
FTSE A 350 Index  (UK) A combined index of the FTSE 100 and the FTSE 250. See also FTSE Actuaries All-Share Index.
FTSE A Fledgling  (UK) The index of the share prices of the companies listed on the London Stock Exchange which are too small to qualify for the FTSE Actuaries All-Share Index.
FTSE Actuaries All-Share Index  (UK) The index of the share prices of over 800 leading companies and investment trusts on the London Stock Exchange.
FTSE Group British provider of financial indices and associated data services.
FTSE International  A company jointly owned by the London Stock Exchange and FT which creates and compiles financial indices showing the performance of stock markets.
FTSE MID 250 Index  (UK) An index of the share prices of the 250 largest companies (by market capitalisation) immediately following the largest 100 (FTSE 100). 
FTSE Small cap  (UK) The index of the share prices of the companies which are listed in the FTSE Actuaries All-Share Index but which are not large enough to appear in the FTSE 350 Index.
Full and Final Release  At termination of a reinsurance contract all liabilities and obligations of the reinsurer end. 
Full endowment  (UK) An endowment policy in which the savings element is significantly increased.
Full faith and credit  (US) A guarantee of payment of interest and repayment of principal capital of a bond issued by a government authority.
Full structural  An extensive property survey.
Full-service broker  A broker who provides investment research, information, and advice, as well as the services involved in purchasing and selling securities. Full-service brokers usually charge the highest commission rates.
Fully diluted earnings per share Earnings per share of a stock after converting all options, warrants and convertible securities into equivalent common stock.
Fully invested  When all money in a portfolio is invested in securities.
Fully paid policy  A life insurance policy which remains in force when the insured has paid premiums over part of the term of the policy but is unable to make further payments. 
Function remapping A type of remapping used in value-at-risk measures.
Fund manager  A professional whose job is to decide how the fund's money is invested.
Fund of funds  An investment fund that invests in other investment funds.
Fund supermarket  A website which provides information on a variety of collective investment funds from several providers, and allows users to invest in those funds by transacting online. 
Fund switching  The movement of assets from one mutual fund or unit trust to another.
Fund value  The monetary value of a fund, calculated by adding up the value of its underlying assets.
Fundamental analysis Analysis of markets that predicts stock values on the basis of prospective earnings and dividends, interest rate expectations and risk considerations.
Fundamental analysis  An approach to investment that focuses on analysis of a company's financial and business strengths, and how its performance has been converted into share price movements in the past.
Fundamental theorem of asset pricing A theorem that relates the existence of an equivalent martingale measure to the no-arbitrage condition and completeness of markets.
Funding of Reserves  An arrangement whereby the reinsured retains funds of the reinsurer equivalent to outstanding Loss Reserves, sometimes referred to as Outstanding Claims Account (OCA) funds. 
Funds-Withheld Transaction  A type of reinsurance contract that allows the reinsured to delay all or part of the payment of premium to the reinsurer until a specified date. 
Fungibility Interchangeability resulting from standardization. Futures and options contracts for the same commodity and delivery month are fungible due to their standardized specifications for quality, quantity, delivery date and delivery locations. 
Fungible  A security or commodity is fungible if it is perfectly interchangeable with any other of the same type and class. Many financial securities are fungible: a share in a particular company is exactly the same as another share in the same company (of the same class if the company has more than one class of share).
Further advance  The raising of capital by a borrower from his existing mortgage lender.
Future An exchange-traded derivative that is similar to a forward.
Futures  See 'futures contract'.
Futures Commission Merchant  (FCM)  (US) An individual or organisation who accepts orders to buy or sell futures contracts or futures options.
Futures contract A contract that commits the holder to the purchase or sale of an asset at an agreed price at a particular date in the future. 
Futures contract  A legal agreement to make or take delivery of a specified instrument (for example, a commodity such as coffee or a financial instrument such as shares) at a fixed future date at a price determined at the time of dealing.
Futures Industry Association  (FIA)  (US) The futures industry's national trade association. 
Futures option The right to enter into a specified futures contract at a futures price equal to a stipulated exercise price.
Futures spread  A long-short futures position.
G  
G-20  A group of the finance ministers and central bankers of the following 20 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, European Union.
G-30 Report  Group of 30 Report.
Gains trading  Selective realization of gains to manipulate book value earnings.
Gamma  The Greek factor sensitivities measuring a portfolio's second order (quadratic) sensitivity to the value of an underlier.
Gamma shares (UK) A term previously given to the shares of smaller companies traded far less frequently on the London Stock Exchange than alpha and beta shares. The term was replaced by the normal market size classification in January 1991.
GAN  Grant anticipation note.
Gap analysis A technique of asset-liability management used to assess interest rate risk or liquidity risk.
GARCH Generalized ARCH.
Garman and Kohlhager (1983) option pricing formula A formula for pricing European options on currencies.
Garnishee order (UK) A court order instructing a garnishee (a bank) that funds held on behalf of a debtor (the judgement debtor) should not be released until directed by the court. 
Gaussian white noise An independent white noise with joint normal terms.
Gearing A measure of the indebtedness or leverage of a company (or an individual). The degree of gearing is often measured by use of the debt-to-equity ratio.
Gearing of warrant The degree of additional exposure gained by buying a warrant in comparison to buying its underlying asset. 
General Agreement on Tariffs and Trade  (GATT)  A trade agreement between a large number of countries, dating back to 1948, which was set up to improve trading worldwide and to work towards the reduction of tariff barriers.
General lien  The legal right for a creditor to seize the assets of a debtor to satisfy an outstanding debt.
General Mortgage Bond (US) It refers to a bond that is secured by a blanket mortgage on the issuing company's property.
General obligation bond A municipal bond backed by the general taxing authority of the issuer.
General obligation bond  (US) A municipal bond whose interest and principal payments are supported by the full faith and credit of the issuing authority.
General personal equity plan  See 'personal equity plan'.
Generalized ARCH  A generalization of the autoregressive conditional heteroskedasticity model.
Geometric random walk A discrete stochastic process whose log returns are independent and identically normally distributed.
Geometric return Log return.
Gift  A transfer of an asset such as property or money from one person to another where no payment of any kind is given by the receiving person to the donor. 
Gift tax (US) A tax imposed by the federal government or state on the donor of a gift when the transfer of money or property passes from one individual to another. 
Gift Tax Annual Exclusion  Under federal gift tax laws, each individual is permitted to gift up to $12,000 in cash or other property each calendar year to as many individuals as the taxpayer may desire without any gift tax. 
Gilt-edged An investment is said to be gilt-edged if it has low risk/high security characteristics.
Gilt-edged market makers  (GEMMs)  A gilt edged market maker is a dealer authorised by the Bank of England to make a market in government stocks (gilts).
Gilt-edged stock  (gilts)  Gilts are fixed income or index-linked bonds issued by the UK government.
Ginnie Mae  Official name for what was previously the Government National Mortgage Association.
Girobank (UK) Girobank was established in 1968 by the Post Office to provide a public banking facility for people without bank accounts. 
Give as you earn  (GAYE)  Schemes whereby a donation to your chosen charities is automatically deducted from your salary by your employer.
Glass-Steagal Act  The United States 1933 Banking Act that separated commercial and investment banking and formed the FDIC.
Global bond A bond that is issued both as a foreign bond and as a Eurobond.
Global Depositary Receipt  (GDR)  A certificate which represents ownership of a given number of a company's shares and which can be listed and traded independently from the underlying shares.
Global fund  A mutual fund which invests in securities in countries around the world such as Europe, Asia and the USA as well as the UK.
Global macro strategy An investment or trading strategy of taking net long or short positions simultaneously in multiple markets around the world.
Global remapping  A type of function remapping.
Globalisation  Refers to the increasing economic integration and interdependence of countries. 
Go long  The purchase of a security, commodity or financial instrument (e.g. shares) in the belief that the price will increase.
Go public  The process by which a privately held company first offers shares of stock to the public. This is done via an Initial Public Offering (IPO).
Go short  It means to sell an asset without first owning it with the expectation of it decreasing in value.
Gold card  A plastic payment card which normally allows the holder higher spending limits over a standard card. 
Gold fix The setting of the price of gold by dealers.
Golden Age (Dutch)  A period during the 1600s when Dutch art, social tolerance and commerce flourished.
Golden cross  This term refers to what happens when the short moving average price of a stock (for example, its 20-day moving average) cuts above a longer moving average (for example, its 50-day average).
Goldilocks economy An economy whose growth is believed to be neither too fast or too slow.
Good till cancelled order  (GTC)  An order to a broker to buy or sell shares at a specified price which remains valid until cancelled by the client.
Goodwill  The value of a business to a purchaser over and above its net asset value. 
Government National Mortgage Association  (GNMA) (US) A government-owned corporation which guarantees payment of interest and principal of mortgage-backed pass through securities. 
Government securities  The short- and long-term bonds the government sells to finance its expenditures.
Government sponsored enterprise  Any private corporation chartered by the US Federal Government and granted privileges to advance specific purposes. 
Grace period  The period during which an insurance policy remains in force even though the premium has not been paid.
Gradient In calculus, a vector of partial derivatives.
Gradient approximation  In multivariate calculus, an approximation for a function constructed from its gradient.
Gradient-Hessian approximation In multivariate calculus, an approximation for a function constructed from its gradient and Hessian.
Graduated payment mortgage  (GPM)  (US) A mortgage scheme in which monthly payments commence at a lower level and increase over a period of a few years to a higher level.
Gramm-Leach-Bliley Act of 1999 The Financial Services Modernization Act.
Granite Fund A hedge fund that failed in 1994.
Granny bonds  Index-linked savings certificates, initially introduced for people above retirement age.
Grant anticipation note A short term debt obligation issued by state and municipal governments or private businesses in anticipation of the receipt of a future grant awarded for the successful installation of energy conversation or pollution control measures.
Grant of probate  The proof of legal authority required by the person who is entrusted with dealing with a deceased person's estate where there is a will.
Grantee  (UK) A term used by some assurance companies as an alternative to assured.
Grantor  The person from whom a grant is made or a trust is set up.
Greeks A set of factor sensitivities used for measuring risk exposures related to options or other derivatives.
Greenmail  (US) When a takeover target company buys back its own shares at a premium price.
Grey knight A company (or person) making an unwanted counter bid for another company.
Grey market  The unofficial trading of securities before their formal issue.
Gross  Before any deductions, particularly tax deductions.
Gross domestic product  (GDP)  The value of all goods and services created within an economy. It equals gross national product minus income from abroad.
Gross income  Total annual income of a person or a company before any expenses.
Gross interest  Interest earned by deposits before tax is deducted.
Gross Line  The amount of insurance a company commits on a risk, including the amount it has reinsured.  
Gross margin The difference between the selling price of an item and the purchase or manufacturing cost, expressed as a percentage of the selling price.
Gross Monthly Income  The amount of income that an individual receives each month before income tax.
Gross national product  (GNP)  The total value of all goods and services produced by a country. Real growth in GNP measures the increase in output after making adjustments for inflation.
Gross Net Earned Premium Income  A rating base for excess of loss reinsurance. It is the written premium of a primary insurer for the lines of business covered by a reinsurer, minus cancellations, refunds and reinsurance premium paid to other reinsurers who are providing coverage on the same lines.
Gross profit  The difference between turnover and the cost of making a product or providing a service, before taking into account overheads, salaries and wages, and interest payments.
Gross redemption yield  See 'redemption yield'.
Gross return Simple return plus 1.
Gross yield  The yield on a security before the deduction of tax.
Grossing up  UK shareholders receive dividends with a tax credit of 10%. This means that a notional 10% tax has already been paid by the company paying the dividend.
Ground rent  (UK) Rent payable by the owner of a leasehold property to the freehold owner.
Ground-Up Loss  The total amount of loss sustained by the reinsured before taking into account the credit) due from reinsurance recoverable(s). 
Group insurance  Insurance provided for company employees by employers. 
Group of 30 Report An influential 1993 industry report on OTC derivatives.
Growth bond  A bond which gives capital growth at maturity.
Growth fund  A fund that aims to achieve above average rates of growth over the longer term.
Growth investing  The approach to investing which aims to invest in fast-growing companies which are rapidly increasing their turnover and profits.
Growth stocks Stocks whose earnings have grown at an above average rate over a number of years and which are expected to continue to grow at a high rate for some time to come.
Guarantee  A document, supplied by a manufacturer, indicating that in the event of product failure it will be repaired or replaced. 
Guaranteed death benefit (UK) A life policy in which there is a minimum sum payable on the death of the life assured.
Guaranteed growth bond  A bond in which a single premium secures a guaranteed amount at its maturity date
Guaranteed income bond  (GIB)  A bond in which a single premium secures a guaranteed regular income until maturity.
Guaranteed minimum pension  (GMP)  The minimum pension payable by a pension scheme in order that members may contract out of S2P (State Second Pension).
Guaranteed renewable policy  An insurance policy will automatically renewed provided premiums are paid. 
Guaranteed sum assured (UK) It refers to the minimum sum payable by a life policy either on the death of the life assured or on maturity.
Guaranteed trust  Some unit trusts offer a floor price and guarantee their bid price will not be allowed to fall below that level. 
Guarantor  An individual, institution or other entity that guarantees to repay a debt if the borrower defaults.
Guardian An individual or institution named by a court to manage the property of a person who is adjudged incapable of handling his or her own affairs. 
Guilder shares (New York Shares)  (US) Dutch regulations do not permit their companies to issue ADRs linked to active home-country shares, even if those shares are held by a depository bank. Instead, the appropriate quantity of underlying home-country shares are cancelled and the equivalent amount of New York Shares (guilder shares) are issued.
Guldimann, Till Pioneered RiskMetrics.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

_Africa

_Americas

_Asia

_Australasia

_Caribbean

_Europe

_Middle East

_Index A-D

_Index E-M

_Index N-Z

 

 

 

 

 

 

 

 
 
 
Terms & Conditions
Copyright © 2007 Financial Places. All rights reserved.