Investopedia - Simonetta

Gambling Income

Any income that is the result of games of chance or wagers on events with uncertain outcomes (gambling). This income is subject to taxation. I: Gambling income includes any money earned playing slot machines, bingo or the lottery. It also includes money derived from betting on horse races, boxing, sumo wrestlers and almost anything else.

Death Put

An optional redemption feature on a debt instrument allowing the beneficiary of the estate of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's death or legal incapacitation. Also known as a "survivor's option". I: The death put may be redeemed at par value, and then all proceeds are deposited into the estate. Should interest rates increase substantially, the put may earn a large profit for beneficiaries of the estate.

Quality Management

The act of overseeing all activities and tasks needed to maintain a desired level of excellence. This includes creating and implementing quality planning and assurance, as well as quality control and quality improvement. It is also referred to as total quality management (TQM). I: While quality control and quality assurance departments have been around for a long time, the concept of quality management is relatively new. In a sense, it is a "first cause" approach to quality assurance, as it approaches the issue of quality from many different angles.

GDP Gap

The forfeited output of a country's economy resulting from the failure to create sufficient jobs for all those willing to work. I: A GDP gap denotes the amount of production that is irretrievably lost. The potential for higher production levels is wasted because there aren't enough jobs supplied.

Savings Club

A non-incorporated group that has opened some type of savings or other deposit account. The money in the account is the joint property of all club members. I: "Savings club" also refers to a special type of savings account that comes with a passbook with coupons. Most accounts of this nature mature on a regular basis (e.g. annually). Christmas club accounts are an example of this type of account.

Krannert School of Management

The school of business at Purdue University. Its enrollment is approximately 2,800 students. The Krannert School of Management offers undergraduate, graduate and doctoral degree programs in a variety of business disciplines, including accounting, management, economics, industrial management, marketing and finance. I: Located in West Lafayette, Indiana, the Krannert School of Management was established in 1962. In 2009, the business school was ranked 45th among 75 business schools in the country according to Forbes.

Sallie Mae - Student Loan Marketing Association

A publicly traded company that is the largest provider of educational loans in the U.S. Along with providing student loans, Sallie Mae purchases student loans from the original lenders and provides financing to state student-loan agencies. I: Sallie Mae was originally formed in 1972 as a government enterprise but as of 2004 is a completely independent publicly traded company. Sallie Mae is traded on the NYSE with the ticker symbol SLM.

Ratings Service

A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. I: Ratings range from AAA or Aaa (the highest) to C or D, which represents a company that has already defaulted.

Keepwell Agreement

A contract between a parent company and its subsidiary to maintain solvency and financial backing throughout the term set in the agreement. I: This is a method by which subsidiary companies may increase the creditworthiness of debt instruments and corporate borrowing.

Gemology

The combined art and science of studying, cutting, valuing, buying and selling precious stones. Some of the most precious stones that gemologists deal in include diamonds, rubies, sapphires and emeralds. Gemology is spelled gemmology outside of North America. I: With advances in gemstone synthesis, gemology has become a much more important field of study. Gemologists value stones based on a number of factors, including cut, color, quality and clarity. When returns in the stock market decline, aggressive investors often seek out alternative investments that hold more promise of increasing returns on invested capital. Gemstone investing can appeal to people who want to make quick returns, but it is highly speculative and should be left to experienced professionals.

Pain Trade

The tendency of markets to deliver the maximum amount of punishment to the most investors from time to time. A pain trade occurs when a popular asset class or widely followed investing strategy takes an unexpected turn that catches most investors flat-footed. Under this definition, a sudden reversal in a niche sector or strategy would not qualify as a pain trade, since not many investors are likely to be in it. Pain trades sorely test the resolve of even the best traders and investors, since they must face the dilemma of whether to hold on in the hope that the trade will eventually work out, or take their losses before the situation worsens. I: The periodic peaks and valleys in equity indices over the years provide a perfect example of pain trades at work. Consider the dot-com boom and bust of the late 1990s/early 2000s. As the Nasdaq soared over this period and reached a record high in March 2000, technology stocks accounted for a disproportionate part of portfolios held by most investors and mutual funds. The subsequent collapse in technology stocks and the Nasdaq led to a recession in the U.S. and a global bear market, wiping out trillions of dollars in market capitalization and household wealth. The pain trade here was being long technology stocks, as the subsequent collapse in the sector reverberated around the world and had an impact on the broad economy. In 2008, the pain trade was being long equities in general. The U.S. and many major global equity indices had reached record highs in the fourth quarter of 2007, despite a simmering credit crisis that was rapidly coming to a boil. The collapse of global equity markets in 2008 made this the biggest pain trade by far in terms of the number of people affected and the amount of wealth destroyed. More than $35 trillion, or 60% of global market capitalization, was wiped out within 18 months, while the global economy suffered its deepest recession and biggest financial crisis since the Great Depression of the 1930s. In the U.S., plunging housing and stock prices led to the greatest destruction of household wealth in history, even as the recession threw millions of people out of work. The strong recovery in global markets from 2009 onward proves that even pain trades can turn to gain over a period of time, with the Dow Jones Industrial Average and S&P 500 reaching new highs by 2013. However, rising yields in 2013 made the bond market the new pain trade for numerous investors in that year.

Icarus Factor

The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure. I: In Greek mythology, Icarus and his father, Daedalus, were imprisoned in Crete by King Minos. Daedalus created two sets of wings made from wax and feathers. He and his son were to use them to escape by flying. Daedalus warned his son not to fly too close to the sun. Icarus was overcome with the excitement of flying and disregarded his father's warning. He flew higher and higher, approaching the sun. As the wax melted and the feathers fell, so too did Icarus fall to his death in what is now called the Icarian Sea, near Icaria, an island southwest of Samos. The Icarus factor is most often seen when companies plow into businesses that work on different models from their existing lines. As they spend more and more money to try and catch up to companies already dominant in those fields, they use up the cash reserves built up by their core business - sometimes this drain can be fatal.

OEX

The ticker symbol used to identify index options traded on the Standard & Poor's 100 index. OEX options are listed with a letter code indicating the month code for puts and calls, and a letter code indicating the strike price. Strike prices greater than five points use three letters to indicate which group of 100 the option is trading for. I: For example, a February Call 480 would be written as OXB BP, which can also be written as OXBBP or OXB=BP. The S&P 100 is a market-capitalization weighted index of 100 stocks from a broad range of industries.

Implementation Lag

The time lag between when a macroeconomic shock or other adverse condition is recognized by central banks and the government, and when a corrective action is put into place. The response lag may be short or long, depending on whether policy makers have a definite course of action or must deliberate on the right action to take. Also, proper implementation of the corrective action may have to happen incrementally, rather than all at one time. I: The implementation lag follows the recognition lag, which measures how long it takes before the adverse condition is even noticed. Because the broad economy is such a complex set of moving parts, time delays are inevitable when trying to recognize, diagnose and fix macroeconomic shocks.While the Federal Reserve Board has a preset schedule of when to meet to discuss monetary policy changes, they can decide to step in whenever they see fit to change interest rates, buy or sell Treasuries, or otherwise assist the economy.

Day Cycle

The time period alloted for the delivery of Automated Clearing House debits and credits from an originator to its processor. Typical hours are between 8:00am and 1:00pm eastern standard time (EST).Also referred to as daytime window. I: The implementation of deadlines for receipt of electronic files from the originator help ensure that the processor will be able to process all transactions in a prompt and efficient manner.

Jackpot

The top prize in a game of chance. Jackpot prizes can be anything from cash to cars and houses. I: When winnings are high, as in the case of most jackpots, you may have to pay the estimated tax liability at source. As your employer does with employment earnings, the awarder will withhold the taxes and send them to the IRS on your behalf.

Federal Debt

The total amount of money that the United States federal government owes to creditors. The government's creditors include all individuals, businesses, governments and other organizations that own U.S. government debt securities. The federal debt exists as a result of federal government shortfalls, or deficit budgets in which the government's expenses exceed its revenues. The federal debt does not include any debts in the name of individuals, corporations and state or municipal governments. I: In recent years, the federal debt has grown to exorbitant amounts - as of April 2006, the total federal debt was estimated to be $8.4 trillion. Viewed as an absolute number, the federal debt seems quite enormous, representing more than 20% of total worldwide debt.However, some economists point out that the federal debt is only about two-thirds the size of the U.S. GDP - a statistic that puts the U.S. well below the debt-to-GDP levels of other industrialized countries, such as Japan. Heated debate continues as to whether the federal debt is too large and should be paid down, or whether it is simply a necessary catalyst for continued economic growth.

3P

The total amount of reserves that a company estimates having access to, calculated as the sum of all proved and unproved reserves. Unproved reserves are broken into two segments: those based on geological and engineering estimates from proved sources (probable) and those that are less likely to be extracted due to financial or technical difficulties (possible). Therefore, 3P refers to proved plus probable plus possible reserves. I: Energy companies update their investors on the amount of oil and natural gas reserves they have access to through a reserve update. This update typically includes proved, probable and possible reserves, and is similar to an inventory report that a retailer might provide to investors. The 3P estimate is a rosy estimate of what might actually be pumped out of a well. Probable reserves are generally given 50% certainty (P50), and possible reserves are given 10% certainty (P10).

General Business Tax Credit

The total value of all the individual credits to be applied against income on a tax return. This credit can be carried forward for a number of years in most cases and can also be carried back in some cases. I: The General Business Tax Credit is unique in that it is not a single separate credit. Instead, it represents a smorgasboard of specific tax credits that promote certain business activities, such as research, oil recovery, reforestation, or starting a pension plan. Each credit is tallied up on a separate form first, then carried over to the General Business Tax Credit Form 3800.

Joint Endorsement

The type of endorsement that is required on any type of joint account. Checks that are payable to more than one party often require this joint endorsement. Joint endorsements are generally required in order to prevent one individual on a joint account from cashing a check without the knowledge or permission of the other. I: Joint endorsements are usually required by banks before they will cash certain kinds of checks. Checks issued by the U.S. Government, such as tax refund checks, typically fall into this category. Joint endorsements can be required regardless of whether the underlying account is "tenants in common," "tenants with rights of survivorship" or "tenants by the entirety."

Earnings Management

The use of accounting techniques to produce financial reports that may paint an overly positive picture of a company's business activities and financial position. Earnings Management takes advantage of how accounting rules can be applied and are legitimately flexible when companies can incur expenses and recognize revenue. It can be difficult to differentiate these allowable practices from earnings fraud or manipulation. Earnings management theoretically represents this gray area, but it is often used as a synonym for earnings manipulation or earnings fraud. I: Companies use earnings management to smooth out fluctuations in earnings and/or to meet stock analysts' earnings projections. Large fluctuations in income and expenses may be a normal part of a company's operations, but the changes may alarm investors who prefer to see stability and growth, tempting managers to take advantage of accounting gimmicks. Also, a company's stock price will often rise or fall after an earnings announcement, depending on whether it meets, exceeds or falls short of expectations. Management can feel pressure to manipulate the company's accounting practices and, consequently, its financial reports in order to meet these expectations and keep the company's stock price up. If earning management is considered excessive, the SEC may issue fines as a punishment, but it still can be difficult for investors to identify the companies misrepresentations.

Land Value

The value of a piece of property, including both the value of the land itself as well as any improvements that have been made to it. Land values increase when demand for land exceeds the supply of available land, or if a particular piece of land has intrinsic value greater than neighboring areas (e.g. oil can be found on the land). I: Owners of land use land value to determine how much to charge other parties for its use. For example, an individual who is renting out several acres of farmland, for use by ranchers for grazing cattle, will determine an amount to charge for its use by looking at the market value of the land compared to land taxes and the capitalization rate.

Economic Blight

The visible and physical decline of a property, neighborhood or city due to a combination of economic downturns, residents and businesses leaving the area, and the cost of maintaining the quality of older structures. These factors tend to feed on themselves, with each one contributing to an increase in the occurrence of the others. I: Although many larger cities and rural manufacturing communities struggle with economic blight, the rapid rise of premium real estate prices over the last few decades led to renewed interest in these areas. Individual investors, as well as large developers, joined forces to successfully renovate and revitalize many areas struggling with economic blight, making a handsome profit along the way.

Macaulay Duration

The weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price, and is a measure of bond price volatility with respect to interest rates.Macaulay duration can be calculated by: I: The metric is named after its creator, Frederick Macaulay. Macaulay duration is frequently used by portfolio managers who use an immunization strategy. Macaulay duration is also used to measure how sensitive a bond or a bond portfolio's price is to changes in interest rates.

Handle

The whole number part of a price quote. In a quote the handle could be $56, while the price quote for stock might be $56.25. The quote's handle eliminates the part of the price quote that is a decimal. In foreign exchange markets, the handle refers to the part of the price quote that appears in both the bid and the offer for the currency. For example, if the EUR/USD currency pair has a bid of 1.4183 and an ask of 1.4185, the handle would be 1.41 - the part of the quote that is equal to both the bid and the ask. Also called big figure. I: Traders often refer to only the handle of a price quote since it is assumed that other market participants know the stem of the quote. In the foreign exchange markets, the minimum price movement is called a pip. Since many of the foreign exchange instruments are quoted out four or five decimal places, it is considered simpler to refer to the last two places when discussing the bids and asks, rather than include the handle, which tends to be known by the participants.

Cancelable Insurance

This is insurance that may be canceled, at any time, by the insured party or by the insurance company. Aside from life insurance, most insurance policies can easily be. If the insurer cancels the policy, it must first give notice and must also refund prepaid premium on a pro rata basis. I: Before canceling an insurance policy, the insured party must make sure that he or she has replacement insurance coverage that is already confirmed. If there is no replacement coverage, the insured party can go completely uncovered for a period of time. One good reason for making certain of replacement coverage is that the insured party could face a situation in which certain medical conditions that developed during the prior health insurance coverage are excluded from coverage under the new insurance as "preexisting conditions." This is why it is essential to thoroughly research a new policy before the old one is canceled.

Making Home Affordable

This program was designed to aid approximately seven to nine million eligible homeowners by lowering their monthly mortgage payments to a more manageable level. Making Home Affordable is ultimately designed to stabilize the housing market and prevent foreclosures. The reduction in payments may be accomplished either through refinancing or modification of the existing mortgage. I: Homeowners may visit the website for this program at www.makinghomeaffordable.gov and answer the questions on the homepage to see if they are eligible. They can also call (888) 995-HOPE to get more information. The Obama Administration allocated $75 billion to this program.

Geographical Labor Mobility

This refers to the level of freedom that workers have to relocate in order to find gainful employment that reflects their training and occupational interests. Embracing this concept, which is most commonly encountered within the European Union (EU), seeks to ensure individual, corporate, and national economic growth by helping qualified workers easily cross state and national boundaries to find "best fit" employment. I: While many North Americans enjoy a high level of geographical labor mobility within their own country, the immigration debate, the war on drugs and post-9/11 border restrictions have noticeably decreased labor mobility across national borders. In an effort to revitalize geographical labor mobility with its neighbors, U.S. lawmakers continue to refine mobility opportunities for trusted workers.

Named Beneficiary

This term refers to any beneficiary named in a will, a trust, an insurance policy, pension plan accounts, IRAs, or any other instrument, to whom benefits are paid. Named beneficiaries are the beneficial owners of the property and will share in the proceeds at the time of disposition. In an annuity policy, for example, the policyholder and the named beneficiary may be the same person. I: Beneficiary designations can be complex. For example, by naming a specific beneficiary in a life insurance policy, the proceeds of the insurance policy will not be subject to the will or to probate and will pass directly to the named beneficiary. There are many different kinds of beneficiaries, such as primary or contingent beneficiaries, and the named beneficiary need not be an individual. A named beneficiary of an insurance policy, for example, can be the estate of the deceased, in which case the actual beneficiaries will be designated in the will.

Qualifying Annuity

This type of annuity is similar to any other, except that it has been approved by the IRS for use within a Qualfied Retirement Plan or IRA. Qualifying Annuties can be either fixed, indexed or variable, depending upon the investment objectives of the plan sponsor. Contributions made into a Qualifying Annuity are tax-deductible according to ERISA guidelines, unless the plan or annuity has a Roth feature. I: Qualifying Annuities are not tax-deductible plans in and of themselves; they must reside within a Qualified Plan or IRA in order to enjoy this status. Qualifying Annuities can be either the sole vehicle inside the plan or account, or they can be one of several other choices that are offered as well. In many cases, the Qualifying Annuity is a variable contract and is the only vehicle offered within the plan, with the variable subaccounts constituting the choices available to plan participants.

Facebook Credits

Virtual currency (currency used only on the internet) that can be used to buy goods in online games through the social networking platform, Facebook. Facebook credits can be purchased online using a credit card, PayPal account, mobile phone or other various payment methods, or offline at various retailers. The credits can be used to purchase games or software applications, also referred to as apps. I: Facebook credits can be used to buy intangible goods such as virtual gifts, parcels of virtual real estate, virtual weapons, tools and animals in platform-based video games. As of 2011, this virtual money is backed by real currency that's available in 15 different countries.

CAD

What currency is CAD?CAD is the currency abbreviation or currency symbol for the Canadian dollar (CAD). The Canadian dollar is made up of 100 cents, and is often presented with the dollar sign as C$ to allow it to be distinguished from other currencies denominated in dollars, such as the U.S. Dollar (USD). CAD is considered to be a benchmark currency, meaning that many central banks across the globe keep Canadian dollars as a reserve currency. I: More About the Currency of Canada:The Canadian dollar has been in use since 1858 when the Province of Canada replaced the Canadian Pound with its first official Canadian coins. This dollar was pegged with the U.S. dollar at par using the gold standard system of 1 dollar equaling 23.22 grains of gold. In 1871, the federal government passed the Uniform Currency Act, which replaced the various currencies of the provinces with the one national Canadian dollar. Over its history, the Canadian dollar has moved back and forth between being pegged to the U.S. dollar, and being allowed to float freely. In 1950, the Canadian dollar was first allowed to float. From 1962 - 1970 it was pegged again; after which the currency has since been allowed to float.

Savior Plan

When management and employees borrow money to invest in their failing company in an attempt to save it. Essentially, a savior plan precedes a management and employee buyout. I: After a savior plan is put into place, one could say that the company is "employee-owned".This type of plan can fail because of high borrowing costs, which may not be paid back quickly enough to obtain a return on the investment. Also, savior plans do not guarantee that the company will begin to operate efficienctly after the buyout.

Call Over

When the buyer of a call option exercises the option. In options trading, the buyer of a call option can exercise his or her right to purchase or sell the underlying asset (such as a stock) at the exercise price or strike price. I: Buyers of options can either exercise their right to buy the underlying security or they can let the option expire wothless. A call over can take place throughout the life of the option until the exercise cut-off time that falls on the last trading day prior to the option contract's expiration.

Parity Price

When the price of an asset is directly linked to another price. Examples of parity price are:1. Convertibles - the price at which a convertible security equals the value of the underlying stock. 2. Options - when an option is trading at its intrinsic value ("trading at parity").3. International parity - official rates for a currency in terms of other pegged currencies, typically the U.S. dollar. I: Parity price is commonly used in the context of convertible securities and often referred to as "conversion parity price" or "market conversion price". It is the price an investor effectively pays to exchange or convert a convertible security into common stock and is equal to the price of the convertible security divided by the conversion ratio (the number of shares that the convertible can be converted into). Conversely, in the case of common stock, it is calculated by dividing market value by the conversion ratio.In agricultural commodities, you can think of parity price as the purchasing power of a particular commodity relative to a farmer's expenses such as wages, interest on debt, equipment, taxes and so forth. The Agricultural Adjustment Act of 1938 states that the parity price formula is "average prices received by farmers for agricultural commodities during the last 10 years and is designed to gradually adjust relative parity prices of specific commodities". If the parity price for a commodity is not sufficient enough for a farm operator to support his or her family and operate the business then the government could step in and support prices through direct purchases, or the issuance of non-recourse loans to farmers.

Sale

1) In general, a transaction between two parties where the buyer receives goods (tangible or intangible), services and/or assets in exchange for money.2) An agreement between a buyer and seller on the price of a security. I: Every day, millions of people take part in countless sales transactions across the globe, creating a constant flow of value which forms the backbone of our economies. Sales of investment vehicles in the financial markets represent highly refined value exchanges.For example, consider a typical middle-class person purchasing their first home. Obviously, a sale occurs when the home is sold to the buyer. However, there are many layers of sales surrounding the deal. Very likely, a lending institution would sell financing, via a mortgage, to the homebuyer. Then, the lending institution likely sells that mortgage to another individual as an investment. An investment manager could earn a living trading bundles of mortgages and other kinds of debt financing.

Gap Analysis

1) The process through which a company compares its actual performance to its expected performance to determine whether it is meeting expectations and using its resources effectively. Gap analysis seeks to answer the questions "where are we?" (current state) and "where do we want to be?" (target state). 2) A method of asset-liability management that can be used to assess interest rate risk or liquidity risk excluding credit risk. Gap analysis is a simple IRR measurement method that conveys the difference between rate sensitive assets and rate sensitive liabilities over a given period of time. This type of analysis works well if assets and liabilities are compromised of fixed cash flows. Because of this a significant shortcoming of gap analysis is that it cannot handle options, as options have uncertain cash flows. I: 1) Conducting a gap analysis can help a company re-examine its goals to determine whether it is on the right path to be able to accomplish them. A company will list the factors that define its current state, outline the factors that are required to reach the target state, and then determine how to fill the "gaps" between the two states. 2) Gap analysis was widely used in the 1980's typically in tandem with duration analysis. It was found to be harder to use and less widely implemented than duration analysis but it can still be used to assess exposure to a variety of term structure movements.

Fade

1. A contrarian investment strategy used to trade against the prevailing trend. "Fading the market" is typically very high risk, requiring the trader to have a high risk tolerance. A fade trader would sell when a price is rising and buy when it's falling. Also known as "fading".2. In a dealer market, it is the failure of a dealer to honor a quote when a customer or another dealer wants to trade. I: 1. An example of fading would include buying on a dip in price and selling when the price rallies. Often it's a rather volatile strategy, but one which offers the potential for significant short-term gains. It requires little in the way of complicated analysis but the risk that trend continues is always present.2. For example, if a better bid is posted on another exchange for a security and a market maker is unwilling or unable to match it for a client order, the market maker may offer to trade with the other market maker (with the better price). The market maker offering the better price must accept the offer and trade at the price offered or adjust the bid price.

Debit Memorandum

1. A document given to an account holder which states that the account balance has been decreased as a result of factors other than a cash withdrawal or a written check being cashed in. Debit memorandums can arise as a result of bank service charges or bounced check fees. A debit memorandum is typically sent out to bank customers along with their monthly bank statements. Also known as a "debit memo", for short. 2. The adjustment procedure that occurs following a business's valid complaint against another business. For example, if Company A sends defective merchandise to Company B, a debit memorandum would be issued in order to adjust the accounting statements in terms of debits and credits. I: It is usually preferable to avoid debit memorandums from either the individual or business perspective. Individuals typically incur undesirable fees for additional bank service charges or for having a check bounce. On the other hand, there are numerous implicit costs for a business debit memorandum such as possible loss of reputation and human labor to make the necessary adjustments.

Safe Harbor

1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. In effect, this gives the target company a "safe harbor." 3. An accounting method that avoids legal or tax regulations and allows for a simpler method (usually) of determining a tax consequence than those methods described by the precise language of the tax code. I: 1. In the first case, under SEC rules, safe-harbor provisions protect management from liability for making financial projections and forecasts made in good faith. 2. When trying to scare away sharks, it sometimes helps to stink up the water. 3. Here's an example of an accounting safe harbor: a firm is losing money and therefore cannot claim an investment credit, so it transfers this claim to a company that is profitable and can therefore claim the credit. Then the profitable company leases the asset back to the unprofitable company and passes on the tax savings.

Lagging Indicator

1. A measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend. 2. A technical indicator that trails the price action of an underlying asset, and is used by traders to generate transaction signals or to confirm the strength of a given trend. Since these indicators lag the price of the asset, a significant move will generally occur before the indicator is able to provide a signal. I: 1. Lagging indicators confirm long-term trends, but they do not predict them. Some examples are unemployment, corporate profits and labor cost per unit of output. Interest rates are another good lagging indicator; rates change after severe market changes. 2. An example of a lagging indicator is a moving average crossover, because it occurs after a certain price move has already happened. Technical traders use a short-term average crossing above a long-term average as confirmation when placing buy orders since it suggests an increase in momentum. The drawback of using this method is that a significant move may have already occurred, resulting in the trader entering a position too late.

Lame Duck

1. A person who has defaulted on his or her debts or has gone bankrupted due to the stock market. The phrase is said to have originated from the London Stock Market during the 1700s and was used to describe individuals who were ineffective traders. 2. A politician who has chosen not to seek re-election, is ineligible to run for office again or has lost an election but is still in office until the election winner takes control of the office. I: 1. A trader or investor who makes poor trades and ends up with heavy losses over time would be considered a "lame duck."

Game Changer

1. A person who is a visionary. 2. A company that alters its business strategy and conceives an entirely new business plan. This type of company switches up and forms a new business strategy in order to compete directly or indirectly with competitors. A game changer changes the way that something is done, thought about or made. I: 1. A game changer has new and different ideas that stand out from the crowd. This person has an idea that completely changes the way a situation develops. Companies employ this tactic to create ideas or events that change the outcome of a plan. 2. A visionary strategist uses creative innovation to alter their business plans, or conceives an entirely new plan by exploring new locations and different products.

Canceled Order

1. A previously submitted order to purchase or sell a security that is canceled before it has been executed on an exchange.2. An order that can't be executed due to parameter limitations, such as a limit order that can't be filled because the price has moved outside of range. I: Most equity orders (especially market orders) are executed so fast today that canceling them before execution may not be possible despite the investor's efforts. Limit orders that are outside of the current stock price can usually be canceled online or by calling the broker directly. Other order types that can quickly become canceled orders are "all-or-none" orders and "fill or kill" orders.

Hedge Ratio

1. A ratio comparing the value of a position protected via a hedge with the size of the entire position itself.2. A ratio comparing the value of futures contracts purchased or sold to the value of the cash commodity being hedged. I: 1. Say you are holding $10,000 in foreign equity, which exposes you to currency risk. If you hedge $5,000 worth of the equity with a currency position, your hedge ratio is 0.5 (50 / 100). This means that 50% of your equity position is sheltered from exchange rate risk. 2. The hedge ratio is important for investors in futures contracts, as it will help to identify and minimize basis risk.

Impairment

1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. I: 1. This is usually reduced because of poorly estimated losses or gains. 2. Impairment can be used in many contexts. Whatever the situation, impairment is bad for the company.

Balloon Maturity

1. A repayment schedule for a bond issue where a large number of the bonds come due at a one time (normally at the final maturity date). 2. A final loan payment that is considerably higher than prior payments. This is also known as a "balloon payment." I: When a balloon maturity occurs, a company must pay the principal back to borrowers on many bonds at once. If the company is short on cash then it may have trouble making all the payments.

Kicker

1. A right, exercisable warrant, or other feature that is added to a debt instrument to make it more desirable to potential investors by giving the debt holder the potential option to purchase shares in the issuer. The kicker may or may not actually be usable; often a certain breakpoint must be reached (such as a stock price above a certain level) before the kicker has any real value. 2. In real estate, an added expense that must be paid on a mortgage in order to get a loan approved. An example would be an equity stake in receipts of a retail or rental property. I: 1. Kickers are essentially features that are added to "get the deal done", as they are exclusively for the benefit of lenders and used to add to their expected return on investment (ROI). A company that adds a kicker (for example, a rights offering) to a bond issue is only doing so because it will help get the entire issue into the hands of investors.2. Real estate kickers can be shady practices, even illegal in some jurisdictions.

Jekyll and Hyde

1. A slang term referring to the strengths and weaknesses of a company's financial statements. 2. An asset that suddenly increases or decreases in value. 3. A senior manager's good and bad qualities, or the polarized views between two key officers within a corporation. I: This term is derived from R. L. Stevenson's "The Strange Case of Dr Jekyll and Mr Hyde." Dr Jekyll, the atypical good scientist, unleashes his dark side, nicknamed Mr Hyde, through self-experimentation. Although Jekyll and Hyde have contradictory natures, they are one and the same person. 1. At first glance Jekyll and Hyde financial statements may seem to show strong performance, but a closer look reveals covert weaknesses. 2. Volatile stock that fluctuates widely in price is an example of a Jekyll and Hyde. 3. If two officials of a company both envision important but conflicting goals, it is called a Jekyll and Hyde situation.

Inactivity Fee

1. A sum charged to investors who haven't engaged in any buying or selling activities in their brokerage accounts for an amount of time specified by the brokerage. 2. A sum charged to credit card holders who haven't made any purchases in an amount of time specified by the credit card company. I: 1. One way that brokerages make money is from commissions on trades. When a customer makes infrequent trades, the brokerage doesn't make money from that customer, and it may try to compensate for the lack of commissions by charging inactivity fees. Smaller, passive investors who make a small number of trades are the most disadvantaged by inactivity fees. 2. Similarly, credit card companies receive a small percentage of the sale each time a customer uses a credit card to make a purchase. When a customer stops using the credit card, the credit card company stops receiving this income, and it may charge an inactivity fee as a way to earn money from a customer who otherwise isn't generating any income for the company.

On Track

1. A type of commodities delivery for futures contracts that is deferred and priced according to the seller's location FOB.2. A physical commodity that is already loaded on railroad cars or trucks and ready for delivery. I: 1. In this form of contract, the buyer of the futures contract is agreeing to pay all associated freight costs for receiving the underlying commodity.2. Commodities on track or on-track country station are ready to be transported to the necessary locations for the fulfillment of the contract obligations.

R

1. An occasional fifth letter in a Nasdaq-traded company's ticker symbol that identifies the stock as a rights offering. Nasdaq-listed securities usually have four or five characters. The ticker symbol by itself has four letters; if a fifth letter appears, it identifies the issue as other than a single issue of common or capital stock. The Nasdaq has a fifth-letter identifier for every letter of the alphabet; for example, "D" denotes a new issue, "F" denotes a foreign issue and "Q" denotes bankruptcy. 2. The common symbol representing return in many financial formulas. There are many different types of returns and they are usually denoted with the upper or lower case letter "R," though there is no formal designation. If there are multiple returns used in a calculation they are often given subscript letters. I: 1. The ticker tape is updated in real time and informs investors about the price and volume at which a stock is trading and how its price compares to the previous day's close. During the day, it displays heavily traded stocks and the stocks of companies with major news most frequently; while the market is closed, it displays the closing prices of all publicly-traded stocks in alphabetical order. 2. In formulas, lower case "r" usually represents the required rate of return. RE is usually expected return. RM is usually the return on the market as a whole. Rf or Rrf is usually the risk free rate of return. R1, R2, R3, Ri are return in the first, second, third and ith period respectively.

Margin

1. Borrowed money that is used to purchase securities. This practice is referred to as "buying on margin". 2. The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.3. In a general business context, the difference between a product's (or service's) selling price and the cost of production.4. The portion of the interest rate on an adjustable-rate mortgage that is over and above the adjustment-index rate. This portion is retained as profit by the lender. I: 1. Buying with borrowed money can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price - the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.2. For example, if you hold futures contracts in a margin account, you have to maintain a certain amount of margin depending on how the market value of the contracts change.3. Gross profit margin (which is the difference between revenue and expenses) is one measure of a company's performance.4. The formula for calculating the interest rate on an adjustable-rate mortgage is the adjustment-index rate (e.g. Treasury Index) plus the percentage of the margin. For example, if the Treasury Index is 6% and the interest rate on the mortgage is 8%, the margin is 2%.

In The Money

1. For a call option, when the option's strike price is below the market price of the underlying asset.2. For a put option, when the strike price is above the market price of the underlying asset. Being in the money does not mean you will profit, it just means the option is worth exercising. This is because the option costs money to buy. I: In the money means that your stock option is worth money and you can turn around and sell or exercise it. For example, if John buys a call option on ABC stock with a strike price of $12, and the price of the stock is sitting at $15, the option is considered to be in the money. This is because the option gives John the right to buy the stock for $12 but he could immediately sell the stock for $15, a gain of $3. If John paid $3.50 for the call, then he wouldn't actually profit from the total trade, but it is still considered in the money.

Hard Money

1. Funding by a government or organization that is repetitive, rather than a one-time grant. Examples include ongoing government daycare subsidies or firms that pay annual scholarships to post-secondary students.2. Describes gold/silver/platinum (bullion) coins. A government that uses a hard money policy backs the value of the currency it uses with a hard, tangible and lasting material that will retain its relative value over time. I: 1. Governments and organizations prefer hard money because it provides a predictable stream of funds.2. For example, in the early 1900s, the U.S. dollar was backed by the value of gold. Today, most countries use fiat money, which is made legal tender by government decree but has no intrinsic value of its own.

Parity

1. In general, a situation of equality. Parity can occur in many different contexts, but it always means that two things are equal. 2. The official value. 3. In an exchange market, when all brokers bidding for the same security have equal standing due to identical bids. I: 1. For example, in the foreign-exchange market, currencies are at parity when their exchange rate is exactly 1 to 1. 2. In other words, the par value. 3. When parity occurs, the market must determine which bidding broker will obtain the security by alternative means. Therefore, the winning bid is typically awarded by random draw.

Economic Collapse

A complete breakdown of a national, regional or territorial economy. An economic collapse is essentially a severe version of an economic depression, where an economy is in complete distress for months, years or possibly even decades. A total economic collapse is characterized by economic depression, civil unrest and highly increased poverty levels. Hyperinflation, stagflation and financial-market crashes can all be causes. Government intervention is usually necessary to bring an economy back from collapse, but can often be slow to remedy the problem. I: The Great Depression in the United States is a prime example of an economic collapse. The 1929 stock market crash brought on a collapse that lasted for many years and saw high levels of poverty. Well-known economist John Maynard Keynes claimed this was from the total lack of government involvement in the economy or the financial markets.

Canada Premium Bond - CPB

A debt instrument issued by the Bank of Canada that offers a higher interest rate than a Canada Savings Bond (CSB) with the same issuance date. I: While a Canada Savings Bond is redeemable at any time, a Canada Premium Bond is redeemable once a year. It must be redeemed either on the anniversary of the issue date or within 30 days of it.

Patent Troll

A derogatory term used to describe people or companies that misuse patents as a business strategy. A patent troll obtains the patents being sold at auctions by bankrupt companies attempting to liquidate their assets, or by doing just enough research to prove they had the idea first. They can then launch lawsuits against infringing companies, or simply hold the patent without planning to practise the idea in an attempt to keep other companies productivity at a standstill. I: The name originates from an educational video released to corporations in the early 90's. The goal of the video was to alert corporations to the newest scandal in business, as well as to dissuade potential future trolls. The video depicted a troll rushing into the patent office stealing the patent from the rightful owner.

In-House Financing

A type of seller financing in which a firm extends customers a loan, allowing them to purchase its goods or services. In-house financing eliminates the firm's reliance on the financial sector for providing the customer with funds to complete a transaction. I: The automobile sales industry is a prominent user of in-house financing. Many vehicle sales rely on the buyer taking a loan, in-house financing allows the firm to complete more deals by accepting more customers. Whereas banks or other financial intermediaries might turn down a loan application, car dealerships can choose to lend to customers with poor credit ratings.

Samurai Bond

A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations. Other types of yen-denominated bonds are Euroyens issued in countries other than Japan. I: Samurai bonds give issuers the ability to access investment capital available in Japan. The proceeds from the issuance of samurai bonds can be used by non-Japanese companies to break into the Japanese market, or it can be converted into the issuing company's local currency to be used on existing operations. Samurai bonds can also be used to hedge foreign exchange rate risk.

Leasehold

An accounting term used to classify an asset on a company's balance sheet that is leased. In order to be classified as a leased asset, the firm must enter into a lease agreement that is an operating lease, and not a capital lease. I: The reason capital leases are not included in the leasehold account is due to their accounting treatment. Capital leases are classified as long-term assets with a matching long-term liability. Examples of an operating lease, include a lease on a building, service vehicle or even heavy equipment.

Federal Home Loan Bank Act

An act passed by the Hoover administration in 1932 that was designed to encourage home ownership by providing a source of low-cost funds for member banks to extend mortgage loans. The Federal Home Loan Bank Act was the first in a series of bills that sought to make home ownership an achievable goal for more Americans. I: Proponents of these measures argue that home ownership is an essential part of the American dream and that home ownership results in stronger local communities and a higher overall quality of living. However, critics claim that this long tradition of federal subsidies for mortgage loans distorted the housing market, culminating in overly lax lending standards and unnaturally high housing prices.

Salomon Brothers World Equity Index - SBWEI

An index that measures the performance of fixed-income and equity securities from domestic and international markets that consist of companies with a float of at least $100 million. I: The Salomon Brothers World Equity Index uses a top-down approach to evaluating companies. Each security within the SBWEI index is weighted according to its float. The SBWEI index includes securities from over 6000 companies located in 22 different countries.

Macromarketing

The effect that marketing policies and strategies have on the economy and society as a whole. Specifically, macromarketing refers to how product, price, place and promotion strategies - the four P's of marketing - create demand for goods and services, and thus influence what is produced and sold in an economy. I: Over the centuries, businesses have become more adept at reaching potential consumers through an expanding set of mediums. Marketing, therefore, has become a part of the daily life of a consumer, since consumers are exposed to advertisements for products and services wherever they turn. Because marketing affects what consumers do, it in turn affects how individuals and businesses interact with the environment as a whole.

G. Allen Andreas Jr.

The former president, chairman and CEO of agribusiness company Archer Daniels Midland (ADM). In the late 1990s he took over as CEO for his uncle, Dwayne Andreas. Andreas Jr. also served as president of ADM and in 1999 became chairman. He is known for turning the company around after it was hit with price fixing charges in 1993. I: Born in 1943 in Iowa, Andreas Jr. joined ADM in 1973 as a lawyer. Prior to that, he worked in the U.S. Treasury Department in Denver. Based in Decatur, Ill., ADM is an agricultural processor of human food ingredients such as vegetable oils, flour and sweeteners; animal food ingredients and feed; and biofuels such as ethanol.

John Bogle

The founder of The Vanguard Group, and a major figure in the index investing community. John Bogle was the first person to offer an index fund to retail customers. Bogle's flagship Vanguard 500 Fund became the world's largest mutual fund by assets in 2002. Bogle is an author which has long been a proponent of passive investing over active management, and for low fees and no sales charges. I: John Bogle is considered the Godfather of Index investing, believing that the average investor cannot "beat the market" over time, and shouldn't pay (or at least overpay) for anyone else to try. His Vanguard funds are renowned for their ultra-low expense ratios, and for having no loads. The Vanguard 500 Fund carries a total expense ratio of less than 0.5% of assets annually, and has outperformed the majority of mutual funds over the past 25 years.

Jacob Schiff

A banker and philanthropist who directed the National City Bank of New York, the Equitable Life Assurance Society, Wells Fargo and Union Pacific Railroad. Schiff also worked for, and later headed, the investment bank Kuhn, Loeb & Company. I: Schiff lived from 1847 to 1920. German born, he came to the United States in 1865. He began working as licensed broker in New York City in 1966. His success allowed him to help to finance various railroads, donate to many Jewish causes and make a large loan to Japan that helped it win the Russo-Japanese War.

Earmarking

Funds (or capital) that are set aside to pay for a specific project or event. In some cases, the term is also synonymous with the word "flagged", or "marked", especially when used in certain congressional settings. I: Major financial institutions, as well as state or federal governments, will often earmark funds received from bond issuances to pay for certain projects. For example, a state may issue municipal bonds, and then earmark the funds received from the bonds' sales to pay for a project such as a new road or bridge. When used in a congressional setting, the term is often used to refer to specific legislation. For example, a bill might be earmarked for a vote. It may also be earmarked for a presidential veto.

Laughing Heir

A distant relative who has inheritance rights despite not having a close, personal relationship with the decedent. In most jurisdictions, the law requires that the property of a person who passed away without leaving a will be given first to members of the decedent's immediate family, such as a spouse, children, etc. Under common law, this familial hierarchy extends as far back as it can be traced, giving folks who may have never even heard of the decedent - much less known him/her - inheritance rights. I: Many states have enacted laughing heir statutes that limit the rights of distant family members of decedents who died without a will. In these states, the decedent's estate passes, or escheats, to the state itself, to be disbursed as government officials see fit. In states without laughing heir statutes, distant relatives still have priority over the state to an intestate decedent's belongings.Therefore, it is important to know whether the state of your residence has any laughing heir statutes when considering the execution of your will, lest you inadvertently leave your benefactors liable to potential lawsuits from distant relatives.

Patronage Dividend

A dividend or distribution that a co-operative pays to its members or investors. Patronage dividends are given based on a proportion of profit made by the business. Once this amount is figured out the dividend is calculated according to how much each member has used the co-op's services. Tax rules view these profits essentially as an overcharge, which can be returned to patrons and deducted from the co-op's taxable income. I: As the name implies, patronage dividends are paid to individuals as a result of belonging to the co-operative. One example can be seen when families purchase groceries through a co-operative and receive income or a credit on their account in return. Although they are taxed as ordinary dividend income, they may also contain an alternative minimum tax adjustment amount and are usually reported on Form 1099-PATR. Some co-ops will use the dividends to reduce the selling price of items, thus, in a way, the more you spend the more you receive.

Canadian Mortgage and Housing Corporation - CMHC

A division of the Government of Canada that acts as Canada's national housing agency. The CMHC's mandate is to help Canadians access a variety of affordable housing options. It also researches housing and real estate trends in Canada and around the world, providing research to consumers, businesses and other government divisions. The major activity of the CMHC, and the one for which it is best known, is mortgage loan insurance, which insures approved lenders (such as Canada's chartered banks) against borrower default. Mortgage loan insurance provides approved borrowers access to low-cost mortgage rates. CMHC approved buyers may purchase property with as little as 5% down payment. I: One in three Canadians receives some form of help from the CMHC in financing or purchasing a home. The agency also provides valuable financing help to consumers, housing professionals, mortgage financiers, real estate investors and parties interested in learning about the Canadian housing market.

Harry Potter Stock Index

A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks to capture some of Harry Potter's success by investing in selected movie producers, merchandisers and advertisers currently associated with the franchise. The success of the Harry Potter franchise has snowballed since the first of many Harry Potter books, "Harry Potter and the Sorcerer's Stone", by J. K. Rowling, was first published in 1997. With the addition of movies, toys, games and other accessories, Harry Potter has created an industry generating billions of dollars in sales. With each new book edition or movie release, StockPickr believes investors can benefit by investing in companies involved with Harry Potter branded items. I: The Harry Potter Stock Index includes such firms as Scholastic (Nasdaq:SCHL), who publishes the Harry Potter books, and Time Warner (NYSE:TWX), the series movie producer. Even Amazon (Nasdaq:AMZN) is included, where Potter books are best sellers. Hasbro (NYSE:HAS), Motorola (NYSE:MOT), Electronic Arts (Nasdaq:ERTS) and Coca Cola (NYSE:KO) are a few other related companies included in the index.Is this a real stock index, like the S&P 500? Not really. It's more of a tongue-in-cheek version of a stock index. Note that stock portfolios and financial terms that are tied to celebrities tend to have a short shelf life, depending on how long the buzz lasts. For example, consider the term Bo Derek, which was most popular in the early 1980s, after the movie "10" first came out.

Canadian Securities Administrators - CSA

A collective forum composed of all the provincial and territorial securities regulators of Canada. The CSA's main goal is to collaborate on the creation and harmonization of securities regulations across Canada. In addition to its regulation-related functions, the organization seeks to better educate the public on all aspects of the Canadian securities market. I: As of 2008, there are 13 different securities regulators (representing each of the 10 Canadian provinces and three Canadian territories) that are part of the CSA. The CSA also maintains the System for Electronic Document Analysis and Retrieval (SEDAR), which is a publicly accessible database that contains the various filings related to publicly traded Canadian companies.

Qualifying Widow/Widower

A federal tax filing status available to widows and widowers for two years after their spouse's death. In the year the spouse dies, the widow or widower can (but is not required to) still file as married filing jointly; he or she could then file as qualifying widow/widower for the two years after that unless he or she remarries during that period. While the surviving spouse cannot continue to claim an exemption for the deceased spouse, he or she can take the same standard deduction as a married couple filing jointly. This filing status can ease the financial sting of losing a spouse. I: To claim this status, the IRS also requires that the taxpayer have a child who will be claimed as a dependent, that the child live in the home with the widow/widower all year, that the widow/widower will pay over half the cost of keeping up his or her home, and that the widow/widower was eligible to file a joint return in the year the spouse died.

Gazunder

A colloquial term used in the United Kingdom for the practice of a buyer lowering his real estate purchase offer below his previous offer when the transaction is already well under way. A gazunder typically happens when the market is weak and/or when the seller is coming from a position of weakness. "Gazundering" is not illegal, but many people consider it unethical. The seller may be forced to accept the lower price if it is a better option than continuing to pay the carrying costs on the property or continuing to hold it in a declining market. I: In a related practice called gazumping, a seller coming from a position of strength will raise the sale price of a property above the price that was previously agreed upon when the transaction is already well under way. A seller may gazump if he thinks the buyer will remain committed to the purchase even at a higher price or if he has received competing bids and can fall back on another offer if the first buyer walks away. Gazundering and gazumping are not possible in the United States, since contracts formalizing a property's purchase price are signed at the beginning of the real estate transaction.

Main Street

A colloquial term used to refer to individual investors, employees and the overall economy. "Main Street" is typically contrasted with "Wall Street." The latter refers to the financial markets, major financial institutions and big corporations, as well as the high-level employees, managers and executives of those firms. You'll often hear about Main Street vs. Wall Street in rhetoric about the differing goals, knowledge levels, interests and political power of these two groups. Some people think that what's good for one group is bad for the other. For example, high executive pay is seen to conflict with ordinary workers' pay and job security. I: Main Street can also describe a small, independent investment company (i.e., a Main Street firm) as opposed to one of the large, globally recognized Wall Street investment firms. Wall Street firms tend to serve large investors with multi-million dollar assets, like institutions, while Main Street firms tend to be better suited to serving small, individual investors by providing more personalized service.

Eat Your Own Dog Food

A colloquialism that describes a company using its own products or services for its internal operations. The term is believed to have originated with Microsoft in the 1980s. While it was originally used in reference to software companies using their own internally-generated tools for software development, its usage has spread to other areas as well. Often shortened simply to "dog food." I: The basic premise behind "eating your own dog food" is that if a firm expects paying customers to use its products or services, it should expect no less from its own employees. Not using its own products for internal operations may imply that a company does not believe its products are best-of-breed despite its public proclamation of the fact, and that it has more confidence in a rival's offerings. This could not only have a negative impact on employee morale, but can also potentially turn into a public-relations debacle.

Nanny Tax

A federal tax that must be paid by people who hire household help (a babysitter, maid, gardener, etc.) and pay them a total of more than a specified threshold amount during the tax year. The reason the IRS charges the nanny tax is because it considers an ongoing household helper to be the taxpayer's employee. As such, the taxpayer becomes an employer and must pay Social Security, Medicare and federal unemployment taxes on the wages paid to that employee. There may be state-level nanny taxes as well. I: The nanny tax does not apply if the babysitter is the taxpayer's parent, spouse, or if the babysitter is under 18 and is not primarily engaged in the household employment profession. Another way for taxpayers to avoid dealing with the nanny tax is by hiring household help through an agency. The agency will then be the employer and be the one who pays the nanny tax. Also, if household helpers are officially self-employed, they will be responsible for paying their own taxes and the taxpayer will not have to worry about the nanny tax.

Federal Insurance Office - FIO

A federal-level national office proposed by the Obama administration to address critical gaps in insurance regulation in 2009. The Federal Insurance Office (FIO) would be housed under the U.S. Treasury Department. It would not have regulatory authority, but it would monitor the industry and coordinate industry policy. The FIO's initial goals would be to expand federal level knowledge of state-related insurance regulation issues and challenges for state regulators when representing the U.S. in multinational legal affairs. I: The suggestion of a federal office on insurance was spurred on in part by the financial markets meltdown of 2007 and 2008. The failure of insurance behemoth AIG has been cited as a contributing factor to the financial crisis.

Patent Cliff

A colloquialism to denote the potential sharp decline in revenues upon patent expiry of one or more leading products of a firm. A patent cliff is when a firm's revenues could "fall off a cliff" when one or more established products go off-patent, since these products can be replicated and sold at much cheaper prices by competitors. While it is applicable to any industry, in recent years the term "patent cliff" has come to be associated almost exclusively with the pharmaceutical industry. I: The world's biggest pharmaceutical firms such as Pfizer and GlaxoSmithKline stand to lose billions of dollars in revenues from the patent expiration on such blockbuster drugs as cholesterol drug Lipitor and asthma medication Advair respectively. There are numerous firms that have established profitable businesses by manufacturing "generic" alternatives to off-patent drugs, which can be sold at a fraction of the price of branded drugs. The "patent cliff" threat has spurred increasing consolidation in the pharmaceutical industry, as companies strive to replace blockbuster drugs whose patents are expiring with other drugs that have the potential to become big sellers.

Dealer Bank

A commercial bank authorized to buy and sell government debt securities including federal and municipal bonds. This debt is usually issued to fund large government projects such as road and bridge construction. Dealer banks are registered with the Municipal Securities Rulemaking Board. I: Income from municipal bonds is usually exempt from federal income taxes in addition to being virtually risk-free with a near zero default rate.

Sales Charge

A commission paid by an investor on his or her investment in a mutual fund. The sales charge is paid to a financial intermediary (broker, financial planner, investment adviser, etc.) for selling the fund and is intended to provide compensation for the financial salesperson's efforts in assisting clients in selecting the mutual funds best suited to their needs. I: A large number of mutual funds carry sales charges. The amount of a sales charge represents the difference between the purchase price per share paid by the investor and the net asset value per share of the mutual fund. By regulation, the maximum permitted sales charge is 8%, but most loads fall within a 3-6% range.With funds that carry a sales charge, there are three classes of shares: A, B, and C. The letter designations indicate the timing of when the charge is paid. For Class A shares, the sales charge is paid at the time of purchase (front-end load). For Class B shares, it is due when the shares are sold (back-end load). Class C shareholders incur a sales charge on a regular basis for as long as they hold the fund.

Back-to-Back Commitment

A commitment to make a second take-out loan that piggybacks another loan. With a back-to-back commitment, once the terms of the first loan are satisfied, it will be rolled into the second loan. I: The best example of a back-to-back commitment is when a bank makes a construction loan to build a house. Once the house has been built and a certificate of occupancy issued, the bank will make a new loan, probably a first mortgage loan, to take out the construction loan. The bank's commitment will specify the conditions that must be met in order for the commitment to fund the second loan to be valid.

Dalian Commodities Exchange

A commodities exchange located in Dalian, China. The Dalian Commodities Exchange trades futures contracts on soybeans and soybean oil, corn, palm oil, soymeal and LLDPE (a petroleum product). The exchange is ranked as the second-largest trader of agricultural futures in the world. I: The Dalian Exchange was established on February 28, 1993, and has the deepest pool of liquidity of any commodities exchange in China. It is a non-profit, self-regulating entity with about 200 members and over 160,000 investors. It also has the largest volume of any commodities exchange in China.

Daily Average Revenue Trades - DARTs

A common metric used in the investment brokerage industry that represents the number of trades from which a given broker can expect to generate revenue through commissions or fees on any given day. I: Daily average revenue trades are closely monitored by analysts who follow this sector because much of the profit made by discount brokerages is generated from the commissions on trades. Increasing trends in DART values can be used to predict good earnings from the various brokers, while a declining number can be used to suggest that earnings may suffer due to lack of trading.

Baby Bells

A common nickname given to the U.S. regional telephone companies that were formed from the breakup of AT&T ("Ma Bell") in 1984. Baby Bells were created in accordance with antitrust legislation, which is designed to create more competition within the industry. I: Upon the initial breakup of AT&T, the Baby Bells included Nynex in New York and New England; Bell Atlantic, BellSouth and Ameritech in the Midwest; and Southwestern Bell, U.S. West and Pacific Telesis in California and Nevada. Over time, however, these companies have gone through several more corporate changes, such as acquisitions and mergers. As a result, the industry has been consolidated into a few domestic telephone providers.

Back-End Load

A fee (sales charge or load) that investors pay when selling mutual fund shares within a specified number of years, usually five to 10 years. The fee amounts to a percentage of the value of the share being sold. The fee percentage is highest in the first year and decreases yearly until the specified holding period ends, at which time it drops to zero. Also known as a "contingent deferred sales charge or load." I: The back-end load is a type of sales charge that is used with mutual funds that have share classes, which in this case are identified as Class-B shares. Class-A shares charge a front-end load, which is taken from an investor's initial investment. Class-C shares are considered to be a type of level-load fund - no front-end and low back-end loads, but the fund's operating expenses are high. In all cases, the load is paid to a financial intermediary, and is not included in a fund's operating expenses. In essence, funds with share classes carry sales charges (as opposed to no-load funds). The class you choose is what determines how much and when you pay. In employer-sponsored retirement plans, the loads are generally waived.

Incentive Fee

A fee paid to a fund manager by investors. Incentive fees are typically dependent upon the manager's performance over a given period and are usually taken in relation to a benchmark index. For instance, a fund manager may receive an incentive fee if his or her fund outperforms the S&P 500 Index over a calendar year, and may increase as the level of outperformance grows. I: Incentive fees are usually in place to tie a manager's compensation to their level of performance, more specifically their level of financial return. However, such fees can sometime lead to increased levels of risk taking, as managers attempt to increase incentive levels through riskier ventures than outlined in a fund's prospectus.

George Bailey Effect

A feeling of increased gratefulness for what one has upon considering how much worse off one might be if a critical event or events had not occurred. The George Bailey Effect is a reference to the experience of protagonist, George Bailey, in the movie "A Wonderful Life." In the movie, Bailey considers suicide before a supernatural experience shows him that his community would be much worse off if he had not lived. I: In economics, Daniel Kahneman has observed that there is an "aspiration treadmill" in that people who achieve increased wealth do not report increased happiness versus those who have less. This is apparently because humans adjust their expectations upward at each level of wealth or success. By imagining an alternate scenario and practicing gratitude, however, some psychologists theorize that it may be possible to maintain a high level of satisfaction and partially avoid the treadmill of increasing expectations.

Kremlinomics

A financial buzz word used to describe economic policies which some view to be overly leftist. Kremlinomics alludes to the communist policies of the Russian government during the Cold War and is by all accounts considered an unwanted connotation in industrialized nations. I: The term kremlinomics gained popularity during the early months of the Obama administration in the United States. Obama's detractors saw his policies as socialist or leftist, and used the term to voice their displeasure with the president and his administration.

Latin Baseball Futures

A financial contract used to speculate on the potential of teenage baseball players from Latin America who are training to earn spots in Major League Baseball (MLB). Investors in Latin baseball futures finance academies that train the young athletes and receive a return on their investment when a player is signed to an MLB team. The payoff comes from a percentage of the player's signing bonus. I: Proponents of Latin baseball futures see it as a way to provide opportunities for economically disadvantaged young men and their families. The academies not only train the players in baseball but also provide them with food, clothing and housing. Critics are concerned that the conditions at some academies are poor and that the system interferes with the boys' education and creates incentives for steroid use.

Rebate Barrier Option

A financial derivative product that will automatically expire if the underlying asset reaches a certain price, at which time the option holder would be refunded a certain portion of any premium paid. A barrier option is a type of exotic option contract that can be exercised only if the underlying asset reaches a predetermined barrier price. A barrier option can either be "knock-in," where the contract is exercised if the underlying asset rises above, or drops below (depending on terms), the specified barrier price, or "knock-out," where the contract automatically expires if the underlying asset rises above, or drops below, the barrier price. I: Options contracts give the holder the right, but not the obligation, to buy or sell a financial asset at an agreed-upon price at, or before, a certain specified date in the future. A rebate barrier option is a knock-out option that provides a refund in the event the knock-out occurs. Since the rebate diminishes the option writer's profits, this type of exotic option is not common.

National Quotation Bureau - NQB

A company established in 1913 to compile and publish price information on stocks and bonds traded in the over-the-counter market. The National Quotation Bureau (NQB) was formed by financial book publisher Arthur F. Elliot and financier Roger Ward Babson. NQB was sold to Commerce Clearing House in 1963, which sold it in 1997 to a group of investors led by Cromwell Coulson. In 1999, the NQB introduced its real-time Electronic Quotation System for trading OTC securities, completing its transition from the print medium to the electronic one. The NQB was renamed Pink Sheets LLC in 2000, which in turn became Pink OTC in 2008. Eventually it changed the name to OTC Market Group in 2011. I: The National Quotation Bureau was one of the prime originators of the ubiquitous "Pink Sheets", since it published stock information on pink paper and bond data on yellow sheets. NQB's roots date back to 1904, when Roger Babson - the founder of Babson College - founded a statistical organization that compiled and disseminated bond-offering circulars in a monthly publication to brokerage houses in New York, Boston, Chicago and other financial centers. Meanwhile, Arthur Elliot had started a firm in 1911 that daily compiled price and volume data from brokerage offices that were active in the over-the-counter (OTC) market. The two complementary services subsequently merged to form the NQB. While it may be hard to appreciate the fact in the present era of free real-time quotes and instant information, the NQB provided a very valuable service more than a century ago by packaging scarce data and making it available to dealers and investors. In doing so, it also sidestepped the virtual monopoly that entities such as the New York Stock Exchange had on price data. The reason for "Pink Sheets" becoming virtually synonymous with speculative OTC securities, despite its illustrious founders, is not clear. It may have been largely due to the preference over the years of most companies to be listed on an exchange - rather than trade OTC - because of the increased transparency and liquidity available on stock exchanges.

One-Stop Shop

A company or a location that offers a multitude of services to a client or a customer. The idea is to provide convenient and efficient service and also to create the opportunity for the company to sell more products to clients and customers. I: For example, a bank may be able to offer you not only personal banking services and loans, but also investment advice, investment vehicles and insurance policies. Compared to visiting a separate institution for each area of need, the "one-stop shop" saves the consumer a lot of time and effort.

Parent Company

A company that controls other companies by owning an influential amount of voting stock or control. Parent companies will typically be larger firms that exhibit control over one or more small subsidiaries in either the same industry or other industries. Parent companies can be either hands-on or hands-off with subsidiaries, depending on the amount of managerial control given to subsidiary managers. I: Companies can become parent companies by many different means. The two most common ways are through the acquisitions of smaller companies and the spinoff or creation of subsidiaries. For the purposes of accounting, parent companies report results of subsidiaries on audited statements when subsidiaries fall under the same corporate identity.

Real Estate Operating Company - REOC

A company that invests in real estate and whose shares trade on a public exchange. A real estate operating company (REOC) is similar to a real estate investment trust (REIT), except that an REOC will reinvest its earnings into the business, rather than distributing them to unit holders like REITs do. Also, REOCs are more flexible than REITs in terms of what types of real estate investments they can makes. I: Because real estate operating companies reinvest earnings rather than distribute dividends to unit holders, they do not get the same benefits of lower corporate taxation that are a common characteristic of REITs. Investors in an REOC seek capital gains rather than passive cash flows. When analyzing a potential REOC investment, an investor should look for relatively high return on investment capital, return on equity and return on assets, as well as a respectable valuation. These are all measures of how well a company has been using its invested capital, equity and assets to generate profits. The higher these returns, the more likely it is that the company will continue to be profitable.

Impaired Asset

A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result in a write-down of that same asset account to the stated market price. Accounts that are likely to be written down are the company's goodwill, accounts receivable and long-term assets. I: If the sum of all estimated future cash flows is less than the carrying value of the asset, then the asset would be considered impaired and would have to be written down to its fair value. Once an asset is written down, it may only be written back up under very few circumstances.Firm's carrying goodwill on their books are required to make tests of impairment annually. Any impairments found will then be expensed on the company's income statement.

Kijun-Sen

A component of the Ichimoku Kinko Hyo indicator that is primarily used to measure medium-term momentum. This line is calculated by using the following formula: The formula that is used to create the Kijun-Sen is nearly identical to the formula used to create the Tenkan-Sen except the number of time periods used in the calculation is increased to better gauge longer-term momentum. I: The Kijun-sen is generally used in combination with the Tenkan-sen to create predications of future momentum. A buy signal is created when the Tenkan-sen line moves above the Kijun-sen, while a sell signal is created when the Tenkan-sen line moves below the Kijun-sen line. The Kijun-Sen is often regarded as the trigger line for traders who use the Ichimoku method.

KOF Economic Barometer

A composite indicator that provides a reliable reading on the direction of GDP growth for the Swiss economy compared with the year-earlier quarter. The KOF Economic Barometer is based on a multi-sectoral design with three modules: core GDP, construction and banking. The barometer has a complex structure, as it bundles as many as 20 individual indicators in several steps. It is published monthly by the KOF Swiss Economic Institute. I: Although the KOF Institute cautions that no conclusions can be drawn about the level of the GDP growth rate on the basis of the KOF Economic Barometer, the barometer is closely followed by participants in the financial markets. Barometer readings that are higher than expected may have the effect of strengthening the Swiss franc, while lower than anticipated readings may weaken it.

National Bank Surveillance System

A computerized monitoring system developed and implemented in 1975 by the U.S. Office of the Comptroller of the Currency (OCC) to collect data and evaluate national banks' financial performance. By identifying banks in financial trouble, it acts as an early-warning system. Its quarterly Bank Performance Report compares each bank to a group of its peers to get an accurate picture of banks' performance. I: The purpose of the Office of the Comptroller of the Currency is, as its motto proclaims, "ensuring a safe and sound national banking system for all Americans." The OCC charters, regulates and supervises all U.S. national banks. Its supervisory functions include on-site reviews of national banks and oversight of bank operations.

Kiting

1. The act of misrepresenting the value of a financial instrument for the purpose of extending credit obligations or increasing financial leverage. 2. A fraudulent act involving the alteration or issuance of a check or draft with insufficient funds. I: 1. Kiting generally occurs when securities firms fail to deliver securities of buy and sell transactions in a timely manner (before the three-day settlement period). The firm failing to receive the securities is required to purchase the shortage on the open market and charge the delinquent firm any associated fees. The delinquent firm is practicing the fraudulent act of kiting if it fails to purchase the securities on the open market and maintains a short position, delays delivery or takes part in transactions contrary to SEC regulations regarding the proper settlement of trades. 2. In the past, clearing checks between banks took extended periods of time. Individuals used to take advantage of this delay and wrote "bad" checks to deposit funds before the checks were cashed. Banks have tried to cut down on kited checks by placing holds on deposited funds and charging for returned checks. Both of these kiting practices are considered illegal.

Margin Loan Availability

1. The dollar amount in an existing margin account that is currently available for purchasing securities. For new accounts, this represents the percentage value of the current balance that is available for future margin purchases. 2. The dollar amount available for withdrawal from an account with existing marginable positions being used as collateral. I: The margin loan availability will change daily as the value of margin debt (which includes purchased securities) changes, but it may not reflect pending trades that are in between the trade date and the settlement date. If the margin loan availability amount in an investor's account becomes negative, the investor may be due for a margin call or formal request to sell some of the marginable securities.

Nash Equilibrium

A concept of game theory where the optimal outcome of a game is one where no player has an incentive to deviate from his or her chosen strategy after considering an opponent's choice. Overall, an individual can receive no incremental benefit from changing actions, assuming other players remain constant in their strategies. A game may have multiple Nash equilibria or none at all. I: This concept is named after its inventor John Nash and is incorporated in multiple disciplines (ranging from behavioral ecology to economics). If you want to test for a Nash equilibrium, simply reveal each person's strategy to all players. The Nash equilibrium exists if no players change their strategy, despite knowing the actions of their opponents. For example, let's examine a game between Tom and Sam. In this simple game both players can choose: A) received $1, or B) lose $1 Logically, both players choose strategy A and receive a payoff of $1. If you revealed Sam's strategy to Tom and vice versa, you will see that no player deviates from the original choice. Knowing the other player's move means little, and doesn't change behavior. The outcome A,A represents a Nash equilibrium.

National Treatment

A concept of international law that declares if a state provides certain rights and privileges to its own citizens, it also should provide equivalent rights and privileges to foreigners who are currently in the country. This concept of equality can be found in bilateral tax treaties and also in most World Trade Organization agreements. I: For example, if country A provides special tax breaks for its fledgling pharmaceutical industry, all pharmaceutical companies that have operations in country A will be entitled to the tax breaks, regardless of whether the company is domestic or foreign.In some situations, national treatment may not be such a great thing. For instance, suppose that a state has a law that allows it to expropriate property. Under national treatment, a foreign firm would technically still be subject to the expropriation law. However, depending on the country, other laws may exists that could limit national treatment to only the upside benefits.

Balanced Trade

A condition in which an economy runs neither a trade surplus or a trade deficit. Under a balanced trade scheme between two countries, each country will agree to purchase as many goods as it sells to the other. A country looking to achieve balanced trade may use tariffs or barriers to trade to ensure that other countries purchase its goods. I: A balanced trade model is different than a free trade model, in which countries utilize their resources and comparative advantages to buy or sell as many goods and services as demand and supply allows. Achieving balanced trade may be difficult for countries that take part in international trade organizations, such as the World Trade Organization (WTO), as these organizations typically limit tariffs and trade barriers.

Economic Equilibrium

A condition or state in which economic forces are balanced. These economic variables will be unchanged from their equilibrium values in the absence of external influences. Economic equilibrium may also be defined as the point where supply equals demand for a product - the equilibrium price is where the hypothetical supply and demand curves intersect. The term 'economic equilibrium' can also be applied to any number of variables, such as the interest rate that allows for the greatest growth of the banking and non-financial sector. I: Economic equilibrium can be static or dynamic and may exist in a single market or multiple markets. It can be disrupted by exogenous factors, such as a change in consumer preferences, which can lead to a drop in demand and consequently a condition of oversupply in the market. In this case, a temporary state of disequilibrium will prevail until a new equilibrium price or level is established, at which point the market will revert back to economic equilibrium.

Fast Market

A condition that will be officially declared by a stock market exchange when the financial markets are experiencing unusually high levels of volatility, combined with unusually heavy trading. Fast markets occur rarely, but when one does occur, brokers are not held to the same constraints as they are during a regular market. I: Inexperienced investors are more likely to get burned in a fast market because of the unique problems that arise under extreme trading conditions. One problem is that quotes can become inaccurate when they can't keep up with the pace of trading. Another problem is that brokers may not be able to fill orders when investors want or expect them to, so their securities may be bought and sold at undesirable price levels that don't provide the return the investor anticipated.

Earnings Call

A conference call between the management of a public company, analysts, investors and the media to discuss the financial results during a given reporting period such as a quarter or a fiscal year. An earnings call is usually preceded by an earnings report, which contains summary information on financial performance for the period. I: The term "earnings call" is a combination of a company's report of "earnings" - i.e. its net income or earnings per share - and the conference call to discuss results. The term "earnings call" is generally taken to mean a periodic call wherein management discusses financial performance for a period, regardless of whether the company actually has earnings or not. The vast majority of listed companies host earnings calls to discuss their financial results, although small companies with minimal investor interest may be the exception to the rule. Many companies provide a phone recording or presentation of the earnings call on their corporate websites for a number of weeks after the actual call, making it possible for investors who could not log-in to the call to access this information.

Margin Debt

1. The dollar value of securities purchased on margin within an account. Margin debt carries an interest rate, and the amount of margin debt will change daily as the value of the underlying securities changes.2. The aggregate value of all margin debt in a nation or across an exchange. I: 1. When setting up a margin account with a stock brokerage, the typical maximum for margin debt is 50% of the value of the account. In order to prevent a margin call (a request to raise collateral in the account), the margin debt must remain below a specified percentage level of the total account balance, known as the minimum margin requirement.Not all securities are available to be purchased with margin debt, especially those with low share prices or extreme volatility. Different brokers have different requirements in this area, as each may have its own list of marginable securities.2. Margin debt levels, and their rate of change, are sometimes used as an indicator of investor sentiment because margin debt rises when investors feel good about the prospects in the stock markets. In the past, margin debt levels have peaked at the same time market indexes reached relative peaks. When markets decline in a hurry, a large number of margin calls will usually come due, which can add to already heightened selling pressure.

Fair Value

1. The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies. 2. In the futures market, fair value is the equilibrium price for a futures contract. This is equal to the spot price after taking into account compounded interest (and dividends lost because the investor owns the futures contract rather than the physical stocks) over a certain period of time. I: 2. The "fair value" quoted on TV refers to the relationship between the futures contract on a market index and the actual value of the index. If the futures are above fair value then traders are betting the market index will go higher, the opposite is true if futures are below fair value.

Par

1. The face value of a bond. Generally $1,000 for corporate issues, with higher denominations such as $10,000 for many government issues. 2. A dollar amount assigned to a security when first issued. I: For stocks, par is usually a small dollar amount that bears no relationship to the security's market price.

25% Rule

1. The idea that a local government's long-term debt should not exceed 25% of its annual budget. Any debt beyond this threshold is considered excessive and a potential risk, since the municipality may have trouble paying the cost of debt. 2. A technique for determining royalties which stipulates that a party selling a product based on another party's intellectual property must pay that party a royalty of 25% of the gross profit made from the sale, before taxes. The 25% rule applies to trademarks, copyrights, patents and other forms of intellectual property. I: 1. Municipal governments looking to fund projects through bond issues have to make assumptions about the revenue they expect to bring in, which in turn will allow them to support bond payments. If revenue falls short of expectations those municipalities may not be able to make bond payments, which can hurt their credit rating. Municipal bond holders want to make sure that the issuing authority has the capacity to pay without getting in too deep. 2. Setting the value of intellectual property is a complex matter. The 25% rule does not closely define what "gross profit" includes, which creates ambiguity in the valuation calculation. Because it's a hard-and-fast rule, it does not take into account the costs associated with marketing the product. For example, the holder of a copyright will receive a 25% royalty, though the party doing the selling usually incurs the cost of creating demand in the market through advertising.

Quote

1. The last price at which a security or commodity traded, meaning the most recent price on which a buyer and seller agreed and at which some amount of the asset was transacted.2. The bid or ask quotes are the most current prices and quantities at which the shares can be bought or sold. The bid quote shows the price and quantity at which a current buyer is willing to purchase the shares, while the ask shows what a current participant is willing to sell the shares for.This is also known as an asset's "quoted price". I: 1. Quotes for stock and bond prices change throughout the trading day as new transactions occur one after another in a continual stream of trades. When you look up a stock quote for a given company, you are looking at the most recent price at which a trade was successfully executed for that particular security.2. Potential investors or sellers in a company are more concerned about the bid and ask quotes as they reflect at what prices the stock can be bought or sold, while the price quote as defined in the first definition shows the price at which the stock traded most recently.

Impaired Capital

1. When a bank's actual assets are worth less than their stated value. When a bank has impaired capital, this capital can be liquidated if the bank cannot make up the deficiency. State laws define the treatment of a bank with impaired capital. 2. When a company's actual assets are worth less than the stated value of the company's outstanding shares. I: In the case of a bank with impaired capital, one option for making up the deficiency is that the bank's board of directors can choose to levy and collect pro rata assessments on common stock to restore the impaired capital. If stockholders do not pay the assessments within a specified time frame, usually three to four weeks, the bank's board of directors can choose to sell enough of the stockholder's shares to collect the assessment.

Layoff

1. When a company eliminates jobs regardless of how good the employees' performance. 2. A risk reduction, made by investment bankers, that minimizes the potential downside associated with a commitment to purchase and sell a stock issue unsubscribed by stockholders holding rights. I: 1. This is usually because the company is facing financial difficulties. 2. This is a method whereby an investment banking firm, who has committed to buying up all the unsubscribed shares during a rights offering, will reduce the time risk involved due to the difference between entering into the contract and selling the shares. In other words, they are hedging against any losses due to time.

Offer

1. When one party expresses interest to buy or sell an asset from another party. The offering price is often the highest the buyer will pay to purchase an asset, and the lowest that the seller will accept.2. The act of making an asset available for sale. I: 1. There are many different types of offers, each of which has a distinct combination of features ranging from pricing requirements, rules and regulations, type of asset, and the buyer's and seller's motives. For example, when purchasing a house, prospective buyers will make an offer to the seller, and will often list the highest price he or she is willing to pay. However, if another prospective buyer enters the scene and a bidding war ensues, each buyer will continue to bid until his or her maximum price level is attained. 2. Firms can offer a variety of things to the investment community. For example, when a firm has an equity or debt offering, it will offer shares or bonds to investors. Similarly, the company may offer rights to its shareholders, which allow them to purchase more stock.

National Registration Database - NRD

A Canadian database, launched in 2003 to replace the old paper form system, that allows security dealers and investment advisors to file registration forms electronically. I: The NRD is simply a system used to increase the efficiency of the filing and sharing of information between provincial security regulators. Examples of items that need to be filed include a change in the information of a member firm and the termination of an investment advisor.

Harmonized Sales Tax (HST)

A Canadian tariff scheduled to be implemented on July 1, 2010, that combines the federal goods and services tax (GST) with the provincial sales tax (PST). According to the C.D. Howe Institute, a Canadian public policy organization, the HST is primarily an attempt to build a more efficient tax system, and not to increase sales tax revenues. Proponents believe that replacing the cumbersome provincial sales tax (PST) with a one-time, value-added tax will benefit consumers by simplifying the tax system and eliminating some of the current disincentives that many producers face. I: The notion of a harmonized sales tax is nothing new. In 1991, the province of Saskatchewan, under the Progressive Conservative government of Premier Grant Devine, combined its existing PST with the GST, a move that proved to be tremendously unpopular. In the general election that year, the New Democratic Party under Roy Romanow swept to a landslide victory, due at least in part to a pledge to reverse the "harmonization." Apparently, little has changed on the public perception front. A 2010 Ipsos Reid poll, conducted on behalf of Canwest News Service and Global National, revealed that 82% of British Columbians and 74% of Ontarians opposed the government's plans to harmonize the sales tax.

Jan Tinbergen

A Dutch economist who won the Nobel Memorial Prize in Economics in 1969, along with Ragnar Frisch, for his development and application of dynamic models for analyzing economic processes. Tinbergen was one of the first economists to apply math to economics. He helped to develop the field of econometrics and developed multi-equation models of national economies that were a precursor to today's computer-driven economic forecasts. His research focused on business cycles and economic development. He also developed the idea that governments must use multiple policy instruments if they want to impact multiple policy targets. I: Tinbergen was born in 1903 in the Netherlands and earned his Ph.D. in physics from the University of Leyden. He worked for the Netherlands Bureau for Economic Policy Analysis and the League of Nations and taught development planning at the Netherlands School of Economics in Rotterdam. In addition to his economic contributions, he was known for his generosity and humanitarianism.

Fair Debt Collection Practices Act - FDCPA

A Federal law that limits the behavior and actions of debt collectors who are attempting to collect the debt for another person or entity. The law restricts the means and methods by which they can contact the debtor, as well as the time of day that contact can be made. If violated, suit may be brought within one year to collect damages and attorney fees. I: This law does not protect debtors from those who are attempting to collect a personal debt. For example, if you owe money to the local hardware store and the owner of the store calls you to collect that debt, he is not a debt collector under this act. The act applies to third-party debt collectors such as people who work for a debt collection agency. It is designed to protect debtors from harassment by these individuals in the form of threats of arrest or bodily harm if you don't pay. Collectors can't imply that they represent law enforcement, nor can they make multiple phone calls daily or call you at work if you refuse to take such calls.

FASB 157

A Financial Accounting Standards Board (FASB) Statement that requires all publicly-traded companies in the U.S. to classify their assets based on the certainty with which fair values can be calculated. This statement created three asset categories: Level 1, Level 2 and Level 3. Level 1 assets are the easiest to value accurately based on standard market-based prices and Level 3 are the most difficult. I: FASB 157 was passed to help investors and regulators understand how accurate a given company's asset estimates truly were. Many firms (including some of the largest in terms of assets) had to write down billions of dollars in hard-to-value Level 3 assets following the subprime meltdown and related credit crisis, which began in late 2006. By making companies report to investors the breakdown of assets, they allow investors to potentially see what percentage of the balance sheet could be open to revaluation or susceptible to sudden write-downs.

Jean-Baptiste Say

A French classical, liberal economist and scholar. Jean-Baptiste Say is known for his contribution to Say's Law of Markets and for his work on "A Treatise On Political Economy". Say was born in 1767, taught political economy in France at Conservatoire National des Arts et Metiers, and later at the College de France. I: Say's Law roughly says that the economy is self-regulating so production is the source of demand but has been interpreted in many ways and is frequently misunderstood to mean "supply creates its own demand". Another famous economist, John Maynard Keynes, criticized his law. Say was heavily influenced by Adam Smith and promoted the laissez-faire philosophy. His contemporaries include Thomas Malthus and David Ricardo.

Gantt Chart

A Gantt chart is a visual representation of a project schedule. A type of bar chart, a Gantt charts show the start and finish dates of the different required elements of a project. Henry Laurence Gantt, an American mechanical engineer, is recognized for developing the Gantt chart. I: Gantt charts are useful in planning how long a project should take and helping to sequence the events by laying them out in the order in which the tasks need to be completed. Typically, tasks are shown on the vertical axis, and the project time span is represented on the horizontal axis. Each task has a corresponding bar that shows the time span required for that task. The bar can be filled in to show the percentage of the task that has been completed. Gantt charts also indicate dependencies, those tasks that are dependent upon other tasks. Today there are many software applications available for creating Gantt charts, as well as functions in popular programs such a Microsoft Excel.

Pari-passu

A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations are equally managed without any display of preference. An example of pari-passu occurs during bankruptcy proceedings when a verdict is reached, all creditors can be regarded equally, and will be repaid at the same time and at the same fractional amount as all other creditors. Treating all parties the same means they are pari-passu. I: In finance, the term pari-passu refers to loans, bonds or classes of shares that have equal rights of payment, or equal seniority. In addition, secondary issues of shares that have equal rights with existing shares rank pari-passu. Wills and trusts can assign an in pari-passu distribution where all of the assets will be equally divided between the named parties.

Quid Pro Quo

A Latin phrase meaning "something for something". This term is typically used in financial circles to describe a mutual agreement between two parties in which each party provides a good or service in return for a good or service. I: Quid pro quo agreements are sometimes viewed negatively. For example, in a quid pro quo agreement between a large financial house and a company, the financial house might alter poor stock ratings in exchange for company business. In response to these potential occurrences, the NASD has issued rules in order to ensure that firms put customers' interests before their own. A positive example of a quid pro quo agreement is a soft dollar agreement. In a soft dollar agreement, one firm (Firm A) uses another firm's (Firm B) research. In exchange, Firm B executes all of Firm A's trades. This exchange of services is used as payment in lieu of a traditional, hard dollar payment.

S

A Nasdaq stock symbol indicating shares of beneficial interest. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

C

A Nasdaq stock symbol indicating the issuer has been granted a continuance in Nasdaq under an exception to the qualification standards for a limited period. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

N

A Nasdaq stock symbol specifying that it is the company's third class of preferred shares. The N in the stock quote will be the fifth letter in the string, thus identifying that the share is not a common share, but rather a preferred share of the third class. On the Nasdaq exchange, N specifically identifies the issue as something other than a single issue of common stock or capital stock. I: Preferred stock ownership in a corporation usually has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders. Shareholders of preferred shares often prefer this class of shares due to its higher ranking in the "waterfall" of corporate distributions.

H

A Nasdaq stock symbol specifying that it is the second preferred bond of the company. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

I

A Nasdaq stock symbol specifying that it is the third preferred bond of the company. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

K

A Nasdaq stock symbol specifying that the stock has no voting rights. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

J

A Nasdaq stock symbol specifying that the stock has voting rights. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it indicates that the issue is other than a single issue of common or capital stock.

T

A Nasdaq stock symbol specifying that the stock has warrants or rights. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

B

A Nasdaq stock symbol specifying that the stock is Class B shares of the company. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

Ragnar Frisch

A Norwegian economist and joint winner in 1969 of the very first Nobel Prize in Economics, along with Jan Tinbergen, for his research in econometrics. Ragnar Frisch's other areas of research included time series, linear regression analysis, production theory and business cycles. He worked to establish economics as a science, founded the Econometric Society, and coined the terms "econometrics," "microeconomics" and "macroeconomics." I: Frisch was born in 1895 in Norway. He began his career as a gold and silversmithing apprentice in order to work in the family business but became interested in economics through his university studies. He earned his Ph.D. in mathematics from the University of Oslo, where he became a professor and taught for many years. He died in 1973. The Ragnar Frisch Centre for Economic Research at the University of Oslo and the Frisch Medal for outstanding econometrics papers are named in his honor.

500 Investor Rule

A SEC stipulation requiring a company that exceeds 500 individual investors with more than $10 million in assets to file its financials with the Securities & Exchange Commission. According to SEC rules, such a company has 120 days following the end of their fiscal year's end to file. I: The 500 investor rule is a key threshold for private businesses which do not wish to disclose financial information for public consumption. Many believe that the 500 Investor Rule was one of the reasons that Google (Nasdaq:GOOG) filed for its IPO when it did, as the company was going to have to start disclosing to the SEC anyway.

SAMA Foreign Holdings (Saudi Arabia)

A Saudi Arabian sovereign wealth fund. The fund is controlled by the Saudi Arabian Monetary Authority, a part of the central bank. According to the Sovereign Wealth Fund Institute, SAMA Foreign Holdings is the third largest sovereign wealth fund in the world, with an estimated $432 billion in assets under management as of 2009. I: The majority of the wealth held in the SAMA Foreign Holdings fund is derived from the oil wealth of Saudi Arabia, but the fund also manages certain Saudi public pensions. It is estimated to be the second largest of the three major Gulf country funds, the other two being the ADIA (Abu Dhabi, UAE) and the KIA (Kuwait). The fund is highly secretive regarding its holdings and investment strategies.

Federal Housing Finance Agency - FHFA

A U.S. government agency created by the Housing and Economic Recovery Act of 2008 that regulates the secondary mortgage market by overseeing the activities of Fannie Mae, Freddie Mac and the 12 federal home loan banks. This new agency was established to act like a bank-regulator in order to strengthen and improve oversight of the U.S. housing finance system because of the secondary mortgage market's major role in the overall economy. I: The role of the FHFA was previously handled by two other organizations, the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight, with input from the government-sponsored enterprise office of the U.S. Department of Housing and Urban Development. The new organization's goals include increasing affordable housing, conserving the assets and property of Fannie Mae and Freddie Mac, and stabilizing a turbulent U.S. economy.

2011 U.S. Debt Ceiling Crisis

A contentious July 2011 debate regarding the maximum amount of borrowing that the United States government should be allowed to undertake. A debt ceiling has been in place since 1917, but the government raises it whenever it comes close to hitting it. Hitting the debt ceiling would mean defaulting on interest payments to creditors. The consequences of such a default could include late, partial or missed payments to federal pensioners, Social Security and Medicare recipients, government employees and government contractors, as well as an increase in interest rate at which the U.S. could undertake further borrowing. The 2011 U.S. debt ceiling crisis was a heated negotiation over how to avoid potential problems like these. I: Congress resolved the debt ceiling crisis when it passed the Budget Control Act of 2011 and decided to immediately raise the debt ceiling by $400 billion, from $14.3 trillion to $14.7 trillion, with the option for additional increases in the coming months. The agreement included $900 billion in spending cuts over the next 10 years and established a special committee to identify additional spending cuts. In the aftermath of the crisis, Standard and Poor's downgraded the United States' credit rating from AAA to AA+ even though the U.S. did not default.

Management Buy-In - MBI

A corporate action in which an outside manager or management team purchases an ownership stake in the first company and replaces the existing management team. This type of action can occur due to a company appearing undervalued or having a poor management team. I: There are a wide range of management teams, such as hedge funds and other companies, that look for undervalued companies to purchase. If they find a company that fits with their investment criteria, they will often purchase the company and make it private to unlock the value. More often than not, they replace the management team with their own, which they feel will do a better job at running the company.

Qualified Institutional Buyer - QIB

A corporate entity that falls within the "accredited investor" category, defined in SEC Rule 501 of Regulation D. A Qualified Institutional Buyer (QIB) is one that owns and invests, on a discretionary basis, at least $100 million in securities; for a broker-dealer the threshold is $10 million. QIBs encompass a wide range of entities, including banks, savings and loans associations, insurance companies, investment companies, employee benefit plans or entities owned entirely by accredited investors. Banks and S&L associations must also have a net worth of at least $25 million to satisfy the QIB criteria. I: QIBs must be either domestic or foreign institutions. Individuals are not permitted to be QIBs, regardless of their level of wealth or financial sophistication. QIBs are permitted to participate in the market for securities under Rule 144A, which is a safe harbor exemption from the SEC's registration requirements for securities. Transactions generally conducted under Rule 144A include: private placements of debt or preferred securities by public issuers, offerings by foreign issuers who wish to avoid U.S. reporting requirements, and common stock offerings by non-reporting issuers.

Dealer Incentive

A corporate sales strategy in which the price a dealer has to pay a manufacturer for a particular product is reduced, allowing the dealer to make a higher profit or to reduce the price at which the product is sold to consumers. Dealer incentives can be tied to certain sales quotas, meaning that the dealer will only receive the incentive when a certain number of units is sold. I: Dealer incentives are often associated with the automobile industry. Manufacturers will reduce the price a dealer has to pay for a particular vehicle model in the hope of increasing the sales volume of that model. If the dealer charges the end consumer the same price but pays less to acquire the model, then the dealer earns a higher profit. The dealer can also pass the cost savings to the consumer, but may not be required to do so.

Lady Macbeth Strategy

A corporate-takeover strategy with which a third party poses as a white knight to gain trust, but then turns around and joins with unfriendly bidders. I: Lady Macbeth, one of Shakespeare's most frightful and ambitious characters, devises a cunning plan for her husband, the Scottish general, to kill Duncan, the King of Scotland. The success of Lady Macbeth's scheme lies in her deceptive ability to appear noble and virtuous, and thereby secure Duncan's trust in the Macbeths' false loyalty.

Headhunter

A corporation or individual that provides employment recruiting services. A headhunter is hired by firms to find talent, and to locate individuals who meet specific job requirements, such as an executive with 15 years experience in a certain field. The term headhunter may also be referred to as an executive recruiter. Headhunters may have a pool of candidates for specific positions, or may act aggressively to find talent by looking at competitors' employees. I: A headhunter is retained to fill positions, often for jobs that require high skills levels, or offer high pay. Headhunters working on behalf of a firm often scour international organizations for top talent. In comparison to job fairs, headhunters seek individuals based on their skill level, not potential employees based on looser skill classes. In addition, some individuals may contact a headhunter to provide a resume or curriculum vitae (CV), or to apply for a position for which the headhunter is seeking talent. Also known as an Executive Searcher

Imputed Cost

A cost that is incurred by virtue of using an asset instead of investing it or undertaking an alternative course of action. An imputed cost is an invisible cost that is not incurred directly, as opposed to an explicit cost, which is incurred directly. Imputed cost is also known as "implied cost" or "opportunity cost". I: For example, businesses that were created decades ago may own very valuable real estate in the downtown core. The imputed cost for such businesses is equal to the interest that the business would earn if those funds were invested. Another example of an imputed cost is that of a worker's decision to go back to school. The imputed cost in this case is the loss of wages.

Implicit Cost

A cost that is represented by lost opportunity in the use of a company's own resources, excluding cash. The implicit cost for a firm can be thought of as the opportunity cost related to undertaking a certain project or decision, such as the loss of interest income on funds, or depreciation of machinery used for a capital project. I: Implicit costs can also be thought of as intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of the company, rather than working on expansion, can be viewed as an implicit cost of running the business. In corporate finance decisions, implicit costs should always be considered when coming to a decision on how to allocate resources.

Paper Money

A country's official, paper currency that is circulated for transaction-related purposes. The printing of paper money is typically regulated by a country's central bank/treasury in order to keep the flow of money in line with monetary policy. Paper money tends to be updated with new versions that contain security features that seek to make it more difficult for counterfeiters to create illegal copies. I: The first recorded use of paper money was believed to be in China during the 7th century A.D. as a means of reducing the need to carry heavy and cumbersome strings of metallic coins to conduct transactions. Similar to making a deposit at a modern bank, individuals would transfer their coins to a trustworthy party and then receive a note denoting how much money they had deposited. The note could then be redeemed for currency at a later date.

Federal Credit Union - FCU

A credit union chartered and supervised by the National Credit Union Association (NCUA), a federal government agency that functions much like the FDIC. Federal credit unions operate like retail banks with one major exception: every credit union member is also a partial owner of the institution. Credit unions operating under the label "federal" are not directly run by the government or limited to government employees. Rather, they've simply opted to organize themselves under federal credit union regulations instead of state banking laws. I: Some feel that credit unions may be one of the best-kept secrets of consumer banking. Since these organizations are essentially owned by the people who deposit money with them, credit union members often enjoy higher rates on their savings accounts and lower costs of borrowing than customers at traditional banks. Making credit unions even more attractive is the fact that deposits are protected by the the U.S. Treasury similar to FDIC insurance, as long as the credit union is either federally chartered or a state-chartered credit union that has opted to participate in NCUSIF.

Earning The Points

A currency trading term that describes when the forward ask price is lower than the spot bid price, resulting in a gain for the trader. A trader is gaining the points when he or she sells at one price now then agrees to buy for less in the future. Gaining the point only refers to the difference between sell and buy prices and does not take the time value of money into account.This is the opposite of "losing the points". I: If the individual sells at the higher ask price in the spot market, then buys at a lower bid price in the futures market, he or she is gaining the points.For example, suppose that Peter sells the British pound at 2.2055 dollars per British pound in the spot and enters into a forward contract to buy the pound back at 2.2000 dollars per pound in the future. Peter is gaining the points, in this case 0.0055 dollars per pound.

Hard Currency

A currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex market. I: Another criterion for a hard currency is that the currency must come from a politically and economically stable country. The U.S. dollar and the British pound are good examples of hard currencies.

Half-Life

A date some time in the future when half of the total principal of a mortgage-backed security will be paid off. The interest payments are not taken in to account when calculating the half-life. While an estimate can be made as to what the half-life will be, it is not definite as the variables of the security may change. I: The time taken to reach half-life is very dependent upon interest rates. As interest rates fall, the principle will be paid off quicker as homeowners refinance their mortgages. Similarly, as interest rates increase, the half-life will increase as homeowners will hold onto their mortgages for longer.

Bad Debt Recovery

A debt from a loan, credit line or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. Because it generally generates a loss when it is written off, a bad debt recovery usually produces income. In accounting, the bad debt recovery would credit the "allowance for bad debts" or "bad debt reserve" categories, and reduce the "accounts receivable" category in the books. I: Not all bad debt recoveries are "like-kind" recoveries. For example, a collateralized loan that has been written off may be partially recovered through sale of the collateral. Or, a bank may receive equity in exchange for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit.

Quarterly Income Debt Securities - QUIDS

A debt instrument offering guaranteed quarterly payments directly to the shareholder by the parent company. Quarterly Income Debt Securities (QUIDS) were formed by Goldman Sachs & Co. and are sold in small denominations, generally $25. They usually are callable by the issuer in 5 years and with maturities of around 30-50 years. I: Typically these are senior unsecured debt that rank above preferred securities and on the same level as other unsubordinated and unsecured debt. These securities were made to be similar to Trust Preferred Securities but excluding the trust.

10-Year Treasury Note

A debt obligation issued by the United States government that matures in 10 years. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity. An advantage of investing in 10-year Treasury notes, and other federal government securities, is that the interest payments are exempt from state and local income tax. However, they are still taxable at the federal level. I: The U.S. Treasury also sells notes with two, three, five and seven-year terms. All of these notes, along with Treasury bills and bonds, can be purchased directly from the U.S. government through the TreasuryDirect website via competitive or noncompetitive bidding with a minimum purchase of $100 and in $100 increments. They can also be purchased indirectly through a bank or broker. Investors can choose to hold Treasury notes until maturity or sell early. There is no minimum ownership term.

Bailout Bond

A debt security issued by the Resolution Funding Corporation to bail out the savings and loan associations during the financial crisis of the late 1980s and early 1990s. The bailout bonds had zero-coupon Treasury bonds backing the principal amounts, making the instruments a safe investment. I: In the mid 1990s, after the savings and loan associations recovered from its crisis, bailout bonds were no longer issued. Because the bonds were backed by Treasury securities, the yields were only marginally better than those of similar T-bonds.

Bad Debt

A debt that is not collectible and therefore worthless to the creditor. This occurs after all attempts are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. This debt, once considered to be bad, will be written off by the company as an expense. I: Most companies make sales on credit as it generally allows them to increase their sales, even though some sales are to customers with less than desirable credit. Companies that do make credit sales will estimate the amount of sales they expect to lose to bad debt, which is found in the allowance for doubtful accounts. A debtor with a history of bad debts will see their credit rating decline, which makes it difficult for the debtor to access any additional form of credit.

Daily Factor

A decimal representing the portion of an annual yield earned in one day. Daily factors are often reported alongside current annualized yield figures, and can be translated back to the current yield by multiplying the number by 365. I: For example, a certificate of deposit that trades for a current annual yield of 5.35% will show a daily factor of (.0535 / 365) or .000146575Daily factors are small amounts to be sure, but many high-level banking and trust institutions will provide this daily interest calculation to their most important institutional accounts. The larger the pool of invested assets becomes, the more meaningful a daily factor calculation will be to the current account balances. Daily factors are also frequently shown for Treasury bond quotes.

Rational Behavior

A decision-making process that is based on making choices that result in the most optimal level of benefit or utility for the individual. Most conventional economic theories are created and used under the assumption that all individuals taking part in an action/activity are behaving rationally. I: Rational behavior does not necessarily always involve receiving the most monetary or material benefit, because the satisfaction received could be purely emotional. For example, while it would be more financially lucrative for an executive to stay on at a company rather than retire early, it would still be considered rational behavior for her to seek an early retirement if she feels that the benefits of retired life outweigh the utility from the paycheck that she receives.

Satisficing

A decision-making strategy that aims for a satisfactory or adequate result, rather than the optimal solution. This is because aiming for the optimal solution may necessitate needless expenditure of time, energy and resources. The term "satisfice" was coined by American scientist and Noble-laureate Herbert Simon in 1956. I: The theory of satisficing finds application in a number of fields including economics, artificial intelligence and sociology. Satisficing implies that a consumer, when confronted with a plethora of choices for a specific need, will select a product or service that is "good enough", rather than expending effort and resources on finding the best possible or optimal choice.

Joint Return

A U.S. income tax return filed on behalf of a married couple, resulting in a combined tax liability. Married taxpayers can choose to file two separate tax returns or a joint tax return. The joint return is often referred to as married filing jointly (MFJ). In order to file a joint return in any given year, the couple must be legally married on or before the last day of the year, and both spouses must agree to file a joint return. I: The Internal Revenue Service (IRS) states, "If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses." Both spouses report all income, deductions and credits on a joint tax return, and both spouses must sign the tax return. If one spouse dies during the year, the surviving spouse can still file a joint return for that year. During subsequent years, the surviving spouse can file as a surviving spouse, as head of household or as a single taxpayer. If taxpayers divorce at any point during the year, they are considered unmarried for that entire year and cannot elect "married filing jointly" as their filing status. In general, the joint return provides more favorable tax benefits than filing separately. However, each case is different and taxpayers must determine which method results in the lower combined tax.

Hart-Scott-Rodino Antitrust Improvements Act Of 1976

A U.S. law enacted by President Ford that requires large companies to file a report with the Federal Trade Commission and Department of Justice before completing a merger, acquisition or tender offer so that government regulators can determine whether the transaction would violate antitrust laws. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires any investor seeking to acquire a 15% stake or a stake valued at more than $15 million in a security to file with the government. The form is called a premerger notification report (PNR), with the filing marking the beginning of the 30 day review. The acquiring company must also pay a filing fee which can change from year to year. This act is also known as the HSR Act. I: Once the companies have filed the required PNR forms, a waiting period begins. The waiting period is usually 30 days, but for cash tender offers or an acquisition in bankruptcy it is 15 days. The transaction can proceed if the waiting period ends or if the government terminates the waiting period early. If regulators see a potential anticompetitive problem with the proposed transaction, they will request additional information from the companies involved and extend the waiting period or seek an injunction to prevent the transaction.

Quitclaim Deed

A deed releasing a person's interest in a property without stating the nature of the person's interest or rights, and with no warranties of ownership. While a quitclaim deed neither warrants nor professes that the grantor's claim is valid, it does prevent the grantor from later claiming they have an interest in the property. I: Since a quitclaim deed makes no assurance that the grantor actually has an ownership interest in a property - but merely states that if they do, they release those ownership rights - when accepting a quitclaim deed the buyer of a property accepts the risks that the grantor of the deed may not have a valid ownership interest and/or that there may be additional ownership interests in the property. Title insurance companies may be unwilling to issue title insurance based on a quitclaim deed.

Pac-Man Defense

A defensive tactic used by a targeted firm in a hostile takeover situation. In a Pac-Man defense, the target firm turns around and tries to acquire the other company that has made the hostile takeover attempt. This term has been accredited to Bruce Wasserstein, chairman of Wasserstein & Co. I: This term comes from the Pac-Man video game. In the game, once Pac-Man eats a power pellet he is able to turn around and eat the ghosts that are chasing after him in the maze. When one company makes an unsolicited and aggressive bid on another publicly traded company, the takeover attempt may not be welcomed by the targeted firm. In an attempt to scare off the would-be acquirers, the takeover target may use any method in an attempt to acquire the other company, including dipping into its war chest for cash to purchase the other company's stock.

412(i) Plan

A defined-benefit pension plan designed for small business owners in the United States. This is a tax-qualified benefit plan, so any amount that the owner contributes to the plan becomes available immediately as a tax deduction to the company. The plan must be funded solely by guaranteed annuities, or a combination of annuities and life insurance. I: These plans have been developed for small business owners who find it difficult to invest in their company, while also trying to save for retirement. This plan is unique in that it provides fully guaranteed retirement benefits, it must be funded by an insurance company and it provides the largest tax-deduction possible.Due to the large premiums that must be paid each year, this plan may not be ideal for all small business owners. This plan would tend to benefit small businesses that are established and quite profitable.

Federal Insurance Contributions Act - FICA

A U.S. law requiring a deduction from paychecks and income that goes toward the Social Security program and Medicare. Both employees and employers are responsible for sharing the FICA payments. I: FICA stipulates that there is a maximum that can be allocated to Social Security, while there is no maximum on what can go toward Medicare. Once the maximum to Social Security is achieved, the contributor's FICA payment will not increase the Social Security portion but will continue to increase the contribution to Medicare. The amount of the FICA payment depends on the income of the contributor; the higher the income, the higher the FICA payment. If FICA states, for example, that 12.4% of your salary goes toward Social Security and 2.9% goes toward Medicare, half of the payment is made by you and the other half by your employer. This means you pay 7.65% (6.2% and 1.45%) of your income, while your employer pays the other 7.65%. Self-employed people, on the other hand, must pay the full amount, but half - which would represent the employer's half - is a deductible business expense.

National Association Of State Boards Of Accountancy - NASBA

A U.S. nonprofit group founded in 1908 that seeks to enhance the effectiveness of the state boards of accountancy. Public accountancy is regulated at the state level, with each state maintaining an independent board of accountancy that oversees the profession. NASBA assists the 55 state boards of accountancy by providing a forum for greater interaction and collaboration across states. I: Since the license to practice accountancy is granted at the state level, a certified public accountant (CPA) licensed in one state has to obtain a new license if he or she moves to a different state. The NASBA has worked toward standardizing the state requirements for licensure so that CPAs will have their qualifications recognized in all states.

Fair And Accurate Credit Transactions Act - FACTA

A U.S. resolution passed in 2003 that is aimed at enhancing protection measures for identity theft by creating standards for the handling of credit card numbers. This act allows individuals free access to their own credit reports and has created a nationwide alerts system. This act is an amendment to the existing Fair Credit Reporting Act. I: With the passing of FACTA, people are now allowed to request their credit reports free, once per year, from all three of the major credit reporting agencies (Equifax, Experion and Transunion). Not only were requirements placed on mortgage lenders to release consumer information regarding credit scores and factors influencing the price of a mortgage loan, but standards also were put into place that require lenders and regulators to be more proactive in spotting identity theft before it occurs by looking for suspicious patterns.

Economic Growth And Tax Relief Reconciliation Act of 2001 - EGTRRA

A U.S. tax law, effective for tax years beginning 2002, that made some of the most important changes to retirement plans, including increased contributions and deductibility limits for IRA and employer-sponsored plans, and expanded the portability rules for retirement plans in general. EGTRRA also increased the estate-tax exclusion and increased the generation-skipping transfer-tax exemption amounts. I: Many of the changes brought about by EGTRRA are scheduled to sunset in 2010. This means that unless new laws are passed to extend these provisions, things will revert to the way they were before EGTRRA. Taxpayers would do well to take advantage of as much of the EGTRRA provisions as they can before the provisions sunset.

Jobs And Growth Tax Relief Reconciliation Act of 2003 - JGTRRA

A U.S. tax law, passed by Congress on May 23, 2003, that lowered the maximum individual income tax rate on corporate dividends to 15%. The act also reduced the long-term individual income tax rate on capital gains to 15%. The act was signed by President George W. Bush on May 28, 2003, and was intended to amplify the effects of the Economic Growth and Tax Relief Reconciliation Act of 2001. I: The JGTRRA was put forward as part of an effort to jump-start the U.S. economy. The law significantly reduced the amount of tax paid by investors on dividends and capital gains. This development made it much more attractive for public companies to pay cash dividends to shareholders (instead of holding onto their cash and reinvesting it into expanded operations). Thus, after the enactment of the JGTRRA, the number of U.S. companies paying regular dividends increased substantially.

Office Of Foreign Asset Control - OFAC

A department of the U.S. Treasury that enforces economic and trade sanctions against countries and groups of individuals involved in terrorism, narcotics and other disreputable activities. I: The OFAC was officially created in 1950, when China entered the Korean War. President Truman declared the event a national emergency, and froze all Chinese and Korean assets subject to U.S. jurisdiction. The OFAC's predecessor was the Office of Foreign Funds Control (OFFC), which was established in response to the Nazi invasion of Norway in 1940. The OFAC program runs many sanctions based on United Nations mandates. Basically, through these sanctions and trade policies, the OFAC tries to make the economic lives of these countries or groups of individuals very difficult. This is done as a way to pressure a country to conform to certain laws or regulations, or to discontinue disreptuble activity.

Bad Bank

A bank set up to buy the bad loans of a bank with significant nonperforming assets at market price. By transferring the bad assets of an institution to the bad bank, the banks clear their balance sheet of toxic assets but would be forced to take write downs. Shareholders and bondholders stand to lose money from this solution (but not depositors). Banks that become insolvent as a result of the process can be recapitalized, nationalized or liquidated. I: A well-known example of a bad bank was Grant Street National Bank, which was created in 1988 to house the bad assets of Mellon Bank. The financial crisis of 2008 revived interest in the bad bank solution, as managers at some of the world's largest institutions contemplated segregating their nonperforming assets into bad banks. Federal Reserve Bank Chairman Ben Bernanke proposed the idea of using a government-run bad bank in the recession following the subprime mortgage meltdown in order to clean up private banks with high levels of problematic assets and allow them to start lending again. An alternate strategy considered was a guaranteed insurance plan that would keep the toxic assets on the banks' books but eliminate the banks' risk and pass the risk on to taxpayers.

Lead Bank

A bank that oversees the arrangement of a loan syndication. The lead bank is paid an additional fee for this service, which involves recruiting the members and negotiating the financing terms. In the eurobond market, the lead bank acts in an agent capacity for an underwriting syndicate. I: "Lead bank" can also refer to an investment bank that manages the process of underwriting a security. In this sense, the bank can also be referred to as a lead manager or managing underwriter. A third meaning of this term is simply the primary bank of an organization that uses several banks for several different purposes.

Federal Land Bank - FLB

A bank which specializes in loans and financing for rural property such as farms, forestry and timber, other parks and recreational services. Federal Land Banks (FLB's) employ experts in the industry capable of throroughly explaining the products they offer based on the needs of the customer. With extended knowledge of the needs of the farming industry, they are the best option for those looking for rural real estate loans. I: Federal land banks provide services to individuals regarding rural property. Even though the majority of their business resides in the commercial aspect of rural land, they also deal with the refinancing, restructuring, rebuilding, and repurchase of rural real estate for personal use.

Quick-Rinse Bankruptcy

A bankruptcy proceeding that is structured to move through legal proceedings faster than the average bankruptcy. The term "quick-rinse bankruptcy" first emerged during the credit crisis that started in 2008 and was used to describe the planned bankruptcies of U.S. automotive giants Chrysler and General Motors. In order for quick-rinse bankruptcies to be effective, interested parties must negotiate prior to the proceedings. These negotiations take place between the government, debtholders, unions, shareholders and other parties in order to prevent filings by these parties in court that would otherwise clog up the process. I: Pre-negotiated bankruptcies arose during the credit crisis of 2008 due to the perceived impact that the Chrysler and GM failures would have on the economy. It was argued that an untimely bankruptcy would result in massive layoffs and further stunt economic growth. As an example of a normal bankruptcy for an automotive company, one should look at the bankruptcy of Delphi Corp., which went into bankruptcy in 2005 and still had not emerged by 2009.

Farm Team

A baseball reference applied to businesses that train employees only to have them leave for competing firms. A farm team typically has non-ideal practices that cause high employee turnover - often to bigger and more prestigious companies. I: Like sport farm teams, these companies fully train the employees only to have them leave to work for another company. Being a farm team for your competitors will often, over time, lead to the destruction of the business.

Headline Earnings

A basis for measuring earnings per share implemented by the Institute of Investment Management and Research. This method accounts for all the profits and losses from operational, trading, and interest activities, that have been discontinued or acquired at any point during the year. Excluded from this figure are profits or losses associated with the sale or termination of discontinued operations, fixed assets or related businesses, or from any permanent devaluation or write off of their values. I: Headline earnings provides a stringent measurement tool. Investors can use it to compare and contrast different companies according to the standard method of accounting for net income (and EPS). Some companies report headline earnings per share in addition to required EPS figures.

Hanging Man

A bearish candlestick pattern that forms at the end of an uptrend. It is created when there is a significant sell-off near the market open, but buyers are able to push this stock back up so that it closes at or near the opening price. Generally the large sell-off is seen as an early indication that the bulls (buyers) are losing control and demand for the asset is waning. I: This formation does not mean that the bulls have definitively lost control, but it may be an early sign that the momentum is decreasing and the direction of the asset may be getting ready to change. The reliability of this signal is drastically improved when the price of the asset decreases the day after the signal. Hanging man formations can be more easily identified in intraday charts than daily charts and are a very popular formation used by day traders.If this pattern is found at the end of a downtrend, it is known as a "hammer".

Falling Three Methods

A bearish candlestick pattern that is used to predict the continuation of the current downtrend. This pattern is formed when the candlesticks meet the following characteristics:1. The first candle in the pattern is a long red candlestick within a defined downtrend.2. A series of ascending small-bodied candlesticks that trade within the range of the first candlestick.3. A long red candlestick creates a new low, which suggests that the sellers are back in control of the direction. I: The series of small-bodied candlesticks are regarded as a period of consolidation before the downtrend is able to continue. This pattern is important, because it shows traders that buyers still do not have enough conviction to reverse the trend and it is used by some active traders as a signal to add to their short positions.

Maple Bond

A bond denominated in Canadian dollars that is sold in Canada by foreign financial institutions and companies. Similar to other foreign bonds, such as the bulldog bond, samurai bond and matilda bond, the maple bond gives domestic investors (in this case, Canadian investors) the opportunity to invest in foreign companies without worrying about the effects of currency exchange fluctuations. I: Foreign companies can use maple bond issues to raise Canadian dollars for setting up operations in Canada. When foreign content restrictions on registered investments were removed in Canada in 2005, maple bonds quickly gained in popularity. According to Statistics Canada, nearly $27 billion worth of maple bonds were invested in 2006. However, their popularity plunged as a result of the credit crisis in 2008, as Canadian investors shied away from debt sold by foreign companies.

Japanese Government Bond - JGB

A bond issued by the government of Japan. The government pays interest on the bond until the maturity date. At the maturity date, the full price of the bond is returned to the bondholder. Japanese government bonds play a key role in the financial securities market in Japan. I: JGBs are very much like U.S. savings bonds. They are fully backed by the government, making them a very popular investment among low-risk investors and a useful investment among high-risk investors as a way to balance the risk factor of their portfolios. Like U.S. savings bonds, they have high levels of credit and liquidity, which further adds to their popularity.

Callable Bond

A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called. Also known as a "redeemable bond." I: The main cause of a call is a decline in interest rates. If interest rates have declined since a company first issued the bonds, it will likely want to refinance this debt at a lower rate of interest. In this case, company will call its current bonds and reissue them at a lower rate of interest.

Joint Bond

A bond that is guaranteed by a party other than the issuer. A joint bond is an issue which is essentially a liability to multiple parties. These parties may be both corporate entities or government agencies. I: While joint bonds can include any combination of parties, they are commonly used when a parent company is required to guarantee the bonds of a subsidiary. In such an instance, debt holders may not be interested in taking a debt investment in a subsidiary that may not share a credit rating quite as high as its parent, thus the parent company will act as an additional guarantor on the debt. Also know as "joint and several bond."

Macro Manager

A boss or supervisor who lets employees do their jobs with minimal supervision. Macro managers are thought of by some employees as superiors who do not give them enough support or feedback to do their jobs effectively, while others may be glad to be trusted and left alone. A macro manager is the opposite of a micro manager, a supervisor who constantly looks over employees' shoulders and is often perceived as controlling and overly critical. I: The term "macro manager" can also describe someone who runs a global macro hedge fund. Global macro managers need to have a broad knowledge base to understand big-picture influences on investment performance in the global marketplace. Such influences include political events, government policies and the way different countries' central banks function. George Soros, Julian Robertson and Michael Steinhardt are well-known global macro managers.

Fed Balance Sheet

A breakdown of the assets and liabilities held by the Federal Reserve. This report essentially outlines the factors that affect both the supply and the absorption of Federal Reserve funds. The Fed balance sheet report reveals the means the Fed uses to inject cash into the economy and is formally known as the Factors Affecting Reserve Balances Report. I: The weekly balance sheet report became popular in the media during the financial crisis starting in 2007. The Fed balance sheet gave analysts an idea of the scope and scale of Fed market operations being used at the time. In particular, the Fed balance sheet allowed analysts to see details surrounding implementation of an expansionary monetary policy used during the 2007-2009 crisis.

Economic Efficiency

A broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one person would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production. Some terms that encompass phases of economic efficiency include allocational efficiency, production efficiency and Pareto efficiency. I: A state of economic efficiency is essentially just a theoretical one; a limit that can be approached but never reached. Instead, economists look at the amount of waste (or loss) between pure efficiency and reality to see how efficiently an economy is functioning. Measuring economic efficiency is often subjective, relying on assumptions about the social good created and how well that serves consumers. Basic market forces like the level of prices, employment rates and interest rates can be analyzed to determine the relative improvements made toward economic efficiency from one point in time to another.

Rainmaker

A broker or financial advisor who brings a large number of wealthy clients to the firm he or she works for. Rainmakers are skilled at expanding their client base and increasing their assets under management. As such, they are typically highly compensated. Also, because of their proven ability to generate revenue for one firm, they may be heavily recruited by competing firms and offered significant financial incentives to make the switch. I: If a rainmaker leaves a firm and takes his or her clients, the firm can suffer a significant loss of future revenue, as well as the loss of reputation that comes with losing a well known broker/advisor. Rainmakers often have teams of brokers or advisers who work under them, and these teams may be part of a package deal when a rainmaker changes firms, which adds to their former firm's losses.

In Street Name

A brokerage account where the customer's securities and assets are held under the name of the brokerage firm, rather than the name of the individual who purchased the security or asset. Although the name on the certificate is not that of the individual, they are still listed as the real and beneficial owner and have the rights associated with the security. I: It is more convenient for brokers to hold securities in street name due to the complexity of tracking each stock certificate to each individual. Almost all brokers hold securities electronically and all securities in a brokers name comprise their inventory. Any time a client needs to buy or sell stocks, the broker is readily able to allocate a portion of their inventory as required.If brokers were to hold an inventory of paper securities, securities transactions would take more time. For example, if a client would like to sell their certificates, the broker would have to find the exact stock certificates owned by the client and send those securities back to the issuing company who would then change the names on the securities to that of the new owners.

Backlog

A build-up of work that needs to be taken care of. The term "backlog" has a number of uses in finance. It may refer to a company's sales orders waiting to be filled or a stack of financial paperwork that needs to be processed, such as loan applications. When a public company has a backlog there can be implications for shareholders, because the backlog may have an impact on the company's future earnings, as the company is unable to meet demand. A backlog is generally something that companies want to avoid. I: The 2008 housing crisis resulted in a backlog of foreclosures in which lenders had a large inventory of residential properties that they needed to sell and get off the books. With homes going into foreclosure at a much faster rate than usual, lenders did not have the capacity to process all the foreclosures in a timely manner. Another example of a problematic backlog occurred in 2009 in England, when a high volume of college financial aid applications resulted in a backlog that prevented some aid determinations from being made in time for the start of the school year.

Joint Venture - JV

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests. I: Although JVs represent a great way to pool capital and expertise and reduce the exposure of risk to all involved, they do present some unique challenges as well. For instance, if party A comes up with an idea that allows the JV to flourish, what cut of the profits does party A get? Does the party simply receive a cut based on the original investment pool or is there recognition of the party's contribution above and beyond the initial stake? For this and other reasons, it is estimated that nearly half of all JVs last less than four years and end in animosity.

Quantitative Analysis

A business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically. Quantitative analysis can be done for a number of reasons such as measurement, performance evaluation or valuation of a financial instrument. It can also be used to predict real world events such as changes in a share price. I: In broad terms, quantitative analysis is simply a way of measuring things. Examples of quantitative analysis include everything from simple financial ratios such as earnings per share, to something as complicated as discounted cash flow, or option pricing.Although quantitative analysis is a powerful tool for evaluating investments, it rarely tells a complete story without the help of its opposite - qualitative analysis. In financial circles, quantitative analysts are affectionately referred to as "quants", "quant jockeys" or "rocket scientists."

Make To Order - MTO

A business production strategy that typically allows consumers to purchase products that are customized to their specifications. The make to order (MTO) strategy only manufactures the end product once the customer places the order. This creates additional wait time for the consumer to receive the product, but allows for more flexible customization compared to purchasing from retailers' shelves. I: The make to order (MTO) strategy relieves the problems of excessive inventory that is common with the traditional make to stock (MTS) strategy. Dell Computers is an example of a business that uses the MTO production strategy.

De-Merger

A business strategy in which a single business is broken into components, either to operate on their own, to be sold or to be dissolved. A de-merger allows a large company, such as a conglomerate, to split off its various brands to invite or prevent an acquisition, to raise capital by selling off components that are no longer part of the business's core product line, or to create separate legal entities to handle different operations. I: For example, in 2001, British Telecom conducted a de-merger of its mobile phone operations, BT Wireless, in an attempt to boost the performance of its stock. British Telecom took this action because it was struggling under high debt levels from the wireless venture. Another example would be a utility that separates its business into two components: one to manage the utility's infrastructure assets and another to manage the delivery of energy to consumers.

Razor-Razorblade Model

A business tactic involving the sale of dependent goods for different prices - one good is sold at a discount, while the second dependent good is sold at a considerably higher price. I: If you've ever purchased razors and their replacement blades, you know this business method well. The razors are practically free, but the replacement blades are extremely expensive. The video game industry is another user of this pricing strategy. They sell the game consoles at a relatively low price, recouping the lost profits on the high-priced games.

Savings Account

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. Depending on the specific type of savings account, the account holder may not be able to write checks from the account (without incurring extra fees or expenses) and the account is likely to have a limited number of free transfers/transactions. Savings account funds are considered one of the most liquid investments outside of demand accounts and cash. In contrast to savings accounts, checking accounts allow you to write checks and use electronic debit to access your funds inside the account. Savings accounts are generally for money that you don't intend to use for daily expenses. To open a savings account, simply go down to your local bank with proper identification and ask to open an account. I: Because savings accounts almost always pay lower interest rates than Treasury bills and certificates of deposit, they should not be used for long-term holding periods. Their main advantages are liquidity and superior rates compared to checking accounts. Most modern savings accounts offer access to funds through visits to a local branch, over the internet and through automated teller machines.

Earnest Money

A deposit made to a seller showing the buyer's good faith in a transaction. Often used in real estate transactions, earnest money allows the buyer additional time when seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account. I: An earnest money deposit shows the seller that a buyer is serious about purchasing a property. When the transaction is finalized, the funds are put toward the buyer's down payment. If the deal falls through, the buyer may not be able to reclaim the deposit. Typically, if the seller terminates the deal, the earnest money will be returned to the buyer. When the buyer is responsible for retracting the offer, the seller will usually be awarded the money.

Half-Year Convention For Depreciation

A depreciation schedule that treats all property acquired during the year as being acquired exactly in the middle of the year. This means that only half of the full-year depreciation is allowed in the first year, with the remaining balance being deducted in the final year of the depreciation schedule, or the year that the property is sold. I: The half-year convention for depreciation applies to both modified accelerated cost recovery systems and straight-line depreciation schedules. There is also a mid-quarter convention that is used instead of the half-year convention if the aggregate depreciable base of new property was greater than 40% and was used in service sometime during the last three months of the year.

S&P 500 Mini

A derivative contract representing a designated fraction of the trading value of a standard S&P futures or options contract. Designed to expand the group of investors that could afford them, the S&P 500 Minis trade and act much like their pricier peers: the contracts are cash settled, follow the same expiration schedule and trade on the same stock exchanges. I: S&P 500 Mini futures require margin on the part of the investor, while Mini options contracts are priced at 1/10 the value of the underlying S&P 500 index ($100 factor is equivalent to standard options contracts). The Mini futures contracts are marked-to-market daily, and expiration date pricing is determined by the opening price of the underlying index securities on the day of expiration. Market demand for a product class like this developed as the S&P index grew from the 200-300 level in 1986 (when S&P 500 derivatives were first introduced) to more than 1,000 in 2007, effectively pricing individual investors out of the market as contract sizes grew to over $100,000. With the advent of the Mini, smaller investors can use the same hedging and speculation strategies available to institutional and accredited investors, and with high levels of liquidity and exchange-backed financial integrity.

Obamanomics

A buzzword used to describe the economic philosophies of United States President Barack Obama. While Obamanomics encompasses all of President Obama's policies and proposals, it is often used to refer primarily to his philosophy that the rich should pay their fair share of taxes, or what his detractors derisively call the "redistribution of wealth". Obamanomics may also include the President's views on healthcare reform, although this often goes by the separate moniker of "Obamacare". Depending on one's political persuasion, the term "Obamanomics" can be interpreted in a positive or negative light. I: While similar terms have been used to describe the economic policies of past Presidents, "Obamanomics" is arguably the most widely used term to describe a President's policies since the days of "Reaganomics". There are significant differences between the two, however. Critics of Obamanomics opine that apart from higher taxes on the wealthy, these policies call for more government intervention in the economy. This is diametrically opposite to "Reaganomics", President Reagan's supply-side policies that resulted in lower taxes for upper income levels and fewer government regulations. Supporters of Obamanomics claim that given the dire financial situation of the U.S. economy - characterized by a soaring fiscal deficit and the strains put on Medicare by an aging population - President Obama has no choice but to make the tough decisions that will put the economy back on track.

Economic Calendar

A calendar used by traders for the purpose of tracking the occurrence of market-moving events. Investors will research the date and time of a specific event and pay close attention to the announcement because of the high probability that it will affect the direction of the market. I: Traders in the foreign exchange market pay close attention to global events by using an economic calendar. By having the release schedule for each economic indicator, a trader can anticipate when major movements will happen. The most influential events include interest rate decisions, non-farm payroll numbers, and changes in gross domestic product (GDP), Consumer Price Index (CPI) and Purchasing Managers' Index (PMI). It's important to note that there are several free resources available online that traders can use to help them determine the date/time of future market-moving events.

Offline Debit Card

A card that combines characteristics of both a traditional (online) debit card and a credit card, allowing the cardholder to pay for goods and services directly from his or her bank account. As with a traditional debit card, a transaction using the offline debit card creates a debit against the cardholder's bank account. But unlike with a traditional debit card, no PIN is required during the transaction - all that is required is the user's signature. These cards are generally issued by credit card companies in association with the bank in which the account is held.Also known as "check cards". I: This type of card will often have a maximum daily limit. If this is not the case, the maximum amount is based on the funds held in the underlying bank account. Because this debit card is "offline", the bank account is not accessed directly, meaning there's a delay of 24 to 72 hours before the amount of a purchase is debited from the account.

Quantity-Adjusting Option - Quanto Option

A cash-settled, cross-currency derivative in which the underlying asset is denominated in a currency other than the currency in which the option is settled. Quantos are settled at a fixed rate of exchange, providing investors with shelter from exchange-rate risk. At the time of expiration, the option's value is calculated in the amount of foreign currency and then converted at a fixed rate into the domestic currency. I: The CME Nikkei 225 is an example of a quanto. It is a futures contract for which the underlying asset - in this case, the Nikkei 225 Stock Average Index - is settled in U.S. dollars, as opposed to Japanese yen. Investors use quantos when they believe that a security will do well in another country but fear that country's currency will not. Thus, investors buy an option in the foreign stock while keeping the payout in their home currency.

Oil ETF

A category of exchange-traded funds that invest in companies engaged in oil and gas discovery, production, distribution and retail. Some oil ETFs may be set up as commodity pools - with limited partnership interests instead of shares - and invest in derivative contracts such as futures and options.The benchmark target for an oil ETF may be a market index of oil companies or the spot price of crude itself, and funds may be focused on just United States-based companies or invest around the world. There are even inverse ETFs for oil and other sectors that move in an equal and opposite direction to the underlying index or benchmark. Oil ETFs will attempt to track their relevant index as closely as possible, but small performance discrepancies will be found, especially over short time frames. I: Oil ETFs have a high level of demand from investors because oil is such a pervasive commodity in the modern global economy. Almost every end product used by people, companies and governments is in some way affected by the price of oil, either as a raw component or through the costs of energy, transportation and product distribution.

One-Time Charge

A charge against earnings that is expected to be an isolated one and not likely to occur again. A one-time charge can either be a cash charge - for example, severance expenses associated with workforce reduction and early retirement - or a non-cash charge, such as an asset write-down. One-time charges are routinely excluded by analysts when evaluating a company's continued earnings potential. I: While some charges are clearly one-time in nature, many companies wrongly book charges that are incurred in the normal course of business as one-time charges - a tendency that investors need to watch out for. For example, a technology company may be justified if it writes off restructuring charges as a one-time charge. But if the company also writes down inventory every other quarter and tries to pass it off as one-time charges, then it is debatable if these inventory write-down charges are truly one-time in nature.

Candlestick

A chart that displays the high, low, opening and closing prices for a security for a single day. The wide part of the candlestick is called the "real body" and tells investors whether the closing price was higher or lower than the opening price (black/red if the stock closed lower, white/green if the stock closed higher). The candlestick's shadows show the day's high and lows and how they compare to the open and close. A candlestick's shape varies based on the relationship between the day's high, low, opening and closing prices. I: Candlesticks reflect the impact of investors' emotions on security prices and are used by technical analysts to determine when to enter and exit trades. Candlestick charting is based on a technique developed in Japan in the 1700s for tracking the price of rice. There are many short-term trading strategies based upon candlestick patterns, such as the engulfing pattern, harami, harami cross and evening star.

Ichimoku Cloud

A chart used in technical analysis that shows support and resistance, and momentum and trend directions for a security or investment. It is designed to provide relevant information at a glance using moving averages (tenkan-sen and kijun-sen) to show bullish and bearish crossover points. The "clouds" (kumo, in Japanese) are formed between spans of the average of the tenkan-sen and kijun-sen plotted six months ahead (senkou span B), and of the midpoint of the 52-week high and low (senkou span B) plotted six months ahead. I: The ichimoku cloud was developed by Goichi Hosoda, a Japanese journalist, and published in the late 1960s. It provides more data points than the standard candlestick chart. The overall trend is up when prices are above the cloud, down when prices are below the cloud and flat when they are in the cloud itself. When senkou span A is rising above senkou span B the trend is stronger upward, and is typically colored green. When senkou span B rises above senkou span A, the trend is stronger downward and is denoted with a red-colored cloud.

Bad Check

A check drawn on a nonexistent account or on an account with insufficient funds to honor the check when presented. "Passing" bad checks is illegal, and the crime can range from a misdemeanor to a felony, depending on the amounts involved and whether the activity involved crossing state lines. I: Many times, bad checks are written inadvertently by people who simply were unaware that their bank balances were too low. It is always a good idea to have a small overdraft line of credit to cover such situations, or keep a close eye on your balance near bill-paying time. When there are insufficient funds in an account, the bank will "bounce the check" (refuse to honor it). Banks and vendors frequently charge fees for bounced checks, sometimes exceeding the amount for which the check was written. Online banking can help to avoid writing bad checks by allowing you to view your balance more frequently. Consumers can also create a backstop account that is automatically debited if the primary checking account is too low to pay a specific check.

On-Us Item

A check or draft that is presented to the bank where the check writer has the funds on deposit. The check can be cashed or deposited into another account. Of course, the drawing account must have a sufficient balance to pay the check. I: On-us items can also be electronic debits or transfers. As with checks, electronic on-us items refer to the drawing and paying accounts at the same bank. The on-us checks are also referred to as "house checks."

Canceled Check

A check that has cleared the depositor's account and has been marked as "canceled" by the bank. A canceled check has been paid by the drawee bank and endorsed by the payee, the payee's bank, and the Federal Reserve Bank. Canceled checks can also be used as proof of payment. I: In the past, canceled checks used to be returned to the bank account holder each month with their monthly statement. That is now rare, and most check writers receive scanned copies of their canceled checks while the banks keep the physical copies for safekeeping. Customers that utilize online banking can also access copies of their canceled checks via the web.A canceled check, like any other financial information, should be safeguarded and stored in a safe place as it contains your bank account and routing number. These two numbers together could be used by identity thieves to gain access to the funds in your checking account.

Manager Of Managers - MOM

A class of financial intermediary that hires professional investment managers to oversee aspects of a client's investment fund. More specifically, the MOM tracks the performance of each investment manager and has the power to fire ineffective managers and then hire replacements on a client's behalf. Using a MOM to handle investments funds is an alternative to hiring a single investment portfolio manager that makes all the asset management decisions. I: For example, suppose that a teacher's union hires a MOM to invest in its pension fund. The MOM then hires a number of investment managers, such as a bond expert, a money market expert and a large-cap stock expert; each has the responsibility of managing the particular asset class in which he or she specializes. Because no single manager is an expert at investing in all asset classes, using a MOM allows clients to have an expert asset manager working on each aspect of an investment at all times.

C-Share

A class of mutual fund with a level load. Class C shares don't have front-end loads, but have small back-end loads that are typically around 1% and may vanish once the shares have been held for a year. They have lower expense ratios than class B shares, but higher expense ratios than class A shares. Class C shares can be a good option for investors who will sell after a relatively short period, but will hold the shares for at least a year. I: Investors who plan to withdraw funds within a year may want to avoid C-shares because of the back-end load that is typically charged on short-term redemptions. At the same time, the higher ongoing expenses associated with C-shares make them an unappealing option for long-term investors. Countless mutual funds offer both low ongoing expenses and no front- or back-end loads, so it is easy to avoid the drawbacks associated with C-shares. Higher mutual fund fees are not associated with higher mutual fund returns.

David Ricardo

A classical economist known for his Iron Law of Wages, labor theory of value, theory of comparative advantage and theory of rents. David Ricardo and several other economists also simultaneously and independently discovered the law of diminishing marginal returns. His most well-known work is the The Principles of Political Economy and Taxation (1817). I: Born in England in 1772, Ricardo had accumulated a sizable estate worth approximately £1 million at the time despite being disinherited by his family after marrying outside his religion. His wealth came from his success with a business he started that dealt government securities. After retiring at age 42, he served as a member of Parliament.

B/C Loan

A classification of loans associated with the borrowers that have tainted or limited credit histories. Generally, B/C refers to any loan that is classified as subprime, or a "B" or "C" class loan. Within the subprime sector borrowers are graded according to their credit history. Different lenders have different grading systems based on different credit requirements. One subprime lender might have a grading system with classifications designated as A to C minus, while another subprime lender might have a grading system with classifications designated as Premium to C which all fall within the subprime sector. I: Because of the credit risk associated with subprime lending, B/C loan usually have higher costs and interest rates than prime loans. B/C loans are important financing vehicles for consumers with less than optimal credit histories because they provide an opportunity for such consumers to repair/improve their credit to the point where they can obtain more favorable future financing terms.

Calendar Effect

A collection of assorted theories that assert that certain days, months or times of year are subject to above-average price changes in market indexes and can therefore represent good or bad times to invest. Some theories that fall under the calendar effect include the Monday effect, the October effect, the Halloween effect and the January effect. I: Most of the evidence for these effects is anecdotal, although there is a slight statistical case to be made for some of them, which is more than enough to encourage some investors to place their faith in them.Proponents of the October effect, one of the most popular theories, argue that October is when some of the greatest crashes in stock market history, including 1929's Black Tuesday and Thursday and the 1987 stock market crash, occurred. While statistical evidence doesn't support the phenomenon that stocks trade lower in October, the psychological expectations of the October effect still exist.

Impaired Credit

A deterioration in the creditworthiness of an individual or entity. This is usually reflected through a lower credit score, in the case of an individual, or a reduction in the credit rating assigned to an entity by a rating agency or lender. The borrower whose credit has been impaired will generally have lesser accessibility to credit facilities and will have to pay a higher rate of interest on loans. Impaired credit may either be a temporary situation that can be reversed, or an early sign that the borrower faces a major financial crisis down the road. I: Impaired credit is usually the result of financial stress brought on by a change in circumstances for an individual or entity. In the case of an individual, impaired credit may be the end result of a job loss, long illness, a steep decline in asset prices and so on. For a corporate entity, creditworthiness may decline if its financial position deteriorates over time due to poor management, increased competition or a weak economy. Impaired credit, whether at the personal level or at the corporate level, may need drastic changes to be made in order to alleviate financial stress and improve the balance sheet. These changes generally include reducing expenses, selling assets and using cash flow to pay down outstanding debt to bring it to a manageable level.

Gentry-De La Garza Model

A different way of managing account receivables, proposed by college professors James A. Gentry and Jesus M. De La Garza in the mid-1980s. The Gentry-De La Garza model gives three reasons as to why accounts receivable balances may increase: sales pattern effects, collection experience effects and joint effect. Together they equal the difference between the receivables balances and allow companies to increase the speed of cash inflows and reduce the speed of cash outflows I: Because it separates receivables into three quantifiable categories, the Gentry-De La Garza model allows financial managers to instantly detect whether an increase in receivables is due to rising sales levels or faulty credit controls. Eroding collections may be a sign that the company is not forceful or persistent enough in collecting overdue accounts or that credit is being granted too freely. Being able to recognize these issues right away helps a company refine its processes and become more efficient.

Bait And Switch

A dishonest marketing tactic in which a marketer advertises a very attractive price/rate/term that is really a teaser rate meant to attract customers. Once the customer comes into the store/office to inquire about the advertised price/rate (the "bait"), the advertiser will attempt to sell the customer a more expensive product (the "switch"). I: The bait and switch tactic has gained notoriety in the mortgage market as an unscrupulous marketing tactic meant to drive business. In a mortgage bait and switch an agent or company will post exceedingly low mortgage rates, knowing full well that the vast majority of applicants will be unable to qualify for these teaser rates. Once customers begin to come into the office to inquire about the low rate, the agent will proceed to offer them the higher rates they are more likely to qualify for, thus earning greater commission.

Call Warrant

A financial instrument that gives the holder the right to buy the underlying share at a specific price, on or before a specified date. Call warrants are often included in a new equity or debt offering from a company, in order to provide an added inducement to potential investors. Call warrants are usually detachable from the accompanying stock or bond certificate and trade separately on major stock exchanges. Also known as a warrant. I: The price at which the warrant holder can buy the underlying stock is called the exercise price or strike price. This strike price is often set "out-of-the-money," i.e., it is fixed at a certain percentage above the current trading price of the underlying stock. The inclusion of a call warrant feature may enable the company to lower the cost of its debt. The risk of potential equity dilution to the issuer, in the event of all the warrants being exercised, is more than offset by the additional equity capital available to the company at no additional cost, an especially important consideration during periods of severe stress in financial markets. While a call warrant has a strike price and expiration date just like an option, there are some fundamental differences between the two. Warrants are issued by companies, while exchange-traded options are listed by an exchange. Warrants also have much longer expiration periods than options.

Factor

A financial intermediary that purchases receivables from a company. A factor is essentially a funding source that agrees to pay the company the value of the invoice less a discount for commission and fees. The factor advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party. I: For example, assume a factor has agreed to purchase an invoice of $1 million from Clothing Manufacturers Inc., representing outstanding receivables from Behemoth Co. The factor may discount the invoice by say 4%, and will advance $720,000 to Clothing Manufacturers Inc. The balance of $240,000 will be forwarded by the factor to Clothing Manufacturers Inc. upon receipt of the $1 million from Behemoth Co. The factor's fees and commissions from this factoring deal amount to $40,000. Note that the factor is more concerned with the creditworthiness of the invoiced party - Behemoth Co. in the example above - rather than the company from which it has purchased the receivables (Clothing Manufacturers Inc. in this case). Although factoring is a relatively expensive form of financing, factors provide a valuable service to (a) companies that operate in industries where it takes a long time to convert receivables to cash, and (b) companies that are growing rapidly and need cash to take advantage of new business opportunities.

EBITDA/EV Multiple

A financial ratio that measures a company's return on investment. The EBITDA/EV ratio may be preferred over other measures of return because it is normalized for differences between companies. Using EBITDA normalizes for differences in capital structure, taxation and fixed asset accounting. Meanwhile, using enterprise value also normalizes for differences in a company's capital structure. I: While computing this ratio is much more complicated, it is sometimes preferred because it provides a normalized ratio for comparing the operations of different companies. If a more conventional ratio (such as net income to equity) were used, comparisons would be skewed by each company's accounting policies. EBITDA/EV is commonly used to compare companies within an industry.

EBIT/EV Multiple

A financial ratio used to measure a company's return on investment. While the EBIT/EV ratio is not very commonly used, it does have certain advantages in comparing companies. First, using EBIT as a measure of profitability eliminates the potential distorting effects of differences in tax rates. Secondly, using EBIT/EV normalizes for the effects of different capital structures. I: The EBIT/EV ratio can provide a better comparison than a more conventional net income/equity ratio. A downside to this ratio is that it does not normalize for depreciation and amortization costs. Thus, there are still potential distorting effects when companies use differing methods in accounting for fixed assets.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. The balance sheet must follow the following formula: Assets = Liabilities + Shareholders' Equity I: It's called a balance sheet because the two sides balance out. This makes sense: a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders' equity). Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses. If you want more on the Balance Sheet, check out -- Reading The Balance Sheet and How To Evaluate A Company's Balance Sheet.

Margin Pressure

A financial term for the effect of certain internal or market forces on a company's gross, operating or net margins. If something happens to make a company's costs rise or revenues fall, margins will become compressed, reducing net earnings.Things that can cause margin pressure include:1. When a new competitor enters the business and increases its product offering or lowers its costs2. When commodity costs rise or other costs within the supply chain are rising3. When increased regulatory controls are imposed on the company or industry4. When new legislation is introduced that fundamentally changes the markets in which the company competes5. When internal production problems or delays arise6. When rising selling, general and administrative expense (SG&A) costs occur without a proportional rise in revenue I: Margin pressure can be related to macroeconomic events, such as rising oil prices, or company-specific events, such as a loss of market share. Investors expect margins to fluctuate over time, but severe margin pressures, or those that could exist for a long time, will usually drag down a stock even in advance of an actual earnings decline.

Rational Pricing

A financial theory that contends that the market prices of assets will represent the arbitrage-free pricing level for those assets. This is based on the assumption that any deviation from arbitrage-free price levels for an asset will result in arbitrageurs immediately trading away the profit opportunity on the asset until it trades at an arbitrage-free price. I: A typical example of where the theory of rational pricing would be expected to come into play would be two identical assets trading in different markets. If the asset traded at a lower price in one market, an arbitrage trader would attempt to make a risk-free profit by purchasing the asset in the cheaper market by short selling the asset in the more expensive market. With enough volume, this arbitrage trading would cause the prices in both markets to converge to an equal value, removing the arbitrage opportunity.

John Pierpont (J.P.) Morgan

A financier, philanthropist and one of the fathers of corporate finance in the United States. John Pierpont Morgan started his career in 1857 at his father's bank, J.S. Morgan & Co., taking it over in 1890 after his father's death. He died on March 31, 1913 in Rome as one of the richest men in the world. I: A leader in corporate finance, J.P. Morgan was famous for mergers, such as bringing Edison General Electric and Thompson-Houston Electric Company together to form the company General Electric. He also formed the first billion-dollar company in the world, United States Steel Corporation.

Sacred Cow

A firmly held mainstream belief that is considered to be true without independent verification. In finance, and in particular in investing, there are many sacred cows that are thought to be true, but are difficult to prove scientifically. I: Some examples of sacred cows in finance include: one should save 10 to 15% of one's pay for retirement, or over the long run, investment returns are commensurate with risk. While these statements are widely accepted and infrequently argued against, not all are absolute truths. In the book "Killing Sacred Cows," the author identifies some myths and fallacies that have been accepted and preserved through the years in the financial world.

Giffen Good

A good for which demand increases as the price increases, and falls when the price decreases. A Giffen good has an upward-sloping demand curve, which is contrary to the fundamental law of demand which states that quantity demanded for a product falls as the price increases, resulting in a downward slope for the demand curve. A Giffen good is typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is named after the economist Robert Giffen. I: The most commonly cited example of a Giffen good is that of the Irish potato famine in the 19th century. During the famine, as the price of potatoes rose, impoverished consumers had little money left for more nutritious but expensive food items like meat (the income effect). So even though they would have preferred to buy more meat and fewer potatoes (the substitution effect), the lack of money led them to buy more potatoes and less meat. In this case, the income effect dominated the substitution effect, a characteristic of a Giffen good. However, critics of this textbook example point to the fact that Ireland was in the grip of a severe famine at the time, and because of the shortage of potatoes - which led to higher prices - it was unlikely that people could have consumed more of them. A more recent - and perhaps better - example of a Giffen good is offered by a 2007 study by Harvard economists Robert Jensen and Nolan Miller. Jensen and Miller conducted a field experiment in two provinces in China - Hunan, where rice is a dietary staple, and Gansu, where wheat is the staple. Randomly selected households in both provinces were given vouchers that subsidized their purchase of the staple food. The economists found strong evidence of Giffen behavior exhibited by Hunan households with respect to rice. Lowering the price of rice through the subsidy caused reduced demand by households for rice, while increasing the price (by removing the subsidy) had the opposite effect. The evidence with regard to wheat in Gansu was weaker because two of the basic conditions for Giffen behavior were not fully observed, i.e. that the staple good should have limited substitution, and households should be so poor that they consume only staple foods.

Savings Association Insurance Fund - SAIF

A government insurance fund for savings and loans and thrift institutions in the United States that protects depositors from losses due to institutional failure. The Savings Association Insurance Fund was created in the aftermath of the savings and loan crisis in the 1980s, during which poor real estate investments shut down many of America's savings and loan institutions. The SAIF was to provide similar coverage as the FDIC did for bank accounts, and was run by the FDIC until 2006. I: The Savings Association Insurance Fund replaced the Federal Savings and Loan Insurance Corporation, which became insolvent during the 1980s. The insurance fund was merged with another one of the FDIC's administered funds, the Bank Insurance Fund (BIF), after the passage of the Federal Deposit Insurance Reform Act of 2005.

Patent

A government license that gives the holder exclusive rights to a process, design or new invention for a designated period of time. Applications for patents are usually handled by a government agency. In the U.S. the United States Patent and Trademark Office handles application and documentation. I: In the United States most patents are valid for 20 years. By granting the right to produce a new product without fear of competition, patents provide incentive for companies or individuals to continue developing innovative new products or services. For example pharmaceutical companies spend large sums on research and development and patents are essential to earning a profit.

National Social Security Fund (China)

A government-controlled investment fund established primarily to provide a reserve of funds for China's social security system. The fund is managed by the National Council for Social Security Fund. According to the Sovereign Wealth Fund Institute, the National Social Security Fund has approximately $146.5 billion in assets. I: Although the National Social Security Fund is an independent entity distinct from the Chinese government, the National Council for Social Security Fund that manages it is a ministerial-level government institution. These funds are set aside to support social security payments through periods when population trends draw the fund down by a greater amount than the contributions it receives.

Oil Stabilization Fund (Iran)

A government-controlled sovereign wealth fund managed for the government of Iran. The funds deposited with the Oil Stabilization Fund are primarily the surplus revenues from the development of Iran's oil reserves. I: The fund was established in 1999 as a way to make strategic investments and stabilize funding for the Iranian government. The fund is highly secretive and little is known about its governance, holdings or investment strategy.

Quota

A government-imposed trade restriction that limits the number, or in certain cases the value, of goods and services that can be imported or exported during a particular time period. Quotas are used in international trade to help regulate the volume of trade between countries. They are sometimes imposed on specific goods and services to reduce imports, thereby increasing domestic production. In theory, this helps protect domestic production by restricting foreign competition. I: Quotas are different than tariffs (or customs), which places a tax on imports or exports in and out of a country. Both quotas and tariffs are protective measures imposed by governments to try to control trade between countries. The U.S. Customs and Border Protection Agency, a federal law enforcement agency of the U.S. Department of Homeland Security, is in charge of regulating international trade, collecting customs and enforcing U.S. trade regulations. Smuggling - the illegal transfer of goods into a country - is a negative side effect of quotas and tariffs.

Fannie Mae - Federal National Mortgage Association - FNMA

A government-sponsored enterprise (GSE) that was created in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. Fannie Mae is a publicly traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate- and middle-income Americans. I: Fannie Mae purchases and guarantees mortgages that meet its funding criteria. Through this process it secures mortgages to form mortgage-backed securities (MBS). The market for Fannie Mae's MBS is extremely large and liquid. Pension funds, insurance companies and foreign governments are among the investors in Fannie Mae's MBS. In order to promote homeownership, Fannie Mae also holds a large portfolio of its own and other institution's MBSs, known as its retained portfolio. To fund this portfolio, Fannie Mae issues debt known in the market place as agency debt. Fannie Mae's "little brother" is Freddie Mac. Together, Fannie Mae and Freddie Mac purchase or guarantee between 40 to 60% of all mortgages originated in the United States annually, depending upon market conditions and consumer trends.

Canada Education Savings Grant - CESG

A grant from the Government of Canada paid directly into a beneficiary's Registered Education Savings Plan (RESP). It adds 20% to the first $2,000 in contributions made into an RESP on behalf of an eligible beneficiary each year. I: The CESG is an incentive program designed to encourage people to save for a child's education and to lessen the financial burden of a post-secondary education.

Par Yield Curve

A graph of the yields on hypothetical Treasury securities with prices at par. On the par yield curve, the coupon rate will equal the yield-to-maturity of the security, which is why the Treasury bond will trade at par. I: Deriving a par yield curve is a step toward creating a theoretical spot rate yield curve, which is then used to more accurately price a coupon-paying bond. A method known as bootstrapping is used to derive the arbitrage-free forward interest rates.

Quality Control Chart

A graphic that depicts whether sampled products or processes are meeting their intended specifications and, if not, the degree by which they vary from those specifications. Analyzing the pattern of variance depicted by a quality control chart can help determine if defects are occurring randomly or systematically. I: Different types of quality control charts, such as X-bar charts, S charts and Np charts are used depending on the type of data that needs to be analyzed. A quality control chart can also be univariate or multivariate, meaning that it can show whether a product or process deviates from one or from more than one desired result.

Federal Advisory Council

A group of 12 banking executives - one from each Federal Reserve District - that advises the Federal Reserve Board regarding the state of the banking industry and money supply. Positions on the Federal Advisory Council are determined by a voting process within each Federal Reserve District, with representatives often being elected to more than one term. Federal Advisory Council meetings take place at least quarterly in Washington D.C., with increasing frequency in times of financial crisis. I: The Federal Advisory Council is one of three formal bodies that advise the Federal Reserve Board on its operations, the others being the Consumer Advisory Council and the Thrift Institutions Advisory Board, which are comprised of executives from credit unions, saving and loans, and mutual banks. Of the three advisory councils, the Federal Advisory Council is considered the most influential because it provides the Federal Reserve Board with the broadest insight into the state of the banking system.

National Association Of Certified Valuation Analysts - NACVA

A group of business professionals that provide valuation and litigation services for various types of business transactions. National Association of Certified Valuation Analysts (NAVCA) members receive training, education and certification in asset valuation disciplines that they put to use in their respective professions. The organization also enforces standards of ethical conduct among its members. I: The NACVA was founded in 1991 and is headquartered in Salt Lake City, Utah. NACVA members work in careers that provide valuation and litigation services, including mergers and acquisitions, initial public offerings and bankruptcy. The NACVA also provides accreditations of Certified Valuation Analyst (CVA), Accredited Valuation Analyst (AVA), Certified Forensic Financial Analyst (CFFA) and Certified Fraud Deterrence Analyst (CFD).

Inactive Bond Crowd

A group of exchange members who buys and sells bonds, that are infrequently traded. Limit orders placed by the inactive bond crowd, may take a longer period of time to fill, due to the absence of frequent trading. The opposite of inactive bond crowd is the active bond crowd. I: Before electronic trading, orders placed by those in the inactive bond crowd were stored in cabinets off to the side of the general trading floor. This gave rise to the nickname "cabinet crowd."

S&P/Case-Shiller Home Price Indexes

A group of indexes that tracks changes in home prices throughout the United States. The indexes are based on a constant level of data on properties that have undergone at least two arm's length transactions. Case-Shiller produces indexes representing certain metropolitan statistical areas (MSA) as well as a national index. I: S&P/Case-Shiller Home Price indexes are used as the underlying pricing mechanism in CME housing futures and options. CME housing futures and options trade on different indexes representing 10 different metropolitan statistical areas and a composite index representing 20 metropolitan statistical areas. This is not to say that the indexes are a perfect representation of the housing market, because only single-family dwellings are included in the calculation. Furthermore, because some of the metropolitan areas are so large (Such as New York City or Los Angelas), having just one value may not accurately represent all areas within that city.

Family Of Funds

A group of mutual funds offered by one investment or fund company. Generally, the constituent funds cover a wide range of fund categories and investment objectives.Also referred to as a "mutual fund family" or simply a "fund family". I: Most fund companies offer a selection of mutual funds for investors to choose from. A large fund family offers investors a number of conveniences, such as "one-stop" shopping for their fund investing activities, the consolidation fund investments in one monthly statement, and the opportunity to make money transfers and undertake fund exchanges within the family easily and, usually, at little or no cost.Examples of large, well-known fund families are American, Fidelity, T. Rowe Price and Vanguard.

Half Commission Man

A half commission man is an individual who introduces clients to stock brokers or other market professionals in exchange for an agreed upon percentage of any commissions earned as a result of the new client. Although a stock broker must share some of his or her commissions, the theory is that the broker will come out ahead due to an increase in the number or quality of clients. I: A half commission man can either work for a specific stock broker or be a freelancer. They earn money by establishing relationships between stock brokers and clients. Any commissions that the stock broker earns from the client will be shared at a specified rate (usually half) with the half commission man.

Gazelle Company

A high-growth company that is increasing its revenues by at least 20% annually for four years or more, starting from a revenue base of at least $1 million. This growth pace means that the company has effectively doubled its revenues over a four-year period. As gazelle companies are characterized by their rapid growth pace, rather than their absolute size, they can range in size from small companies to very large enterprises. I: David Birch's identification of gazelle companies followed from his 1979 report titled "The Job Generation Process," wherein he identified small companies as the biggest creators of new jobs in the economy. Birch estimated that gazelles accounted for only 4% of all U.S. companies, but accounted for 70% of all new jobs. Birch noted that the growth pace of gazelle companies far outpaced that of the Fortune 500 "elephants" and Main Street "mice."

Pac-Man

A high-risk hostile takeover defense in which the target firm tries to take over the company that has made the hostile bid by purchasing large amounts of the would-be acquirer's stock. The Pac-Man defense is supposed to scare off the would-be acquirer, which doesn't want to be taken over itself. The target may sell off its own assets or borrow heavily in order to acquire enough of the acquirer's stock to prevent the takeover. I: The Pac-Man defense does not always work, but it was first successfully used in 1982 by Martin Marietta to prevent a takeover by Bendix Corp. In 1988, American Brands used it successfully against E-II, and TotalFina used it in 1999 to prevent a takeover by Elf Aquitaine. Some analysts speculated that Cadbury would try to use the Pac-Man defense against Kraft in 2009. The Pac-Man defense may be used alone or in conjunction with other takeover defenses, such as the white knight.

Quality Of Life

A highly subjective measure of happiness that is an important component of many financial decisions. Factors that play a role in quality of life vary according to personal preferences, but they often include financial security, job satisfaction, family life, health and safety. Financial decisions usually involve a tradeoff where quality of life is decreased in order to save money or, conversely, quality of life is increased by spending more money. I: Commuting to work provides a good example. It is possible to save money on housing by living further away from popular job centers and commuting to work. However, commuters don't have as much time to spend with family or on hobbies because of the extra time spent sitting in traffic. Some people consider this tradeoff worthwhile, while others choose to maximize their quality of life by spending more money to live closer to work. Quality of life is also an issue when developing a personal savings plan. In this case, the tradeoff involves a sacrifice of current quality of life in order to improve future quality of life.

Named Perils Insurance Policy

A home insurance policy that only provides coverage on losses incurred to your property from hazards or events named on the policy. Named peril policies may be purchased as a less expensive alternative to a comprehensive coverage or broad policies, which are policies that tend to offer coverage to most perils. I: Suppose a homeowner doesn't live in an earthquake and flooding prone area, but is still concerned about fire, theft and hail damage. The homeowner may elect to get a named perils policy and only declare coverage against fire, theft and hail, while leaving the earthquake and flooding coverage off the policy.Keep in mind that a broad coverage policy does not necessarily guarantee your property will be covered against all forms of perils. These policies contain conditions that cover what the insurer thinks are the most likely perils. Therefore it's a good idea for homeowners to check their broad coverage policies to make sure they do cover all the perils that they are concerned about. If the broad policy isn't sufficient, homeowners should buy a named peril policy to fill that hole in their coverage.

Canadian Rollover Mortgage

A home mortgage with an adjustable rate feature. The Canadian Rollover mortgage differs from a 30-year fixed rate mortgage, in that the loan's interest rate is adjusted every five years, with no cap on the interest rate adjustment. The Canadian Rollover Mortgage is also known as a Variable Rate Mortgage or a Renegotiable Rate Mortgage. I: The Canadian Rollover Mortgage is called such as it is the standard mortgage in Canada. Adjustable Rate Mortgages (ARM's) in the U.S. are usually linked to an index such as the Consumer Price Index (CPI) and adjust every year after a lock-out period (usually 3, 5, or 7 years). The rate on the Canadian Rollover Mortgage is actually renegotiated, typically once every five years.Canadian Rollover Mortgages are one kind of rollover mortgage. Other mortgages that belong to this group are the aforementioned ARM, the variable rate mortgage, and the renegotiable rate mortgage. All of these mortgages were developed, in part, to allow a larger group of borrowers to participate in the housing market. When real estate gets too expensive for borrowers (either due to price appreciation or high interest rates) mortgage providers get creative with mortgage structures to entice people to borrow.

Manufactured Housing - MH

A housing unit constructed primarily off-site prior to being moved to a piece of property where it is set. The cost of construction per square foot is usually considerably less for manufactured housing than for traditional on-site homes (stick-built homes). In the 1990s, this style of housing accounted for nearly 25% of new home sales for families in the United States. This type of housing also includes "modular homes" - homes divided into multiple sections that are constructed off-site, then assembled like building blocks at the property. I: Financing a manufactured home can be different than financing a stick-built home. If the manufactured home is purchased separately from the land on which it will sit, a personal property loan is the most common type of financing. Personal property loans carry a higher interest rate than traditional mortgages. If the manufactured home and the land are purchased together, a traditional mortgage might be available. Loan terms and programs vary from lender to lender. The Federal Housing Administration and Department of Veterans Affairs have manufactured-housing loan programs.

Fat Finger Error

A human error caused by pressing the wrong key when using a computer to input data. Fat finger errors are often harmless but can sometimes have significant consequences for example, if the wrong number is entered in performing a mathematical calculation. I: In the aftermath of the May 6, 2010, "flash crash" that caused a significant, rapid and unexpected drop in the Dow, one possible early explanation was fat finger error. The idea was that a trader had entered an order incorrectly, placing the order in the billions rather than the millions. In reality, such trading errors are unlikely because of safeguards implemented by brokerages and exchanges.

Baby Bills

A hypothetical nickname for the smaller companies that would have been formed if Microsoft had been broken up for violation of antitrust rules in 2000. Baby Bills stood a real chance of having actually been formed since the U.S. government did call for the company's breakup, but the decision was reversed the following year so Microsoft instead was permitted to keep operating as one company. I: The antitrust suit in question was brought against Microsoft in 1993 after an investigation of possible collusion between Microsoft and IBM hit a dead end. The Justice Department settled with Microsoft in 1994 after documents signed by the company force them to agree not to "squelch" competition by creating operating system dominance. In 1997, the Justice Department filed a complaint that Microsoft had violated the decree by demanding that Internet Explorer be bundled with PCs in order to get a Windows 95 license. After years of trials and appeals, they were finally able to come to an agreement in 2001.

Lead Underwriter

A investment bank or other financial outfit that has the primary directive for organizing an initial public stock offering, or a secondary offering for companies that are already publicly traded. The lead underwriter will usually work with other investment banks to establish a syndicate, and thereby create the initial sales force for the shares. These shares will then be sold to institutional and retail clients.The lead underwriter will assess the company financials and current market conditions to arrive at the initial value and quantity of shares to be sold. These shares carry a hefty sales commission (as much as 6-8%) for the underwriting syndicate, with the majority of shares being held by the lead underwriter. I: Being the lead underwriter for a stock offering, especially an initial public offering (IPO), can bring a large payday if the market shows high demand for the shares. Often the stock issuer will allow the lead underwriter to create an over-allotment of shares if demand is high, which can bring in even more money to the underwriting firm. There are substantial risks involved in underwriting stock offerings - any one company could plummet in the open market once public trading begins. This is why the large investment banks, such as Merrill Lynch, Morgan Stanley, Goldman Sachs, Lehman Brothers and others will look to conduct many diverse offerings in the course of a year.One or two great stock offerings a year can be enough to meet company earnings targets, but market conditions as a whole will determine the relative amount of profit the investment banks can earn. In the zooming market phase of the late-1990s, investment banks were making money hand over fist as eager investors gobbled up any new shares that came to market, and traded them much higher once on the exchange. However, when the market collapsed in late-2000, the underwriting community went into hibernation mode, advising even the best private companies to "wait out the storm" before going public.

Day Trader

A investor who attempts to profit by making rapid trades intraday. A day trader often closes out all trades before the market close and does not hold any open positions overnight. Some day traders use leverage to magnify the returns generated from small stock price movements. I: Day trading is often glamorized as an easy path to riches. However, this is rarely the case. The SEC warns, "Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status." Day traders are handicapped by the bid-ask spread, trading commissions and expenses for real-time news feeds and financial analysis packages. These costs require day traders to earn significant trading profits just to break even.

NAB Business Confidence Index

A key measure of business confidence in Australia, published monthly and quarterly by National Australia Bank. The NAB Business Confidence Index is a component of the bank's business survey, which covers hundreds of Australian companies to assess business conditions in the nation. The index is closely watched to gauge the overall condition of the Australian economy. I: The NAB Business Confidence Index is a lagging indicator of the Australian economy. The NAB also analyzes business confidence across the country's regions and industrial sectors. National Australia Bank is one of Australia's leading financial services organizations, with approximately 11 million customers and 39,000 employees.

Ifo Business Climate Survey

A key monthly survey that measures the business climate in Germany. It is widely followed as an early indicator of the state of the German economy. The Ifo Business Climate Survey is based on approximately 7,000 monthly survey responses from firms in manufacturing, construction, wholesale and retail. As the largest economy in the European Union, Germany's business climate has implications for the rest of the European Union. I: Firms included in the Ifo business climate survey are asked to submit their assessments of current business conditions and expectations for the next six months. The balance value of the current business situation is the difference in the percentages of the "good" and "poor" responses, while the balance value of the expectations is the difference in the percentage of the responses marked "more favorable" and "more unfavorable." The business climate is a transformed mean of the balances of the current business situation and expectations.

Iceberg Order

A large single order that has been divided into smaller lots, usually through the use of an automated program, for the purpose of hiding the actual order quantity. I: When large participants, such as institutional investors, need to buy and sell large amounts of securities for their portfolios, they can divide their large orders into smaller parts so that the public sees only a small portion of the order at a time - just as the 'tip of the iceberg' is the only visible portion of a huge mass of ice. By hiding its large size, the iceberg order reduces the price movements caused by substantial changes in a stock's supply and demand.

Recareering

A late-in-life career change. Recareering is not just a job change, but a move to a completely different career path. Money, power and prestige are prime motivators for many people switching careers, but others do it to pursue a passion or make a lifestyle change. I: Recareering can take two forms: it can be voluntary or it can occur unexpectedly. In voluntary recareering, an individual's current career might not provide the interest, passion or money that the person is seeking. Recareering can occur unexpectedly when a person's job is eliminated and there are few other opportunities in his or her field of expertise. People often recareer later in life as a way of transitioning into retirement. Many individuals consider changing their careers or lifestyles to pursue fields that have always interested them, or to step out to launch their own businesses.

Knock-In Option

A latent option contract that begins to function as a normal option ("knocks in") only once a certain price level is reached before expiration. I: Technically, this type of contract is not an option until a certain price is met, so if the price is never reached it is as if the contract never existed. Knock-ins are a type of barrier option that may be either down-and-in option or an up-and-in option.

Law Of Diminishing Marginal Utility

A law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product. I: This is the premise on which buffet-style restaurants operate. They entice you with "all you can eat," all the while knowing each additional plate of food provides less utility than the one before. And despite their enticement, most people will eat only until the utility they derive from additional food is slightly lower than the original. For example, say you go to a buffet and the first plate of food you eat is very good. On a scale of ten you would give it a ten. Now your hunger has been somewhat tamed, but you get another full plate of food. Since you're not as hungry, your enjoyment rates at a seven at best. Most people would stop before their utility drops even more, but say you go back to eat a third full plate of food and your utility drops even more to a three. If you kept eating, you would eventually reach a point at which your eating makes you sick, providing dissatisfaction, or 'dis-utility'.

Law of Diminishing Marginal Returns

A law of economics stating that, as the number of new employees increases, the marginal product of an additional employee will at some point be less than the marginal product of the previous employee. I: Consider a factory that employs laborers to produce its product. If all other factors of production remain constant, at some point each additional laborer will provide less output than the previous laborer. At this point, each additional employee provides less and less return. If new employees are constantly added, the plant will eventually become so crowded that additional workers actually decrease the efficiency of the other workers, decreasing the production of the factory.

Oil Pollution Act Of 1990

A law that caps civil liability for oil spills caused by tankers and drilling vessels in the United States' territorial waters. The passage of the law was prompted by the Exxon Valdez oil spill in 1989, where Exxon was held liable for billions in civil damages. The bill enjoyed popular support at its passage. I: The Oil Pollution Act of 1990 caps BP's civil liability for the Deepwater Horizon spill at $75 million. The law forces companies to have a "place to prevent spills that may occur". The House passed the bill with a vote of 375-5, and it was passed in the Senate by a voice vote.

Quiet Title

A lawsuit filed to establish ownership of real estate when ownership is in question. Real estate owners want to ensure that they have a clear title, meaning that there are no liens or levies against the title and no disputes over the property's ownership. These possible problems are known as clouds on the title and can be resolved by an action to quiet title. I: A clear title is required to close a real estate transaction and is established by title companies, who do a title search to confirm a property's legal owner and check for claims against the property. Title insurance protects interest in a property against legal defects, since title searches are not infallible.

Sandwich Lease

A lease in which a party rents property from the property owner and then subsequently leases it out to another tenant. In a sandwich lease, the primary party is both a lessee and a lessor, meaning that the party both collects rent and pays rent. Not all property owners allow this sort of arrangement. I: A sandwich lease involves a party sub-letting what is already being sub-let. This type of leasing arrangement may come about if the primary party signs a long-term lease on a piece of property, but is either unable to use all the space or is looking to vacate.

Quasi Contract

A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A normal contract requires two parties to consent to mutually agreeable terms. Under a quasi contract, neither party is originally intended to create an agreement. Instead, an arrangement is imposed by a judge to rectify an occurrence of unjust enrichment. I: When one party knowingly receives something for nothing, the courts may impose a quasi contract. For example, if UPS delivers a new television to Zoe that she did not order and she keeps the television and does not attempt to return it to the company that mistakenly shipped it to her, a judge could impose a quasi-contract to force her to pay for the television. Zoe did not intend to purchase the TV, and the TV company did not intend to sell her a TV, but since she chose to benefit from the TV at the company's expense, the court requires her to reimburse the TV company to make the situation fair.

Lease Extension

A legal agreement that extends the term of a rental agreement. The lease extension document should name the parties to the agreement, provide the dates on which the extension begins and ends, and reference the earlier agreement that is being extended. Lease payments do not have to remain the same under a lease extension. I: A lease extension could be executed between a landlord and a tenant, when the tenant's lease is about to expire and he or she wants to continue renting the property. Another situation where a lease extension might be desirable is if a consumer is leasing a vehicle from an auto dealership and opts to lease or purchase a different vehicle at the end of the lease term, but wants to temporarily continue using the original leased vehicle because the replacement vehicle is not yet available.

Land Trust

A legal agreement where a trustee is appointed to maintain ownership of a piece of real property for the benefit of another party: namely, the beneficiary of the trust. Land trusts are used by several different types of organizations for several reasons; nonprofit entities use them to hold conservation easements, and corporations and investment groups use them to accumulate large portions of land. These agreements can also be known as Illinois-type land trusts. I: Corporations and other institutional buyers sometimes use these trusts to discreetly purchase large tracts of land so as to avoid publicity. Publicity could cause the price of further land purchases to increase and potentially disrupt the firm's plans for developing or profiting from the land. Individuals usually use land trusts for privacy and to avoid probate.

Sales And Purchase Agreement - SPA

A legal contract that obligates a buyer to buy and a seller to sell a product or service. SPAs are found in all types of businesses but are most often associated with real estate deals as a way of finalizing the interests of both parties before closing the deal. I: Sales and purchase agreements are also found in the upper supply chains of many large, publicly-traded companies. They are set up to help both the suppliers and the purchasers forecast demand and costs, and become increasingly important as the size of the deals increases.

Lease

A legal document outlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid. I: Leases are the contracts that lay out the details of rental agreements in the real estate market. For example, if you want to rent an apartment, the lease will describe how much the monthly rent is, when it is due, what will happen if you don't pay, how much of a security deposit is required, the duration of the lease, whether you are allowed to have pets, how many occupants may live in the unit and any other essential information. The landlord will require you to sign the lease before you can occupy the property as a tenant.

Offering Memorandum

A legal document stating the objectives, risks and terms of investment involved with a private placement. This includes items such as the financial statements, management biographies, detailed description of the business, etc. An offering memorandum serves to provide buyers with information on the offering and to protect the sellers from the liability associated with selling unregistered securities.Also known as a "private placement memorandum" (PPM). I: You can essentially think of the offering memorandum as a fancy business plan. In practice these are a formality to meet the requirements of securities regulators since most sophisticated investors perform their own extensive due diligence. Offering memorandums are for private placements, while prospectuses are for publicly-traded issues.

Last Will And Testament

A legal document that communicates a person's final wishes, as pertaining to possessions and dependents. A person's last will and testament will outline what to do with possessions, whether they are being left to another person, group or donated to charity, and what will happen to other things for which they are responsible, such as custody of dependents and accounts and interests management. I: A will is written while a person is alive and carried out once they've passed away. In the will, a still-living person is named as the executor of the estate, and that person is responsible for administering the estate and is usually supervised by the probate court to ensure that what is specified in the will is carried out.

Healthcare Power Of Attorney - HCPA

A legal form that allows an individual to empower another with decisions regarding his or her healthcare and medical treatment. Healthcare power of attorney becomes active when a person is unable to make decisions or consciously communicate intentions regarding treatments. I: The healthcare power of attorney allows people who become unable to make their own decisions to exercise their beliefs and wishes regarding medical procedures. The person's agent can communicate on behalf of the sick or injured person, preventing unwanted treatment. The process of denoting an HCPA is fairly straightforward, and the privilege can be revoked at any time.

Garnishment

A legal process whereby payments towards a debt owed by an individual can be paid by a third party - which holds money or property that is due to the individual - directly to the creditor. The third party in such a case is generally the individual's employer and is known as the garnishee. Garnishments are typically used for debts such as unpaid taxes, monetary fines and child support payments. I: For example, if John Smith owes $10,000 in unpaid taxes that have been overdue, the IRS can resort to garnishment of his wages. The IRS would then direct Smith's employer to remit a portion of his salary for a certain amount of time, until Smith has paid off his taxes in full. Garnishments can have a negative impact on one's credit rating.

C Corporation

A legal structure that businesses can choose to organize themselves under in order to limit their owners' legal and financial liabilities. C corporations are legally considered separate entities from their owners. In a C corporation, income is taxed at the corporate level and is taxed again when it is distributed to owners. I: C corporations are an alternative to S corporations, where profits pass through to owners and are only taxed at the individual level, and limited liability companies, which provide the legal protections of corporations but are taxed like sole proprietorships. While the double taxation of C corporations is a drawback, the ability to reinvest profits in the company at a lower corporate tax rate is an advantage. Most corporations are C corporations.

Implied Contract

A legal substitute for a contract. An implied contract is an agreement created by actions of the parties involved, but it is not written or spoken. This is a contract assumed to have been drawn. In this case, there is no written record nor any actual verbal agreement. A form of an implied contract is an implied warranty provided automatically by law. An implied warranty means that when a product is purchased, it is guaranteed to work for its ordinary purpose. For example, a refrigerator is fit to keep food cool. I: Implied contract is an agreement which is not reduced to writing but is created on the basis of the behavior of the parties involved. Under an implied contract, it is suggested that the parties involved are acting under an agreement. In the medical field, an implied contract exists when a veterinarian examines and treats an animal. It is implied that the veterinarian will do his/her best and that the client will pay the fee charged. Historically the veterinarian has treated animals and the owners have paid.

Joint

A legal term describing a transaction or agreement where two or more parties act in unison. Joint can refer to a variety of situations, including: - joint accounts, where two or more parties share a single account, such as a bank or brokerage account - joint tenancies, where two or more parties share ownership in real property, such as joint tenants in common or tenancy by the entirety (a type of joint tenancy that exists only between a husband and wife) - annuities, such as joint and survivor annuities, insurance products that continue regular payments as long as one of the annuitants is alive, and - joint ventures, where two unaffiliated companies contribute financial and/or physical assets, as well as personnel, to a new company. I: In addition to pertaining to accounts or ownership in real property, joint can also refer to liability. Joint liability exists in situations where two or more people share the burden of a debt. For example, if a husband and wife have joint liability for a debt, each is responsible for the entire amount of the debt. Several liability, on the other hand, would limit liability to each person's respective obligations.

Incentive Trust

A legally binding fiduciary relationship in which the trustee holds and manages the assets contributed to the trust by the grantor. In an incentive trust arrangement, the trustee must adhere to specific requirements set out by the grantor regarding what conditions the trust's beneficiaries must meet in order to receive funds from the trust. I: An incentive trust operates as a sort of "conditional inheritance" for beneficiaries named in the trust. For example, say an aging investor wants to leave a certain proportion of her wealth to a grandchild, but she also wants to ensure that the inheritance money does not lessen the grandchild's drive to pursue a professional career or a higher education. By leaving the inheritance funds to the grandchild in an incentive trust, the grantor can specify that the funds are to be dispersed only once the grandchild has obtained an undergraduate degree, for example (or any other legally permissible requirements the grantor may wish to set out).

Key Person Insurance

A life insurance policy that a company purchases on a key executive's life. The company is the beneficiary of the plan and pays the insurance policy premiums.Also known as "key man insurance," "key woman insurance" or "business life insurance." I: Key person insurance is needed if the sudden loss of a key executive would have a large negative effect on the company's operations. The payout provided from the death of the executive essentially buys the company time to find a new person or to implement other strategies to save the business.

Real Estate Limited Partnership - RELP

A limited partnership entity organized to invest in real estate. A Real Estate Limited Partnership is typically organized with an experienced property manager or real estate development firm serving as the general partner. Outside investors are then sought to provide financing for the real estate project, in exchange for a share of ownership as limited partners. I: Limited partners are much like stockholders in a public company, in that they have only limited influence in the business operations of the limited partnership. However, limited partners also have limited liability. If the RELP faces losses, limited partners are only liable for the amount of their capital contributions.

Daily Chart

A line graph that displays the intraday movements of a given security. This contrasts to longer term charts, such as those that show a security's movement over a period of days, months or even years. I: Daily charts display all of the price movement for the period and are typically used by day traders to implement short-term strategies.Because the forex operates 24 hours a day, there is technically no stoppage of trading between one trading day and the next as there is in other markets. As a result, the convention is to consider a forex day to be from 5pm EST to the same time on the following day, and most daily charts are displayed this way.

Lease Payments

A line item under long-term debt on a balance sheet that indicates the value of future lease payments due. Lease payments vary widely between companies, and so it is not necessarily good to compare two companies' lease-payment figures, even if they are in the same industry. It is more valuable to compare long-term debt as a whole. I: Lease payments can be made by individuals as well as companies. Leases are most commonly used by individuals to finance cars, but can also be used to obtain computers and land, among others things. A company's lease payments are used in the calculation of the fixed-charge coverage ratio. This ratio helps investors see if a company can cover its fixed expenses, such as leases and interest.

Backup Line

A line of credit used by a bank to cover any issue of commercial paper for which financing from new paper may not be available. A backup line of credit effectively provides an alternate source of liquidity for the issuer and a source of credit for the purchaser. Backup lines usually take the form of a confirmed letter of credit or contractual facility. I: The amount of backup line generally ranges from 50 to 100%, depending upon the quality of the paper issued. Lower grade paper usually get greater coverage and vice-versa. These lines of credit are usually paid for with either compensating balances or else with a simple straight fee.

FDIC Problem Bank List

A list of commercial banks in the U.S. that are considered to be in financial difficulty. The Federal Deposit Insurance Corporation (FDIC) issues this problem list quarterly based on liquidity, capital levels and asset quality. Only institutions that are insured by the FDIC through the Deposit Insurance Fund (DIF) are included on the list. The actual names of the banks are not given, but the total assets are provided. I: Problem institutions are chosen based on financial and operational criteria. The banks are given a ranking from one to five, with one being the most sound and five being the least. In order to be considered a four or five (a problem bank) the institution must have financial, managerial or operational weaknesses that threaten its continuing financial viability. The number of banks on the list are used to evaluate the strength of the financial industry as a whole. The banking industry is then used as a lagging indicator for the overall economy.

Easy-To-Borrow List

A list of securities deemed to be available for borrowing in short selling transactions because their delivery is assured. Availability is usually due to their accessible nature and/or high number of outstanding shares. I: Also known as a blanket or standing assurances by members or associated persons, this easy-to-borrow list is updated every 24 hours. It gives firms the ability to transact short sells more readily, as they aren't required to research the availability of a stock every time it is requested for a short sale transaction. Instead they can assume that stocks on the list are readily available.

Harmonized Index Of Consumer Prices - HICP

A list of the final costs paid by European consumers for the items in a basket of common goods. The Harmonized Index of Consumer Prices (HICP) is produced by each European Union member state to help measure inflation and to guide the European Central Bank in formulating monetary policy. The HICP is also used as the basis of the European Index of Consumer Prices, which is weighted toward household expenditures. I: The prices measured by the HICP come from the prices of representative goods from urban and rural pricing patterns. The index tracks the prices of goods such as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing and many other widely used products. Owner-occupied housing costs are excluded from the HICP.

Back-to-Back Loan

A loan in which two companies in different countries borrow offsetting amounts from one another in each other's currency. The purpose of this transaction is to hedge against currency fluctuations. With the advent of currency swaps this type of transaction is no longer used very often. I: In a back-to-back loan, a U.S. company would loan US$1000 to a U.K. company in the U.S., and the U.K. company would loan an equivalent amount (at spot exchange rates) in sterling to the U.S. firm in the U.K. Both companies get the currency needed without going to the forex market.

Hard Money Loan

A loan of "last resort" or a short-term bridge loan. Hard money loans are backed by the value of the property, not by the credit worthiness of the borrower. Since the property itself is used as the only protection against default by the borrower, hard money loans have lower loan-to-value (LTV) ratios than traditional loans. I: Hard money loans carry interest rates even higher than traditional subprime loans. Since traditional lenders, such as banks, do not make hard money loans, hard loan lenders are sometimes private individuals that see value in this type of potentially risky venture. Hard money loans are used in turnaround situations, short-term financing, and by borrowers with poor credit but substantial equity in their property that wish to stave off foreclosure.

Past Due

A loan payment that has not been made as of its due date. A borrower who is past due may be subject to late fees, unless the borrower is still within a grace period. Failure to repay a loan on time could have negative implications for the borrower's credit status or cause the loan terms to be permanently adjusted. I: If a loan payment is due by the 10th of the month and is not paid by the 11th, the payment will be considered past due. Depending on the policy of the lender, the borrower will either immediately be charged a late fee or will enter a grace period. If, for example, there is a grace period of 10 days, the borrower would not be charged a late fee until the 21st of the month. If the payment is still not made by the end of the grace period, late fees will then be applied.How a customer is treated on a past-due payment will often come down to their payment history; if there is a pattern of late payments, the grace period may be shortened or removed.

Debt Accordions

A loan provision which allows the borrower to add additional investors to the loan subsequent to the initial loan date. This provision helps the borrower if they are struggling to make payments, and in turn, helps the lender receive the full payments. I: Debt accordions generally occur with regards to commercial loans. If the company is going through a rough patch, it is often in the shareholder's best interests to take on some of the debt liability, rather than see the company go bankrupt, leaving them with nothing. This is especially common if the debt is collateral debt, where the collateral is necessary to continue business operations.

125% Loan

A loan, usually a mortgage, with an initial loan amount equal to 125% of the initial property value. In other words, a 125% loan has a loan-to-value ratio (LTV ratio) of 125%. I: A primary measure of a loan's risk to a lender is the size of a loan relative to the value (LTV ratio) of the underlying property. A 125% loan is a relatively risky loan as compared to a loan with a LTV ratio of less than 100%, and therefore, according to the risk-based pricing method used by lenders, a loan with a LTV ratio of 125% will carry a higher interest rate than a loan with a LTV ratio of 100% or below.

Calgary Dollar

A local currency used in Calgary, Canada. Calgary dollars are part of an initiative to encourage consumers to shop locally, to personalize economic transactions, to foster a sense of community and to increase local self-sufficiency/bioregionalism. Because it is not intended to replace the Canadian dollar, but rather to function alongside it, the Calgary dollar is considered a complementary currency. It is not possible to earn interest by saving Calgary dollars; they are meant to be spent. Formerly known as a Bow Chinook Hour. I: A nonprofit group called the Arusha Centre founded the Calgary Dollars program in 1996 and has operated it ever since. Consumers and merchants must sign up to participate. Calgary dollars are plastic bills that come in denominations of 1, 5, 10, 25 and 50 dollars. They can be used to buy all the basics, like food, clothing and transportation as well as arts and leisure items. Calgary dollars are essentially a barter system. The system is legal and businesses pay taxes on the Calgary dollars they earn. Participating local merchants can choose to accept Calgary dollars for 25% to 100% of the price of their goods and services. A customer might pay for a $20 purchase with $5 in Calgary dollars and $15 in Canadian dollars at a business that accepts 25% Calgary dollars.

Kondratieff Wave

A long-term cycle present in capitalist economies that represents long-term, high-growth and low-growth economic periods. This theory was founded by Nikolai D. Kondratieff (also spelled "Kondratiev"), a Communist Russia era economist who noticed an approximately 50-year cycle in European agricultural commodity prices and copper prices. Kondratieff believed that these long cycles were a feature of the economic activity of capitalist nations, and that they involved periods of evolution and self-correction. Also known as "Kondratiev waves", "supercylces", "K-waves", "surges" or "long waves". I: The K-Wave cycle theory was watched closely 50 years following the market crash of 1929, after which time it was deemed pertinent to economic and political cycles, but not useful when applied as a stock market theory. Kondratieff's views were disliked by Communist Russia because he supported the idea that capitalist nations experienced cycles and were not necessarily on a path to destruction. As a result, he ended up in a concentration camp in Siberia, where he faced the death penalty in 1938.

Harvard MBA Indicator

A long-term stock market indicator that evaluates the percentage of Harvard Business School graduates that accept "market sensitive" jobs in fields such as investment banking, securities sales & trading, private equity, venture capital and leveraged buyouts. If more than 30% of a year's graduating class take jobs in these areas, the Harvard MBA Indicator creates a sell signal for stocks. Conversely, if less than 10% of graduates take jobs in this sector, it represents a long-term buy signal for stocks. I: Started and maintained by consultant and HBS graduate Roy Soifer, the Harvard Indicator gave sell signals in 1987 and in 2000, which were both terrible years for the stock market. The esoteric indicator is meant to represent long-term signals based on the relative attractiveness of Wall Street jobs. The more grads that are enticed to go there, the more bloated Wall Street becomes and the more likely the market is nearing a top. When stock markets are doing poorly, fewer grads want to enter the sector. This indicator runs on a similar theme to the old market adage that when everyone else is looking to get in, it's time to get out.

Canadian Originated Preferred Securities - COPrS

A long-term subordinated debt instrument issued in Canada. COPrS (pronounced "coppers") are a type of derivative equity security invented by Merrill Lynch in the mid-1990s. The first company to offer them was TransCanada PipeLines. COPrS are not the same as preferred shares, but are attractive because they have features which resemble both preferred shares and long-term corporate bonds. I: COPrS are a form of long-term, unsecured debt that are rated like bonds. They are traded on the Toronto Stock Exchange and pay interest quarterly, though the issuer usually has the option to defer paying interest for as many as 20 consecutive quarters. COPrS can be called after five years, so they are subject to reinvestment risk. Their subordinate status adds another level of risk, but also they offer a higher yield, and they are taxable investments.

Realized Loss

A loss is recognized when assets are sold for a price lower than the original purchase price. Realized loss occurs when an asset which was purchased at a level referred to as cost or book value is then disbursed for a value below its book value. Although the asset may have been held on the balance sheet at a fair value level below cost, the loss only becomes realized once the asset is off the books. I: One upside to a realized loss is the possible tax advantage. In most instances a portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. This may be quite desirable for a company looking to limit its tax burden, and firms may actually go out of their way to realize losses in periods where their tax bill is expected to be higher than wished.

Deadweight Loss Of Taxation

A loss of economic well-being imposed by a tax. The loss occurs because taxation makes the taxed good or service less attractive, reducing individuals' desire to purchase that product. Furthermore, taxation reduces incentives to work beyond a certain point, causing individuals to prefer to take additional leisure time. The tax also causes taxpayers to suffer financially and/or to change their behavior to avoid or reduce the burden of the tax. I: Such outcomes create a loss to society because the money collected as a tax could have been used in a more economically productive way, as could the time individuals spent on their tax-avoiding behavior and the time and money spent to impose and collect the tax. The more the demand and supply of a good or service change in the face of a tax, the greater the deadweight loss of taxation.

Paradigm Shift

A major change in how some process is accomplished. A paradigm shift can happen when new technology is introduced that radically alters the production process of a good. For example, the assembly line created a substantial paradigm shift not only in the auto industry, but in all other areas of manufacturing as well. I: Paradigm shifts can require that entire departments be eliminated or created in some cases, and millions or even billions of dollars of new equipment purchased while the old equipment is sold or recycled. Paradigm shifts have become much more frequent in the past hundred years, as the industrial revolution has transformed many social and industrial processes. This process is likely to become even more commonplace in the future as our rate of technological advancement increases.

Management By Objectives - MBO

A management model that aims to improve performance of an organization by clearly defining objectives that are agreed to by both management and employees. According to the theory, having a say in goal setting and action plans should ensure better participation and commitment among employees, as well as alignment of objectives across the organization. The term was first outlined by management guru Peter Drucker in 1954 in his book "The Practice of Management." I: A key tenet of management by objectives is the establishment of a management information system to measure actual performance and achievements against the defined objectives. The major benefits of MBO are that it improves employee motivation and commitment, and ensures better communication between management and employees. However, an oft-cited weakness is that MBO unduly emphasizes the setting of goals to attain objectives, rather than working on a systematic plan to do so.

NASDAQ Global Select Market Composite

A market capitalization-weighted index made up of U.S.-based and international stocks that represent the NASDAQ Global Select Market Composite. The NASDAQ Global Select Market Composite consists of 1,200 stocks that meet Nasdaq's strict financial and liquidity requirements and corporate governance standards. The Global Market Select Composite is more exclusive than the Global Market Composite. Every October, the Nasdaq Listing Qualifications Department reviews the Global Market Composite to determine if any of its stocks have become eligible for listing on the Global Select Market. I: This stock index was created in July 2006 when the Nasdaq National Market, created in 1984, split into two tiers, the NASDAQ Global Market and the NASDAQ Global Select Market. The change was nominal, as it did not affect listing standards, but rather was meant to reflect the global scope of the index and the companies listed on it. The select index encompasses about a third of the largest companies listed on the Nasdaq.

Hang Seng Index - HSI

A market capitalization-weighted index of 40 of the largest companies that trade on the Hong Kong Exchange. The Hang Seng Index is maintained by a subsidiary of Hang Seng Bank, and has been published since 1969. The index aims to capture the leadership of the Hong Kong exchange, and covers approximately 65% of its total market capitalization. The Hang Seng members are also classified into one of four sub-indexes based on the main lines of business including commerce and industry, finance, utilities and properties. I: The Hang Seng is the most widely quoted barometer for the Hong Kong economy. Because of Hong Kong's status as a special administrative region of China, there are close ties between the two economies and many Chinese companies listed on the Hong Kong Exchange.

Job Market

A market in which employers search for employees and employees search for jobs. The job market is not a physical place as much as a concept demonstrating the competition and interplay between different labor forces. The job market can grow or shrink depending on the labor demand and supply within the overall economy, specific industries, for specific education levels or specific job functions. I: The job market is directly related to the unemployment rate. The higher the unemployment rate, the greater the supply of labor in the overall job market. When employers have a larger pool of applicants to choose from, they can be pickier or force down wages. As the unemployment rate drops employers are forced to compete more heavily for available workers, which has the effect of increasing wages.

Paper Dealer

A market maker that buys and sells extremely short-term corporate bonds called commercial paper. A paper dealer is typically a large financial firm that has the capital and sophistication to distribute commercial paper to investors on behalf of borrowing corporations and to make a market in commercial paper, setting prices at which it is willing to buy and sell. I: Paper dealers are used by corporations that wish to access the public markets for their short-term borrowing needs. By issuing commercial paper, a corporation may be able to obtain a larger amount of financing and/or obtain a lower interest rate on its short-term borrowings, as compared to seeking a bank loan or other short-term credit facility. Commercial paper is offered in a range of maturities, from a few days to several months. Occasionally, individual investors can buy commercial paper directly from the issuing corporation. However, it is more common for retail investors to invest in commercial paper through a money market fund or short-term bond fund.

Heavy

A market that is demonstrating difficulty in advancing and is displaying a tendency to decline. A heavy market may be a manifestation of investor uncertainty about near-term direction, and a sign that the market is topping out. It may also be characterized by a shortage of buyers (many of whom may prefer to stay on the sidelines until the uncertainty abates) and an abundance of sellers. Such a market is sometimes also referred to as a top-heavy market. I: A heavy market could find itself vulnerable to toppling over if economic conditions and/or uncertainty worsen, as this would exacerbate the imbalance between buyers and sellers of stocks or futures. As such, a heavy market could be interpreted as a signal of, or precursor to, a potential steep decline in the near to medium-term.

Imperfect Market

A market where information is not quickly disclosed to all participants in it and where the matching of buyers and sellers isn't immediate. Generally speaking, it is any market that does not adhere rigidly to perfect information flow and provide instantly available buyers and sellers. I: The perfect market, as defined in economic textbooks, is not a truly achievable goal, but is still a beneficial model that provides a starting point for observation of our present market status. Practically, the imperfect market is the only kind that really exists. Even in the United States, the most advanced financial market in the world, there are still numerous cases of price corruption, improperly disseminated information and other market inefficiencies.

NASDAQ OMX 100 Index

A market-capitalization weighted index made up of the 100 largest companies listed on the NASDAQ OMX group exchanges in the United States and the Nordic countries. This index tracks large growth stocks across a broad range of sectors, with the Nasdaq's emphasis on innovation, technology, growth and globalization. I: The NASDAQ OMX 100 Index was introduced in March 2008. It is designed to be a global index and is disseminated in both dollars and euros. It is calculated in real time. Some of the stocks listed on the exchange are Amazon, Apple, Cisco, Danske Bank and NVIDIA.

S&P/Citigroup Broad Market Index (BMI) Global Ex-U.S.

A market-capitalization weighted index maintained by Standard and Poor's providing a broad measure of the global equities markets, excluding the U.S. market. The S&P/Citigroup Broad Market Index (BMI) Global Ex-U.S. is a division of the S&P/Citigroup Broad Market Index (BMI) Global, which includes approximately 11,000 companies in more than 52 countries covering both developed and emerging markets. The S&P/Citigroup Broad Market Index (BMI) Global Ex-U.S. contains approximately 8,000 stocks. I: Excluding the U.S., a country will be eligible for inclusion in the index if it has float-adjusted market capitalization of US$1 billion or more and its market capitalization weight is at least 40 basis points in either the emerging market or developed world indexes. A company will be eligible to be included in the index if it has float-adjusted market value of US$100 million or more, with a minimum of US$50 million value traded over the past 12 months.

Nasdaq Composite Index

A market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. The index includes all Nasdaq listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debentures. I: Unlike other market indexes, the Nasdaq composite is not limited to companies that have U.S. headquarters. It is very common to hear the closing price of the Nasdaq Composite Index reported in the financial press, or as part of the evening news.

S&P 500/Citigroup Growth Index

A market-capitalization-weighted index developed by Standard and Poor's consisting of those stocks within the S&P 500 Index that exhibit strong growth characteristics. The S&P 500/Citigroup Growth Index is a numerical ranking system based on three growth factors and four value factors to determine the constituents and their weightings. I: The growth factors include:1. Five-year earnings per share growth rate2. Five-year sales per share growth rate3. Five-year internal growth rateThe value factors include:1. Book value to price ratio2. Cash flow to price ratio3. Sales to price ratio4. Dividend yieldGrowth and value style scores are calculated based on the standardized factors.

S&P 500/Citigroup Value Index

A market-capitalization-weighted index developed by Standard and Poor's consisting of those stocks within the S&P 500 Index that exhibit strong value characteristics. The S&P 500/Citigroup Value Index uses a numerical ranking system based on four value factors and three growth factors to determine the constituents and their weightings. I: The value factors include:1. Book value to price ratio2. Cash flow to price ratio3. Sales to price ratio4. Dividend yieldThe growth factors include:1. Five-year earnings per share growth rate2. Five-year sales per share growth rate3. Five-year internal growth rateValue and growth style scores are calculated based on the standardized factors.

S&P/Citigroup Broad Market Index (BMI) Global

A market-capitalization-weighted index maintained by Standard and Poor's providing a broad measure of the global equities markets. The S&P/Citigroup Broad Market Index (BMI) Global includes approximately 11,000 companies in more than 52 countries covering both developed and emerging markets. I: A country will be eligible for inclusion in the index if it has float-adjusted market capitalization of US$1 billion or more and its market capitalization weight is at least 40 basis points in either the emerging market or developed world indexes. A company will be eligible to be included in the index if it has float-adjusted market value of US$100 million or more, with a minimum of US$50 million value traded over the past 12 months.

DAGMAR

A marketing approach used to measure the results of an advertising campaign. DAGMAR is an acronym: Defining Advertising Goals for Measured Advertising Results. The approach involves setting specific, measurable objectives for a campaign to determine if specific objectives were met. Specifically, DAGMAR seeks to communicate a specific message through four steps: Awareness - making the consumer aware that the product or company exists Comprehension - letting the consumer know what the product is used for Conviction - convincing the consumer to purchase the product Action - getting the consumer to actually make the purchase I: DAGMAR as an approach was first proposed by Russell Colley in a 1961 report to the Association of National Advertisers. Collay proposed that the real goal of advertising was to communicate, not to sell specifically. By determining if the consumer had sufficient knowledge of a product and its benefits by creating clear, specific objectives that are discussed within an advertisement, advertisers would be able to tell if their selling points made a difference in the consumer's decision-making process.

Raw Materials

A material or substance used in the primary production or manufacturing of a good. Raw materials are often natural resources such as oil, iron and wood. Before being used in the manufacturing process raw materials often are altered to be used in different processes. Raw materials are often referred to as commodities, which are bought and sold on commodities exchanges around the world. I: Raw materials are sold in what is called the factor market. This is because raw materials are factors of production along with labor and capital. Raw materials are so important to the production process that the success of a country's economy can be determined by the amount of natural resources the country has within its own borders. A country that has abundant natural resources does not need to import as many raw materials, and has an opportunity to export the materials to other countries.

Queuing Theory

A mathematical method of analyzing the congestions and delays of waiting in line. Queuing theory examines every component of waiting in line to be served, including the arrival process, service process, number of servers, number of system places and the number of "customers" (which might be people, data packets, cars, etc.). Real-life applications of queuing theory include providing faster customer service, improving traffic flow, shipping orders efficiently from a warehouse and designing telecommunications systems such as call centers. I: Queuing theory is used to develop more efficient queuing systems that reduce customer wait times and increase the number of customers that can be served. For example, a 2003 paper by Stanford School of Business professor Lawrence Wein used queuing theory to analyze the potential effects of a bioterrorism attack on U.S. soil and propose a system to reduce wait times for medications that would decrease the number of deaths caused by such an attack.

Oil Price to Natural Gas Ratio

A mathematical ratio comparing the prices of crude oil and natural gas. In the oil price to natural gas ratio formula, the oil price is the numerator and the price of natural gas is the denominator. This ratio is used by energy analysts, traders and investors to gauge the market of oil versus that of natural gas. I: The higher the oil price to natural gas ratio, the greater the demand for oil. For example, a ratio of 6:1 means that a barrel of crude oil costs six-times as much as an Mcf of natural gas. If the ratio declines, then difference in the prices of the two commodities is narrowing. The trading strategy supported by this ratio is to long oil when the ratio is below its historic average, and long gas when the ratio is excessive compared to previous time periods.

Managed Money

A means of investment where the investor, rather than buying and selling their own securities, places their investment funds in the hands of a qualified investment professional for a predetermined annual fee. I: Mutual funds are a good example of managed money; investors simply put their money into the fund, which deducts a specified percentage from the funds on a periodic basis for the service of researching prospective investments and maintaining the fund's portfolio. Essentially, investors with managed money believe they can earn higher returns by employing someone else to professionally handle their investments.

Earnings Before Interest, Taxes, Depreciation, Amortization And Special Losses - EBITDAL

A measure of a company's financial performance that looks at earnings before the inclusion of interest, taxes, depreciation, amortization and losses. These losses can be related to non-recurring expenses such as a loss in derivatives used to hedge currency or expense risks. I: A company may include this performance measure in its financial statements to give an idea of the earnings the company generates from its ongoing operations. This measure is used especially when there is a period of large one-time special losses.This non-GAAP measure along, with a myriad of others, is used in an attempt to make earnings figures either appear better than they actually are, or to give a more accurate picture of the operating results of the company. This makes it vital to understand the measure being used by the company along with its reasoning behind including it.

Quarter Over Quarter - Q/Q

A measure of an investment or company's growth from one quarter to the next. Quarter-over-quarter growth is most commonly used to compare a company's growth in profits or revenue, though it can also be used to describe changes in money supply, GDP or other economic measurements. Q/Q is a rate of change calculation. I: For example, suppose that a company reports Q1 earnings of $1 million and Q2 earnings of $1.25 million. Q/Q earnings growth would be ($1,250,000 - $1,000,000)/$1,000,000 = 0.25, or 25%. This demonstrates that the company's earnings have grown, but only the last two quarters have been examined. An investor would want to look at several other quarters to see if this is a trend or just a seasonal or temporary adjustment.

Real Economic Growth Rate

A measure of economic growth from one period to another expressed as a percentage and adjusted for inflation (i.e. expressed in real as opposed to nominal terms). The real economic growth rate is a measure of the rate of change that a nation's gross domestic product (GDP) experiences from one year to another. Gross national product (GNP) can also be used if a nation's economy is heavily dependent on foreign earnings. I: The real economic growth rate builds onto the economic growth rate by taking into account the effect that inflation has on the economy. The real economic growth rate is a "constant dollar" and is therefore a more accurate look at the rate of economic growth because it is not distorted by the effects of extreme inflation or deflation.

Economic Growth Rate

A measure of economic growth from one period to another in percentage terms. This measure does not adjust for inflation, it is expressed in nominal terms. In practice, it is a measure of the rate of change that a nation's gross domestic product goes through from one year to another. Gross national product can also be used if a nation's economy is heavily dependent on foreign earnings. I: The economic growth rate provides insight into the general direction and magnitude of growth for the overall economy. In the United States, for example, the long-term economic growth rate is around 2-5%, this lower rate is seen in most highly industrialized countries. Fast-growing economies, on the other hand, see rates as high as 10% although this rate of growth is not likely to be sustainable over the long term.

M3

A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. The M3 measurement includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations than to those of businesses and individuals. These types of assets are referred to as "near, near money." I: The M3 classification is the broadest measure of an economy's money supply. It emphasizes money as a store-of-value more so than money as a medium of exchange - hence the inclusion of less-liquid assets in M3. It is used by economists to estimate the entire money supply within an economy, and by governments to direct policy and control inflation over medium and long-term time periods. Each M3 component is given equal weight during calculation. This means, for example, that M2 and large time deposits are treated the same and aggregated without any adjustments. While this does create a simplified calculation, it assumes that each component of M3 impacts the economy the same way. This can be considered a shortcoming of this measurement of the money supply. Since 2006, M3 is no longer tracked by the U.S. central bank.

M2

A measure of money supply that includes cash and checking deposits (M1) as well as near money. "Near money" in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits. I: M2 is a broader money classification than M1, because it includes assets that are highly liquid but not cash. A consumer or business typically won't use savings deposits and other non-M1 components of M2 when making purchases or paying bills, but it could convert them to cash in relatively short order. M1 and M2 are closely related, and economists like to include the more broadly defined definition for M2 when discussing the money supply, because modern economies often involve transfers between different account types. For example, a business may transfer $10,000 from a money market account to its checking account. This transfer would increase M1, which doesn't include money market funds, while keeping M2 stable, since M2 contains money market accounts.

Participation Rate

A measure of the active portion of an economy's labor force. The participation rate refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate. During an economic recession, many workers often get discouraged and stop looking for employment, as a result, the participation rate decreases. I: The participation rate is an important metric to note when looking at unemployment data because unemployment figures reflect the number of people who are looking for jobs but are unable to secure employment. The participation rate is important in analyzing the unemployment rate. Those who have no interest in working are not included in the participation rate but are included in the unemployment rate. An aging population can have both a positive and negative effect on the participation rate, through retirement and new people entering the workforce. The participation rate and unemployment data should be observed in tandem to give a better understanding of the overall employment status.

Days Sales Outstanding - DSO

A measure of the average number of days that a company takes to collect revenue after a sale has been made. A low DSO number means that it takes a company fewer days to collect its accounts receivable. A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money. Days sales outstanding is calculated as: I: Due to the high importance of cash in running a business, it is in a company's best interest to collect outstanding receivables as quickly as possible. By quickly turning sales into cash, a company has the chance to put the cash to use again - ideally, to reinvest and make more sales. The DSO can be used to determine whether a company is trying to disguise weak sales, or is generally being ineffective at bringing money in. For most businesses, DSO is looked at either quarterly or annually. For more on DSO and how to lower it, read Understanding The Cash Conversion Cycle and Speed Up Receivables To Avoid A Cash Crunch

Omega

A measure of the change in an option's value with respect to the percentage change in the underlying price. The omega gives option investors an idea of how the option price and the stock price that underlies it move together.Omega is the third derivative of the option price, and the derivative of gamma. I: If the omega on a Ford call option is calculated to be 1.6%, then for every 1% change in the price of Ford the price of the call option will rise by 1.6%.Also known as "speed".

Economic Depreciation

A measure of the decrease in value of an asset over a specific period of time. This usually pertains to property such as real estate that can lose value due to indirect causes such as the addition of new construction in close proximity to the property, road additions or closures, a decline in the quality of the neighborhood, or other external factors. I: In periods of economic downturn and general housing market decline, economic depreciation must be considered in the appraisal of any property. During the credit crisis and housing market collapse of 2008-09, the combination of subprime loans requiring low or no downpayments with the dramatic drop in housing values resulted in a significant amount of the U.S. homeowning population being "underwater" - meaning that they owed more money on their home than it was actually worth.

Earnings Before Interest, Depreciation And Amortization - EBIDA

A measure of the earnings of a company that adds the interest expense, depreciation and amortization back to the net income number, but takes the tax expense into consideration. This measure is not as well known or used as often as its counterpart, earnings before interest, taxes, depreciation and amortization (EBITDA). I: EBIDA is considered to be a more conservative valuation measure than EBIDTA because it includes the tax expense in the earnings measure. The EBIDA measure removes the assumption that the money paid in taxes could be used to pay down debt, an assumption made in EBIDTA. This debt payment assumption is made because interest payments are tax deductible, which, in turn, may lower the company's tax expense, giving it more money to service its debt. EBIDA, however, does not make the assumption that the tax expense can be lowered through the interest expense and, therefore, does not add it back to net income.

M1

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain "near money" or "near, near money" as M2 and M3 do. I: M1 as a definition of a country's money supply focuses on money's role as an exchange medium. A customer paying for groceries can use coins, paper currency or write a check. All of these payment methods are part of M1. Demand deposits and checking accounts have become increasingly popular as an exchange medium with the advent of ATMs and debit cards. M1 is the most narrowly defined component of the money supply and does not include financial assets such as savings accounts. Economists use it to quantify the amount of money in circulation.

M0

A measure of the money supply which combines any liquid or cash assets held within a central bank and the amount of physical currency circulating in the economy. In the United Kingdom, the M0 supply is also referred to as narrow money. I: M0 (M-zero) is the most liquid measure of the money supply. It only includes cash or assets that could quickly be converted into currency. This measure is known as narrow money because it is the smallest measure of the money supply.

EBITDA Margin

A measurement of a company's operating profitability. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with a cleaner view of a company's core profitability. I: A firm with revenue totalling $125,000 and EBITDA of $15,000 would have an EBITDA margin of $15,000/$125,000 = 12%. The higher the EBITDA margin, the less operating expenses eat into a company's bottom line, leading to a more profitable operation.

S-Score

A numerical value that encapsulates how consumers and investors feel about a company, stock, ETF, sector or index as expressed over social media, specifically Twitter. S-Scores are created with data gathered by social media monitoring engines to help investors make trades and to help companies with market analysis and decision making. I: In 2013, NYSE Technologies and Social Market Analytics created the first S-Score to be distributed over a high-performance global network, specifically geared toward the financial sector and designed to benefit trading firms, portfolio managers, hedge funds, risk managers and brokers. Along with its trademarked S-Score, SMA offers S-Mean, S-Delta, S-Volatility, S-Buzz and S-Dispersion indicators (together called S-Factors), to track the volume, change and dispersion of social media comments. Their system filters out irrelevant and duplicate comments and spam to focus on the 10% of comments that provide meaningful information. An S-Score of greater than +2 is associated with significant positive sentiment, while an S-Score of lower than -2 is associated with significant negative sentiment. A score greater than +3 is considered extremely positive, while one below -3 is considered extremely negative. Anything between -1 and +1 is considered neutral. Higher scores could be also associated with higher Sharpe ratios, while lower scores could be associated with lower Sharpe ratios. Investors can use S-Scores to help them pick stocks. When S-Score changes, stock price is expected to change as well. Research by Social Market Analytics has shown that stocks with S-Scores higher than +2 significantly outperformed the S&P 500 over the period December 2011 through December 2013, while those with S scores less than -2 underperformed it significantly. As of January 2014, SMA computed S-Scores for all U.S. stocks with a meaningful amount of social media data. Examples include Whole Foods, Tesla Motors, Apple and Luluemon.

One-Cancels-the-Other Order - OCO

A pair of orders stipulating that if one order is executed, then the other order is automatically canceled. A one-cancels-the-other order (OCO) combines a stop order with a limit order on an automated trading platform. When either the stop or limit level is reached and the order executed, the other order will be automatically canceled. Seasoned traders use OCO orders to mitigate risk. I: For example, assume an investor owns 1,000 shares of a volatile stock that is trading at $10. The investor expects this stock to trade in a wide range in the near term, and has a target of $13 on it; for risk mitigation, he would like to lose no more than $2 on the stock. The investor can therefore place an OCO order, which would consist of a stop-loss order to sell 1,000 shares at $8, and a simultaneous limit order to sell 1,000 shares at $13, whichever occurs first. These orders could either be day orders or good-till-canceled orders.If the stock trades up to $13, the limit order to sell would be executed, and the investor's holding of 1,000 shares would be sold at $13. Concurrently, the $8 stop-loss order will be automatically canceled by the trading platform. If this order is not canceled and the stock subsequently drifts down to $8, the investor may needlessly find himself with a short position of 1,000 shares at $8 if the sale order was mistakenly executed.

Participation Mortgage

A participation mortgage is a type of mortgage that allows the lender to share in part of the income or resale proceeds. The lender participates in the income of the mortgaged property beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate. I: In a participation mortgage, the lender (mortgagee) is entitled to share in the rental or resale proceeds from a property owned by the borrower (mortgagor). The mortgage is evidenced by the bank or another fiduciary that has legal title to the mortgage and sells the fractional shares to investors or makes the investment for the certificate holders.

Key Money

A payment made to a building owner, manager or landlord by a potential tenant in an attempt to secure a desired tenancy. Key money can be considered a type of deposit on a housing unit such as an apartment unit. Key money also refers to a security deposit paid by a lessor or a lessee for a leased property. I: Key money is paid by a prospective tenant to a property owner or manager in the hopes of securing a rental contract in a particular property. In certain circumstances, key money can be considered a bribe to ensure that a property coming up for rent is secured by the payer of the key money, and as such, the transaction is conducted in an unofficial manner.

Manufactured Payment

A payment made to pass through dividend and interest payments from the borrower to the lender of those securities. Manufactured payments, represented as interest or dividend payments, occur frequently in securities lending. In such an arrangement, title to the securities passes to borrower, but the lender customarily maintains the right to payments which accrue on the security. I: Short selling is the most common situation in which one must borrow securities. In order to sell a stock short, a trader must borrow the stock. Since the short seller has borrowed the security, dividend payments made on the stock during the term of the loan must be paid to the lender. This can be a significant cost of short selling if a stock pays a high dividend yield.

Back Fee

A payment made to the writer of a compound option in the case that the call option is exercised in order to obtain a put option. Back fee is a premium charged at the second portion of the option, since a compound option is an option to purchase an option. I: Compound options are most commonly used by mortgage originators as a way to mitigate risk. The back fee is offered at a premium, because it provides an investor with the ability to wait before executing an option.

Balanced Scorecard

A performance metric used in strategic management to identify and improve various internal functions and their resulting external outcomes. The balanced scorecard attempts to measure and provide feedback to organizations in order to assist in implementing strategies and objectives. I: This management technique isolates four separate areas that need to be analyzed: (1) learning and growth, (2) business processes, (3) customers, and (4) finance. Data collection is crucial to providing quantitative results, which are interpreted by managers and executives and used to make better long-term decisions.

Rally

A period of sustained increases in the prices of stocks, bonds or indexes. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will generally follow a period of flat or declining prices. I: A rally is caused by a large amount of money entering the market, bidding up the prices. The length or magnitude of a rally depends on the depth of buyers along with the amount of selling pressure they face. For example, if there is a large pool of buyers but few investors willing to sell, there is likely to be a large rally. If, however, the same large pool of buyers is matched by a similar amount of sellers, the rally is likely to be short and the price movement minimal.

Majority Shareholder

A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder of the company, or in the case of long-established businesses, the founder's descendants. By virtue of controlling more than half of the voting interests in the company, the majority shareholder has a very significant influence in the business operations and strategic direction of the company. I: Majority shareholders differ in their approach to how the company is managed. While some continue to be heavily involved in the daily operations of the company, others may prefer to take a hands-off approach and leave the management of the company to the executives and managers. Majority shareholders who wish to exit their business, or dilute their position, may make overtures to their competition or private equity firms, with the objective of getting a good price for their stake. Since the majority shareholder usually has an iron grip on the fortunes of the company, a hostile bid for it is generally out of the question.

Obligor

A person or entity who is legally, or contractually, obliged to provide some benefit or payment to another. In the financial context, the term obligor refers to a bond issuer, who is contractually bound to make all principal repayments and interest payments on outstanding debt. The recipient of the benefit or payment is known as the obligee. An obligor is also referred to as a "debtor." I: As bond issues are contractual obligations, issuers have very little leeway in terms of deferring principal repayments or interest payments. Any delay in payment or non-payment of interest could be interpreted as a default for the bond issuer, an event that could have massive repercussions and long-term ramifications for the continuing viability of the business. As a result, most bond issuers take their debt obligations very seriously. With that said, defaults by over-leveraged issuers do occur from time to time.

Dealer

A person or firm in the business of buying and selling securities for their own account, whether through a broker or otherwise. A dealer is defined by the fact that it acts as principal in trading for its own account, as opposed to a broker who acts as an agent in executing orders on behalf of its clients. A dealer is also distinct from a trader in that buying and selling securities is part of its regular business, while a trader buys and sells securities for his or her own account but not on a business basis. I: While "dealer" is a separate registration category in the U.S., in Canada the term is used as the shortened version of "investment dealer," which is the equivalent of a broker-dealer in the U.S. Apart from buying and selling securities, a dealer also makes markets in securities, underwrites securities and provides investment services to investors. Most dealers also act as brokers, and are therefore known as broker-dealers. Broker-dealers range in size from small independent houses to subsidiaries of the largest banks. The Securities and Exchange Commission (SEC) requires that all brokers and dealers generally register with it, and also be members of the Financial Industry Regulatory Authority (FINRA). The SEC requires that individuals who engage in the following activities may need to register as a dealer: Someone who holds himself/herself out as being willing to buy and sell a specific security on a continuous basis, i.e. is making a market in that security; A person who runs a matched book of repurchase agreements; or An individual who issues or originates securities that he or she also buys and sells. The SEC requires dealers to perform certain duties in their dealings with clients. These duties include prompt order execution, disclosure of material information and conflicts of interest to investors, and charging prices that are reasonable in the prevailing market. In recent years, the profitability of dealers has been challenged by a number of factors, including the heightened regulatory environment (which has increased compliance costs), increasing technology requirements to keep up with rapidly changing markets, and industry consolidation.

Baby Boomer

A person who was born between 1946 and 1964. The baby boomer generation makes up a substantial portion of the North American population. Representing nearly 20% of the American public, baby boomers have a significant impact on the economy. As a result, baby boomers are often the focus of marketing campaigns and business plans. I: After the end of World War II, birth rates across the world spiked. The explosion of new infants became known as the baby boom. During the boom, an estimated 77 million babies were born in the United States alone! The large increase in population produced a substantial rise in demand for consumer goods, stimulating the post-war economy.

MAR Ratio

A measurement of returns adjusted for risk that can be used to compare the performance of commodity trading advisors, hedge funds and trading strategies. The MAR Ratio is calculated by dividing the compound annual growth rate (CAGR) of a fund or strategy since inception by its biggest drawdown. The higher the ratio, the better the risk-adjusted returns. The MAR Ratio gets its name from the Managed Accounts Report newsletter, which developed this metric. I: For example, if Fund A has registered a compound annual growth rate of 30% since inception, and has had a maximum drawdown of 15% in its history, its MAR Ratio is 2. If Fund B has a CAGR of 35% and a maximum drawdown of 20%, its MAR Ratio is 1.75. While Fund B has the higher absolute growth rate, on a risk-adjusted basis, Fund A would be deemed to be superior because of its higher MAR Ratio. But what if Fund B has been in existence for 20 years and Fund A has only been operating for five years? Fund B is likely to have weathered more market cycles by virtue of its longer existence, while Fund A may only have operated in more favorable markets. This is a key drawback of the MAR Ratio, since it compares results and drawdowns since inception, which may result in vastly differing periods and market conditions across different funds and strategies. This drawback of the MAR Ratio is overcome by another performance metric known as the Calmar ratio, which considers compound annual returns and drawdowns for the past 36 months only, rather than since inception.

E-Meeting

A meeting that takes place over an electronic medium rather than in the traditional face-to-face fashion. The most common form of an e-meeting is done through web-based software which allows individuals and groups from around the globe to facilitate meetings without physically travelling to an agreed upon location. I: The most important aspect to the majority of web-based e-meeting software is Voice over Internet Protocol, or VoIP. VoIP allows voice transmission over the internet, which is the key to facilitating a real-time e-meeting. Some software also allows participants to create graphs and charts in real-time, as well as record and save the entire meeting so it can be reviewed at a later date.

Qualified Reservist

A member of the military reserve who is not actively serving but may be called to duty and who is eligible to make an early withdrawal from his/her individual retirement account (IRA) without incurring the usual early distribution penalty. Under most circumstances, the IRS imposes a penalty of 10% on the taxable amount withdrawn from a retirement account by a taxpayer younger than 59.5 years old. I: To qualify for this exception, the reservist must be called to active duty for more than 179 days and the withdrawal must occur while the reservist is serving on active duty. These early withdrawals may still be subject to state and federal taxes.

Palladium

A metal used in many types of manufacturing processes and is found in electronics and industrial products. Palladium is an element found in the periodic table (atomic number 46), and is considered to be rare. The majority of the world's supply comes from mines located in the United States, Russia, South Africa and Canada. I: Palladium is an important component in electronics, and is used in many new technologies such as fuel cells. As a commodity, it has drawn the attention of investors because it is not easily substituted, and is an important component of catalytic converters.Palladium, platinum, rhodium, ruthenium, iridium and osmium form a group of elements referred to as the platinum group metals (PGMs).

Real Estate Agent

A person with a state/provincial license to represent a buyer or a seller in a real estate transaction in exchange for commission. Most agents work for a real estate broker or realtor. I: Real estate agents are the people you deal with face to face when buying or selling property. These are the people on the front lines of the real estate market and perform such tasks (amongst others) as showing homes to perspective buyers and negotiating transactions on behalf of their client. Real estate agents often work on a 100% commission basis, their income dependent upon their ability to find property suitable for their clients and closing transactions.

Ratable Accrual Method

A method for determining when and how much income was earned over a period of time. The ratable accrual method can be used to compute the interest income for tax purposes. This is opposed to the payment method, and could be used to find the accrued market discount of a discount bond traded in the secondary bond market. It can also be used to determine property tax on real estate held over several tax periods. I: The ratable accrual method usually results in a greater accrual of discount than the other method for determining accrued market discount, which is the constant yield method. However, it also uses a simpler calculation: market discount is divided by the number of days from the bond's maturity date minus the purchase date, multiplied by the number of days the investor actually held the bond. For example if you bought a $20,000 bond for $18,000 with 400 days until expiry, then you sold that bond 300 days later for $19,500. To compute interest income you would multiply the portion of the days held by the increase in value. 300/400 = 0.75. $19,500-$18,000 = $1,500. 0.75 x $1,500 = $1,125 interest income for tax purposes.

Hedge Accounting

A method of accounting where entries for the ownership of a security and the opposing hedge are treated as one. Hedge accounting attempts to reduce the volatility created by the repeated adjustment of a financial instrument's value, known as marking to market. This reduced volatility is done by combining the instrument and the hedge as one entry, which offsets the opposing movements. I: The point of hedging a position is to reduce the volatility of the overall portfolio. Hedge accounting has the same effect except that it's used on financial statements. For example, when accounting for complex financial instruments, such as derivatives, the value is adjusted by marking to market; this creates large swings in the profit and loss account. Hedge accounting treats the reciprocal hedge and the derivative as one entry so that the large swings are balanced out.

Man-Year

A method of describing the amount of work done by an individual throughout the entire year. The man-year takes the amount of hours worked by an individual during the week and multiplies it by 52 (or the number of weeks worked in a year). The man-year calculated will be different for various industries depending on the average number of hours worked each week and the number of weeks worked per year. I: There are two main reasons why an organization may calculate the man-year applicable to its employees. For one, that organizations may use the man-year along with sales or cost figures as a performance metric. For example, a company may calculate a sales per man-year metric and compare it to values from previous years.The second reason a company would calculate the man-year would be for budgetary reasons. For example, a corporation may calculate the total man-years for various offices that it operates and allocate budgets according to office size.

Immediate Family

A person's smallest family unit, consisting of the closest relatives, such as parents, siblings and children. Immediate family may contain both biological relatives and those related through marriage, such as a brother-in-law. Exact inclusions for the immediate family may differ depending on the defining party. I: A variety of rules and legislation related to one's immediate family. The Financial Industry Regulatory Authority (FINRA), formerly the NASD, prohibits the sale of hot issues to immediate family members, as stated in the Rules of Fair Practice. Additionally, rules governing one's immediate family are noted in FINRA's concepts of withholding and free-riding. Insurance policies and tax legislations also have provisions relating to immediate family members.

Macroprudential Analysis

A method of economic analysis that evaluates the health, soundness and vulnerabilities of a financial system. Macroprudential analysis looks at the health of the underlying financial institutions in the system and performs stress tests and scenario analysis to help determine the system's sensitivity to economic shocks. Macroeconomic and market data are also reviewed to determine the health of the current system. The analysis also focuses on qualitative data related to financial institutions' frameworks and the regulatory environment to get an additional sense of the strength and vulnerabilities in the system. I: When looking at the health of the underlying financial institutions in the system, macroprudential analysis uses indicators that provide data on the health of these institutions as a whole including capital adequacy, asset quality, management performance, profitability, liquidity and sensitivity to systematic risks. Macroeconomic data used includes gross domestic product (GDP) growth rates, inflation, interest rates, balance of payments, exchange rates, asset prices and the correlation of markets within the system. Finally, macroprudential analysis looks at key components of the financial markets, including prevailing credit ratings and the yields and market prices of financial instruments. Scenario analysis and stress tests are major component of this analysis. For example, the analysis may look at how the system would cope with a steadily declining currency value and its impact on GDP, interest rates and underlying institution profitability.

Gamma Neutral

A method of managing risk in options trading by establishing an asset portfolio whose delta rate of change is zero. A gamma-neutral portfolio hedges against second-order time price sensitivity. Gamma is one of the "options Greeks" along with delta, rho, theta and vega. These are used to assess different types of risk in options portfolios. The risk level of an options portfolio could also be managed through delta neutral, theta neutral and vega neutral strategies, which are used to hedge against the risks of price sensitivity, time sensitivity and implied volatility. I: A gamma neutral portfolio can be created by taking positions with offsetting deltas. This helps to reduce variations due to changing market prices and conditions. A gamma neutral portfolio is still subject to risk, however. For example, if the assumptions used to establish the portfolio turn out to be incorrect, a position that is supposed to be neutral may turn out to be risky. Furthermore, the position has to be rebalanced as prices change and time passes.

Natural Hedge

A method of reducing financial risk by investing in two different financial instruments whose performance tends to cancel each other out. A natural hedge is unlike other types of hedges in that it does not require the use of sophisticated financial products such as forwards or derivatives. However, most hedges (natural or otherwise) are imperfect, and do not eliminate risk completely. I: For example, bonds are a natural hedge against stocks because bonds tend to perform well when stocks are performing poorly and vice versa. Pair trading is another type of natural hedge. It involves buying long and short positions in highly correlated stocks because the performance of one will offset the performance of the other.

Karl Marx

A philosopher and economist famous for his ideas about capitalism and communism. Born in Prussia in 1818, Marx, in conjunction with Friedrich Engels, published "The Communist Manifesto" in 1848, which explains history as a class struggle between workers and owners of capital and sees a classless, communist society as an inevitable result of this struggle. Later in his life he wrote "Das Kapital," which discussed the labor theory of value. I: Marx's work laid the foundations for future communist leaders, such as Vladimir Lenin and Joseph Stalin, and for a political system that would take hold in countries including Russia, China, North Korea and Eastern Europe. Marx is often criticized for discussing economic theory and the exploitation of the working class while failing to maintain a job for a significant period of time.

Kaizen

A philosophy that sees improvement in productivity as a gradual and methodical process. Kaizen is a Japanese term meaning "change for the better". The concept of Kaizen encompasses a wide range of ideas: it involves making the work environment more efficient and effective by creating a team atmosphere, improving everyday procedures, ensuring employee satisfaction and making a job more fulfilling, less tiring and safer. I: Some of the key objectives of the Kaizen philosophy include the elimination of waste, quality control, just-in-time delivery, standardized work and the use of efficient equipment. An example of the Kaizen philosophy in action is the Toyota production system, in which suggestions for improvement are encouraged and rewarded, and the production line is stopped when a malfunction occurs.

In Specie

A phrase describing the distribution of an asset in its present form, rather than selling it and distributing the cash. In specie distribution is made when cash is not readily available, or allocating the physical asset is the better alternative. I: An example of an in specie distribution is a stock dividend, which can be distributed to investors when cash is in short supply. It is common to see an in specie distribution made in the form of fractional shares such as 0.5 shares for each share held. The phrase "in specie" is Latin for "in its actual form".

In The Penalty Box

A phrase referring to a company whose stock has plummeted with no rebound in sight. A company in the penalty box is often one that has received some bad news, ensuring the future lethargy of its stock. An example of this is a drug company with a key drug that doesn't get FDA approval. These types of companies will often stay in the penalty box for a long period of time. I: The term "penalty box" comes from the sport of hockey. In hockey, when a player commits a rules infraction, he or she is put in the penalty box near the player's bench. For a designated period of time, typically two minutes, a player is out of action and his or her team must play shorthanded. As a result, most teams go on the defensive and aim only to stay even (prevent the opposition from scoring versus scoring themselves).

Pale Recession

A phrase used in May 2008 by former Federal Reserve Board Chairman Alan Greenspan to describe an economic environment in which recession has not yet hit all the areas of the economy. In particular, Greenspan was speaking of the U.S. employment numbers at the time, which had not yet seen as significant of a decline as would be expected in a full recessionary environment, which is generally marked by a broad decline in economic activity across the economy. I: Greenspan used this term in a television interview with Bloomberg on May 4, 2008. When asked whether the U.S. was in a recession he responded, "We're in a recession ... but this is an awfully pale recession at the moment. The declines in employment have not been as big as you'd expect to see."

Calculated Intangible Value - CIV

A method of valuing a company's intangible assets. This calculation attempts to allocate a fixed value to intangible assets that does not change according to the company's market value. Examples of intangible assets include brand equity and proprietary technology. I: Usually a company's intangible assets are valued by subtracting a firm's book value from its market value. However, opponents of this method argue that because market value constantly changes, the value of intangible assets changes also, making it an inferior measure. Finding a company's CIV involves seven steps:1. Calculate the average pretax earnings for the past three years.2. Calculate the average year-end tangible assets for the past three years.3. Calculate the company's return on assets (ROA).4. Calculate the industry average ROA for the same three-year period as in Step 2.5. Calculate excess ROA by multiplying the industry average ROA by the average tangible assets calculated in Step 2. Subtract the excess return from the pretax earnings from Step 1.6. Calculate the three-year average corporate tax rate and multiply by the excess return. Deduct the result from the excess return.7. Calculate the net present value of the after-tax excess return. Use the company's cost of capital as a discount rate.

Last Mile

A phrase used in the telecommunications and technology industries to describe the technologies and processes used to connect the end customer to a communications network. The last mile is often stated in terms of the "last-mile problem", because the end link between consumers and connectivity has proved to be disproportionately expensive to solve. I: Even compared to the costs associated with rolling out broadband wire and hardware across the expanses of the globe, last-mile connections have been plagued with technological issues and high costs. As a result of this, there are many publicly traded companies engaged primarily in last-mile solutions and services.

Fed Speak

A phrase used to describe former Federal Reserve Board Chairman Alan Greenspan's tendency to make wordy statements with little substance. Many analysts felt that Greenspan's ambiguous "Fed speak" was an intentional strategy used to prevent the markets from overreacting to his remarks. I: Greenspan, who was chairman of the Fed from 1986 to 2006, was known for making vague statements that were not easily interpreted. For example, following a speech Greenspan gave in 1995, a headline in the New York Times read, "Doubts Voiced by Greenspan on a Rate Cut," while the Washington Post's headline that day said "Greenspan Hints Fed May Cut Interest Rates". Greenspan's successor, Ben Bernanke, is known for making more direct statements.

If-Converted Method

A method used to calculate the share impact of convertible securities if they were converted into new shares. Only in-the-money convertible securities (securities where the stock price is above the exercise price) are considered in the if-converted method. This method assumes that convertible securities are converted at the beginning of the fiscal period or at the time of issuance, whichever is later. The number of new shares is calculated on the basis of the convertible securities' conversion ratio. I: Convertible debt that is converted into stock increases share dilution but reduces interest expense, which is a tax-deductible expense for a company. For example, a company with a $20 million convertible debenture carrying an interest rate of 5% would incur an annual interest expense of $1 million. The if-converted method takes this into account by adding after-tax interest savings arising from the conversion to earnings per share (EPS), which offsets the dilution caused by the new shares.

Hedonic Regression

A method used to determine the value of a good or service by breaking it down into its component parts. The value of each component is then determined separately through regression analysis. For example, the value of a home can be determined by separating the different aspects of the home - number of bedrooms, number of bathrooms, proximity to schools - and using regression analysis to determine the value of each variable. One of the more widely-recognized examples of hedonic regression is the Consumer Price Index, which examines changes to the value of a basket of goods over time. I: The word "hedonic" refers to pleasure, which economists link to the perceived value each part a good or service has to someone. This sort of regression analysis provides a good - but not perfect - estimate of the value consumers place on a part of a whole.

Genuine Progress Indicator - GPI

A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others). The GPI nets the positive and negative results of economic growth to examine whether or not it has benefited people overall. I: The GPI metric was developed out of the theories of green economics (which sees the economic market as a piece within a ecosystem). Proponents of the GPI see it as a better measure of the sustainability of an economy when compared to the GDP measure. Since 1995 the GPI indicator has grown in stature and is used in Canada and the United States. However, both these countries still report their economic information in GDP to remain in line with the more widespread practice.

Impression

A metric used to quantify the display of an advertisement on a web page. Impressions are used in banner advertising, which often pays on a per impression basis. Frequently, these are measured by Cost Per Mille (CPM), where mille refers to 1,000 impressions. I: For example, a banner ad might have a CPM (cost per thousand) of $5, meaning that the website owner receives $5 every time an ad on his website is displayed 1,000 times.The owner of a website may be paid for each ad impression. Other advertising arrangements may only pay the website owner when a visitor clicks on the ad, or clicks on the ad and makes a purchase. Typically, advertisers pay less for an ad campaign based solely on impressions and more for campaigns based on click-throughs and conversions. The reason for this difference in pay rates is that an ad that causes its viewer to take action resulting in a sale, is more valuable to the advertiser than one that does not.

On-Balance Volume (OBV)

A momentum indicator that uses volume flow to predict changes in stock price. On Balance Volume is a metric developed by Joseph Granville in the 1960s. He believed that, when volume increases sharply without a significant change in the stock's price, the price will eventually jump upward, and vice versa. I: The theory behind OBV is based on the distinction between smart money - namely, institutional investors - and less sophisticated retail investors. As mutual funds and pension funds begin to buy into an issue that retail investors are selling, volume may increase even as the price remains relatively level. Eventually, volume drives the price upward. At that point, larger investors begin to sell, and smaller investors begin buying. The following chart depicts OBV. If today's close is greater than yesterday's close, then today's volume is added to yesterday's OBV, and is considered "up volume." However, if today's close is less than yesterday's close, today's volume is subtracted from yesterday's OBV and is considered "down volume." Chart created with TradeStation

Magic Formula Investing

A money-making strategy that teaches investors a common-sense method for value investing in the stock market that is designed to beat the market's average annual returns. The Magic Formula strategy is described in the best-selling book "The Little Book That Beats The Market" (1980) by investor and Wharton graduate, Joel Greenblatt. I: Investors can use Greenblatt's online stock screener tool to select 20 to 30 top-ranked companies, based on their earnings yield and return on capital, in which to invest. These will all be large companies, and no financial companies, utility companies or non-U.S. companies will be included. Investors sell the losing stocks before they have held them for one year to take advantage of the income tax provision that allows investors to use losses to offset their gains. They sell the winning stocks after the one-year mark, in order to take advantage of reduced income tax rates on long-term capital gains. Then they start the process all over again.

Passive Foreign Investment Company - PFIC

A foreign-based corporation that has one of the following attributes:1. At least 75% of the corporation's income is considered "passive", which is based on investments rather than standard operating business.2. At least 50% of the company's assets are investments that produce interest, dividends and/or capital gainsPFICs include foreign-based mutual funds, partnerships and other pooled investment vehicles that have at least one U.S. shareholder. Most investors in PFICs must pay income tax on all distributions and appreciated share values, regardless of whether capital gains tax rates would normally apply. I: PFICs are subject to complicated and strict tax guidelines by the Internal Revenue Service (IRS), which covers treatment of these investments in Sections 1291 through 1297 of the income tax code. Both the PFIC and the shareholder must keep accurate records of all transactions, including share basis, dividends and any undistributed income earned by the company.The strict guidelines are set up to discourage ownership of PFICs by U.S. investors. PFIC shares won't even receive a step-up in cost basis as is the case with nearly all other marketable, appreciable assets. An option that investors have is to seek qualification of a PFIC investment as a qualified electing fund (QEF). This may reduce the tax rate on certain transactions but also forces the investor to pay taxes even on income earned by the foreign company that is not distributed to shareholders.

ECN Broker

A forex financial expert who uses electronic communications networks (ECNs) to provide its clients direct access to other participants in the currency markets. Because an ECN broker consolidates price quotations from several market participants, it can generally offer its clients tighter bid/ask spreads than would be otherwise available to them. I: Since an ECN broker only matches trades between market participants, it cannot trade against the client, an allegation often directed against some unscrupulous retail forex brokers. Because ECN spreads are much narrower than those used by everyday brokers, electronic communication networks brokers charge clients a fixed commission per transaction.

Parking

A form of kiting shares that a brokerage commits by moving long positions in unrelated accounts to cover short positions that are improperly settled according to SEC regulations. I: When parking shares, brokerage firms are attempting to cover undeclared short positions left over from transactions whose stock was not delivered by the settlement date. Rather than performing a buy-in transaction, these firms collude with one another and, by delaying the settlement process, inflate the number of shares available for trade in the secondary market.

11th District Cost of Funds Index - COFI

A monthly weighted average of the interest rates paid on checking and savings accounts offered by financial institutions operating in the states of Arizona, California and Nevada. Published on the last day of each month, the COFI represents the cost of funds for western American financial institutions. I: The COFI is computed using several different factors, with interest paid on savings accounts comprising the largest weighting in the average. Because of this, the index tends to exhibit low volatility and follow market interest rate changes somewhat slowly; it is generally regarded as a two-month lagging indicator of market interest rates.Because it is computed using data from three western states, the COFI is primarily used in the western U.S. while the Treasury Index is the measure of choice in the east.

Painting The Tape

A form of market manipulation whereby market players attempt to influence the price of a security by buying and/or selling it among themselves so as to create the appearance of substantial trading activity in the security. Painting the tape is an illegal activity that is prohibited by the Securities and Exchange Commission because it creates an artificial price for a security. The term originated in a bygone era when stock prices were largely transmitted on a "ticker tape." I: Two common objectives among market manipulators of painting the tape are to lure unsuspecting investors into a security, or achieve a high closing price for it. Unusual trading volume in a security may attract investors to it. Cabals of market manipulators who have painted the tape in a security generally expect to make significant profits by offloading their holdings in it - which are usually acquired at much lower prices - to investors unaware of the stock manipulation. These investors are literally left "holding the bag" once the manipulation ceases and the stock declines steeply in price. High closing activity attempts to create an artificial price for a security by boosting its price substantially at market close, since closing prices are widely reported in the media and are closely watched by investors. Since most portfolios and securities are valued on the basis of their closing prices, manipulators use this tactic to achieve a higher market value for their holdings rather than their intrinsic worth.

Tail Risk

A form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution. I: When a portfolio of investments is put together, it is assumed that the distribution of returns will follow a normal pattern. Under this assumption, the probability that returns will move between the mean and three standard deviations, either positive or negative, is 99.97%. This means that the probability of returns moving more than three standard deviations beyond the mean is 0.03%, or virtually nil. However, the concept of tail risk suggests that the distribution is not normal, but skewed, and has fatter tails. The fatter tails increase the probability that an investment will move beyond three standard deviations.Distributions that are characterized by fat tails are often seen when looking at hedge fund returns.

Rate Of Return Regulation

A form of price setting regulation where governments determine the fair price which is allowed to be charged by a monopoly. Rate of return regulation is meant to protect customers from being charged higher prices due to the monopoly's power, while still allowing the monopoly to cover its costs and earn a fair return for its owners I: Customers benefit from prices that are reasonable, given the monopolists operating costs. Rate of return regulation is often criticized because it provides little incentive to reduce costs and increase efficiency. A monopolist who is regulated in this manner does not earn more if costs are reduced. Thus, customers may still be charged higher prices than they would be under free competition.

Gann Fans

A form of technical analysis based on the ideas that the market is geometric and cyclical in nature. A Gann fan consists of a series of diagonal lines called Gann angles, of which there are nine. These angles are superimposed over a price chart to show a security's support and resistance levels. The resulting image is supposed to help technical analysts predict price changes. Although once drawn by hand, today Gann fans can be drawn with software programs. I: Gann Fans were developed by W. D. Gann, who was also known for his accurate financial predictions, called the Gann studies, in the early 1900s. Gann's ideal angle was a 45 degree angle based on his ideal balance of time and price. However, because the construction of a Gann fan relies heavily on subjective choices made by individual traders, the chart may be limited in its usefulness and accuracy. The three premises Gann based his theory on were: i) price, time and range are the only factors, ii) cyclical markets, and iii) geometric market design.

Backward Integration

A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it will result in improved efficiency and cost savings. For example, backward integration might cut transportation costs, improve profit margins and make the firm more competitive. By way of contrast, forward integration is a type of vertical integration that involves the purchase or control of distributors. I: An example of backward integration would be if a bakery business bought a wheat processor and a wheat farm. Vertical integration is not inherently good. For many firms, it is more efficient and cost effective to rely on independent distributors and suppliers. For example, backward integration would be undesirable if a supplier could achieve greater economies of scale and provide inputs at a lower cost as an independent business, than if the manufacturer were also the supplier. An example of forward integration would be if the bakery sold its goods itself at local farmers markets or owned a chain of retail stores, through which it could sell its goods. If the bakery did not own a wheat farm, a wheat processor or a retail outlet, it would not be vertically integrated at all.

Facility

A formal financial assistance program offered by a lending institution to help a company that requires operating capital. Types of facilities include overdraft services, deferred payment plans, lines of credit, revolving credit, term loans, letters of credit and swingline loans. A facility is essentially another name for a loan taken out by a company. I: Facilities can be committed, meaning that they specify a precise amount of funds that will be provided, or uncommitted, meaning that the lender has not agreed to provide a specified amount of funding. Different types of facilities are available to meet different business needs, such as seasonal financing and the payment of creditors.

Management Investment Company

A formal name for a company that sells and manages a portfolio of securities. A management investment company is one of the three fundamental types of investment companies, the other two being unit investment trusts and face-amount certificate companies. Management investment companies allow investors to pool their capital with that of other investors in order to purchase professionally-managed groups of diversified securities. I: A management investment company is headed by a CEO, a team of officers and a board of directors. These company leaders choose the types of investment products the company will offer, define the fund's objectives and select the people who will run each fund. Management investment companies are subject to rules set forth in the Investment Company Act of 1940. Registered management investment companies are also subject to the Securities Exchange Act of 1934.

C. Michael Armstrong

A former CEO and chairman of AT&T from 1997 until he resigned in 2002. He led AT&T to acquire two of the largest cable television companies in 1998 but had to break up the new company in 2001 in the wake of the dot-com bust. Armstrong was also a former Citigroup board member from 1989 to 2010. He was criticized for his role in Citigroup's financial struggles during the 2007 financial crisis. I: Born in Detroit in 1938, Armstrong is also a member of the Council on Foreign Relations. Prior to joining AT&T, he held high-level positions at IBM, where he worked for 31 years, and at Hughes Electronics, where he helped launch DirecTV.

Larry Montgomery

A former CEO and chairman of Kohl's department stores. Montgomery joined Kohl's in 1988 as senior vice president and director of stores. He was appointed to the board of directors in 1994, became CEO in 1999, and became chairman in 2003. Montgomery is known for helping to turn Kohl's from a primarily Midwestern chain into a national chain. He retired in 2010. I: Kohl's is a Wisconsin-based department store with both an online and brick-and-mortar presence. It opened its first store opened in 1962, and the company went public in 1992 with an initial public offering of 11.1 million shares. The stores primarily sell men's, women's and children's apparel, footwear, accessories and home furnishings. About half of the items sold in its stores are private or exclusive brands.

Márcio A. Cypriano

A former CEO of Banco Bradesco, one of the largest private banks in Brazil. He began his banking career in 1967 as a clerk with Banco da Bahia, which merged with Bradesco in 1973. After the merger, he became a branch manager, and over the years, he worked his way up through the company, becoming executive vice president in 1995, CEO in 1999 and a board member in 2002. Luiz Carlos Trabuco Cappi succeeded him as CEO in 2009, but Cypriano remains a board member. I: Cypriano wanted to bring the bank more clients, which he did by expanding clientele from the low and middle end into the high end, and by increasing services for low-income customers. He maintained the bank's emphasis on retail banking while making the company more transparent. He made Bradesco the first bank in Latin America to offer online banking (lowering the company's operating costs in the process), acquired Banco Mercantil de Sao Paolo and made the bank more profitable.

C. Steven McMillan

A former CEO of Sara Lee from 2000 to 2005. Sara Lee sells frozen and packaged foods, including baked goods, beverages and meat, along with household products such as body care, shoe care, insecticides and detergents. McMillan took over at a time when the company was struggling, and under his executive leadership, he worked to streamline the company's 200-plus brands. Nonetheless, the company's revenue and operating income declined as the company faced competition from low-cost imports and inexpensive store brands. I: Another setback McMillan experienced was the result of his decision to acquire the baked-goods company EarthGrains. The move was unpopular with investors because they were unhappy with the price paid for the company and because anticipated gains from the decision never materialized. He was also the subject of a sexual discrimination lawsuit in 2004. McMillan was born in 1946 and earned an MBA with honors from Harvard Business School. In addition to Sara Lee, he has been a board member with Aero Toy Store, Inc., Bank of America, Monsanto, Electrolux, Illinova and Pharmacia & Upjohn.

Rafael Miranda Robredo

A former CEO of Spanish electricity company Endesa. Born in Spain in 1949, Roberdo worked for Tudor and Campofrio before joining Endesa in 1987 as a managing director. In 1997 he became Endesa's CEO. In 1998, Spain began deregulation of its electricity sector, and Roberdo had to reinvent the company under changing market conditions. I: The firm, once fully state-owned under the Instituto Nacional de Industria, became privately owned in 1998. Roberdo helped it expand abroad to Latin America, where electricity demand was growing faster than it was in Spain. Endesa has a dominant market share in Spain, Chile, Argentina, Colombia and Peru. It also provides natural gas and renewable energy in Spain.

David F. D'Alessandro

A former CEO, chairman and president of John Hancock Financial Services and former president and COO of Canadian insurer Manulife Financial Corporation. At John Hancock, D'Alessandro proved himself by creating a new ad campaign to gain clients and better connecting with existing ones. He led John Hancock's initial public offering in 1998 and its merger with Manulife in 2004. I: D'Alessandro was born in 1951 in New York State and earned his bachelor of science degree from Utica College in 1972. He then began working for public relations firm Daniel J. Edelman as an account supervisor. He joined Citibank Commercial Services in 1979 and began working for John Hancock in 1984, becoming its CEO and president in 1996 and its chairman in 2001. He became president and COO of Manulife when it acquired John Hancock in 2004 and retired shortly thereafter.

John A. Allison IV

A former chairman and CEO of BB&T Corporation, a North Carolina-based financial holding company, from 1989 to 2008, and a member of the company's board of directors. He is known for dramatically increasing the bank's assets to make it one of the largest banks in the United States. I: Born in 1948 in North Carolina, Allison earned an MBA from Duke University and joined BB&T in 1971 as a manager in the financial analysis department. Allison is also a strong proponent of Ayn Rand's objectivist philosophy and has donated several million dollars to university programs to support study in this discipline.

James P. Mooney

A former chairman and CEO of OM Group. Born in 1947 in Ohio, Mooney began his career with his father's company, Mooney Chemicals, in 1971, where he advanced to CEO and president, then joined OM Group in 1991 as its CEO and president, later adding chairman to his titles and stepping down as president. I: OM Group is a Cleveland-based metal company whose products are used in many industries, including aerospace, automotives, construction and electronics. Mooney led a restructuring of the company and helped OM Group to become one of America's largest specialty chemicals companies. Its most important specialty chemicals are cobalt-based and nickel-based.

Naoyuki Akikusa

A former chairman, CEO and president of Fujitsu Limited. Naoyuki Akikusa was born in Japan in 1938, joined Fujitsu in 1961 as a systems engineer and worked there for his entire career. After advancing through numerous vice presidential positions, he became president in 1998 and CEO in 2000 and held both positions until 2003 when he became chairman. I: Akikusa is known for breaking with traditional Japanese business traditions and leading the company in joint ventures with Verizon, Sun Microsystems and Hitachi. Fujitsu is a Tokyo-based computing and communications company. Founded in 1935, it began producing commercial computers in the mid 1950s and expanded into personal computers in the late 1980s. It is the world's fourth-largest IT services provider, one of the world's top providers of servers and does business with nearly half of the Fortune Global 500 companies.

E. Linn Draper Jr.

A former chairman, CEO and president of Ohio-based public utility holding company American Electric Power Company. He became the company's leader just as energy deregulation took place, and he led a merger with another major public utility holding company (Central & South West Corp.), reassured investors of the company's strength in the wake of the Enron scandal and kept the company afloat through the recession of 2001-2002. I: Born in 1942 in Houston, Draper Jr. earned his Ph.D. from Cornell University in 1970. He then taught at the University of Texas until 1979, when he joined Gulf States Utilities and worked his way into senior management. In 1987 he joined American Electric. He became its president and COO in 1992 and its chairman, CEO and president in 1993. He stepped down as president and CEO at the end of 2003 and retired from his position as chairman in early 2004.

John G. Drosdick

A former chairman, CEO and president of petroleum company Sunoco. Drosdick led Sunoco to acquire nearly 300 gas stations and purchase a chemical company and a refinery; the company also shut down several of its facilities during his tenure. Drosdick became Sunoco's chairman, CEO and president in 2000 and he retired at the end of 2008. I: Born in 1943 in Pennsylvania, Drosdick earned his master's degree in chemical engineering from the University of Massachusetts in 1968. He began his career as an engineer with Exxon that same year. In 1983 he joined Tosco Corp. as its vice president of refining, eventually becoming CEO and president in 1989. He then worked as president and COO at Ultramar, Sun Company and Sunoco (formerly Sun).

Raintaker

A former employee of a brokerage firm who takes high-value clientelle from his or her previous employer to his or her new brokerage. The term raintaker is taken from rainmaker, which is used to describe a brokerage employee who brings in large amounts of business to their brokerage. I: Rainmakers typically bring clients, money or respect to an organization soley thanks to their association and reputation. Raintakers are usually former rainmakers for a brokerage. Raintakers can cost a brokerage substantial amounts in earnings and commissions from lost business.

Ramani Ayer

A former president and CEO of Hartford Financial Services. Ayer was born in 1947 in India and immigrated to the United States in 1969 to attend Drexel University, where he earned a master's degree and Ph.D. in chemical engineering. He joined The Hartford in 1973, the same year he obtained his Ph.D, and worked there for his entire career, becoming president and CEO in 1997 and retiring in 2009. I: Hartford Financial Services was founded in 1810. During Ayer's tenure, the company purchased CNA's group life and disability and medical and accident business, began selling variable and fixed annuities in Japan and became a Fortune 100 company. The company sells personal insurance products, including auto, homeowners, life, flood and disability and offers personal investment vehicles such as mutual funds, annuities, college savings plans and individual retirement plans. It also offers business products ranging from employee benefits to general liability insurance to errors and omissions insurance.

David W. Dorman

A former president, CEO and chairman of AT&T. He entered the telecommunications industry in 1981 with Sprint, where he worked his way up to president. Dorman has also been CEO of Concert, PointCast and Pacific Bell. When SBC acquired Pacific Bell, he became executive vice president at SBC. He became president of AT&T in December 2000 and was its chairman and CEO from 2002 to 2006, leaving the company shortly after its merger with SBC. I: Dorman was born in 1954 in Georgia and earned his bachelor of science degree with high honors from the Georgia Institute of Technology in 1975. While at AT&T, Dorman worked to modernize the company's infrastructure, sell its services as bundles, make it the largest internet provider, pay down its debt and increase its stock value. Dorman has also served on the board of directors for Yum! Brands, CVS Caremark and Motorola (as non-executive chairman).

John T. Dillon

A former president, chairman and CEO of International Paper Co., a plywood, paper, pulp, packaging and chemical company. Dillon joined International Paper in 1965 as a sales trainee. Over the next 30 years, he worked his way up, becoming president and COO in 1995 and chairman and CEO in 1996, positions he held until 2003 when he retired. Dillon helped turn International Paper into a large multinational corporation, leading it through two mergers and a major acquisition to increase its market share. However, industry suffered during the recession that began in 2001. I: Born in 1938 in New York State, Dillon earned his masters degree from the Columbia University Graduate School of Business in 1971. He has also served as a director of Caterpillar, E.I. du Pont de Nemours & Co. and Kellogg Co.

Balanced Fund

A fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation. I: A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a mutual fund invests into each asset class usually must remain within a set minimum and maximum. Although they are in the "asset allocation" family, balanced fund portfolios do not materially change their asset mix. This is unlike life-cycle, target-date and actively managed asset-allocation funds, which make changes in response to an investor's changing risk-return appetite and age, or overall investment market conditions.

Hamada Equation

A fundamental analysis method of analyzing a firm's costs of capital as it uses additional financial leverage, and how that relates to the overall riskiness of the firm. The measure is used to summarize the effects this type of leverage has on a firm's cost of capital (over and above the cost of capital as if the firm had no debt). The equation is: I: The equation is used to determine the effects of financial leverage on a firm, as measured by the Hamada coefficient. The higher the coefficient, the higher the risk associated with the firm. For example, say a firm has a debt to equity ratio of 0.60, a tax rate of 33%, and a debt free beta of 0.95. The Hamada coefficient would be about 1.33 {0.95[1+(1-0.33)(0.60)]}. This means that financial leverage, for this firm, increases the overall risk by a factor of 0.38, or by 40%.This equation quantifies the effects financial leverage has on a firm, and can serve as a quick and dirty analysis of a firm's overall business risk as it relates to the returns from the market overall.

January Effect

A general increase in stock prices during the month of January. This rally is generally attributed to an increase in buying, which follows the drop in price that typically happens in December when investors, seeking to create tax losses to offset capital gains, prompt a sell-off. I: The January effect is said to affect small caps more than mid or large caps. This historical trend, however, has been less pronounced in recent years because the markets have adjusted for it. Another reason the January effect is now considered less important is that more people are using tax-sheltered retirement plans and therefore have no reason to sell at the end of the year for a tax loss.

Gearing Ratio

A general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds. Also known as the Net Gearing Ratio. I: The higher a company's degree of leverage, the more the company is considered risky. As for most ratios, an acceptable level is determined by its comparison to ratios of companies in the same industry. The best known examples of gearing ratios include the debt-to-equity ratio (total debt / total equity), times interest earned (EBIT / total interest), equity ratio (equity / assets), and debt ratio (total debt / total assets). A company with high gearing (high leverage) is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are. A greater proportion of equity provides a cushion and is seen as a measure of financial strength.

Pacific Rim

A geographic area surrounding the edges of the Pacific Ocean. The Pacific Rim covers the western shores of North America and South America, Australia, eastern Asia and the islands of the Pacific. Much of the world's shipping goes through the Pacific region, especially between China and the United States. I: Many Pacific Rim countries have rapidly modernized their economies in recent years, earning nicknames such as the Four Asian Tigers (Hong Kong, South Korea, Singapore and Taiwan) and the Tiger Cubs (Indonesia, Malaysia, Philippines and Thailand).

Gift Inter Vivos

A gift given during the life of the grantor. Following a gift inter vivos, the grantor no longer has any rights to the property, and can not get it back without the permission of the party it was gifted to. I: This type of gift has two major benefits. The first is that since the gift was given prior to death, it is not considered part of the estate and is therefore not subject to probate taxes. Also, if given as a donation to a charitable foundation, the gifter can use the value amount as a tax credit on his/her tax return.

Gift Causa Mortis

A gift to be given at a later date in anticipation of the giver's death. If the giver dies of an ailment differing from the expected one, the gift is not effective. The gift may be revoked by the giver on any date prior to the expected date as long as no property, whether concrete or symbolic, has been delivered to the recipient. I: A gift can be given causa mortis (in anticipation of the death of the grantor) or inter vivos (during the life of the grantor). A gift causa mortis is taxed under federal estate tax law in the same way as a gift bequeathed by a will.

Economic Indicator

A piece of economic data, usually of macroeconomic scale, that is used by investors to interpret current or future investment possibilities and judge the overall health of an economy. Economic indicators can potentially be anything the investor chooses, but specific pieces of data released by government and non-profit organizations have become widely followed - these include:- The Consumer Price Index (CPI)- Gross Domestic Product (GDP)- Unemployment figures- The price of crude oil I: An economic indicator is only useful if one interprets it correctly. History has shown strong correlations between economic growth (as measured by GDP) and corporate profit growth. However, determining whether a specific company will grow its earnings based on one indicator is nearly impossible. Indicators give us signs along the road, but the best investors will utilize many economic indicators, looking for patterns and verifications within different sets of data. Most economic indicators have a specific schedule for release, allowing investors to prepare for and plan on seeing certain information at certain times of the month and year.

Major Fraud Act Of 1988

A piece of legislation passed during the Reagan administration that modified and strengthened previous fraud legislation. Among the many changes, the Major Fraud Act of 1988 increased the maximum penalties for fraud, added protection for employees who assist the prosecution of fraud cases and introduced mandatory annual reports on fraud investigations by the attorney general. I: The timing of the Major Fraud Act makes it seem like a reaction to the securities fraud cases of the late '80s and early '90s. However, much of the legislation targeted government contractors' persistent cost overruns and suspect bidding practices. The increase of penalties to $1 million for a single count and $10 million for multiple counts may not have significantly deterred this type of fraud, but it did increase the amount the government was able to claw back through the courts.

Salary Reduction Simplified Employee Pension Plan - SARSEP

A plan offered by small companies - typically those with fewer than 25 employees - that allows employees to make pretax contributions to their Individual Retirement Accounts (IRAs) through salary reduction. I: Prior to the widespread use of 401(k)s, these plans were seen as a valuable benefit of employment, particularly for employees of small businesses. SARSEPs, as they have affectionately become known, were replaced by another plan (known as "SIMPLE") under the Small Business Job Protection Act of 1996. After 1996, existing plans were allowed to remain in existence, but no new plans were to be created.

Nasdaq

A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy and transparent system, and commenced operations on February 8, 1971. The term "Nasdaq" is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world's foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel and Amgen. I: Nasdaq officially separated from the NASD and began to operate as a national securities exchange in 2006. In 2007, it combined with the Scandinavian exchange group OMX to become the Nasdaq OMX group, which is the largest exchange company globally, powering 1 in 10 of the world's securities transactions. Headquartered in New York, Nasdaq OMX operates 26 markets - primarily equities, and also including options, fixed income, derivatives and commodities - as well as three clearinghouses and five central securities depositories in the U.S. and Europe. Its cutting-edge trading technology is used by 70 exchanges in 50 countries. It is listed on the Nasdaq under the symbol NDAQ and has been part of the S&P 500 since 2008. The Nasdaq computerized trading system was initially devised as an alternative to the inefficient "specialist" system, which had been the prevalent model for almost a century. The rapid evolution of technology has made the Nasdaq's electronic trading model the standard for markets worldwide. As a leader in trading technology from the outset, it was only fitting that the world's technology giants chose to list on the Nasdaq in their early days. As the technology sector grew in prominence in the 1980s and 1990s, the Nasdaq became the most widely followed proxy for this sector. The technology and dot-com boom and bust of the late 1990s is exemplified by the rise and fall of the Nasdaq Composite during this period. The index crossed the 1,000 mark for the first time in July 1995, soared in the following years and peaked at over 4,500 in March 2000, before slumping almost 80% by October 2002 in the subsequent correction.

Krugerrand Gold Coin

A gold coin minted by the Republic of South Africa. Krugerrand gold coins contain exactly one troy ounce of gold. This coin was first minted in 1967 in order to stimulate the market for South African gold. It is considered legal tender within the country. I: The Krugerrand is one of the more frequently traded gold coins in the world market. It was the first gold-bullion coin that was tenderable at the market value of its face gold content. Because it was not supposed to be a replacement for the currency, it is considered to be a medal coin by definition.

408(k) Plan

A plan set up by an employer to help employees fund their retirement. The 408(k) plan is a simplified version of the popular 401(k) plan but is intended for smaller companies (those with fewer than 25 employees). It is also available to self-employed individuals. Under the plan, employees can contribute pretax dollars to the account and thus reduce their net incomes for the year. This results in a tax savings for the contributor. I: Although the term 408(k) is often used to describe an account, it actually refers to the Internal Revenue Code, which details Simplified Employee Pension (SEP) accounts. The employee and the employer contribute to this account in the employee's name. Throughout the account's lifetime, deposits are not treated as income until the funds are withdrawn.

Leave-Sharing Plan

A plan that allows employees to donate unused sick-leave time to a charitable pool, from which employees who need more sick leave than they are normally allotted may draw. Leave-sharing plans are designed to aid employees who face major surgeries or other medical emergencies or who live in areas affected by natural disasters, such as flooding. These plans contain many provisions that can vary from one employer to another. I: Employees who benefit from the additional leave time are taxed for the equivalent compensation that they receive as W-2 income. Employers who offer this type of plan must consider several factors, such as whether employees can choose who they donate their sick time to and whether they should limit the amount or percent of sick leave that can be donated.

529 Plan

A plan that allows for the prepayment of qualified higher education expenses at eligible educational institutions. Also known as a "qualified tuition program," or more fully as a "section 529 plan." I: The prepayment may be in the form of a contribution to an account established specifically for paying higher educational expenses. There is no income restriction for individuals who want to contribute to a 529 plan; however, because contributions cannot exceed the amount that sufficiently covers the expenses of the beneficiary's qualified higher education, individuals should take care not to over-fund the 529 plan.

Qualified Retirement Plan

A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries. I: There are two kinds of qualified plans: defined-benefit plans and defined-contribution plans. Some examples of defined-contribution plans are 401(k) plans, money-purchase pension plan and profit-sharing plans.

Halted Issue

A planned security offering that does not go forward as planned. A halted issue can relate to an initial public offering (IPO) that will no longer occur, or to a bond issue that has been canceled, along with any other form of security offering that does not go on as originally expected. While an issue may be halted for any variety of reasons, a halted issue is often the result of an unexpected event that the market perceives as negative for the issuer. I: For example, a company that plans to issue a corporate bond at a given coupon may have to halt the issue if a situation arises where its bond rating is reduced, causing interest in the bond to fall dramatically, to the point where the bond issue is no longer feasible. When an IPO is halted, the firm may find that the capital markets are not looking kindly on other recent IPOs within its industry and choose to halt the issue at that time.

Readvanceable Mortgage

A mortgage feature that allows the borrower to re-borrow the principal amount of the original mortgage that has been paid down. A readvanceable mortgage consists of a mortgage and a Line of Credit (LoC) packaged together. With every monthly mortgage payment made by the borrower, the mortgage principal is reduced by a certain amount; the funds available to the borrower under the LoC go up by the same amount and are generally re-borrowed automatically. While the borrower's net debt remains the same, the interest payments on the LoC are tax-deductible in Canada if the borrowed amount is used for investment purposes. The readvanceable mortgage forms part of a tax strategy called the "Smith Maneuver" that is designed to make interest payments on Canadian home mortgages tax-deductible. I: For example, assume a homeowner takes out a readvanceable mortgage for $250,000, with an amortization period of 25 years and a mortgage interest rate of 5%. The monthly mortgage payments are approximately $1,460, of which part constitutes mortgage principal repayment and the balance mortgage interest. If the first mortgage payment of $1,460 comprises $460 in principal repayment and $1,000 in interest, then the amount that can be re-borrowed by the homeowner under the LoC is $460. At the end of the first year, if the mortgage principal that has been repaid totals $6,000, the amount available to the homeowner under the LoC is $6,000. The rationale for taking out a readvanceable mortgage is that the funds available in the LoC should be deployed immediately in investments. This would make interest payments on the LoC tax-deductible, unlike interest payments on mortgages that are not tax-deductible in Canada. This tax-deductibility of LoC interest may result in a tax refund when filing a Canadian tax return. This refund can be used to pay down the mortgage principal, thus accelerating its repayment. A readvanceable mortgage has some drawbacks. First, the homeowner's net debt remains the same after many years, rather than being paid down as it would be with a conventional mortgage. Second, use of this strategy requires investment acumen and strict fiscal discipline. The homeowner has to invest the re-borrowed amounts judiciously and not fritter it away on frivolous purchases. Third, the LoC interest rate is typically significantly higher than the interest rate on the mortgage component.

One-Child Policy

A policy implemented by the Chinese government as a method of controlling the population. The one-child policy was introduced in 1979 in response to an explosive population growth, and mandated that couples from China's Han majority could only have one child. This was intended to alleviate the social, economic and environmental problems associated with the country's rapidly growing population. I: Families can be fined thousands of dollars for having more than one child. Those who volunteer to have just one child are awarded a "Certificate of Honor for Single-Child Parents." It has been estimated that since 1979, the law has prevented approximately 250 million births. In certain cases, families can apply to have a second child for extenuating circumstances such as the death of the only child due to a natural disaster. In rural areas, families can apply to have a second child if the first child is a girl, or if the child has a physical or mental disability.

Hawk

A policymaker or advisor who is predominantly concerned with interest rates as they relate to fiscal policy. A hawk generally favors relatively high interest rates in order to keep inflation in check. In other words, they are less concerned with economic growth than they are with recessionary pressure brought to bear by high inflation rates. Also known as "inflation hawk." I: Although the most common use of the term "hawk" is described above, be aware that it has been used in a variety of contexts. In each case, it refers to someone who is intently focused on a particular aspect of a larger pursuit or endeavor. A budget hawk, for example, is one that believes the federal budget is of the utmost importance - just like a generic hawk (or inflation hawk) is focused on interest rates.

Pass-Through Security

A pool of fixed-income securities backed by a package of assets. A servicing intermediary collects the monthly payments from issuers, and, after deducting a fee, remits or passes them through to the holders of the pass-through security. Also known as a "pass-through certificate" or "pay-through security." I: The most common type of pass-through is a mortgage-backed certificate, where homeowners' payments pass from the original bank through a government agency or investment bank to investors.

Magnet Employer

A popular business or businessperson to whom job candidates naturally gravitate. Magnet employers often have brand name recognition behind them, and they typically offer higher pay or better benefits than their competitors, thus making them a "magnet" for job seekers looking for superior compensation. I: Unfortunately, magnet employers are not terribly common. Some companies offer lower pay and higher benefits, while others are more generous. But magnet employers often attract the best and brightest employees, which can make the company more profitable in the long run.

Sales Per Square Foot

A popular sales metric used in the retailing industry. Sales per square foot is simply the average revenue a retail business creates for every square foot of sales space. I: Sales per square foot is used by businesses and analysts alike to measure the efficiency of a store's management in creating revenues with the amount of sales space available to them. The higher the sales per square foot, the better job mangement is doing of marketing and displaying the store's products.

Qualified Mortgage

A mortgage in which the lender has analyzed the borrower's ability to repay based on income, assets and debts; has not allowed the borrower to take on monthly debt payments in excess of 43% of pre-tax income; has not charged more than 3% in points and origination fees; and has not issued a risky or overpriced loan like negative-amortization, balloon, 40-year or interest-only mortgage. Qualified mortgages begin in January 2014, and provide legal protections for lenders who follow certain regulations in the Dodd-Frank Wall Street Reform and Consumer Protection Act. I: Under qualified mortgage rules, "safe harbor" provisions protect lenders against lawsuits by distressed borrowers who claim they were extended a mortgage the lender had no reason to believe they could repay. However, the rules also protect both borrowers and the financial system from the risky lending practices that contributed to the subprime mortgage crisis of 2007. Lenders who issue qualified mortgages can resell them in the secondary market to entities such as Fannie Mae and Freddie Mac. These two government-sponsored enterprises buy most mortgages, which frees up capital for banks to make additional loans. The mortgages are then repackaged to allow investors to acquire a stake in the housing market without owning property directly. The qualified mortgage rules are supposed to ensure that these investments are relatively safe and do not pose the type of systemic risk to the financial system that contributed to the Great Recession. There are several exceptions to qualified mortgage rules. Points and origination fees may exceed 3% for loans of less than $100,000 (otherwise, lenders might not be sufficiently compensated for issuing such loans, and these smaller mortgages might become unavailable). Also, small lenders, lenders who hold mortgages in their portfolios instead of selling them into the secondary mortgage market and rural lenders face fewer lending restrictions than big-bank lenders. Qualified mortgage regulations do allow lenders to issue mortgages that are not qualified, but the rules limit the sale of these loans into the secondary mortgage market and provide fewer legal protections for lenders.

100% Mortgage

A mortgage loan in which the borrower receives a loan amount equivalent to the total value of the property to be purchased. In this situation, the borrower does not need to make a down payment to secure the loan. I: A 100% mortgage gives an individual with little or no cash the opportunity to purchase a house or a similar property. The loan is usually backed up by securities, such as stocks and bonds, currently owned by the borrower. Two significant drawbacks to the 100% mortgage are higher interest rates and the possibility that the borrower's securities will be liquidated to cover a collateral call.

Reaganomics

A popular term used to refer to the economic policies of Ronald Reagan, the 40th U.S. President (1981-1989), which called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets. I: The term was used by supporters and detractors of Reagan's policies alike. Reaganomics was partially based on the principles of supply-side economics and the trickle-down theory. These theories hold the view that decreases in taxes, especially for corporations, is the best way to stimulate economic growth: the idea is that if the expenses of corporations are reduced, the savings will "trickle down" to the rest of the economy, spurring growth. Prior to becoming Reagan's Vice President, George H. Bush coined the term "voodoo economics" as a proposed synonym for Reaganomics.

Balanced Investment Strategy

A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities. I: Although the balanced investment strategy aims to balance risk and return it does carry more risk than those strategies aiming at capital preservation or current income. In other words, the balanced investment strategy is a somewhat aggressive strategy, and is suitable for those investors with a longer time horizon (generally over five years), and have some risk tolerance.

3C7

A portion of the Investment Company Act of 1940 that permits the exclusion of investment companies from standard registration requirements with the Securities and Exchange Commission (SEC) if all U.S. investors are considered to be "qualified purchasers" or "accredited investors." I: This particular section is one of the policies used frequently by hedge fund companies to avoid certain SEC requirements.

80-10-10 Mortgage

A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an 80% loan-to-value ratio, the second position lien has a 10% loan-to-value ratio and the borrower makes a 10% down payment. 80-10-10 mortgage transactions are piggy-back mortgage transactions, and are frequently used by borrowers to avoid paying private mortgage insurance. I: The economics of using a second lien rather than paying private mortgage insurance are driven by home price appreciation. If a borrower expects the value of the home to increase quickly, it might be more economical to pay private mortgage insurance for a period of time until the loan-to-value ratio for a first mortgage falls below the minimum required. At this point, the private mortgage insurance can be eliminated, eliminating the need for a second mortgage in a piggy-back transaction.

Obligation Bond

A municipal bond used to secure a mortgage on property or other physical assets that can be liquidated. The face value of the bond is greater than the value of the property itself. I: An obligation bond creates a personal obligation on the part of the borrower to compensate the lender for costs in excess of the value of the mortgaged property or assets, such as closing costs or transaction costs.

Echo Bubble

A post-bubble rally that becomes another, smaller bubble. The echo bubble usually occurs in the sector in which the preceding bubble was most prominent, but the echo is less dramatic. I: People point to the rally that occurred after the market crash of 1929 as an example of an echo bubble. Just like its more prominent predecessor, the smaller echo bubble eventually burst. Also, after the technology bubble that occurred at the turn of the 21st century - one of the biggest bubbles of all time - people believed that another echo bubble was on the way.

Hedge-Like Mutual Fund

A mutual fund that adopts an alternative investment strategy, much like a hedge fund. Hedge-like mutual funds aim to increase investor returns by utilizing investment methods typically used by hedge funds, while maintaining the convenience and availability to investors wishing to invest in mutual funds. The key differences between hedge-like mutual funds and hedge funds are that hedge-like funds are regulated by the SEC, and potential investors in hedge-like funds do not need to be considered accredited investors to invest. I: Hedge-like mutual funds can use many different alternative strategies to be considered hedge-like. For example, a hedge-like mutual fund may employ a long-short strategy, or a market neutral strategy in order to achieve better than benchmark returns. These funds are not typically able to use excess leverage in their strategies due to their regulatory status under the SEC, whereas hedge funds are not under the same restrictions.

130/30 Mutual Fund

A mutual fund that has long positions and short positions in its portfolio. Specifically, in a 130/30 mutual fund, the fund is long 100\% of its assets, and in addition it shorts 30\% of the value portfolio and uses the cash received in the short sale to invest long in more assets. So in total, the fund is 130\% in the long portfolio and 30\% in the short portfolio, hence 130/30. I: For example, if the fund is worth $100, it would invest the $100 in equity and then would short $30 worth of equity. In a short sale, the fund receives $30 cash and uses that $30 to invest long in more assets. So the fund is now long $130 and short $30. This is a popular strategy because it allows the manager to invest $160 for every $100 the investor puts into the fund.

Offshore Mutual Fund

A mutual fund that is based in an offshore jurisdiction, which is generally considered to be outside the United States. The term is often used, perhaps incorrectly, to describe a fund that is not in a high-tax country. I: Always be careful when investing your money in offshore accounts that have sponsors that are not well known and/or are located outside of established financial centers such as London or Hong Kong. Non-mainstream offerings may be more prone to scams because of relaxed regulations in some offshore locations. Offshore funds offer a number of features that distinguish them from those domiciled in the U.S., as a lower level of regulation makes it easier to establish and administer the funds. Consequently, operating costs are significantly reduced and management fees can be lower. Tax exempt status enables the fund to reinvest gains that would otherwise be taxable in high-tax areas.

Pathfinder Prospectus

A pre-prospectus statement of financial condition that is sent to a limited group of potential underwriters and institutional investors prior to a securities or IPO filing. The goal of a pathfinder prospectus is to create demand and eventually set the price for the offering, as well as to clear up any inconsistencies in the company's published financial statements. I: The pathfinder prospectus will contain almost all of the same information as an IPO prospectus except for the price of the shares, which will be set once underwriters get a feel for the overall demand. If demand is high enough, the underwriter syndicate will most often use its over-allotment right to issue extra shares, providing added profit to the investment banks and more financing to the company.

Acceptance Of Office By Trustee

A mutual understanding that a person has with the estate that implies they will assume administrative duties after being nominated. Acceptance of office by trustee is basically a formal way of giving consent to serve as a trustee. After being nominated, a trustee may decline to serve but cannot decline after accepting, nor delegate the responsibility. I: A trustee is a person or institution who has legal title to hold property on behalf of the recipient. They act on the behalf of the beneficiary and are allowed to make decisions based on their professional criteria and best judgment. Once they accept the office, many trustees serve on a voluntary basis without receiving payment for their work. Some of their duties include handling a trust's affairs, ensuring that it is solvent and well managed, and delivering the outcomes and benefits that were originally set out for the trust. Trustees also prepare reports on the trusts and make sure that the trust complies with the law, among many other responsibilities.

Blue Chip

A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth. I: The name "blue chip" came about because in the game of poker the blue chips have the highest value. Blue chip stocks are seen as a less volatile investment than owning shares in companies without blue chip status because blue chips have an institutional status in the economy. Investors may buy blue chip companies to provide steady growth in their portfolios. The stock price of a blue chip usually closely follows the S&P 500.

National Association Of Estate Planners And Councils - NAEPC

A nationwide coalition of estate planners and estate planning councils dedicated to establishing and maintaining high stardards of compentence for the estate planning profession. NAEPC offers two estate planning credentials, the Accredited Estate Planner (AEP) and the Estate Planning Law Specialist (EPLS). The organization seeks to promote the value of estate planning through various marketing and public education programs. I: In order to earn either of the estate planning credentials offered, students must have a career related to estate planning. Stockbroker, financial planners and tax professionals are all eligible for these programs. They must also have at least five years of qualifying experience in their respective fields before they can carry the designation.

National Association of Insurance Commissioners - NAIC

A nationwide organization whose main responsibility is to protect the interests of insurance consumers. Some of the main objectives of the NAIC are to provide support to insurance regulators across the country by promoting competitive markets, the improvement of insurance regulations and equitable treatment of insurance consumers. I: The NAIC was created in 1871, and is headquartered in Kansas City, Missouri. Through its many committees, task forces, and working groups, the NAIC attempts to develop and implement laws and regulations that create national standards in an attempt to further benefit insurance consumers.

Nanyang Business School

A prestigious business school located in Singapore. Armed with state-of-the-art facilities, the Nanyang Business School offers a wide range of both graduate and undergraduate programs. Its main mission is to educate business leaders in the Far East and Southeast Asia. I: The Nanyang Business school is one of only five educational institutions outside the U.S. to receive the AACSB accounting accreditation. It has strategic partnerships with many other educational institutions around the globe, including Waseda University in Japan and Carnegie-Mellon and MIT in the U.S. Its MBA program is routinely ranked among the top 50 by the "Financial Times."

Re-Offer Price

A price at which the underwriting syndicate of a debt issue resells the bonds to public investors. The syndicate will purchase the bonds for a specified amount from the issuing firm and re-offer the bonds to the public, usually at a different price. I: An underwriting investment bank may facilitate a debt issue by agreeing to purchase all of the bonds for a price below face value. Having the underwriters purchase the bond issue, instead of passing the sale onto the public, removes the company's risk of not selling the entire issue. The investment banker will re-offer the bonds to public investors at a higher price, which may be above (premium) slightly below (discount) par value. In a serial issue, most common to municipal GO bonds, the first bonds to mature are frequently at a premium with a higher coupon rate. The last bonds to mature in the offering are sometimes sold at a discount, but carry a lower coupon rate.

Hard Stop

A price level that, if reached, will trigger an order to sell an underlying security. Hard stops are set at a constant price and are inherently good until cancelled. A hard stop is used to protect the downside of holding an investment by always being active, and is only triggered once the price reaches the specified stop level. I: A hard stop is placed in advance of an adverse move and remains active until the price of the underlying security moves beyond the stop level. Many traders will choose to set a hard stop once the price of their investment becomes profitable and will leave the order active until it reaches the price target.

Failed Break

A price movement through an identified level of support or resistance that does not have enough momentum to maintain its direction. Since the validity of the breakout (or breakdown) is compromised, many traders close their positions and the price fails to make the sharp move that many were expecting. A failed break is also commonly referred to as a "false breakout". I: As you can see from the chart above, technical traders who identified the descending triangle would expect a substantial move lower once the price was able to break below the $21.50 support. However, in the event of a failed break, the move lower would not occur and many traders would be forced to realize a significant loss. Many technical traders will use other technical indicators to confirm that the breakout is valid and that the momentum will likely continue.

Backpricing

A pricing method used in specific futures contracts whereby the price of the commodity to be delivered is priced by the purchaser at some future date after entering into the position. I: The price at which the purchaser can set the deliverable commodity must be relative to any monthly or periodic price found in the futures market for that particular actual.

National Market System Plan - NMSP

A nationwide system used in the United States for the selection and reservation of securities symbols, and also for the collection, processing and distribution of quotation and transaction information for exchange-listed securities. The National Market System Plan consists of plans in which FINRA - the largest independent regulator for U.S. securities firms - participates. These are the ISRA Plan, the CTA/CQ Plans, and the OTC UTP Plan. These NMS Plans are governed by section 11A of the 1934 Securities Exchange Act. I: The three NMS Plans in which FINRA participates are:- The Intermarket Symbol Reservation Authority or ISRA Plan: this governs the establishment, operation and administration of a uniform system for the selection and reservation of one-to five-character securities symbols.- Consolidated Tape Association/Consolidated Quotation Plan: governs the collection, processing and distribution of quotation and transaction information for exchange-listed securities, excluding those listed on the Nasdaq.- OTC UTP Plan: governs the collection, processing and distribution of quotation and transaction information for issues listed on the Nasdaq Stock Exchange.

Japan Inc.

A nickname for the corporate world of Japan that came about during the 1980s boom, when Western business people saw how closely the Japanese government worked with its nation's business sector. I: The high degree of collusion between Japan's corporate and political sectors led to corruption throughout the system and contributed to the downfall of the overvalued Nikkei.

John Stuart Mill

A nineteenth-century British philosopher and classical liberal economist who spent his working years with the East India Company. Born in 1806 in London, his father, James Mill, was also an economist. John Mill published one of his most influential works, On Liberty, in 1859. I: Extremely well educated from the age of three, Mill became depressed and had a nervous breakdown as a young adult. He recovered and wrote a widely used textbook, Principles of Political Economy, which was based on David Ricardo and Adam Smith's ideas. Despite a general belief in laissez-faire principals, Mill supported some interventionist policies, such as trade protectionism and the regulation of work hours.

12B-1 Plan

A no-load mutual fund that is allowed to use fund assets to pay for its distribution costs. The 12B-1 plan mutual fund is an alternative to paying the sales fees encountered in loaded funds. By charging an annual percentage based on the current value of the investment on an annual basis, investors avoid paying a front-end or back-end load when purchasing or redeeming the fund. I: The government typically restricts 12B-1 fees to 1% of the current value of the investment on an annual basis, but they generally fall somewhere between 0.25-1%. This fee must be voted on by the mutual fund's directors, and must be disclosed in the mutual fund prospectus. Because this fee is a little less obvious (not an upfront charge like the 12B-1 fee), investors should read mutual fund documentation thoroughly to understand the fees they are paying.

Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs - EBITDAR

A non-GAAP indicator of a company's financial performance calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, amortization and restructuring or rent costs)Depending on the company and the goal of the user, the indicator can either include restructuring costs or rent costs, but usually not both. The EBITDAR indicator expands on EBITDA by adding an additional excluded item to give a better indication of financial performance. I: Rent is included in the measure when evaluating the financial performance of companies, such as casinos or restaurants, that have significant rental and lease expenses derived from business operations. By excluding these expenses, it is easier to compare one company to another and get a clearer picture of their operational performance. Restructuring is included in the measure when a company has gone through a restructuring plan and has incurred costs from the plan. These costs, which are included on the income statement, are usually seen as nonrecurring and are excluded to give a better idea of the company's ongoing operations.

Heads Of Agreement

A non-binding document outlining the main issues relevant to a tentative partnership agreement. Heads of agreement represents the first step on the path to a full legally binding agreement or contract, and serves as a guideline for the roles and responsibilities of the parties involved in a potential partnership before any binding documents are drawn up. I: As a Heads of Agreement document is only meant to serve as a guideline, it may not be comprehensive enough to cover all the bases relevant to a binding contract. While the parties involved may find broad agreement on the topics covered in a Heads of Agreement document, the devil may be in the details. In other words, the minutiae that must perforce be spelt out in a binding partnership agreement or contract may not be to the liking of all the parties involved in the partnership, which could derail their efforts to work together.

National Automated Clearinghouse Association - NACHA

A non-profit membership association charged with overseeing the Automated Clearing House (ACH) system, which operates the largest electronic payment network in the world. Most of NACHA's 10,000+ members are depositary institutions and regional payment associations. Through its supervisory and rule-making functions, NACHA provides the legal foundation for electronic payment systems to operate effectively, while working to update technologies and create new payment systems. I: Although not a government agency, NACHA works closely with all interested government agencies (including the Federal Reserve, the state banking authorities and the Treasury) to ensure the integrity of the electronic payments systems used by banking and other depositary institutions. NACHA not only develops rules and codes of business practices, but it is involved in the development of new applications. It also institutes and monitors quality- and risk-management controls. Over 18 billion ACH payments were processed in 2007.

Canadian Institute Of Chartered Accountants - CICA

A non-profit organization for accounting professionals in Canada. CICA has developed GAAP (generally accepted accounting principles) for Canadian accounting, and publishes guidance and educational materials on a number of accounting-related topics. It is one of the founding members of the International Federation of Accountants (IFAC) and the Global Accounting Alliance (GAA). I: Founded in 1902, the CICA has grown to become the primary professional organization for chartered accountants in Canada. The institution was originally known as the Dominion Association of Chartered Accountants. As of 2010, the CICA boasts a membership of approximately 75,000 CAs and around 12,000 students both in Canada and Bermuda.

National Foundation For Consumer Credit - NFCC

A non-profit organization that seeks to educate consumers about credit and borrowing. One of the major services provided by the National Foundation for Consumer Credit is counseling for consumers who have taken on too much debt, with the goal of keeping consumers from declaring bankruptcy. Another way they assist is by helping consumers work out payment plans and reduce their overall debt load. I: The NFCC was founded in 1951. It provides services through member agencies and offices throughout the United States. Members must meet certain standards and accreditations, and services are confidential. Credit issuing institutions have been proponents of the counseling services offered by organizations such as the NFCC because it reduces the odds of a debtor declaring bankruptcy.

IE Business School

A non-profit, independent educational institution that provides graduate level programs in several fields of study. IE Business School offers MBAs, executive master's programs and Ph.D. and DBA programs. The school is headquartered in Madrid and enrolls about 5,600 students annually. I: The IE Business School was founded in 1973 by Diego del Alcazar. It has become one of the top-ranked programs in Europe and around the world. The school has locations in numerous countries worldwide and boasts over 37,000 alumni who hold management positions in over 100 countries.

457 Plan

A non-qualified, deferred compensation plan established by state and local governments and tax-exempt governments and tax-exempt employers. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan. I: Employees are allowed to defer up to 100% of compensation not exceeding the applicable dollar limit for the year. If the plan does not meet statutory requirements, the assets may be subject to different rules.

Canadian Capital Markets Association - CCMA

A nonprofit organization that was created to analyze issues arising in the Canadian and international capital markets. The organization is focused on being an active participant toward developing and implementing government legislation and regulatory policies relating to industry practices in the capital markets. I: The CCMA was created in the year 2000. The association is primarily comprised of industry experts who work for many of the large capital market institutions in Canada. The association is comprised of six committees that focus on a specific area of the capital markets. These committees consist of the Board of Directors and Observers, Buy-Side Subcommittee, Custodian/Broker Subcommittee, Legal/Regulatory Working Group, Communications and Education Working Group and the Trade Tracking Analysis Subcommittee.

Margin Of Safety

A principle of investing in which an investor only purchases securities when the market price is significantly below its intrinsic value. In other words, when market price is significantly below your estimation of the intrinsic value, the difference is the margin of safety. This difference allows an investment to be made with minimal downside risk. The term was popularized by Benjamin Graham (known as "the father of value investing") and his followers, most notably Warren Buffett. Margin of safety doesn't guarantee a successful investment, but it does provide room for error in an analyst's judgment. Determining a company's "true" worth (its intrinsic value) is highly subjective. Each investor has a different way of calculating intrinsic value which may or may not be correct. Plus, it's notoriously difficult to predict a company's earnings. Margin of safety provides a cushion against errors in calculation. I: Margin of safety is a concept used in many areas of life, not just finance. For example, consider engineers building a bridge that must support 100 tons of traffic. Would the bridge be built to handle exactly 100 tons? Probably not. It would be much more prudent to build the bridge to handle, say, 130 tons, to ensure that the bridge will not collapse under a heavy load. The same can be done with securities. If you feel that a stock is worth $10, buying it at $7.50 will give you a margin of safety in case your analysis turns out to be incorrect and the stock is really only worth $9.There is no universal standard to determine how wide the "margin" in margin of safety should be. Each investor must come up with his or her own methodology.

Law Of Large Numbers

A principle of probability and statistics which states that as a sample size grows, its mean will get closer and closer to the average of the whole population. The law of large numbers in the financial context has a different connotation, which is that a large entity which is growing rapidly cannot maintain that growth pace forever. The biggest of the blue chips, with market values in the hundreds of billions, are frequently cited as examples of this phenomenon. I: As an example, assume that company X has a market capitalization of $400 billion and company Y has a market capitalization of $5 billion. In order for company X to grow by 50%, it must increase its market capitalization by $200 billion, while company Y would only have to increase its market capitalization by $2.5 billion. The law of large numbers suggests that it is much more likely that company Y will be able to expand by 50% than company X. The law of large numbers makes logical sense. If a large company continues to grow at 30-50% every year, it would eventually become bigger than the economy itself! Obviously, this can't happen and eventually growth has to slow down. As a result, investing in companies with very high market capitalization can dampen the potential for stock appreciation.

Pareto Principle

A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes. Also referred to as the "Pareto rule" or the "80/20 rule". I: This principle serves as a general reminder that the relationship between inputs and outputs is not balanced. For instance, the efforts of 20% of a corporation's staff could drive 80% of the firm's profits. In terms of personal time management, 80% of your work-related output could come from only 20% of your time at work.The Pareto Principle can be applied in a wide range of areas such as manufacturing, management and human resources. In Pareto's case, he used the rule to explain how 80% of property in Italy was owned by 20% of the country's population.

Realization Multiple

A private equity measurement that values the return paid to an investor. The multiple is named after the amount of return that is realized. The realization multiple is found by dividing the cumulative distributions from a project by the paid-in capital. I: This method of valuing a project is often used by venture capitalists, and provides a return which can be compared across investment projects. The time value of money is ignored under this approach, which differentiates the realization multiple from other valuation methods, such as internal rate of return or net present value.

Sampling Distribution

A probability distribution of a statistic obtained through a large number of samples drawn from a specific population. The sampling distribution of a given population is the distribution of frequencies of a range of different outcomes that could possibly occur for a statistic of a population. I: For example, suppose you wanted to find out the sampling distribution of SAT scores for all U.S. high school students in a given year. To do so, you would take repeated random samples of high school students from the general population and then compute the average test score for each sample. The distribution of those sample means would provide you with the sampling distribution for the average SAT test score.

Patent Reexamination

A process conducted by the U.S. Patent and Trademark Office (USPTO) on a patent that already has been issued in order to verify the claims and scope of the patent. A patent reexamination is usually brought about by the original patent holder when that party feels another party has produced a product or service that infringes on its patent. Both parties are given the opportunity to state their cases in writing, and then the USPTO will render its judgment. The reexamination process originated as a cheaper and faster way to settle patent disputes rather than through litigation. I: Patents and other intellectual properties are an extremely valuable asset for a company - one worth protecting. In certain industries, such as technology and generic drugs, patent disputes involve very large stakes in today's marketplace, and the outcome of a patent reexamination or trial can cause big swings in the underlying stocks of the companies involved.

Labor Intensive

A process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business. I: Labor intensive industries include restaurants, hotels, agriculture and mining. Advances in technology and worker productivity have moved some industries away from labor-intensive status, but many still remain. Labor costs are considered variable, while capital costs are considered fixed. This gives labor-intensive industries an advantage in controlling expenses during market downturns by controlling the size of the employee base. Disadvantages include limited economies of scale (you can't pay workers less by hiring more of them), and susceptibility to wage forces within the labor market.

Quality Control

A process through which a business seeks to ensure that product quality is maintained or improved and manufacturing errors are reduced or eliminated. Quality control requires the business to create an environment in which both management and employees strive for perfection. This is done by training personnel, creating benchmarks for product quality, and testing products to check for statistically significant variations. I: A major aspect of quality control is the establishment of well-defined controls. These controls help standardize both production and reactions to quality issues. Limiting room for error by specifying which production activities are to be completed by which personnel reduces the chance that employees will be involved in tasks for which they do not have adequate training.

Data Mining

A process used by companies to turn raw data into useful information. By using software to look for patterns in large batches of data, businesses can learn more about their customers and develop more effective marketing strategies as well as increase sales and decrease costs. Data mining depends on effective data collection and warehousing as well as computer processing. I: Grocery stores are well-known users of data mining techniques. Many supermarkets offer free loyalty cards to customers that give them access to reduced prices not available to non-members. The cards make it easy for stores to track who is buying what, when they are buying it, and at what price. The stores can then use this data, after analyzing it, for multiple purposes, such as offering customers coupons that are targeted to their buying habits and deciding when to put items on sale and when to sell them at full price. Data mining can be a cause for concern when only selected information, which is not representative of the overall sample group, is used to prove a certain hypothesis.

Sampling

A process used in statistical analysis in which a predetermined number of observations will be taken from a larger population. The methodology used to sample from a larger population will depend on the type of analysis being performed, but will include simple random sampling, systematic sampling and observational sampling.The sample should be a representation of the general population. I: When taking a sample from a larger population, it is important to consider how the sample will be drawn. To get a representative sample, the sample must be drawn randomly and encompass the entire population. For example, a lottery system could be used to determine the average age of students in a University by sampling 10% of the student body, taking an equal number of students from each faculty.

Backflush Costing

A product costing system generally used in a just-in-time inventory environment. Backflush costing delays the costing process until the production of goods is completed. Costs are then "flushed" back at the end of the production run and assigned to the goods. This eliminates the detailed tracking of costs throughout the production process, which is a feature of traditional costing systems. I: By eliminating work-in-process accounts, backflush costing simplifies the accounting process. However, this simplification and other deviations from traditional costing systems mean that backflush costing may not always conform to generally accepted accounting principles (GAAP). Another drawback of this system is the lack of a sequential audit trail.

Daniel Kahneman

A professor emeritus of psychology and public affairs at Princeton University and winner of the 2002 Nobel Prize in Economics, along with Vernon Smith, for his research on prospect theory, which deals with human judgment and decision making. Historically, economics has assumed that people act in their self-interest and make rational decisions. Kahneman's research combines psychology with economics to explore how people's behavior may depart from these assumptions. I: Born in Tel Aviv in 1934, Kahneman spent his early childhood in France, where he and his family had to escape repeatedly from the Nazis until they moved to Palestine. Kahneman has also taught at the Hebrew University of Jerusalem, the University of British Columbia and the University of California at Berkeley.

Offer In Compromise

A program offered by the IRS to taxpayers who are unable to pay their tax debt. Those who qualify are allowed to make an offer in compromise, which is an offer to pay a lesser amount than that which is owed. The offer in compromise program is intended to allow taxpayers with substantial back taxes to settle their tax debt and start over with a clean slate, so that they can remain current on their taxes in the future. I: Taxpayers can find out whether they are eligible for an offer in compromise by consulting the checklist on Form 656 of the offer in compromise IRS package. In order to qualify, taxpayers must fall into at least one of the following three categories:1) Uncertain Liability - Is tax really owed?2) Uncertain Collectability - Taxpayer has no way to pay this debt.3) Economic Hardship - Taxpayer must prove that paying the debt would be unfair or create further hardship. According to the IRS, taxpayers should beware of promoter's claims that tax debts can be settled for "pennies on the dollar."

Savings Bond Plan

A program that allows employees to purchase U.S. savings bonds, such as the Series EE and Series I bonds, through payroll deductions. Money is set aside from each paycheck, and when enough money has accumulated, the company purchases a savings bond on the employee's behalf. Paper bonds are mailed directly to employees from the government, or are mailed to the employee's company for distribution. The plan may only be available to certain employees, such as those who work for the company full time. I: Series EE paper bonds can be purchased in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 or $10,000 and can be purchased for half of their face value (i.e. a $10,000 EE bond costs $5,000). Series I bonds can be purchased in denominations of $50, $75, $100, $200, $500, $1,000 or $5,000 with a purchase price equal to the denomination. Bonds may be registered to a single owner, co-owners or a single owner with a single beneficiary who will receive the bond upon the bondholder's death.

Call Provision

A provision on a bond or other fixed-income instrument that allows the original issuer to repurchase and retire the bonds. If there is a call provision in place, it will typically come with a time window under which the bond can be called, and a specific price to be paid to bondholders and any accrued interest are defined. Callable bonds will pay a higher yield than comparable non-callable bonds. I: A bond call will almost always favor the issuer over the investor; if it doesn't, the issuer will simply continue to make the current interest payments and keep the debt active. Typically, call options on bonds will be exercised by the issuer when interest rates have fallen. The reason for this is that the issuer can simply issue new debt at a lower rate of interest, effectively reducing the overall cost of their borrowing, instead of continuing to pay the higher effective rate on the borrowings.

Recapture Clause

A provision usually found in percentage leases, especially in shopping-center leases, giving the landlord the right to terminate the lease - thereby recapturing the premises - in the event the tenant does not maintain a specified minimum amount of business. For example, a poorly performing retail shop in a shopping center can damage the shopping center's image and therefore the bottom line of all tenants and the landlord. I: A recapture clause is intended to protect a landlord by making sure that tenants maintain a certain amount of revenue. The recapture clause allows a means for an underperforming retail store to be removed, opening the space for a more profitable endeavor. A recapture clause also protects a landlord in an instance where the tenant attempts to sub-lease the property for a profit.

Take or Pay

A provision, written into a contract, whereby one party has the obligation of either taking delivery of goods or paying a specified amount. I: This is used in some contracts as a method to ensure that the transaction occurs. For example, a Banana farmer will enter into a take or pay contract with a fruit retailer so that the retailer will buy all the bananas from the farmer or pay a provision for not buying them.

Farmer Mac - Federal Agricultural Mortgage Corporation - FAMC

A publicly traded, shareholder-owned corporation that was federally chartered by an act of Congress in 1988. Farmer Mac's mission is to establish a secondary market for agricultural real estate and rural housing mortgage loans, as well as to increase the availability of long-term credit at stable interest rates for American farmers, ranchers and rural homeowners. To fulfill its mission, Farmer Mac purchases newly originated and seasoned agricultural loans from lenders, issues long-term standby commitments to purchase agricultural mortgage loans, exchanges loans for mortgage-backed securities through a swap program, and purchases and guarantees mortgage bonds backed by eligible agricultural mortgage loans. I: Farmer Mac's programs and mission are very similar to Fannie Mae's and Freddie Mac's programs and missions for traditional residential mortgages. Farmer Macs was established to provide a liquid secondary market for agricultural mortgages, thereby lowering interest rates and providing a stable flow of funds to agricultural borrowers. This is similar to how Fannie Mae and Freddie Mac were established to provide similar benefits to the residential mortgage market.

One Night Stand Investment

A purchased security that was intended for a long-term investment, but is instead sold the next day. One night stand investments are often sold urgently on the trading day after purchase, because the investor regrets buying the shares to such a degree that fear and panic begin setting in. This can even lead to immediate, short-term losses. A one-night stand investment is typical of an indecisive investor, and is related to the field of behavioral finance. I: Much can change overnight in a company and an industry. An investor who researches an investment and buys one day, feeling that the company and its future are strong, may be panic-stricken and ready to sell the next day when unexpected news threatens his or her perceptions of the security of his or her long-term investment. The incidents instigating the sudden sale can include many things, such as the company's profits missing their target, industry shifts, acquisitions and regulatory changes.

Layaway

A purchasing method that allows a consumer to put a product on hold by placing a deposit on the item. Layaway allows the customer to make smaller payments on the product until the purchase price is paid in full, rather than paying for the item with credit and adding interest to the cost. A layaway plan ensures that the chosen merchandise will be in stock and ready for pick-up when the final payment is made. I: This method works for consumers who have a limited amount of disposable income and are unable to make larger purchases all at once. It also works to retailers' advantage by allowing them to offer products to lower-income customers. Layaway can also be used as a savings plan; because the customer has already made a commitment to purchase the product on layaway, he or she can not give in to temptation to spend the money elsewhere.

401(k) Plan

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis. I: Caps placed by the plan and/or IRS regulations usually limit the percentage of salary deferral contributions. There are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan. Plans that allow participants to direct their own investments provide a core group of investment products from which participants may choose. Otherwise, professionals hired by the employer direct and manage the employees' investments.

KSOP

A qualified retirement plan that combines an employee's stock ownership plan (ESOP) with a 401(k). Under this type of retirement plan the company will match employee contributions with stock rather than cash. KSOPs benefit companies by reducing expenses that would arise by separately operating an ESOP and 401(k) retirement plans. I: Using a KSOP is a great option for companies when their shareholders are looking to sell their shares in the company. The KSOP instantly creates a market with sufficient liquidity that is needed for those shareholders wishing to sell their stake. KSOPs also provide added motivation to employees to ensure the profitability of the company. This is because the added profitability would directly enhance their retirement plans.

Quarterly Earnings Report

A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net income, earnings per share, earnings from continuing operations and net sales. These reports follow the end of each quarter. Most companies file in January, April, July and October. I: An earnings report is a 'report card' of sorts for a public companies. It is through these reports that companies let shareholders know how well they have performed over the past time period. Most often the key metrics - net income and EPS - are weighed against the previous years' numbers. By analyzing this comparison, investors can begin to gauge the financial health of the company and whether or not it deserves their investment.

League Table

A ranking of companies based on a set of criteria such as revenue, earnings, deals or any other relevant metrics. The rankings are organized into lists, which can be used for investment research purposes or as promotional material for the companies on the list.Below is an example of a league table comparing the revenue and % revenue share of four different banks. I: Some of the most well-known league tables are those that track the dealings of investment banks, such a tables that tally the ongoing deals done by various banks. For example, a league table put out by a financial information provider may show all of the merger and acquisition deals that each bank has managed during a yearly period, illustrating the date in terms of the combined dollar value of the deals as well as the share of the merger and acquisition deal market for the period.

Q Ratio (Tobin's Q Ratio)

A ratio devised by James Tobin of Yale University, Nobel laureate in economics, who hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The Q ratio is calculated as the market value of a company divided by the replacement value of the firm's assets: I: For example, a low Q (between 0 and 1) means that the cost to replace a firm's assets is greater than the value of its stock. This implies that the stock is undervalued. Conversely, a high Q (greater than 1) implies that a firm's stock is more expensive than the replacement cost of its assets, which implies that the stock is overvalued. This measure of stock valuation is the driving factor behind investment decisions in Tobin's model.

Sales Per Share

A ratio that computes the total revenue earned per share over a 12-month period. It is calculated by dividing total revenue earned in a fiscal year by the weighted average of shares outstanding for that fiscal year: Also known as "revenue per share". I: The sales-per-share ratio is used to evaluate a company's business activities in comparison to share price. The higher the ratio, the more active the company.

Back-End Ratio

A ratio that indicates what portion of a person's monthly income goes toward paying debts. Total monthly debt includes expenses such as mortgage payments (made up of PITI), credit-card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages. Also known as "debt-to-income ratio". I: For example, if your monthly income is $5,000 ($60,000/12) and your total monthly debt payments are $2,000, your back-end ratio is 0.40 or 40%. Generally, lenders like to see a back-end ratio that does not exceed 36%; however, there are lenders who make exceptions for ratios of up to 50% if you have good credit. Some lenders consider only this ratio when approving mortgages, as opposed to using it in conjunction with the front-end ratio.

K-Ratio

A ratio that is used in the performance evaluation of an equity relative to its risk. The ratio examines the consistency of an equity's return over time. The data for the ratio is derived from a value added monthly index (VAMI), which tracks the progress of a $1,000 initial investment in the security being analyzed.Calculated as: I: The K-ratio was developed by Lars Kestner, a derivatives trader and statistician. The K-ratio calculation involves running a linear regression on the log-VAMI curve. The results of the regression are used subsequently in the K-ratio formula. The slope is the return, while the standard error of the slope represents the risk. The ratio takes the return of the security over time, and it is considered a good tool to measure the performance of an equity.

EBITDA-To-Interest Coverage Ratio

A ratio that is used to assess a company's financial durability by examining whether it is at least profitably enough to pay off its interest expenses. A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses.The ratio is calculated as follows: Also known as EBITDA Coverage. I: This ratio was first widely used by leveraged buyout bankers, who would use it as a first screen to determine whether a newly restructured company would be able to service its short-term debt obligations.While this ratio is a very easy way to assess whether a company can cover its interest-related expenses, the applications of this ratio are also limited by the relevance of using EBITDA as a proxy for various financial figures. For example, suppose that a company has an EBITDA-to-interest coverage ratio of 1.25; this may not mean that it would be able to cover its interest payments, because the company might need to spend a large portion of its profits on replacing old equipment. Because EBITDA does not account for depreciation-related expenses, a ratio of 1.25 might not be a definitive indicator of financial durability.

Land Rehabilitation

A re-engineering process that attempts to restore an area of land back to its natural state after it has been damaged as a result of some sort of disruption. The process involves such things as removing all man-made structures, toxins and other dangerous substances, improving the soil conditions and adding new flora. I: Although land rehabilitation is most often used to rectify problems caused by man-made processes such as mining, oil drilling and other petrol-chemical related processes, it is also used to "clean up" natural processes. For example, natural disasters such as earthquakes and flooding can also cause damage to the natural environment. Land rehabilitation techniques can be used to speed up the amount of time necessary to restore the location to back to its original state.The demand for reclamation or rehabilitation has increased during the last few decades as resource firms become increasingly environmentally conscious and new environmental-protection laws are introduced. However, rehabilitation can be a very costly process, especially if there is a toxic cleanup involved.

Sales Comparison Approach - SCA

A real estate appraisal method that compares a piece of property to other properties with similar characteristics that have been sold recently. The sales comparison approach takes into account the affect that individual features have on the overall property value, meaning that the total value of the property is a sum of the values of all of its features. Real estate agents and appraisers may use this approach when evaluating properties to sell. I: The sales comparison approach often entails looking at local properties to see what they have in common. This allows appraisers to determine values for property features, such as fireplaces or two car garages, and requires less sophisticated statistical methods than checking on sales of properties in a wider geographic area.

Landlord

A real estate owner who rents or leases land or a building to another party, known as a tenant. The landlord will often provide the necessary maintenance or repairs during the rental period, while the tenant is responsible for the cleanliness and general upkeep of the property.A female landlord may be referred to as a "landlady." I: For real estate investors, becoming a landlord can be a profitable venture. It often provides a steady stream of income from the renter, while maintaining ownership over a property that is likely to appreciate in value.

Realtor

A real estate professional who is a member of the National Association of Realtors, a professional association. Realtors include agents that work as residential and commercial real estate brokers, salespeople, property managers, appraisers, counselors and other real estate professionals. More than 1 million real estate agents are realtors, and the term is a registered trademark. Realtors must belong to both a local association or board and a state association. I: Realtors are expected to be experts in their field and must follow the NAR's code of ethics, which requires agents to uphold specific duties to clients and customers, to the public and to other realtors. Among its many requirements, the code of ethics says that realtors "shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction;" "shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing and other representations;" and shall "pledge themselves to protect and promote the interests of their client" while treating all parties to the transaction honestly.

S&P/ASX 200 VIX (A-VIX)

A real-time index that reflects investor expectations about volatility over the next 30 days in the S&P/ASX 200, the Australian benchmark equity index. Commonly referred to as the ASX VIX or A-VIX, the S&P/ASX 200 VIX is used mainly as a barometer of investor sentiment and market expectations. As with other volatility indices, a relatively high level of the A-VIX implies expectations for greater market volatility and reflects uncertain investor sentiment, while a lower A-VIX level suggests lower volatility expectations and greater investor confidence. I: The S&P/ASX 200 VIX gauges expected near-term market volatility in the Australian market, using mid prices for put and call options on the index to calculate a weighted average of the implied volatility of these options. The volatility index uses two maturities for these options, with the nearest maturity having at least a week until expiry. The volatility of the options closest to maturity is interpolated with that of the options farthest from maturity to derive a 30-day indication of expected volatility in the equity benchmark. Like other VIX indices, the A-VIX displays a strong negative correlation with the underlying S&P/ASX 200 index, enabling market participants to position their portfolios for anticipated changes in volatility, whether higher or lower. The launch of S&P/ASX 200 VIX futures in October 2013 has further enabled traders and investors to trade expected changes in Australian equity market volatility with ease in a single transaction. The S&P/ASX 200 index covers approximately 80% of Australian equity market capitalization, and is home to global mining giants such as BHP Billiton and Rio Tinto, as well as large banks like Commonwealth Bank Australia and ANZ Banking Group. The index had a 45% weight in financial stocks and a 17% weight in material stocks as of October 2013. ASX itself is a vertically integrated exchange group that is among the world's top 10 in terms of market capitalization.

Qualified Professional Asset Manager - QPAM

A registered investment advisor/manager. The criteria for qualifying as a QPAM are defined by the Employee Retirement Income Security Act (ERISA). Regulated institutions such as banks and insurance companies may qualify as a QPAM. Under amendments that came into effect in August 2005, a QPAM is also defined as a registered investment adviser with client assets under management of at least $85 million, and shareholders' or partners' equity in excess of $1 million. I: The QPAM exemption is widely used by parties who conduct transactions with accounts holding retirement plan funds. Essentially, the QPAM exemption allows an investment fund that is managed by a QPAM to engage in a wide range of transactions (such as sales, exchanges and leases, and the provision of goods and services) - that would otherwise be prohibited by ERISA - with practically all parties in interest such as plan sponsors and fiduciaries. However, such transactions cannot be entered into with the QPAM itself or with those parties that may have the power to influence the QPAM.

Economic Derivative

A relatively new form of derivative contract (the first ones were traded in 2002) that is based on the future value of some national economic indicator, such as non-farm payrolls, the purchasing manager's index, retail sales levels and the gross domestic product. Most of these economic derivatives are in the form of binary or "digital" options, whereby the only payout options are full payout (in the money) or nothing at all (out of the money). Other types of contracts currently traded include capped vanilla options and forwards.Economic derivatives have become attractive for their ability to mitigate some of the market and basis risks found in standard investment vehicles. I: For example, a binary option trading on the GDP would pay its face value if, when the official GDP release is made (the exercise date), the GDP value falls within a specific range (strike range). If the GDP figure is outside of this range, the option expires worthless. By looking at the implied probabilities of different outcomes, economists and investors can compare economic derivatives to Wall Street estimates and look for discrepancies between the two estimations. As might be expected, the market-driven process seen in derivatives pricing has shown itself to be the more consistently accurate predictor of future indicator release values.

Paraplanning

A relatively new position within the financial planning industry that involves the performance of the administrative duties of a financial planner. This function was created to allow financial planners to focus on the sell-side by working more closely with customers to identify their investing needs. I: Paraplanners do most of the grunt work (preparing plans and reports) for financial planners. Some large firms have developed new departments for paraplanners within their organizations, however, the cost of hiring paraplanners is extremely high, and as a result, this option may be unavailable to some smaller companies. This has led to the development of outsourcing companies who provide paraplanning services to companies upon request.Working as a paraplanner is being utilized also by recent graduates to get a foot in the financial planning industry's door, where they can gain experience and move up to a financial planner themselves later.

Quasi-Reorganization

A relatively obscure provision under U.S. GAAP which provides that under certain circumstances, a firm may eliminate a deficit in its retained earnings account by restating assets, liabilities and equity in a manner similar to a bankruptcy. A firm's stockholders must agree to allow the accounting change, which essentially resets the firm's books as though a new company had incurred the assets and liabilities of the old firm. I: Although the idea of quasi-reorganization has seen some renewed interest, the provision is still rarely applied in practice. The idea of quasi-reorganization holds appeal for some as the idea of a "fresh start" is more exciting to investors than slowly digging out from a large deficit of retained earnings. Some also argue that quasi-reorganization could be an effective method of more accurately resetting the accounting balances of a firm when a serious drop in asset values is not adequately reflected. Quasi-reorganization remains highly controversial, however, since it is not truly a change of economic reality, but rather a method to make books appear more favorable.

Rationalization

A reorganization of a company in order to increase its efficiency. This reorganization may lead to an expansion or reduction in company size, a change of policy, or an alteration of strategy pertaining to particular products. I: Similar to a reorganization, a rationalization is more widespread, encompassing strategy as well as structural changes.

Balance Reporting

A report by a bank to a customer, normally a company or organization, informing the customer of the balances in their accounts. These real-time reports are key to the customer's cash-management program, especially for companies with far-flung operations and banking relationships in many countries. I: Balance reporting used to be done on a daily basis, but now companies can often access their current account information at any time. Customers can also now export the data for queries in other applications.

Fairness Opinion

A report evaluating the facts of a merger or acquisition. Fairness opinions are compiled by qualified analysts or advisors, usually of an investment bank, for key decision makers. The report examines the fairness of the offered acquisition price. I: A fairness opinion provides guidance to the parties involved in a merger, takeover or acquisition. This could include the shareholders of the company being acquired or the acquiring company. It is essentially a professional opinion supported by collected data, for a fee.

Call Report

A report that must be filed by all regulated financial institutions in the U.S. on a quarterly basis and contains financial information about the banks. Banks are required to file no later than 30 days after the end of each quarter. The report is officially known as the Report of Condition and Income for banks and Thrift Financial Report for Thrifts. I: The Call Report collects such basic financial information as the bank's balance sheet and income statement. Reports are required to be submitted to the Federal Financial Institutions Examination Council (FFIEC). The FFIEC is an inter agency entity and coordinates between the Federal Reserve, the FDIC and the Office of Thrift Supervision. Banks and Thrifts must use the standardized forms provided by the FFIEC to submit their data and each Call Report is audited by an FDIC analyst for errors and audit flags. These reports are available to the public on the FDIC website.

48-Hour Rule

A requirement that all pooled information regarding to-be-announced transactions on forward mortgage-backed securities (MBS) be communicated to the buyer from the seller before 3 p.m. EST 48 hours prior to the settlement date of the trade. The 48-hour rule is a requirement under the Securities Industry And Financial Markets Association (SIFMA), which is formerly known as the Public Securities Association (PSA) or Bond Market Association. I: Assume that the agreed upon settlement date between the buyer and the seller is July 14. The 48-hour rule requires that on July 12 by 3 p.m. EST the seller will have informed the buyer of the exact details of the MBS pooled that will be delivered on July 14. Also known as 48-hour day.

Macroeconomic Stabilization Fund - FEM

A reserve fund established by the country of Venezuela. Also known as the "FEM," it was created at the behest of the IMF to stabilize the national cash flow generated from oil production. It receives all monies generated from oil production above a certain price per barrel and pays out the difference if the price falls below this level. I: The price per barrel above which revenue is diverted into the fund is based on the average price of oil over the past five years. Oil price fluctuations are hedged with future contracts on an as needed basis. The fund is governed by the Board of the Central Bank of Venezuela.

Gate Provision

A restriction placed on a hedge fund limiting the amount of withdrawals from the fund during a redemption period. The implementation of a gate on a hedge fund is up to the hedge fund manager. The purpose of the provision is to prevent a run on the fund, which could cripple its operations, as a large number of withdrawals from the fund would force the manager to sell off a large number of positions. I: This is a very common provision on a hedge fund and the exact percent of restriction can be found in the hedge fund prospectus. This is a less severe withdrawal restriction than an all out redemption suspension, which doesn't allow for withdrawals at all. But a gate provision is still seen generally as a negative event.

National Retail Federation - NRF

A retail trade association with members from all phases of retail suppliers. Members include department stores, specialty, discount, catalog, internet and independent retailers, restaurant chains and grocers, as well as businesses that supply goods and services to retailers. The NRF forms an umbrella over more than 100 other state, national and international retail associations. I: The National Retail Federation claims that it is the largest organization of retailers in the world. It holds an annual convention and publishes several magazines aimed at retailers, including Stores. The NRF has several divisions dealing with different aspects of retailing, such as technology and education.

DB(k) Plan

A retirement plan that combines some of the characteristics of a 401(k) plan with those of a defined benefit (DB) plan. Funds can be voluntarily contributed to the DB(k) plan just as they can with a 401(k) plan, with the employer retaining the option to match the funds up to a certain percentage. Upon retirement, the employer will also pay the employee a small percentage of his or her salary, which is similar to a traditional pension. The DB(k) plan was included in the Pension Protection Act of 2006. I: The DB(k) plan was designed to provide businesses with a way to attract employees, since many investors worry that their entire savings could be wiped out in a down market. Retaining the pension characteristic means that the retiree will still have a source of income, regardless of the performance of the 401(k) portion of the plan.

Savings Incentive Match Plan For Employees Of Small Employers - SIMPLE

A retirement plan that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee's SIMPLE IRA and employees may make salary deferral contributions. I: The employer has two alternatives when it comes to making contributions. The first is to match the amounts that each employee makes toward his or her own elective-deferral contribution up to 3% of the employee's annual compensation. The second alternative is for the employer to make a flat 2% nonelective contribution to all qualified employees, regardless of whether the employee makes any contributions.Contributions to SIMPLE IRAs are immediately 100% vested, and the IRA owner directs the investments.

Reaction

A reversal in the movement of a security's price. Reaction is most often associated with a downward movement in the price of a security after a period of upward movement, as investors sell off shares or decrease the volume of buy orders for fear of the security being overvalued. Reactions are likely to be mild and lead to a slight increase or decrease in price, rather than a large change in value. A reaction is similar to a correction but lacks the same intensity. I: Reactions are generally considered to be positive for the overall health of the market, since unending price increases can cause inflation or result in an even larger price drop if a company doesn't meet expectations. A reaction is likely to prevent events such as runs or high volume sell offs at later dates.

Jensen's Measure

A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as "Jensen's alpha." I: If the definition above makes your head spin, don't worry: you aren't alone! This is a very technical term that has its roots in financial theory.The basic idea is that to analyze the performance of an investment manager you must look not only at the overall return of a portfolio, but also at the risk of that portfolio. For example, if there are two mutual funds that both have a 12% return, a rational investor will want the fund that is less risky. Jensen's measure is one of the ways to help determine if a portfolio is earning the proper return for its level of risk. If the value is positive, then the portfolio is earning excess returns. In other words, a positive value for Jensen's alpha means a fund manager has "beat the market" with his or her stock picking skills.

Fast Market Rule

A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current. The purpose of the fast market rule is to maintain an orderly market during a time of chaos. Under the rule, market makers must turn off their computerized trading systems, called black boxes. They do not have to quote share prices based on the London Stock Exchange's screen prices while the fast market is in effect, but they are still required to make firm quotes. I: Fast markets are rare and are triggered by highly unusual circumstances. For example, the London Stock Exchange declared a fast market on July 7, 2005, after the city experienced a terrorist attack. Share prices were falling dramatically and trading was exceptionally heavy. The fast market rule is made possible because circuit breakers are not used. Circuit breakers allow exchanges to temporarily halt trading during sharp price declines to prevent panic selling. With a circuit breaker, the sharper the decline, the longer trading is halted.

80-20 Rule

A rule of thumb that states that 80% of outcomes can be attributed to 20% of the causes for a given event. In business, the 80-20 rule is used to help managers identify problems and determine which operating factors are most important and should receive the most attention based on an efficient use of resources. Resources should be allocated to addressing the input factors have the most effect on a company's final results. Also known as the "Pareto principle", the "principle of factor sparsity" and the "law of the vital few." I: The 80-20 rule was developed by Joseph Juran, a 20th century figure in the study of management techniques and principles. The 80-20 rule has been applied to a number of different facets of business. An example of the 80-20 rule in economics would be that 80% of a country's wealth is controlled by 20% of the population, although this can be explained by the Gini index.

One Percent Rule

A rule of thumb used to determine if the monthly rent earned from a piece of investment property will exceed that property's monthly mortgage payment. The aim of the one percent rule is to have the rent be greater or equal to the mortgage payment, so the investor breaks even on the property at worst. The rule is used for quick estimation, as there are other costs associated with a piece of property that are not taken into account, such as upkeep, insurance and taxes. I: Purchasing a piece of property for investment requires a thorough analysis of future rents compared to the cost of owning that property. Property owners want to maintain a cash flow greater than costs. For example, an investor is looking to purchase a home valued at $200,000, with the goal of renting the home out for income. After placing 20% down, the investor has a mortgage of $160,000. The one percent rule says that the home would have to be rented out for no less than $1,600 per month ($160,000 * .01).

De Minimis Tax Rule

A rule that states that capital gains tax must be paid on a bond if the bond was purchased at a discount to the face value in excess of a quarter point per year between the time of acquisition and maturity. The reason for the capital gains tax is that the bondholder gains on the difference between the price paid and the price received at maturity, which is considered a capital gain. I: To determine whether a bond is subject to this tax, calculate the amount of full years between the discounted bond's purchase date and the maturity date and multiply this by 0.25. Subtract the calculated amount from the bond's par value. If this amount is above the purchase price of the discount bond, the purchased bond is subject to capital gains tax.For example, if you are looking at a 10-year bond with a par value of 100 and five years left until maturity, simply multiply five years by 0.25 to get 1.25. You then subtract the 1.25 from the par value to get the de minis cut off amount, which in this example is 98.75 (100-1.25). If the price of the discount bond you purchased is below 98.78 per 100 of par value you will be subject to capital gains tax under the de minimis tax rule.

28/36 Rule

A rule-of-thumb for calculating the amount of debt that can be taken on by an individual or household. The 28/36 Rule states that a household should spend a maximum of 28% of its gross monthly income on total housing expenses and no more than 36% on total debt service, including housing and other debt such as car loans. This rule is used by mortgage lenders and other creditors to assess borrowing capacity, the premise being that debt loads in excess of the 28/36 yardstick would be difficult for an individual or household to service and may eventually lead to default. I: For example, an individual with a monthly income of $5,000 who adheres to the 28/36 Rule would be able to spend a maximum of $1,400 on monthly housing expenses, which would include mortgage payments, home insurance, property taxes and other housing-related expenses, such as condo fees. An additional $400 would be available for other debt such as credit card expenses and car loans.

NASD Rule 2790

A ruling passed by the National Association of Dealers (NASD), a self-regulating organization, prohibiting certain individuals from performing trades in hot-issue Initial Public Offering (IPO) equity. The rule was enacted in March of 2004, and is designed to help make the IPO market more equitable for all traders and dealers involved. I: NASD Rule 2790 ensures that members of the NASD cannot purchase IPO equity at the cost of another investor, sell IPO equity for anything other than the offering price, and cannot trade IPO equity for personal gains. Rule 2790 specifies that certain members of the NASD, others related to NASD members by business or relation, and other restricted persons may not trade IPO equity that would be at the cost of another investor. However, there are always exemptions to the rule.

Ghetto

A run-down urban area primarily inhabited by a single minority group. Ghettos are often characterized by high unemployment, high crime, gang activity, inadequate municipal services, widespread drug use, high rates of dropout from school, broken families and an absence of businesses. As a result, real estate value in ghetto communities are generally much cheaper than in other communities. I: Ghettos may be identifiable by physical characteristics such as large numbers of poorly maintained buildings, large amounts of graffiti, trash or debris accumulated in the street or on properties, and weedy vacant lots. Racial zoning laws, mortgage lending discrimination and income disparity contributed to the creation of many ghettos in the United States in the mid-20th that still persist to this day.

Qualifying Disposition

A sale, transfer or exchange of stock obtained through a qualified stock option incentive plan, namely incentive stock option (ISO) plans and employee stock purchase plans (ESPP), that qualifies for favorable tax treatment for the employee selling the stock. In order to be a qualifying disposition, the employee must sell at least one year after receiving the stock, and two years after receiving the incentive stock option (ISO), or the beginning of the ESPP offering period.The capital gains treatment for a qualifying disposition only applies to the amount of the sale represented by the difference between the exercise price of the option's stock and the market price at which the stock was sold. I: Non-statutory stock options (NSOs) do not qualify for capital gains tax treatment, and are always taxed at ordinary income rates. Some companies do not offer ISOs because, in contrast to non-statutory (or non-qualified) option plans, there is no tax deduction for the company when the options are exercised.

Least Preferred Coworker Scale

A scale developed by American scientist Fred Fiedler to identify whether an individual's leadership style is relationship-oriented or task-oriented. The Least Preferred Coworker (LPC) scale requires a person to rate the one individual they would least want to work with - the least preferred coworker - along a scale of 18 to 25 bipolar adjectives, with ratings from 1 to 8. The LPC score is then computed by totaling all the ratings. A high LPC score indicates that the individual is a relationship-oriented leader, while a low LPC score suggests a task-oriented leader. I: A typical set of bipolar adjectives used in the LPC Scale would include Pleasant/Unpleasant, Friendly/Unfriendly, Supportive/Hostile and so on. The responses are graded from 1 for the least favorable attribute (for example, Unpleasant or Unfriendly), to 8 for the most favorable one (Pleasant or Friendly). The LPC Scale assumes that people whose leadership style is relationship-oriented tend to describe their least preferred coworkers in a more positive manner, while those whose style is task-oriented rate them more negatively.

Callable Common Stock

A security that represents ownership in a corporation that has voting rights, whose owners are last to be paid if the company liquidates and which is redeemable by the issuing corporation, at a predetermined price or at a premium to the current market price. Typically, callable common stock is issued for a subsidiary company by its parent company. The parent company reserves the right to buy back the shares of the subsidiary company, should it become strategically beneficial. I: Common stock is usually non-callable; it must be specifically designated as callable at the time of sale, if the corporation wants to have the option to redeem it. Otherwise, common stock will remain on the market indefinitely, unless the company chooses to buy back its shares on the open market, has its shares delisted or goes bankrupt.

Last Twelve Months - LTM

A period of time commonly used to evaluate financial results such as a company's performance or investment returns. Twelve months is a relatively short time frame, but it is a period long enough to generate a meaningful set of data. Also called trailing twelve months (TTM). This term is often found in a company's financial statements. I: A twelve-month period can provide a useful set of data for a number of reasons. For example, when evaluating the earnings of a retail company, data from one quarter would not provide an accurate picture of performance since retail companies do most of their business around the winter holidays. When evaluating an investment, a twelve-month period is sometimes long enough to smooth out the effects of short-term swings in the market, and give an idea of the investment's potential future direction.

Naked Put

A put option whose writer does not have a short position in the stock on which he or she has written the put. Sometimes referred to as an "uncovered put." I: Naked puts are very risky since the writer can lose big if the underlying asset moves opposite to the desired direction. But, profits are huge if the underlying asset moves in the right direction.

In The Pink

An informal expression used to describe a situation in which an investor or an economy is in a good financial position. More generally, it refers to being in the best of health or condition. I: Blue chip stocks and healthy economies are examples of in-the-pink (or rosy) financial positions.

529 Prepaid Tuition Plan

A tax-advantaged method for paying future college tuition costs at current prices. 529 prepaid tuition plans are authorized by Section 529 of the Internal Revenue Code and allow the account holder to purchase tuition credits at their present price even though they will not be used until a future year, when tuition costs will have most likely increased. Plans are state sponsored and only available in some states, but it is possible to participate in a prepaid tuition plan outside of the account holder's current state of residence. I: If the child who is the account beneficiary dies, decides not to attend college, decides to attend college in a state other than the one in which the plan was established or decides to attend a private college, prepaid tuition credits may be transferred to another child, contributions may be withdrawn, or the in-state value of the prepaid credits may be transferred to an out-of-state or private institution. Parents, relatives and friends are all allowed to contribute to the child's account, which can be especially helpful to grandparents who want to give money to their grandchildren in a tax-friendly way.

529 Savings Plan

A tax-advantaged method of saving for future college expenses that is authorized by Section 529 of the Internal Revenue Code. The plan allows an account holder to establish a college savings account for a beneficiary and use the money to pay for tuition, room and board, mandatory fees and required books and computers. The money contributed to the account can be invested in stock or bond mutual funds or in money market funds, and the earnings are not subject to federal tax (or state tax, in most cases) as long as the money is used only for qualified college expenses. The plans are open to both adults and children. I: States have their own 529 savings plans with unique features. An individual can open a 529 plan in any state, and the plan does not have to be in the account holder's or beneficiary's state of residence.

SBO-401(k)

A tax-deferred, government-registered retirement savings plan that is specially designed for small business owners (SBOs). Eligible participants for an SBO-401(k) are businesses that employ the business's owners and their spouses. The business must not have any other eligible employees. I: An SBO-401(k) provides self-employed small business owners the opportunity to participate in a tax-deferred retirement savings plan. These types of savings plans may be either self-directed or professionally managed.

Haurlan Index

A technical analysis indicator, developed by P.N. Haurlan, that is used to detect market breadth. There are three components of the Haurlan index: Short Term: a 3-day exponential moving average is taken of the net NYSE advances over declines.Intermediate Term: same, using a 20-day exponential moving average.Long Term:same, using a 200-day exponential moving average. I: Each of the three components is used to detect a different movement, whether it is momentum, breakouts, or resistance.

Head And Shoulders Pattern

A technical analysis term used to describe a chart formation in which a stock's price: 1. Rises to a peak and subsequently declines.2. Then, the price rises above the former peak and again declines.3. And finally, rises again, but not to the second peak, and declines once more.The first and third peaks are shoulders, and the second peak forms the head. I: The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.

Odd Lot Theory

A technical analysis theory/indicator based on the assumption that the small individual investor is always wrong. Therefore, if odd lot sales are up - that is small investors are selling stock - it is probably a good time to buy. I: This approach assumes small investors have a low risk tolerance and tend not to hold a stock for the long-term.

Klinger Oscillator

A technical indicator developed by Stephen Klinger that is used to determine long-term trends of money flow while remaining sensitive enough to short-term fluctuations to enable a trader to predict short-term reversals. This indicator compares the volume flowing in and out of a security to price movement, and it is then turned into an oscillator. I: A signal line (13-period moving average) is used to trigger transaction decisions. This technique is very similar to signals that are created with other indicators such as the 'moving average convergence divergence'. The Klinger Oscillator also uses divergence to identify when price and volume are not confirming the direction of the move. It is considered to be a bullish sign when the value of the indicator is heading upward while the price of the security continues to fall. Traders will use other tools such as trendlines, moving averages and other indicators to confirm the reversal.

Qstick Indicator

A technical indicator developed by Tushar Chande to numerically identify trends in candlestick charting. It is calculated by taking an 'n' period moving average of the difference between the open and closing prices. A Qstick value greater than zero means that the majority of the last 'n' days have been up, indicating that buying pressure has been increasing. I: Transaction signals come from when the Qstick indicator crosses through the zero line. Crossing above zero is used as the entry signal because it is indicating that buying pressure is increasing, while sell signals come from the indicator crossing down through zero. In addition, an 'n' period moving average of the Qstick values can be drawn to act as a signal line. Transaction signals are then generated when the Qstick value crosses through the trigger line.

Ichimoku Kinko Hyo

A technical indicator that is used to gauge momentum along with future areas of support and resistance. The Ichimoku indicator is comprised of five lines called the tenkan-sen, kijun-sen, senkou span A, senkou span B and chickou span. This indicator was developed so that a trader can gauge an asset's trend, momentum and support and resistance points without the need of any other technical indicator. I: "Ichimoku" is a Japanese word that means "one look." This charting technique was created by a Japanese newspaper writer. It does look very complicated when a trader sees the indicator for the first time, but don't hesitate to give this indicator a try because the complexity quickly disappears once you gain an understanding of what the various lines mean and why they are used.

Earnings Power Value - EPV

A technique for valuing stocks by making an assumption about the sustainability of current earnings and the cost of capital but assuming no further growth. Earnings power value (EPV) is a specific formula: Adjusted Earnings / Cost of Capital. While the formula is simple, finding the adjusted earnings can be difficult and must consider operating earnings, taxation adjustments, depreciation and more. I: EPV was developed by Columbia University Professor Bruce Greenwald. One of the ways that it helps investors evaluate the intrinsic value of a position is by removing the difficulties of other evaluation formulas. However, that can mean that EPV is less accurate than other, more thorough methods. EPV does give a clear look at a company's present situation though.

Pareto Analysis

A technique used for decision making based on the Pareto Principle, known as the 80/20 rule. It is a decision-making technique that statistically separates a limited number of input factors as having the greatest impact on an outcome, either desirable or undesirable. Pareto analysis is based on the idea that 80% of a project's benefit can be achieved by doing 20% of the work or conversely 80% of problems are traced to 20% of the causes. I: In its simplest terms, Pareto analysis will typically show that a disproportionate improvement can be achieved by ranking various causes of a problem and by concentrating on those solutions or items with the largest impact. The basic premise is that not all inputs have the same or even proportional impact on a given output. This type of decision-making can be used in many fields of endeavor, from government policy to individual business decisions.

E

A temporary fifth character suffix to a symbol for a stock traded on Nasdaq, indicating that the issuer is delinquent in regulatory filings. The "E" suffix is currently only used for Over-the-Counter Bulletin Board (OTCBB) issues. For Nasdaq National Market and SmallCap securities, the "E" suffix has been replaced by the Financial Status Indicator field since February 2006. I: Having used fifth character symbol suffixes such as "E" and "Q" (for bankruptcy situations) for many years, Nasdaq had considered expanding the temporary suffix for all listing deficiencies. However, Nasdaq decided against it because of complaints received over the years from traders and investors that the issue symbol changes made it difficult to track the trading history for a given security. Nasdaq therefore replaced the symbol suffixes with the Financial Status Indicator Field so as to ensure that market players had access to both financial status information and trading history for a given security.

Dead Cat Bounce

A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as a stock. Frequently, downtrends are interrupted by brief periods of recovery - or small rallies - where prices temporarily rise. This can be a result of traders or investors closing out short positions or buying on the assumption that the security has reached a bottom. A dead cat bounce is a price pattern that is usually identified in hindsight. Analysts may attempt to predict that the recovery will be only temporary by using certain technical and fundamental analysis tools. I: A dead cat bounce is a price pattern used by technical analysts. It is considered a continuation pattern, where at first the bounce may appear to be a reversal of the prevailing trend, but is quickly followed by a continuation of the downward price move. It becomes a dead cat bounce (and not a reversal) after price drops below its prior low. Short-term traders may attempt to profit from the small rally, and traders and investors alike may try to use the temporary reversal as a good opportunity to initiate a short position.

Day Loan

A temporary transfer of funds from a bank to an individual broker or a brokerage firm that is made early in the day for the purchase of securities that same day. The securities serve as collateral for the day loan, which must be repaid by the end of the day. Also called a "morning loan". I: A day loan is a source of very short-term funding. Once the securities have been purchased, the loan becomes a regular broker call loan, and may become due at any time. Brokers must pay a daily interest rate, known as the "call rate", on these loans.

Balance Of Payments (BOP)

A statement that summarizes an economy's transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country's residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. The balance of payments classifies these transactions in two accounts - the current account and the capital account. The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments. An economy's balance of payments transactions and international investment position (IIP) together constitute its set of international accounts. I: Despite its name, the "balance of payments" data is not concerned with actual payments made and received by an economy, but rather with transactions. Since many international transactions included in the balance of payments do not involve the payment of money, this figure may differ significantly from net payments made to foreign entities over a period of time. Does the "balance of payments" actually balance? In theory, a current account deficit would have to be financed by a net inflow in the capital and financial account, while a current account surplus should correspond to an outflow in the capital and financial account for a net figure of zero. In actual practice, however, the fact that data are compiled from multiple sources gives rise to some degree of measurement error. Balance of payments and international investment position data are critical in formulating national and international economic policy. Certain aspects of the balance of payments data, such as payment imbalances and foreign direct investment, are key issues that a nation's economic policies seek to address. Economic policies are often targeted at specific objectives that, in turn, impact the balance of payments. For example, a country may adopt policies specifically designed to attract foreign investment in a particular sector. Another nation may attempt to keep its currency at an artificially depressed level to stimulate exports and build up its currency reserves. The impact of these policies is ultimately captured in the balance of payments data. Don't stop now! Broaden your knowledge of the balance of payments by reading our article on What Is The Balance Of Payments?

Same-Store Sales

A statistic used in retail industry analysis that compares the sales of stores that have been open for at least one year. Same-store sales compare revenues earned by a retail chain's established outlets over a certain time period, such as a fiscal quarter or on a seasonal basis, for the current period and the same period in the past (usually the same period of the previous year.) Same-store sales allow investors to determine what portion of new sales has come from sales growth and what portion can be attributed to the opening of new stores. Same-store sales are also called "S.S.S.," "comps," "comparable store sales," "identical store sales" or "like-store sales." I: Same-store sales figures are expressed as a percentage. For example, retail chain ABC may report same-store sales growth of 4.5% for the current fiscal quarter over last year's. Same-store analysis is important because although new stores may represent growth for a retail chain, a saturation point - where future sales growth is determined by same store sales growth - may eventually occur. Same-store sales are typically published by retail companies on a monthly basis. The figures help analysts differentiate between revenue growth that comes from any new outlets and growth that is a result of improved management and operations at the existing outlets.

Old Economy

A term for the old blue chip industries that enjoyed fabulous growth during the early parts of the century as industrialization around the globe, and particularly in the United States, expanded. Since the new economy has arrived, old economy companies have still experienced growth, but at a declining rate. I: The old economy contrasts with the new economy, where technological innovation is key. Although old economy firms have been changed dramatically by technology, there is a limit to how much technology can continue to improve the industry.Industries that are commonly considered to be involved in the old economy are energy, steel, and automobile manufacturers.

Imputed Interest

A term that describes interest that is considered to be paid for tax purposes even though no interest payment has been made. Imputed interest is used by the Internal Revenue Service (IRS) as a means of collecting tax revenues on loans or securities that do not pay interest, or where the stated interest is particularly low. Imputed interest is calculated based on the actual payments that will be - but have not yet been - paid. The interest is important for discount bonds, such as zero-coupon bonds, and other securities that are sold below face value and mature at par. I: The IRS uses an accretive method to calculate the imputed interest on Treasury bonds, which are taxed yearly even though no interest is paid prior to maturity. To generate taxes on interest income that may or may not have been paid (such as with no-interest loans between family members), the IRS established Applicable Federal Rates (AFR) with the Tax Act of 1984, which sets a minimum interest rate for any loan that is made below a specified interest rate level. Each month, the IRS publishes base interest rates known as the Applicable Federal Rates, which are used for imputed interest and original issue discount rules.

Main Home

A term used by the Internal Revenue Service (IRS) to define the home a taxpayer has lived in most of the time during a given taxation year, or the only home a taxpayer owns. The classification of a taxpayer's main home is important when considering gains resulting from the sale of a main home. I: When you sell your home, you may be able to exclude the gains from your income for tax purposes if you pass the ownership and use tests. If over the previous five years you have owned the home for more than two years, and it was your main home for more than two years, then you can exclude up to $250,000 ($500,000 for joint filers) in a given tax year.Losses resulting from the sale of your main home cannot be deducted.

Large Cap - Big Cap

A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term "large market capitalization". Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share. I: Large cap companies are the big Kahunas of the financial world. Examples include Wal-Mart, Microsoft and General Electric. Keep in mind that the dollar amounts used for the classifications "large cap", mid cap", or "small cap" are only approximations that change over time. Among market participants, their exact definitions can vary.

Quantity Supplied

A term used in economics to describe the amount of goods or services that are supplied at a given market price. Graphically, the amount of goods or services supplied lies at any point along the supply curve in a price versus quantity plane. The rate at which the amount supplied changes in response to changes in prices is called the price elasticity of supply. I: The quantity supplied depends on the price level at any given time in the market. The price can be set by either a governing body by using price ceilings or floors, or by regular market forces. If a price ceiling or floor is set, this means there will be a market imperfection, which will force suppliers to provide a good or service for a noncompetitive price, no matter the cost of production.

Fakeout

A term used in technical analysis to refer to a situation in which a trader enters into a position in anticipation of a future transaction signal or price movement, but the signal or movement never develops and the asset moves in the opposite direction. I: The possibility for fakeouts is the reason why traders should use more than one indicator to make decisions. To reduce the probability of being faked out, experienced traders will require four or more signals to confirm a decision.

Impulse Wave Pattern

A term used in the Elliott wave theory to describe the strong move in a stock's price coinciding with the main direction of the underlying trend. These impulse waves are shown in the illustration below as wave 1, wave 3 and wave 5. Impulse waves also refer to the strong downward movements in a downtrend. I: The interesting thing about the Elliott wave theory is that it is not limited to a certain time period. This allows some waves to last for several hours, several years or even decades. Regardless of the time frame used, impulse waves always run in the same direction as the primary trend.

Sampling Error

A statistical error to which an analyst exposes a model simply because he or she is working with sample data rather than population or census data. Using sample data presents the risk that results found in an analysis do not represent the results that would be obtained from using data involving the entire population from which the sample was derived. I: The use of a sample relative to an entire population is often necessary for practical and/or monetary reasons. Although there are likely to be some differences between sample analysis results and population analysis results, the degree to which these can differ is not expected to be substantial. Methods of reducing sampling error include increasing the sample size and ensuring that the sample adequately represents the entire population.

T-Test

A statistical examination of two population means. A two-sample t-test examines whether two samples are different and is commonly used when the variances of two normal distributions are unknown and when an experiment uses a small sample size. For example, a t-test could be used to compare the average floor routine score of the U.S. women's Olympic gymnastic team to the average floor routine score of China's women's team. I: The test statistic in the t-test is known as the t-statistic. The t-test looks at the t-statistic, t-distribution and degrees of freedom to determine a p value (probability) that can be used to determine whether the population means differ. The t-test is one of a number of hypothesis tests. To compare three or more variables, statisticians use an analysis of variance (ANOVA). If the sample size is large, they use a z-test. Other hypothesis tests include the chi-square test and f-test.

Cage

A term used to describe the department of a brokerage firm that receives and distributes physical securities. The cage, as it is known within the industry, is a secure area within a brokerage firm where all physical securities and certificates are housed and stored for safe keeping for the firm and its clientele. I: To ensure that security ownership standards are maintained, brokerages around the world keep cages within their offices to ensure that any and all physical issues are kept securely. Stock and bond certificates are viewed as a stored value of money, and thus if certificates are stolen or lost, individuals can stand to gain from the sale or redemption of these certificates.

Called Away

A term used to describe the elimination of a contract due to the obligation of delivery. This occurs if an option is exercised, if a redeemable bond is called before maturity or if a short position held in a security requires delivery. I: For example, if an investor has written a call option and the holder of the option exercises it, then the option has been "called away" and the writer has to complete his/her obligation to the contract.When an investment is "called away", it can result in an investor missing out on potential gains in the underlying asset.

Least Squares

A statistical method used to determine a line of best fit by minimizing the sum of squares created by a mathematical function. A "square" is determined by squaring the distance between a data point and the regression line. The least squares approach limits the distance between a function and the data points that a function is trying to explain. It is used in regression analysis, often in nonlinear regression modeling in which a curve is fit into a set of data. I: The least squares approach is a popular method for determining regression equations. Instead of trying to solve an equation exactly, mathematicians use the least squares to make a close approximation (referred to as a maximum-likelihood estimate). Modeling methods that are often used when fitting a function to a curve include the straight line method, polynomial method, logarithmic method and Gaussian method.

P-Test

A statistical method used to test one or more hypotheses within a population or a proportion within a population. When testing a hypothesis about a population proportion (p) within a large population (one in which the sample size, "n", is not greater than 5% of the overall population), the formula is: x = (m/n-P) / SqRt[P(1-P)/n] m= "yes" response n = random sample size p = proportion P = population This formula is used to test three hypotheses: p ≤ P p ≥ P p = P The p-test statistic typically follows a standard normal distribution when large sample sizes are used, and researchers use Z-tests to determine whether a hypothesis passes based on a specific significance level will be rejected. The larger the p-value in the p-test, the more likely the hypothesis is true. I: For example, a polling group contacted a group of investors and asked if they felt that the economy would fall into a recession. Of the 1000 people contacted, 700 said that they thought that the economy was heading toward recession. The researchers then applied the P-Test to determine if p ≤ 0.60, p ≥ 0.60, or p = 0.60; basically, what percentage of the population believe that the economy will fall into a recession.

Least Squares Method

A statistical technique to determine the line of best fit for a model. The least squares method is specified by an equation with certain parameters to observed data. This method is extensively used in regression analysis and estimation. I: In the most common application - linear or ordinary least squares - a straight line is sought to be fitted through a number of points to minimize the sum of the squares of the distances (hence the name "least squares") from the points to this line of best fit. In contrast to a linear problem, a non-linear least squares problem has no closed solution and is generally solved by iteration. The earliest description of the least squares method was by Carl Freidrich Gauss in 1795.

One-Tailed Test

A statistical test in which the critical area of a distribution is one-sided so that it is either greater than or less than a certain value, but not both. If the sample that is being tested falls into the one-sided critical area, the alternative hypothesis will be accepted instead of the null hypothesis. The one-tailed test gets its name from testing the area under one of the tails (sides) of a normal distribution, although the test can be used in other non-normal distributions as well. I: An example of when one would want to use a one-tailed test is in the error rate of a factory. Let's say a label manufacturer wants to make sure that errors on labels are below 1%. It would be too costly to have someone check every label, so the factory selects random samples of the labels and test whether errors exceed 1% with whatever level of significance they choose. This represents the implementation of a one-tailed test.

Balanced ANOVA

A statistical test used to determine whether or not different groups have different means. An ANOVA analysis is typically applied to a set of data in which sample sizes are kept equal for each treatment combination. Balanced ANOVA tests are often done with computer softwares due to the complexity of mathematical calculations. It does not work well in experiments in which missing or extra observations are present. I: ANOVA is used to test the differences between means for statistical significance. A one-way ANOVA test checks for significance for one factor only, while a two-way ANOVA test analyzes the effects of two factors simultaneously. Two-way ANOVA tests are the most useful when the replicate examples are equal, or "balanced."

Quintiles

A statistical value of a data set that represents 20% of a given population. The first quartile represents the lowest fifth of the data (1-20%); the second quartile represents the second fifth (21% - 40%) etc. I: Quintiles are often used to create cut-off points for a given population. For example, a government sponsored socio-economic study may use quintiles to determine the maximum wealth a family could possess in order to belong to the lowest quintile of society. This cut-off point can then be used as a prerequisite for a family to receive a special government subsidy aimed to help society's less fortunate.

General Order - GO

A status given to imported goods that are missing the proper documentation or are not quickly cleared through customs. Merchandise may be held under general order if the proper duties or taxes are not paid, or if the owner fails to complete the required customs paperwork. Goods will be held under general order if they remain uncleared for more than 15 days. I: After 15 days, any general order merchandise will be moved to a bonded warehouse. The risk of transportation and storage of the goods remains with the owner of the merchandise. If the goods remain under general order for more than six months, the merchandise will be put up for auction or confiscated by the government.

Head Of Household

A status held by the person in a household who is running the household and looking after a qualified dependent. In order to qualify as head of household, the designated household must be located at the person's home and the person must pay more than 50% of the costs involved in running the household. The benefit of having the head-of-household status is that it can result in lower tax rates in certain jurisdictions. I: Typically, the head of a household must also be unmarried. However, in certain situations, a married person can be the head of household. In addition to the requirements listed above, the married person must also file an individual tax return and the spouse of the married person must not have lived with the person for the last six months of the calender year.

Canary Call

A step-up bond that cannot be called after completing its first-step period. The issuer of the bond reserves the option to call back the bond until the first step is reached. A canary call may only be exercised on predetermined dates. I: The canary call is similar to a Bermuda option, as it must be called on specific dates. If the issuer of the bond chooses not to call before the canary call expires, the bond will remain a standard step-up bond, where the coupon rate will increase with each step-up period.

Dead Hand Provision

A stipulation on a defense mechanism (or poison pill) used by companies in order to protect against a merger or takeover by another company. The dead hand provision prevents the removal of the poison pill, a strategy used to discourage a hostile takeover, even if shareholders of the target company favor the takeover. I: A dead hand provision states that only the original directors who put the provision into place can dismantle the pill, so any new directors are prevented from interfering.

Lady Godiva Accounting Principles - LGAP

A theoretical set of accounting principles under which corporations would have to fully disclose all information, including that which often doesn't get reported to investors under generally accepted accounting principles (GAAP). These principles include disclosure of the following:-all off-balance sheet items-how new goodwill accounting rules (introduced in 2002) impact earnings per share (EPS) -the impact on EPS of stock options issued in lieu of salaries -how pension expenses are accounted for I: This buzzword was coined by financial analyst Rick Wayman after the Enron bankruptcy. According to legend, Lady Godiva was a woman who rode a horse naked through Coventry, England, in the 11th century in order to get her husband, the Lord of Coventry, to lift the heavy taxes on his people. The idea of LGAP is that just as the Lady provided "full disclosure" to help her fellow citizens, corporations must do the same thing with their financial disclosures to maintain their credibility with investors.

Backwardation

A theory developed in respect to the price of a futures contract and the contract's time to expire. Backwardation says that as the contract approaches expiration, the futures contract will trade at a higher price compared to when the contract was further away from expiration. This is said to occur due to the convenience yield being higher than the prevailing risk free rate. I: When backwardation does occur in a futures market it has been suggested that an individual in the short position would benefit the most by delivering as late as possible. Backwardation in futures contracts was called "normal backwardation" by economist John Maynard Keynes. This is because he believed that a price movement like the one suggested by backwardation was not random but consistent with the prevailing market conditions. Backwardation is the opposite of contango.

Iceland Stock Exchange - ICEX

A stock exchange located in Reykjavik, Iceland. The Iceland Stock Exchange was established in 1985, as a joint venture between some of Iceland's brokerage firms and banks, initiated by Iceland's Central Bank. In 1986, trading began in Icelandic T-bonds; in 1990, housing bonds, mortgage-backed securities with a State guaranty, were added. Also in 1990, the exchange's first equities were listed and by 1992, the exchange started gathering momentum, with an average of six new listing per year. I: Its official name is Nasdaq OMX Iceland. In 1998, a new law required the Iceland Stock Exchange to alter its legal status from a self-owned institution, to a limited company with shareholders. In 2002, a new holding company, Eignarhaldsfelagið Verðbrefaþing hf., was established to operate both the ICEX and the Icelandic Securities Depository (ISD). This holding company is owned by financial institutions, listed companies, pension funds, the Central Bank, the Investor Association and the Treasury. The Iceland Stock Exchange joined the NOREX Alliance in June, 2000. The NOREX Alliance was established in 1998, to create a cooperative Nordic securities market using a joint trading system and common trading rules.

Paris Hilton Stock Index

A stock index comprised of companies associated with the socialite Paris Hilton. Some investors conceive her influence on the consumer spending habits of her fans is material enough to give these companies a competitive advantage. I: The concept behind the Paris Hilton Index resides in her endorsements and product lines. Ideally, Hilton's fans see her using certain products or releasing her own brands and flock to purchase the goods. As a result, the companies behind the products experience increased sales. Companies included in this index are Parlux Fragrances (who manufacture Hilton's brand of perfumes), News Corp, Time Warner and Amazon.

DAX

A stock index that represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. A free-float methodology is used to calculate the index weightings along with a measure of average trading volume. The DAX was created in 1988 with a base index value of 1,000. DAX member companies represent roughly 75% of the aggregate market cap that trades on the Frankfurt Exchange. I: In a different twist from most indexes, the DAX is updated with futures prices for the next day, even after the main stock exchange has closed. Changes are made on regular review dates, but index members can be removed if they no longer rank in the top 45 largest companies, or added if they break the top 25. The vast majority of all shares on the Frankfurt Exchange now trade on the all-electronic Xetra system, with a near-95% adoption rate for the stocks of the 30 DAX members.

Taiwan Stock Exhange Corporation (TSEC) Weighted Index

A stock market index comprised of companies traded on the Taiwan Stock Exchange (TWSE). The TSEC weighted index is made up of all the stocks in the Taiwan Stock Exchange and each is given a weight based on its market capitalization. Preferred shares, "full delivery" shares, and shares listed for less than a month are excluded from the index. Also known as the "TAIEX". I: The TSEC weighted index is a weighted average, meaning that stocks with a higher market capitalization exert a greater influence on the overall index. The TSEC weighted index has a base value of 100 based on in its 1966 level and, similar to other indexes around the world, is occasionally reconstituted with different stocks. Much like the NYSE Composite Index, the TSEC weighted index provides a barometer of overall market performance.

Palisades Water Index

A stock market index that gauges the performance of global water industry companies. These companies encompass such subsectors as water utilities, pump and filter manufacturers, and irrigation equipment. The index was created in order to capitalize on the growing public awareness of water provision and treatment. I: As of December 31, 2003, the index was set at 1,000. In order to find out where it is now, look for ticker symbol ZWI. The index is a modified, equal weighted dollar index and trades on the AMEX.

Laggard

A stock or security that is underperforming. A laggard will have lower-than-average returns compared to the market. A laggard is the opposite of a leader. I: In most cases, a laggard refers to a stock. The term can also, however, describe a company or individual that has been underperforming. It is often used to describe good vs. bad, as in "leaders vs. laggards". Investors want to avoid laggards, because they achieve less-than-desired rates of return.

Off Board

A stock transaction that fits one of the following two criteria:1. A stock trade involving a security that does not trade on a major exchange, i.e., an over-the-counter (OTC) stock.2. A stock trade involving a stock that is listed on a major exchange but is still executed over the counter, typically between two institutions or an institution and a customer. This type of off-board trade can be done only with 19c3 securities, or stocks that listed on the exchange after 1979. I: Off-board trades of the latter type will usually involve two brokerage firms or other institutions and involve a large number of shares. The two parties will decide to do a trade off board to prevent order distortions within the underling stock, as well as keep relative anonymity in the broad markets. The term "off board" refers to the fact that the venerable New York Stock Exchange is commonly known as the Big Board.

Naked Trust

A straightforward type of trust into which a trustor transfers assets (money or property) in order to pass them on to beneficiaries. The initial owner of the assets (the trustor) loses all control over them once they are placed in the trust. The trustee has only nominal control of the assets in the trust. The trust's beneficiary has absolute entitlement to the assets once he or she turns 18. Also known as a "bare trust," "dry trust" or "passive trust." I: This estate-planning tool is commonly used by parents or grandparents to transfer assets to children or grandchildren. The college financial-aid implications of putting money into a naked trust for children should be considered before establishing the trust.

Balanced Score Card - BSC

A strategic planning and management system used extensively in business and by organizations worldwide. Benefits of the system include increasing focus on results, aligning business activities with organization strategy and improving performance and communications. The balanced score card proposes that the organization should be viewed from four perspectives, with metrics developed, data collected and analyzed for each of them. These four perspectives are: Financial, Customer, Internal Business Processes and Learning and Growth. I: The first balanced scorecard was created by independent consultant Art Schneiderman at Analog Devices in 1987. The concept was popularized by Dr. Robert Kaplan and David Norton in the early 1990s.

Hedged Tender

A strategy in a tender offer where an investor short sells a portion of the shares he or she owns. This strategy is used to protect against the risk of loss in the event that the tender offer does not go through. I: For example, imagine a stock was trading at $30, and there was a tender offer for $40 per share. A hedged tender would attempt to lock in the $40 per share even if the offer does not go through.

Harvest Strategy

A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by additional investment would not warrant the expense. A harvest strategy is employed when a line of business is considered to be a cash cow, meaning that the brand is mature and is unlikely to grow if more investment is added. The company will instead siphon off the revenue that the cash cow brings in until the brand is no longer profitable. I: Firms generally use profits from mature brands to increase funding for more promising lines of business. For example, a telecommunications company may take profits from its land line business to supplement research and development for its wireless communications business if growth and profits in the wireless business are more likely. Advances in technology and changes in consumer behavior dictate which brands become cash cows.

Back Door Listing

A strategy of going public used by a company that fails to meet the criteria for listing on a stock exchange. To get onto the exchange, the company desiring to go public acquires an already listed company. I: Believe it or not, purchasing a public company can be a cost-effective way for some firms to go public.

130-30 Strategy

A strategy that uses financial leverage by shorting poor performing stocks and purchasing shares that are expected to have high returns. A 130-30 ratio implies shorting stocks up to 30% of the portfolio value and then using the funds to take a long position in the stocks the investor feels will outperform the market. Often, investors will mimic an index such as the S&P 500 when choosing stocks for this strategy. I: To engage in a 130-30 strategy, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.

"Just Say No" Defense

A strategy used by corporations to discourage hostile takeovers in which board members reject a takeover bid outright. The legality of a just say no defense may depend on whether the target company has a long-term strategy that it is pursuing, which can include a merger with a firm other than the one making the takeover bid, or if the takeover bid simply undervalues the company. I: A just say no defense isn't necessarily in the best interest of shareholders, since board members can employ it even if an offer is made at a significant premium to the current share price. The case of Paramount Communications vs. Time, Inc. helped establish the just say no defense as a viable anti-takeover strategy. In the case, Time, Inc. was set to merge with Warner Communications, but received a bid from Paramount that its board rejected because there was a long-term plan.

Law Of Supply And Demand

A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be. I: The law of supply and demand is not an actual law but it is well confirmed and understood realization that if you have a lot of one item, the price for that item should go down. At the same time you need to understand the interaction; even if you have a high supply, if the demand is also high, the price could also be high. In the world of stock investing, the law of supply and demand can contribute to explaining a stocks price at any given time. It is the base to any economic understanding.

Qualified Exchange Accommodation Arrangements

A strategy used in some 1031 exchanges where a third party, known as an "accommodation party," temporarily holds the real estate investor's relinquished or replacement property. The purpose of this arrangement is to help investors comply with section 1031 of the Internal Revenue Code, which allows investors to defer taking a capital gain or loss on the sale of real estate as long as the relinquished property is replaced by a "like-kind" property. Qualified exchange accommodation arrangements, while still subjecting investors to strict guidelines for the sale and purchase of like-kind properties, increase flexibility in the timing of the sales and simplify the investor's ability to qualify for the tax deferral. I: This strategy was in use for many years, but was not formally recognized by the IRS until 2000. The IRS's approval of the procedure and establishment of specific qualification guidelines made investors' compliance with 1031 exchange rules more straightforward. Because the purpose of such a transaction is to hold a property temporarily, these are also known as "warehouse transactions".

Passive Management

A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. Passive management is the opposite of active management in which a fund's manager(s) attempt to beat the market with various investing strategies and buying/selling decisions of a portfolio's securities.Also known as "passive strategy," "passive investing" or "index investing." I: Followers of passive management believe in the efficient market hypothesis. It states that at all times markets incorporate and reflect all information, rendering individual stock picking futile. As a result, the best investing strategy is to invest in index funds, which, historically, have outperformed the majority of actively managed funds.

501(c)

A subsection under the United States Internal Revenue Code. The subsection relates to non-profit organizations and tax law and identifies which nonprofit organizations are exempt from paying federal income tax I: Under subsection 501(c) there are 12 other sections that separate the different organizations according to operations. The most common include:c(1) - Any corporation that is organized under an act of Congress that is exempt from federal income taxc(2) - Corporations that hold title of property for exempt organizationsc(3) - Corporations, funds or foundations that operate for religious, charitable, scientific, literary or educational purposesc(4) - Nonprofit organizations that promote social welfarec(5) - Labor, agricultural or horticultural associationsc(6) - Business leagues, chambers of commerce, etc. that are not organized for profitc(7) - Recreational organizations

Sample

A subset containing the characteristics of a larger population. Samples are used in statistical testing when population sizes are too large for the test to include all possible members or observations. A sample should represent the whole population and not reflect bias toward a specific attribute. I: A sample is a smaller, manageable version of a larger group. For example, if you wanted to test an investment strategy on past stock data, you would have an enormous number of stocks to test. Instead of testing the strategy on every stock, you would use a sample, which allows you to draw statistical insights from a smaller group of stocks. The sample should not contain any bias, such as the survivorship bias, where you might only use stocks that have survived the entire length of time you wish to test. Choosing a sample randomly should eliminate the possibilities of bias.

National Securities Clearing Corporation - NSCC

A subsidiary of the Depository Trust & Clearing Corporation (DTCC) that provides centralized clearing, risk management, information and settlement services to the financial industry. The NSCC offers multilateral netting so that brokers can offset buy and sell positions into a single payment obligation, thereby reducing financial exposure and capital requirements. I: The National Securities Clearing Corporation was established in 1976 and is a registered clearing corporation regulated by the U.S. Securities and Exchange Commission (SEC). Before its inception, huge demand of paper stock certificates were a reality for stock brokerages, causing the stock exchanges to close once a week. To overcome this problem, multilateral netting was proposed, leading to the formation of the NSCC. The corporation serves as a seller for every buyer, and buyer for every seller for trades settled in U.S. markets. The NSCC and DTC (another subsidiary of the DTCC) play a major part in the settlement and clearing of securities transactions. They are the largest providers of these services, worldwide.

10-K Wrap

A summary report of a company's annual performance that bundles the 10-K report required by the Securities and Exchange Commission (SEC) with additional commentary from the company, covering such things as the corporate vision, letter to shareholders and business overview among other topics. The 10-K wrap is often released instead of a traditional annual report and generally contains fewer images and comments from management. I: The biggest difference between the traditional annual report and the 10-K wrap is the way in which the information is presented and how much additional information is included above the required 10-K information. The traditional annual report has a greater focus on comments from the company and the document includes more images and graphs to communicate performance and corporate objective.By contrast, the 10-K wrap is essentially the 10-K filed with the SEC along with some additional editorial from the company - but not nearly as much as the annual report. It usually has a lower production cost because it is often printed on lower-quality paper.

Job Openings and Labor Turnover Survey - JOLTS

A survey done by the United States Bureau of Labor Statistics to help measure job vacancies. It collects data from employers including retailers, manufacturers and different offices each month. Respondents to the survey answer quantitative and qualitative questions about their businesses' employment, job openings, recruitment, hires and separations. The JOLTS data is published monthly and by region and industry. I: JOLTS data has many uses, not least of which is to help guide the government in formulation of economic policy through economic research and planning. The JOLTS publications provide data that can help in the analysis of industry retention rates, business cycles and industry-specific economic research. Also, JOLTS has been used in conjunction with the Help-Wanted Index, which is published by the Conference Board, for a more accurate reading of job-market efficiency in the country.

Quarterly Services Survey

A survey produced quarterly by the Census Bureau that provides estimates of total operating revenue and percentage of revenue by customer class for communication-, key information- and technology-related services firms (NAICS sectors 51, 54 and 56) and hospitals and nursing (NAICS subsectors 622 and 623). The quarterly services survey focuses on these areas because they fuel productivity, are growth areas and are sensitive to business-cycle changes, all of which are important for keeping a finger on the pulse of the economy. I: As of 2009, the information (NAICS sector 51), professional, scientific and technical services (54); administrative and support; waste management and remediation (56) sectors account for roughly 15% of the U.S. GDP. Because it accounts for a large portion of the economy and is sensitive to changes in productivity, growth and business cycles, the data from this report is important when trying to determine trends in the overall economy.This data is also important for investors trying to determine trends in IT sectors directly, as this data can strongly affect market prices for companies in this area.

P

A symbol that, when used as the fifth letter in a ticker symbol, indicates that a security is a first preferred issue. Called a fifth-letter identifier, "P" and most other letters of the alphabet, can be used to indicate that a security is not common stock, but has a special characteristic. Other examples of such characteristics and their identifiers include Class A shares ("A"), new issues ("D"), delinquent ("E"), foreign ("F"), or involved in bankruptcy proceedings, as indicated by ("Q"). I: Ownership of preferred stock comes with greater rights than ownership of common stock. Preferred shareholders receive fixed dividends and are paid dividends before common shareholders. Preferred shareholders also have priority in being repaid, in the event that a company liquidates. However, bondholders have priority over preferred stockholders, and preferred stock dividends can be withheld at the company's discretion.

Past Due Balance Method

A system for calculating interest charges based on any outstanding loan or credit charges that remain unpaid after a certain date. The past due balance method is used by credit companies whereby credit card holders have until a specified date to pay balances off before beginning to accrue interest fees. For example, if a credit card holder uses their card for daily purchases, the credit card company will offer a grace period during which no interest accrues. If balances are paid by this date, no interest accrues; if balances or a portion of the balance is not paid by this date, interest will begin to accrue. I: Credit card companies use the past due balance method because it would be impractical to use a credit card and pay interest immediately on purchases. This method allows balances to remain unpaid until a specified due date, after which the balance would start to accrue interest. Balances on credit cards typically become due once each month and after this date the balance becomes past due, thus the past due balance method.

CAN SLIM

A system for selecting stocks created by Investor's Business Daily founder William J. O'Neil. Each letter in the acronym stands for a key factor to look for in a company. Also referred to as "C-A-N-S-L-I-M" or "CANSLIM". I: The seven-part criteria is as follows: C - Current quarterly earnings per share has increased sharply from the same quarters' earnings reported in the prior year. (Beware of items in financial statements that can cause earnings distortions.) A - Annual earnings increases over the last five years. N - New products, management, and other new events. In addition, the company's stock has reached new highs. S - Small supply and large demand for a stock creates excess demand, and an environment in which stock prices can soar. Companies acquiring their own stock reduces market supply and can indicate their expectation of future profitability. Look for low debt-equity ratios. L - Choose leaders over laggard stocks within the same industry. Use the relative strength index as a guide. I - Pick stocks who have institutional sponsorship by a few institutions with recent above average performance. Be cautious of stocks that are over owned by institutions. M - Determining market direction by reviewing market averages daily.

Knowledge Economy

A system of consumption and production that is based on intellectual capital. The knowledge economy commonly makes up a large share of all economic activity in developed countries. In a knowledge economy, a significant part of a company's value may consist of intangible assets, such as the value of its workers' knowledge (intellectual capital). However, generally accepted accounting principles do not allow companies to include these assets on balance sheets. I: Lesser-developed countries tend to have agriculture or agriculture and manufacturing-based economies, while developing countries tend to have manufacturing or manufacturing and service-based economies, and developed countries tend to have service-based economies. Most countries' economies will consist of each of these three major categories of economic activity, but in differing proportions relative to the wealth of that country. Examples of knowledge economy activities include research, technical support and consulting.

Federal Employee Retirement System - FERS

A system that became effective in 1987 and replaced the Civil Service Retirement System (CSRS) as the primary retirement plan for U.S. federal civilian employees. Retirement benefits under FERS are accumulated in three ways: a) through Social Security benefits, b) through a basic benefit plan for which the employee is charged a nominal amount and c) through a Thrift Savings Plan (TSP), which comprises automatic government contributions, voluntary employee contributions and matching government contributions. I: Retirement benefits under FERS are structured as annuities. Eligibility and payment amounts are based on age, years of service and contributions to the plan. Although less generous than CSRS was, FERS is more generous than many corporate plans. Federal employees hired after 1983 are automatically covered by FERS, rather than CSRS.

Day-Count Convention

A system used to determine the number of days between two coupon dates, which is important in calculating accrued interest and present value when the next coupon payment is less than a full coupon period away. Each bond market has its own day-count convention. I: There are several different types of day-count conventions. For example, a 30/360 day-count convention assumes there are 30 days in a month and 360 days in a year. An actual/actual day-count convention uses the actual number of days in the month and year for a given interest period. This concept might sound illogical. After all, regardless of the particular bond market there will always be 365 days in a year! Nevertheless, these conventions are standards that have developed over time and help to ensure that everybody is on an even playing field when a bond is sold between coupon dates.

Sandbag

A tactic used to hide or limit expectations of a company's or individual's strength in order to produce greater than anticipated results. Sandbagging, in business, is most often seen when company managers temper the expectations of superiors or shareholders by giving guidance below what they know will be achieved. Once the better than expected results are presented, the firm looks all the better. I: Let's imagine for example that Orange Inc had gained a reputation in the late 2000s for sandbagging quarterly expectations leading up to earnings season. Analysts and pundits alike would be confident that quarterly numbers would be strong. However, when results were released they would be markedly higher than most expected, thus leading to a surge in share value, which may be a more favorable outcome in terms of press coverage.

Fat Man Strategy

A takeover defense tactic that involves the acquisition of a business or assets by a target company. The strategy is based on the premise that the bulked-up company - the "fat man" - would have reduced appeal to a hostile bidder, especially if the acquisition increases the acquirer's debt load or decreases available cash. I: This is a type of "kamikaze" defense tactic, which inflicts potentially irreversible damage on a company to prevent it from falling into hostile hands. However, it involves adding assets rather than divesting them as is the case with other kamikaze defense strategies. A disadvantage of this tactic is that acquisition candidates need to be identified well in advance of a hostile bid, otherwise there may be insufficient time to complete a fat man transaction.

Sale Of Crown Jewels

A takeover-defense tactic that involves the sale of the target company's prized and most coveted assets - the "crown jewels" - so as to reduce its attractiveness to the hostile bidder. The sale of a company's best assets will leave it as a mere shadow of its former self. This is a type of "kamikaze" defense tactic, which inflicts potentially irreversible damage on a company to prevent it from being acquired by a hostile party. I: This tactic is sometimes used by conglomerates, which often attract hostile bidders because they can trade at a price below their break-up value due to the "conglomerate discount." A potential pitfall of this tactic is that a quick sale of prized assets may fetch a price far below what they are actually worth.

Hard Asset

A tangible and physical item or object of worth that is owned by an individual or a corporation. In currency transactions, hard assets are synonymous with currencies that the public generally has faith in, such as the U.S. dollar or the euro. A hard asset is the opposite of an intangible item such as goodwill or a patent. I: Hard assets often refer to items such as buildings, cash or other fungible assets. Hard assets are considered particularly valuable because they can be used to produce or purchase other goods or services. When analysts calculate a company's intrinsic value, a portion of this underlying value is derived from the value of its hard assets.

Import Duty

A tax collected on imports and some exports by the customs authorities of a country. This tax is used to raise state revenue. It is based on the value of goods called ad valorem duty or the weight, dimensions, or other criteria of the item such as its size. Also referred to as customs duty, tariff, import tax and import tariff. I: In the United States, duty rates are established by Congress. The rates for imports are listed in the Harmonized Tariff Schedule (HTS) which is published by the International Trade Commission (ITC). Different rates are applied depending on the countries' trade relations status with the United States. The general rate is for countries that have normal trade relations status with the United States. The special rate is for countries that are not developed and/or are eligible for an international trade program.

Earned Income Credit - EIC

A tax credit in the United States which benefits certain taxpayers who have low incomes from work in a particular tax year. The earned income credit (EIC) reduces the amount of tax owed on a dollar-for-dollar basis, and may result in a refund to the taxpayer if the amount of the credit is greater than the amount of tax owed. I: In order to qualify for the EIC, taxpayers must have earned income from work which is less than certain income limits and also meet a series of eligibility requirements. The eligibility requirements include: the taxpayer must have a qualifying child, or if the taxpayer does not have a qualifying child, the taxpayer must be between the ages of 25 and 65, live in the U.S. for more than half of the year and not qualify as a dependent of another person.

Keogh Plan

A tax deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes. A Keogh plan can be set up as either a defined-benefit or defined-contribution plan, although most plans are defined contribution. Contributions are generally tax deductible up to 25% of annual income with a limit of $47,000 (as of 2007). Keogh plan types include money-purchase plans (used by high-income earners), defined-benefit plans (which have high annual minimums) and profit-sharing plans (which offer annual flexibility based on profits).Also known as an HR(10) plan, Keogh plans can invest in the same set of securities as 401(k)s and IRAs, including stocks, bonds, certificates of deposit and annuities. I: Keogh plans were established through legislation by Congress in 1962 and were spearheaded by Eugene Keogh. As with other qualified retirement accounts, funds can be accessed as early as 59.5 and withdrawals must begin by age 70.5. Keoghs are known to have more administrative burdens and higher upkeep costs than Simplified Employee Pension (SEP) plans, but the contribution limits are higher, making Keoghs a popular option for many business owners and proprietors.

Generation-Skipping Transfer Tax - GSTT

A tax incurred when there is a transfer of property by gift or inheritance to a beneficiary who is more than 37.5 years younger than the donor. Generation-skipping transfer taxes serve the purpose of ensuring that taxes are paid when assets are placed in a trust, and the person receives amounts in excess of the generation-skipping estate tax credit. I: GSTT commonly occurs with a transfer to grandchildren. However, most people will hardly incur this tax as the GSTT exemption has for the past few years ranged between $3.5 million to $5 million. Additionally, transferors can create dynasty trusts which are completely released from paying the GSTT.

Federal Income Tax

A tax levied by the United States Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts and other legal entities. Federal income taxes are applied on all forms of earnings that make up a taxpayer's taxable income, such as employment earnings or capital gains. I: It is important to distinguish between the general notion of income tax and federal income tax. In the United States, governments at the state level may also levy income taxes in addition to federal income taxes. Not all states have implemented state level income taxes. For example, the states of Texas and Florida are just two of the handful of states in which federal income taxes are the only income taxes that are levied.

Land Value Tax - LVT

A tax on the value of a piece of land. Land value tax inherently makes up a portion of all real estate property tax; however, land value tax takes only the fair value of the land into account. The taxation of land is very straightforward, requiring only a valuation of the land. I: Some argue that land value tax is the best tax in terms of economic efficiency. Since the availability of land is inelastic, the value of land is therefore determined by the rules of supply and demand. Land value taxes are implemented in numerous countries around the world, including the United States, namely in Pennsylvania.

Offshore Portfolio Investment Strategy - OPIS

A tax shelter product designed to create large, seemingly real losses to be used for tax sheltering. This tax shelter involves creating a shell company, which enters into a long chain of sophisticated and complex financial investments. These investments usually create fake accounting losses that are more than 100 times larger than the real financial loss. Ultimately, these large losses are then used to offset legitimate capital gains, allowing the tax shelter's creators to pay less tax. I: OPIS represents only one of the many unethical tax shelter products that were used in the late 1990s. As these abusive strategies became more and more popular, the IRS started to perform audits on those using this strategy in order to dissuade its use. By the time the IRS took action, millions, if not billions, of tax dollars were being defrauded. For example, one OPIS user spent about $550,000 to create a fake accounting loss of $60 million. Although the use of OPIS was eventually stopped, other unethical tax sheltering strategies, such as bond linked issue premium structures (BLIPS), emerged to take its place.

Qualified Trust

A tax-advantaged fiduciary relationship between an employer and an employee in the form of a stock bonus, pension, or profit-sharing plan in which the underlying beneficiary may use his or her life expectancy to determine required minimum distribution amounts. Section 401(a) of the Internal Revenue Code authorizes and sets forth the requirements for a qualified trust. I: To be qualified, a trust must be valid under state law, must be irrevocable (or become irrevocable when the retirement account holder dies) and must have identifiable beneficiaries. Furthermore, the IRA trustee, custodian or plan administrator must be provided with a copy of the trust instrument. If a qualified trust is not structured correctly, disbursements will be taxable.

Real Estate Investment Trust - REIT

A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents. Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages. I: Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market. Need more details on the REIT? Read The REIT Way and Add Some Real Estate to Your Portfolio.

Callable Security

A security with an embedded call provision that allows the issuer to repurchase or redeem the security by a specified date. Since the holder of a callable security is exposed to the risk of the security being repurchased, the callable security is generally less expensive than comparable securities that do not have a call provision. I: The conditions of the call provision are established at the time the security is issued. Callable securities are commonly found in the fixed-income markets and allow the issuer to protect itself from overpaying for debt. For example, a bond issuer may choose to redeem a certain issue when the current market rate falls below the coupon rate of the bond by a set amount. This allows the issuer to reissue the bonds at a lower rate and avoid paying a higher interest rate.

James H. Clark

A serial and successful entrepreneur perhaps best known for co-founding Netscape in 1994 along with Marc Andreessen. Netscape Navigator became the market leader in internet browsers, but because it was not free to use, it lost market share to competitor Internet Explorer and was purchased by AOL in 1998. Clark's other ventures include founding Silicon Graphics, a company that produced visual effects for film and 3-D images for engineers and counted George Lucas and Steven Spielberg among its customers; founding Healtheon, which merged with WebMD; and being the original investor and chairman of digital photo website Shutterfly, founded in 1999. I: Born in Texas in 1944, Clark went into the Navy after dropping out of high school. He later returned to formal education, eventually earning a Ph.D. in computer science from the University of Utah. Clark is also a former associate professor of electrical engineering at Stanford University and major benefactor of the James H. Clark Center, home of the Bio-X bioscience research program, at Stanford.

Key Performance Indicators - KPI

A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals. KPIs vary between companies and industries, depending on their priorities or performance criteria. Also referred to as "key success indicators (KSI)". I: A company must establish its strategic and operational goals and then choose the KPIs which best reflect those goals. For example, if a software company's goal is to have the fastest growth in its industry, its main performance indicator may be the measure of revenue growth year-on-year. A company's KPIs will be stated in its annual report. Also, KPIs will often be industry-wide standards, like "same store sales", in the retail sector.

Qualifying Ratios

A set of ratios that are used by lenders to approve borrowers for a mortgage. The borrower's front-end ratio, which is the total housing expense compared to the borrower's gross monthly income, is compared to the borrower's back-end ratio, which comprises of the total housing expense and other consumer debt compared to the borrower's gross monthly income. The front-end ratio is generally limited to a maximum of 28% and the back-end ratio is generally limited to 35%. However, both ratios change with market conditions and may be influenced by other risk factors (such as the loan-to-value ratio of the mortgage). I: Qualifying ratios can vary from lender to lender, from loan program to loan program or from changing market conditions. If one or both of the qualifying ratios exceed the maximum, loan underwriters might look for "compensating factors" such as a high FICO score and/or a low loan-to-value ratio to offset the risk of high qualifying ratios in order to approve and underwrite a mortgage.

Natural Law

A set of rules inherent in human behavior and human reasoning that governs human conduct. Natural law is preexisting and is not created in courts by judges. Philosophers and theologians throughout history have differed in their interpretations of natural law, but in theory, natural law should be the same throughout time and across the world because it is based on human nature, not on culture or customs. An example of natural law, as interpreted by Thomas Hobbes, is that judges should be impartial. Other major philosophers of natural law include Aristotle, Thomas Aquinas and Lysander Spooner. I: The opposite of natural law is "positive law" or "man-made law." Positive law may be based on natural law, but not the other way around. Positive or man-made laws include laws such as the speed at which individuals may drive on the highway and the age at which individuals may legally purchase and consume alcohol. While natural law typically applies to philosophy, it is also extensively used in theoretical economics.

Passive Activity Loss Rules

A set of rules that prohibits using passive losses to offset earned or ordinary income. Passive activity loss rules prevent investors from using losses incurred from income-producing activities in which they are not materially involved.Being materially involved with earned or ordinary income-producing activities means the income is active income and may not be reduced by passive losses. Passive losses can be used only to offset passive income. I: The key issue with passive activity loss rules is material participation. If the taxpayer does not materially participate in the activity that is producing the passive losses, then those losses can only be declared against passive income. If there is no passive income, then no loss can be deducted. Passive activity losses can only be carried forward; they cannot be carried back.

Generally Accepted Auditing Standards - GAAS

A set of systematic guidelines used by auditors when conducting audits on companies' finances, ensuring the accuracy, consistency and verifiability of auditors' actions and reports. I: By relying on GAAS, auditors can minimize the probability of missing material information. GAAS are divided into these main sections: 1) General standards 2) Standards of fieldwork3) Standards of reporting Each section is littered with requirements that the auditor and the subject company must meet. In short, an auditor must adequately plan the audit in advance, be independent of the client at all times, and always obtain reliable evidence. The companies must present their financial statements in accordance with GAAP, remain consistent in their reporting, and explicitly disclose all pertinent information.

H-Shares

A share of a company incorporated in the Chinese mainland that is listed on the Hong Kong Stock Exchange or other foreign exchange. H-shares are still regulated by Chinese law, but they are denominated in Hong Kong dollars and trade the same as other equities on the Honk Kong exchange. H-shares on the exchange are automatically included in the Hang Seng China Enterprise Index, provided that they maintain the Hong Kong exchange regulatory requirements. I: H-shares are available for more than 90 Chinese companies, giving investors at least some access to most of the major economic sectors such as financials, industrials and utilities. In 2007, the Chinese government decided to allow mainland investors to invest in the Hong Kong exchange, which greatly increased the demand for H-shares, as mainland investors were previously forbidden from investing in the exchange. China still offers A-shares in many of the same companies, but only mainland residents can invest in them.

Offshore Banking Unit - OBU

A shell branch located in an international financial center. Offshore banking units (OBUs) make loans in the Eurocurrency market when they accept deposits from foreign banks and other OBUs. OBUs' activities are not restricted by local monetary authorities or governments, but they are prohibited from accepting domestic deposits. I: OBUs have proliferated across the globe since the 1970s. They are found throughout Europe, as well as in the Middle East, Asia and the Caribbean. U.S. OBUs are concentrated in the Bahamas, the Cayman Islands, Hong Kong, Panama and Singapore.

Ramp Up

A significant increase in the level of output of a company's products or services. A ramp up typically occurs in anticipation of an imminent increase in demand. While it is generally a feature of smaller companies at an early stage of development, a ramp up can also be undertaken by large companies that are rolling out new products or expanding in new geographies. I: A ramp up entails substantial outlays of capital expenditures and human resource expenses. For this reason, a company will generally only consider a ramp up once it has a reasonable degree of certainty about additional demand. Otherwise, if the anticipated demand does not materialize or is below projected levels, the company will be saddled with excess inventory and surplus capacity.

Hedgelet

A simplified derivative instrument that allows investors to hedge or speculate on economic events such as housing prices, commodity prices, interest rates, currencies and economic indicators. The price for a hedgelet contract is based on the prevailing market price determined by participants in the market. Every contract has the same defined payout scheme: $10 for a correct contract and $0 for an incorrect one. Each hedgelet contract is set so that investors must make a decision on whether an economic event will occur or not occur. I: For example, on a "Crude Oil > $64" contract an investor can either choose Yes (oil will be more than $64 at expiration) or No (oil will be less than $64 at expiration). If the investor purchases one Yes "Crude Oil > $64" contract for $2, and crude oil ends at $80 when the contract expires, the investor will receive $10 - an $8 profit. However, if the price of crude oil ends at less than $64, the contract will be worthless and the investor will lose the initial $2 investment.

1040A Form

A simplified version of the 1040 form for individual income tax. To be eligible to use a 1040A form, an individual must fulfill certain requirements such as not itemizing deductions, not owning a business and having a taxable income of less than $100,000. Unofficially known as the "short form". I: While the form can be slightly more complex compared to the "1040EZ", it is still relatively simple in comparison to the 1040. Once an individual's financial situation becomes complicated with dependents, special deductions and credits (such as those associated with post secondary education tuition), most taxpayers will often need to switch from filing with the 1040EZ to the 1040A.

Rainbow Option

A single option linked to two or more underlying assets. In order for the option to pay off, all the underlying assets must move in the intended direction. I: The underlying securities can have different characteristics, such as expiry date and strike price, but all must move in the way the option holder has bet they will. Here's a sports-betting analogy that demonstrates a rainbow option: suppose you're at a baseball tournament with three fields backing one another. One game is halfway through, a second is just starting and a third starts in an hour. A type of bet that's analogous to a rainbow option is one that earns you a profit if you pick all three winners, but gets you nothing if any one team you pick is a loser.

Balanced Budget

A situation in financial planning or the budgeting process where total revenues are equal to or greater than total expenses. A budget can be considered balanced in hindsight, after a full year's worth of revenues and expenses have been incurred and recorded; a company's operating budget for an upcoming year can also be called balanced based on predictions or estimates. I: The phrase "balanced budget" is commonly used in reference to official government budgets. For example, governments may issue a press release stating that they have a balanced budget for the upcoming fiscal year, or politicians may campaign on a promise to balance the budget once in office.It is important to understand that the phrase "balanced budget" can refer to either a situation where revenues equal expenses or where revenues exceed expenses, but not where expenses exceed revenues.

Bailout

A situation in which a business, individual or government offers money to a failing business in order to prevent the consequences that arise from a business's downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may or may not require reimbursement. I: Bailouts have traditionally occurred in industries or businesses that may be perceived as no longer being viable, or are just sustaining huge losses. Typically, these companies employ a large number of people, leading some people to believe that the economy would be unable to sustain such a huge jump in unemployment if the business folded. For example, Chrysler, a large U.S. automaker was in need of a bailout in the early 1980s. The U.S. government stepped in and offered roughly $1.2 billion to the failing company. Chrysler was able to pay the entire bailout back, and is currently a profitable firm. One of the biggest bailouts is the one proposed by the U.S. government in 2008 that will see $700 billion put toward bailing out various financial organizations and those affected by the credit crisis.

Leakage

A situation in which capital, or income, exits an economy, or system, rather than remains within it. In economics, leakage refers to outflow from a circular flow of income model. In a two sector model, all individual income is sent back to employers when goods and services are purchased, and back to employees through wages and dividends. Leakage occurs when income is taken out through taxes, savings and imports. In retail, leakage refers to consumers who spend money outside of the local market. Leakage may also refer to the release of private information prior to it being released to the public. I: The exit of money from the economy through leakage results in a gap between what is supplied and what is demanded. If consumers spend their income outside of their community or country, then businesses must look elsewhere to make up for the loss of funds. In Keynesian economics, governments may have to inject cash into the system if leakage causes a shortage of capital.

Imbalance of Orders

A situation when too many orders of a particular type - either buy, sell or limit - for listed securities and not enough of the other, matching orders are received by an exchange. Also referred to as "order imbalance". I: Shares experiencing an imbalance of orders may be temporarily halted if trading has already commenced for the day. If it occurs prior to market open, trading may be delayed. Better-than-expected earnings or other unexpected good news can result in a surge in buy orders in relation to sell orders. Likewise, unexpected negative news can bring a large sell-off.

Jingle Mail

A situation where a homeowner mails his or her house keys to a mortgage lender due to an inability to meet mortgage payment obligations and a lack of equity in the property. If a homeowner is upside-down in a mortgage and feels the entire loan is a lost cause, he or she may choose to walk away from the property altogether and relinquish it to the original lender instead of going though the foreclosure process. I: If a homeowner has difficulty making mortgage payments and is limited in his or her ability to refinance the mortgage - especially if there is no equity in the home or the value of the home has fallen in the market to less than the value of the outstanding loan - there is often little an owner can do but foreclose. This usually occurs when a weak housing market occurs during economic weakness in which job losses increase and salaries stagnate or fall. This term was first used to describe the surprise mailings that mortgage lenders received following the savings and loan debacle of 1990-1991. This term resurfaced during the housing and subprime mortgage collapse, which began in 2006.

Rate Trigger

A sizeable decline in interest rates that may trigger or cause companies to call in bonds that otherwise pay high coupon or interest rates. Because these bonds are being called before their initial expiration date, theoretically, bondholders can expect to receive a premium or additional sum for their securities. I: As an example, if a company that issues bonds containing a coupon or interest rate of 12% was to see the prevailing interest rate to drop to 7%, it may exercise its option to "call", or buy back these bonds from the debt holders, enabling the company to borrow money at a much lower rate than when the security was first issued. The company, however, must pay bondholders a premium, or an additional amount over and above the bond's par value in order to repurchase the debt. The fluctuation in interest rates acted as the trigger for such an action.

Falling Knife

A slang phrase for a security or industry in which the current price or value has dropped significantly in a short period of time. A falling knife security can rebound, or it can lose all of its value, such as in the case of company bankruptcy where equity shares become worthless. A falling knife situation can occur because of actual business results (such as a big drop in net earnings) or because of increasingly negative investor sentiment. I: As the phrase suggests, buying into a market with a lot of downward momentum can be quite dangerous. If timed perfectly, a buy at the bottom of a long downtrend can be rewarding - both financially and emotionally - but the risks run extremely high. This term implies that the investment will never be a good one again. Examples of stocks that have plummeted are plentiful; a widely-held stock can drop precipitously as the equity ownership is reduced to nothing.

Taking The Street

A slang phrase referring to the hedge fund tactic of buying large amounts of a particular stock from banks and brokers in an effort to clean out these institutions' inventory in a short period of time. I: Traders will do this knowing that these institutions, being market makers, will have to replenish their inventories by buying stock on the open market, which usually drives up the price of the stock. Once the price has increased, the traders will sell the stocks at a gain, often back to the same banks and brokers from whom the stocks were originally bought.

Take A Report

A slang phrase signifying that an individual's trade order has been executed. "Take a report" is also trader slang for "get out of my face" or "you're done". I: The "take a report" phrase became popular in 2007 when former Citibank executive Michael J. McCarthy penned an edgy blog by the same name, which he published under the pseudonym "Large".

Death Valley Curve

A slang phrase used in venture capital to refer to the period of time from when a startup firm receives an initial capital contribution to when it begins generating revenues. During the death valley curve, additional financing is usually scarce, leaving the firm vulnerable to cash flow requirements. I: The name "death valley" refers to the high probability that a startup firm will die off before a steady stream of revenues is established. After a firm receives its first round of financing, it incurs a lot of initial costs. Offices are usually built, staff is hired and operating costs are incurred; meanwhile, the firm is not earning significant income. Unless a firm can effectively manage itself through the death valley curve, it will fall victim to negative cash flows.

In Play

A slang phrase used to describe a firm who has become a potential takeover target or has put itself up for sale. Once a bid is made, a company is put "in play" and will often attract additional bidders. I: When a firm becomes a potential takeover target, its share price will typically increase on the expectations of being bought out. For example, in the late 1980s, management at RJR Nabisco felt the share price was unjustifiably low, so it made a bid to take the company private. This bid put the company in play, soliciting numerous other bids, sending RJR Nabisco's share price through the roof.

Jennifer Lopez - J.Lo

A slang technical analysis term referring to a rounding bottom in a stock's price pattern. This term got its name from Jennifer Lopez's curvy figure; she is often criticized (or praised) for her round bottom. I: Traders like the rounding bottom in a stock pattern because it can be an indication of a positive market reversal, meaning expectations are gradually shifting from bearish to bullish.

Takeout

A slang term denoting the purchase of a company through an acquisition, merger or other form of buyout. A takeout can refer to a hostile takeover, a friendly merger, or a leveraged or management buyout. I: A company is said to be "in play" if it is likely to be acquired in the future, or currently has bids from purchasers. A takeout refers to the company being taken out of play, which occurs when the acquisition has been finalized.

Sawbuck

A slang term for a U.S. $10 bill. Sawbuck refers to a rack used for holding wood for sawing that has a shape similar to the letter X. The U.S. Treasury initially used Roman numerals on its banknotes, and ten is represented by X in Latin. This term became popular in the 19th century. I: The use of sawbuck as a type of slang has declined over the years, partially as Roman numerals have become less commonly-used on currencies and because fewer people are familiar with carpentry's use of sawbucks. Roman numerals appeared on U.S. currency before the creation of the Federal Reserve.

In The Tank

A slang term referring to very poor performance, as in that of a security, sector or market. A security, sector or market can be considered "in the tank" once it has performed very poorly or well below expectations. A security, sector or market is said to "be tanking" while it is on its way down. An investor might say his investments are in the tank, meaning they are not doing well. Likewise, an investor could refer to her investments as tanking when the positions are deteriorating. I: In the tank refers to investments or markets that have had a significant and often sudden decline or failure, as in "My stock portfolio is in the tank." Tanking refers to something that is currently doing poorly, as in "My 401(k) is tanking."

Back Of The Napkin Business Model

A slang term that refers to the representation of the basic components of a business model excluding any fine details. It incorporates only the core ideas and success factors of the business. The name comes from the notion that a quick outline of a business can be easily sketched on the back of a napkin to sufficiently demonstrate its fundamental concepts. I: The slang term comes from a hypothetical scenario in which an entrepreneur pitches an idea to a potential investor over coffee, dinner or a drink. The entrepreneur quickly sketches the business model on the back of a napkin to demonstrate the feasibility of the business. This type of business model should probably only be used as part of the initial stages of planning. A final business model should be drafted for clarity and color, including complete details on all operations as well as the short-term and long-term visions of the business. Without a clear understanding of how a business will operate and bring in sustainable revenues, the probability of building a successful company is low.

Bagel Land

A slang term that represents a stock or other security that is approaching $0 in price. Arriving in bagel land is usually the result of one or more major business problems that may not be resolvable. This term is typically used to describe an asset that has fallen from grace as opposed to a penny stock or other historically cheap security. I: If a stock or other asset is headed toward bagel land or is approaching $0 (resembling the hole in the middle of a bagel), investors generally feel that the security is nearly worthless. In such cases, a company may be nearing bankruptcy or facing major solvency issues. While returning from bagel land is possible, the likelihood that equity investors will lose their entire stakes in the company becomes very high.

Fat Cat

A slang word used to describe executives who earn what many believe to be unreasonably high salaries and bonuses. These top executives also receive generous pensions and retirement packages, consisting of extra compensation not available to other company employees. I: This term conjures up the image of cats that consume more than an appropriate amount of food and become grossly overweight. Publicly-traded companies are required to disclose the amount of compensation that their top five executives receive. As a result, companies have been under a lot of scrutiny for excessive executive compensation, especially in the face of floundering revenues.A real-life example of a fat cat would be former Disney CEO, Michael Eisner. For a period of five years in the late 1990s, Eisner received over $737 million in compensation, despite the fact that the company's five-year net income shrank an average of 3.1% each year.

Narrow Moat

A slight competitive advantage that one company enjoys over competing firms operating in the same or similar type of industry. A narrow moat is still an advantage for a company, but it is one that only provides a limited amount of economic benefit and will typically last for only a relatively short period of time before competition marginalizes its importance. I: The phrase "economic moat" was coined by legendary investor Warren Buffett. This phrase has since been refined to differentiate between "wide moats" and "narrow moats". Wide economic moats offer substantial economic benefits and are expected to endure for a prolonged period of time, while narrow moats offer more modest economic benefits and typically last for a shorter period of time.

Official Committee Of Equity Security Holders

A small group of the largest shareholders in a company formed to represent all other shareholders during a company's bankruptcy trials. An official committee of equity security holders is typically made up of several of the largest shareholders of a company who stand to have the most to gain or lose during the bankruptcy proceedings, thus would serve as the best proxy for the shareholders as a whole. I: During both Chapter 7 and Chapter 11 bankruptcy proceedings, an official committee of equity security holders will have a say in the direction which the bankrupt company will take to appease their stake holders. While the tactics used by the committee will differ from situation to situation, the ultimate goal for the committee members is to minimize their potential losses from their equity ownership stake in the bankrupt firm.

Satellite Operation

A small office in a different location from a company or government agency's main office. Reasons for opening a satellite operation may include reaching an underserved area, expanding market share and lifestyle/quality of life factors for employees. Satellite operations can be used in all kinds of businesses, such as doctor's offices, Department of Motor Vehicles offices, political offices and corporate offices. I: In deciding whether to establish a satellite operation, companies must consider factors such as the cost of renting and furnishing another office, the cost of hiring additional staff to work in that office, and whether existing employees will be burdened by the need to travel to and from the main office to the satellite operation.

Hacktivism

A social or political activist plan that is carried out by breaking into and wreaking havoc on a secure computer system. Hacktivism may be directed at corporate or government targets. Examples of hacktivism include denial of service attacks, which shut down a system to prevent customer access, software that enables users to access censored web pages, and the leaking of sensitive information. I: The methods hacktivists use are illegal and are a form of cybercrime. Hacktivists exploit flaws in many organizations' computer systems. Hacktivism poses a threat not only to the organizations that are attacked, but also to the consumers and citizens whose sensitive data are stored by those organizations. LulzSec and Anonymous are two well-known hacktivist groups whose activities have made headlines.

Killer Application

A software package that is novel and desirable enough to persuade a consumer to buy pricier hardware in order to run the application. The term "killer application" may be derived from the fact that such an application is perceived to be innovative enough to overcome the competition. Better known as "killer app." I: Word-processing software and spreadsheets were widely considered to be the killer apps of the 1980s, when personal computers started getting popular. Similarly, Internet browsers and webmail were the killer apps that fueled the online and dotcom boom of the 1990s. Killer apps are instrumental in driving rapid growth in sales of the platform on which they are based. While some companies that develop killer apps can enjoy substantial margins and profits for many years, this competitive advantage does not last for long for most companies in the dynamic world of technology, where short product life cycles are the norm rather than the exception.

National Fund For Hydrocarbon Reserves (Mauritania)

A sovereign wealth fund administered by the Banque Centrale de Mauritanie, the central bank of Mauritania. The National Fund for Hydrocarbon Reserves is funded by revenues that the government receives from companies extracting oil, royalties and taxes that oil companies must pay in order to operate in Mauritania, and from the profits made through the fund's investment activities. I: The National Fund for Hydrocarbon Reserves was established in 2006, and seeks to create macroeconomic stability by setting aside oil and gas revenue for developmental projects. The fund's management practices are considered less transparent than those of other sovereign wealth funds.

8(a) Firm

A special status given to a firm that is owned and operated by persons deemed to be socially or economically disadvantaged. A business considered an 8(a) Firm is eligible to receive financial assistance, training, mentoring and other forms of assistance. The status is part of a business development program administered by the Small Business Administration (SBA), a United States agency charged with supporting the growth and development of small businesses. It is specifically outlined in Section 8(a) of the Small Business Act, and is designed to help small, disadvantaged businesses compete in the general market. I: In order to increase business involvement by a broader portion of society, governments provide incentives for certain segments of the population to own a business. The SBA identifies several groups that are eligible for 8(a) status including: Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Businesses that receive contracts due to their 8(a) status are subject to annual reviews.

Kiddie Tax

A special tax law created in 1986 imposed on individuals under 17 years old whose earned income is more than an annually determined threshold. Any extra income earned above of the threshold is taxed at the guardian's rate. I: This law is designed to prevent parents from exploiting a tax loophole where their children are given large "gifts" of stock. The child would then realize any gains from the investments and be taxed at a far lower rate compared to if the parents had realized the stock's gains. Originally, the tax only covered children under 14 years of age as they cannot legally work and therefore any income was usually the results of dividends or interest from bonds. However, the tax authorities realized that some parents would take advantage of the situation by giving stock gifts to their older, 16-to-18-year-old children.As of May 2007, the government is seeking to tighten the kiddie tax to cover individuals under the age of 18 (or under the age of 24 if they are full time students). However, there are some exceptions provided for individuals that work paid jobs.

Federal Call

A special type of margin call requiring a trader to deposit sufficient cash in order to meet federal requirements on the amount of credit that brokers may extend. These margin requirements are set by Regulation T of the Code of Federal Regulations, Title 12 - Banks and Banking. Currently the margin requirements are 50% for equities. For short sales, the margin requirement is between 100% and 150% of the current market value of the security being sold short. Regulatory authorities has the power to change these margin requirements as they deem necessary. I: The purpose of Regulation T and federal calls are to moderate the amount of financial risk present in the securities markets. Since using margin amplifies both gains and losses relative to the initial investment, a broad overuse of margin has the potential to cause instability in financial markets as a whole. Since disruptions in the financial markets can interfere with the broader economy, regulators wish to have the controls necessary to promote orderly market functioning.

Accelerated Share Repurchase - ASR

A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company. The shares are returned to the client through purchases in the open market, often purchased over a period that can range from one day to several months. I: Accelerated share repurchases allow corporations to transfer the risk of the stock buyback to the investment bank in return for a premium. The corporation is therefore able to immediately transfer a predetermined amount of money to the investment bank in return for its shares of stock. ASRs are often used to buy shares back at a faster pace and reduce the amount of shares outstanding right away.

Take-Out Commitment

A specific type of mortgage purchase agreement. Under a take-out commitment, a long-term investor agrees to buy a mortgage from a mortgage banker at a specific date in the future. Take-out commitments are enforced once a project reaches a particular stage where long-term, rather than short-term, financing is the preferred alternative. I: There are a few specific types of investors that purchase take-out commitments. In most cases, these are insurance companies or other financial institutions. They are known as "take-out lenders."

Know Your Client - KYC

A standard form in the investment industry that ensures investment advisors know detailed information about their clients' risk tolerance, investment knowledge and financial position. I: KYC forms protect both clients and investment advisors. Clients are protected by having their investment advisor know what investments best suit their personal situations. Investment advisors are protected by knowing what they can and can not include in their client's portfolio.

AAAA Spot Contract

A standardized contract drawn up by the American Association of Advertising Agencies that governs the purchase of television or radio spots. The AAAA Spot Contract is generally between the advertising agency that represents the client and the television or radio station. The contract spells out all relevant details of the purchase, such as the number of spots and the duration of the advertising campaign, the date and time of airing the spots, and the cost to the advertiser. I: This type of contract is more likely to be used when the advertiser is buying spots in individual markets as opposed to buying spots on all the stations affiliated with a network in a large geographical region. While purchasing spots in individual markets is time-consuming, it is likely to be more targeted than buying spots on a network. Moreover, the standardized features of a AAAA spot contract make it easier for the parties involved to process them quickly.

Inchoate

A state of activity or entitlement that is characterized by partial completion of an intended outcome or status.The notion of inchoate comes into play most often in a legal sense, as it could refer to an inchoate transaction between two parties, where the tentative terms of an agreement have been discussed and it's plausible that the deal will go through, but no formal agreement has yet been signed. I: The notion of inchoate rights or actions is an important distinction to make in certain situations. For example, an individual may have inchoate title to real estate owned by his or her parents, meaning that he or she will have clear title to the property once the parents pass away.When applying for a bank loan, it would be critical for the bank manager to understand that the individual only had inchoate title to the property, not full title. Thus, if the bank manager issued a loan to the individual under the unclarified assumption that the bank could foreclose on the properties if the loan went into default, he or she would be in for an unpleasant surprise. This is because the individual would not actually have clear title to the properties, so the bank would have no claim against them.

Oman Investment Fund

A state-owned investment fund established in 2006 by the Sultan. Oman Investment Fund's (OIF) stated goals as a sovereign wealth fund are to enhance the country's economic development by investing globally in real estate and in public and private equity. Some of OIF's largest investments include Ireland's Jurys Inns Hotels, the United Arab Emirates' Dubai Mercantile Exchange, and India's Quippo Infrastructure Equipment, Nimbus Communications and Housing Development Finance Corporation. I: Although its economy is heavily dependent on oil, its declining reserves are forcing it to diversify. It is a member of the Gulf Co-Operation Council, a political, economic, social and regional organization of six Persian Gulf member countries: Bahrain, Qatar, Kuwait, Oman, Saudi Arabia and the United Arab Emirates.

K-Percent Rule

A theory of macroeconomic money-supply growth first postulated by Nobel Prize-winning economist Milton Friedman. The theory states that the best way to control inflation over the long term is to have central banking authorities automatically grow the money supply by a set amount (the "k" variable) each year, regardless of the cyclical state of the economy. The k-percent rule proposes to set the growth variable at a rate equal to the growth of real GDP each year. This would typically be in the range of 2-4%, based on averages seen in the United States. I: Milton Friedman is the godfather of monetarism, a branch of economics that singles out monetary growth and related policies as the most important driver of future inflation. While the U.S. Federal Reserve Board is well-versed on the k-percent rule's merits, in practice most advanced economies do in fact base their monetary growth decisions on the state of the broad economy. When the economy is cyclically weak, the Federal Reserve and others may look to grow the money supply by more than what the k-percent rule would suggest. Conversely, when the economy is performing well, most central banking authorities will seek to constrain money-supply growth.

January Barometer

A theory stating that the movement of the S&P 500 during the month of January sets the stock market's direction for the year (as measured by the S&P 500). The January Barometer states that if the S&P 500 was up at the end of January compared to the beginning of the month, proponents would expect the stock market to rise during the rest of the year. I: If an investor believes in the ability of the January Barometer to predict the equity market's performance, he or she will only invest in the market in the years when the barometer predicts the market will rise, and stay out of the market when it forecasts a market pullback.While the January Barometer has been seen to produce better than 50% accuracy rates during 20-year periods, it is difficult to produce excess returns by using it because the improved performance by staying out of the market during bad times can be more than offset by larger losses incurred when the barometer incorrectly predicts a bull market.

Radner Equilibrium

A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then even in the face of uncertainty about the economic environment, an optimal allocation of resources based on competitive equilibrium can be achieved. Radner Equilibrium was introduced by American economist Roy Radner in 1968, and explores the condition of competitive equilibrium under uncertainty. I: The theory also states that in such a world there would be no role for money and liquidity. And the introduction of information (such as the introduction of spot markets and futures markets) about the behavior of other decision makers introduces externalities among the sets of actions available to them. This generates a demand for liquidity, which also arises from computational limitations. The theory notes that uncertainty about the environment greatly complicates a decision problem, thereby indirectly contributing to the demand for liquidity.

Eclectic Paradigm

A theory that provides a three-tiered framework for a company to follow when determining if it is beneficial to pursue direct foreign investment. The eclectic theory paradigm is based on the assumption that institutions will avoid transactions in the open market when internal transactions carry lower costs. I: In order for a direct investment in a foreign country to be beneficial, the following advantages must be present: 1. Product or company specific advantages, such as a comparative advantage. 2. Location specific advantages - where the company derives greater benefit through a foreign establishment. 3. Market internalization - meaning, it is better for the company to exploit a foreign opportunity itself, rather than through an agreement with a foreign firm.

Quarter - Q1, Q2, Q3, Q4

A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends. A quarter refers to one-fourth of a year and is typically expressed as "Q." The four quarters that make up the year are: January, February and March (Q1); April, May and June (Q2); July, August and September (Q3); and October, November and December (Q4). A quarter is often shown with its relevant year, as in Q1 2012 or Q1/12, which represents the first quarter of the year 2012. I: All public companies in the United States must file quarterly reports (known as 10-Qs) with the U.S. Securities and Exchange Commission (SEC). Each 10-Q contains the public company's unaudited financial statements and company operations information for the previous three months (quarter). 10-Qs are required for the first three quarters of the year. Each publicly traded company must also file an annual report, known as a 10-K, which includes all of the quarters. Companies, investors and analysts use data from different quarters to make comparisons and evaluate trends. For instance, a retailer may compare this year's Q2 sales over last year's Q2 sales, or an analyst may evaluate a firm's earnings by reviewing data from the same quarter over several years.

Deal Ticket

A ticket that records all the terms, conditions and basic information of a trade agreement. A deal ticket is created after the transaction of shares, futures contracts or other derivatives. Also referred to as a "trading ticket". I: A deal ticket is similar to a trading receipt. It tracks the price, volume, names and dates of a transaction, along with all other important information. Companies use deal tickets as part of an internal control system, allowing them organized access to the transaction history. Deal tickets can kept be in either electronic or physical form.

Quarter To Date - QTD

A time interval that captures all relevant company activity that occurred between the beginning of the current quarter and the time in which the data was gathered. Quarter to date information is typically gathered in situations when the entire quarterly period has not ended yet, and it can allow management to see how the quarter is shaping up. I: For example, a company may have software that is tracking its revenue for the quarter to date. If the information is suggesting that QTD revenue is dramatically lower than the same quarter from last year, this updated data will allow management to start looking for trends to see what is different compared to last year. Further analysis can also determine if any changes will need to be made in order to improve the situation.

Oil Field

A tract of land used for extracting petroleum, or crude oil, from the ground. Although the exact origin of oil is still contested, most consider petroleum a "fossil" fuel, created from dead organic material often found in ancient seabeds thousands of meters below the surface of the earth. There are more than 40,000 oil fields around the world, many of the largest of which are found in the Middle East. I: While tens of thousands of oil fields have been discovered, less than than 10% of them have had a significant impact on worldwide crude oil supply. Ghawar Field in Saudi Arabia, which started production in 1951, is by far the largest oil field uncovered so far, having yielded about 60 billion barrels of "black gold" through 2005.

Canadian Association Of Petroleum Producers - CAPP

A trade organization whose members operate petroleum and natural gas interests in Canada. The Canadian Association of Petroleum Producers lobbies the Canadian government on issues relating to the environment, regulations and production and exploitation of oil and gas fields. The members of CAPP control 90% of the petroleum production in Canada. I: Canadian Association of Petroleum Producers was formed from the combination of several different organizations, including the Canadian Petroleum Association (CPA), The Alberta Oil Operators' Association and the Independent Petroleum Association of Canada (IPAC). While it traces its origin to 1927, its present form was created in 1992.

Jerome Kerviel

A trader for French securities firm Société Générale that was charged with losing more than $7 billion in company assets by conducting a series of unauthorized and false trades between 2006 and early 2008. When company managers discovered that Kerviel had conducted tens of billions of dollars' worth of unauthorized trades, they rushed to close out the open positions (most of which were specialized equity arbitrage trades) and contain the extent of the fraud. Several of the trades were closed out with heavy losses due to a falling market at the time of sale. I: Kerviel had several years' experience in Société's back office, and was well-versed in the company policies for approving and regulating trading among its brokers. Kerviel's losses are yet another case study in rogue trading, despite all the modern regulations and technological advances designed to prevent such things from ever happening. Kerviel was not considered a well-renowned trader by any extent; in fact, when the story broke many openly wondered how such a person could obtain the authority over such huge sums of capital without the company noticing. Kerviel hid his early gains by creating fake, offsetting trades in the system's computers and logs. He had extensive knowledge of the computers and systems used in the company, which was essential to his trading scheme.

Manual Trader

A trader who manually enters trades into a trading system without using computerized algorithms that enable automated order entry. In the frenetic world of trading, manual traders may be at a disadvantage compared to traders who use considerable computing power to exploit pricing anomalies in the markets. Also, manual traders may be more susceptible to trading on emotion compared to a trader relying strictly on a trading program. I: Entering trades or orders manually into a trading system also increases the risk of incorrect or erroneous order entry, which can be fraught with disastrous consequences if the error is large. Currency traders therefore increasingly use automated trading systems that enable them to place orders and execute trades efficiently through an application programming interface (API).

Deal Blotter

A trader's record of all the transactions executed on a given day. The deal blotter contains basic information pertinent to a transaction, with additional information included on the deal slip. The deal blotter for a forex trader would include both opening and closing currency positions initiated by the trader. I: In a forex trading firm with several traders, the sum of the positions on all the traders' deal blotters at the end of the trading day will indicate the change in the firm's net position at close. While deal blotters were paper-based before the advent of computerization, they are now increasingly computer-based, enabling traders to analyze and monitor their currency trades more rapidly and efficiently.

One To Many

A trading platform where all buyers and sellers transact with a sole market operator. Whereas a normal exchange involves the operator matching buyers with sellers, a one-to-many platform operator will purchase the assets from the sellers and sell to the buyers. All bids and offers are posted by the platform operator. I: A one-to-many market involves one group or organization transacting with multiple buyers and sellers. The Commodity Exchange Act does not recognize one-to-many markets as official trading facilities. The most infamous example of a one-to-many trading platform was Enron's EOL, an online internet trading platform. Market manipulation, false reporting and wash trading brought Enron EOL to a crashing halt.

Naked Option

A trading position where the seller of an option contract does not own any, or enough, of the underlying security to act as protection against adverse price movements. If the price of the underlying security moves against the trader, who does not already own the underlying security, he or she would be required to purchase the shares regardless of how high the price is. The potential for losses, then, can be unlimited, and as a result, brokers typically have specific rules regarding naked trading. Inexperienced traders, for example, would not be allowed to place this type of order. I: Naked trading is considered very risky since losses can be significant. An options trader could sell, for example, call options with a strike price of $10. If the stock's price rises to $20 or $30 on good news, and the option is naked (the seller does not own the underlying stock). He or she would be required to buy the specified number of shares at the current price, and sell them to the option buyer for the $10, resulting in a significant loss. Want to know more? Read Naked Options Expose You To Risk

2% Rule

A trading practice where an investor should concentrate no more than 2% of available capital on a single trade. To follow the 2% rule an investor first calculates 2% of the available trading capital, called the capital at risk. Brokerage fees for buying and selling shares are then factored into the capital at risk, and this figure is divided by the current share price. The resulting figure is the total amount of shares that can be purchased. If market conditions change and result in the trader losing the total value of that trade the downside exposure is only 2%, since the value of the original trade was limited to 2% of the total amount of trading capital available. I: The 2% rule is a restriction created by investors in order to stay within the boundaries of a trading system. For example, an investor with $100,000 will purchase no more than $2,000 - or 2% of the value of the account - of a particular investment. By knowing the upper limit that can be risked, the investor can work backwards to determine the total number of shares that can be purchased. The investor can also use stop-loss orders to limit downside risk.

Gather In The Stops

A trading strategy of driving down a stock's price by selling large amounts of stock in order to trigger preset stop-loss orders, which in turn enhances the decline of the stock. I: This strategy may seem confusing at first, but is actually rather simple. Gathering in the stops occurs when traders sell large quantities of stock with the intention of triggering stop orders. Once a set of stop prices is reached, new sell orders are activated and transacted, causing the stock price to fall once again. This effect is continuously repeated, triggering more stop orders and therefore a rapid decrease in the stock's price. Some exchanges may decide to suspend stop orders to mitigate this continuous effect.

Range-Bound Trading

A trading strategy that identifies stocks trading in channels. By finding major support and resistance levels with technical analysis, a trend trader buys stocks at the lower level of support (bottom of the channel) and sells them near resistance (top of the channel). I: The trader may repeat the process of buying at support and selling at resistance many times until the stock breaks out of the channel. The upper boundary of the channel is shown by a trendline that connects the points representing a stock's highs over a given time period. The lower boundary of the channel is identified by connecting the points representing a stock's lows. The downside of this strategy is that when a stock breaks out of the channel, it usually experiences a large price movement in the direction of the breakout. If the breakout direction is not favorable for the trader's position, he or she could lose badly.

Darvas Box Theory

A trading strategy that was developed in 1956 by former ballroom dancer Nicolas Darvas. Darvas' trading technique involved buying into stocks that were trading at new 52-week highs with correspondingly high volumes.A Darvas box is created when the price of a stock rises above the previous 52-week high, but then falls back to a price not far from that high. If the price falls too much, it can be a signal of a false breakout, otherwise the lower price is used as the bottom of the box and the high as the top. I: In 1956, Darvas was able to turn an investment of $10,000 into $2 million over an 18-month period. While traveling for his dancing, Darvas would obtain copies of The Wall Street Journal and Barron's, but he would only look at the stock prices to make his decisions. It has been said that Darvas was less happy about the profits that he made than he was about the ease and peace of mind that he got from implementing his system.Skeptics of Darvas' technique attribute his success to the fact that he was trading in a very bullish market. They also say that returns comparable to the ones he saw can't be attained if this technique is used in a bear market.

Manual Trading

A trading system that involves human decision-making for entering and exiting trades. This is in contrast to automatic trading, which employs programs linked to market data, which are able to originate trades based on human instructional criteria. Manual traders often employ computer programs in order to consolidate information. In some cases, they may also set automated indicators to alert them to potential trading opportunities. However, in all cases, human input is required to authorize trades. I: There is an ongoing debate as to whether automated trading is advisable or not. Currently, most traders believe that manual trading is superior, since human judgment is required to gauge market trends and control risk. They feel that the proper place for automation is in monitoring data and consolidating it for human interpretation. However, proponents of automated trading argue that this method is superior, since it takes irrational human behavior out of the equation. This debate is likely to become even more relevant as programmable trading continues to become even more sophisticated.

Management Buyout - MBO

A transaction where a company's management team purchases the assets and operations of the business they manage. A management buyout (MBO) is appealing to professional managers because of the greater potential rewards from being owners of the business rather than employees. MBOs are favored exit strategies for large corporations who wish to pursue the sale of divisions that are not part of their core business, or by private businesses where the owners wish to retire. The financing required for an MBO is often quite substantial, and is usually a combination of debt and equity that is derived from the buyers, financiers and sometimes the seller. I: An MBO is different from a management buy-in (MBI), in which an external management team acquires a company and replaces the existing management team. It also differs from a leveraged management buyout (LMBO), where the buyers use the company assets as collateral to obtain debt financing. An MBO's advantage over an MBI is that as the existing managers are acquiring the business, they have a much better understanding of it and there is no learning curve involved, which would be the case if it were being run by a new set of managers. The advantage of an MBO over an LMBO is that the company's debt load may be lower, giving it more financial flexibility. However, there are several drawbacks to the MBO structure as well. While the management team can reap the rewards of ownership, they have to make the transition from being employees to owners, which requires a change in mindset from managerial to entrepreneurial. Not all managers may be successful in making this transition. Also, the seller may not realize the best price for the asset sale in an MBO. If the existing management team is a serious bidder for the assets or operations being divested, the managers have a potential conflict of interest. That is, they could downplay or deliberately sabotage the future prospects of the assets that are for sale to buy them at a relatively low price. MBOs are viewed as good investment opportunities by hedge funds and large financiers, who usually encourage the company to go private so that it can streamline operations and improve profitability away from the public eye, and then take it public at a much higher valuation down the road. While private equity funds may also participate in MBOs, their preference may be for MBIs, where the companies are run by managers they know rather than the incumbent management team.

Debt Assignment

A transfer of debt, and all the rights and obligations associated with it, from a creditor to a third party. Debt assignment may occur with both individual debts and business debts. The company assigning the debt may choose to do so in order to improve its liquidity and/or to reduce its risk exposure. I: The debtor must be notified when a debt is assigned so that he or she will know who to make payments to and where to send them. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted, which could cause the debtor to unintentionally default. Also, when a debtor receives such a notice, it is a good idea for him or her to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed.

General Agreement On Tariffs And Trade

A treaty created following the conclusion of World War II. The General Agreement on Tariffs and Trade (GATT) was implemented to further regulate world trade to aide in the economic recovery following the war. GATT's main objective was to reduce the barriers of international trade through the reduction of tariffs, quotas and subsidies. I: Formed in 1947 and signed into international law on January 1, 1948, GATT remained one of the focal features of international trade agreements until it was replaced by the creation of the World Trade Organization on January 1, 1995. The foundation for GATT was laid by the proposal of the International Trade Organization in 1945, however the ITO was never completed.

General Agreement On Tariffs And Trade - GATT

A treaty created following the conclusion of World War II. The General Agreement on Tariffs and Trade (GATT) was implemented to further regulate world trade to aide in the economic recovery following the war. GATT's main objective was to reduce the barriers of international trade through the reduction of tariffs, quotas and subsidies. I: Formed in 1947 and signed into international law on January 1, 1948, GATT remained one of the focal features of international trade agreements until it was replaced by the creation of the World Trade Organization on January 1, 1995. The foundation for GATT was laid by the proposal of the International Trade Organization in 1945, however the ITO was never completed.

Maastricht Treaty

A treaty that is responsible for the creation of the European Union, signed in Maastricht, a city in the Netherlands. The Maastricht Treaty was signed on February 7, 1992, by the leaders of 12 member nations, and it reflected the serious intentions of all countries to create a common economic and monetary union. Also known as the Treaty on European Union. I: The Maastricht Treaty aimed at unifying policies of defense, currency and citizenship among all member nations. The treaty required voters in each country to approve the European Union, which proved to be a hotly debated topic in many areas. The agreement took effect on November 1, 1993, with the creation of the European Union and has since been amended by other treaties.

Kicker Pattern

A two-bar candlestick pattern that is used to predict a change in the direction of the trend for an asset's price. This pattern is characterized by a very sharp reversal in price over the span of two candlesticks; traders use it to determine which group of market participants is in control of the direction. I: This candlestick pattern is deemed to be one of the most reliable reversal patterns and usually signifies a dramatic change in the fundamentals of the company in question. To traders observing the kicker pattern, it may seem like the price has moved too quickly, and they may wait for a pullback; however, those traders may find themselves looking back and wishing they had entered a position when they originally identified the kicker pattern.

Know Sure Thing (KST)

A two-line indicator used determine momentum in stock trends. As an oscillator it fluctuates above and below zero, providing trade signals and analytical insight based on divergence with price and KST and signal Line crossovers. The indicator formula utilizes four different time frames to show overall momentum, and not just momentum over one specific timeframe: ROCMA1 = 10-Period SMA of 10-Period Rate-of-Change ROCMA2 = 10-Period SMA of 15-Period Rate-of-Change ROCMA3 = 10-Period SMA of 20-Period Rate-of-Change ROCMA4 = 15-Period SMA of 30-Period Rate-of-Change KST Line = (RoCMA1 x 1) + (RoCMA2 x 2) + (RoCMA3 x 3) + (RoCMA4 x 4) Signal Line = 9-period SMA of KST Where SMA stands for Simple Moving Average and ROC stands for Rate-of-Change. I: Know Sure Thing was developed by Martin Pring, a technical analyst and author, to show the overall momentum of a stock, or other financial asset. Traders typically use KST for trade signals or to confirm trends. Buy signals occur when the KST crosses above the zero line, or when the KST crosses above its signal line. Sell signals occur when the KST crosses below the zero line, or when the KST crosses below the signal line. When the KST stays above zero during an uptrend, it confirms the trend. When KST stays below zero during a downtrend, it confirms the downtrend. Traders also watch for when the indicator diverges with price. If the price is making new highs, but KST isn't, it indicates price momentum is slowing. If the price is making new lows and KST isn't, it indicates sell pressure is slowing. While the formulas are different, the applications of KST are similar to that of the MACD.

Labor-Sponsored Venture Capital Corporations - LSVCC

A type of Canadian corporation created by a labor union that deals exclusively with providing venture capital. Unlike other venture capital corporations, LSVCCs are subject to tight regulations. The investment funds from LSVCCs are called labor-sponsored investment funds (LSIFs). I: In Canada, LSVCCs, as a group, are the largest providers of venture capital. In fact, about 40% of venture capital is derived from LSVCCs. Canadian investors benefit from participating in LSIFs because not only are LSIFs eligible for RRSPs and other retirement plans, but they also yield both provincial and federal tax credits.

Official Settlement Account

A type of account used in balance of payments accounting to keep track of central banks' reserve asset transactions with each other. The official settlement account keeps track of transactions involving gold, foreign exchange reserves, bank deposits and special drawing rights (SDRs). Essentially, this account keeps track of transactions related to international assets. I: The other account types used in balance of payments accounting are the current account and the capital account. The current account keeps a record of a country's imports and exports of goods, services, income and transfers, and whether the country is a net creditor or net debtor. The capital account records the change in foreign and domestic ownership of assets.

3/27 Adjustable-Rate Mortgage - 3/27 ARM

A type of adjustable-rate mortgage (ARM) frequently offered to subprime borrowers. These mortgages are designed as short-term financing vehicles that give borrowers time to repair their credit until they are able to refinance into a mortgage with more favorable terms.3/27 mortgages have a three-year fixed-interest-rate period after which the interest rate begins to float based on an index plus a margin (known as the fully indexed interest rate). There is a high probability that the fully indexed interest rate will be substantially higher than the initial three-year fixed interest rate; therefore, to avoid payment shock, the intent of 3/27 mortgage borrowers is to be able to refinance the mortgage before the interest rate begins to adjust. I: A common mistake many 3/27 mortgage borrowers make is a failure to recognize the risks associated with such a mortgage. Many times they do not recognize how much their monthly payments may increase if the interest rate changes. Even if they plan on refinancing before the interest rate starts to move, they fail to foresee future economic conditions that might make refinancing difficult.For example, the rate of home price appreciation and home equity play a very important role in a borrower's ability to refinance at a future date. Many borrowers are too optimistic about the rate of home price appreciation. Additionally, many 3/27 mortgages carry prepayment penalties, which make refinancing very costly.

2/28 Adjustable-Rate Mortgage - 2/28 ARM

A type of adjustable-rate mortgage that has a two-year fixed interest rate period after which the interest rate on the mortgage begins to float based on an index plus a margin. The index plus the margin in known as the fully indexed interest rate. Often, a 2/28 ARM is designed as a short-term financing vehicle that provides borrowers with time to repair their credit before they refinance into a mortgage with more favorable terms. I: In many cases, 2/28-mortgage borrowers fail to recognize the risks associated with such a mortgage. They often don't recognize how much their monthly payments will increase when the interest rate starts to adjust at a higher rate. It is important to note that there is usually a high probability that the fully indexed interest rate will be substantially higher than the initial two-year fixed interest rate. Once this number adjusts, the borrower's payments are likely to increase as well.

Gap Insurance

A type of auto insurance that car owners can buy to protect themselves against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle's financing or lease agreement. This situation arises when the balance owed on a car loan is greater than the book value of the vehicle. I: For example, according to the blue book, John's car is worth $15,000. However, he still owes a total of $20,000 worth of car payments. In the event that John's car is completely written off as a result of an accident or theft, John's car insurance policy will reimburse him with $15,000. Because John owes the car financing company $20,000, however, he will still be $5,000 short, even though he no longer has a car. If John had purchased gap insurance, the gap insurance policy would cover the $5,000 "gap", or the difference between the money received from reimbursement and the amount still owed on the car.

Panic Buying

A type of behavior marked by a rapid increase in purchase volume as the price of a good or security increases. Panic buying has the effect of reducing the supply of the good or security, while at the same time driving the price up even higher. This type of behavior is often the result of a feeling of being "left out" if a purchase is not made immediately. I: Panic buying may result from a number of different events. A public's panic buying of a good, such as water or bread, may come as the result of news indicating impending bad weather, as consumers fear a shortage of items as a result of weather-related scarcity. In the stock market, an investor may see a rapid increase in the price of a security and buy shares out of fear that they will miss out on continued increases. This purchase behavior often results in a suspension of fundamental evaluation, which can result in losses once the market calms down.

Sample Selection Bias

A type of bias caused by choosing non-random data for statistical analysis. The bias exists due to a flaw in the sample selection process, where a subset of the data is systematically excluded due to a particular attribute. The exclusion of the subset can influence the statistical significance of the test, or produce distorted results. I: Survivorship bias is a common type of sample selection bias. For example, when back-testing an investment strategy on a large group of stocks, it may be convenient to look for securities that have data for the entire sample period. If we were going to test the strategy against 15 years worth of stock data, we might be inclined to look for stocks that have complete information for the entire 15-year period. However, eliminating a stock that stopped trading, or shortly left the market, would input a bias in our data sample. Since we are only including stocks that lasted the 15-year period, our final results would be flawed, as these performed well enough to survive the market.

Joint Tenants in Common - JTIC

A type of brokerage account which is owned by at least two people with no rights of survivorship afforded to any of the account holders. I: In this type of brokerage account, a surviving tenant of the account does not necessarily acquire the rights (and account assets) of the deceased person. Rather, each tenant in the account can stipulate in a written will how his/her assets will be distributed upon his/her death. Generally, the member ownership in the account is determined on a pro rata basis, meaning that if there are two tenants in the account, each will have a 50% claim on the account's value.

Joint Tenants with Right of Survivorship - JTWROS

A type of brokerage account which is owned by at least two people, where all tenants have an equal right to the account's assets and are afforded survivorship rights in the event of the death of another account holder. I: In this type of brokerage account, a surviving member will inherit the total value of the other member's share of account assets upon the death of that other member. All members of the account are afforded the power to conduct investment transactions within the account as well.

Kagi Chart

A type of chart developed by the Japanese in the 1870s that uses a series of vertical lines to illustrate general levels of supply and demand for certain assets. Thick lines are drawn when the price of the underlying asset breaks above the previous high price and is interpreted as an increase in demand for the asset. Thin lines are used to represent increased supply when the price falls below the previous low. I: An entry signal is triggered when the vertical line changes from thin to thick and is not reversed until the thick line changes back to thin. One important note about these charts is that they are independent of time and only change direction once a predefined reversal amount is reached.

Call On A Call

A type of compound option in which the investor has the right to exercise a call on the underlying asset, which is an option. An investor who owns a call on a call option has until the expiration date to exercise the compound option. If exercised, the investor will receive the underlying call option, which will have a set expiration date and a new exercise price. If the underlying option is exercised, the investor receives the underlying assets. I: A compound option is an option in which the underlying asset is itself an option - so it is an option on an option. Before expiration, the value of the option depends on the value of the asset the underlying option represents. At expiration, the option can be priced at expiration using the Metron model. This means that the value of the call on a call option (with the underlying good being a stock) increases as the stock's price increases. An investor will exercise the call on a call option if, at the expiration date, the price of the underlying call option is worth more than the exercise price of the option.

Generic Brand

A type of consumer product that lacks a widely recognized name or logo because it typically isn't advertised. Generic brands are usually less expensive than brand-name products due to the lack of promotions, which can inflate the cost of a good or service. Generic brands are designed to be substitutes for more expensive brand-name goods. I: Generic brands are known for their trimmed-down packaging, and often plain labels. For example, a supermarket may offer its own generic product next to a name-brand product in the hope that a cost-conscious customer will select the cheaper substitute. Generic brands have grown in popularity in recent years, and many retailers now offer in-house generic products to customers.

Partially Convertible Debenture - PCD

A type of convertible debenture, part of which will be redeemed by the issuing company after a specified period of time and part of which is convertible into equity or preference shares at the end of the specified period. The ratio of conversion for the partially convertible debenture is decided by the issuer when the debenture is issued. I: Any partial conversion will be optional at the hands of the debenture holder. Partially convertible debentures differ from fully convertible debentures, in which all of the instrument must be converted into equity.

Takeover Bid

A type of corporate action in which an acquiring company makes an offer to the target company's shareholders to buy the target company's shares in order to gain control of the business. Takeover bids can either be friendly or hostile. I: Some examples of takeover bids include: Two-Tier Bid: The acquiring company is willing to pay a premium above and beyond the share's price in order to convince shareholders to sell their shares. Any-and-All Bid: The acquiring company offers to buy any of the target firm's outstanding shares at a specific price.

Offensive Competitive Strategy

A type of corporate strategy that consists of actively trying to pursue changes within the industry. Companies that are managed as offensive competitive generally invest heavily in technology and Research and Development (R&D) in an effort to stay ahead of the competition. I: Companies that actively look to acquire other firms to fuel growth are often deemed to be using an offensive competitive strategy. These firms are often regarded as higher risk than those that are defensive because they are more likely to be fully invested, which could prove problematic in the event of a market slowdown.

Canadian Income Trust

A type of corporate structure as designated by the Canada Revenue Agency that operates as a profit-seeking corporation. This type of company pays out all earnings to unit holders before paying taxes, and is usually traded publicly on a securities exchange. In 2011 all Canadian income trusts lost their special corporate tax privileges, and were required to be converted into traditional corporate structures. I: Canadian income trusts are a beneficial corporate structure alternative for firms due to lower tax liabilities. Before the profit is taxed, an income trust passes a high percentage of earnings to unit holders as cash distributions. If, once expenses have been covered, all of a firm's remaining cash is paid out to unit holders, the firm is able to entirely avoid paying income tax. This was stopped by January of 2011 for income trusts with the exception of real estate investment trusts (REITs).

Quasi-Public Corporation

A type of corporation in the private sector that is backed by a branch of government that has a public mandate to provide a given service. Most quasi-public corporations began as government agencies, but have since become separate entities. It is not uncommon to see the shares of this type of corporation trade on major stock exchanges, which allows individual investors to gain exposure to the company's profit. I: For example, the Federal National Mortgage Association (Fannie Mae) is regarded as a quasi-public corporation because it operates as an independent corporation. This company operates under a congressional charter that aims to increase the availability and affordability of homeownership, but is not treated as any part of the government. Contrary to popular opinion, employees of quasi-public corporations do not work for the government.

Early Amortization

A type of credit enhancement used in certain asset backed securities (ABS). Early amortization is an accelerated payment of bond principal in an asset-backed security, usually triggered when there is a sudden increase in delinquencies in the underlying loans or when excess spread, the issuer's net profit after deducting servicing fees, charge-offs and other costs, falls below an acceptable level. Also called a payout event. I: Early amortization signals liquidity crisis for the originator, as funding dries up. The early payout protects investors from prolonged exposure to receivables with deteriorated credit performance. However, the investor is relying on the fixed income from the ABS - prepayment is an inherent risk for investors.

Hard Inquiry

A type of credit report check that may lower an individual's credit score. A hard inquiry occurs when an individual applies for any type of credit, such as a mortgage, credit card or auto loan. The reason a hard inquiry may lower an individual's credit score is because someone who has recently applied for new credit is seen as a potentially riskier borrower. Also called a "hard pull." I: The application for new credit indicates either that the individual may need credit as a result of a financial setback, or that the acquisition of new debt by the borrower makes him or her a higher lending risk. However, credit scoring formulas typically take into account that an individual might be shopping around for the best rate, so when multiple inquiries are made for the same type of credit in a short period, such as multiple mortgage applications, the individual's credit score is not dinged repeatedly. The other type of credit report inquiry is called a soft inquiry, or soft pull. Soft pulls include inquiries such as an individual checking her own credit report, employer checks of job applicants' credit reports and credit card companies' screening of applicants for preapproved credit offers. This type of credit report check does not affect an individual's credit score because it is for informational purposes only.

Debenture

A type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture. I: Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these type of debts.

J-Curve Effect

A type of diagram where the curve falls at the outset and eventually rises to a point higher than the starting point, suggesting the letter J. While a J-curve can apply to data in a variety of fields, such as medicine and political science, the J-curve effect is most notable in both economics and private equity funds; after a certain policy or investment is made, an initial loss is followed by a significant gain. I: An example of the J-curve effect is seen in economics when a country's trade balance initially worsens following a devaluation or depreciation of its currency. The higher exchange rate will at first correspond to more costly imports and less valuable exports, leading to a bigger initial deficit or a smaller surplus. Due to the competitive, relatively low-priced exports, however, a country's exports will start to increase. Local consumers will also purchase less of the more expensive imports and focus on local goods. The trade balance eventually improves to better levels compared to before devaluation. In private equity funds, the J-curve effect occurs when funds experience negative returns for the first several years. This is a common experience, as the early years of the fund include capital drawdowns and an investment portfolio that has yet to mature. If the fund is well managed, it will eventually recover from its initial losses and the returns will form a J-curve: losses in the beginning dip down below the initial value, and later returns show profits above the initial level.

Qualified Dividend

A type of dividend to which capital gains tax rates are applied. These tax rates are usually lower than regular income tax rates. I: Ordinary dividends that do not qualify for this tax preference are taxed at an individual's normal income tax rate. In order to qualify:1. The dividend must have been paid by an American company or a qualifying foreign company.2. The dividends are not listed with the IRS as dividends that do not qualify.3. The required dividend holding period has been met.

Incentive Stock Option - ISO

A type of employee stock option with a tax benefit, when you exercise, of not having to pay ordinary income tax. Instead, the options are taxed at a capital gains rate. I: Although ISOs have more favorable tax treatment than non-qualified stock options (NSOs), they also require the holder to take on more risk by having to hold onto the stock for a longer period of time in order to receive the better tax treatment. Also, numerous requirements must be met in order to qualify as an ISO.

419(e) Welfare Benefit Plans

A type of employer-sponsored employee welfare benefit plan. 419(e) welfare benefit plans qualify under paragraph (e) of Section 419 of the Internal Revenue Code. They provide a range of benefits to employees, such as life, health, disability, long-term care and post-retirement medical. These plans can be either target contribution or target benefit in design, and are intended to provide additional financial stability for employees during their retirement years. I: The same company pays for all of the benefits of the plan, and does not pool benefits among employees of other companies. Irrevocable cash contributions are made on behalf of the employees on a periodic basis. The assets in these plans are usually held by an independent trustee, and are exempt from seizure by any creditors the company may have. The Internal Revenue Service (IRS) issued revised guidance in October 2007 that excluded some benefits for plans that were funded with permanent insurance. This plan can also keep contributions made for key employees separate from those of rank-and-file employees.

Japan ETFs

A type of exchange-traded fund that invests the majority of its assets in Japanese equities that trade on local stock exchanges. The performance of Japan ETFs does not correlate to the performance of the underlying index when measured in U.S. dollars, because the change in the exchange rate between the yen and the dollar must be taken into consideration. The performance of Japan ETFs is thus dependent on two things: the performance of the underlying equities and the effect of changing yen into dollars. I: Japan ETFs are managed passively around a broad underlying index, such as the MSCI Japan Index, which represents over 75% of the total market capitalization of all listed Japanese equities. The Tokyo Stock Exchange is one of the largest and most progressive markets in Asia, making the country a frequent source of investor focus and attention. Japan ETFs allow for a single diversified investment in the country while also making a bet on the strength of the yen versus the dollar.Because of the depth of Japan's equity markets, ETFs that focus on large- or small-cap stocks are available. As with several of the larger, more liquid ETFs, some Japan ETFs can be sold short and are even accessible through listed options.

Rate-Improvement Mortgage

A type of fixed-rate mortgage, which contains a clause that entitles the borrower to reduce the fixed-interest-rate charge on the mortgage once, and early in the mortgage. The option will be exercised when interest rates fall lower then the borrowers initial mortgage rate. There is typically a fee associated with exercising this option, and the initial mortgage might have a higher-than market-interest rate and/or high costs. However, the rate reduction option could save the borrower the costs of refinancing which might be more then the cost of using their rate improvement option. I: There is no "free lunch" in the world of finance. A borrower who is told that they are being "given" the option to reduce their interest rate for a minimal fee should be aware that the lender has the true cost of that option priced in the transaction somewhere. That's not to say the option is not fairly priced and could be valuable to the borrower should interest rates fall. The borrower should simply have a good understanding of the costs, risks and benefits of paying for the option in the initial transaction.

Kangaroo Bond

A type of foreign bond that is issued in the Australian market by non-Australian firms and is denominated in Australian currency. The bond is subject to Australian laws and regulations.Also known as a "matilda bond." I: Foreign bonds, such as kangaroo bonds, are mainly used to provide issuers with access to another capital market outside of their own to raise capital. Also, major corporations and/or investment firms looking to diversify their holdings and improve their overall currency exposures can use kangaroo bonds to raise funds in Australian dollars. Major issuers of kangaroo bonds have typically been from the United States Germany. Other foreign bonds include samurai bonds and bulldog bonds.

Academy of Accounting Historians

A nonprofit organization that researches how accounting principles and rules have changed over time. The Academy of Accounting Historians was created in 1973 and publishes journal and research papers throughout the year. Membership is not restricted to accountants. I: The Academy of Accounting Historians examines the relationship between accounting rules and economic history, focusing on the interplay between the various forces that affect businesses.

James D. Slater

A renowned investment author in Britain, who wrote a Sunday column in London's The Sunday Telegraph under the pen name "The Capitalist". Slater was also a major figure in corporate takeovers, and eventually turned his investment company into an investment bank. Following this, he established a career in financial writing and as an author of childrens' books. Slater is credited with inventing the price-earnings to earnings-growth ratio. I: Jim Slater was born in 1939 and began his career as an accountant. He spent 10 years in corporate finance before founding his own investment company in 1964. He began making corporate takeovers at that point, transforming Slater Walker Securities into a large financial conglomerate, but was eventually bankrupted during the '73-'74 recession in the U.K.

Joint Probability

A statistical measure where the likelihood of two events occurring together and at the same point in time are calculated. Joint probability is the probability of event Y occurring at the same time event X occurs.Notation for joint probability takes the form: I: Joint probability is a measure of two events happening at the same time, and can only be applied to situations where more than one observation can be occurred at the same time.For example, a joint probability can not be calculated when tossing a coin on the same flip. However, the joint probability can be calculated on the probability of rolling a 2 and a 5 using two different dice.

Quartile

A statistical term describing a division of observations into four defined intervals based upon the values of the data and how they compare to the entire set of observations. I: Each quartile contains 25% of the total observations. Generally, the data is ordered from smallest to largest with those observations falling below 25% of all the data analyzed allocated within the 1st quartile, observations falling between 25.1% and 50% and allocated in the 2nd quartile, then the observations falling between 51% and 75% allocated in the 3rd quartile, and finally the remaining observations allocated in the 4th quartile. Try not to confuse a quarter with a quartile.

Sales Tax

A tax imposed by the government at the point of sale on retail goods and services. It is collected by the retailer and passed on to the state. I: It is based on a percentage of the selling prices of the goods and services and set by the state.

Make Whole Call (Provision)

A type of call provision on a bond allowing the borrower to pay off remaining debt early. The borrower has to make a lump sum payment derived from a formula based on the net present value (NPV) of future coupon payments that will not be paid because of the call. I: A make whole call will be defined in the indenture. The issuer doesn't expect to have to use this type of provision, but if the issuer does, investors will be compensated, or "made whole." Because the cost can often be significant, such provisions are rarely invoked.

Fair Weather Fund

A type of mutual fund that has a tendency to perform well during a bull market. In other words, it is a mutual fund that generally outperforms the market when the market is doing well, and underperforms the market when the market is doing poorly. I: Fair weather funds are very active during bull markets. For example, mutual funds that focused on technology companies in the early stages of the tech bubble in the 1990s were very successful. To determine whether a prospective mutual fund is a fair weather fund, simply compare the fund's relative returns to the market index during both bear and bull markets.

Call Swaption

A type of option between two parties that can be exercised on a swap where the buyer of the swap has the right, but not obligation to, receive an agreed upon fixed interest rate. The buyer pays a premium for the right to swap at this fixed rate. Short for a call swap option, a call swaption can be used as a hedging tool to avoid risk if a bond issuer believes interest rates might decrease. Also known as a payer swaption. I: When a buyer feels it will be beneficial, he may enter into a call swaption, which will allow him to swap interest rates. Regardless of whether the buyer of the option is the rate receiver or the payer, the interest rate will be fixed, based upon terms of this agreement. This type of swap occurs in forex trading as a currency swap where the interest paid is also agreed upon.

Days Working Capital

An accounting and finance term used to describe how many days it will take for a company to convert its working capital into revenue. The faster a company does this, the better.To calculate days working capital, the following formula can be used: Days working capital can be used in ratio and fundamental analysis. I: When utilizing any ratio, it is important to consider how this company has evolved over time and how it compares to similar companies in the same industry. By comparing this ratio in a historical and relative basis, you will get a better understanding of how efficient a given company actually is.

EBITA

An acronym for "earnings before interest, taxes and amortization." EBITA is most commonly used when equating profitability and efficiency ratios for firms. The necessary figures for calculating EBITA can be found on a company's income statement. I: The more popular figure, EBIT, is used by investors to guage a possible investment. EBITA is largely ignored by investors due to its inclusion of the intangible value of amortization. Therefore, EBITA is used more often by companies on a internal basis.

Qualified Special Representative Agreement - QSR

An agreement between broker-dealers to clear trades without the interaction of the NASDAQ ACT system. This is achieved by sending trades directly to the National Securities Clearing Corporation (a subsidiary of the DTCC). I: This method of clearing trades means simpler processing, cheaper transaction costs, and extended hours of service.

Laissez Faire

An economic theory from the 18th century that is strongly opposed to any government intervention in business affairs. Sometimes referred to as "let it be economics." I: People who support a laissez faire system are against minimum wages, duties, and any other trade restrictions. Laissez faire is French for "leave alone."

e-CBOT

An electronic trading platform that gives traders the ability to trade future contracts listed on the Chicago Board of Trade. The CBOT has primarily been regarded as an open outcry market, but the incorporation of electronic trading platforms is changing the standard way in which futures trading is done. I: Since the incorporation of e-CBOT, most of the daily traded contracts have traded electronically.Electronic platforms, such as the e-CBOT, have rapidly increased in popularity and are becoming the nationwide standard for how commodities are traded.

Large Value Transfer System - LVTS

An electronic wire payment system in Canada, facilitating the transfer of funds between large financial institutions, including the central Bank of Canada. I: LVTS transactions can be performed for banks or their clients. These transactions are instant, which improves the quickness and efficiency of business transactions. Once the transaction is sent through the system, it can not be reversed. This prevents insufficient funds, stop payments and fraud.For example, because financial institutions borrow and lend money to each other, at the end of the day some firms have a shortage of money, while other firms have an excess amount. They use the LVTS to close out these short and long positions.

Key Employee

An employee with a major ownership and/or decision-making role in the business. Key employees are usually highly compensated. They may also receive special benefits as an incentive both to join the company and to stay with the company. I: "Key employee" is also a term used by the Internal Revenue Service in regard to company-sponsored defined contribution retirement plans to refer to an employee who owns more than 5% of the business, owns more than 1% of the business and has annual compensation greater than a certain amount or is an officer with compensation greater than a certain amount. There are other IRS and government rules that have different definitions of "key employee" for different purposes.

Bad Debt Expense

An entry found on a business's income statement that represents the amount of noncollectable accounts receivable that occurs in a given period. In terms of accounting entries, every time an amount increases bad debt expense, an equivalent amount is credited to the business's allowance for bad debts. I: Often times, bad debt expenses occur as a result of a customer being unable to fulfill its obligation to pay an outstanding debt, due to bankruptcy or other financial problems. However, this does not always necessarily mean that the entire amount owed will be written off. Bankruptcy proceedings may be able to provide some recourse and remove some of the bad debt expense.

EAFE Index

An index created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. This international index has been in existence for more than 30 years. I: As of February 2007, equities from the Japanese stock markets made up around 25% of the index, of which Japan is the largest index component.Many investors use the S&P 500 as a benchmark to assess the performance of an investment portfolio. This is an appropriate benchmark for American stocks. The EAFE index is often used as a benchmark for the performance of an investor's international equity investments.

Bail Bond

A written promise signed by a defendant and surety to ensure that a criminal defendant will appear in court at the scheduled time and date, as ordered by the court. The bail amount is set by the court. The process starts with a defendant being released on bail; the bail is paid by a surety (bail bond agent or bondsman), who usually collects a percentage of the amount of bail. In order to pay the bail, so that the defendant can be released while awaiting trial on criminal charges, the agent might require collateral in the form of valuable property, securities or a statement of creditworthiness. I: Bonds over $1,000 usually cost 10% of the bond. For example, if bail is set at $20,000, the premium would be $2,000. Additional fees may also be added. The goal of a bail bond is to prevent abuse of the appeal process, where the intent for appeal is for a reason other than that for which it is intended. If the defendant fails to appear in court, the cash bond is paid to the court and the collateral is collected by the bond agency, including any other related fees.

Range Forward Contract

A zero-cost currency forward contract that uses a range of exchange rates rather than a single rate. A range forward contract is constructed so that it provides full protection against adverse exchange rate movements, while retaining some upside potential to capitalize on favorable currency fluctuations. It is generally used by companies and international traders for hedging currency exposure at little or no cost. I: As an example, consider a U.S. company that has a EUR1 million export order from a European customer. The company is concerned about the possibility of a sudden plunge in the euro (which is trading at 1.30 to the USD) over the next three months - when payment is expected - and wishes to hedge this exposure while retaining some upside.The company could negotiate with its financial institution a three-month range forward contract that has a floor at EUR1.27 and a cap at EUR1.33. If at expiry the spot exchange rate is EUR1 = US$1.31, the contract settles at the spot rate (since it is within the 1.27 - 1.33 range). On the other hand, if the exchange rate at expiry is EUR1 = US$1.25, the company gets the floor rate of 1.27. Conversely, if the exchange rate at expiry is EUR1 = US$1.36, the company gets the cap rate of 1.33.

Baccalaureate Bond

A zero-coupon bond issued by certain states to assist families in saving for college tuition by means of added tax benefits. Baccalaureate bonds are offered by many states and are tax-free securities that allow states to lend at reasonable rates, while issuing tax-free bullet bonds to citizens wishing to save over time for post secondary expenses, namely tuition. I: These bonds are typically issued in small denominations and are offered in several maturities, making them more convenient for investing and paying yearly college tuition fees. In some states, additional benefits such as tuition discounts may be included if the student enrolls in a state college using these bonds for payment. When combined with other tax-advantaged college savings tools, baccalaureate bonds are an efficient way of saving toward post-secondary education.

Geographical Pricing

Adjusting an item's sale price based on the buyer's location. Sometimes the difference in sale price is based on the cost to ship the item to that location or what the people there are willing to pay. Geographical pricing might result in a California-grown avocado costing less in San Francisco than in Omaha, for example. Companies will try to gain maximum revenue in the markets in which it operates, and geographical pricing enables such practices. I: A type of geographical pricing called "zone pricing" is common in the gasoline industry. This practice entails oil companies charging gas station owners different prices for the same gasoline depending on where their stations are located. The wholesale price, and thus the retail price, is based on factors such as competition from other gas stations in the area, the amount of traffic the gas station receives and average household incomes in the area - not on the cost of delivering gas to the area.

Back Office

Administration and support personnel in a financial services company. They carry out functions like settlements, clearances, record maintenance, regulatory compliance, and accounting. When order processing is slow due to high volume, it is commonly referred to as "back office crunch." I: A financial services company is logically broken up into three parts: the front office includes sales personnel and corporate finance, the middle office manages risk and IT resources, and the back office provides administrative and support services.

Economic Exposure

A type of foreign exchange exposure caused by the effect of unexpected currency fluctuations on a company's future cash flows. Also known as operating exposure, economic exposure can have a substantial impact on a company's market value, since it has far-reaching effects and is long-term in nature. Unlike transaction exposure and translation exposure (the two other types of currency exposure), economic exposure is difficult to measure precisely and hence challenging to hedge. Economic exposure is also relatively difficult to hedge because it deals with unexpected changes in foreign exchange rates, unlike expected changes in currency rates, which form the basis for corporate budgetary forecasts. I: For example, assume that a large U.S. company that gets about 50% of its revenues from overseas markets has factored in a gradual decline of the U.S. dollar against major global currencies - say 2% per annum - into its operating forecasts for the next few years. If the U.S. dollar appreciates instead of declining gradually in the years ahead, this would represent economic exposure for the company. The dollar's strength means that the 50% of revenues and cash flows the company receives from overseas will be lower when converted back into dollars, which will have a negative effect on its profitability and valuation. Increasing globalization has made economic exposure a source of greater risk for companies. The degree of economic exposure is directly proportional to currency volatility. Economic exposure increases as foreign exchange volatility rises, and decreases as it falls. Economic exposure is obviously greater for multinational companies that have numerous subsidiaries overseas and a huge number of transactions involving foreign currencies. However, economic exposure can arise for any company regardless of its size and even if it only operates in domestic markets. For example, small European manufacturers that only sell in their local markets and do not export their products would be adversely affected by a stronger euro, since it would make imports from other jurisdictions such as Asia and North America cheaper and increase competition in European markets. Economic exposure can be mitigated either through operational strategies or currency risk mitigation strategies. Operational strategies involve diversification - of production facilities, end-product markets and financing sources, since currency effects may offset each other to some extent if a number of different currencies are involved. Currency risk-mitigation strategies involve matching currency flows, risk-sharing agreements and currency swaps.

Parallel Loan

A type of foreign exchange loan agreement that was a precursor to currency swaps. A parallel loan involves two parent companies taking loans from their respective national financial institutions and then lending the resulting funds to the other company's subsidiary. I: For example, ABC, a Canadian company, would borrow Canadian dollars from a Canadian bank and XYZ, a French company, would borrow euros from a French bank. Then ABC would lend the Canadian funds to XYZ's Canadian subsidiary and XYZ would lend the euros to ABC's French subsidiary.The first parallel loans were implemented in the 1970s in the United Kingdom in order to bypass taxes that were imposed to make foreign investments more expensive.

Managed Forex Accounts

A type of forex account in which a money manager trades the account on a client's behalf for a fee. Managed forex accounts are similar to hiring an investment advisor to manage a traditional investment account of equities and bonds. Returns and fees between managed accounts can vary greatly; therefore, it is important to research your options thoroughly before assigning your account to a professional manager. I: Some managed forex accounts involve the trader "teaching" the manager what signals to look for and how to interpret them. It is thought that this form of managed forex takes the psychology out of managing personal wins and losses.Another managed forex account type uses the brokerage firm's own proprietary trading systems. However, it is important to note that there is no such thing as the "holy grail" of trading systems. If a system was a perfect money maker, the seller will not want to share it. This is why big financial firms keep their "black box" trading programs under lock and key.

Back Month Contract

A type of futures contract that expires in any month past the front month futures contract. The price of the first back month futures contract is often used along with the front month futures price to calculate the calender spread.Also referred to as a "far month contract". I: The liquidity of a back month futures contract will constantly increase as it approaches expiration. Investors that employ an auto-roll strategy will roll over their futures positions once the daily volume of the first back month futures contract exceeds the daily volume of the front month futures contract.

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses that are incurred by the insured. Health insurance can either reimburse the insured for expenses incurred from illness or injury or pay the care provider directly. Health insurance is often included in employer benefit packages as a means of enticing quality employees. I: The cost of health insurance premiums is deductible to the payer, and benefits received are tax-free. Health insurance has many cousins, such as disability insurance, critical (catastophic) illness insurance and long-term care (LTC) insurance.

Kidnap Insurance

A type of insurance designed to protect individuals from the risk of kidnapping. Kidnap insurance often covers other events related to kidnapping, including extortion. In the case of a kidnapping, the policy holder is compensated for money paid as ransom, medical expenses, counseling or for accidental death of the kidnap victim. I: Kidnap insurance is more likely to be used for individuals or companies operating in high-risk areas. These areas tend to have higher rates of crime and a history of kidnapping workers employed by multinational firms. Some of the common high-risk areas include Nigeria, Haiti and Venezuela.

Rate Level Risk

A type of interest rate risk which asserts that the characteristics of interest rate fluctuation are variable (as opposed to constant) over a period of time. Although interest rates are expected to fluctuate over the period of an investment, the probability of an interest rate change is not always constant, nor is the magnitude of the volatility of interest rate changes. I: Generally speaking, it is impossible to predict with certainty the characteristics of a changing variable such as interests rates into the future. While it is possible to make reasonably accurate predictions, some amount of uncertainty still exits. This uncertainty represents a tangible risk, which must be incorporated into the price of an investment vehicle.

Face-Amount Certificate Company

A type of investment firm that issues debt securities to its investors. These securities are called face-amount certificates and are backed by security interest on assets such as real property or other securities. This is similar in nature to mortgage bond debt financing. I: This technique allows a company to obtain financing at relatively low interest rates, since its debt is backed by specific tangible assets under the company's control. Investors who hold face-amount certificates are usually paid a fixed amount of annual interest and are refunded the principal (or face amount) of their securities at a specified termination date.

Large-Value Stock

A type of large-cap stock investment where the intrinsic value of the company's stock is greater than the stock's market value. The stock's intrinsic value can be determined by using a valuation model such as discounted cash flow and multiples. I: A stock's market value can fall below its intrinsic value for a number of reasons. For example, if a company seeks Chapter 11 bankruptcy protection, many shareholders could become concerned that the company will go bankrupt, and therefore sell their stock. If the company has enough assets to pay all of its liabilities, then there will be intrinsic value left in the company's stock. This value may be greater than the stock's market value, which results in a large-value-stock investing opportunity.

Generation-Skipping Trust

A type of legally binding trust agreement in which the contributed assets are passed down to the grantor's grandchildren, not the grantor's children. The generation to which the grantor's children belong skips the opportunity to receive the assets in order to avoid the estate taxes that would apply if the assets were transferred to them. I: Because a generation-skipping trust effectively transfers assets from the grantor's estate to his or her grandchildren, the children of the grantor never take title to the assets. This is what allows the grantor to avoid the estate taxes that would apply if the assets were transferred to his or her children first.Generation-skipping trusts can still be used to provide some financial benefits to a grantor's children, however, because any income generated by the trust's assets can be made accessible to the grantor's children while still leaving the assets in trust for his or her grandchildren.

Death Spiral

A type of loan investors give to a company in exchange for convertible debt, which, like convertible bonds, typically has provisions that allow investors to convert the bonds into stock at below-market prices. This can cause the original shareholders to lose control of the company. I: This type of loan is undertaken by companies that desperately need cash. It is called a death spiral because companies' stocks often plunge drastically after they take on these types of loans. It is important to note that death spirals often allow buyers to convert the bonds into shares at a fixed conversion ratio in which the buyer has a large premium.For example, a bond with a face value of $1,000 may have a convertible value of $1,500, which means that a bondholder will receive $1,500 dollars worth of equity for giving up the $1,000 bond. However, upon a conversion, more shares are created, which dilutes the share price. This drop in price may cause more bond holders to convert, because the lower share price means that they will be receiving more shares. Any further conversions will cause more price drops as the supply of shares increases, causing the process to repeat itself as the stock's price spirals downward.

Balloon Loan

A type of loan which does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan. I: Balloon loans can be attractive to short-term borrowers because they typically carry a lower interest rate than a loan with a longer term. However, the borrower must be aware of refinancing risk and/or the risk that the loan will reset at a higher interest rate. Some balloon loans, such as a five-year balloon mortgages, have a reset option at the end of the five-year term that allows for a resetting of the interest rate (based on current interest rates) and a recalculation of the amortization schedule based on a remaining term. If a balloon loan does not have a reset option, or frequently even when it does, it is expected that the borrower will sell the property or refinance the loan before the end of the original loan term.

Call Market

A type of market in which each transaction takes place at predetermined intervals and where all of the bid and ask orders are aggregated and transacted at once. The exchange determines the market clearing price based on the number of bid and ask orders. A call market is contrasted to an auction market, where orders are filled as soon as a buyer/seller is found for any given order at an agreed upon price. I: In a call market, the price is set by the exchange so the market will clear, or almost clear, every time orders are filled. This is in stark contrast to the auction market, where prices are determined by buyers and sellers. Because the call market groups transactions together, there is a substantial increase in liquidity. Although liquidity is generally considered to be a good quality in any marketplace, sellers may lose some of the liquidity premium, which is can be substantial.

Imperfect Competition

A type of market that does not operate under the rigid rules of perfect competition. Perfect competition implies an industry or market in which no one supplier can influence prices, barriers to entry and exit are small, all suppliers offer the same goods, there are a large number of suppliers and buyers, and information on pricing and process is readily available. Forms of imperfect competition include monopoly, oligopoly, monopolistic competition, monopsony and oligopsony. I: Perfect competition is often viewed as a theoretical model, because every industry or market operates in some form of imperfect competition. For example, some industries rely on heavy initial capital investment, such as industrial manufacturers and telecom providers. This makes the prospect of having many competitors practically impossible. In the real world, markets are evaluated by their relative closeness to perfect competition, and efforts are made to approach it.

Odd Date

A type of maturity date for foreign-exchange contracts. Odd dates are neither spot nor fixed dates; they are simply random, unrelated dates. I: For example, if a foreign contract has a three-month maturity and begins on November 15th, it would therefore mature on February 15th. An odd date would be February 14th or any date other than the 15th.

Natural Monopoly

A type of monopoly that exists as a result of the high fixed or start-up costs of operating a business in a particular industry. Because it is economically sensible to have certain natural monopolies, governments often regulate those in operation, ensuring that consumers get a fair deal. I: The utilities industry is a good example of a natural monopoly. The costs of establishing a means to produce power and supply it to each household can be very large. This capital cost is a strong deterrent for possible competitors. Additionally, society can benefit from having natural monopolies because having multiple firms operating in such an industry is economically inefficient.

Occupancy Fraud

A type of mortgage fraud, whereby the borrower lies about whether or not the home will be owner occupied. Occupancy fraud happens when the borrower says that a home will be owner occupied, when in reality it will not be. Mortgage lenders typically offer lower rates to mortgages on owner-occupied homes, rather than investment properties. When occupancy fraud occurs, banks take on too much risk because they are receiving a lower interest rate than they should be for the delinquency risk that exists. I: Lenders typically charge higher rates on mortgages for non-owner occupied homes, because of higher delinquency rates. Delinquency rates are often lower for the owner-occupied home because people do not want to lose their private residence and become homeless. There is a lot less attached to losing an investment property.

Callable Preferred Stock

A type of preferred stock in which the issuer has the right to call in or redeem the stock at a preset price after a defined date. The terms of a callable preferred stock issue, such as the call price, the date after which it can be called, and the call premium (if any) are all defined in the prospectus at the time of issue and cannot be changed later. As with regular preferred shares, dividends on callable preferred shares must be paid by the issuer ahead of any dividends on its common shares. Also known as "redeemable preferred stock" or "callable preferred shares." I: A callable preferred stock issue is advantageous to the issuer, since it confers the flexibility to lower the issuer's cost of capital if interest rates decline or if it can issue preferred stock later at a lower dividend rate. For example, a company that has issued callable preferred stock with a 7% dividend rate is quite likely to call the issue if it can issue new preferreds carrying a 4% dividend rate. The investor who holds callable preferreds, on the other hand, is at a disadvantage. If the preferred issue is called by the issuer, the investor will most likely be faced with the prospect of reinvesting the proceeds at a lower dividend or interest rate. The call premium that the issuer pledges to pay at redemption of the preferred issue is meant to compensate the investor for part of this reinvestment risk.

Offset Mortgage

A type of mortgage that involves blending a traditional mortgage with one or more deposit accounts; the savings balance(s) held in the latter can be used to offset the mortgage balance. Both the account and the loan are held at the same banking institution, and an initial loan balance (or credit limit) is established, along with an interest rate. The savings account is typically a non-interest bearing account, allowing the bank to earn a positive return on any balances in the account. When each mortgage payment is made, the interest is calculated on the principal remaining in the mortgage account, minus the aggregate amount of savings in the one or more deposit accounts. Borrowers still have access to their savings; if money is removed from savings during the month, the next mortgage payment will be calculated on a higher principal balance. For example, if the mortgage principal is $225,000 and $15,000 was held in savings during the last month, the interest due would only be calculated on ($225 - $15) = $210,000. I: This is a very attractive option for people that can be diligent savers - even though the savings account won't earn any interest, they are typically low-earning accounts that only pay 1-3% per year. Chances are that the interest rate on the mortgage is substantially higher, so any savings there is a net benefit to the borrower. Meanwhile, the foregone interest on the savings account becomes non-taxable payments towards the mortgage. Offset mortgages are common in many foreign nations, such as the U.K., but are currently not eligible for use in the U.S. because of tax laws.

12B-1 Fund

A type of mutual fund that charges its holders 12B-1 fees instead of up-front or back-end commissions. 12B-1 funds take a portion of assets held and use them to pay expense fees and distribution costs. These costs are included in the fund's expense ratio and are described in the prospectus. I: The name 12B-1 comes from the Investment Company Act of 1940's Rule 12B-1, which allows fund companies to act as distributors of their own shares. Rule 12B-1 further states that a mutual fund's own assets can be used to pay distribution charges. Originally, the rule was intended to pay advertising and marketing expenses; today, however, a very small percentage of the fee actually goes toward these costs.

Participating Preferred Stock

A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition.The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount.Furthermore, in the event of liquidation, participating preferred shareholders can also have the right to receive the stock's purchasing price back as well as a pro-rata share of any remaining proceeds that the common shareholders receive. I: For example, suppose Company A issues participating preferred shares with a dividend rate of $1 per share. The preferred shares also carry a clause on extra dividends for participating preferred stock, which is triggered whenever the dividend for common shares exceeds that of the preferred shares.If, during its current quarter, Company A announces that it will release a dividend of $1.05 per share for its common shares, the participating preferred shareholders will receive a total dividend of $1.05 per share ($1.00 + 0.05) as well.Participating preferred stock is rarely issued, but one way in which it is used is as a poison pill. In this case, current shareholders are issued stock that gives them the right to new common shares at a bargain price in the event of an unwanted takeover bid.

Binary Option

A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money. The success of a binary option is thus based on a yes/no proposition, hence "binary". A binary option automatically exercises, meaning the option holder does not have the choice to buy or sell the underlying asset. I: Investors may find binary options attractive because of their apparent simplicity, especially since the investor must essentially only guess whether something specific will or will not happen. For example, a binary option may be as simple as whether the share price of ABC Company will be above $25 on November 22nd at 10:45 am. If ABC's share price is $27 at the appointed time, the option automatically exercises and the option holder gets a preset amount of cash. Binary options are significantly different from vanilla options. They are occasionally traded on platforms regulated by the SEC and other regulatory agencies, but are most likely traded over the Internet on platforms existing outside of regulations. Because these platforms operate outside of regulations, investors are at greater risk of fraud. For example, a binary options trading platform may require the investor to deposit a sum of money to purchase the option. If the option expires out-of-the-money, meaning the investor chose the wrong proposition, the trading platform may take the entire sum of deposited money with no refund provided.

Backspread

A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either all call options or all put options. I: An example of a backspread using call options would be selling one $45 call option for $5 and purchasing two $50 call options for $2.10 each. The trader in this case would benefit from a large move past $50 because he/she is holding more long options than short.

One-Cancel-All Order

A type of order comprising several limit orders for several companies, but in the event that one gets filled, the rest are canceled. This type of order allows a trader to buy one out of a number of potential stocks at the best price in the shortest amount of time. I: For example, a trader might use a one-cancel-all order if he or she has $5,000 to invest in the market and wants to put it all in one company but has several possible candidates. If the trader is looking at three stocks - ABC for $5, KLM for $20 and XYZ for $50 - the trader enters a one-cancel-all order for 1,000 shares of ABC, 250 shares of KLM and 100 share of XYZ. If XYZ is immediately filled at the $50, then the other two orders are canceled and will not be filled.

Macro Risk

A type of political risk in which political actions in a host country can adversely affect all foreign operations. Macro risk can come about from events that may or may not be in the reigning government's control. I: For example, any company that is engaging in foreign direct investment in a country that is on the verge of switching to an anti-foreigner slanted government would be facing tremendous macro risk, because the government is likely to expropriate any and all foreign operations, regardless of industry.There are many organizations that provide reports and information on the degree of political risk that a country may possess. Furthermore, companies have the opportunity to purchase political risk insurance from a variety of organizations in order to mitigate potential losses.

General Public Distribution

A type of primary market offering in which the securities being issued are available to anyone who has the ability to purchase them. This differs from conventional public distributions of securities in which underwriting investment banks sell large blocks of the issued securities to large investors. I: If you take part in a general public distribution of securities, you are participating in what is called the primary market: you are buying securities directly from the issuing company, and your funds go to it to finance its business activities. This is in contrast to the secondary market, where investors buy and sell securities from each other, with funds moving back and forth from investor to investor without involving the underlying company at all.

T Distribution

A type of probability distribution that is theoretical and resembles a normal distribution. A T distribution differs from the normal distribution by its degrees of freedom. The higher the degrees of freedom, the closer that distribution will resemble a standard normal distribution with a mean of 0, and a standard deviation of 1.The T distribution is also known as the "Student's T Distribution". I: The use of a T distribution is precluded by the standard deviation of the population parameter being unknown and allows the analyst to approximate probabilities, based on the mean of the sample, the population, the standard deviation of the sample and the sample's degrees of freedom. As the sample's degrees of freedom approaches 50, the T distribution will virtually be identical to the normal distribution.

Malpractice Insurance

A type of professional liability insurance purchased by health care professionals (and sometimes by other types of professionals, such as lawyers). This insurance coverage protects health care providers against patients who sue them under the claim that they were harmed by the physician's negligent or intentionally harmful treatment decisions. I: Premiums are usually based on the physician's specialty and geographic location but not on claims experience. This means that even if a physician has never been sued, he or she can end up paying extremely high premiums. The premiums can become high because of factors such as amount of coverage needed, claims severity, claims frequency, location of practice and laws in the area.

General Collateral Financing Trades - GCF

A type of repurchase agreement which is executed without the designation of specific securities as collateral until near the end of the trading day. General collateral financing (GCF) trades utilize several Inter-Dealer Brokers, who act as intermediaries for the GCF trades. GCF trades allow both borrowers and lenders in the repo market to reduce their costs and decrease the complexity of handling securities and fund transfers for repo agreements. I: The delay granted in specifying the exact collateral for the repo is advantageous for borrowers, who are then able to utilize the securities they have on hand to clear other, unrelated trades as necessary throughout the day. This avoids the time-consuming process of swapping collateral if it becomes needed by the borrower. GCF trades are also advantageous in that the use of the Inter-Dealer Broker allows borrowers and lenders to net out all of their GCF repo obligations at the end of each trading day, greatly decreasing the number of costly securities and fund transfers that must take place.

Balloon Mortgage

A type of short-term mortgage. Balloon mortgages require borrowers to make regular payments for a specific interval, then pay off the remaining balance within a relatively short time. Some types of balloon mortgages can be interest-only for 10 years, and the final "balloon" payment to pay off the balance comes as one large installment at the end of the term. I: Balloon mortgages have the option for early repayment or can be set up similar to a 30-year fixed-rate mortgage with the embedded option. The total debt repayment of these loans is lower than that of conventional fixed-rate mortgages. Balloon mortgages take the form of interest-only loans or partially amortizing mortgages.

Maintenance Bond

A type of surety bond purchased by a contractor that protects the owner of a completed construction project for a specified time period against defects and faults in materials, workmanship and design that could arise later if the project was done incorrectly. A maintenance bond is not technically insurance, but basically functions as an insurance policy on a construction project to make sure a contractor will either correct any defects that arise or that the owner is compensated for those defects. Pricing a maintenance bond is very different from pricing regular coupon paying bonds. I: A surety bond is a three-way contract where a third party called the surety guarantees the contractual obligations of one party (the principal) to another party (the obligee) by agreeing to pay a sum to the obligee as compensation if the principal does not fulfill its obligations. The surety assures the obligee that the principal will perform the required tasks. A maintenance bond is structured in such a way.

Rate Anticipation Swap

A type of swap in which bonds are exchanged according to their current duration and predicted interest rate movements. A rate anticipation swap is often made in order to take advantage of more profitable bond opportunities. Rate anticipation swaps are speculative in nature, since they depend on the outcome of the expected interest rate change. Various bond types respond differently to rising or falling interest rates and those who participate in rate anticipation swaps generally choose bonds based on performance. I: As an example, investors may swap short-term bonds for long-term bonds if interest rates are expected to decline. Conversely, investors may swap longer-term bonds for short-term bonds if interest rates are expected to rise. A swap is an exchange of one security for another to change the maturity, the quality of the issues in a bond portfolio, or due to a change in the investor's goals and strategies.

Kamikaze Defense

A type of takeover defense mechanism sometimes resorted to by a company that is the target of a hostile bid. Kamikaze defense involves reshaping the target company - either by divesting substantial assets or by making unappealing acquisitions - so that its attraction to a corporate raider is greatly reduced. Kamikaze defense mechanisms include such aptly-named strategies as the "scorched earth" tactic, the "sale of crown jewels" strategy and the "fatman" maneuver. I: Since they can inflict irreparable harm upon the target company, kamikaze defenses can be considered as strategies of last resort to prevent it from falling into hostile hands. The name is derived from the tactics used by Japanese suicide pilots in World War II.

One-Day Certificate

A type of temporary financing used by the U.S. Treasury. One-day certificates are interest bearing and are used when the Treasury must borrow from the Federal Reserve System. These certificates are a type of Special Certificate that is issued to the Federal Reserve Bank of New York. I: One-day certificates have not been issued since June of 1979. Legislation prohibits the Treasury from borrowing more than $5 billion directly from the Federal Reserve and requires the approval of at least five of the seven governors of the Federal Reserve Board.

Hedging Transaction

A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging transactions purchase opposite positions in the market in order to ensure a certain amount of gain or loss on a trade. They are employed by portfolio managers to reduce portfolio risk and volatility or lock in profits. I: Hedging transactions are subject to ordinary gain and loss tax treatment. However, hedging losses of limited partners are usually limited to their taxable income for the year. Hedge funds use this sort of transaction extensively.

Qualifying Transaction

A type of transaction that occurs when a company issues public stock in Canada. A qualifying transaction occurs when a qualified Capital Pool Company (CPC) purchases all of the outstanding shares of a privately-owned company from the current shareholders. The private company then becomes a fully-owned subsidiary of the CPC. I: Because the capital pool company will, by nature, have no business of its own, whatever line of trade that the private company engages in becomes the business of the CPC. Qualifying transactions usually formally begin when the shareholders and the CPC create a Letter of Intent (LOI) outlining the terms of the agreement. Usually, the CPC must include a plan for financing the transaction in every LOI.

Jointly and Severally

1. A legal term describing a partnership in which individual decisions are bound to all parties involved and thus undivided. 2. A term used in underwriting syndicates to refer to the distinct responsibility of individual companies to sell a certain portion of unsold new issue. I: 1. When an investor authorizes power of attorney to two separate lawyers jointly and severally, both lawyers can make binding decisions without the approval of the other lawyer. 2. For example, an underwriter who has jointly and severally agreed to a 30% stake in the sale of a new issue must sell 30% of any remaining unsold portion, even if that underwriter has already sold more than this amount in the initial sale. All members of the syndicate are responsible for any leftover shares.

Hardening

1. A term used to describe a price of commodity or futures contracts that is gradually stabilizing. 2. A futures market that is slowly advancing in prices. I: 1. After a rise or fall in prices, a slow return to historically accepted levels is considered a hardening. 2. The prices of future contracts are considered to be hardening if they are increasing slowly, unlike a bulge market, in which the prices rise sharply.

Absolute Beneficiary

A designation of a beneficiary that can not be changed without the written consent of that beneficiary. Also referred to as an "irrevocable beneficiary", absolute beneficiaries can also refer to a trust, an employee benefit plan such as a pension, or any other instrument or contract with a beneficiary clause. I: The naming of absolute beneficiaries is common in divorce settlements or liability cases where part of the settlement is the naming of a given person as a beneficiary. Any designations of absolute beneficiaries should be made very carefully and with professional consultation.

Passive Loss

A financial loss within an investment in any trade or business enterprise in which the investor is not a material participant. Passive losses can stem from investments in rental properties or business partnerships. In order to be considered a non-material participant, the investor cannot be continuously and substantially active or involved in the business activity. I: Passive losses can be written off only against passive gains. When losses, which can include a loss from the sale of the passive business or property, exceed the income from passive activities, the rest of the loss can be carried forward to the next tax year, provided there is some passive income to write it off against.

Range Accrual

A form of interest accrual in which the coupon rate is only earned on days when another rate from which the coupon is derived falls within a specified range. As such, there is no standard coupon rate that can be counted on for interest payments. I: Range accrual notes are complex instruments that are valued and adjusted in a similar manner to American style options. They are typically used by large institutions as a hedge of another position. No official market exists for range accrual notes trading or valuation.

Canadian Overnight Money Market Rate

A measure or estimate of the rate at which major dealers are able to arrange financing of securities inventory for one business day. It is compiled by the Bank of Canada at the end of the day through a survey of major participants in the overnight market. I: The Canadian overnight money market rate comprises the weighted-average repo funding cost of major money market dealers. It is a less volatile measure of the collateralized overnight rate than other rates as it represents a greater volume of overnight transactions from more participants.

Saitori

A member of the Tokyo Stock Exchange who facilitates the trading of securities by matching buy and sell orders. Their role is to make the market as orderly and efficient as possible. I: The saitori are similar to specialists on the NYSE; however, specialists are not allowed to trade for their own account or for the general public. They trade for the members of the NYSE.

E-Mini

An electronically traded futures contract on the Chicago Mercantile Exchange that represents a portion of the normal futures contracts. E-mini contracts are available on a wide range of indexes such as the Nasdaq 100, S&P 500, S&P MidCap 400 and Russell 2000. I: For example, the E-mini S&P 500 futures contract is one-fifth the size of the standard S&P 500 futures contract. Advantages to trading E-mini contracts include liquidity, greater affordability for individual investors and around-the-clock trading.

Qualified Acquisition Cost

These are items, in the context of IRA withdrawls, that constitute penalty free withdrawls for an IRA owner who uses the assets to purchase a first home. I: These include the following items: - Costs of buying, building, or rebuilding a home. - Any usual or reasonable settlement, financing, or other closing costs.

Keynesian Economics

An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynes advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, the term "Keynesian economics" was used to refer to the concept that optimal economic performance could be achieved - and economic slumps prevented - by influencing aggregate demand through activist stabilization and economic intervention policies by the government. Keynesian economics is considered to be a "demand-side" theory that focuses on changes in the economy over the short run. I: Prior to Keynesian economics, classical economic thinking held that cyclical swings in employment and economic output would be modest and self-adjusting. According to this classical theory, if aggregate demand in the economy fell, the resulting weakness in production and jobs would precipitate a decline in prices and wages. A lower level of inflation and wages would induce employers to make capital investments and employ more people, stimulating employment and restoring economic growth. The depth and severity of the Great Depression, however, severely tested this hypothesis. Keynes maintained in his seminal book, "General Theory of Employment, Interest and Money," and other works, that structural rigidities and certain characteristics of market economies would exacerbate economic weakness and cause aggregate demand to plunge further. For example, Keynesian economics refutes the notion held by some economists that lower wages can restore full employment, by arguing that employers will not add employees to produce goods that cannot be sold because demand is weak. Similarly, poor business conditions may cause companies to reduce capital investment, rather than take advantage of lower prices to invest in new plant and equipment; this would also have the effect of reducing overall expenditures and employment. There is more to this economic theory - Read Can Keynesian Economics Reduce Boom-Bust Cycles?

James A. Mirrlees

An economist who won the Nobel Memorial Prize in Economics in 1996, along with William Vickrey, for his work on information asymmetry as it relates to taxation and moral hazard problems. Mirrlees believes that the tax system should be used to improve equality, and determined that the optimal marginal tax rate should be only about 20%. Furthermore, he determined that this optimal rate could efficiently be applied to everyone, not just the rich, providing justification for a flat tax rate. I: Mirrlees' primary research interests include optimal income taxation, imperfect rationality and principal/agent situations with multidimensional choice variables. He also helped to develop the Diamond-Mirrlees efficiency theorem along with Peter A. Diamond. Mirrlees was born in Scotland in 1936. He has worked as an emeritus professor of political economy at the University of Cambridge and as a fellow of Trinity College. He has also taught at Oxford.

Old Lady

An eighteenth century nickname for the Bank of England. The full name is the Old Lady of Threadneedle Street, which refers to the bank's location. The Bank of England is located in the middle of the city of London on Threadneedle Street. I: James Gillray first used the nickname in a caricature cartoon in 1797. The cartoon was entitled "The Old Lady of Threadneedle Street in Danger", which some say pokes fun of the Bank of England for stopping cash payments. The Old Lady is seen dressed in one-pound bank notes, which the Bank of England used to compensate for the lack of cash reserves.

Qualified Electric Vehicle

An electric vehicle that qualifies the owner to claim a nonrefundable tax credit. A qualified electric vehicle must have at least four wheels and be designed for public use. It must also be powered primarily by an electric motor drawing its charge from rechargable batteries or fuel cells. The vehicle must be driven almost exclusively in the U.S. I: In order to claim the qualified electric vehicle credit, the taxpayer must have purchased the vehicle new and for personal or business use. The vehicle cannot be purchased for resale, and it cannot have been used as a nonelectric vehicle at any time. The credit is claimed on IRS Form 8834.

Debit Card

An electronic card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. This removes the need for bank clients to go to the bank to remove cash from their account as they can now just go to an ATM or pay electronically at merchant locations. This type of card, as a form of payment, also removes the need for checks as the debit card immediately transfers money from the client's account to the business account. I: The major benefits to this type of card are convenience and security. Along with the convenience of accessing account funds at anytime it also removes the hassles associated with having to write checks as payment like showing ID and associated fees. Debit cards are also considered to be a safer form of payment as a code is required to access the account funds, while checks can be easily stolen.

Nasdaq Intermarket

An electronic marketplace where National Association of Securities Dealer (NASD) members could execute trades, communicate, and receive quotations on stocks listed on the New York Stock Exchange (NYSE) and the American Stock Exchange (Amex). Formerly known as "Nasdaq's third market", Nasdaq Intermarket used Nasdaq's Computer Assisted Execution System (CAES) to connect buy and/or sell orders. Nasdaq announced its intentions to withdraw from the Intermarket Trading system in 2005. I: Nasdaq Intermarket competed for retail stock orders with regional exchanges such as the Chicago Stock Exchange (CHX) and the Boston Stock Exchange (BSE). By connecting several stock exchanges, the intermarket system gave traders access to additional buyers and/or sellers, increasing liquidity and competition.

Japan Association Of Securities Dealers Automated Quotation - Jasdaq

An electronic security exchange based in Tokyo, Japan. Originally an over the counter market, Jasdaq launched an electronic trading platform featuring an automated quotation system similar to the Nasdaq. I: In 1963, the Japan Securities Dealers Association created an over-the-counter system for security trading. In 1991, the association launched the Jasdaq system, which converted its current operations into an electronic security trading market. In 2004, the corporation changed its name to the Jasdaq Securities Exchange, and was formally recognized as a securities exchange.

Hardship Withdrawal

An emergency withdrawal from a retirement plan that may be subject to certain tax or account penalties. In the United States, funds withdrawn prior to the age of 59.5 are typically subject to a 10% Internal Revenue Service (IRS) early withdrawal penalty, as well as standard income taxes. I: Hardship withdrawals from a retirement plan such as a 401(k) can't be replaced. The money that is withdrawn is permanently removed from the account, and only scheduled future contributions are permitted.The stiff penalties and criteria for hardship withdrawals are meant to deter investors from using this option except as a last resort. The ability to have money free from future income taxes and capital gains taxes (a trait of most retirement accounts) is an extremely valuable asset, and is necessary for many people to achieve a stable retirement.

Cafeteria Plan

An employee benefit plan that allows staff to choose from a variety of benefits to formulate a plan that best suits their needs. Cafeteria plan options may include health and accident insurance, cash benefits, tax advantages and/or retirement plan contributions. Also known as "cafeteria employee benefit plan" or "flexible benefit plan". I: Similar to a cafeteria where individuals select their food of choice, employees may choose benefits of their choice. These plans become more useful as diversity within workforces continues to grow. For example, the benefit needs of young families may differ greatly from those of a single person.

Backstop Purchaser

An entity that agrees to purchase all the remaining, unsubscribed securities from a rights offering. The backstop purchaser provides security to the issuing firm by guaranteeing that all of the newly issued shares will be purchased, allowing the company to fulfill its fundraising requirements. I: Just as a backstop in baseball prevents a ball from leaving the playing field, a backstop to an offering insures that the funds required by the firm are raised.Backstopping can cost companies large fees when participating in a rights offering. Similar to an underwriter, the backstop purchaser takes on the risk of issuing new securities and is paid a premium for compensation. For example, when Berkshire Hathaway acted as a backstop purchaser for USG Corporation, it earned a non-refundable fee of $67 million for the service.

Calculation Agent

An entity that determines the price of an investment product such as a swap. A calculation agent calculates the value of a derivative or the amount owing from each party. The agent also establishes the price for a structured product and may act as its guarantor and issuer. The calculation agent is not a fiduciary, but is expected to avoid conflicts of interest and act in good faith. Its decisions are considered binding. Any disagreement over the calculation agent's decisions must be resolved by a disinterested third-party dealer. I: In the credit default swap market, the calculation agent establishes the contract's cash settlement price to give the investors an alternative to a physical settlement. This price will be based on the highest available bids from market makers. The calculation agent, who is typically either the seller or a third party, sometimes takes on a number of other roles in more complex transactions.

Canadian Securities Course™ - CSC™

An entry-level program offered by the Canadian Securities Institute (CSI) that allows an individual to become a qualified mutual fund representative. I: The CSCTM is often the first step for Canadian individuals wishing to pursue a career that involves trading securities and providing investment advice to clients. The CSCTM involves two exams, referred to as Volume 1 and Volume 2, each of which includes 100 multiple-choice questions within two hours.

Gamma Pricing Model

An equation for determining the fair market value of a European-style option when the price movement on the underlying asset does not resemble a normal distribution. The gamma pricing model is intended to price options where the underlying asset has a distribution that is either long-tailed or skewed, where dramatic market moves occur with greater frequency than would be predicted by a normal distribution of returns. I: While the Black-Scholes option pricing model is the best known, it does not provide accurate pricing results under all situations. In particular, the Black-Scholes model assumes that the underlying instrument has returns that are normally distributed. As a result, the Black-Scholes will misprice options on instruments that do not trade based on a normal distribution. Many alternative options pricing methods have been developed with the goal of providing more accurate pricing for real-world applications such as the Gamma Pricing Model. Generally speaking, the Gamma Pricing Model measures the gamma, which is how much fast the delta changes with respect to small changes in the underlying asset's price.

90-Age Formula

An equation used by Canadian retirees to calculate how much money to withdraw each year from their Registered Retirement Income Funds (RRIFs), a type of tax-advantaged individual retirement plan. Retirees are required to withdraw a minimum amount from the plan each year and can calculate the amount to be withdrawn using one of two formulas: the 90-age formula or the 90-percentage schedule. I: The 90-age formula assumes that the retiree will live to be 90 years old. It calculates the annual withdrawal amount by dividing the book value of the RRIF at the beginning of the calendar year by (1- (90 - planholder or spouse's age)). The morbidity calculation allows the RRIF to act as a lifetime annuity. The money withdrawn from the RRIF is taxable at the retiree's marginal tax rate.

Participating Convertible Preferred Share - PCP

An equity holding that gives investors the right to claim excess earnings (along with common-stock shareholders) in addition to the preferred dividend. PCPs are commonly used in venture-capital financing; venture capitalists will often exercise the option to convert their PCPs to common stock when they intend to exit an investment. The type of exit - initial public offering or trade sale - determines the security's cash flow right. I: The National Venture Capital Association is the industry lobbying and advocacy organization for venture capitalists. According to a 2009 Global Insight research study, companies with venture-capital backers accounted for 12.1 million jobs and $2.9 trillion in revenue in the U.S. in 2006 alone.

National Savings Rate

An estimate from the U.S. Commerce Department's Bureau of Economic Analysis (BEA) of the amount of income left over after subtracting consumption costs and expenditures. The National Savings Rate, though it is referred to as a "savings rate," does not actually measure the amount of money Americans are saving or investing for the long-term. National savings include savings left over from personal, business and government. I: The National Savings Rate is confusing at first glance, due to the fact that it is often substantially less than what the typical American reports contributing to their employer-sponsored retirement plans and IRAs. This difference is because the national savings rate includes government savings, and they are usually reporting deficits which lowers the national savings rate.

Office Audit

An examination of a taxpayer's records by the Internal Revenue Service to ensure the taxpayer's compliance with tax laws. In an office audit, the IRS interviews the taxpayer and inspects the taxpayer's records at an IRS office. The purpose of an office audit is to make sure the taxpayer is accurately reporting income and paying the lawful amount of tax. I: The IRS may select a tax return for audit at random as part of routine compliance efforts; a tax return may also be selected because of suspected errors based on mismatched documents or the examination of related taxpayers' returns. Taxpayers are notified of audits by mail, and the audit itself may be conducted by mail, at an IRS office, at a taxpayer's home or business, or at an accountant's office. IRS Publication 556 provides details on the office audit process.

Marginal Analysis

An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables. I: For example, if you already exercise five times a week and are thinking about adding a sixth day, you would use marginal analysis to determine whether the benefits of the sixth day, such as additional calories burned, endurance gained and muscle built, would be worth the costs of the sixth day, such as giving up sleeping in on Saturdays, having less energy to do your other weekend activities, and increasing your risk of injury.

Pacific Exchange - PCX

An exchange network that coordinates the trading of stock options between both institutional and individual investors. The PCX was one of four U.S. exchanges to trade equity options and the first to develop and implement an electronic trading system. At one time, the PCX had operations in both Los Angeles and San Francisco, but both closed in early 2000 when the PCX partnered with the Archipelago Exchange. ArcaEx later merged with the New York Stock Exchange and PCX transactions are now conducted on the NYSE Arca platform. I: PCX was originally formed in San Francisco in 1882 as the Stock and Bond Exchange. It officially got its name in 1957 when the San Francisco and Los Angeles stock exchanges merged. For years, the PCX was a mainstay in San Francisco's financial district, but its open outcry system of trading became archaic with the advent of computers and computer trading. It ceased operations in 2005.

Callable Swap

An exchange of cash flows in which one counterparty makes payments based on a fixed interest rate, the other counterparty makes payments based on a floating interest rate and the counterparty paying the fixed interest rate has the right to end the swap before it matures. An investor might choose a callable swap if interest rates are expected to change in a way that would adversely affect the fixed rate payer. I: The additional features of a callable swap make it more expensive than a plain vanilla interest rate swap - the fixed rate payer will pay a higher interest rate and possibly might have to pay additional funds to purchase the option. The opposite of a callable swap is a putable swap, which allows the floating interest rate payer to end the swap early.

Paper Industry ETF

An exchange-traded fund that invests primarily in manufacturers of paper and pulp. The paper industry is represented in the ETF sector through timber and forestry ETFs, which have a large majority of their holdings in forest products and paper makers. Paper industry ETFs are better known as "timber & forestry ETFs". I: Given the limited number of paper companies based in the U.S., timber & forestry ETFs tend to be global in scope. Apart from the U.S., these ETFs include companies from regions that have a significant presence in the industry, such as Asia, Canada and Finland. For this reason, these ETFs could also be considered an investment in the global economy as well.

Pairing Off

An illegal practice of a brokerage firm offsetting short and long positions between house accounts by collecting cash payments without physically delivering the securities. I: Pairing off can occur only by brokerage firms colluding with one another. Proper settlement of short and long positions require the delivery of physical securities be made within three business days after the transaction. By settling these positions with cash payments, the brokerage firms are able to manipulate the market by trading non-existent shares and circumventing settlement regulations.

Ghosting

An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. Ghosting is used by corrupt companies to affect stock prices so they can profit from the price movement. I: This practice is illegal because market makers are required by law to act in competition with each other. It is known as "ghosting" because, like a spectral image or a ghost, this collusion among market makers is difficult to detect. In developed markets, the consequences of ghosting can be severe.

Questioned Document Investigation

An in-depth look into a document which is being questioned in the case of fraud, forgery, etc. The investigation is usually instigated in the event that large sums of money, heirlooms, or other assets are being called into question by a third party. I: A questioned document investigation may also be called upon to discover altered documents, fabricated checks, anonymous letters, disputed wills, and many other disputed documents. A forensic analysis of the questioned document will typically involve comprehensive analysis of the paper, ink, indentations and tools used to produce the document.

Quantity Discount

An incentive offered to a buyer that results in a decreased cost per unit of goods or materials when purchased in greater numbers. A quantity discount is often offered by sellers to entice buyers to purchase in larger quantities. The seller is able to move more goods or materials, and the buyer receives a more favorable price for the goods. At the consumer level, a quantity discount can appear as a BOGO (buy one, get one discount) or other incentives such as buy two, get one free. I: Retailers often get better deals if they order more of the same item. For example, the cost per unit for t-shirts might be $7.50 per unit if less than 48 pieces are ordered; $7.25 per unit if 49-72 pieces are ordered; or $7.00 per unit if 73 or more pieces are ordered. Depending on the quantity discount, all pieces ordered must be delivered and paid for by a certain date, or the purchases and payments can be spread out over a specified period of time.

1040PC Form

An income tax return that is prepared by computer in a three column "answer-sheet" format. It only prints the bottom line number, dollar amount, and, for most entries, a brief description called a "legend page." I: The 1040PC form can cut the usual 11-page tax return down to just a couple pages. However, the IRS quit accepting this form in 2000, preferring the e-file format instead.

Earning Assets

An income-producing investment that is owned by a business, institution or individual. Earning assets include stocks, bonds, income from rental property, certificates of deposit (CDs) and other interest or dividend earning accounts or instruments. Income from earning assets must be reported on the appropriate tax filings. Institutions send yearly statements for tax reporting purposes that include the total amount of interest and/or dividends earned. Income from rental properties must also be declared. I: Some earning assets, such as certificates of deposit, require no additional effort once the initial investment is made. Others, such as rental properties, require ongoing effort in terms of time and money. In the case of rental property, this could include routine maintenance, improvements, taxes and insurance, and general management of the property.

Economic Growth

An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation. For comparing one country's economic growth to another, GDP or GNP per capita should be used as these take into account population differences between countries. I: Economic growth is usually associated with technological changes. An example is the large growth in the U.S. economy during the introduction of the Internet and the technology that it brought to U.S. industry as a whole. The growth of an economy is thought of not only as an increase in productive capacity but also as an improvement in the quality of life to the people of that economy.

Gain

An increase in the value of an asset or property. A gain arises if the selling or disposition price of the asset is higher than the original purchase or acquisition price. This positive difference between the sale price and purchase price is referred to as the gross gain; if transaction costs such as commissions and other expenses are considered, this would be a net gain. A gain may either be realized, i.e., when the asset is actually sold, or unrealized, i.e., a paper gain. Another important distinction of a gain is that it may be taxable or non-taxable. I: In most jurisdictions, realized gains are subject to capital gains tax. However, if the gains accrue in a non-taxable account - such as an Individual Retirement Account in the U.S. or a Registered Retirement Savings Plan in Canada - gains will not be taxed. For taxation purposes, net realized gains - rather than gross gains - are taken into consideration. In a stock transaction in a taxable account,the taxable gain would be the difference between the (higher) sale price and purchase price, after taking brokerage commissions into consideration.

Quarterly Revenue Growth

An increase of a company's sales when compared to a previous quarter's revenue performance. The current quarter's sales figure can be compared on a year-over-year basis or sequentially. This helps to give analysts, investors and participants an idea of how much a company's sales are increasing over time. I: When looking at a company's quarterly or annual financials, it is not enough to just look at the revenue for the current period. When investing in a company, an investor wants to see it grow or improve over time. Looking at the financials in comparison to a previous quarter will give participants a much better idea of how well a company is doing.For example, if Exxon Mobil generated $91.3 billion in revenue during its fourth quarter of 2005 and $82.2 billion in the third quarter that year, the company saw quarterly revenue growth of 11% sequentially. If Exxon Mobil generated $80.2 billion in the fourth quarter of 2004, the company would have seen its revenue increase 13.8% on a year-over-year basis.

Balloon Interest

An increased coupon rate on the longer term maturity instruments within a serial bond issue. In a serial issue, bonds mature at different intervals, creating a string of short- to long-term instruments. Higher interest is earned on the long-term bonds, providing incentive to investors for holding the instrument for an increased period. I: Investors refer to this large coupon rate as balloon interest, since it is often inflated. Serial bonds are usually issued to fund revenue-generating projects with steadily increasing cash flows. The issuer hopes that the project will be near the height of its earning power, by time the balloon interest is due.

Federal Communications Commission - FCC

An independent U.S. government regulatory agency responsible for overseeing all interstate and international communications. The FCC acts to maintain standards and consistency among the ever-growing types of media and methods of distribution, while protecting the interests of both consumers and businesses. The agency is accountable to Congress. I: The FCC's actions are watched closely by stock market followers because they affect companies along many different business lines. The FCC allocates cellular and wireless accesss, regulates media company mergers and acquisitions, protects intellectual property rights and regulates standards of content and distribution for all media companies operating in the United States.

Office Of The Superintendent Of Financial Institutions - OSFI

An independent agency responsible for the regulation of banks, insurance companies, trusts and pension plans in Canada. The Office Of The Superintendent Of Financial Institutions reports to the Minister of Finance. It was formed in 1987 when the Department of Insurance and the Office of the Inspector General of Banks were combined. I: The OSFI is designed to maintain consumer confidence in the financial markets. To accomplish this, it guarantees the deposits through the Canadian Deposit Insurance Corporation (CDIC), reviews the pension plans of businesses to ensure that they are properly funded and helps mitigate the impact of financial issues that may crop up.

RBC Consumer Attitudes And Spending By Household Index - RBC CASH Index

An index based on a monthly national survey of consumer attitudes on the state of savings, local economies, personal financial situations and confidence to make significant investments, which covers both now and in the future. The RBC CASH Index was assigned a value in its base year (2002) of 100. The index is released at the end of the first full week of every month. I: Because consumer attitudes and confidence has a direct effect on the amount consumers spend and save, this data can be a valuable tool for predicting trends in the financial markets. Equity markets prefer high consumer spending and investment, while bond markets prefer moderate growth to stem inflation.Because consumer spending accounts for such a large portion of GDP (i.e. around 60% in 2008), the financial markets like to know how consumers feel and will feel about situations today and in the future.

NAHB/Wells Fargo Housing Market Index

An index based on a monthly survey of members belonging to the National Association of Home Builders (NAHB) that is designed to measure sentiment for the U.S. single-family housing market. The NAHB/Wells Fargo Housing Market Index (HMI) is a widely watched gauge of the outlook for the U.S. housing sector. The survey on which the index is based asks the NAHB's 140,000-plus members to rate market conditions for current new home sales and in the next six months, as well as prospective buyer traffic for new homes. The HMI is a weighted average of separate diffusion indexes for these three series. Its reading can range between 0 and 100; a reading over 50 indicates that more builders view sales conditions as good compared with those who view them as poor. I: The HMI is calculated as follows: The two series for market conditions for current new home sales and in the next six months are rated on a scale of Good, Fair and Poor, while the buyer traffic series is rated on a scale of High/Very High, Average and Low/Very Low. A diffusion index is then calculated for each series by applying a formula, after which each resulting index is seasonally adjusted and weighted to generate the HMI. The HMI is produced by the Economics arm of the NAHB, one-third of whose members are home builders and/or remodelers, with the others in closely related sectors such as building materials, housing finance and real estate sales. NAHB's builder members annually construct about 80% of the new homes built in the U.S. The HMI displays a close correlation with U.S. single-family housing starts, which refers to the start of construction on privately-owned homes. Housing starts data is a key indicator of how the U.S. economy is faring and is supplied monthly by the U.S. Census Bureau. As the HMI is a gauge of homebuyers' intentions, it can provide valuable clues about the near-term direction of housing starts. The HMI is released monthly at 10am EST on the day before housing starts data is released by the Census Bureau, which is generally around mid-month.

Nasdaq 100 Index

An index composed of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. This index includes companies from a broad range of industries with the exception of those that operate in the financial industry, such as banks and investment companies. I: Individual investors are able to gain exposure to the Nasdaq 100 index by purchasing exchange-traded funds (ETFs) that are specifically designed to track its performance. The most popular of these ETFs is known as the QQQQ.

Law Of Diminishing Marginal Productivity

An economic principle that states that while increasing one input and keeping other inputs at the same level may initially increase output, further increases in that input will have a limited effect, and eventually no effect or a negative effect, on output. The law of diminishing marginal productivity helps explain why increasing production is not always the best way to increase profitability. I: The law of diminishing marginal productivity shows us that instead of continuing to increase the same input, it might be better to stop at a certain level, increase a different input, or produce an additional or different product or service to maximize profit. As an example, let's consider a pizza restaurant that wants to increase profitability. Increasing the amount of cheese (the input) that goes on each pizza can create a more delicious product and sell more pizzas. But at some point, the pizza reaches an optimal cheese level. The amount of cheese must be balanced with the crust thickness, amount of sauce and other pizza toppings, if any. If the restaurant continues to add more cheese to the pizza beyond the optimal level, its sales will decline because customers will not enjoy pizzas that leave them with a mouthful of cheese and little else. If the pizza restaurant wants to continue to increase its profitability after optimizing the amount of cheese on its pizzas, it might look at increasing a different input, such as pepperoni or sausage, or adding another product, such as chocolate gelato.

Jobless Recovery

An economic recovery, following a recession, where the economy as a whole improves, but the unemployment rate remains high or continues to increase over a prolonged period of time. This effect may be a result of cautious businesses that add hours to existing employees in order to increase production capacity rather than hiring new workers. I: An example of a jobless recovery occurred in the early 1990s. While the American recession from the late 1980s technically ended in the first quarter of 1991, the unemployment rate did not actually stabilize until the middle of 1992.

Say's Law Of Markets

An economic rule that says that production is the source of demand. According to Say's Law, when an individual produces a product or service, he or she gets paid for that work, and is then able to use that pay to demand other goods and services. I: Say's Law is named after the 18th-century French classical liberal economist Jean-Baptiste Say, who popularized the notion. Say was an advocate of laissez-faire economics and was heavily influenced by Adam Smith. Say's Law is frequently misinterpreted as "supply creates its own demand," which is evidently false. If it were true, anyone could do whatever they wanted for a living and be successful at it.

Pareto Efficiency

An economic state where resources are allocated in the most efficient manner. Pareto efficiency is obtained when a distribution strategy exists where one party's situation cannot be improved without making another party's situation worse. Pareto efficiency does not imply equality or fairness. Also known as "Pareto optimality." I: Pareto efficiency has broad implications in economics, particularly in game theory. Unlike the predicted logical outcome of a prisoner's dilemma (participants choose selfishly and do not achieve the best possible outcome), if an economic state is Pareto efficient, individuals are maximizing their utility. The final allocation decision cannot be improved upon, given a limited amount of resources, without causing harm to one of the participants.

Hard Landing

An economic state wherein the economy is slowing down sharply or is tipped into outright recession after a period of rapid growth, due to government attempts to rein in inflation. A hard landing may be the undesirable consequence of efforts by a nation's central bank to tighten monetary policy, so as to slow down growth and keep inflation in check. While a soft landing is generally the objective of such tightening measures, a hard landing may be the occasional - and unfortunate - result. I: For example, China's rapid economic growth in recent years has often given rise to speculation about the possibility of a hard landing, in which the economy slows down from a double-digit rate to a growth pace in the low single digits. This could occur if measures by the Chinese government to tighten monetary policy slow down growth faster than it expects, or would like. In the United States, a hard landing is the occasional outcome of the Federal Reserve's tightening cycle, during which the federal funds rate is steadily ratcheted higher over a period of many months.

Factors Of Production

An economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. I: In essence, land, labor, capital and entrepreneurship encompass all of the inputs needed to produce a good or service. Land represents all natural resources, such as timber and gold, used in the production of a good. Labor is all of the work that laborers and workers perform at all levels of an organization, except for the entrepreneur. The entrepreneur is the individual who takes an idea and attempts to make an economic profit from it by combining all other factors of production. The entrepreneur also takes on all of the risks and rewards of the business. The capital is all of the tools and machinery used to produce a good or service.

Import Substitution Industrialization (ISI)

An economic theory employed by developing or emerging market nations that wish to increase their self-sufficiency and decrease their dependency on developed countries. Implementation of the theory focuses on protection and incubation of domestic infant industries so they may emerge to compete with imported goods and make the local economy more self-sufficient. I: Import Substitution Industrialization (ISI) came to emergence in the post-World War II era in Latin American countries. ISI seeks to protect local industries through various avenues such as tariffs, import quotas and subsidized government loans. Those countries practicing ISI seek to develop production channels for every stage of a product, not just the final product. ISI runs counter to the economic theory of comparative advantage, where countries specialize in the production of goods in which they have a particular advantage, and then engage in international trade.

Hard Sell

Advertising and sales practices denoted by aggressive or forceful language. A hard sell is designed to get a consumer to purchase a good or service in the short-term, rather than evaluate his or her options and potentially decide to wait on the purchase. It is considered a high-pressure technique. I: Determining whether to use a hard sell technique versus a soft sell technique, in which a campaign is more subtle in the delivery of its message, may come down to the type of product being sold and the type of person it is being advertised to. A hard sell technique used to sell a car, for example, might focus on the limited availability of the particular model, how other people are waiting to purchase the vehicle and how prices might increase if the consumer walks off the lot.

Qualified Automatic Contribution Arrangements - QACAs

Also known as QACAs, these were established under the Pension Protection Act of 2006 as a way to increase workers' participation in self-funded defined contribution retirement plans such as 401(k)s, 403(b)s and 457(b)s. Beginning January 1, 2008, companies that use QACAs automatically enroll workers in the plans at a negative deferral rate, unless they specifically opt-out. The minimum deferral amount per employee is 3% of his or her compensation for years one and two, increasing by 1% each year. The QACA amount cannot exceed 10% of his or her compensation. QACAs require a minimum employer contribution which can be either a matching or nonelective contribution. Employer contributions can be subject to a two-year vesting period unlike traditional 401(k)s in which employer contributions are immediately vested. I: If a company chooses to adopt a QACA and its defined contribution retirement plan already has an automatic enrollment feature, the employer can choose to have the QACA feature only apply to new employees. Employees must be given adequate notification about the QACA, as well as the ability to opt out completely or to participate at a different, specific contribution level.

Leasehold Improvement

Alterations made to rental premises in order to customize it for the specific needs of a tenant. Leasehold improvements include painting, installing partitions, changing the flooring, putting in customized light fixtures and so on. Leasehold improvements can either be undertaken by landlords, who may offer to do so to increase the marketability of their rental units, or by the tenants themselves. Also known as tenant improvements. I: Temporary leasehold improvements undertaken by tenants can be removed at the end of the lease period, as long as it is stipulated in the lease agreement, and removal would not inflict any damage on the rental premises or building structure. A leasehold improvement is classified as an asset that can be depreciated by the landlord over time. While the useful economic life of most leasehold improvements is 5 to 10 years, until 2004, the Internal Revenue Code required that depreciation for such improvements occur over the economic life of the building, or 39 years. Tax legislation enacted in 2004 reduced this depreciation period to 15 years; however, the 15-year depreciation schedule is temporary in nature and must be reauthorized annually.

John Bates Clark

An American Neoclassical economist renowned for his development of the marginal productivity theory of distribution. John Bates Clark is best known for his works on marginal utility, a revolutionary principal in economics. I: Born in 1847 in Rhode Island, Clark was a graduate of Amherst College and taught at Columbia University for nearly 30 years. He was also a former president of the American Economic Association (AEA). Clark died in 1938. The John Bates Clark Medal is named in his honor. The John Bates Clark Medal is a prize awarded each year by the AEA to an economist working in the United States who is younger than 40 and who has contributed outstanding research to the field of economics.

Daniel L. McFadden

An American econometrician and winner, along with James Heckman, of the 2000 Nobel Memorial Prize in Economic Sciences for his microeconometric analysis of individual and household behavior. Daniel L. McFadden has also conducted research on deviations from the economic theory of choice and the economic status of elderly Americans. I: Born in 1937 in North Carolina, McFadden has worked as a professor of economics at the University of California at Berkeley and has also taught at Yale and the Massachusetts Institute of Technology. He has authored several books and won the John Bates Clark medal, among numerous other awards and recognitions.

Kenneth Arrow

An American neoclassical economist who won the Nobel Memorial Prize in Economics along with John Hicks in 1972 for his contributions to general equilibrium analysis and welfare economics. Arrow's research has also explored social choice theory, endogenous growth theory, collective decision making, the economics of information and the economics of racial discrimination, among other topics. I: Born in New York City in 1921, Arrow has taught at Stanford University, Harvard and the University of Chicago. Arrow earned his Ph.D. from Columbia University, with a dissertation that discussed his impossibility theorem. He later published a book on the same subject. Arrow is also known as one of the first economists to recognize the learning curve.

eCash

An Internet-based system that allows funds to be transferred anonymously. Similar to credit cards, eCash was free to users, while sellers paid a fee. Because of security concerns, eCash remains more of an idea and less of an actual payment system. I: eCash uses blind signatures (a type of digital signature where the message's content cannot be seen before it is signed) so no link could be made between withdrawal and spend transactions. The system was used by one bank in the United States, the Mark Twain bank; however, the system was dissolved in 1997 after the bank was purchased by Mercantile Bank. eCash was a trademark of DigiCash, a firm that went bankrupt in 1998 and was sold to eCash Technologies. eCash Technologies was acquired in 2002 by InfoSpace.

EAGLES

An acronym introduced by Spanish bank BBVA in 2010 to describe the emerging and growth-leading economies of Korea, Indonesia, Mexico, Turkey, Egypt and Taiwan along with the BRIC countries Brazil, Russia, India and China. BBVA expected these countries to generate 50% of the global economic growth through 2020, whereas it expected the G7 countries of France, Germany, the United States, Canada, Italy, Japan and the United Kingdom to generate just 14%. I: In contrast to the BRIC acronym, which represents specific countries, the EAGLE acronym represents a type of economy and thus allows for the adding and dropping of countries as economic conditions evolve. BBVA anticipated that Nigeria, Poland, South Africa, Thailand, Colombia, Vietnam, Bangladesh, Malaysia, Argentina, Peru and the Philippines could join the EAGLEs as their economies develop further.

Sarbanes-Oxley Act Of 2002 - SOX

An act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. SOX was enacted in response to the accounting scandals in the early 2000s. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards. I: The rules and enforcement policies outlined by the SOX Act amend or supplement existing legislation dealing with security regulations. The two key provisions of the Sarbanes-Oxley Act are: 1. Section 302: A mandate that requires senior management to certify the accuracy of the reported financial statement 2. Section 404: A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal controls.

Jobs And Growth Tax Relief Reconciliation Act of 2003

An act passed by congress that was intended to improve the economy of the United States by reducing the taxes collected, giving the population more money to spend. The act was passed in May 2003 and signed into law shortly after. I: The passing of the Jobs and Growth Tax Relief Reconciliation Act of 2003 lowered the tax rate applied to dividend income by making this income count as capital gains instead of as a part of normal income. The act also simplified rules relating to qualifying retirement plans and increased the personal tax exemption amount of the 'alternative minimum tax'.

Tactical Asset Allocation - TAA

An active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors. I: This strategy allows portfolio managers to create extra value by taking advantage of certain situations in the marketplace. It is as a moderately active strategy since managers return to the portfolio's original strategic asset mix when desired short-term profits are achieved.

Eat Well, Sleep Well

An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well. I: Investing in high-risk, high-reward securities will offer you the potential to eat well, but the risky nature of these securities might prevent you from sleeping at night. By contrast, investing safely means that you will sleep well, but the low rate of return may keep you from eating well.

Family Income Rider

An addition to a life insurance policy that provides the beneficiary with an amount of money equal to the policyholder's monthly income if the policyholder dies. A family income rider is a type of death benefit, and specifies the term for the additional coverage. It eventually expires if it is not enacted. I: In some cases, the beneficiary may choose a lump sum rather than receiving monthly payments. Younger wage-earners will typically choose a longer length of time for coverage because they have more working years left before retirement, and would therefore cause a larger financial hardship to their families if they died.

Inclusion Amount

An additional amount of income that a taxpayer may have to report as a result of leasing a vehicle or other property for business purposes. The inclusion amount must be reported if the fair market value of the leased vehicle exceeds a certain threshold. The inclusion amount is designed to limit the taxpayer's deduction amount to the amount that would be deductible as depreciation if the taxpayer owned the vehicle or equipment. This prevents the taxpayer from being able to deduct the entire amount of the larger lease payment versus the lesser amount of the depreciation. I: The inclusion amount will differ according to the type of property or equipment that is leased; the inclusion amount for cars is different than the rate applied to office equipment or computers. Car leases require that an inclusion amount be included for every year that a vehicle is leased, while other property needs an inclusion amount only if the business usage drops to 50% or less during the year.

Gas Guzzler Tax

An additional tax on the sale of vehicles that have poor fuel economy. The Energy Tax Act of 1978 established the gas guzzler tax and was designed to encourage the production and use of more fuel efficient vehicles. The gas guzzler tax is administered to passenger cars, trucks, minivans and SUVs. I: A vehicle is subject to a tax if it gets less than a certain number of miles per gallon. This is one of many reasons why you no longer see car manufacturers producing 1970s-style, gas-guzzling, oil-burning vehicles. The tax is posted on the window stickers of new cars; the lower the fuel economy, the higher the tax.

Implied Authority

An agent with the jurisdiction to perform acts which are reasonably necessary to accomplish the purpose of an organization. Under contract law, implied authority figures have the ability to make a legally binding contract on behalf of another person or company. I: An agent of an insurance company can be given the authority to solicit applications for life insurance on behalf of the insurer. When the insurer gives the agent that express authority, it also gives the agent the implied authority to telephone prospects on its behalf to arrange sales appointments.

Hedge Fund

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year. I: For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors. In the U.S., laws require that the majority of investors in the fund be accredited. That is, they must earn a minimum amount of money annually and have a net worth of more than $1 million, along with a significant amount of investment knowledge. You can think of hedge funds as mutual funds for the super rich. They are similar to mutual funds in that investments are pooled and professionally managed, but differ in that the fund has far more flexibility in its investment strategies. It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market (mutual funds generally can't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market. To dig deeper into hedge funds, and to learn how to invest like one -- check out our Hedge Fund Tutorial and How To Invest Like A Hedge Fund

Lease Option

An agreement that gives a renter the choice to purchase a property during or at the end of the rental period. As long as the lease option period is in effect, the landlord/seller may not offer the property for sale to anyone else. When the term expires, the renter must either exercise or forfeit the purchase option. A lease option gives a renter/potential buyer more flexibility than a lease-purchase agreement, which requires the renter to purchase the property at the end of the rental period. I: The property owner may charge the renter a premium for the option to purchase the property, perhaps in the form of higher (above market value) monthly rental payments. The property owner may opt to apply some of the higher rental fee toward the purchase price if the renter exercises the option. Any premium will likely be forfeited if the option is not exercised. The term of the option may be any period on which the property owner/landlord and potential purchaser/renter agree, but is commonly one to three years. The lease-option property's purchase price may be determined either at the outset of the agreement or at its conclusion.

Canada's New Stock Exchange - CNQ

An alternative stock exchange for micro-cap and emerging companies in Canada. Canada's New Stock Exchange (CNQ) offers companies simplified reporting requirements and reduced barriers to entry, compared to the Toronto Stock Exchange and the TSX Venture Exchange. The CNQ does this through its model, which attempts to remove the duplication of regulation between the exchange and the provincial securities commissions. I: The purpose of the CNQ is to strengthen investor confidence in emerging companies through enhanced disclosure and high regulatory oversight standards. The result is a stock exchange that maximizes liquidity and fosters entrepreneurial spirit, while also offering better protection to investors.

Feasibility Study

An analysis of the ability to complete a project successfully, taking into account legal, economic, technological, scheduling and other factors. Rather than just diving into a project and hoping for the best, a feasibility study allows project managers to investigate the possible negative and positive outcomes of a project before investing too much time and money. I: For example, if a private school wanted to expand its campus to alleviate overcrowding, it could conduct a feasibility study to determine whether to follow through. This study might look at where additions would be built, how much the expansion would cost, how the expansion would disrupt the school year, how students' parents feel about the proposed expansion, how students feel about the proposed expansion, what local laws might affect the expansion, and so on.

Earnings Estimate

An analyst's estimate for a company's future quarterly or annual earnings. Future earnings estimates are arguably the most important input when attempting to value a firm. By placing estimates on the earnings of a firm for certain periods (quarterly, annually, etc), analysts can then use cashflow analysis to approximate a fair value for a company, which in turn will give a target share price for publicly traded companies. I: Analysts use forecasting models, management guidance and fundamental information on the company in order to derive an estimate. Market participants rely heavily on earnings estimates to gauge a company's performance when announcing quarterly or annual results. The analysts' earnings estimates are used as a benchmark to measure a firm's performance relative to how experts expected it would do.

ECB Announcement

An announcement by the European Central Bank (ECB) Governing Council after their first meeting of the month which is devoted to monetary policy. The ECB Announcement comes about 45 minutes after the meeting in a press conference, and details their actions or lack of actions decided in the meeting.Because the ECB does not publish the minutes of its meetings, the ECB Announcement is important to gather information regarding upcoming interest rate policy. I: European market participants speculate on the possibilities of an interest rate change at these meetings. The ECB has a target rate for inflation, measured by the Harmonized Index of Consumer Prices (HICP), of 2%. Interest rates are changed to help maintain an inflation rate close to their target. As with interest rate speculation in other markets, if the ECB Announcement provides information different from the speculation, severe market impact is usually seen.A general rule to keep in mind when interpreting central bank data such as that released in this announcement, is that higher interest rates are bearish for equity markets, while lower rates are bullish.

Narrow-Based Weighted Average

An anti-dilution provision used to ensure that investors are not penalized when companies are undergoing additional financing or issuing new shares. A narrow-based weighted average takes into account only the total number of outstanding preferred shares for determining the new weighted average price for the old shares. I: The new weighted average price is adjusted for the preferred shareholder, thus providing protection against dilution. The narrow-based method is the most favorable for investors, as it lowers the price of the preferred shares more than other methods.

De-Escalation Clause

An article in a contract that calls for a price decrease if there is a decrease in certain costs. For example, a de-escalation clause may stipulate that maintenance fees will be reduced if the item being maintained depreciates in value. A de-escalation clause is the opposite of an escalation clause. I: A de-escalation clause can protect consumers from paying inordinately high prices over the life of a contract that was signed during a time of unusual circumstances. For instance, shipping costs may be higher than normal when a contract is signed due to atypical prices on gasoline. A de-escalation clause will correct for that by lowering the contracted shipping rate as gasoline prices drop.

Off Balance Sheet - OBS

An asset or debt that does not appear on a company's balance sheet. Items that are considered off balance sheet are generally ones in which the company does not have legal claim or responsibility for. For example, loans issued by a bank are typically kept on the bank's books. If those loans are securitized and sold off as investments, however, the securitized debt is not kept on the bank's books. One of the most common off-balance sheet items is an operating lease. I: Off balance sheet items are of particular interest to investors trying to determine the financial health of a company. These items are harder to track, and can become hidden liabilities. Collateralized debt obligations, for instance, may become a toxic asset before investors realize a company's exposure.

Dangerous Asset

An asset which, by its nature, creates a substantial risk of liability to the asset owner. Dangerous assets include commercial real estate, motor vehicles and construction equipment. Risk of personal injury and/or property damage is higher with dangerous assets. For example, a truck, by its mere use, has the potential to cause physical harm to its occupant as well as bystanders. I: Because dangerous assets carry with them a greater risk of liability for personal injuries and property damage, for asset-protection purposes a single business entity should not own more than one dangerous asset. In addition, dangerous assets should not be commingled with safe assets. For example, if your limited liability company (LLC) owns your commercial real estate as well as your company's bank accounts, a person who is injured while on the property could sue the LLC and not only pursue the property to satisfy his/her claim, but the business bank accounts as well. Often, it's best to place a dangerous asset, such as your business property, in a separate entity, such as a real estate trust, with your safe assets held in a family limited partnership (FLP) or LLC.

National Association Of Mortgage Brokers - NAMB

An association that represents the interests of mortgage brokers in the United States and promotes professionalism and ethical standards for its members. In addition to mandating that members adhere to a professional code of ethics, NAMB provides mortgage brokers with professional education opportunities and offers rigorous certification programs to recognize members with the highest levels of professional knowledge and education. I: NAMB hosts one annual convention each spring and sponsors or co-sponsors several additional meetings throughout the year. NAMB offers members a host of benefits aimed at increasing productivity and lowering business costs. Most NAMB members are small business owners.

National Association of Purchasing Management Chicago - NAPM Chicago

An association which compiles a survey and index that monitors business conditions in Chicago and its surrounding areas. The National Association of Purchasing Management Chicago (NAPM Chicago) surveys firms in both the manufacturing and non-manufacturing sectors, and provides a reading above or below 50%. Readings above 50% indicate expanding business conditions, while a reading below 50% indicates contracting conditions. I: As with most other indicators that give readers a feel for current economic trends, the NAPM Chicago is useful to understand the overall direction of the economy. Equity markets would enjoy to see this indicator rise, as business expansion should lead to higher corporate profits, and thus rising stock prices. The bond markets would enjoy to see more moderate growth as to stem inflationary pressures that would hurt bond prices due to the erosion of purchasing power of the principle and coupon payments. Because it is thought that the NAPM Chicago surveys the manufacturing sector primarily, it is thought to be a leading indicator of the ISM manufacturing index.

John Bates Clark Medal

An award issued to an American economist under the age of 40 who has made important contributions to the field of economics. The Clark Medal is one of the most prestigious awards in the field, and many John Bates Clark Medal winners have gone on to win the Nobel prize in economics. Unlike the Nobel prize, however, the medal is never awarded to more than one economist in the same year. I: The John Bates Clark Medal is considered one of the two most prestigious awards that an economist can earn, along with the Nobel Memorial Prize in Economic Sciences. Many winners of the medal go on to also become Noble Memorial Prize winners: from 1947 to 2010, 12 of the 32 winners of the John Bates Clark Medal also won the Nobel Memorial Prize. Previous winners include Paul Samuelson, Milton Friedman, James Tobin, Kenneth Arrow, Robert Solow, Joseph Stiglitz, Paul Krugman, Zvi Griliches, Gary Becker, Daniel McFadden, A. Michael Spence and James Heckman. John Bates Clark was an American neoclassical economist who passed away March 21, 1938.

Earnings Before Interest, Depreciation, Amortization and Exploration - EBIDAX

An earnings metric used in the evaluation of oil, gas and mineral firms. The metric is used in a similar manner to the way that EBITDA is used for other firms, and allows investors and other stakeholders to get a better idea of the true earnings-generating capacity of the firm without the obscuring the effects of accounting rules. I: EBIDAX is one of several earnings metrics that may be employed by analysts to evaluate the financial strength of an oil, gas or mineral firm. Exploration costs are excluded because there are different methods than can be used to account for exploration costs in oil and gas accounting. Excluding these costs allows for a more accurate comparison to the firm's competitors, who may use different accounting methods.

Easement In Gross

An easement that attaches a particular right to an individual rather than to the property itself. The easement in gross is often considered irrevocable for the life of the individual, but can be revoked if the individual sells the property that grants him or her that easement. For example, a homeowner may have an easement in gross with a neighbor allowing the homeowner to use a path through the neighbor's woods to reach the property. If the homeowner then sells the property, he or she cannot pass the easement in gross to the next property owner. I: Some types of easements, especially those given to utility companies, carry with them significant interest and can ultimately be assigned to other parties. If a piece of real estate is purchased without the seller disclosing the nature of any easement, the buyer can seek legal remedies if the easement reduces the value of the property.

Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) Process

An econometric term developed in 1982 by Robert F. Engle, an economist and 2003 winner of the Nobel Memorial Prize for Economics to describe an approach to estimate volatility in financial markets. There are several forms of GARCH modeling. The GARCH process is often preferred by financial modeling professionals because it provides a more real-world context than other forms when trying to predict the prices and rates of financial instruments. I: The general process for a GARCH model involves three steps. The first is to estimate a best-fitting autoregressive model; secondly, compute autocorrelations of the error term and lastly, test for significance.GARCH models are used by financial professionals in several arenas including trading, investing, hedging and dealing. Two other widely-used approaches to estimating and predicting financial volatility are the classic historical volatility (VolSD) method and the exponentially weighted moving average volatility (VolEWMA) method.

Economic Integration

An economic arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement. I: There are varying levels of economic integration, including preferential trade agreements (PTA), free trade areas (FTA), customs unions, common markets and economic and monetary unions. The more integrated the economies become, the fewer trade barriers exist and the more economic and political coordination there is between the member countries. By integrating the economies of more than one country, the short-term benefits from the use of tariffs and other trade barriers is diminished. At the same time, the more integrated the economies become, the less power the governments of the member nations have to make adjustments that would benefit themselves. In periods of economic growth, being integrated can lead to greater long-term economic benefits; however, in periods of poor growth being integrated can actually make things worse.

Rational Expectations Theory

An economic idea that the people in the economy make choices based on their rational outlook, available information and past experiences. The theory suggests that the current expectations in the economy are equivalent to what the future state of the economy will be. This contrasts the idea that government policy influences the decisions of people in the economy. I: The idea is that rational expectations of the players in an economy will partially affect what happens to the economy in the future. If a company believes that the price for its product will be higher in the future, it will stop or slow production until the price rises. Because the company weakens supply while demand stays the same, price will increase. In sum, the producer believes that the price will rise in the future, makes a rational decision to slow production and this decision partially affects what happens in the future.

Factory Orders

An economic indicator that reports the dollar level of new factory orders for both durable and non-durable goods. The factory orders report is released monthly by the Census Bureau of the U.S. Department of Commerce one or two weeks following the durable goods orders report. The factory orders report is split up into four sections: New orders - indicating whether orders are growing or slowing Unfilled orders - indicating a backlog in production Shipments - indicating current sales Inventories - indicating strength of current and future production It is also known as the "Manufacturers' Shipments, Inventories and Orders". I: Because the performance of the economy has a large effect on the performance of the investment markets, it is important for investors to monitor indicators such as the Factory Orders to provide insight into growth trends. As with other indicators that monitor manufacturing and production, equity markets will be positively affected when the factory orders reports an increase in production. Also the factory orders reports gives more detailed information than the durable goods orders report.

Mancession

An economic instance in which the unemployment rate is substantially higher among men than it is among women. The term "mancession" was coined during the financial crisis of 2008-2009, during which men bore the brunt of the job losses in the United States, at rates close to 50% higher than those of women. I: Analysts have tried to understand the mancession phenomenon, and have offered a few possible reasons. First, during the financial crisis of 2008-2009, the majority of jobs that were initially cut were in the male-dominated manufacturing and construction industries, leading to disproportionate levels of joblessness among males. Also, at the time it was reported that women in the United States accounted for nearly 60% of the college degrees handed out during that period, meaning that a greater number of women were working white-collar jobs, especially in publicly-funded industries such as education and healthcare, which saw far fewer cutbacks than male-dominated industries.

Rational Choice Theory

An economic principle that assumes that individuals always make prudent and logical decisions that provide them with the greatest benefit or satisfaction and that are in their highest self-interest. Most mainstream economic assumptions and theories are based on rational choice theory. I: Dissenters have pointed out that individuals do not always make rational, utility-maximizing decisions: - The field of behavioral economics is based on the idea that individuals often make irrational decisions and explores why they do so. - Nobel laureate Herbert Simon proposed the theory of bounded rationality, which says that people are not always able to obtain all the information they would need to make the best possible decision. -Economist Richard Thaler's idea of mental accounting shows how people behave irrationally by placing greater value on some dollars than others even though all dollars have the same value. They might drive to another store to save $10 on a $20 purchase, but they would not drive to another store to save $10 on a $1,000 purchase.

Pairoff

1. A purchase of securities to offset a previously transacted sale of the same security. 2. A transaction in securities markets where off-setting buy and sell trades are settled in cash, based on the difference in the prices between the off-setting trades. No securities trade hands; instead the settlement difference between the trades is calculated, and a money wire is sent to the appropriate party. I: 1. The offsetting position is usually transacted within the same day of the original purchase. This is also referred to as crystallization. 2. Matching trades for pairoff can reduce settlement risks and security wire transfer fees. It is ultimately a form of speculation.

Abandonment

1. The act of surrendering a claim to, or interest in, a particular asset. 2. The permitted withdrawal from a forward contract that is made for the purchase of deliverable securities. 3. The act of allowing an option to expire unexercised. I: 1. Corporations will generally abandon assets or projects that no longer offer any profitability. In most instances, proper legal documents must be filed with authorities and any damages must be recouped. 2. Abandonment occurs in forward contracts that permit the purchasers to withdraw from the contract, rather than purchase the deliverable securities. 3. In many instances, an option may not be worthwhile or profitable to exercise and, therefore, the purchaser of the option will let the option expire without being exercised.

Call

1. The period of time between the opening and closing of some future markets wherein the prices are established through an auction process. 2. An option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time. I: 1. In some exchanges, the call period is an important time in which to match and execute a large number of orders before opening and closing. 2. A call becomes more valuable as the price of the underlying asset (stock) appreciates.

Gerard Debreu

A French-American economist and mathematician and winner of the 1983 Nobel Memorial Prize in Economics for his research in general equilibrium theory. Gerard Debreu became famous for his 1959 book, "Theory of Value: An Axiomatic Analysis of Economic Equilibrium", which explained how supply and demand could be in balance throughout the entire economy, not just in a single market. I: Debreu was born in France in 1921 and died in 2004. He served briefly in the French army and became a U.S. citizen in 1975. He spent most of his career as a professor of mathematics and economics at the University of California at Berkeley.

James E. Meade

A Keynesian economist who won the 1977 Nobel Memorial Prize in Economic Sciences, along with Bertil Ohlin, for his research on international trade and international capital movements. Meade analyzed how government policies affected trade and how trade policies affected economic well being. He twice held economic positions in the British government, where his research affected economic policy in Britain after WWII. His other major research interest was mass unemployment. I: Meade taught commerce at the London School of Economics and political economy at Cambridge. He was also a member of the League of Nations in the economics section. James Meade was born in 1907 and died in 1995.

Back Taxes

Taxes that have been unpaid in the year that they were due. Taxpayers can have unpaid back taxes at the federal, state and/or local levels. Back taxes accumulate interest and penalties on a regular basis. I: Unpaid back taxes can be a serious issue for many taxpayers who don't have the means to pay them. The Internal Revenue Service (IRS) has recently turned over the collection of unpaid back taxes to a private collection agency. Taxpayers who lack the means to repay taxes may often negotiate a lesser settlement via an offer in compromise with the IRS either directly or through a tax attorney.

S&P 500 Buyback Index

An index designed to track the performance of the 100 S&P 500 stocks with the highest buyback ratios over the past 12 months. The S&P 500 Buyback Index is equal-weighted and rebalanced quarterly, with the rebalancing reference dates occurring on the last trading day of each calendar quarter. Index changes are effective after market close on the third Friday of the month after the reference date. I: The S&P 500 Buyback Index ranks the S&P 500 members in descending order of their buyback ratios every quarter, and includes the top 100 in the Buyback Index. The Index gives investors an avenue to invest in companies that are aggressively buying back their own shares. A share buyback is a compelling route for a company to generate value for its shareholders, since a buyback contracts share float, improving per-share measures of profitability and cash flow like EPS and CFPS. In 2013, share buybacks increased to multi-year highs as companies were flush with cash on account of record earnings and the ability to borrow at interest rates near historic lows. As of December 2013, the biggest sector contributors to the S&P 500 Buyback Index were consumer discretionary (22%), information technology (19%), financials (18.5%) and health care (15.5%). These four sectors together constituted three-fourths of the Buyback index. The positive reception by investors to share buybacks can be gauged by the outperformance of the S&P 500 Buyback Index, compared to the S&P 500.

General Motors (GM) Indicator

An indicator based on the theory that the performance of U.S. automaker General Motors (GM) is a pre-cursor to the performance of the U.S. economy and stock market. The GM Indicator relies on the assumption that when people are confident and making money one of the first things they would do is buy a new car. I: There is still some talk behind this strategy as there is a correlation between auto sales and the overall economic standing of individuals. But this theory had more weight in the 1970s-80s when GM was by far the largest carmaker in North America. Since then GM's importance to the U.S. economy has declined due to greater competition. During the financial crisis of 2007/2008, GM saw sales decline due to a decrease in demand for their "less" fuel efficient vehicles, and a decrease in available funds for financing due to credit restrictions. Their stock price dropped over 70% compared with a general market decline of around 30%. Although a correlation exists, the overall market and economy relies less on the performance of one automaker than it did in the 1970s.

Earnings Before Tax - EBT

An indicator of a company's financial performance calculated as revenue minus expenses, excluding tax. EBT is a line on the company's income statement that shows how much the company has earned after the cost of goods sold, interest and selling, general and administrative expenses have been subtracted from gross sales. I: While U.S.-based corporations face the same tax rates at the federal level, they face different tax rates at the state level. Because companies may pay different tax rates in different states, EBT provides a way for investors to compare the profitability of similar companies in different tax jurisdictions. EBT is also used to calculate performance metrics, such as pretax profit margin. A related indicator, earnings before interest and taxes, allows investors to compare the profitability of different companies, regardless of their financing structures.

Earnings Before Interest, Taxes, Depreciation, Depletion, Amortization and Exploration Expenses - EBITDAX

An indicator of a company's financial performance calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, depletion, amortization and exploration expenses) I: EBITDAX is used when reporting earnings for oil and mineral exploration companies. It excludes costly exploration expenses and gives the true EBITDA of the firm. This is especially useful when a company wants to acquire another company. The EBITDAX would cover any loan payments needed to finance the takeover.

Gapping

In general, a trading strategy in which the participant borrows short and lends long. This strategy gives the lender an overall better interest rate as short rates are generally lower than long rates. Also in technical analysis, gapping can refer to the use of a gap strategy which looks at stocks that display price gaps from previous closes. I: To employ a gap strategy an investor can scan the morning prices for a gap and watch to see what the stock does in the first couple hours of the trading day. In general, if the price goes up, it signals a buy, and if it goes down, a short. There are several variations of the gap strategy.

Offsetting Transaction

In trading, an activity that exactly cancels the risks and benefits of another instrument in the portfolio. An offsetting transaction is used when it is not possible to simply close the original transaction as desired. This frequently occurs with options and other more complex financial instruments. In this way, a trader does not have to agree to close the option contract with the party on the other side of the options trade, but can simply cancel the net affect by entering into an offsetting transaction. I: The most basic example of an offsetting transaction occurs in options trading. Suppose you have sold a call option on 100 shares with a strike price of $35 and an expiration in three months. To close this transaction before three months is over, you can buy a call option with exactly the same features, thus exactly offsetting the exposure to the original call option. Offsetting transactions typically do not factor in transactions costs.

Implementation Shortfall

In trading terms, the difference between the prevailing price or value when a buy or sell decision is made with regard to a security and the final execution price or value after taking into consideration all commissions, fees and taxes. As such, implementation shortfall is the sum of execution costs and the opportunity cost incurred in case of adverse market movement between the time of the trading decision and order execution. I: In order to maximize the potential for profit, investors aim to keep implementation shortfall as low as possible. Investors have been helped in this endeavor over the past two decades by developments such as discount brokerages, online trading and access to real-time quotes and information.

Passive ETF

One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific benchmark, such as a SPDR. Unlike actively managed ETFs, passive ETFs are not managed by a fund manager on a daily basis. I: Passive ETFs are similar to unit investment trusts (UITs) in that their portfolios are reset at regular intervals. They do not generate internal capital gains like actively-managed funds. However, they differ from UITs in that they can be bought and sold on an intraday basis. Passive ETFs will typically have much lower fees than those associated with their actively-managed counterparts.

Salomon Brothers

Salomon Brothers, founded in 1910, was once one of the largest Wall Street bulge bracket financial service companies. In 1981, it was acquired by Phibro Corporation and became known as Phibro-Salomon. In 1997, the bank merged with Smith Barney, a subsidiary of Travelers Group to form Salomon Smith Barney. Immediately following, the bank merged with Citigroup, where Salomon Smith Barney served as the investment banking arm. In 2003, the Citigroup name was adopted. I: Although Salomon Brothers provided a wide range of financial services, the bank established its legacy through its fixed income trading department. Perhaps the original founding fathers of high yield bond trading, along with Drexel Burnham Lambert, the Salomon bond arbitrage group established the trading careers of John Meriwether and Myron Sholes. Michael Lewis' Liar's Poker (1990) depicts the high pressure bond trading culture at Salomon Brothers.

Lakshmi Mittal

The chairman and CEO of ArcelorMittal and one of the world's wealthiest billionaires. Mittal is credited with helping to globalize the steel industry's business model. I: Mittal's career began by working in his family's steel making business in India, and he has since acquired more than 30 years of experience in steel and related businesses. In 1976 he founded Mittal Steel Company, eventually merging with Arcelor in 2006 to form ArcelorMittal. In addition to his work in the steel industry, Mittal is a philanthropist and is a member of numerous boards and trusts.

Harmonic Average

The mean of a set of positive variables. Calculated by dividing the number of observations by the reciprocal of each number in the series. Also known as "harmonic mean". I: Alternately, the harmonic average could be thought of as the reciprocal of the arithmetic mean of inverse values.

Quorum

The minimum acceptable level of individuals with a vested interest in a company needed to make the proceedings of a meeting valid under the corporate charter. I: This clause within a company's charter ensures that there is a sufficient representation of stockholders present at meetings before any changes can be made by the board.

Imputed Value

The value of an item for which actual values are not available. Imputed values are a logical or implicit value for an item, or time set, wherein a "true" value has yet to be ascertained. It would be a best guess estimate, in order to accurately estimate a larger set of values or series of data points. Also known as "estimated imputation." I: Imputed values can be used in a variety of situations, such as estimating opportunity cost of un-invested money, or estimating wages for obscure positions. Additionally, data points in time series data may require estimations, in order to complete a full range of figures. So long as the imputed values are fair estimates, there are typically no issues with their use.

Debit Spread

Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction. I: For example, assume that there is a investor holding a call option who sells it for $2.50. Immediately following this sale, the investor buys another call option on the same underlying security for $2.65. The debit spread is $0.15, which results in a loss of $15 ($0.15 * 100). Although there is an initial loss on the transaction, the investor is betting that there will be a significant change in the price of the underlying security, making the purchased option more valuable in the future.

EBITDA To Fixed Charges

A ratio used to measure a company's ability to incur additional debt or its ability to pay off existing debt. The ratio is usually measured as EBITDA over fixed charges over a trailing four quarter period. In this ratio, fixed charges generally refers to interest expenses, but there are variations on this ratio. Compliance by debt holders to maintain a specific level of EBITDA to fixed charges is often required in debt agreements. I: EBITDA to Fixed Charges is not defined under GAAP principles. It is an extra measure used to better inform investors as to the future growth possibilities for the future. As it is not GAAP, uniformity among companies can not be guaranteed.

403(b) Plan

A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement income accounts can invest in either annuities or mutual funds. Also known as a "tax-sheltered annuity (TSA) plan." I: The features of a 403(b) plan are very similar to those of a 401(k) plan. Employees may make salary deferral contributions that are usually limited by regulatory caps. Individual accounts in a 403(b) plan can be any of the following types: - An annuity contract, which is provided through an insurance company- A custodial account, which is invested in mutual funds- A retirement income account set up for church employees

Implied Call

A right given to mortgage borrowers that allows them to call or pay-back a loan at any time. The call is implied, as it is included in most mortgages unless specified otherwise. I: The implied call allows a borrower to refinance a mortgage when interest rates drop. In this case, the borrower will take out a new mortgage at the lower rate, using its proceeds to call the original debt.

One Man Picture

A situation in which the bid quote and ask quote for a security is provided by a single source. A one man picture is a two-way price given by a broker to an investor. I: The phrase relates to the level of information available to the investor, which the broker "paints" by describing the bid and ask price. In the case of a one man picture, the investor does not have many quote options and thus may not be able to obtain the ideal price.

Qualified Opinion

A statement written upon the front page of an audit done by a professional auditor. A qualified opinion suggests that the information provided was limited in scope and/or the company being audited has not maintained GAAP accounting principles. I: Contrary to its connotation, a qualified opinion is not a good thing. Auditors that deem audits as qualified opinions are advising whomever is reading the document that the information within the audit is not complete or that the accounting methods used by the company do not follow GAAP.

Reaffirmation

An agreement made between a debtor and a creditor to repay some or all of a debt. Reaffirmations are made on a purely voluntary basis by the debtor. The bankruptcy code stipulates that the debtor's attorney must file a statement with the court affirming that he or she can repay the debt without incurring further personal financial harm. I: Reaffirmations cannot legally require the debtor to repay the debt. Lenders have no real leverage from them, and can only rely on the good faith intent of the debtor to repay the debt. This type of arrangement is prohibited under Chapter 13 Wagearner plans.

John B. Taylor

An economics professor and expert on monetary policy. John B. Taylor is best known for the paper he submitted in 1993 outlining the Taylor Rule. This rule outlines a method for central banks to determine interest rates. I: John B. Taylor has worked as a professor of economics at Stanford University and was the Bowen and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He also taught at Columbia University and the Woodrow Wilson School of Princeton. Taylor has also served as under-secretary of the Treasury for international affairs under the George W. Bush administration.

19c3 Stock

Any stock listed on an equity exchange after April 26, 1979. This classification allowed members of exchanges to trade these stocks off the board (not at the exchange). The classification of a 19c3 stock refers to SEC rule 19c3 (the regulation that allowed off-board transactions to be made). I: Prior to April 26, 1979, members of the major exchanges (ie. the NYSE) were not allowed to conduct stock trades in situations that where they were not physically at an exchange. This meant that OTC trades could not have legally occured. The designation of 19c3 stock was the first step toward the creation of the National Market System.

Hard Dollars

Cash fees or payments made by an investor or customer to a brokerage firm in return for their services. Hard dollars differ from soft dollar payments because soft dollar payments are paid within the commission revenue from making trades or deducted from the value of any other transactions. I: If an investor places a market order and pays the brokerage a $40 fee for that transaction, that is a hard dollar payment. This term can also be referred to as money paid out to a travel agent by suppliers to counterbalance costs of marketing supplier products.

In-House

Conducting an activity or operation within a company, instead of relying on outsourcing. A firm uses its own employees and time to keep a division or business activity, such as financing or brokering, in-house. I: A firm may decided to in-house such activities as accounting, payroll or tech support. While it is common for some companies to outsource those divisions, a firm may maintain flexibility in those operations by keeping them in-house.When dealing with customers, a firm may try to keep the entire transaction in-house. For example, in-house financing is a common practice in certain industries, using the firm's own resources to extend the customer's credit. For a brokerage, the firm may try to match a client's order with another customer, creating an in-house transaction. This allows the firm to benefit from both the buy- and sell-side commissions.

Daylight Overdraft

Occurs when a clearinghouse bank issues a payment during the day that is in excess of the originator's reserve account balance. Daylight overdrafts must be covered by the end of the business day. I: In order to encourage banks to manage and reduce potential default risks, the Federal Reserve Board assesses a charge for daylight overdrafts.

Maintenance Expenses

The costs incurred to keep an item in good condition and/or good working order. When purchasing an item that requires upkeep, consumers should consider not just the initial price tag, but also the item's ongoing maintenance expenses. Maintenance expenses are a major reason why home ownership can be more expensive than renting, for example. However, sometimes even items that are merely leased, not owned, such as a leased car, will require the owner to pay maintenance expenses. I: Examples of maintenance expenses for automobiles include gas, oil changes, alignment, tire replacement, brake fluid and car washes. Maintenance expenses for a house include lawn care, plumbing repairs, roof repairs, hazard insurance premiums and replacement of worn out appliances.

Kickback

The payment of something of value to an individual with the goal of persuading or influencing his or her decision or performance in a certain situation. I: A kickback may be in the form of cash or favors, and can be legal or illegal. A common form of kickbacks, in the context of investing, is a commission rebate for investors who trade frequently.

Kurtosis

A statistical measure used to describe the distribution of observed data around the mean. It is sometimes referred to as the "volatility of volatility." I: Used generally in the statistical field, kurtosis describes trends in charts. A high kurtosis portrays a chart with fat tails and a low, even distribution, whereas a low kurtosis portrays a chart with skinny tails and a distribution concentrated toward the mean.

In Sight

A term describing deliverable grades of commodities underlying futures contracts that are held in approved delivery facilities near terminals, centralized locations or production areas. I: When a commodity is considered 'in sight', contract holders can assume that delivery of the actuals will be prompt, and that the quantity and quality will be precise rather than estimated.

Harami Cross

A trend indicated by a large candlestick followed by a doji that is located within the top and bottom of the candlestick's body. This indicates that the previous trend is about to reverse. I: A Harami cross can be either bullish or bearish, depending on the previous trend. The appearance of a Harami Cross, rather than a smaller body, increases the likelihood that the trend will reverse.

Reallowance

In securities underwriting, the fee that the underwriting group pays to a securities firm that is not part of the syndicate, but that still sells shares in the offering. Reallowance is typically a percentage of the underwriting spread negotiated by the selling syndicate for the issue. It provides a monetary incentive for a broker-dealer that is not part of the syndicate to sell shares of the issue to its own client base. I: The selling syndicate may be amenable to parting with a portion of the underwriting spread in the form of reallowance for large issues where investor demand is somewhat uncertain. For example, if the underwriting spread for an issue priced at $30 is $2.50, the reallowance may range from 50 cents to 75 cents, depending on investor demand for the issue and the difficulty in placing it.

Bailee's Customers Insurance

Insurance coverage for legal liability resulting from damage or destruction of a bailor's property while temporarily under the care or custody of a bailee. A bailee is a person or organization that has temporary possession of someone else's personal property (dry cleaner, parking valet, jewelers, repairers, etc.)The coverage includes property that is on, or in transit to and from, the bailee's premises. Events and perils covered include fire, lightning, theft, burglary, robbery, explosion, collision, flood, earthquake and damage or destruction in the course of transportation by a carrier. The insurance is in effect when the bailee issues a receipt to the bailor for the item. Coverage excludes property belonging to the insured bailee and loss due to vermin and insects. I: When a customer (bailor) takes a suit to the dry cleaner to be cleaned, the suit is temporarily under the control of the bailee (dry cleaner). The bailor expects the suit to be returned in good condition. If the suit is stolen from the cleaner or is damaged while under the care of the cleaner, the insurance would cover the loss.

Real Value

Nominal value adjusted for inflation. Real value is obtained by removing the effect of price level changes from the nominal value of time-series data, so as to obtain a truer picture of economic trends. The nominal value of time-series data such as gross domestic product and incomes is adjusted by a deflator to derive their real values. I: Real values are more important than nominal values for economic measures such as GDP and personal incomes because they help ascertain the extent to which increases over time are driven by inflation and what is driven by actual growth. For example, if personal income is $50,000 year 1 and $52,000 in year 2, but the rate of inflation is 3%, then the nominal growth rate of income is 4%, while the real growth rate is 1%. In the U.S., the Bureau of Economic Analysis maintains the GDP Deflator that is used to compute the real rate of economic growth. The Deflator uses 2005 as the base year, which means that it is set to 100 for 2005, with other years reported relative to the 2005 dollar.

B3/B-

One of the lower ratings that a ratings agency assigns to a security or insurance carrier. This rating signifies a higher risk of default and greater risk to investors or policyholders. Entities that receive this rating are often experiencing financial instability or hold inadequate cash reserves. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

B-Shares

Shares in companies based in mainland China that trade on either the Shanghai or Shenzhen stock exchanges. B-Shares are eligible for foreign investment provided the investment account is in the proper currency (Shanghai B-shares trade in U.S. dollars, while Shenzhen B-shares trade in Hong Kong dollars). I: B-shares trade alongside A-shares in the Chinese companies on the mainland exchanges. Changes in government regulation have allowed Chinese citizens to invest in both A-shares and B-shares after previously limiting investment to only the A-shares.B-shares are typically what a mutual fund or exchange-traded fund that invests in China will hold, along with H-shares from the Hong Kong Exchange and N-shares, which trade on the New York Stock Exchange. As part of a long-term effort to open up China's economy, plans are in place for the two share types to be combined in the future to allow for more uniform investment policies; if and when this occurs it should encourage more outside investment in the world's most populous country.

Cable

Slang used among forex traders referring to the exchange rate between the U.S. dollar and the British pound sterling. Because it is the norm in forex for most major currencies to be quoted against the U.S. dollar on a regular basis, "cable" is a commonly used term. "Cable" can also be used to refer simply to the British pound sterling. I: For example, you may hear someone dealing with the forex market saying, "The cable is up today," or, "The cable has been trending lower lately." The origins of this term are attributed to the fact that in the 1800s, the dollar/pound sterling exchange rate was transmitted via transatlantic cable. Forex brokers are sometimes referred to as "cable dealers".

Mandatory Redemption Schedule

Specified dates when a bond issuer is required to redeem all or a portion of the outstanding issues of a bond prior to its maturity. The issuer might be required to redeem all or a portion of the bonds according to the call or prepayment provisions of the of the bond contract. I: Some types of mandatory redemptions occur either on a scheduled basis, or when a specified amount of money is available in the sinking fund. Bonds may be redeemed at a specified price, usually at par, and the bondholder will receive any accrued interest to the redemption date.

Recapture

1. A condition set by the seller of an asset that gives him/her the right to purchase back some or all of the assets within a certain period of time. 2. A situation where an individual must add back a deduction from a previous year to his or her income. I: 1. A stipulation that allows you to buy back your shares at some future point in time, if you wish. 2. For example, when a business sells an asset and must recapture (add back) some of the depreciation.

Rebate

1. In a short-sale transaction, the portion of interest or dividends earned by the owner (lender) of shares that are paid to the short seller (borrower) of the shares. 2. In an options transaction, the amount paid to the holder of the option if the option expires worthless. I: 1. The lender and borrower usually negotiate the rate at which the short seller will be compensated. 2. The rebate is pre-negotiated and is usually a portion of the premium paid by the option holder.

Offshore

1. Located or based outside of one's national boundaries. The term offshore is used to describe foreign banks, corporations, investments and deposits. A company may legitimately move offshore for the purpose of tax avoidance or to enjoy relaxed regulations. Offshore financial institutions can also be used for illicit purposes such as money laundering and tax evasion. 2. Offshore can also refer to oil and gas drilling operations that are conducted in the ocean. I: Many countries, territories and jurisdictions have offshore financial centers (OFCs). These include well-known centers like Switzerland, Bermuda and the Cayman Islands, and less-well-known centers like Mauritius, Dublin and Belize. The level of regulatory standards and transparency differs widely among OFCs. Supporters of OFCs argue that they improve the flow of capital and facilitate international business transactions.

Haircut

1. The difference between prices at which a market maker can buy and sell a security. 2. The percentage by which an asset's market value is reduced for the purpose of calculating capital requirement, margin and collateral levels. I: 1. The term haircut comes from the fact that market makers can trade at such a thin spread. 2. When they are used as collateral, securities will generally be devalued since a cushion is required by the lending parties in case the market value falls.

Takedown

1. The price at which underwriters obtain securities to be offered to the public. 2. The portion of securities that each investment banker will distribute in a secondary or initial pubic offering. I: 1. The takedown will be a factor in determining the spread or commission underwriters will receive once the public has purchased securities from them. A full takedown will be received by members of a syndicate. Dealers outside of the syndicate receive a portion of the takedown while the remaining balance remains with the syndicate. 2. In a shelf offering, underwriters essentially 'take-down' securities off the shelf.

Taft-Hartley Act

A Federal law that was enacted in 1947 that prohibited certain union practices and required improvement in union disclosure of financial and political dealings. I: Basically, the Taft-Hartley act is an outline of the Federal government's requirements for unions. It protects union members against possible unfavorable dealings enacted by the controlling members.

Keiretsu

A Japanese term describing a loose conglomeration of firms sharing one or more common denominators. The companies don't necessarily need to own equity in each other. I: This term has been in the news every now and then, especially when they talk about Silicon Valley. One example would be the close relationship between AOL and Sun Micro. The two firms don't have ownership in each other, but they work closely on various projects.

Office Of The Comptroller Of The Currency - OCC

A U.S. federal agency that serves to charter, regulate and supervise the national banks and the federal branches and agencies of foreign banks. The Office of the Comptroller of the Currency (OCC) is headed by the Comptroller of the Currency, who is appointed by the president and approved by the Senate. I: Founded through the National Currency Act of 1863, the OCC monitors the banks to ensure that they are operating safely, and meeting all requirements. In particular, the OCC monitors capital, asset quality, management, earnings, liquidity, sensitivity to market risk, information technology, compliance and community reinvestment.

Immediate Beneficiary

A beneficiary designation most commonly used in charitable gift planning to describe which parties get an immediate benefit from a transaction. The most basic type of immediate beneficiary would be a charity that receives an outright gift from a donor. More generally, the term "immediate beneficiary" can also refer to any individual or organization that receives immediate benefits from a trust's assets. I: Charitable giving strategies have come a long way in recent decades from simply donating property now or at the time of your death. Many philanthropic individuals now use charitable trusts that name the charity as the immediate beneficiary of either the original property or the income from that property. At the grantor's death, the property then may permanently transfer to the charity or back to the individual's heirs.

Parity Product

A brand of good that has enough similarities with other brands of the same good type that it is considered readily substitutable. A parity product is functionally equivalent to a product offered by a competitor. The existence of parity products means that a monopoly does not exist. Toothpaste or contact lens solution could be considered parity products. I: A business selling a parity product will in most cases be unable to command premium pricing because of the substitution effect. If the business raises its price while competitors do not raise theirs, consumers will buy less of its product and instead purchase competing products. In this sense, the cross elasticity of demand for the competing goods will be positive, since an increase in price of one brand's good will result in an increase in demand for another brand's good.

De Jure Corporation

A business that has fulfilled its requirements for formation according to the regulations for earning a state charter. De jure, meaning "a matter of law," indicates that the company has been fully and legally chartered, and is therefore entitled to do business. A government's granting of a charter assumes that the de jure corporation will remain in compliance; however, while unusual, certain circumstances may lead to the revocation of the charter. I: A de jure corporation is one that is lawfully chartered by a state government, and is recognized as a corporation for all purposes. Du jure is opposed to de facto, which connotes "as a matter of practice not founded on law." A de facto corporation generally acts in good faith but has failed to comply with the technical requirements for becoming a de jure corporation.

Scalability

A characteristic of a system, model or function that describes its capability to cope and perform under an increased or expanding workload. A system that scales well will be able to maintain or even increase its level of performance or efficiency when tested by larger operational demands. I: In the financial markets, scalability is the ability that exchanges, banks and financial institutions have to handle increased demands, such as higher trading volumes. In the corporate sense, a scalable company is one that can maintain or improve profit margins while sales volume increases.

Management Fee

A charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise. It can also include other items such as investor relations expenses and the administration costs of the fund. I: The management fee is the cost of having your assets professionally managed. The fee pays other people to select which securities your money (along with that of the other investors in the fund) is invested into, to do all the paperwork needed and to provide information about the fund's holdings and performance.Management fee structures vary from fund to fund, but they are typically based on a percentage of assets under management. For example, a mutual fund's management fee could be stated as 0.5% of assets under management.

B-Share

A class in a family of multi-class mutual funds. This class is characterized by a back-end load structure that is paid only when the fund is sold. I: Class B funds will generally have higher management expense ratios compared to front load funds within the same family. Fund companies attempt to increase their profits while the rear load is effective because it will normally decrease in value with time until no load is charged whatsoever. Not all fund companies follow this class structure, but it is the prominent method of distinction.

Recast Trigger

A clause in a loan contract that causes an unscheduled recasting of the loan's remaining amortization schedule if and when certain conditions are met. A recast trigger is most often associated with negative amortization mortgages, which typically have a trigger that recasts the remaining amortization schedule when the mortgage's outstanding principal balance reaches a certain percentage - usually 110-125% of the mortgage's original principal balance. I: Borrowers need to be aware of and understand the risks that a recast trigger presents. When a payment option ARM hits its negative amortization limit, triggering an unscheduled recasting of the remaining amortization schedule, the monthly payment is likely to increase substantially, resulting in payment shock. Even a modest rise in interest rates, depending on the level of the negative amortization limit of the mortgage, can cause an unscheduled recast several months before month 61, which is typically the first scheduled recast on a payment option ARM.

Acceleration Covenant

A clause included in certain debt securities and swap agreements stating that the immediate collection of payment and termination of contract will take place should any number of clauses being violated by the borrower including default or a downgrade of debt. Also referred to as "acceleration clause." I: This covenant helps to protect parties that extend financing to businesses in need of capital. Under an acceleration covenant, the borrowing party must maintain a specified credit rating in order to prevent termination of the contract and immediate repayment.

FactSet

A company that provides computer-based financial data and analysis for financial professionals, including investment managers, hedge funds and investment bankers. FactSet consolidates data on global markets, public and private companies, and equity and fixed-income portfolios. I: Founded in 1978 by Howard Wille and Charles Snyder, FactSet provides essential services to the financial industry. It is headquartered in Connecticut and has additional offices in the United States and around the world. FactSet has been ranked one of the top companies to work for in both the United States and the United Kingdom, and it has traded on the NYSE since 1996 with the ticker symbol FDS.

Calmar Ratio

A comparison of the average annual compounded rate of return and the maximum drawdown risk of commodity trading advisors and hedge funds. The lower the Calmar Ratio, the worse the investment performed on a risk-adjusted basis over the specified time period; the higher the Calmar Ratio, the better it performed. Generally speaking, the time period used is three years, but this can be higher or lower based on the investment in question. I: Developed by Terry W. Young in 1991, the Calmar Ratio is short for California Managed Account Reports. The ratio is very similar to the MAR Ratio, which was formulated much earlier. The only difference is that the MAR Ratio is based on data produced from the inception of the investment, whereas the Calmar Ratio is typically based on more recent and shorter-term data. Regardless of which ratio is used, investors gain better insight as to the risk of various investments.

Narrow Basis

A condition found in futures markets in which the spot price of underlying commodities is close to the futures price of the same contract. I: A narrow basis suggests that the market is efficient, as the supply of and demand for the underlying commodity are in equilibrium. The spot price and futures price should converge at maturity of the futures contract. If they don't, there is an arbitrage opportunity.

Earnout

A contractual provision stating that the seller of a business is to obtain additional future compensation based on the business achieving certain future financial goals. I: The financial goals are usually stated as a percentage of gross sales or earnings. Say an entrepreneur selling a business is asking $2,000,000 based on projected earnings, but the buyer is willing to pay only $1,000,000 based on historical performance. An earnout provision structures the deal so that the entrepreneur receives more than the buyer's offer only if the business achieves a certain level of earnings. The exact numbers would depend upon the business, but in this example a simplified provision might set the purchase price at $1,000,000 plus 5% of gross sales over the next three years. The earnout thereby helps eliminate uncertainty for the buyer.

Caisse Populaire

A cooperative, member-owned financial institution that fulfills traditional banking roles as well as diverse activities such as lending, insurance, investment dealing. Caisses Populaires are primarily found in the province of Quebec in Canada, as caisses populaires are essentially the francophone equivalent of a credit union. I: There are approximately one thousand caisses populaires in existence in Canada, the vast majority of which are located in Quebec. Some are as small as a single branch, and most caisses populaires seek deposits from individuals with commonalities, such as those from the same ethnic group or geographic community.

Death Cross

A crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level. I: As long-term indicators carry more weight, this trend indicates a bear market on the horizon and is reinforced by high trading volumes. Additionally, the long-term moving average becomes the new resistance level in the rising market.

Qualified Institutional Placement - QIP

A designation of a securities issue given by the Securities and Exchange Board of India (SEBI) that allows an Indian-listed company to raise capital from its domestic markets without the need to submit any pre-issue filings to market regulators. The SEBI instituted the guidelines for this relatively new Indian financing avenue on May 8, 2006. I: Prior to the innovation of the qualified institutional placement, there was concern from Indian market regulators and authorities that Indian companies were accessing international funding via issuing securities, such as American depository receipts (ADRs), in outside markets. This was seen as an undesirable export of the domestic equity market, so the QIP guidelines were introduced to encourage Indian companies to raise funds domestically instead of tapping overseas markets.

Illegal Dividend

A dividend declared by a corporation that is in violation of its charter and/or of state laws. Should such a dividend be declared, the company's board of directors can be sued by its shareholders and creditors; the company may also face prosecution. I: Many states prohibit dividend payments from the capital surplus account. Dividends are generally paid out of net income or retained earnings. Illegal dividends may significantly weaken the financial position of the company and expose its creditors to a greater degree of risk.

Macroeconomic Factor

A factor that is pertinent to a broad economy at the regional or national level and affects a large population rather than a few select individuals. Macroeconomic factors such as economic output, unemployment, inflation, savings and investment are key indicators of economic performance and are closely monitored by governments, businesses and consumers. I: The interplay or relationship between various macroeconomic factors is the subject of a great deal of study in the field of macroeconomics. While macroeconomics deals with the economy as a whole, microeconomics is concerned with the study of individual agents such as consumers and businesses and their economic decision-making.

NCUA-Insured Institution

A finance institution that is a participant of the National Credit Union Administration (NCUA) program. Most NCUA insured institutions are federal and state chartered credit unions and savings banks. Accounts at NCUA-insured institutions are usually insured through the National Credit Union Share Insurance Fund (NCUSIF). Accounts insured in NCUA insured institutions are savings, share drafts (checking), money markets, share certificates (CDs), Individual Retirement Accounts (IRA) and Revocable Trust Accounts. The maximum dollar amount that is insured in a NCUA institution is $250,000 per institution. In other words, a depositor with $1 million can fully insure this amount by depositing $250,000 in four different NCUA institutions. I: The National Credit Union Association (NCUA) is equivalent to the Federal Deposit Insurance Corporation (FDIC). The only differences are that the NCUA deals only with credit institutions and that the NCUA uses the National Credit Union Share Insurance Fund (NCUSIF), while the FDIC uses the Deposit Insurance Fund. Both insurance funds are fully backed in good faith by the U.S. Government.

Earnings Before Interest After Taxes - EBIAT

A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT measures a company's profitability without taking into account the capital structure, i.e., the ratio of debt to equity. EBIAT takes taxes into account because they are viewed as an ongoing expense that is beyond a company's control, especially if it is profitable. EBIAT is not as commonly used in financial analysis as the EBITDA measure. EBIAT is calculated as: EBIT x (1 - Tax rate). I: As an example, consider a company that has the following income statement: EBIT $1,000,000 Interest $100,000 EBT $900,000 Taxes (25%) $225,000 Net Income $675,000 The company's EBIAT in this case would be: $1,000,000 x (1 - 0.25) = $750,000.

Canada Savings Bond - CSB

A financial product issued by the Bank of Canada. It offers a competitive rate of interest and guarantees a minimum interest rate. I: Canada Savings Bonds have both regular and compound interest features and are redeemable at any time.

Hard Loan

A foreign loan that must be paid in the currency of a nation that has stability and a reputation abroad for economic strength (a hard currency). I: For example, a loan agreement between a Brazilian company and an Argentinean company where the debt is to be paid in U.S. dollars.

Off-Balance-Sheet Financing

A form of financing in which large capital expenditures are kept off of a company's balance sheet through various classification methods. Companies will often use off-balance-sheet financing to keep their debt to equity (D/E) and leverage ratios low, especially if the inclusion of a large expenditure would break negative debt covenants. I: Contrast to loans, debt and equity, which do appear on the balance sheet. Examples of off-balance-sheet financing include joint ventures, research and development partnerships, and operating leases (rather than purchases of capital equipment).Operating leases are one of the most common forms of off-balance-sheet financing. In these cases, the asset itself is kept on the lessor's balance sheet, and the lessee reports only the required rental expense for use of the asset. Generally Accepted Accounting Principles in the U.S. have set numerous rules for companies to follow in determining whether a lease should be capitalized (included on the balance sheet) or expensed.This term came into popular use during the Enron bankruptcy. Many of the energy traders' problems stemmed from setting up inappropriate off-balance-sheet entities.

Knowledge Process Outsourcing - KPO

A form of outsourcing in which knowledge- and information-related work is carried out by workers in a different company or by a subsidiary of the same organization. This subsidiary may be in the same country or in an offshore location to save costs or other resources. Companies resort to knowledge process outsourcing when they have a shortage of skilled professionals and have the opportunity to hire skilled workers earning lower wages in another location for a lower overall cost. I: Knowledge process outsourcing (KPO) is the allocation of relatively high-level tasks to an outside organization or a different group in a different geographic location. Examples of KPO include long-term jobs for intellectual, analytical and knowledgeable people within industries such as research and development, financial consultancy and services, business and technical analysis and many others.

Bill And Hold

A form of sales arrangement in which a seller of a good bills a customer for products but does not ship the product until a later date. In order for a transfer of ownership to occur, certain conditions must be met. These conditions include: payment for the goods, that the goods be segregated from all other similar goods by the seller, and that the goods be finished and ready for use.This is also referred to as "bill in place". I: The bill and hold arrangement may be beneficial for the parties involved, but great care must be taken by both parties to ensure that all of the criteria are met. If the arrangement does not meet all of the stated criteria, there will be no transfer of ownership. This means that revenue can't be recognized by the seller, and no assets or inventory can be recorded by the buyer related to this transaction.There have been many scandals surrounding a bill and hold arrangement, and care must be taken when analyzing this type of arrangement.

Land Flip

A fraudulent practice in the real estate business of selling undeveloped land at highly inflated prices. A land flip occurs when a group of dishonest buyers trades the land among its members, increasing the price with each transaction. The group will then finally unload the property onto an unsuspecting outside buyer at a price that the buyer will likely never be able to recoup from its own sale of the land. I: Financial institutions face the risk of land flip with any loan made to purchase undeveloped property. They therefore take equity positions by investing directly in the land. Otherwise, they risk taking a loss if the land value decreases.

Realized Gain

A gain resulting from selling an asset at a price higher than the original purchase price. Realized gain occurs when an asset is disbursed at a level that exceeds its cost of book value. While an asset may be carried on a balance sheet at a level far above cost, any gains while the asset is still being held would be considered unrealized, as the asset is only being valued at a fair market value. I: Once an asset that is being held on the books at an unrealized gain is sold for a realized profit, a firm will predictably see an increase in its current assets and a gain from sale. Such a gain may lead to an increased tax burden, since realized gains from sales are typically taxable income. This is one drawback of turning an unrealized "paper" gain into a realized gain.

Garn-St. Germain Depository Institutions Act

A law enacted by Congress in 1982 to enable banks and other savings institutions to compete more readily in the money market. It got rid of the interest rate ceiling that they once had to abide by, authorized them to make commercial loans and gave the federal agencies the ability to approve bank acquisitions. I: This act was one of the contributing factors of the Savings and Loan Crisis. The S&L crisis was one of the largest government bailouts in U.S. history costing approximately $124 billion. The bailout came to help the 747 savings and loan associations in the U.S. but failed, partly due to the Garn-St. Germain Depository Institutions Act.

Call Loan

A loan provided to a brokerage firm and used to finance margin accounts. The interest rate on a call loan is calculated daily. The resulting interest rate is referred to as the call loan rate. I: Call loans use securities as collateral for the loan. It is important to note that a call loan can be canceled at any time.

Gambling Loss

A loss resulting from games of chance or wagers on events with uncertain outcomes (gambling). These losses can only be claimed against gambling income. I: Gambling losses include the cash lost at the slot machines or when a "sure bet" comes up lame in the race. Total gambling losses claimed cannot exceed gambling income.

Okun Gap

A macroeconomic term that describes the situation when an economy's potential gross domestic product (GDP) differs from its actual gross domestic product. The gap can either be recessionary or inflationary, but will depend on the economy's current state, including levels of inflation and the unemployment rate. I: An Okun gap can be expressed in either percentage or absolute terms and will be a measure of how much output, as measured by GDP, the economy produced in a given time period relative to the economy's full-employment level.Arthur Okun, who is the person credited with discovering Okun's law, among other famous discoveries, was a senior economist at the Counsel of Economic Advisers (CEA) during President Kennedy's term in office and a professor at Yale University.

Make To Assemble - MTA

A manufacturing production strategy where a company stocks the basic components of a product based on demand forecasts, but does not assemble them until the customer places an order. This allows for order customization. MTA production is basically a hybrid of two other major types of manufacturing production strategies: make to stock (MTS) and make to order (MTO). I: With MTS, businesses base their production on demand forecasts and final products are assembled before customers have ordered them. Customers can thus get items quickly, but only if the correct quantities have been manufactured, and businesses risk overproduction. At the opposite end of the spectrum, MTO creates items to customer specifications after they are ordered, so it is sometimes a slow process. The MTA production strategy is not as flexible for businesses as the MTO strategy, but it allows customers to get their orders sooner.

False Market

A market where prices are manipulated and impacted by erroneous information, preventing the efficient negotiation of prices. These types of markets will often be marred by volatile swings because the true value of the market is clouded by the misinformation. I: When investors use inaccurate information to guide their decisions, they tend be irrational and over- or underreact to news. The illogical decisions made by these investors skew the market, causing the true value of a security to be misrepresented

Key Ratio

A mathematical ratio that illustrates and summarizes the current financial condition of a company. Key ratios can be used to easily obtain an idea of a company's financial status. Companies that are in good condition financially will have superior ratios to those that are performing poorly. I: There are actually several different key ratios used by analysts to examine a bank's financial condition. These include the capital to assets ratio, the loan loss reserves to total loans ratio, the liquidity ratio and many others. These ratios provide direct measures of different specific aspects of a bank's assets, liabilities and cash flow.

Days To Cover

A measurement of a company's issued shares that are currently shorted, expressed as the number of days required to close out all of the short positions. For example, if a company has average daily volume of 1 million shares and 2 million shares are currently short sold, the shares have a cover rate of 2 days (2M/1M). Also referred to as the "short-interest ratio". I: This ratio is somewhat unique because it measures the future buying pressure on a stock that is virtually certain to happen - short sellers must buy back shares at some point if they are to close out their positions.If a stock's price begins to rise significantly, investors who have short sold the stock will quickly begin to close out their positions (by purchasing shares off the open market), creating buying pressure for the stock and driving the price up even more. If a previously lagging stock turns very bullish, the buying action of short sellers can result in extra upward momentum and increased losses for short sellers who are slow to close out their positions. The longer the days to cover, the more pronounced this effect can be.

Lagged Reserves

A method of bank reserve calculation whereby the financial institution is required to keep a certain level of reserves with a Federal Reserve bank. The amount of reserves required is based on the value of all outstanding deposits in the bank's demand deposit accounts from two weeks prior. I: Lagged reserve calculation was used from the late 1960s until 1984, when contemporaneous calculations were implemented. But the Fed decided to revert back to the lagged calculation in 1998 in order to obtain more accurate data. This type of reserve calculation is still being used today.

Dean Analytic Schedule

A method of rating fire insurance policies based on various physical fire hazards. The Dean Analytic Schedule was the first predetermined insurance schedule that assigns a rating to a given policy using thorough, qualitative analysis. I: This schedule was originally published by A.F. Dean in 1902. The schedule is seldom used by modern insurance companies. Most carriers have since developed their own custom schedules or instead use the one provided by the Insurance Services Office.

Manual Execution

A method of trading with the help of a dealer or broker, versus trading automatically. Manual executions tend to be slower than automatic ones, in which trades are inputted quickly and often in real time, thus giving investors a time advantage. Different fees are charged by exchanges for manual executions versus automatic executions. I: Securities traded manually require several extra steps to process the trade and can take several minutes to actually be executed. Since stock and forex markets are so fast paced where millions of transactions are done in minutes and the price of a stock or currency can rise or fall almost instantly, a manual execution could place investors at a disadvantage.

Partial Release

A mortgage provision allowing some of the pledged collateral to be released from the mortgage contract if certain conditions are met. I: In other words, the partial release allows some of your collateral can be taken off the mortgage once a certain amount of the loan has been paid.

Econometrician

A person who uses statistics and mathematics to study, model and predict economic principles and outcomes. Econometricians use statistical measures and mathematical formulas to produce objective results in the study of economics. I: An econometrician is a type of economist who integrates statistics and mathematics into economic analysis. Econometricians use highly specialized math and statistics to generate quantifiable results. Individuals employed as econometricians typically have advanced degrees in statistics and/or economics, although some universities do offer specific degrees in econometrics.

Java

A programming language developed by Sun Microsystems to support widespread software distribution, in particular over the Web. It is a smaller and more secure version of the C++ programming language. I: Because of strict controls over software distribution, the Java design protects against the delivery of incompatible software or viruses.

Deal Slip

A record of the essential details of a transaction entered into by a forex dealer. It is the primary source of record-keeping for a dealer. Deal slips are generally required to be archived for a certain number of years stipulated by the regulatory authority where the deal is recorded. Also known as deal ticket. I: A deal slip is generally time-stamped to record the date and time of the transaction. It contains all of the information pertinent to a transaction, including but not limited to the amount of the transaction, whether it was a purchase or sale, the counterparty to the transaction, settlement date, transfer price, customer price and so on.

Real-Time Trade Reporting

A requirement imposed on market makers (and in some instances, non market makers) to report each trade immediately after the transaction is completed. I: Traded stocks are subject to real-time trade reporting within 90 seconds of execution.

One-Third Rule

A rule of thumb that estimates the change in labor productivity based on changes in capital per hour of labor. Specifically, the one-third rule states that on average an increase of 1% in capital per hour of labor will result in approximately a 0.33% increase in labor productivity. This rule assumes no changes in technology or human capital. I: Increases in labor productivity represent increases in real GDP per person, and thus labor productivity can usually be used as a guide to the level of standard of living. Growing labor productivity relies on three main factors: investment and savings in physical capital, technology and human capital. The rule only looks at one factor while holding the other two factors constant. This correlation was first observed by Robert Solow while studying economic growth in the U.S.

Dear Money

A situation in which money or loans are very difficult to obtain in a given country. If you do have the opportunity to secure a loan, then interest rates are usually extremely high. Also known as "tight money". I: This situation can be a result of a restricted money supply, causing interest rates to be pushed up due to the forces of supply and demand. Businesses may have a tough time raising capital during a period of dear money.

Jitney

A situation in which one broker who has direct access to a stock exchange performs trades for a broker who does not have access. A fraudulent activity in the penny stock market involving two brokers trading a stock back and forth to rack up commissions and give the impression of trading volume. I: For example, a small firm whose volume of business is not sufficient enough to maintain a trader on the exchange would give its orders to a large dealer for execution. Jitney, or "the jitney game," is basically the same thing as circular trading. The term originated from "Jitney buses," which was a derogatory slang term for Ford buses at the beginning of the century. A reporter coined the term by alluding to the five-cent piece it cost back then for a bus ride. It has since been used to refer to something that is cheaply and poorly made.

Each Way

A slang phrase used when a broker earns commissions from both parties in a security sale. The purchaser and the seller of the security will pay a fee to the broker for facilitating the transaction. I: Going each way on a trade is ideal for a broker. When investors purchase or sell a stock, bond or derivative, they will usually conduct the transaction through a broker. The broker will take the client's order and try to fill it. For this service, the broker will usually charge a small fee to cover the transaction costs. If the broker is able to match the clients together, they are able to earn twice the commission on a single transaction.

Kiwi

A slang term for the New Zealand dollar (NZD). It derives its name from New Zealand's national icon - a flightless bird called a kiwi - which is pictured on one side of the country's $1 coin. I: This is a popular term in currency trading because New Zealand's currency exchange rate is closely tied to the price/demand of the country's abundant agricultural and forestry products. It is not uncommon to hear a news report say the kiwi is up, or down, in the day's trading.

Kiosk

A small, temporary, standalone booth used in high-foot-traffic areas for marketing purposes. A kiosk will usually be manned by one or two individuals who help attract attention to the booth to get new customers. I: Because of their small, temporary nature, kiosks can be a low-cost marketing strategy. They are also a good way to give a company a human face, and provide customers the opportunity to ask questions about a product. For example, a local newspaper might set up a kiosk at a grocery store to try to sign up new subscribers. Similarly, credit card companies often set up kiosks in airports to seek new customers for a credit card that offers frequent-flyer miles.

Real Estate Mortgage Investment Conduit - REMIC

A special purpose vehicle (SPV) that is used to pool mortgage loans and issue mortgage-backed securities (MBS). Real estate mortgage investment conduits (REMIC) hold commercial and residential mortgages in trust, and issue interests in these mortgages to investors. I: Similar to collateralized mortgage obligations (CMOs), REMICs piece together mortgages into pools based on risk, and issue bonds or other securities to investors. These securities then trade on the secondary mortgage market.

Kanban

A specific type of inventory control system. The kanban system is based upon a series of colored cards. These cards denote such factors as quantity, the type of part and the manufacturer. A card is placed in the bin or other container with each group of manufactured items as an identifier for those involved with the next phase of production or distribution. I: Kanban is a Japanese term meaning signboard or graphic. Cards appear as the container of goods or materials is emptied, allowing the production and delivery of more before a hold-up or shortage develops. These cards may have several colors that are ordered according to priority. Frequently a two-card system is employed where "move" cards are employed to move goods from one area of production to another, while "production" cards that replace materials after they are sold or used.

Qualified Personal Residence Trust - QPRT

A specific type of trust that allows its creator to remove a personal home from his or her estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary. Qualified Personal Residence Trusts allow for the owner of the residence to remain living on the property for a period of time with 'retained interest' (by and large greater than 0%) in the house; once that period is over, the interest remaining in the premises is transferred to the beneficiaries as 'remainder interest.'Depending on the length of the trust, the value of the property during the retained interest period is calculated based on Applicable Federal Rates provided by the IRS. Because a fraction of the value is retained by the owner, the gift value of the property is lower than its fair market value, thus lowering its incurred gift tax. This tax can also be lowered with a unified credit. I: Generally speaking, a QPRT is useful when the trust expires prior to the death of the grantor. If the grantor dies before the term, the property is included in the estate and is subject to tax. The risk lies in determining the length of the trust agreement coupled with the likelihood that the grantor will pass away before the expiration date. Theoretically, longer-term trusts benefit from smaller remainder interest given to the beneficiaries, which in turn reduces the gift tax; however, this is only advantageous to younger trust holders who have a lower possibility of passing away prior to the trust end date.

Random Factor Analysis

A statistical analysis performed to determine the origin of random data figures collected. Random factor analysis is used to decipher whether the outlying data is caused by an underlying trend or just simply random occurring events and attempts to explain the apparently random data. It uses multiple variables to more accurately interpret the data. I: This data is used to help companies better focus their plans on the actual problem. If the random data is caused by an underlying trend or random norecurring event, that trend will need to be addressed and remedied accordingly. For example, consider a random event such as a volcano eruption. Sales of breathing masks may skyrocket, and if someone was just looking at the sales data over a multi-year period this would look like an outlier, but analysis would attribute this data to this random event.

Generalized AutoRegressive Conditional Heteroskedasticity (GARCH)

A statistical model used by financial institutions to estimate the volatility of stock returns. This information is used by banks to help determine what stocks will potentially provide higher returns, as well as to forecast the returns of current investments to help in the budgeting process. I: There are many variations of GARCH, including NGARCH to include correlation, and IGARCH which restricts the volatility parameter. Each model can be used to accomodate the specific qualities of the stock, industry or economic state.

David Hasselhoff Index

A stock index comprised of companies associated with actor David Hasselhoff. Investors might correlate the popularity of David with increased sales surrounding his related products. Firms involved with Hasselhoff endorsements, advertising, movies or productions are included in the index. I: Companies included in the index include General Electric, which is the parent company of NBC in which Hasselhoff stars on America's Got Talent. Firms in this index generally show consistant growth due to the "Don't Hassle the Hoff" Factor.

Quadrix

A stock valuation system that uses over 100 variables in seven major categories to determine the value of a stock. The overall score for a particular stock is determined by a weighted average of all 100 variables. I: The seven categories of variables used in quadrix are momentum, quality, value, financial strength, forecasted earnings, performance, and volume.

National Market System - NMS

A system with two main functions: 1. To facilitate trading of OTC stocks whose size, profitability, and trading activity meet specific criteria. 2. To post prices for securities on the NYSE and other regional exchanges simultaneously, allowing investors to obtain the best price. I: The National Market System is sponsored by both the NASD and the Nasdaq. Compared to other OTC stocks, OTC stocks trading under the NMS system have a more comprehensive listing within newspapers.

Kairi Relative Index

A technical indicator used to spot relationships in trending markets. The Kairi Relative Index was created long ago in Japan by an unknown founder and bears resemblance to the Relative Strength Index. I: The Kairi Relative Index is considered an oscillator as well as a leading indicator. The Index calculates a deviation of the current price from its simple moving average as a percentage of the moving average. By recognizing trending markets that are overextended, traders hope to capitalize on the downside.

Ease Of Movement

A technical momentum indicator that is used to illustrate the relationship between the rate of an asset's price change and its volume. This indicator attempts to identify the amount of volume required to move prices. Generally a value greater than zero is an indication that the stock is being accumulated (bought) and negative values are used to signal increased selling pressure.A high positive value appears when prices move upward on low volume. Strong negative numbers indicate that price is moving downward on low volume. I: A moving average of the indicator can be added to act as a trigger line, which is similar to other indicators like the MACD. Transaction signals can be generated when the indicator crosses over a 9-day moving average, but are generally made when the indicator crosses over the zero line. Traders use the smoothed version of this indicator in an attempt to eliminate false signals.

Quantity Demanded

A term used in economics to describe the total amount of goods or services that are demanded at any given point in time. The quantity demanded depends on the price of a good or service in the marketplace, regardless of whether that market is in equilibrium. The quantity demanded is determined at any given point along a demand curve in a price vs. quantity plane. I: When a given quantity of a good or service is demanded, as determined by its price, it will then impact the amount of goods or services that will be purchased. The degree to which the quantity demanded changes with respect to price is called elasticity of demand.

National Income Accounting

A term used in economics to refer to the bookkeeping system that a national government uses to measure the level of the country's economic activity in a given time period. National income accounting records the level of activity in accounts such as total revenues earned by domestic corporations, wages paid to foreign and domestic workers, and the amount spent on sales and income taxes by corporations and individuals residing in the country. I: National income accounting provides economists and statisticians with detailed information that can be used to track the health of an economy and to forecast future growth and development. Although national income accounting is not an exact science, it provides useful insight into how well an economy is functioning, and where monies are being generated and spent.Some of the metrics calculated by using national income accounting include gross domestic product (GDP), gross national product (GNP) and gross national income (GNI).

G7 Bond

A term used to refer to government bonds issued by a nation in the Group of Seven (G7). A G7 bond is considered relatively less risky than bonds issued by nations outside the G7. The G7 nations are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. All these nations are considered industrialized and developed countries. I: For retail investors, there are funds that invest mainly in G7 bonds. These fixed-income funds target risk-averse investors looking for stability and preservation of capital. G7 bonds are often characterized by their high liquidity and low risk.

In And Out

A trading strategy in which shares of a single security are bought and sold over a short period of time. In and out trading strategy can last a single trading session, but may last longer, though less than the period of time associated with a buy and hold trading strategy. I: Investors use an in and out trading strategy in an effort to take advantage of short-term fluctuations in the price of a security. It is more likely to be used by day traders, whom are less interested in long-term growth. This strategy tends to be riskier, because it relies on rapid changes in price in order to be profitable.

Rabbi Trust

A trust created for the purpose of supporting the non-qualified benefit obligations of employers to their employees. These trusts are sometimes referred to as "grantor trusts". I: Called a Rabbi trust due to the first initial ruling made by the IRS on behalf of a synagogue, these forms of trusts create security for employees because the assets within the trust are typically outside the control of the employers and are irrevocable.

Takaful

A type of Islamic insurance, where members contribute money into a pooling system in order to guarantee each other against loss or damage. Takaful-branded insurance is based on Sharia, Islamic religious law, and explains how it is the responsibility of individuals to cooperate and protect each other. I: Takaful insurance companies were introduced as an alternative to commercial insurance companies, which go against the riba (interest), al-maisir (gambling), and al-gharar (uncertainty) principles, that are outlawed in Sharia.

Fairway Bond

A type of bond that accrues interest if the embedded index or interest-rate option underlying the bond remains within a specified range. The fairway in golf is like the index or interest rate range. The outlook is positive if the ball lands on the fairway; if a ball lands in the rough, the outlook is negative. Also known as "corridor bond", "index range note", "range accrual note", or "index floater". I: Conservative investors tend to choose this type of bond in the hope of maximizing their yield when they believe that the option will remain within a certain range during the time the bond is held. Investors may profit the most during a sideways market. Should the option remain out of range, the least the investor can expect is a return of principal.

Qualified Domestic Relations Order - QDRO

A type of court order typically found in a divorce agreement that recognizes that the ex-spouse is entitled to receive a predefined portion of the individual's retirement plan. In most cases, the qualified domestic relations order (QDRO) allots 50% of the value of the assets gained from the beginning of the marriage to the time of the divorce to the ex-spouse. I: When the distribution goes the ex-spouse, the ex-spouse becomes responsible for any taxes incurred when the money is distributed. However, if the individual does not receive a QDRO and decides to distribute the retirement-plan assets to his or her ex-spouse, the individual will still be responsible for the taxes on the ex-spouse's portion of the money, even though he or she no longer possesses it.

Macroeconomic Swap

A type of derivative designed to help companies whose revenues are closely correlated with business cycles to reduce their business-cycle risk. In a macroeconomic swap, also called a macro swap, a variable stream of payments based on a macroeconomic indicator is exchanged for a fixed stream of payments. The exchange occurs between an end user and a macro swap dealer. I: Macroeconomic swaps were introduced to the market in the early 1990s. Types of indicators that may be used include, but are not limited to, the Consumer Confidence Index, the Wholesale Price Index, inflation rates, unemployment rates, gross national product and gross domestic product. In most types of swaps, the underlying asset can be traded, but this is not true for macroeconomic swaps.

L-Shaped Recovery

A type of economic recession and recovery that resembles an "L" shape in charting. An L-shaped recovery represents the shape of the chart of certain economic measures, such as employment, GDP and industrial output. An L-shaped recovery involves a sharp decline in these metrics followed by a long period of flat or stagnant growth. I: Many refer to the 1990s-era in Japan as a classic example of an L-shaped recession, where there was an economy that essentially flatlined for a decade. There are countless other shapes a recession and recovery chart can take, including V-shaped, W-shaped, U-shaped and J-shaped. Each shape represents the general shape of the chart of the economic metrics that gauge the health of the economy.

Take-Out Lender

A type of financial institution that provides a long-term mortgage on property. This mortgage will replace interim financing, such as a construction loan. Take-out lenders are normally large financial conglomerates, such as insurance or investment companies. I: Take-out lenders replace short-term lenders such as banks or savings and loans. These entities usually view the properties for which they provide mortgages as investments. They expect them to provide capital gains when they are sold, in addition to receiving the mortgage payments.

Take-Out Loan

A type of long-term financing (usually) on a piece of real property. Long-term take-out loans replace interim financing, such as a short-term construction loan. They are usually mortgages with fixed payments that are amortizing. I: Take-out loans can be used for commercial real estate such as office buildings or other income-producing property. Zero-coupon mortgages are a new type of take-out loan. These loans require that interest and principal be paid in a single balloon payment at maturity.

Parasitic Advertising

A type of marketing that promotes one product at the cost of lost sales for another product. Parasitic advertising often occurs when two products are close substitutes for one another. Firms generally attempt to avoid parasitic advertising within their own product offerings because it is not the most effective way of maximizing the return on ad spending. I: Parasitic advertising can be a problem for large firms like Procter and Gamble, which owns many brands. This means that advertising must be coordinated across the firm in order to minimize the degree to which P&G's brands compete with each other. One way to avoid parasitic advertising is to target brands toward different segments of consumers, perhaps by making one a luxury brand while making another a mid-price brand.

3-2-1 Buydown

A type of mortgage with a series of three initial temporary-start interest rates that increase in a stair-step fashion until a permanent interest rate is reached. Lenders will charge for the temporary interest rate reductions. A 3-2-1 buydown is sometimes used as a method to help a borrower with excess cash (but a relatively low income) to qualify for a mortgage. Or, a 3-2-1 buydown mortgage might be offered by a builder as incentive to purchase a home. I: Paying for a 3-2-1 buydown is similar to paying points on a mortgage in order to lower the interest rate. However, remember, the interest rate reductions on a 3-2-1 buydown are only temporary. A thorough analysis should be conducted to ensure that the buydown is the best economical choice for your current and future situation.

2-1 Buydown

A type of mortgage with a set of two initial temporary-start interest rates that increase in stair-step fashion until a permanent interest rate is reached. The initial interest rate reductions are either paid for by the borrower in order to help them qualify for a mortgage, or might be paid for by a builder as incentive to purchase a home. I: Sometimes the cost of a buydown is calculated and placed in an escrow account where each month a certain amount is paid out equal to the difference in the temporary mortgage payment and what the eventual mortgage payment will be. Other times the cost of the buydown is treated like a traditional mortgage point. A thorough analysis should be conducted by the borrower to ensure that a buydown is economical in either situation.

Family Limited Partnership - FLP

A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings. I: An FLP is different from a conventional trust, as family members actually own a share in a business. Shares can be gifted to family members over years, thus taking advantage of gift tax exemptions on an annual basis. The assets held in an FLP impact the level of estate tax savings that can be realized by using an FLP. In general, the more illiquid and complex the asset mix, the more difficult the FLP is to evaluate, and the larger the potential for estate tax savings.

Joint Tenancy

A type of property right where two or more people own or rent a property together, each with equal rights and obligations, until one owner dies. Upon an owner's death, that owner's interest in the property passes to the survivors without the property having to go through probate. I: Joint tenancy can be created by deed or by will. For example, an unmarried couple purchases a house. At the time of purchase, the real estate agent asks the couple how they want to own the home. If they opt for joint tenancy, the deed to the property will then name the two owners as joint tenants. Then if one person dies, the other person will automatically become the full owner of the property.

Landominium

A type of residential property in which the owner owns both the home and the land on which the home is built. The home is a part of a community, like a condominium, where the landscaping, maintenance and other services are provided by a homeowners' association. I: Landominium communities often provide several amenities to their members. Such amenities include, tennis courts, man-made lakes, club houses and walking trails. However, these extra benefits can be offset by restrictions applied to residents by the homeowners' association. Restrictions include limitations on the type and color of flowers, trees, bushes and even fences.

Qualified Terminable Interest Property (QTIP) Trust

A type of trust that enables the grantor to provide for a surviving spouse and also to maintain control of how the trust's assets are distributed once the surviving spouse has also died. Income, and sometimes principal, generated from the trust is given to the surviving spouse to ensure that he or she is taken care of for the rest of his or her life. I: This type of trust is commonly used by individuals who have children from another marriage. QTIPs enable the grantor to look after his or her current spouse and ensure that the assets from the trust are then passed on to beneficiaries of his or her choice, such as the children from the grantor's first marriage.

Random Variable

A variable whose value is unknown or a function that assigns values to each of an experiment's outcomes. Random variables are often designated by letters and can be classified as discrete, which are variables that have specific values, or continuous, which are variables that can have any values within a continuous range. I: Consider an experiment where a coin is tossed three times. If X represents the number of times that the coin comes up heads, then X is a discrete random variable that can only have the values 0,1,2,3 (from no heads in three successive coin tosses, to all heads). No other value is possible for X. An example of a continuous random variable would be an experiment that involves measuring the amount of rainfall in a city over a year, or the average height of a random group of 25 people.

ICSC-UBS Store Sales

A weekly economic figure published by the International Council of Shopping Centers and UBS Bank, that measures comparable store sales at major retail chains. The ICSC-UBS Store Sales measures the portion of retail sales attributed to general merchandise. I: Because consumer spending accounts for about two-thirds of GDP, patterns in consumer spending can have a major influence of investment pricing. The ICSC-UBS index is published weekly, so it is a useful indicator for viewing economic activity during major events and holidays.

George A. Akerlof

A winner of the 2001 Nobel Prize in Economics, along with Michael Spence and Joseph Stiglitz, for his theory of information asymmetry as expressed in his famous 1970 paper, "The Market for Lemons," which discusses imperfect information in the market for used cars. He is also well known for his efficiency wage hypothesis, which suggests that wages are determined by the efficiency goals of employers in addition to supply and demand forces. I: Akerlof is an economics professor at the University of California at Berkeley; he also taught briefly at the London School of Economics. He was born in Connecticut in 1940 and earned his PhD from the Massachusetts Institute of Technology. Akerlof's research focuses on macroeconomics, monetary theory and behavioral economics.

In-Service Withdrawal

A withdrawal made from a qualified plan account before the holder experiences a triggering event. A triggering event, such as reaching a certain age, or leaving an employer, is often needed to be able to withdraw funds from a plan, such as a 401(k). I: Some plans, allow for distributions to be made before a triggering event occurs, to make house payments or pay for your children's education. In most other instances, though, these withdrawals would be penalized according to the 10% standard.

Official Strike

A work stoppage by union members that is endorsed by the union and that follows the legal requirements for striking, such as being voted on by a majority of union members. Workers engaging in official strikes have better protections against being fired. Also called "official industrial action." I: A famous official strike in the United States was the 1994 Major League Baseball strike, which canceled the end of the regular season and the entire postseason. Some of the replacement players who played during 1995 spring training, when the strike had not yet ended, remained in the major leagues, but are not allowed union membership to this day. One reason why this is important is because union players receive a certain percentage of Major League Baseball revenues, because MLB licenses players' names and images for items like jerseys and baseball cards. Non-union members do not receive this benefit.

James M. Buchanan Jr.

An American economist and winner of the 1986 Nobel Memorial Prize in Economics for his contributions to public choice theory. Born in Tennessee in 1919, Buchanan Jr. earned his Ph.D. from the University of Chicago and has taught at Virginia Polytechnic Institute and George Mason University. Along with fellow economist Gordon Tullock, he wrote the famous book "The Calculus of Consent". I: Public choice economics applies economics to political decision making. For example, public choice theory defies the conventional wisdom that politicians act in the best interests of their constituents and instead analyzes how incentives shape politicians' choices to act in their own self-interest.

James J. Heckman

An American economist who won the 2000 Nobel Memorial Prize in Economics, along with Daniel McFadden, for his Heckman correction, a statistical method of correcting for self-selection bias in research. In addition to selection bias and self-selection, Heckman's research has focused on labor economics and human development, and skill formation (especially early childhood development). I: Heckman was born in 1944 in Chicago. He earned his Ph.D. in economics from Princeton and won the John Bates Clark medal in 1983. He has worked as a professor of economics at University College in Dublin; he also taught at the University of Chicago, Columbia and Yale.

Pattern Day Trader

An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period. I: An individual deemed a pattern day trader must hold a minimum of US$25,000 in equity in his or her account before being allowed to day trade. This $25,000 equity amount must be maintained in the account at all times because it addresses the additional risks inherent in leveraged day-trading activities and ensures that customers, before continuing to day trade, cover any losses incurred in their accounts from the previous day.

Magna Cum Laude

An academic level of distinction used by educational institutions to signify an academic degree which was received "with great honor". Magna cum laude is one of three commonly used types of Latin honors which are recognized in the United States, the other two being summa cum laude and cum laude. Magna cum laude is typically more prestigious than cum laude honors but less prestigious than summa cum laude honors. I: The guidelines by which each level of academic honors is achieved differs between academic institutions, however every university or college will outline their expectations for each program. Although Latin honors are quite common in the United States, very few countries around the world use the Latin system.

Bad Debt Reserve

An account set aside by a company to account for and offset losses that arise as a result of defaults from futures loans. This figure may be calculated based on historical norms or other known information about the relative safety of the debt. Also known as a "loss reserve". I: Bad debt reserves become alarming when they reach levels outside of historical norms or averages, either at the company level or the national level. For instance, there are many concerns today about China's high bad debt reserves at its banks, an aftereffect of many years of almost non-existent lending requirements.

Absorbed Account

An account that has been combined or that has merged with another related account. Accounts are often absorbed into existing accounts as a way of simplifying the accounting process. Once an account has been absorbed the original account will cease to exist, although a paper trail will remain to show how funds have been moved. I: Accounts are simply a way for a company or individual to separate finances into manageable categories, so it is not surprising that a separation or category that made sense at one time can become obsolete. When this happens, the obsolete account is absorbed into an area where it fits better. Rather than being a unique account, the absorbed account is combined with another existing account. When this is done at a business, the accountant or bookkeeper records and reconciles the changes.

FDIC Insured Account

An account that meets the requirements to be covered or insured by the Federal Deposit Insurance Corporation (FDIC). An FDIC Insured Account has to be in a bank that is a participant of the FDIC program. The different accounts that can be FDIC insured are NOW, checking, savings, Certificate of Deposits (CD) and money market deposit accounts. Accounts that do not qualify as FDIC insured accounts are safe deposit boxes, investment accounts (stocks, bonds, etc.) mutual funds, life insurance policies, etc. I: If a depositor wants an FDIC insured account, it is important to make sure that the desired bank is a participant of the FDIC program. Banks that are participants of the FDIC, are required to display an official sign at each teller window or station where deposits are regularly received. The maximum dollar amount that is insured in a qualified account is $250,000 per bank. In other words, it is possible for a depositor to deposit $1 million in four different banks and each account will be fully insured.

Old-Age And Survivors Insurance Trust Fund

An account within the Social Security Trust Fund used to pay benefits to retired workers, the beneficiaries and their children. The Old-Age and Survivors Insurance Trust Fund receives deposits from FICA considered to be over and above the amount needed for day-to-day operations of old-age and survivors insurance under social security. These funds are held in trust, and any funds not required for current expenses are invested in interest-bearing federal securities. I: The Old-Age and Survivors Insurance Trust Fund was created in 1939 as a part of the Social Security Act amendments of 1939. The fund's board of trustees consists of six members, two of which are appointed by the President and the remaining four are automatically selected due to their positions in the federal government; These four positions are: the Secretary of the Treasury, Secretary of Labor, Secretary of Health and Human Services and the Commissioner of Social Security.

Debit Ticket

An accounting entry recorded as a debit that acknowledges money owed. When payment is received a corresponding credit is entered to cancel the debit. I: An example is when a bank processes a check to be deposited into a customer's account. The bank treats the check as a cash item and credits the funds to the customer's account and writes a debit ticket, charged to the general ledger, while waiting to receive payment from the bank account against which the check was written.

Debit

An accounting entry that results in either an increase in assets or a decrease in liabilities on a company's balance sheet or in your bank account. A debit on an accounting entry will have opposite effects on the balance depending on whether it is done to assets or liabilities, with a debit to assets indicating an increase and vice versa for liabilities. I: In fundamental accounting, debits are balanced by credits, which operate in the exact opposite direction. When a debit is made to one account of a financial statement, a corresponding credit must occur on an opposing account. This is the fundamental law of bookkeeping accounting. For instance, if a firm were to take a loan to purchase equipment, one would debit fixed assets and credit a liabilities account, depending on the nature of the loan.

Earnings Before Interest, Tax, Amortization And Exceptional Items - EBITAE

An accounting metric often used to deduct the amortization of intangible assets to arrive at a value. Companies will use EBITAE not only as a measure of performance, but also to determine interest coverage capabilities. The eliminated items are often seen as factors that distort earnings that are derived from the underlying business operations of a firm. Calculated as: Where expenses* represents expenses that exclude interest, taxes, amortization of intangible assets and exceptional items. I: When evaluating EBITAE, investors will look at the figure as a percentage of revenue and they will also measure EBITAE margin. Both the percentage and margin will be compared to previous years' figures to evaluate performance. This ratio is very similar to the EBITDA, a very popular performance measure often used by investors.

National Credit Union Administration - NCUA

An agency of the United States federal government that was created to monitor federal credit unions across the country. One of its major responsibilities is running the National Credit Union Share Insurance Fund (NCUSIF), which uses tax dollars to insure the deposits at all federal credit unions. I: The NCUA officially became a federal agency in 1970 and is headquartered in Alexandria, Virginia. The agency is headed by a three-member board which is appointed directly by the president of the United States. The agency currently monitors over 9,500 federally insured credit unions that service over 80 million customer accounts.

Offtake Agreement

An agreement between a producer of a resource and a buyer of a resource to purchase/sell portions of the producer's future production. An offtake agreement is normally negotiated prior to the construction of a facility such as a mine in order to secure a market for the future output of the facility. If lenders can see the company will have a purchaser of its production, it makes it easier to obtain financing to construct a facility . I: Offtake agreements are frequently used in natural resource development, where the capital costs to extract the resource is signficant and the company wants a guarantee that some of its product will be sold. Companies can usually back out of an offtake agreement through negotiations with the other party and with the payment of a fee.

Last In, First Out - LIFO

An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first. I: LIFO assumes that an entity sells, uses or disposes of its newest inventory first. If an asset is sold for less than it is acquired for, then the difference is considered a capital loss. If an asset is sold for more than it is acquired for, the difference is considered a capital gain. Using the LIFO method to evaluate and manage inventory can be tax advantageous, but it may also increase tax liability.

Acceleration Principle

An economic concept that draws a connection between output and capital investment. According to the acceleration principle, if demand for consumer goods increases, then the percentage change in the demand for machines and other investment necessary to make these goods will increase even more (and vice versa). In other words, if income increases, there will be a corresponding but magnified change in investment. Also referred to as the accelerator principle. I: The acceleration principle has the effect of exaggerating booms and recessions in the economy. This makes sense, as companies want to optimize their profits when they have a successful product, investing in more factories and capital investments to produce more. If a recession hits, they will reduce investment. This investment reduction can increase the length of the recession. This is because less investment means less jobs created, and so on.

KBW Bank Index

An economic index consisting of the stocks of 24 banking companies. This index serves as a benchmark of the banking sector. This index trades on the Philadelphia Stock Exchange, where it was created. The KBW Index is named after Keefe, Bruyette and Woods, a recognized authority in the banking industry. I: The KBW Index trades under ticker symbol BKX. The index is weighted according to capitalization and represents major banks and money centers from across the country. Mathematically, the index is based on a tenth of the value of the Keefe, Bruyette and Woods Index (KBWI). It began trading options in September of 1992.

GDP Price Deflator

An economic metric that accounts for inflation by converting output measured at current prices into constant-dollar GDP. The GDP deflator shows how much a change in the base year's GDP relies upon changes in the price level. Also known as the "GDP implicit price deflator." I: Because it isn't based on a fixed basket of goods and services, the GDP deflator has an advantage over the Consumer Price Index. Changes in consumption patterns or the introduction of new goods and services are automatically reflected in the deflator.

Gibson's Paradox

An economic observation made by British economist Alfred Herbert Gibson that points to the positive correlation between interest rates and the general price level. The findings are a paradox because it is contrary to the view generally held by economists at the time, which was that interest rates were correlated to the rate of inflation. I: While Gibson was the first to note this paradox, J.M. Keynes' was first to give the observation a name. In his research, which he discusses in "A Treatise on Money" (1930), interest rates were highly correlated to wholesale prices but had little correlation to the rate of inflation. In this paradox, interest rate movements are connected to the level of prices, not the rate of change in prices.

Sacrifice Ratio

An economic ratio that measures the costs associated with slowing down economic output to change inflationary trends. The ratio is calculated by taking the cost of lost production and dividing it by the percentage change in inflation, and its quotient gives the loss of output per 1% change in inflation: I: If inflation is becoming a problem, central banks will try to cool economic growth in a bid to reduce inflationary pressures. However, this reduction in output costs the economy in the short term, and the sacrifice ratio tries to measure that cost.

Joint Supply

An economic term referring to a product or process that can yield two or more outputs. Common examples occur within the livestock industry: cows can be utilized for milk, beef and hide; sheep can be utilized for meat, wool and sheepskin. If the supply of cows increases, so will the supply of dairy and beef products. I: Where joint supply exists, the supply and demand for each product is linked to the others originating from the same source. For example, if demand increases for wool, and sheep farmers therefore raise more animals for wool, there will eventually be increased sheep meat production, resulting in greater meat supply and potentially lower prices.

Kondratiev Wave

An economic theory created by Soviet economist Nikolai Kondratiev that states that Western capitalist economies are susceptible to high performance volatility. Also known as "Kondratiev cycle". I: Kondratiev called these large performance fluctuations "super-cycles," which last 50-60 years. Kondratiev claimed to have predicted in the 1920s the stock market crash of 1929, also known as Black Thursday. His prediction was based on the market crash of 1870.

Baby Boomer Age Wave Theory

An economic theory popularized by economist and writer Harry Dent, who concludes that the U.S. and other European markets will peak between 2008 and 2012. This is based on Dent's finding that a human's consumer spending habits peak by age 50; therefore, as the baby boomer generation reaches this age, the economy may be approaching a peak in consumer spending and in the markets. I: Because American soldiers returned from WWII earlier than European soldiers, the theory concludes that markets in the U.S. will peak around 2008, while European markets will peak around 2012. Assuming that the theory's predictions are accurate, some expect this to have wide-ranging implications. In addition, when baby boomers retire, this could cause spikes in unemployment and decreases in the housing market as aging baby boomers spend less. Others believe that the influx of immigration will help stave off these effects in the United States.

Labor Theory Of Value

An economic theory that stipulates that the value of a good or service is dependent upon the labor used in its production. The theory was first proposed by Adam Smith (1723-1790), the founder of modern economics, and was an important concept in the philosophical ideals of Karl Marx. The labor theory of value suggests that goods which take the same amount of time to produce should cost the same. I: Opponents of the labor theory of value purport that it is not labor that determines the price of a good or service; rather, it is simply a function of supply and demand for a given good or service that determines its price. According to the theory, if the cost of purchasing something is greater than the amount that the purchaser values the time it would take to produce the good, then he will make it himself rather than buy it.

Real Bills Doctrine

An economic theory that surmises that when central banks loan money only for "productive" projects the loans will not be inflationary. The Federal Reserve Act of 1913 was based in part on the Real Bills Doctrine, which asserted that the creation of money would automatically be directed to real goods and services if the central bank and banks provided credit only to short-term, self-liquidating loans. The Real Bills Doctrine has been completely discredited since 1945 by most economists. I: Opponents of the Real Bills Doctrine emphasized that all monetary creation is inflationary, regardless of how the money is used or what types of projects the loan will support. Some economists place blame on the Real Bills Doctrine for the Federal Reserve policy during the Great Contraction and Great Depression of the late 1920s and early 1930s.

Qualified Annuity

An financial product that accepts and grows funds, and is funded with pre-tax dollars. "Qualified" is a descriptor given by the Internal Revenue Service (IRS) to indicate that the qualified annuity may be eligible for tax deduction. When a distribution is made, it is subject to income tax. I: A qualified annuity differs from a non-qualified annuity, which is an annuity funded with after-tax dollars. While distributions from a qualified annuity are taxed as income, distributions from a non-qualified annuity are not subject to income tax in their entirety. Qualified annuities are often set up by employers on behalf of their employees as part of a retirement plan.

Path Dependency

An idea that tries to explain the continued use of a product or practice based on historical preference or use. This holds true even if newer, more efficient products or practices are available due to the previous commitment made. Path dependency occurs because it is often easier or more cost effective to simply continue along an already set path than to create an entirely new one. I: An example of path dependency would be a town that is built around a factory. It makes more sense for a factory to be located a distance away from residential areas for various reasons. However, it is often the case that the factory was built first, and the workers needed homes and ammenities built close by for them. It would be far too costly to move the factory once it has already been established, even though it would better serve the community from the outskirts of town.

Garbatrage

An increase in price and trading volume in a particular sector of the economy that occurs as a result of a recent takeover, which initiates a change in sentiment toward the sector. Garbatrage is also known as "rumortrage". I: Garbatrage is usually used to refer to firms that are not directly related to the takeover. Speculators feel that the initial takeover is a precursor to more takeovers within the sector. Proponents of behavioral finance theory would view this psychological impact as evidence that supports their theory.

Federal Energy Regulatory Commission - FERC

An independent agency responsible for regulating interstate oil and gas pipelines and sales, as well as the transmission of electricity from state to state. In addition, the Energy Policy Act of 2005 charged the FERC with further duties, such as imposing mandatory standard regulations. The FERC also regulates expansion projects and the operations of gas pipelines. I: The FERC ensures that energy business matters are conducted in proper ethical fasion. For example, it investigates potential fraud and manipulation in the markets, and make sure that consumers have proper access to natural gas when needed.

National Average Wage Index - NAWI

An index calculated annually by the Social Security Administration (SSA) based on wages subject to federal income taxes and contributions to deferred compensation plans. The National Average Wage Index (NAWI) is used by the SSA in the indexation of retirement and insurance benefits in the United States. I: The national average wage is calculated by taking the previous year's amount and increasing it by the percentage increase in wages over the last year. This data provides investors with valuable information to let them know what the workers in the nation are making.This statistics provides insight into the direction of wage trends, which can have an effect on wage inflation, which could cause the fed to raise rates to curtail it. Raising interest rates will have a negative effect on bond and equity markets. Alternatively, if wage inflation seems to be decreasing, the Fed may lower rates, which would have positive effects in the markets.

Farm Price Index - FPI

An index that monitors the prices received by farmers for sales including crops and livestock. The farm price index, which is released by the U.S. Department of Agriculture on a monthly basis, is a tool that analysts use as a leading indicator of inflation or deflation in the overall economy. It is also known as the "Farm Products Price Index (FPPI)" or the "USDA Farm Price Index". I: Farm prices are thought to be a leading indicator of food prices in the producer price index (PPI) and the consumer price index (CPI), and a sign of overall inflation or deflation. Because inflation (whether high or low) can have drastic effects on the investment markets, this is a valuable tool for predicting market movements.

Cambist

An individual or broker considered to be an expert in foreign exchange rates. Cambist may also refer to a book providing information, such as exchange rates on world currencies and other mediums of exchange. I: The term comes from the Latin word "cambiere" which means "to exchange." With the advent of electronics and fast-paced trading, manuals and books detailing exchange rates fell out of favor. Today, the term is used as a throwback to describe professional currency traders.

Bailee

An individual who temporarily gains possession, but not ownership, of a good or other property under a bailment. The bailee is entrusted with the possession of the good or property by another individual known as the bailor. This relationship is based on a contractual agreement (a bailment) between the bailor and the bailee, which specifies the terms and purpose of the change in ownership. I: While the goods are in the bailee's possession, the bailor is still the rightful owner. However, the bailee is responsible for their safekeeping and eventual return. Typically, the bailee is not entitled to use the goods or property. A bailee can serve as the overseer of an investment portfolio for a specified time period, or can be appointed to manage a rental property in the owner's absence. The bailee ensures the assets are kept safe until the owner of those assets is able to resume management.

Bailor

An individual who temporarily relinquishes possession but not ownership of a good or other property under a bailment. The bailor entrusts the possession of the good or property to another individual, known as the bailee. A bailment is usually a contractual agreement between the bailor and the bailee that specifies the terms and purpose of the change in possession. I: A bailor transfers possession, but not ownership, of a good to another party, known as the bailee, in the event of a bailment. While the good is in the bailee's possession, the bailor is still the rightful owner. A bailor/bailee relationship can be illustrated in the management of investment portfolios. A bailor can designate a bailee to supervise an investment portfolio for a particular time period. While the bailee does not own the portfolio, the bailor entrusts the chosen individual to ensure that the portfolio is in good hands until such time that the bailor can or wishes to resume the duties of managing the portfolio.

Macro-Hedge

An investment technique used to eliminate the risk of a portfolio of assets. In most cases, this would mean taking a position that offsets the whole portfolio. But this technique is difficult in practice because there is rarely one asset that will offset the risk of a broader portfolio, so applying a macro-hedge most likely requires taking an offsetting position in each individual asset. I: Here's an example of a macro-hedge: an index-fund manager believes there will be a loss in the index in the upcoming period. To eliminate the risk of a downward turn in the index, the manager can take a short position in the index fund's futures market that will lock in a price for the index.

Sale and Repurchase Agreement - SRA

An open market operation, implemented by the central Bank of Canada, that is designed to affect overnight interest rates and modify the supply of money. I: An SRA is implemented when the Bank of Canada sells securities to a chartered bank and agrees to repurchase them the following day. This is a contradictory move by the Bank of Canada on the monetary system, since selling these securities requires the chartered banks to spend some cash, thereby reducing the money supply and increasing interest rates.

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. Sometimes referred to as an interdelivery, intramarket, time or horizontal spread. I: An example of a calendar spread would be going long on a crude oil futures contract with delivery next month and going short on a crude oil futures contract whose delivery is in six months.

Ratio Spread

An options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased. I: A ratio spread would be achieved by purchasing one call option with a strike price of $45 and writing two call options with a strike price of $50. This would allow the investor to capture a gain on a small upward move in the underlying stock's price. However, any move past the higher strike price ($50) of the written options will cause this position to lose value. Theoretically, an extremely large increase in the underlying stock's price can cause an unlimited loss to the investor due to the extra short call.

Naked Call

An options strategy in which an investor writes (sells) call options on the open market without owning the underlying security. This stands in contrast to a covered call strategy, where the investor owns the security shares that are eligible to be exercised under the options contract. This strategy is sometimes referred to as an "uncovered call" or a "short call". I: A naked call strategy is inherently risky, as there is limited upside potential and (theoretically) unlimited downside potential should the stock rise above the exercise price of the options that have been sold. As a result of the risk involved, only experienced investors who strongly believe that the price of the underlying stock will fall or remain flat should undertake this advanced strategy. The margin requirements are often very high for this strategy as well due to the propensity for open-ended losses, and the investor may be forced to purchase shares on the open market prior to expiration if margin thresholds are breached. The upside to the strategy is that the investor could receive income in the form of premiums without putting up a lot of initial capital. Want to know more? Read Naked Call Writing: A Risky Options Strategy

Day-Around Order

An order that cancels and replaces a previously submitted day order, producing a new request with an adjusted volume or price limit. The term is primarily used by traders in the general equities market. As with a day order, the day-around will expire by the end of the business day. I: A day-around order simplifies the cancellation and reorder process in trading by combining a cancel order form with a day order. For example, let's say that an investor submits a day order to purchase stock XYZ with a limit at $50. The investor hears some detrimental news surrounding company XYZ and wants to lower the limit on the day order. Instead of submitting a cancel order form and submitting another day order, the investor can simply submit a day-around order with a new limit price.

Package Deal

An order that contains a number of exchange or deposit items that must be completed simultaneously, or not at all. Package deals allow traders to ensure specific prices or times to maturity for multiple assets. I: A trader may want to participate in a package deal to properly execute an investment strategy. For example, let's say an investor wants to enter into a long-short strategy, where he or she purchases one stock and short sells another. Making this order a package deal will protect the investor in case either stock is not immediately available for purchase or sale. The investor may not want the exposure of being only long or short for the period of time required to complete the second transaction.

Ras Al Khaimah Investment Authority - RAKIA

An organization established under a 2005 decree issued by the ruler of Ras Al Khaimah in United Arab Emirates (UAE). RAKIA's vision is to become the leading authority in making sound investments in Ras Al Khaimah and partner with other parties who share this vision in order to create a sustainable and growing economy. The formation of RAKIA has been an important step towards meeting the Ras Al Khaimah royal family's objective of making the emirate a regional hub for manufacturing, service and tourism. I: Ras Al Khaimah is a 35-45 minute drive from Dubai. Businesses set up in RAKIA's free trade zones enjoy several advantages such as complete exemption from all taxes, total repatriation of capital and profits, and land leases at highly concessional rates.

Implied Warranty Of Habitability

An unstated guarantee that a rental property meets basic living and safety standards. When a tenant rents an apartment, for example, an implied warranty of habitability means that the unit will have hot water, a working electrical system, heat in the winter, lockable doors and windows, a working toilet and smoke detectors, and be free of pests like roaches and rats, among other conditions. I: Local building codes outline the standards that rental units must meet. A landlord whose rental units do not meet these conditions is known as a slumlord. Tenants living in uninhabitable units have legal remedies to force landlords to meet their obligations.

Managed Currency

Any currency that can have its exchange rate affected by the intervention of a central bank. This is opposed to a currency that is determined solely by the forces of supply and demand in the world market. Virtually no currencies truly fall into this latter category. I: The majority of major world currencies are managed at least to some degree. This is due to the purchase and sale of these currencies by the central banks of different countries.They do this in order to stabilize the markets and affect their own monetary policies.

Real Property

Any property that is attached directly to land, as well as the land itself. Real property not only includes buildings and other structures, but also rights and interests. Real property can be either rental or residential. I: Any structures or improvements that are attached to the land must not be movable in order to be considered real property. Natural resources such as oil, gas and timber also qualify, because they are considered to be part of the land.

Hanover Stock Exchange (HAN) .HA

Formerly located in Hanover, Germany, this stock exchange is now defunct. I: The HAN merged with the Hamburg Stock Exchange in 1999 to form the BOAG Borsen AG. This new entity has been overshadowed by the Frankfurt Exchange.

IDC Deposits

IDC Deposits Corp. oversees the MMAX (Money Market Account Extra) program which provides depositors with an efficient way to make large deposits - up to a maximum of $5 million - and secure FDIC insurance. Expanded FDIC coverage is attractive to depositors, particularly when financial markets are experiencing significant volatility and firms (commercial entities, public agencies and individuals) want a safe place to park cash. The deposit is divided up between a network of 50+ IDC Deposit Network banks nationwide to meet FDIC insurance requirements. I: Wells Fargo is the custodian for the MMAX account structure. By dividing a single large deposit into smaller amounts among Network banks, lenders can ensure that the depositor's principal and interest are eligible for full FDIC protection. MMAX account holders are able to make up to six withdrawals from their account monthly.

Earned Premium

The amount of total premiums collected by an insurance company over a period that have been earned based on the ratio of the time passed on the policies to their effective life. This pro-rated amount of paid-in-advance premiums have been "earned" and now belong to the insurer. I: For example, if a $1,000 policy has a two-year life span and no claim has been filed six months into the policy, the company will have an earned premium amount of $250. There are two different methods for calculating earned premiums, an accounting method and an exposure method. The accounting method is highlighted above and is the more prevalent of the two; the accounting method is also how earned premium is shown on the majority of insurers' corporate income statements. Under the exposure method, earned premiums are calculated based on the percentage of total premium that was exposed to loss during the period being calculated and does not take when the premium was actually collected into account .

Real Rate Of Return

The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time. I: Adjusting the nominal return to compensate for factors such as inflation allows investors to determine how much of their nominal return is actually real return.For example, let's say your bank pays you interest of 5% per year on the funds in your savings account. If the inflation rate is currently 3% per year, then the real return on your savings today would be 2%. In other words, even though the nominal rate of return on your savings is 5%, the real rate of return is only 2%, which means that the real value of your savings only increases by 2% during a one-year period.

Rationing

The artificial restriction of raw materials, goods or services. Rationing commonly occurs when governments fear a shortage and want to make sure people have access to necessities, such as after a natural disaster or during a war. Governments can also impose rationing in the face of failed policies such as central planning, or may be forced to use rationing as a result of shortages. I: For example, during World War II, the U.S. government imposed rationing on the country so that sufficient materials and production capabilities would be available to the military. It did not matter how much of an item an individual or family wanted or could afford to purchase; people were only allowed to purchase a limited amount specified by the government and controlled by ration coupons. Items including tires, gasoline, sugar, meat, butter and many others were subject to rationing. Rationing can lead to the creation of black markets for the rationed goods. Black markets allow individuals to use their allotment of a rationed good that they don't need to obtain more of a rationed good that they do need.

Farmout

The assignment of part or all of an oil, natural gas or mineral interest to a third party. The interest may be in any agreed-upon form, such as exploration blocks or drilling acerage. The third party, called the "farmee," pays the farmor a sum of money up front for the interest and also commits to spending money to perform a specific activity related to the interest, such as operating oil exploration blocks, funding expenditures, testing or drilling. Income generated from the farmee's activities will partly go to the farmor and partly go to the farmee in percentages determined by the agreement. I: A company may decide to enter into a farmout agreement with a third party if it wants to maintain its interest but wants to reduce its risk or doesn't have the money to undertake the operations that are desirable for that interest. Farmout agreements give farmees a potential profit opportunity that they would not otherwise have access to. Government approval may be necessary before a farmout deal can be finalized.

Back Months

The available futures contracts for a particular commodity that possess expirations or delivery dates furthest into the future. Also referred to as deferred futures or forward months. I: Back month futures contracts may have identical actuals as those contracts are expiring in the near term. However, as the time of delivery is further into the future, the price of the contract will vary. Similar to option contracts, futures may extend beyond many months.

National Best Bid and Offer - NBBO

The best (lowest) available ask price and the best (highest) available bid price to investors when they buy and sell securities. National Best Bid and Offer is the bid and ask price the average person will see. The Securities and Exchange Commission's Regulation NMS requires that brokers must guarantee customers this price. I: The NBBO is updated throughout the day to show the highest and lowest offers for a security among all exchanges and market makers. The lowest ask price and the highest bid price displayed in the NBBO do not have to come from the same exchange. The best bid and ask prices from a single exchange or market maker are simply called "best bid and offer." Traders who want to execute orders larger than those available through the NBBO will want to know the other potential bid and ask prices at which they could execute their orders. They can find these in an exchange or market maker's "depth of book" data. Day traders usually use level 2 market-maker screens to see all the bids and offers for a particular stock. The Consolidated Quotation System gives the NBBO for securities listed on the New York Stock Exchange, while the Unlisted Trading Privileges Quote Data Feed gives the NBBO for securities listed on the Nasdaq. A shortcoming of the NBBO system is that the data may not be sufficiently up to date, so investors may not get the prices they were anticipating when their trades are actually executed. This problem is mainly of concern to high-frequency traders, whose trading strategies may fail if their orders aren't executed at a precise desired price. Another NBBO shortcoming is that Regulation NMS is difficult to enforce, because the fast pace of trading and the lack of recorded NBBO prices make it difficult to prove whether an investor received the NBBO price on a trade.

Haas School of Business

The business school at the University of Berkeley. It offers a wide variety of programs, including an MBA degree, master's program in financial engineering, Ph.D. and undergraduate studies. The school's programs are usually ranked among the top in the country. I: The Haas School of Business was originally founded in 1898 as the College of Commerce of the University of California. The current campus was designed by architect Charles Moore and completed in 1995. One of its notable alumni is Michael Milken, the junk bond guru who was jailed in the late 1980s.

Lapse

The cessation of a privilege, right or policy due to time or inaction. A lapse of a privilege due to inaction occurs when the party that is to receive the benefit does not fulfill the conditions or requirements set forth by a contract or agreement. I: When a policy lapses, it usually occurs because one party fails to act on its obligations or one of the terms on the policy is breached. For example, an insurance policy will lapse if the holder does not pay the premiums. The right given by an options contract will lapse when the option reaches maturity, at which time the holder will no longer possess the right to buy or sell the underlying asset.

John Elkann

The chairman of Italian automaker Fiat. As a member of the powerful Agnelli family, which controlled Fiat, Elkann was groomed for the business, which prepared him to take on important roles in the company at a young age after the premature deaths of his grandfather Gianni Agnelli and Agnelli's son and brother. At the time Elkann attained the position of vice chairman, Fiat was suffering from its vehicles' poor reputation for reliability. Elkann worked closely with management and turned the company around. I: Born in 1976 in New York City, Elkann earned his bachelor of science degree in industrial engineering and management from Turin Polytechnic in 2001. He first worked at Fiat in 1994 as an intern and earned promotions to increasingly responsible positions. He became a board member of Fiat in 1997, vice chairman in 2004 and chairman in 2010, when Luca Cordero di Montezemolo stepped down.

Economic Moat

The competitive advantage that one company has over other companies in the same industry. This term was coined by renowned investor Warren Buffett. I: The wider the moat, the larger and more sustainable the competitive advantage. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies wanting to enter into the industry.

Deadweight Loss

The costs to society created by market inefficiency. Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. Price ceilings (such as price controls and rent controls), price floors (such as minimum wage and living wage laws) and taxation are all said to create deadweight losses. Deadweight loss occurs when supply and demand are not in equilibrium. I: Minimum wage and living wage laws can create a deadweight loss by causing employers to overpay for employees and preventing low-skilled workers from securing jobs. Price ceilings and rent controls can also create deadweight losses by discouraging production and decreasing the supply of goods, services or housing below what consumers truly demand. Consumers experience shortages and producers earn less than they would otherwise. Taxes are also said to create a deadweight loss because they prevent people from engaging in purchases they would otherwise make because the final price of the product will be above the equilibrium market price.

GHC

The currency abbreviation for the Ghanaian cedi - the official currency of the Republic of Ghana. The GHC was introduced on July 3, 2007. The word "cedi" derives from the African word for cowry shell, which was a prior form of Ghanian currency. Banknotes are issued in 1, 5, 10, 20 and 50 denominations. The currency is overseen and issued by the Bank of Ghana. I: The current cedi is a redenominated form of a previous old cedi, which was a replacement for an older cedi that was in use between 1965 and 1967. In 1957, Ghana became the first Sub-Saharan African country to achieve independence from the United Kingdom.

MAD (Moroccan Dirham)

The currency abbreviation for the Moroccan dirham (MAD), the currency for Morocco and the de facto currency of the Western Sahara region. The Moroccan dirham is made up of 100 santimat (plural); popular language often refers to five santimat as a "rial", and one santim as a "franc". I: The dirham was used in Arabia and the Levant (a large area in Western Asia bounded by the Taurus Mountains and the Arabian Desert) in pre-Islamic times before the introduction of modern coins in 1882. Silver coins denominated in dirham were used until 1882, at which point the dirham became a subdivision of the Moroccan rial. The rial was replaced in Spanish Morocco by the Spanish peseta in 1912, and in French Morocco by the franc in 1921. The franc was then replaced by the dirham in 1960 when it was reintroduced. The franc remained in circulation until 1974, when it was replaced by the santim.

QAR (Qatari Riyal)

The currency abbreviation for the Qatari riyal (QAR), the currency for Qatar, an Arab emirate located along the coast of the Arabian Peninsula. The Qatari riyal is made up of 100 dirham and is often presented with the symbol QR in English. The riyal has been pegged in practice with the U.S. dollar since 1980 at a rate of 1 U.S. dollar to 3.64 Qatari riyal; the rate became official in 2001. I: The Qatari riyal replaced the Qatar and Dubai riyal in 1973, when Dubai entered into the United Arab Emirates. At this time, Qatar began to issue its riyal separately. The joint currency came into force in 1966, at which time the previous currency, the Indian rupee, was replaced due to India's devaluation of its currency.

KHR

The currency abbreviation or currency symbol for the Cambodian riel (KHR), the currency for Cambodia. The riel is made up of 100 sen and is often presented with the symbol (__). Although the riel has been used in two forms since its inception, no monetary system was used in Cambodia from 1975 to 1980. I: The Cambodian riel was first seen in 1953 and was divided into 100 centimes. These were changed to sen in 1959, but the riel was discontinued under the Khmer Rouge in 1975. It was reincepted in 1980 and is still in use today, although U.S. dollars are also often used in urban and tourist areas.

ILS

The currency abbreviation or currency symbol for the Israeli New Sheqel (ILS), the currency for Israel. The New Sheqel is made up of 100 agorot, and is often presented with the symbol __. This symbol represents a combination of the first letters in Hebrew of the words "sheqel" and "hadash". The currency itself is actually produced by a South Korean company, as there is no mint in Israel. I: The New Sheqel was first seen in 1986 when it replaced the original sheqel currency at a ratio of 1000 to 1. It became a freely convertible currency in 2003 and began trading derivatives in 2006. The currency became fully convertible in 2008.

KRW (Korean Won)

The currency abbreviation or currency symbol for the Korean won (KRW), the former currency for Korea. The won was made up of 100 chon and is often presented with a symbol that looks like the capital letter W with two horizontal dashes through the center. No banknotes denominated in won were ever issued. I: The won was first seen in 1902, replacing the yang. It appeared in the form of coins of various denominations which were equal to the Japanese yen. The Japanese yen along with the Korean yen replaced the won in 1910.

LAK

The currency abbreviation or currency symbol for the Lao kip (LAK), the currency of Laos. The kip is made up of 100 att, and is often presented with the symbol (__). The first kip coins minted in 1952 had holes in the center like chinese coins. I: The kip was first seen in 1952. It replaced the French indochinese currency piastre on a 1-to-1 basis, but the new currency was also denominated in either kip and piastre or kip and riel or dong. Sole kip notes appeared in 1957, but this was replaced by Pathet Lao kip and the Lao PDR kips in 1976 and 1979, respectively.

LAK (Lao Kip)

The currency abbreviation or currency symbol for the Lao kip (LAK), the currency of Laos. The kip is made up of 100 att, and is often represented with a symbol that looks like a capital letter K with a horizontal dash through the center. The first kip coins minted in 1952 had holes in the center like Chinese coins. I: The kip was first seen in 1952. It replaced the French Indochinese currency piastre on a 1:1 basis, but the new currency was also denominated in either kip and piastre or kip and riel or dong. Sole kip notes appeared in 1957, but this was replaced by Pathet Lao kip and the Lao PDR kips in 1976 and 1979, respectively.

LBP (Lebanese Pound)

The currency abbreviation or currency symbol for the Lebanese pound (LBP), the currency for Lebanon. The LBP is made up of 100 qirsh or piastres. This currency is also called lira in Arabic or livre in French, and all notes and coins are printed and stamped in both Arabic and French. I: The Lebanese pound was first seen in coin form in 1924 with paper currency following a year later. The LBP officially separated from Syrian currency in 1939 and became linked with the British pound after France was conquered by Germany in 1941. The Lebanese pound was re-linked with the franc after the war, but separated again in 1949.

KMF

The currency abbreviation or the currency symbol for the Cormorian franc (KMF), the currency of Comoros. The Comorian franc is made up of 100 centimes and is often presented with the symbol CF. This currency was first printed on a series of Madagascar postage stamps that had been altered to become legal tender. I: The Comorian franc was first seen in 1920 and has appeared in both coin and bill form in various denominations. Coins dedicated specifically to Comoros were issued in 1964, and Arabic printing has been stamped on them since 1975.

KMF (Comorian Franc)

The currency abbreviation or the currency symbol for the Cormorian franc (KMF), the currency of Comoros. The Comorian franc is made up of 100 centimes and is often presented with the symbol CF. This currency was first printed on a series of Madagascar postage stamps that had been altered to become legal tender. I: The Comorian franc was first seen in 1920 and has appeared in both coin and bill form in various denominations. Coins dedicated specifically to Comoros were issued in 1964, and Arabic printing has been stamped on them since 1975.

Icelandic Króna - ISK

The currency abbreviation or the currency symbol for the Iceland króna (ISK), the currency of Iceland. The króna is divided into 100 aurar and is often presented with the symbol kr. This currency has earned the nickname "Icelandic crown" in the financial markets because the english translation is "crown", and because of króna's relation to the latin word corona, meaning crown. I: The króna was first seen in 1922 in coin form, followed by notes in 1929. The currency was revaluated in 1981, and only whole krónur (plural of króna) have been used since 2002. Currency trading was suspended during the Icelandic banking collapse in 2008.

IDR (Indonesian Rupiah)

The currency abbreviation or the currency symbol for the Indonesian rupiah (IDR). The rupiah is made up of 100 sen, and is often presented with the symbol Rp. The rupiah derives its name from its sister currency the Indian rupee. The Riau Islands and the Indonesian half of New Guinea both had their own versions of the rupiah at one time, but both have been absorbed by this Indonesian currency. I: The Indonesian rupiah was first seen in October, 1946. It was substantially revised in 1950, when it received international recognition and replaced all former Dutch, Javanese and Japanese currencies being used in Indonesia. The rupiah underwent a 1000:1 reversion in 1965, but continued to lose value over the years. Its devaluation played a substantial role in the overthrow of the Suharto regime in 1998.

National Currency

The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is usually the predominant currency used for most financial transactions in that country. I: A handful of national currencies such as the U.S. dollar and the euro have achieved global status as reserve currencies and are extensively used in international trade transactions. The euro has supplanted the national currencies of a number of nations that comprise the European Union. The national currencies of some countries such as the United Arab Emirates are pegged or fixed to the U.S. dollar.

KPW

The currency symbol or currency abbreviation for the North Korean won (KPW), the currency for North Korea. The won is divided into 100 chon and is often presented with the symbol (W). The word "won" is a hybrid of the Chinese word "yuan" and Japanese "yen". I: The won was first seen in 1947, replacing the previous Korean yen. It underwent a 100-to-1 revaluation in 1959. The North Korean government abandoned the set exchange rate with the U.S. dollar in 2001, and the real exchange rate has dropped precipitously since then.

Key Currency

The currency used as a reference in an international transaction or when setting an exchange rate. The key currency used is usually issued by a stable, developed country such as the United States. Central banks also hold key currencies in reserve (reserve currency). I: As a monetary practice, countries with smaller or less-dominant economies sometimes align their exchange rates with the dominant trading partner. The central bank of some developing countries may fix the exchange rate to the key currency, which has the effect of limiting monetary policy flexibility but can also increase confidence in the country's economy.

Impact Day

The date on which a corporation makes a secondary offering of its shares available for sale to the public. Such a secondary offering increases the total number of outstanding shares, therefore, existing shareholders will own a smaller percentage of the company and earnings per share will decline. As a result of these changes, the stock's price may decline on, or shortly after, impact day. I: The purpose of a secondary offering, also called an add-on, could be to raise capital for a new project or business expansion or to increase working capital. As with an initial public offering, an underwriter will assist the company in determining the number of shares to offer, establishing a share price and selecting the right date for impact day.

Sales Price Variance

The difference between the amount of money a business expects to sell its products or services for and the amount of money it actually sells its products or services for. Sales price variance means that a business will be more or less profitable than it anticipates over a given time period. As a result, sales price variances are said to be either "favorable" or "unfavorable."Sale price variance = (actual selling price - anticipated price) * # units sold I: Let's say a clothing store has 50 shirts that it expects to sell for $20 each, which would bring in $1,000. Unfortunately, the shirts are sitting on the shelves and are not selling, so the store has to discount them to $15. It does sell all 50 shirts at the $15 price, bringing in $750. The store's sales price variance is $1,000 minus $750, or $250, and the store will earn less profit than it expected to.

Economic Profit (Or Loss)

The difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. This can be used as another name for "economic value added" (EVA). I: Don't confuse this with 'accounting profit', which is what most people generally mean when they refer to profit. In calculating economic profit, opportunity costs are deducted from revenues earned. Opportunity costs are the alternative returns foregone by using the chosen inputs. As a result, you can have a significant accounting profit with little to no economic profit. For example, say you invest $100,000 to start a business, and in that year you earn $120,000 in profits. Your accounting profit would be $20,000. However, say that same year you could have earned an income of $45,000 had you been employed. Therefore, you have an economic loss of $25,000 (120,000 - 100,000 - 45,000).

Range

The difference between the low and high prices for a security or index over a specific time period. Range defines the price spread for a defined period, such as a day or year, and indicates the security's price volatility. The more volatile the security or index, the wider the range. The range expands over greater time periods; a security's daily range will generally be smaller than its 52-week range, which in turn will be tighter than its five-year or 10-year range. Technical analysts closely follow ranges since they are very useful in pinpointing entry and exit points for trades. Also known as price range or trading range. I: The range depends on the type of security; and for a stock, the sector in which it operates. For example, the range for fixed-income instruments is much tighter than that for commodities and equities, which are more volatile in price. Even for fixed-income instruments, a Treasury bond or government security will typically have a smaller trading range than a junk bond or convertible security. Myriad factors affect a security's price, and hence its range. Macroeconomic factors such as the economic cycle and interest rates have a very significant bearing on the price of securities over lengthy time periods. A big recession, for instance, can dramatically widen the price range for most equities as they plunge in price. Most technology stocks had very wide price ranges from 1998 to 2002, as they soared to lofty levels in the first half of that period and then slumped - many to single-digit prices - in the aftermath of the dot-com bust. Similarly, the 2008-09 global bear market greatly widened the trading range for equities due to the broad correction that saw most indices plunge over 50% in price. Since price volatility is equivalent to risk, a security's trading range is a good indicator of risk. A conservative investor will prefer a security with smaller price fluctuations compared with a security that is susceptible to big gyrations. Such an investor may prefer to invest in more stable sectors like utilities, health care and telecommunications, rather than in more cyclical (or high-beta) sectors like financials, technology and commodities. Generally speaking, high-beta sectors may have wider ranges than low-beta sectors. A security's range can effectively highlight support and resistance levels. If the bottom of a stock's range has been around $10 on a number of occasions spanning many months or years, then the $10 region would be considered an area of strong support. If the stock breaks below that level (especially on heavy volume), it would be construed as a very bearish signal. Conversely, a breakout above a level that has marked the top of the range on numerous occasions would be considered as a breach of resistance and would be a bullish signal.

Sales Mix Variance

The difference in the quantity of customer purchases of each product or service compared to the quantities that a business expected to sell. Sales mix variance compares the actual mix of sales to the budgeted mix. The metric can be used for analyzing the company's profitability since some products and services usually have higher profit margins than others. Sales mix variance is the sum of all product line calculations as follows: Sales Mix Variance = (actual sales at the expected mix - expected sales at expected mix) * expected contribution margin per unit. or Sales Mix Variance = total units actually sold * (actual sales mix % - expected sales mix %) * expected contribution margin per unit I: Analyzing sales mix variance can help a company detect trends in the popularity of its different offerings and compare the results on profit. For example, If a company expected to sell 600 As and 900 Bs, its expected sales mix would be 40% A (600/1,500) and 60% B (900/1,500). If the company actually sold 1,000 units of product A and 2,000 units of product B, its actual sales mix would have been 33.3% A (1,000/3,000) and 66.6% B (2,000/3,000). We can use the expected mix on the actual sales to get comparable numbers. So A would be 3000 x 0.4 = 1200 and B would be 0.6 x 3000 = 1,800. Now we can see A was under expectations by 200 units and B exceeded by 200 units. Using the expected contribution margin per unit - lets use $12 per unit for A and $18 for B - you find an unfavorable variance of $2,400 for A and a favorable variance of $3,600 for B, so the total sales mix variance is $1,200. Using the second equation from above: 3,000*(0.33333-.04)*$12 = -$2,400

Generation Gap

The differences found between members of different generations. More specifically, a generation gap can be used to describe the differences in actions, beliefs, tastes, etc. between members of younger generations when compared to members of older generations. While generation gaps have been prevalent throughout all periods of history, the width (differences) of these gaps have widened in the 20th and 21st centuries. I: Generation gaps play a big role in business, as companies must find a way to balance the needs and views of individuals from differing age groups (not to mention diferents sexes, races and cultures). Also, these businesses must be aware of the changing demographics of their client base, as gender gaps can have drastic effects on not only their business but the overall business cycle as well.

Baidu

The dominant Chinese internet search engine company. Baidu offers many of the same products and services as Google, but is primarily focused on China, where it controls the majority of the search market. Baidu censors search results and other content in accordance with Chinese regulations. Baidu is registered in the Cayman Islands and is listed on the Nasdaq under ticker symbol BIDU. I: Baidu offers a wide array of products, including maps, news, video, encyclopedia, anti-virus, and internet TV. Baidu generates revenue with an ad revenue system very similar to Google's. Advertisers bid on the keywords that will trigger the display of their ads. Advertisers can also pay for priority placement in search results. Baidu competes with Google Hong Kong, Yahoo! China, Microsoft Bing and many other regional players.

Data Warehousing

The electronic storage of a large amount of information by a business. Warehoused data must be stored in a manner that is secure, reliable, easy to retrieve and easy to manage. The concept of data warehousing originated in 1988 with the work of IBM researchers Barry Devlin and Paul Murphy. The need to warehouse data evolved as computer systems became more complex and handled increasing amounts of data. I: Businesses might warehouse data for use in exploration and data mining, looking for patterns of information that will help them improve their businesses. A good data warehousing system can also make it easier for different departments within a company to access each other's data. For example, a data warehouse might allow a company's CEO to easily exame the sales team's data and help him to make decisions about how to improve sales or streamline the department. Effective data storage and management are also what make things like making travel reservations and using automated teller machines possible. A key book on data warehousing is W. H. Inmon's "Building the Data Warehouse", which was first published in 1990 and has been reprinted several times since.

NASDAQ-100 Equal Weighted Index

The equal-weighted version of the NASDAQ-100 Index, which consists of 100 of the largest, most actively traded non-financial U.S. companies listed on the Nasdaq. Each of the securities in this market-capitalization based index is initially set at a weight of 1%. The equal weighting means that the index's smaller companies contribute as much as its larger companies. I: This equal-weighted index offers an alternative to market-capitalization weighting, which is a more common method of weighting index funds. The NASDAQ-100 Equal Weighted Index is rebalanced quarterly and is reconstituted annually in December. There are several ETFs that track the movements of the index.

Takeout Value

The estimated value of a company if it were to be taken private or acquired. A firm's takeout value considers various metrics, such as cash flows, assets, earnings and multiples used in similar takeovers. The current mergers and acquisitions environment can also affect the takeout value of a company. There is not an exact formula for takeout valuation, since a variety of metrics, such as EBIDTA multiple, P/E ratio and even firm-specific information can be taken into account. I: The takeout value is used by both financial analysts and shareholders. The analysts will use the valuation to determine a range of possible price levels for takeover bids, while shareholders can estimate how much return they might receive if their shares are acquired.Takeout valuation uses the metrics of the target company and compares them to multiples used in similar takeover transactions. For example, a past takeover saw a firm with earnings of $5 million get acquired for $22.5 million. This implies an earnings multiple of 4.5 ($22.5 million / $5 million). A similar company with earnings of $3 million is now being considered a takeover target. The takeout value of the new company would be $13.5 million ($3 million × 4.5).

Office Of Federal Housing Enterprise Oversight - OFHEO

The federal regulatory body that oversees the government-sponsored entities (GSEs), Freddie Mac and Fannie Mae. It was established as an independent entity within the Department of Housing and Urban Development by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. The OFHEO works to ensure the capital adequacy and financial safety of the two housing GSEs. I: OFHEO's mission is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac. OFHEO's role as Freddie Mac's and Fannie Mae's regulator has become increasingly more visible as the GSE's retained portfolios of mortgages have grown in size and complexity. OFHEO also sets the annual conforming loan limits.

Named Fiduciary

The fiduciary that holds responsibility over a given financial account. The named fiduciary is responsible for operating and administering a qualified retirement plan under the Employee Retirement Income Security Act (ERISA), which is meant to protect participants in private-sector retirement plans. The named fiduciary is required to act in the plan participants' best interests. However, the named fiduciary is not required to be a financial expert, so it may choose to appoint an investment manager to oversee the plan's assets. I: The named fiduciary is just one of several types of fiduciaries involved in running a qualified retirement plan. Others include the plan administrator, trustee, investment manager and investment advisor. A fiduciary who mismanages a plan can be held personally liable.

Macroeconomics

The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation and price levels. I: Macroeconomics is focused on the movement and trends in the economy as a whole, while in microeconomics the focus is placed on factors that affect the decisions made by firms and individuals. The factors that are studied by macro and micro will often influence each other, such as the current level of unemployment in the economy as a whole will affect the supply of workers which an oil company can hire from, for example.

Last Trading Day

The final day that a futures contract may trade or be closed out before delivery of the underlying asset or cash settlement must occur. By the end of the last trading day, the contract holder must be prepared to accept delivery of the commodity, or settle in cash if the position is not closed. I: The holder of a futures contract is obligated to fulfill the terms of the contract, however, in most cases, delivery of the asset underlying the futures contract does not occur, as most investors use futures as a method to hedge or speculate on the underlying asset's price.

National Stock Exchange

The first stock exchange in America that was completely electronically automated. All members of the exchange are registered broker-dealers. This exchange created the National Securities Trading System (NSTS), which performs all auction market tasks on an automated basis. I: The National Stock Exchange was originally founded in Cincinnati in 1885. It was formerly known as the Cincinnati Stock Exchange, but moved to Chicago in 1995 and changed its name in 2003. The National Stock Exchange can also refer to stock in India or Australia.

Eating Stock

The forced purchase of a security when there are insufficient buyers. Eating stock often applies to underwriters of an initial public offering (IPO), if a certain level of subscription is guaranteed but is not met. This allows the company going public to have a better approximation for the amount of capital it will raise from the offering. I: Underwriters mitigate the risk associated with eating stock, in IPOs that it offers, by charging a substantial underwriting fee. Eating stock does not mean that the underwriter will take a loss on the entire venture, as the underwriting fee may exceed the cost of shares that it was forced to absorb.

Happiness Economics

The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth. Happiness economics attempts to use econometric analysis to discover what factors increase and decrease human well-being and quality of life. One major study of happiness economics has been conducted by the Europe-based Organization for Economic Cooperation and Development. The OECD ranked happiness in its 34 member countries, based on factors such as housing, income, jobs, education, environment, civic engagement and health. The study's purpose is to help governments design better public policies. I: Happiness research has found that people in richer countries with good institutions tend to be happier than people in poorer countries with bad institutions. At a certain point, increases in annual income no longer bring greater happiness. This is estimated to fall somewhere between $75,000 and $120,000. Working more increases happiness up to the point where people feel overworked by consistently long hours, and unemployment almost always makes people very unhappy, as does poor health. Work commutes longer than about 20 minutes also make us unhappy, and so does high-interest consumer debt.

Nationally Recognized Statistical Ratings Organization - NRSRO

The formal term to describe credit rating agencies that provide credit ratings that are used by the U.S. government in several regulatory areas. Ratings provided by Nationally Recognized Statistical Ratings Organizations (NRSRO) are used frequently by investors and are used as benchmarks by federal and state agencies. Generally, to be considered an NRSRO, the agency has to be "nationally recognized" in the U.S. and provide reliable and credible ratings. Also taken into consideration is the size of the credit rating agency, operational capability and its credit rating process. I: Some examples of Nationally Recognized Statistical Ratings Organizations (NRSRO) include Moody's Investors Service Inc, Standard and Poor's Inc, Fitch Inc, Dominion Bond Rating Service Limited (DBRS), and A.M. Best Company Inc.

Larry Ellison

The founder and CEO of software company Oracle Corp. His company successfully went public in 1986, but suffered from quality-control problems in 1988. These issues led to cash flow problems, operating losses, a declining share price and near bankruptcy a couple years later. New top management worked with Ellison to turn these problems around by 1994. Ellison was also early to recognize the importance of the internet and positioned the company to benefit from the dot-com boom. His net worth has repeatedly ranked him as one of the richest men in the world. I: Born in New York City in 1944, Ellison did not graduate from college. Instead, he found that he was skilled at software programming. He worked as a computer programmer for about 10 years before founding Oracle in 1977 - although the company did not take that name until 1983. It was initially called Software Development Laboratories. Harvard Business School named him Entrepreneur of the Year in 1990.

Rate Of Return

The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. Gains on investments are considered to be any income received from the security plus realized capital gains. I: A rate of return measurement can be used to measure virtually any investment vehicle, from real estate to bonds and stocks to fine art, provided the asset is purchased at one point in time and then produces cash flow at some time in the future. Financial securities are commonly judged based on their past rates of return, which can be compared against assets of the same type to determine which investments are the most attractive.

IESE Business School

The graduate school of business at the University of Navarra. IESE offers highly acclaimed MBA and executive MBA programs and has locations in both Barcelona and Madrid. IESE stands for "Instituto de Estudios Superiores de la Empresa" in Spanish, or "Institute of Higher Business Studies" in English. I: IESE was founded in 1958 and introduced its MBA program in 1964. It has since undertaken joint ventures with several key schools of business in the U.S. to offer customized curriculums. This institution ultimately operates under the umbrella of the Catholic Church.

Absenteeism

The habitual non-presence of an employee at his or her job. Possible causes of absenteeism include job dissatisfaction, ongoing personal issues and chronic medical problems. Regardless of cause, a worker with a pattern of being absent may put his reputation and his employed status at risk. However, some forms of absence from work are legally protected and cannot be grounds for termination. I: Companies expect their employees to miss some work each year due to vacation, illness and personal issues/responsibilities, but missing work becomes a problem for the company when the employee is absent repeatedly and/or unexpectedly, especially if that employee must be paid while absent. While disability leave, performance of jury duty and the observance of religious holidays are all legally protected reasons for an employee to miss work, some employees abuse these laws to take time off that they shouldn't, which incurs unfair costs to the employer.

Halo Effect

The halo effect is a term used in marketing to explain the bias shown by customers towards certain products because of a favorable experience with other products made by the same manufacturer or maker. Basically, the halo effect is driven by brand equity. The opposite of the halo effect is "cannibalization". I: For example, if a customer buys product C which is made by company X, not because of the attributes or benefits of the product, but because he or she had a favorable experience with product D - another product made by company X, the purchased item is said to be prospering because of the halo effect.A classic example of the halo effect is the relationship between the Mac notebooks and iPod. When the iPod was released, there was speculation in the market place that the sales of Apple's Mac laptops would increase, because of the success of the iPod. The belief was based on the halo effect, as customers who had a great experience with the iPod would buy a Mac computer simply because it is made by Apple Inc.

A-Credit

The highest credit grade available as assigned to a borrower by a lender. Lenders use a credit grading system to qualify borrowers. The higher the borrower's credit grade, the lower the interest rate offered to that borrower on a loan. I: Credit grading by lenders is based on many factors, including a borrower's FICO score, debt-to-income ratio, loan-to-value ratio and past delinquencies. This grade of credit may be associated with a plus or minus for more depth. In this case, a grade of "A+" would indicate higher credit worthiness than a score of "A-".

AA+/Aa1

The highest rating that some ratings agencies assign to a security or insurance carrier. This rating signifies that there is little to no risk of default and is often assigned to securities that have AMBAC or another type of insurance backing. Investors or policyholders can rest assured that their money is secure with this rating. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

A-Note

The highest tranche of an asset backed security or other structured financial product. An A-note is senior to other notes, such as B-notes in bankruptcy or other credit proceedings, and is paid back first with funds from the underlying assets. They can be labeled AAA, AA, or A, depending on the credit quality of the underlying asset. Can also be referred to as a class a note. I: Lower tranches of notes are referred to as subordinate notes. While an A-note does offer more credit protection than other notes, investors in this tranche must still pay attention to the credit worthiness of investments in the subordinate classes. If the risk levels of those investments increase, the chances of default and repayment risk rise.

Parking Violation

The illegal practice of an acquiring company concealing ownership of the target company by holding stock under a related third party before attempting corporate takeover. I: Unlike the parking violations that many of us as drivers commit inadvertently, this type of violation is deliberately hostile. By having a third party hold significant portions of stock, the acquiring company can prepare for a takeover without exceeding certain ownership reporting levels and alerting the target company.

Hawthorne Effect

The inclination of people who are the subjects of an experimental study to change or improve the behavior being evaluated only because it is being studied, and not because of changes in the experiment parameters or stimulus. The Hawthorne Effect refers to the fact that people will modify their behavior simply because they are being observed. The effect gets its name from one of the most famous industrial history experiments that took place at Western Electric's factory in the Hawthorne suburb of Chicago in the late 1920s and early 1930s. However, subsequent analysis on the effect by University of Chicago economists in 2009 revealed that the original results were likely overstated. I: The Hawthorne experiments were originally designed by the National Research Council to study the effect of shop-floor lighting on worker productivity at a telephone parts factory in Hawthorne. However, the researchers were perplexed to find that productivity improved not just when the lighting was improved, but also when the lighting was diminished. Productivity improved whenever changes were made in other variables such as working hours and rest breaks. The researchers concluded that the workers' productivity was not being affected by the changes in working conditions, but rather by the fact that someone was concerned enough about their working conditions to conduct an experiment on it.

Real Income

The income of an individual or group after taking into consideration the effects of inflation on purchasing power. For example, if you received a 2% salary rise over the previous year and inflation for the year was 1%, then your real income only rose 1%. Conversely, if you received a 2% raise in salary and inflation stood at 3%, then your real income would have shrunk 1%. Also known as "real wages". I: In other words, real income refers to the amount of goods and services you can buy today compared to the price of the same goods and services you could have purchased in another time period. For example, if it costs you $2,000 more to purchase the same amount of goods and services (i.e. food, gas, rent, utilities, interest, etc) this year compared to last year, and your annual income stayed the same, then your real income has actually decreased by $2,000.

Absorbed Cost

The indirect costs that are associated with manufacturing. Absorbed costs include such expenses as insurance, or property taxes for the building in which the manufacturing process occurs. When the total manufacturing costs are determined, the implicit absorbed costs are not considered, but will be included in a separate account. I: On a company's income statement, the cost of goods sold entry does not reflect the absorbed costs; only the actual costs of the material is included. Incurring insurance and property tax expenses is a required part of the manufacturing process, but these absorbed costs are classified as separate expenses.

Lancaster University Management School - LUMS

The international business school division of Lancaster University. The Management School is considered the best in the U.K. for business and management research. The school offers a full range of degrees, from undergraduate to Ph.D. It is composed of eight separate academic departments, including accounting, finance and economics. I: The Lancaster University Management School was founded in 1964 and is located in Lancaster, England. The MBA program has been ranked as providing the best value for the money in the world. The school itself was relocated to modern buildings on the campus in 2005.

Dayrate Volatility

The intraday unpredictability of an exchange rate (or price of a good or service), that changes due to imbalances in supply and demand. Price levels of various goods or services can change very quickly, depending on the current market condition. I: Low levels of dayrate volatility illustrate that the market is complacent, and the existing price is not a major concern for the transacting parties. On the other hand, a rise in dayrate volatility can be used to signal fear or a lack of supply. This degree of volatility generally results in large price fluctuations, which suggests that the market is in a state of panic because there may be a larger group of sellers than there are buyers.

Offering

The issue or sale of a security by a company. It is often used in reference to an initial public offering (IPO) when a company's stock is made available for purchase by the public but it can also be used in the context of a bond issue. I: Usually, a company will offer stock or bonds to the public in an attempt to raise capital to invest in expansion or growth. There are instances of companies offering stock or bonds because of liquidity issues (i.e. not enough cash to pay the bills), but investors should be wary of any offering of this type.

P-Value

The level of marginal significance within a statistical hypothesis test, representing the probability of the occurrence of a given event. The p-value is used as an alternative to rejection points to provide the smallest level of significance at which the null hypothesis would be rejected. The smaller the p-value, the stronger the evidence is in favor of the alternative hypothesis.P-values are calculated using p-value tables, or spreadsheet/statistical software. I: Because different researchers use different levels of significance when examining a question, a reader may sometimes have difficulty comparing results from two different tests. For example, if two studies of returns from two particular assets were done using two different significance levels, a reader could not compare the probability of returns for the two assets easily. For ease of comparison, researchers will often feature the p-value in the hypothesis test and allow the reader to interpret the statistical significance themselves. This is called a p-value approach to hypothesis testing.

Madrid Fixed Income Market .MF

The market used for trading Spain's public debt (central government, some regional governments, and some public-sector organizations) and other securities. It is part of the Madrid Stock Exchange, which is the largest securities market in Spain and one of the four members of the Bolsas y Mercados Españoles, an organization designed to streamline Spain's four major securities exchanges (Madrid, Valencia, Barcelona and Bilbao). I: Spain's 1988 incorporation into the European Monetary System transformed the Spanish Stock Exchange. In 1993 the Madrid Stock Exchange switched to all-electronic trading for fixed-income securities. In 1999 Spain's securities markets began trading in euros. Its regulatory body is the Spanish Stock Exchange Commission.

Daily Trading Limit

The maximum gain or loss on a derivative contract, such as options and futures contracts, that is allowed in any one trading session. The limits are imposed by the exchanges in order to protect against extreme volatility or manipulation within the markets. I: When daily trading limits have been reached, it is said to be a "locked market", and trading will halt for any trades that break the threshold or trading will close for that particular security.Daily trading limits can also be in place for currency trading, such as China's daily trading limit of 0.5% for the Chinese renminbi against the U.S. dollar. When a particular commodity or contract has reached the daily trading limit, it may be considered "limit up" or "limit down", depending on the direction of the day's move. Trading limits are much more important for derivatives than for stocks or bonds, for example, because so many investors use massive amounts of leverage to trade commodities, currencies and futures contracts.

Dealer-Median Prepayment Speed

The median value of all Wall Street securities dealers' prepayment speed estimates for the underlying mortgages used to form mortgage-backed securities. The prepayment speed estimates used by banks and other regulated financial enterprises to value and manage mortgage-backed security portfolios are a concern to regulators. To that end, dealer-median speeds are widely used as conservative estimates. I: The dealer-median prepayment speed is an important consideration, as it is the median measure of how fast mortgage borrowers will prepay their mortgages. Prepayment speed estimates are also a very important variable in mortgage-backed securities valuation and analysis. Investors and traders compete to develop more accurate proprietary models in order to outperform each other in the broader market.

Kijun Line

The mid-point between the highest high and lowest low of a particular security. The kijun line, also called kijun-sen, is the base line used specifically in ichimoku kinko hyo (or ichimoku cloud) candlestick charts. It is one of two moving average lines displayed in the chart, and is a 26-period moving average. (The other line, tenkan-sen, is a nine-period moving average.) I: When reading ichimoku kinko hyo, investors should note that the kijun line lags behind the tenkan-sen, and trails price less sensitively because it covers a longer period of time. When tenkan-sen crosses and moves above the kijun line, this is generally considered a bullish signal.

Maintenance Margin

The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account. Keep in mind that this level is a minimum, and many brokerages have higher maintenance requirements of 30-40%. Also referred to as "minimum maintenance" or "maintenance requirement." I: As governed by the Federal Reserve's Regulation T, when a trader buys on margin, key levels must be maintained throughout the life of the trade. First off, a broker cannot extend any credit to accounts with less than $2,000 in cash (or securities). Second, the initial margin of 50% is required for a trade to be entered. Finally, the maintenance margin says that an equity level of at least 25% must be maintained. The investor will be hit with a margin call if the value of securities falls below the maintenance margin.

Earnings Season

The months of the year in which a majority of quarterly corporate earnings are released to the public. Earnings season is generally accepted as the months immediately following the quarter-ends of the year, which means that earnings seasons would fall in January, April, July and October. This is due to the lag between quarter-end periods and the time in which firms are able to release their earnings following their accounting periods. I: Earnings season is easily one of the busiest times of the year for those who work in and watch the markets, as virtually every large publicly-traded company will report the results of their last quarter. Analysts and managers typically set their guidelines and estimates to correspond to specific quarters or fiscal year ends, so the results reported by firms during earnings season often have a big role in the performance of their stocks.

General Depreciation System - GDS

The most commonly used modified accelerated cost recovery system (MACRS) for calculating depreciation. A general depreciation system uses the declining-balance method to depreciate personal property. I: The declining-balance method involves applying the depreciation rate against the non-depreciated balance. For example, if an asset that costs $1,000 is depreciated at 25% each year, the deduction is $250.00 in the first year and $187.50 in the second year, and so forth.

S-3 Filing

The most simplified registration form. It can only be used by companies that have been required to report under the '34 Act for a minimum of twelve months and have met the timely filing requirements set forth under Form S-2. I: The offering and issuer must meet the eligibility tests prescribed by the form before having a secondary offering.

Panel Bank

The name given to the group of banks contributing to the Euro Interbank Offer Rate (EURIBOR). This group is made up of the largest participants within the Euro money market. The panel bank complies daily quotes on the interest rates that banks offer one another for overnight loans. The resulting figure, the EURIBOR, is similar to London Interbank Offered Rate (LIBOR). The EURIBOR is used as a reference rate for bonds, swaps, loans and other instruments. I: Panel bank institutions transact the largest volumes within the Euro market, and provide stability and liquidity. Furthermore, these banks are located both inside and outside of Europe, and aren't always associated with regions recognizing the EU.

Icahn Lift

The name given to the rise in stock price that occurs when Carl Icahn begins to purchase shares in a company. The Icahn lift occurs because of Mr. Icahn's reputation for creating value for the shareholders of the companies in which he takes an interest. I: Carl Icahn is most famous for his work as an activist shareholder, but has also been referred to as a corporate raider. He purchases shares in a company that he believes is undervalued and then creates a plan to fix the problems. This usually involves spinning off profitable segments, changing management, cutting costs and buying back stock.

Paris Pair

The nickname for the U.S. Dollar/French Franc currency pair prior to France's conversion to the Euro. Since the franc was replaced by the euro, there is no modern equivalent to the Paris Pair. I: The franc was France's national currency until the euro was introduced in 1999. Euro coins and notes replaced the franc entirely during the first two month of 2002. The U.S. dollar/French franc currency pair became known as the Paris Pair.

Face Value

The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000). Also known as "par value" or simply "par." I: In bond investing, face value, or par value, is commonly referred to the amount paid to a bondholder at the maturity date, given the issuer doesn't default. However, bonds sold on the secondary market fluctuate with interest rates. For example, if interest rates are higher than the bond's coupon rate, then the bond is sold at a discount (below par). Conversely, if interest rates are lower than the bond's coupon rate, then the bond is sold at a premium (above par).

Heating Degree Day - HDD

The number of degrees that a day's average temperature is below 65oFahrenheit (18o Celsius), the temperature below which buildings need to be heated. The price of weather derivatives traded in the winter is based on an index made up of monthly HDD values. The settlement price for a weather futures contract is calculated by summing HDD values for a month and multiplying that sum by $20. I: To calculate HDD, take the average of a day's high and low temperatures and subtract from 65. For example, if the day's average temperature is 50o F, its HDD is 15. If every day in a 30-day month had an average temperature of 50o F, the month's HDD value would be 450 (15 x 30). The nominal settlement value for this month's weather derivative contract would therefore be $9,000 (450 x $20).

Rate Of Adoption

The number of members of a society who start using a new technology or innovation during a specific period of time. The rate of adoption is a relative measure, meaning that the rate of one group is compared to the adoption of another, often of the entire society. Attributes of an innovation that affect the rate of adoption include the advantage created by adopting the innovation, the ease at which the innovation can be adopted into daily life, the ability of other members of society to see those who have already adopted the innovation and the expense associated with trying the innovation. I: The adoption rate is part of the diffusion of innovations theory, which seeks to explain how the use of new technologies, processes and innovations spreads through a society, and why they are adopted over old methods. One major factor that influences the rate of adoption is the type of society that is being introduced to an innovation, as closed societies and societies without clear communication between adopters and non-adopters are less likely to take on a new technology.

D-Mark

The official currency of Germany until it adopted the euro in 2002. D-mark is an abbreviation of Deutsche Mark, whose official currency code is DEM. The sub-unit of the D-mark was the pfennig, with each Deutsche mark divided into 100 pfennig. I: The D-mark was first issued in 1948, replacing the Reichsmark, when the Allies occupied Germany after World War II. With the introduction of the euro, the European Central Bank fixed the irrevocable exchange rate for the D-mark at 1.95583 per euro, effective January 1, 1999.

Kyrgyzstani Som - KGS

The official currency of Kyrgyzstan, which is also called the Kyrgyz Republic. The multicolored paper notes come in denominations of 1, 5, 10, 20, 50, 100, 200, 500 and 1,000 som and feature portraits of important people in the country's history. A fraction of a som - the functional equivalent of a U.S. cent - is a tiyin. I: Located in Central Asia and bordered by China, Kazakhstan, Tajikistan and Uzbekistan, Kyrgyzstan was a Soviet republic until 1991. It replaced the Soviet ruble with the som in 1993. This country of 5 million is the second poorest in Central Asia and is considered politically unstable. The economy is largely based on agriculture and industry, especially tobacco, cotton and gold.

Calendar Year

The one-year period that begins on January 1 and ends on December 31, based on the commonly used Gregorian calendar. 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. I: Most individuals and many companies use the calendar year as their fiscal year, or the one-year period on which their payable taxes are calculated. However, some companies choose to report their taxes based on a fiscal year (e.g. starting on April 1 and ending on March 31) to better conform to seasonality patterns or other accounting concerns applicable to their businesses.

Implicit Rental Rate

The opportunity costs that a firm incurs as a result of using their own assets for ongoing operations instead of other alternative uses. The implicit rental rate can be either greater than or less than the firm's cost of capital. I: In the event that the implicit rental rate is lower than the firm's cost of capital, then the firm is not likely to be in business for very long. This is because the firm's cost to operate its assets, as measured by its cost of capital, is greater than the firm's best alternative use for those assets.

Balance Protection

The optional coverage on an existing credit card account. Typically, the fee for the balance protection is a specified percentage of the balance on the card and is added as a fee to the monthly statement. The balance protection coverage is offered to cover minimum monthly payments (and in certain cases a higher amount) in the event that the cardholder is injured or becomes unemployed. I: The optional balance protection will provide minimum monthly payments to insure that the account does not become default in the event that the cardholder becomes injured or unemployed. Balance protection agreements vary from bank to bank; it is recommended that cardholders read "the fine print" to determine if the coverage would be beneficial.

Patent Share

The percentage share of a universe of patents owned or created by one subset of that universe. This term usually applies to a comparative share between nations. Patent share has been subdivided not only across nations, but within industry groups and even in companies relative to each other. Patent share is becoming increasingly important to competitive advantage as the applicability of patents extends into information processes, computer software, chemical formulas and other intangibles. I: For example, the United States had a worldwide patent share of 43% as of 2003. The United States Patent & Trademark Office (USPTO) keeps track of the percentage of new patent issues that belong to every country on the globe, as well as the ratio of company-owned patents to those held by individuals. By examining industries that are growing their market shares in patent discoveries, investors can get a sense of the health and vibrancy of an industry. Industries such as technology, biotech and pharmaceuticals have seen the largest share gains in the past decade; they also show the highest annual growth rates.

General Manager

The person in charge of a department within a company. General managers commonly rank above most employees but below corporate-level executives. The responsibility and importance associated with the position varies from company to company, depending on the structure of its corporate ladder. In some companies, the general manager is one of the top executives. I: A general manager will usually have experience in a lower-level management position before being hired as or promoted to general manager. General managers can advance by moving into top executive positions or by moving to larger and more prestigious companies. They must have a thorough understanding of their departments or company's operations, be skilled at managing and leading the employees they supervise and make sound decisions for the company.

Headline Risk

The possibility that a news story will adversely affect a stock's price. Headline risk can also impact the performance of the stock market as a whole. I: For example, in the aftermath of the housing crisis, mortgage lenders such as Bank of America, JP Morgan Chase and CitiGroup faced significant headline risk. One way a company can mitigate headline risk is through effective public relations campaigns. Successful public relations efforts can promote positive images of a company that can help counteract any negative stories as well as provide swift damage control if such a story is released. Individual investors can counteract headline risk by using a buy-and-hold investing strategy that ignores the short-term changes in the market that are triggered by headlines.

Earning Potential

The possible upside of the earnings that could be generated for each share outstanding of a particular stock. Earning potential reflects the largest possible profit that a corporation can make. It is often passed on to investors in the form of dividends. Greater earning potential drives up the price of a stock. I: Although earning potential can cause a stock's price to rise, it will not necessarily translate into higher current dividends. A company that comes out with an innovative new product may have higher earning potential in the future, but the projected revenue may not translate into actual profit for some time.

Offering Price

The price at which publicly issued securities are made available for purchase by the investment bank underwriting the issue. A security's offering price includes the underwriter's fee and any management fees applicable to the issue. I: Underwriters analyze numerous factors when attempting to determine a security's offering price. Ideally, an investment bank should accurately assess the value of the securities and the underlying firm, raising funds for the issuing company and selling the securities to investors for a fair offering price.

P/E 30 Ratio

The price-to-earnings (P/E) ratio is the valuation ratio of a company's market value per share divided by a company's earnings per share (EPS). A P/E ratio of 30 means that a company's stock price is trading at 30 times the company's earnings per share. I: A P/E of 30 is high by historical stock market standards. This type of valuation is usually placed on only the fastest-growing companies by investors in the company's early stages of growth. Once a company becomes more mature, it will grow more slowly and the P/E tends to decline.

Ideation

The process of forming and relating ideas. Ideation means to conceive or generate an idea and implement it. Ideas are the result of mental activity that can be based on past or present knowledge, thoughts, opinions, convictions or principles. I: Ideation means to conceptualize an idea. It is the thought processes involved in apprehending and expressing a new concept, often in a graphical format.

Hammering

The rapid and concentrated sale of a stock thought to be overvalued by the market. It performed by investors and speculators who beleive that prices are inflated and that a period of liquidation is imminent. I: Hammering the market is achieved through large sale orders or many small sell orders. In some cases, investors may even collaborate on orders to attempt to push the share's price even lower.

Fair Market Value Purchase Option

The right but not the obligation to buy a leased asset at the end of the lease term for a price that represents the item's then-current worth. The Fair Market Value Purchase Option does not provide the purchase price in advance, but as long as the assessed fair market value is accurate, the consumer will not overpay for the asset and the lessor will not receive less than the asset is worth. I: Types of assets that may come with a fair market value purchase option include automobiles, real estate and heavy equipment. A common alternative to the fair market value purchase option is the fixed price purchase option, which allows the lessee to know for certain what the cost to purchase the property at the end of the lease term will be. Because it is impossible to determine an item's fair market value in advance of the item's purchase date, a purchase price cannot be established in advance with a fair market value purchase option.

Easement

The right of one party to use the property of another party. A fee is paid to the owner of the property in return for the right of easement. Easements are often purchased by public utility companies for the right to erect telephone poles or run pipes either above or beneath private property. I: An important factor to consider with easements is how they affect the value of the property. For example, an unsightly power line on your property can lower the visual appeal and, consequently, the money you receive if you sell. In many cases, a real estate lawyer should be consulted to determine the effects of the easement on your property.

Gap Risk

The risk that an investment's price will change from one level to another with no trading in between. Usually such movements occur when there are adverse news announcements, which can cause a stock price to drop substantially from the previous day's closing price. I: For example, gap risk is the chance that a stock's price closes at $50 and opens the following trading day at $40 - even though no trades happen between these two times.

Take A Flier

The slang term for a decision to invest in highly speculative investments. I: When an investor is taking a flier, he or she is knowingly acquiring a high-risk, speculative instrument that may end up with them taking a bath.

Data Smoothing

The use of an algorithm to remove noise from a data set, allowing important patterns to stand out. Data smoothing can be done in a variety of different ways, including random, random walk, moving average, simple exponential, linear exponential and seasonal exponential smoothing. Data smoothing can be used to help predict trends, such as trends in securities prices. I: The random walk model is commonly used to describe the behavior of financial instruments such as stocks. Some investors believe that there is no relationship between past movement in a security's price and its future movement. Random walk smoothing assumes that future data points will equal the last available data point plus a random variable. Technical and fundamental analysts disagree with this idea; they believe future movements can be extrapolated by examining past trends.

Real Effective Exchange Rate - REER

The weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index. I: This exchange rate is used to determine an individual country's currency value relative to the other major currencies in the index, as adjusted for the effects of inflation. All currencies within the said index are the major currencies being traded today: U.S. dollar, Japanese yen, euro, etc.This is also the value that an individual consumer will pay for an imported good at the consumer level. This price will include any tariffs and transactions costs associated with importing the good.

Tandem Loan

Two loans taken out on one asset, which is usually a house; the secondary loan is normally added to a primary loan. A tandem loan may also refer to a lending facility that enables businesses to bridge the gap between commercial loans and other sources of funding, with loan proceeds used for working capital, acquisitions, or land and equipment. They could provide monetary assistance to builders and developers of nonprofit public housing. I: A specific type of tandem loan is the Federal Housing Administration's FHA/VA Tandem Loan, which is only available to veterans for financing single-family loans. Tandem loans should not be confused with a tandem plan, which refers to a mortgage purchase program involving Fannie Mae and Ginnie Mae.

Cancellation Of Debt - COD

When a creditor forgives a debt without requiring consideration in return. The amount of debt that is forgiven by cancellation of debt is considered income to the debtor and must be reported as a result. In most cases, it is taxable as ordinary income and is known as cancellation-of-debt (COD) income. In some cases, this debt is from one country to another and is partially or fully wiped away to help rebuild the nation. I: If the cancellation of debt is taxable, the debtor will receive a 1099-C at year-end that reports the amount of debt forgiven as taxable income. For example, if a bank lent $10,000 to you and you pay back $6,000, then are unable to pay the remainder, the bank can forgive the $4,000 difference, which will be recorded as income for you. Cases in which debt forgiveness is not considered income include bankruptcies, insolvencies, certain farm loans and non-recourse loans.

Harry Markowitz

A Nobel Memorial Prize winning economist who devised the modern portfolio theory in 1952. Markowitz's theories emphasized the importance of portfolios, risk, the correlations between securities and diversification. His work changed the way that people invested. I: Prior to Markowitz's theories, emphasis was placed on picking single high-yield stocks without any regard to their effects on portfolios as a whole. Markowitz's portfolio theory would be a large stepping stone towards the creation of the capital asset pricing model.

Mad Hatter

A CEO or managerial team whose ability to lead a company is highly suspect. A mad hatter CEO will often make puzzling decisions which many, inside and outside the firm, may question. These types of CEOs are also known for making spontaneous decisions with little thought for the consequences. Sometimes these decisions are driven by personal incentives rather than the motivation to improve the overall performance of the company. I: Mad Hatter refers to one of the many strange characters in Lewis Carroll's "Alice's Adventures in Wonderland." At the tea table, Alice meets the Mad Hatter, who is eternally caught in tea time and constantly quizzing Alice with nonsensical and unanswerable questions. Typically, mad hatter CEOs don't last long in their positions.

Leading Indicator

A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy, but are not always accurate. I: Bond yields are typically a good leading indicator of the market because traders anticipate and speculate trends in the economy.

Key Rate Duration

Holding all other maturities constant, this measures the sensitivity of a security or the value of a portfolio to a 1% change in yield for a given maturity.The calculation is as follows: Where:P- = Security's price after a 1% decrease in yield P+ = Security's price after a 1% increase in yield P0 = Security's original price I: There are 11 maturities along the Treasury spot rate curve, and a key rate duration is calculated for each. The sum of the key rate durations along a portfolio yield curve is equal to the effective duration of the portfolio.

National Commodities And Derivatives Exchange - NCDEX

India's largest and most recognized commodities exchange, which was established in 2003. The exchange was founded by some of India's leading financial institutions such as ICICI Bank Limited, the National Stock Exchange of India and the National Bank for Agricultural and Rural Development, among others. I: The exchange is located in Mumbai, but has offices across the country to facilitate trade. Trading is done on 45 commodities that are integral to India's economy. These include gold, silver, Brent Crude oil, and rice, along with other agricultural products and base metals.

Nadex

Nadex stands for the North American Derivatives Exchange, a regulated Chicago-based exchange where retail traders can buy and sell binary options directly on the exchange without a broker. Nadex, which is subject to oversight by the Commodity Futures Trading Commission, offers binary option contracts and spreads in equity indexes, commodities, forex and economic events. I: Nadex is the first and largest regulated U.S. exchange for binary options, which are simple yes/no trades with limited downside risk. Unlike OTC derivatives, there is no counter-party credit risk. Nadex clears and guarantees all trades done on the exchange. Pricing is transparent and all positions are fully collateralized at all times. Member funds are held in segregated U.S. bank accounts.

A.M. Best

One of the established ratings agencies recognized by the SEC. A.M. Best has traditionally focused exclusively on providing a letter rating for insurance carriers. It has recently branched out into rating financial securities such as bonds. The company basically measures one's ability to fulfill its debt obligations. Ratings range from A++ (superior) to S (suspended). I: Alfred M. Best founded the company named after him in 1899. The company moved from New York to New Jersey in 1965 and is currently headquartered in Oldwick. A.M. Best is a privately-owned enterprise and publishes several ratings periodicals using data reported to the NAIC.

Qualified Savings Bond

Refers to a series EE savings bond which has been issued after December 1989 and purchased by an individual at least 24 years of age. I: The interest from this type of bond is tax-free if you redeem it to pay for a higher education expense.

Obsolete Inventory

Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company.Also referred to as "dead inventory" or "excess inventory". I: Large amounts of obsolete inventory are a warning sign for investors: they can be symptomatic of poor products, poor management forecasts of demand, and poor inventory management. Looking at the amount of obsolete inventory a company creates will give investors an idea of how well the product is selling and of how effective the company's inventory process is.

Madrid SE CATS (MSE) .MC

The Computer Assisted Trading System (CATS) was developed by the Toronto Stock Exchange in 1977 and implemented in the Madrid Stock Exchange (MSE) in 1989. This was the world's first fully electronic trading system. The MSE initially traded seven large-cap stocks on the system and expanded to 51 by the end of the year. I: By 1995, the Madrid Stock Exchange had replaced CATS with the Sistema de Interconexión Bursátil Español (SIBE), a more modern electronic trading system developed by the MSE. SIBE connects the four Spanish stock exchanges (Madrid, Valencia, Bilbao and Barcelona) to form a unified, continuous market, providing price information and other data in real time.

Death Benefit

The amount on a life insurance policy or pension that is payable to the beneficiary when the annuitant passes away. Also known as "survivor benefit." I: A death benefit may be a percentage of the annuitant's pension. For example, a beneficiary might be entitled to 65% of the annuitant's monthly pension. Alternatively, the benefit may be a large lump-sum payment from a life insurance policy. The size and structure of the payment is determined by the type of policy the annuitant held at the time of death.

Rating

1. An evaluation of a corporate or municipal bond's relative safety from an investment standpoint. Basically, it scrutinizes the issuer's ability to repay principal and make interest payments. 2. An analyst's recommendation on whether to buy, sell or hold a specific stock. I: Bonds are rated by various organizations such as S&P and Moody's. Ratings range from AAA or Aaa (the highest), to C or D, which represents a company that has already defaulted.

John R. Hicks

A British economist who received the 1972 Nobel Memorial Prize in Economics, along with Kenneth Arrow, for his development of general equilibrium theory and welfare theory. During his career, he also conducted research on monetary policy, international trade and development economics. His well-known 1939 book "Value and Capital" dealt with value theory and general equilibrium theory. I: Hicks was born in England in 1904 and died in 1989. He taught at the London School of Economics, the University of Manchester and Oxford University. John Jicks is also known for his contribution to the IS/LM model which depicts the relationship between interest rates and real output, which was used to create subsequent models of aggregate demand and supply.

Kiasu

A Chinese adjective used to describe a person's fear of losing out (to someone else). Kiasu is a traditional Chinese word, but is most popular in Singapore. It translates roughly as "scared to lose". I: Kiasu describes being (or a person who is) greedy, unwilling to share, or competitive in order to advance one's self. Examples of Kiasu include driving aggressively to get to the front of a traffic line or registering young children early at top schools, prior even to knowing the child's aptitude. Kiasu describes the idea that one must outdo and outshine all others, have more of any given thing, pay the least amount for items (thereby getting the best deal) and always be the first or best. This concept has been applied to such financial ideas as marketing campaigns, store sales and understanding market psychology.

Keidanren

A Japanese abbreviation for the Japan Federation of Economic Organizations. The Keidanren was created in 1946 to address the issues and concerns of Japanese businesses in the postwar world. The organization consisted of over 1,000 Japanese businesses, over 50 of which were foreign firms. I: The Keidenran was incorporated into the Japanese Business Federation in May of 2002. This organization was joined by the Nikkeiren, the Japanese Federation of Employers' Associations. The Keidenran was historically considered the most conservative of the three major business associations in Japan.

G

A Nasdaq stock symbol specifying that it is the first preferred bond of the company. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

30-Year Treasury

A U.S. Treasury debt obligation that has a maturity of 30 years. The 30-year Treasury used to be the bellwether U.S. bond but now most consider the 10-year Treasury to be the benchmark. I: The 30-year Treasury will generally pay a higher interest rate than shorter Treasuries to compensate for the additional risks inherent in the longer maturity. However, when compared to other bonds, Treasuries are relatively safe because they are backed by the U.S. government.

ABA Bank Index

A banking index that is made up of community banks and banking institutions. This index was created to represent the smaller institutions of the banking industry and stands in contrast to the KBW Banking Index in that respect. The ABA index trades on the Nasdaq under the symbol ABAQ. I: The ABAQ Index is weighted according to market value. The index was created in 2003 in an effort to publicize the community banking industry and is computed for both total and price return. The ABAQ is also designed to aid in improved market liquidity and more equitable market valuations.

Law Of 29

A belief held by some marketers that on average a prospective customer will not purchase a good or service until they have been exposed to a marketing message 29 times. While the number of messages can differ a great deal when courting prospective clients, advocates of the law of 29 believe that a constant, "in your face" approach to marketing is the best way to sell a product or service. I: The law of 29 is the basis behind drip marketing, a direct marketing approach that involves sending numerous promotional messages to prospective clients over a period of time. Drip marketers often employ the use of mass email marketing to reach a large client base and send their message repeatedly in the hope of turning prospects into customers through techniques such as the law of 29.

Back Charge

A billing made to collect an expense incurred in a previous billing period. A back charge may be an adjustment due to an error, or it may be to collect an expense that was not billable until a later period due to timing issues. I: When possible it is best to avoid having to back charge for products or services. Because back charges may be unexpected by customers and can be confused with billing errors, they often take longer to collect. In general, the more promptly a company can bill a customer, the higher the probability of collecting the amount billed in a timely manner.

General Agreements To Borrow - GAB

A borrowing/lending medium for members of the Group of Ten. Members of the lending country deposit funds into the International Monetary Fund (IMF), which are made available to be withdrawn by the borrowing member in need. One of the advantages of this is that each country deals in their own currency, leaving all conversions to the IMF. I: The Group of Ten is comprised of Japan, France, Germany, Sweden, The United Kingdom, Japan, Italy, Belgium, the Netherlands, the United States and Canada. Switzerland is the most recent member. They meet yearly to discuss political, financial and economic situations.

Abstract Of Title

A brief history of the titles for a piece of land. The abstract of title lists all of the legal actions that have been performed or used in conjunction with a piece of property. This is used to determine whether or not there is any kind of claim against a property. I: The abstract of title includes transfers, grants, wills and conveyances, liens and encumbrances. It also provides any evidence or proof of satisfaction or other facts or information pertinent to a piece of property. All potential buyers of a property should request this to determine the status of the property.

Margin Call

A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when your account value depresses to a value calculated by the broker's particular formula.This is sometimes called a "fed call" or "maintenance call." I: You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.

Margin Account

A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock. I: In a margin account, you are investing with your broker's money. By using leverage in such a way, you magnify both gains and losses.

Partnership

A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business. I: Partnership doesn't always mean two people. There are many large partnerships who have thousands of partners.

Calamity Call

A call feature of a Collateralized Mortgage Obligation (CMO) designed primarily to reduce the issuer's reinvestment risk. If the cash flow generated by the underlying collateral is not enough to support the scheduled principal and interest payments, then the issuer is required to retire a portion of the CMO issue. Also known as a "clean-up call." I: A Calamity Call is only one type of protection used in CMOs. Other types of protection include overcollateralization and pool insurance. In addition to protecting against reinvestment risk, Calamity Calls can be used to protect against default losses. They can be used in CMOs structured from second lien mortgages, where there is more limited protection against default losses. This is in contrast to overcollateralization which may be enough to provide sufficient protection to underlying pools of conventional fixed-rate mortgages.

Narrow Money

A category of money supply that includes all physical money like coins and currency along with demand deposits and other liquid assets held by the central bank. In the United States narrow money is classified as M1 (M0 + demand accounts), while in the U.K. M0 is referenced as narrow money. I: The name comes from the fact that M1/M0 are the narrowest or most restrictive ideas of money that are the basis for the medium of exchange within the economy. This category of money is considered to be the most readily available for transactions and commerce.

Consumer Cyclicals

A category of stocks that rely heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail. The category can be further divided into durable and non-durable sections. Durable cyclicals include physical goods such as hardware or vehicles, while non-durables represent items like movies or hotel services. I: The performance of consumer cyclicals is highly related to the state of the economy. They represent goods and services that are not considered necessities, but luxurious purchases. During contractions or recessions, people have less disposable income to spend on consumer cyclicals. When the economy is expanding or booming, the sales of these goods rise as retail and leisure spending increase.

Natural Guardian

A child's parent. In divorce situations, the parent with custody is considered the natural guardian. The opposite of a natural guardian is an appointed guardian or legal guardian, who must be authorized by a court or a will to care for and make decisions on behalf of a minor child. Of particular concern are financial and medical decisions; since minor children generally do not have legal authority to make such decisions, their natural or legal guardian must authorize them. I: When a child with a disability becomes an adult with a disability, his or her parent may need to be appointed by a court as guardian and/or conservator in order to continue making medical, personal and financial decisions that the disabled person is incapable of making.

Quiet Title Action

A circuit court action (lawsuit) intended to establish or settle the title to a property, especially when there is a disagreement on the title. It is a lawsuit brought to remove a claim or objection on a title. I: A quiet title action occurs when one property claimant challenges one or more people in a court of law for the purpose of determining who is the rightful legal owner. It is intended to "quiet" the conflicting claims on the property, eliminating any ambiguities in the title and making it clear.

Ma And Pa Shop

A colloquial term for a small, independent, family-owned business. Unlike franchises and large corporations, which have multiple operations in various locations, ma and pa shops usually have a single location that often occupies a physically small space. The "shop" could be any type of business, from an auto repair shop to a bookstore to a restaurant. I: Ma and pa shops may have difficulty competing with larger businesses. Because they cannot take advantage of the same economies of scale, their prices are often higher. Ma and pa shops are able to stay competitive when they differentiate themselves from their large-scale competitors by offering a unique product, exceptional service or a more personalized feel.

One-Bank Holding Company

A corporation that holds at least a quarter of the voting stock of a commercial bank. One-bank holding companies led to the creation of leveraged bank holding companies. These entities are under the supervision of the Federal Reserve. I: One-bank holding companies began to appear in the late 1960s. The leveraged entities that sprung from them freed commercial banks from their dependence on customer deposits for making loans. Bank holding companies were allowed to issue commercial paper in capital markets.

Canadian Deposit Insurance Corporation - CDIC

A crown corporation owned by the Canadian government that insures bank deposits up to C$100,000 per personal account held in member Canadian banks in they event that the financial institution fails. The corporation was formed under the Financial Administration Act and Canada Deposit Insurance Corporation Act in 1967. The CDIC is similar to the Federal Deposit Insurance Corporation in the United States. I: Between 1967 and 2008, Canada experience the failure of 43 financial instutions, all of which were CDIC member banks. When using a bank in either in the United States or Canada, FDIC or CDIC membership is important to consider, as it provides depositors with some insurance against losing their savings.

Qualified Pre-Retirement Survivor Annuity - QPSA

A death benefit that is paid to the surviving spouse of a deceased employee. If the employee dies before retirement, the qualified pre-retirement survivor annuity is paid to recompense the surviving spouse for the loss of retirement benefits that would have otherwise been paid to the employee. As the name implies, QPSAs are paid only for qualified plans. I: Qualified pre-retirement survivor annuity benefits must be offered by all types of qualified plans to vested participants, including defined-benefit plans and money-purchase plans. However, the spouses must have been married for at least a year in order to be eligible for benefits. ERISA mandates how the payments for a QPSA should be calculated. Both employee and spouse must sign off on a waiver of QPSA benefits and have it witnessed by either a notary public or authorized plan representative.

Debit Note

A document used by a purchaser to inform a vendor of the quantity and dollar amount of goods being returned, and requesting that the dollar amount be returned to the purchaser. A debit note is often used to return goods on credit. The vendor then issues a credit note to the purchaser indicating that the goods have been received, and that the purchaser will not have to pay for them. Also known as a "debit memo". I: Debit notes are generally used in business-to-business transactions. Such transactions often involve an extension of credit, meaning that a vendor would send a shipment of goods to a company before the goods have been paid for. Although real goods are changing hands, until an actual invoice is issued, real money is not. Rather, debits and credits are being logged in an accounting system to keep track of inventories shipped and payments owed.

Canada Revenue Agency - CRA

A federal agency that collects taxes and administers tax laws for the Canadian government, as well as for many of Canada's provinces and territories. The Canada Revenue Agency, or Agence du revenu du Canada, also oversees a variety of social and economic benefit and incentive programs via the tax system, along with international trade legislation. I: In a nutshell, the Canada Revenue Agency is the equivalent of the United States' Internal Revenue Service (IRS). The CRA was previously known as the Canada Customs and Revenue Agency (CCRA) until the decision was made to split the agencies customs and revenue activities into two separate organizations in 2003. Like the IRS, the CRA is the definitive source on current Canadian tax laws, how they are interpreted and how they are applied.

Impact Fee

A fee imposed on property developers by municipalities for the new infrastructure that must be built or increased due to new property development. These fees are designed to offset the impact of additional development and residents on the municipality's infrastructure and services, which include the city's water and sewer network, police and fire protection services, schools and libraries.These fees can also be levied against any individual or entity where its actions create an externality within a municipality. I: Some U.S. states attempted to institute an impact fee on individuals who owned vehicles registered in another state, who then subsequently registered that same vehicle in their homestate. This smog impact fee was eventually overturned by the U.S. courts, who stated the fee was unconstitutional on the grounds that it unfairly discriminated against persons from other states.

Lease Utilization

A financial ratio that measures how much a company uses leasing arrangements to acquire its fixed assets. Utilization ratios come in two types, which correspond with operating leases and capital leases respectively: operating lease utilization and capital lease utilization. I: Looking at the lease utilization is a good way to identify whether differences in the financial metrics of comparable firms may be due in part to differences in the way that assets are acquired. A capital lease affects the financial statements much in the same way that buying the asset on credit would. However, if a company makes heavy use of operating leases, then the assets are not reflected on the balance sheet. Therefore, due to the lower amount of assets, it may appear that the company is generating a higher return on assets. However, this could be merely an accounting phenomenon that occurs as a result of the alternative asset acquisition method.

Job Lot

A futures contract with a minimum trading unit smaller than the levels required in regular contracts. A job lot can be thought of as smaller contracts for the same underlying of a futures contract. These contracts, or lots, exist to add liquidity to futures exchanges by allowing "smaller" participants to enter the marketplace. I: These lots can be any size and differ from futures contract to futures contract. By offering job lots in addition to regular contracts, exchanges aim to make access to the market more accessible to investors with low investment capital but wishing to trade futures, thus adding to pricing and exchange efficiency. For example, western barley future contracts trade in 100-tonne board or round lots and 20-tonne job lots.

Sales Meeting

A gathering in which a product or service is being discussed, and the benefits are outlined to the potential buyer. The sales meeting is not always a presentation format; it can sometimes be an informal conversation, phone call or online affair. The parties involved have this meeting between the initial contact and final purchase, in order to entice the customer. Also known as a sales conference. I: A sales meeting is designed to sell the product, build relationships, identify needs and outline benefits of the product. Personal financial planners would use a sales meeting to discuss retirement goals, build rapport and explain how the investment products and fund management will meet the goals of the potential client.

Import

A good or service brought into one country from another. Along with exports, imports form the backbone of international trade. The higher the value of imports entering a country, compared to the value of exports, the more negative that country's balance of trade becomes. I: The word "import" is derived from the word "port," since goods are often shipped via boat to foreign countries. Countries are most likely to import goods that domestic industries cannot produce as efficiently or cheaply, but may also import raw materials or commodities that are not available within its borders. For example, many countries have to import oil because they either cannot produce it domestically or cannot produce enough of it to meet demand.

Handelsgesetzbuch - HGB

A law that governs the primary commercial code for companies in Germany. Included in the law is regulation related to the preparation of financial statements. This law is similar to GAAP, which is followed in the United States. I: The commercial code of Germany was first established on May 10, 1897. In 1998, the code was adapted to conform with new laws within the European community. The HGB has also been used in Austria since 1938. However, on January 1, 2007, the HGB will be replaced by a new unified commercial code called the Unternehmensgesetzbuch (UGB). This will be a modernized version of the HGB.

Labor Productivity

A measurement of economic growth of a country. Labor productivity measures the amount of goods and services produced by one hour of labor. More specifically, labor productivity measures the amount of real GDP produced by an hour of labor. Growing labor productivity depends on three main factors: investment and saving in physical capital, new technology and human capital. I: For example, suppose the real GDP of an economy is $10 trillion and the aggregate hours of labor in the country was 300 billion. The labor productivity would be $10 trillion divided by 300 billion, equaling about $33 per labor hour. Growth in this labor productivity number can usually be interpreted as improvements or rising standards of living in the country.

Quarter On Quarter - QOQ

A measuring technique that calculates the change between one financial quarter and the previous financial quarter. This is similar to the year-over-year measure, which compares the quarter of one year (Q1 2005) to the same quarter of the previous year (Q1 2004). The measure gives investors and analysts an idea of how a company is growing over each quarter. I: For example, the QOQ measure can be used to compare the earnings between quarters. Let's say that the ABC Company's first quarter earnings were $1.50 per share and its second quarter earnings were $1.75 per share. This means that the company has grown its earnings by 16.6% quarter-on-quarter ($1.75-$1.50/$1.50), which is a good sign for investors.

Fair Trade Price

A minimum price paid for certain agricultural products imported from developing countries. Fair trade is a movement which believes that it is unethical to pay producers in developing countries the market price if it is too low to provide a sufficient quality of living. Instead, certain importers agree to pay producers in the developing world at least a minimum price for their goods. The goods are then imported to developed nations where they are promoted as fair trade products, and normally sold at a higher price. I: For goods to be labeled as Fair Trade Certified, they must comply with regulations outlined by the organization FLO-CERT and/or other local fair trade labellers. Opponents of the fair trade system argue that establishing a price floor results in oversupply. It is argued that this oversupply can actually lead to lower market prices for producers that are not able to sell to fair trade buyers.

Leadership Grid

A model of behavioral leadership developed in the 1950s by Robert Blake and Jane Mouton. Previously known as the Managerial Grid, it is based on two behavioral dimensions - concern for production, plotted on the X-axis on a scale from one to nine points; and concern for people, plotted on a similar scale along the Y-axis. The model identified five leadership styles by their relative positions on the grid: Impoverished (concern for production = 1, concern for people = 1)Produce or Perish (9,1)Middle of the Road (5,5)Country Club (1, 9)Team (9, 9) I: The Leadership Grid demonstrates that placing undue emphasis on one area, while overlooking the other, stifles productivity. The model proposes that the team leadership style, which displays a high degree of concern for both production and people, may boost employee productivity.

401(a) Plan

A money-purchase retirement savings plan that is set up by an employer. The 401(a) plan allows for contributions by the employee, the employer, or both. Contribution amounts, whether dollar-based or percentage-based, eligibility, and vesting schedule are all determined by the sponsoring employer.Funds are withdrawn from a 401(a) plan through lump-sum payment, rollovers to another qualified plan, or through an annuity. I: Employers are able to create multiple 401(a) plans, each with different eligibility criteria, vesting schedules and contribution amounts. For this reason, the 401(a) plan is commonly used by employers to create inventive programs to help retain employees.

Tandem Plan

A mortgage purchase program subsidized by the U.S. government. Tandem loans provide monetary assistance to builders and developers of non-profit public housing. Under the Tandem Plan, the Government National Mortgage Association (GNMA / Ginnie Mae) buys mortgages at discounted market price and then sells them through the Federal National Mortgage Association (FNMA / Fannie Mae) and the Federal Home Loan Mortgage Corp. (FHLMC / Freddie Mac). I: Under the Tandem Plan, GNMA foots the difference between the purchase and sale price of the mortgages that it buys. This type of structure allows home buyers to receive low interest rate loans, often to those who would not be able to afford them otherwise.

National Association of Investors Corporation - NAIC

A non-profit organization that is dedicated to providing investing education that allows individuals to earn positive long-term returns. The association is based in Michigan, and is comprised of investing clubs along with individual investors from around the United States. I: Through its Better Investing Community, the NAIC provides education on a variety of topics from investing basics, mutual funds, stocks and personal finance. The NAIC provides this education through courses, articles and conventions that are organized around the country. The NAIC also strongly emphasizes learning through a group by helping develop investing clubs and facilitating group discussions online.

Saver's Tax Credit

A non-refundable tax credit available to lower income individuals and households that contribute to qualified retirement savings plans. This includes employer-sponsored plans such as 401(k), SIMPLE and SEP plans, or the governmental 457 plan, along with contributions to Traditional and Roth IRAs. The amount of the credit will depend on the adjusted gross income of the individual or household and the size of the contribution. I: A taxpayer must be at least 18 years old to be eligible for the credit. Individuals that are full-time students, were full-time students for at least five months of the year, or filed as dependents are not eligible.The maximum contribution amount to which this credit can be applied is $2,000. For households with an adjusted gross income of $30,000 and under ($22,500 for individuals) the credit rate is 50%. Households with an adjusted gross income of between $30,001 and $32,500 ($22,501 - $24,375 for individuals) the credit rate is 20%. For households earning an adjusted gross income of $32,501 to $50,000 ($24,376 - $37,500 for individuals) the credit rate is 10%. For example, an individual earning $22,900 who contributes $2,000 to a retirement plan will receive a tax credit of $400 ($2,000 x 20%). Any amount above the 10% credit rate limits are not eligible for this tax credit.

Manager Universe (Benchmark)

A peer group of investment managers who have the same investment style. Manager universe data is often used for comparisons and evaluating the performances of money managers. This analysis may report information such as the returns each fund generates against other similiar styles. I: For example, a manager universe might consist of the subset of investment managers who manage large growth portfolios. Evaluating investment performance using manager universe data has three major shortcomings:First, it is difficult to compare managers, because they typically have different investment styles and change their investment styles periodically. Second, manager universes are usually subject to survivorship bias, meaning that managers with poor performance records get dropped from the universe and the universe doesn't present a complete picture of all managers' performance. Third, managers' rankings can change significantly from quarter to quarter because of market events and investment performance. Relying on manager universe data to evaluate a fund or portfolio's investment performance is, thus, an oversimplified approach. A benchmark portfolio provides a more accurate basis of comparison.

Daily Money Manager - DMM

A person who takes over the day-to-day financial tasks for those who are unable to perform these tasks on their own. A variety of people employ daily money managers, (DMM's) ranging from elderly clients to those simply too busy to maintain total control and accuracy of their financial needs. Some tasks performed by DMM's include bill payments, preparing tax documents, wire transfers, monthly paperwork and balancing, security checks, and basic deposits/withdrawls. I: The demand for daily money managers has been growing steadily since the beginning of the 21st century. This is in part due to the increasing population of the elderly. While many children attempt to take on the task of managing their parents finances, many find it difficult as well as time consuming. The growth of the industry can also be attributed to the increase in dual income families - with both parents working, there is often not enough time to run around ensuring documents are properly signed or bill payments are processed on time.

Call Protection

A protective provision of a callable security prohibiting the issuer from calling back the security for a period early in its life. I: The call protection is advantageous to investors because it prevents the issuer from forcing redemption early on in the life of a security. This means that investors will have a minimum number or years, regardless of how poor the market becomes, to reap the benefits of the security. The period for which the bond is protected is known as the "deferment period" or the "cushion".

Debenture Redemption Reserve

A provision that was added to the Indian Companies Act of 1956 during an amendment in the year 2000. The provision states that any Indian company that issues debentures must create a debenture redemption service to protect investors against the possibility of default by the company. I: Under the provision, debenture redemption reserves will be funded by company profits every year until debentures are to be redeemed. If a company does not create a reserve within 12 months of issuing the debentures, they will be required to pay 2% interest in penalty to the debenture holders. Only debentures that were issued after the amendment in 2000 are subject to the debenture redemption service.

ImClone - IMCL

A publicly-traded biotechnology company marketing products in the field of oncology. The company made international headlines in 2002 after ImClone's founder and CEO Sam Waksal was indicted for attempting an insider trade of the company's stock. Shortly after Waksal's indictment, "domestic diva" Martha Stewart was also indicted for insider trading of the same stock. Stewart received information from Waksal and her own broker that Waksal had been trying to dump $5 million worth of his shares in the company on insider information, and she sold her shares on the knowledge that Waksal had tried to sell his. I: Both Sam Waksal and Martha Stewart were convicted of insider trading and other crimes and were sentenced to spend time in federal prisons.

Bad Credit

A qualification of an individual's credit history that indicates that a borrower carries a higher credit risk. A low credit score indicates bad credit, while a high credit score is an indicator of good credit. Creditors who have lent money to an individual with bad credit face a higher risk of that individual missing payments or defaulting. I: An individual's credit history is dependent on a number of factors, including the amount borrowed, the amount of available credit remaining and the timeliness of payments. An individual may have bad credit if he or she does not make timely payments or has defaulted on a loan during a period of time. Having bad credit makes it more difficult or costly to obtain loans, such as mortgages, from financial institutions.

General Examination

A regulatory measure set up to give a detailed examination of all aspects of a bank. The examination is conducted by the governing body of different levels of banks. For example, the state banking regulators would provide an overview of all state-run banking institutions. I: This examination is generally conducted every two years. The person/persons conducting the exam will take an in-depth look focusing a lot of time on the banks financial statements, and interviewing staff and managers on policies and procedures. They are looking for descrepancies, as well as the overall health of the financial institution.

8-K

A report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the Securities and Exchange Commission. I: Examples of events reported on an 8-K include acquisition, bankruptcy, resignation of directors, or a change in the fiscal year. Also known as Form 8k.

Management And Employee Buyout - MEBO

A restructuring initiative that involves both managerial and non-managerial employees buying out a firm in order to concentrate ownership into a small group from a widely dispersed group of shareholders. I: MEBOs are generally used to privatize a publicly traded company, but can also be used as an exit strategy for venture capitalists or other shareholders in an already private firm. MEBOs can often be seen as bringing greater efficiency to a firm's production because it can provide added job security to employees, which motivates them to give a stronger effort to improve company profitability.

Debris Removal Insurance

A section of a property insurance policy that provides reimbursement for clean-up costs associated with damage to a property. Policies with a debris removal provision typically only cover debris resulting from an insured peril, such as charred wood from a building fire. I: Policies commonly have a cap on the amount of reimbursement that a policyholder can receive for debris removal costs. While policies typically have debris removal as a standard provision, the policyholder is often able to purchase additional coverage. The policy provision may also extend to the removal of hazardous materials that may cover the property, but could exclude pollutants.

Naked Position

A securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk). I: If an investor simply holds 500 shares of Ford, he or she has a naked position in Ford. If the investor wanted to cover this position, he or she could buy put option contracts, which would help protect against downward movements in the price of Ford shares. Whether to have a naked position is rarely a concern for most small investors, but it is a concern for large investment holders and institutions.

R-Squared

A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. I: R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index. A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.

Immunization

A strategy that matches the durations of assets and liabilities thereby minimizing the impact of interest rates on the net worth. Also known as "multiperiod immunization". I: For example, large banks must protect their current net worth, whereas pension funds have the obligation of payments after a number of years. These institutions are both concerned about protecting the future value of their portfolios and therefore have the problem of dealing with uncertain future interest rates. By using an immunization technique, large institutions can protect (immunize) their firm from exposure to interest rate fluctuations. A perfect immunization strategy establishes a virtually zero-risk profile in which interest rate movements have no impact on the value of a firm.

Santa Claus Rally

A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations for the Santa Claus Rally phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week. I: Many consider the Santa Claus rally to be a result of people buying stocks in anticipation of the rise in stock prices during the month of January, otherwise known as the January effect.

Quanto Swap

A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap. I: Though they deal with two different currencies, payments are settled in the same currency. For example, a typical quanto swap would involve a U.S. investor paying six-month LIBOR in U.S. dollars (for a US$1 million loan), and receive payments in U.S. dollars at the six-month EURIBOR + 75 basis points.Fixed-for-floating quanto swaps allow an investor to minimize foreign exchange risk. This is achieved by fixing both the exchange rate and interest rate at the same time. Floating-for-floating swaps have slightly higher risk, since each party is exposed to the spread between each country's currency interest rate.

Mainstream Economics

A term used to describe schools of economic thought considered orthodox. It is not a branch of economics as of itself, but is used to describe theories often considered part of the neoclassical economics tradition. Mainstream economics follows rational choice theory, which assumes that individuals make decisions that will maximize their own utility, and uses statistics and mathematical models to demonstrate theories and evaluate various economic developments. I: Schools of economic thought outside of mainstream economics - called heterodox economics - are more skeptical of the role of the government and the rationality of actors. Mainstream economics does not focus on economic concerns gaining momentum, such as sustainability and pollution.

National Diamond

A theory of competitive advantage developed by HarvardBusinessSchool professor Michael E. Porter that is represented visually using a diamond-shaped graphic. The graphic can be used to show the factors that make up an industrialized country's competitive advantage in the global marketplace or the factors that make up a company's competitive advantage within a single country. I: Porter, an expert on economic competitiveness, divides the factors of competitive advantage into four categories, placing one at each point of the diamond. The four categories are firm strategy, structure and rivalry; factor conditions; related and supporting industries; and demand conditions. His model also recognizes the impact of the institutional environment on competitiveness.

National Association Of Real Estate Investment Trusts - NAREIT

A trade association that represents U.S. Real Estate Investment Trusts (REITs) and publicly traded real estate companies. In essence, NAREIT works as a lobbyist for both of these groups when dealing with individuals who legislate the two respective industries. I: NAREIT is made up of a community of industry professionals, academics and companies that work together to promote the real estate industry and REITs. Through NAREIT, individuals are able to access comprehensive industry data on the overall real estate industry and the performance of member REITs.

Make To Stock - MTS

A traditional production strategy used by businesses to match production with consumer demand forecasts. The make-to-stock (MTS) method forecasts demand to determine how much stock should be produced. If demand for the product can be accurately forecasted, the MTS strategy can be an efficient choice. I: The main drawback to the make-to-stock (MTS) method is that it relies heavily on the accuracy of demand forecasts. Inaccurate forecasts will lead to losses stemming from excessive inventory or stockouts. Common alternative production strategies include make-to-order (MTO) and assemble-to-order (ATO).

Fast Tape

A type of futures market that occurs when a single traded price is unavailable because of the rapid and large number of transactions occurring in the pit or ring. I: Rather than quoting a specific price, a fast tape will give a range of prices marked by the word "fast" to indicate that the market is moving rapidly.

Qualifying Domestic Trust - QDOT

A type of trust that allows taxpayers who are not U.S. citizens to claim the marital deduction for estate-tax purposes. Spouses without citizenship are not eligible for the marital deduction without a qualifying domestic trust. QDOTs are similar to QTIP trusts in that the marital deduction is conditional upon the inclusion of assets inside the trust. I: Although establishing a QDOT is often easier and faster than applying for citizenship, this type of trust is not without risk. There are numerous provisions pertaining to this type of trust that must be obeyed carefully in order for the trust to remain valid. QDOTs apply only to spouses of decedents who died after November 10, 1988. At least one trustee must be either a U.S. citizen or domestic corporation that is authorized to retain estate tax out of the trust assets.

Call Ratio Backspread

A very bullish investment strategy that combines options to create a spread with limited loss potential and mixed profit potential. It is generally created by selling one call option and then using the collected premium to purchase a greater number of call options at a higher strike price. This strategy has potentially unlimited upside profit because the trader is holding more long call options than short ones. I: An investor using this strategy would sell fewer calls at a low strike price and buy more calls at a high strike price. The most common ratios used in this strategy are one short call combined with two long calls, or two short calls combined with three long calls. If this strategy is established at a credit, the trader stands to make a small gain if the price of the underlying decreases dramatically.

C-Suite

A widely-used slang term used to collectively refer to a corporation's most important senior executives. C-Suite gets its name because top senior executives' titles tend to start with the letter C, for chief, as in chief executive officer, chief operating officer and chief information officer. Also called "C-level executives." I: The C-suite is considered the most important and influential group of individuals at a company. Being a member of this group comes with high-stakes decision making, a more demanding workload and high compensation. As "chief" titles proliferate, however, job-title inflation may decrease the prestige associated with being a member of the C-suite.

Off-The-Run Treasuries

All Treasury bonds and notes issued before the most recently issued bond or note of a particular maturity. These are the opposite of "on-the-run treasuries." I: Once a new Treasury security of any maturity is issued, the previously issued security with the same maturity becomes the off-the-run bond or note. Because off-the-run securities are less frequently traded, they typically are less expensive and carry a slightly greater yield.

Jeffrey Sachs

An American economist who is director of the Earth Institute. He is also a professor of sustainable development and of health policy and management at Columbia University. His work centers on economic development, poverty, globalization and global warming. I: Sachs is well known even outside of academia for his New York Times bestsellers, The End of Poverty and Common Wealth. Born in 1954 in Detroit, he earned his BA, MA and PhD from Harvard, where he also taught before joining Columbia. He has served as an advisor to the governments of many developing countries and has received numerous awards and honors. Time magazine named Sachs one of the most influential leaders in the world.

John F. Nash Jr.

An American mathematician who won the 1994 Nobel Memorial Prize in Economics, along with John Harsanyi and Reinhard Selten, for his development of the mathematical foundations of game theory. Nash Jr.'s research differentiated between cooperative and non-cooperative games. He also developed an equilibrium theory known as the Nash Equilibrium (of which the prisoner's dilemma is a well-known example). I: Born in West Virginia in 1928, Nash Jr. trained not as an economist but as a mathematician, earning his Ph.D. in math from Princeton at the age of 22. He taught math at the Massachusetts Institute of Technology and worked for the RAND Corporation, but his paranoid schizophrenia negatively affected his career for about two and a half decades. The 2001 Academy Award-winning film "A Beautiful Mind" is based on his life and the struggle between his genius and his mental illness.

Offering Circular

An abbreviated prospectus for a new security listing. Delivered to individuals and brokerage houses, these documents are issued to arouse interest in the new issue. I: An offering circular allows investors to access information regarding a new issue. It provides them with the important highlights without having them actually read the long-form prospectus. After the investor becomes interested, it is crucial that they read the final prospectus in order to view all the details that may have been left out of the offering circular.

Taguchi Method Of Quality Control

An approach to engineering that emphasizes the roles of research and development, product design and product development in reducing the occurrence of defects and failures in products. The Taguchi method considers design to be more important than the manufacturing process in quality control and tries to eliminate variances in production before they can occur. I: Genichi Taguchi, a Japanese engineer and statistician, began formulating the Taguchi Method while developing a telephone-switching system for Electrical Communication Laboratory, a Japanese company, in the 1950s. As a result of his success, he eventually became well-known in both Japan and the United States, with companies such as Toyota, Ford, Boeing and Xerox adopting his methods.

Joint And Survivor Annuity

An insurance product that continues regular payments as long as one of the annuitants is alive. A joint and survivor annuity must have two or more annuitants, and is often purchased by married couples who want to guarantee that a surviving spouse will receive regular income for life. Annuities are generally used to provide a steady income during retirement. I: Different types of joint and survivor annuities are available. For example, a joint and one-half annuity would reduce the payments to one-half of the original payment amount following the death of the first annuitant; and a joint and two-thirds annuity would reduce the payments to two-thirds the initial payment amount. A joint and survivor annuity is often appropriate for married couples who want to make sure the surviving spouse will continue to receive payments for life. This differs from other annuity products where it would be possible for a surviving spouse to outlive income payments.

Same-Day Substitution

An offsetting change in a margin account, made over the trading day, that results in no overall change in the value of the account. When a same-day substitution is made, a margin call is not generated. I: A same-day substitution happens when a rise in the market value of one margin security is offset by an equal decline in another.

Halloween Massacre

Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, announced that all income trusts would be taxed in a similar manner as corporations at a rate over 30% on taxable income, causing unit holders' values to decrease dramatically virtually overnight. I: Income trusts, which were permitted to make distributions to unit holders on a pretax basis under old Canadian income tax laws, were a popular investment vehicle in the early 2000s, especially in Canada. The Canadian energy sector was hardest hit by the change, and suffered an estimated loss of about $35 billion to investors, giving rise to the term "massacre".This change in the Canadian tax law, which was largely debated after the fact, was made to remedy a perceived loss of tax revenue.

Qualified Higher Education Expense

Expenses such as tuition and tuition related expenses that an individual, spouse, or child must pay to an eligible post-secondary institution. I: These expenses are important because they can determine whether or not you can exclude the interest off of a qualified savings bond from your taxable income.

60-Plus Delinquencies

Home loans that are more than 60 days past due on their monthly mortgage payments. 60-plus delinquency rates are typically expressed as a percentage of a group of loans written within a specified time period, such as a given calendar year. Another common grouping method are the interest rates for the pool of loans that make up a mortgage-backed security (MBS) or other securitized mortgage product. 60-plus delinquencies are less than 90 days past due, and have not yet entered the foreclosure process - loan in the latter status are expressed separately. The 60-plus rate may be split into one for prime loans and subprime loans. The 60-plus rate on subprime loans can be expected to be higher than for prime. Also, 60-plus rates are often published separately for fixed-rate versus adjustable-rate loans. I: The 60-plus rate is often added to another negative event measure, the foreclosure rate for the same group of loans. The two added together give a cumulative measure of the individual mortgages that are either not being paid at all, or being paid behind schedule. If the rate on past-due and/or foreclosed mortgages rises beyond a certain level, the mortgage-backed security may have a shortfall of cash to pay out to investors. This can cause massive re-pricing of assets, resulting in some investors losing the majority of their invested capital.

MAD

In currencies, this is the abbreviation for the Moroccan Dirham. I: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion.

A-Share

In a family of multi-class mutual funds, this is the class that is usually characterized by a loaded fee structure. Class A mutual fund units will commonly have a front- or rear-end load, to compensate for the sales person's commission. Not all fund companies follow this class structure; however, it is the prominent method of distinction. I: Typically, the class A fund has a lower management expense ratio compared to the other classes within the same family. This is due to the load that is added to the acquisition cost, or redemption.

Debit Balance

In a margin account, money owed by the customer to the broker for funds advanced to purchase securities. The debit balance is the amount of funds the customer must put into his or her margin account, following the successful execution of a security purchase order, in order to properly settle the transaction. I: When buying on margin, investors borrow funds from their brokerage and then combine those funds with their own to purchase a greater number of shares than they would have been able to purchase with their own funds. The debit amount recorded by the brokerage in an investor's account represents the cash cost of the transaction to the investor.

Real Body

In candlestick charting this is the wide part of a candle that represents the range between the opening and the closing prices over a specific time period. I: When the real body of a candle is black or shaded red, it means the close was lower than the open; if the real body is empty or colored green, it means the close was higher than the open.

Dark Cloud Cover

In candlestick charting, a pattern where a black candlestick follows a long white candlestick. It can be an indication of a future bearish trend. I: Essentially, the large black candle is forming a "dark cloud" over the preceding bullish trend. The dark cloud must have a closing price that is: 1) within the price range of the previous day, but 2) below the mid-point between open and closing prices of the previous day.

Party Wall

In real estate, a shared wall that separates housing units. Party walls are most commonly found in apartments, condominiums and office complexes where different tenants share a common structure. Party walls can be a non-structural wall, but laws in various jurisdictions outline requirements for how party walls must be constructed. I: Party walls are sometimes built with additional insulation so that sound from an adjoining unit does not disturb neighbors. In addition, some building codes require party walls to be built as fire walls, with noncombustible material extending from the foundation to the roof. If a fire occurs in one unit, a fire wall helps to slow the spread of the fire into adjoining units. Not only is this safer for tenants, but it also helps to contain fires and limit property damage.

Pareto Improvement

In neoclassical economics, an action done in an economy that harms no one and helps at least one person. The theory suggests that Pareto improvements will keep adding to the economy until it achieves a Pareto equilibrium, where no more Pareto improvements can be made. I: In real-world economics, the Pareto improvement is often replaced by the Kaldor-Hicks improvement, of which Pareto improvements are a subset. A Kaldor-Hicks improvement is associated with cost-benefit improvements and is related in terms of actual dollars.

Easy Money

In the most literal sense, money that is easily acquired. Academically speaking, the term specifically denotes a condition in the money supply. Easy money occurs when the Federal Reserve allows cash flow to build up within the banking system. This lowers interest rates and makes it easier for banks and lenders to loan money. Money is therefore easily acquired by borrowers. I: The value of securities often initially rises during periods of easy money, when money is cheap. But if this trend continues long enough, it can eventually reverse due to fear of inflation. Easy money is also known as cheap money.

Laffer Curve

Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve: The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government. I: Governments would like to be at point T*, because it is the point at which the government collects maximum amount of tax revenue while people continue to work hard.

Fair Trade Investing

Investing in companies or projects that promote fair trade with producers in developing nations. Basic fair trade philosophies call for equal pay for suppliers of raw goods and materials as well as respect for strong environmental practices and a focus on the trading relationships between advanced economies and developing nations. I: Fair trade investing mainly deals with trade in agricultural products, such as coffee, sugar and textiles. Many of the growers of these products are low-income workers who are often marginalized in trade agreements and receive few subsidies from their home governments. Fair trade practices aim to help these workers gain a higher standard of living and financial independence, while the companies who actively promote fair trade can show transparency in their business dealings and gain valuable image points with shareholders.

Dalian Commodities Exchange - DCE

One of China's four futures exchanges. It is located in Dalian, China, which is a northeastern province. It was founded on February 28, 1993, and is a self-regulating, not-for-profit entity. It operates in both electronic and open outcry trading. I: The DCE trades in primarily agricultural and industrial produce-based futures. Examples of futures contracts traded on the DCE include: soybeans, corn, palm oil, soybean oil and related product futures. By volume it is the largest of China's futures exchanges.

National Organization Of Life And Health Insurance Guaranty Associations - NOLHGA

NOLHGA is a voluntary organization of U.S. life- and health-insurance guaranty associations. Founded in 1983, it covers policyholders when a multistate life- or health-insurance company fails. I: NOLHGA pays policyholders' claims when an insolvent insurance company is unable to. It raises the needed funds from other insurance companies doing business in the states where the failed insurer was doing business. Each insurance company pays a special assessment in proportion to the amount of premiums it collects in that state.

P To P (Peer To Peer) or (Path To Profitability)

P to P can mean one of two things: 1. Peer to peer allows internet users to transfer files directly, rather than through the use of a website or directory. File transfers are done directly from the users' computers. 2. An abbreviation of "path to profitability". This refers to the roadmap a startup company follows in order to propel its operations from its current state of losing money to becoming profitable. I: A perfect example of peer to peer is the internet file swap sites that allow users to transfer audio, video and other types of files for free.

National Securities Markets Improvement Act - NSMIA

Passed by the U.S. Congress in 1996, the NSMIA was an attempt to update and amend previous security acts and create one uniform code that companies and regulators could follow. I: This bill deals with securities, brokers, advisors, and dealers. Its goal is to provide a federally imposed set of rules, instead of having to deal with each individual state's rules and regulations.

Federal Deposit Insurance Corporation Improvement Act - FDICIA

Passed in 1991 at the height of the Savings and Loan Crisis (S&L), this act fortified the FDIC's role and resources in protecting consumers. The most notable provisions of the act raised the FDIC's U.S. Treasury line of credit from $5 million to $30 million, revamped the FDIC auditing and evaluation standards of member banks, and created the Truth in Savings Act (Regulation DD). I: While it may be hard to fully appreciate the changes made to the internal workings of the FDIC through this legislative act, most consumers can agree that the Truth in Savings Act has gone a long way towards forcing banks to deliver on their advertised promises. The Truth in Savings Act, which was part of the FDICIA, has forced banks to begin disclosing savings account interest rates using the uniform annual percentage yield (APY) method. This has helped consumers to better understand their potential return on a deposit at a bank, as well as to compare multiple products and multiple banks simultaenously.

National Insurance Contributions - NIC

Payments made by employees and employers into the United Kingdom's National Insurance (NI). National insurance contributions initially funded programs for the ill and unemployed, and later on eventually paid for state pensions too. Contributions fall into categories which can either count toward an individual's eligibility for benefits or are paid without counting towards any type of entitlement depending on the category it falls under. I: National insurance contributions are made through payroll and income taxes. Over the years, contributions expanded to cover other government-provided benefits. Limits on contributions were removed from upper income levels, making this a more redistributive program.

Racketeering

Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include extortion, money laundering, loan sharking, obstruction of justice and bribery. The Racketeer Influenced and Corrupt Organizations (RICO) Act became U.S. law in 1970, permitting law enforcement to charge individuals or groups with racketeering. I: Racketeering is the illegal activity that is inherent to organized crime. These crimes are committed with the protection and advancement of the organized-crime "business" in mind. Racketeering usually refers to continued engagement in criminal activity.

Gatekeeper

Requirements that must be met before an individual can qualify for a long-term care plan. A person must qualify for the plan's benefits before he or she can be paid out. I: These standards are called gatekeepers because they are what stands between the individual and the policy payouts.

Qualitative Analysis

Securities analysis that uses subjective judgment based on nonquantifiable information, such as management expertise, industry cycles, strength of research and development, and labor relations. This type of analysis technique is different than quantitative analysis, which focuses on numbers. The two techniques, however, will often be used together. I: While most investors and analysts rely largely on quantitative measures, metrics such as the debt-to-equity and price-to-equity ratios, supplementing the analysis with qualitative analysis increases the insight into the company. Using qualitative factors will often give analysts an edge since key factors, such as management, does not show up in quantitative analysis. To help you remember, qualitative = qualities of a company.

Nano Cap

Small public companies with a market capitalization below $50 million. Investors looking to invest in nano-cap companies should be aware that these small firms are often associated with a very high risk of failure. Conversely, nano-cap stocks are often referred to as "penny stocks," which are quite popular with novice investors who have a large appetite for risk. I: This is as small as you can get. Nano caps are very risky because they are such small companies. Keep in mind that classifications such as "large cap" or "small cap" are only approximations that change over time. Also, the exact definition of the various sizes of market cap can vary between brokerage houses.

Past Service

Service to an employer that is recognized for the defined benefit pension plan purposes, but either occurred before the employee was a member in the plan, or before the plans inception. Employees have the option to purchase past service, by cash or by qualified retirement plan roll-over, to increase their years of service in the calculation of their retirement pension. I: In cases where employees are considering rolling over the assets from their qualified retirement plan, it is often wise to first consult a financial planner. Depending on a number of factors, such as employee life expectancy, marital status and quality of the pension plan, it may or may not be beneficial to make the roll-over.

Manufacturing Cells

Sets of machines that are grouped by the products or parts they produce in a lean manufacturing environment. This system is used in the cellular manufacturing concept, which is distinct from the traditional functional manufacturing system in which all similar machines are grouped together. The use of manufacturing cells improves material flow and is especially suited for batch production, even in relatively low volumes. I: One of the challenges of implementing a cellular manufacturing system is the actual establishment of manufacturing cells. If the same machines are required in different cells, it may result in higher capital requirements. However, the benefits of manufacturing cells, such as higher productivity, better responsiveness to market conditions and the ability to produce customized goods in small volumes, more than offset these drawbacks.

Dead Presidents

Slang referring to U.S. paper currency. Dead presidents can refer to any unit of currency, but most often refers to George Washington, whose picture is on the $1 bill. Therefore an item that costs six dead presidents would mean that it costs $6. I: During the Civil War, the Union Congress ordered the printing of half a million 5-cent notes due to a shortage of the metals used to produce traditional coinage. However, when the notes appeared to the public, the engraved portrait on the bill was of someone named Spencer M. Clark. Naturally, no one in the Union (or anywhere else) had any idea who this was. An investigation quickly revealed that Lincoln had appointed him as the first superintendent of the National Currency Bureau. Because Congress had not specified that any particular historical figure be placed upon the bill, he had simply taken the liberty of putting his own picture there. Needless to say, Congress was furious. They immediately enacted a law stipulating that from that point on, any person who appeared on the face of any U.S. currency had to be famous -and dead.

Kangaroos

Slang term for Australian stocks, it refers mostly to the stocks on the All-Ordinaries Index, which is composed of around 300 of the most active Australian companies. I: Kangaroos are one of the most recognizable symbols of Australia, outside of Mel Gibson and Nicole Kidman of course.

Generally Accepted Principles And Practices - GAPP

Standardized business procedures related to the operation of sovereign wealth funds (SWFs). The generally accepted principles and practices (GAPP), agreed upon by 23 countries with SWFs in October 2008, state that SWFs will pursue financial, rather than political, agendas. What's more, SWFs abiding by the GAPP vow to make their objectives, investment practices and structures transparent to all. Also known as known as the Santiago Principles. I: SWFs are defined as "special purpose investment funds or arrangements, owned by the general government" and are designed to "hold, manage or administer assets to achieve financial objectives." The 24 Santiago Principles simply provide a framework for this in three key areas: legal, institutional, and investment and risk. Furthermore, the International Working Group (IWG), which drafted the Principles, has agreed to consider ways to monitor progress and refine the Principles as new needs and challenges arise.

Featherbedding

Term used to describe the practice of a labor union requiring an employer to hire more workers than necessary for a particular task. I: Featherbedding has developed over time as unions respond to workers being laid off because of technological change. These lay-offs have caused unions to seek some way to retain workers, even though there may be little work for them to perform.

Day Rate

The price/cost of a particular service for a day's period. In some markets it is referred to as "per diem" (cost that an organization will pay for one days' work) and often translates to a 7.5 hour work day. Some purchasing organizations prefer a quoted day rate instead of an hourly rate for services. I: Common examples of a day rate would be:- the rate of pay for a day's manual labor by a worker- the price for a hotel room when no overnight stay is required/utilized - the quoted price for contractor work done onsite for a client

Kazakhstan National Fund

The Kazakhstan National Fund is a sovereign wealth fund for the nation of Kazakhstan. The sovereign wealth fund originates from surplus revenues gained from taxes on the development of Algeria's oil, gas and mineral reserves. According to the Sovereign Wealth Fund Institute, the Kazakhstan National Fund has approximately $21.6 billion in assets as of 2008. I: The Kazakhstan National Fund was established in 2000, primarily to act as a stabilization fund to lessen the impact that volatility in oil, gas and mineral prices have on the Republic of Kazakhstan. The Kazakhstan National Fund is a secretive organization and little information can be found as to its governance, holdings or investment strategies.

National Stock Exchange Of India Limited - NSE

The National Stock Exchange is India's largest financial market. Established in 1992, the NSE has developed into a sophisticated, electronic market, which ranks third in the world for transacted volume. The NSE conducts transactions in the wholesale debt, equity and derivative markets. I: Based in Mumbai, India, the National Stock Exchange is a leader in market technology. The exchange's supports more than 3,000 VSAT terminals, making the NSE the largest private wide-area network in the country. The National Stock Exchange has been a pioneer for Indian financial markets, being the first electronic limit order book to trade derivatives and ETFs.

Qatar Investment Authority - QIA

The Qatar Investment Authority (QIA) is a government-owned entity charged with managing the sovereign wealth fund of Qatar. The source of the sovereign wealth fund is primarily excess oil and gas revenues from the development of Qatar's oil and gas reserves. I: The Qatar Investment Authority was established in 2005. The QIA is governed by a board of directors. Qatar's State Audit Bureau is responsible for auditing the financial operations of the QIA. The QIA does not have any mandated limitations on its investment universe and is able to invest in both domestic and foreign marketable securities, real property, alternative assets and private equity funds.

SAFE Investment Company (China)

The SAFE Investment Company is the Hong Kong branch of the Chinese sovereign wealth fund. The SAFE Investment Company is a private company, however officials from the Chinese State Administration of Foreign Exchange (SAFE) department serve on its Board of Directors. The fund is set aside primarily as a foreign currency reserve. I: As of March, 2010, China holds approximately USD$2.45 trillion in foreign currency reserves. The SAFE Investment Company is able to invest in a wide variety of instruments including foreign and domestic equities and fixed income securities. The chief objectives of the SAFE Investment Company are to gain investment returns, increase diversification of holdings and to reduce China's exposure to fluctuations in the value of the U.S. dollar.

Korea Stock Exchange (KSC) .KS

The Stock Market Division of Korea Exchange, formerly an independent South Korean exchange, was established in 1956. Some of its milestones include the launching of the Stock Index Futures Market in 1996 and the Stock Index Options Market in 1997, as well as the adoption of electronic trading in 1988, warrant trading in 2000, and equity options and ETFs in 2002. Its traded instruments include stocks, bonds, ETFs and REITs. I: The Korea Exchange was established in 2005 as a merger of the Korea Stock Exchange, the KOSDAQ and the Korea Futures Exchange. The Korea Exchange is one of Asia's largest exchanges with around 1,800 listed companies.

Off-The-Run Treasury Yield Curve

The U.S. Treasury yield curve derived using off-the-run treasuries. Off-the-run treasuries refer to U.S. government bonds of a given maturity that are not the most recently issued. While they are not as recent as on-the-run treasuries, off-the-run treasuries can be used to construct a yield curve if there is a problem or distortion with the yield curve as represented by on-the-run treasuries. I: While the on-the-run treasury yield curve is the primary benchmark used for pricing fixed-income securities, fixed-income analytics are sometimes run by investors and traders based on the off-the-run treasury yield curve because they believe the on-the-run treasury yield curve has price distortions caused by the current market demand for the on-the-run bonds.

NAV Return

The change in the net asset value of an exchange-traded fund (ETF) or mutual fund over a given time period. The NAV return of an ETF or mutual fund can be different than the total return that investors realize because these products can trade at a premium or discount to the price of the fund and to the value of the assets held in the portfolio. I: Many investors will monitor the NAV return instead of total return. It is a better measure of comparing the relative performance of several funds because it ignores the market forces that can cause some funds to trade at a premium or discount to their net asset values.

Quadruple Witching

The expiration date of various stock index futures, stock index options, stock options and single stock futures. All stock options contracts expire on the third Friday of each month and once every quarter - on the third Friday of March, June, September and December - all four asset classes expire on the same day. Because futures and options investors must close out of their positions on those days, they often witness increased trading volume. I: The term "witching" comes from the fact that in the past, the expiration of futures and options contracts occurred not only on the same day, but at the same time. This often resulted in a period of greater-than-normal market volatility, which became known as the "witching hour." Due to this increased volatility and frenzied market activity, many investors approach the markets differently on witching days.

Call Risk

The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem the issue prior to maturity. This means the bondholder will receive payment on the value of the bond and, in most cases, will be reinvesting in a less favorable environment (one with a lower interest rate). I: Typically, bond issuers will call a bond because of the high rate they are paying on the bond. If interest rates have declined since it first issued the bonds, issuers will often call the bond once it becomes callable and will create a new issue at a lower rate. The bondholders will then lose out on the high rate of their bond and will have to invest in a lower rate environment.

Hard-Coded Stock

This is a term that refers to a company's stock symbol or ticker symbol. Every security listed anywhere on the globe has a unique symbol for the security. Knowing the symbol allows investors to check the price of the security. I: In the U.S., on the New York Stock Exchange, stocks can have symbols with one, two or three letters in the symbol. Nasdaq-listed stocks have stock symbols with four or five letters.

Real-Time Quote

This is the actual price of a security at that moment in time. Most prices of securities that are displayed on various websites are delayed quotes. These quotes are usually delayed from 15 to 20 minutes. Real-time quotes are instantaneous with no delay. I: A basic quote on a security consists of a bid price and an ask price. The bid price is what sellers would receive for the security and the ask price is what buyers must pay for the security. The more volume that is traded on a security will bring the bid and ask prices closer together.

Absolute Title

Title to a property that is free of any encumbrances or deficiencies. Absolute title gives unequivocal right of ownership to the owner, and cannot be disputed or challenged by anyone else. This is opposed to titles with liens, attachments or judgments against them. Also known as a perfect title. I: A title search will usually unearth any problems with regard to the title of a property. The search is well worth the cost when someone is considering buying real estate. A title search is usually conducted at the local registry office.

Back-To-Back Letters Of Credit

Two letters of credit (LCs) used together to help a seller finance the purchase of equipment or services from a subcontractor. With the original LC from the buyer's bank in place, the seller goes to his own bank and has a second LC issued, with the subcontractor as beneficiary. The subcontractor is thus ensured of payment upon fulfilling the terms of the contract. I: Like most LCs, back-to-back LCs are used primarily in international transactions, with the first LC serving as collateral for the second.

Incipient Default

When a borrower appears to be heading toward defaulting on its debt. An incipient default is the foreshadowing of a person or company's inability to service a debt obligation. I: Within the loan arrangement, the lender can make specific provisions regarding an incipient default. Such provisions may place covenants on the borrower or impair a contractual right. Incipient defaults may be determined based on current business problems, such as an illiquid balance sheet or a low quick ratio.

Quant Fund

An investment fund that selects securities based on quantitative analysis. In a quant fund, the managers build computer-based models to determine whether an investment is attractive. In a pure "quant shop" the final decision to buy or sell is made by the model; however, there is a middle ground where the fund manager will use human judgment in addition to a quantitative model. I: If computers can beat world champion chess players, shouldn't they be able to beat the traders on Wall Street? That's the thinking behind quant funds, whose name comes from the term "quantitative analysis". The advantage is that computers aren't swayed by emotion, and they obviously react much faster than a person ever could. The problem is that humans have to program those computers, and even computers can make mistakes when they are programmed incorrectly. Remember the saying "garbage in, garbage out". To take advantage of the power of computers, you still have to figure out a superior investment strategy. The term "quantitative fund" also doesn't tell you anything about the actual investment strategy being used. Any study of a company or an industry based on quantitative data can be considered a quant strategy.

Qualifying Investment

An investment purchased with pretax income. Money invested in a qualifying investment trust, annuity or plan is exempt from income taxes until it is withdrawn. These sorts of investments are tax-deferred, because the money invested in them is taxed at withdrawal only. I: Some types of investments that may qualify for tax-deferred status are investment plans, annuities, stocks, bonds, IRAs, RRSPs and certain types of trusts.

100% Equities Strategy

An investment strategy for an individual portfolio or pooled funds vehicle such as a mutual fund. Only equity securities are considered for investment, whether they be listed stocks, over-the-counter stocks, or private equity shares. A mutual fund or ETF will often state a "100% equities strategy" in its prospectus to inform potential investors of the fund's overall risk profile. I: Equities are generally considered the riskier asset class over both bonds and cash, but historical returns have been higher as well. A well diversified portfolio of all stocks can protect against individual company risk or even sector risk, but market risks will still exist that can affect the equities asset class. All-stock portfolios will perform best when the underlying economy is growing (as measured by GDP) and inflation is low to moderate, as inflation diminishes the future cash flows of equities.

Factor Investing

An investment strategy in which securities are chosen based on attributes that are associated with higher returns. Factor investing requires investors to take into account an increased level of granularity when choosing securities; specifically, more granular than asset class. Common factors reviewed in factor investing include style, size, and risk. I: Portfolio diversification has long been a popular safety tactic, but the gains of diversification can be lost if the securities chosen react the same way to market conditions. For example, an investor may choose a mixture of stocks and bonds that all decline in value when certain market conditions arise. Factor investing is designed to look at specific attributes and determine whether securities will move in the same direction, and adjust portfolio holdings to reduce this risk. Traditional methods of portfolio diversification, such as 80% stocks and 20% bonds, are relatively easy to implement. This makes factor investing seem overwhelming because there are a large number of factors that an investor can focus on. Rather than focus on complex attributes, such as momentum, investors new to factor investing can focus on simpler attributes, such style (growth vs. value), size (large cap vs. small cap), and risk (beta). These attributes are readily available for most securities, and are listed on popular stock research websites.

Halloween Strategy

An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market until October 31, in order to increase capital gains. The Halloween strategy is based on the premise that most capital gains are made between October 31 (Halloween) and May 1, and that the other six months of the year should be spent investing in other investment types or not at all. I: The Halloween strategy is closely-related to the phrase, "Sell in May and then walk away," referring to the six months between May 1 and October 31. This strategy is heavily based on the concept of seasonality, specifically that stocks perform better in the winter months than they do in the summer months. This strategy is contrary to the buy-and-hold strategy, in which an investor may ride out down months.

Safe Haven

An investment that is expected to retain its value or even increase its value in times of market turbulence. Safe havens are sought after by investors to limit their exposure to losses in the event of market downturns. However, what are considered safe havens alter over time as market conditions change, and what appears to be a safe investment in one down market could be a disastrous investment in another down market. I: Fortuitously timed buy and sell decisions can make an investment appear to be a safe haven when it may not actually be one.Gold is typically considered a safe haven when currency markets are volatile. United States Treasury Bills are also considered a safe haven even in a tumultuous economic climate because they are backed by the full faith and credit of the U.S. government. In the forex market, the Swiss franc is considered a safe haven currency. Finally, if an entire economic sector is performing poorly but one company within that sector is performing well, its stock could be considered a safe haven.

On Stream

An investment that is on track to earn its expected return. Stocks, funds or any other investment vehicle that is presently performing in a way that allows it to reach the same target that was initially set. However, just because these investments are on their way to reach their targets, doesn't mean they actually will. I: Despite these investments being on stream, there is no guarantee the targets will be achieved. Whether or not investments are currently on stream, investors looking to invest stocks or funds have to research these thoroughly and make sure they are prepared to withstand drops and potential losses in their investments, due to price fluctuations.

Large Trader

An investor or organization with trades that are equal to or in excess of certain amounts as specified by the United States Securities And Exchange Commission (SEC). A large trader is defined by the SEC as "a person whose transactions in NMS securities equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month." Any market participant who is, by definition, a large trader must identify himself or herself to the SEC and submit Form 13H, "Large Trader Registration: Information Required of Large Traders Pursuant To Section 13(h) of the Securities Exchange Act of 1934 and Rules Thereunder." I: As of 2011, the SEC requires that all traders who execute a substantial amount of trading activity, as measured by volume or market value, identify themselves to the SEC by registering with the SEC through Form 13H. The SEC assigns each large trade an identification number, and collects information and analyzes each large trader's trading activity. In addition, certain registered broker-dealers are required to adhere to SEC rules regarding recordkeeping, reporting and monitoring of large traders who execute transactions through the broker-dealer.The SEC initiated large trader reporting in response to the development of trading technology that enables trading in substantial volumes and fast execution speeds. In addition, the SEC cited the rising prominence of large traders and high-frequency traders (HFTs) in the markets and the need to have improved access to their trading activity.Large trader reporting is intended to help the SEC identify individuals engaged in significant market activity in order to analyze their market activity and determine the impact of their trading activity. Large traders must submit an "Initial Filing" through Form 13H and an "Annual Filing" for each applicable calendar year. A previously identified large trader who has not conducted the identifying amount of trading activity as measured by volume or market value may file for an Inactive Status, and can remain inactive and exempt from the filing requirements until the large trader trading level is made again.

Hands-Off Investor

An investor who prefers to set an investment portfolio and make only minor changes for a long period of time. Many hands-off investors use index funds or target date funds which make only small and slow changes to their holdings, and therefore do not require much monitoring. I: A hands-off investment strategy is well-suited to many retail investors who may not have the time needed to routinely monitor and research their investments. Hands-on, active management requires investors to continuously keep up-to-date on the positions that they hold. This often requires several hours of research per week. Active managers believe that by doing this work, they can earn higher-than-average returns on their investments. A hands-off strategy is not necessarily underperforming. Many investors believe in an indexing approach, which posits that sticking with a well-diversified portfolio over the long term is the key to wealth. Since index funds often have very low expense ratios, hands-off investors often enjoy a built-in advantage over active traders who pay more in trading commissions, lose out to the bid-ask spread and incur the higher tax rates on short-term capital gains and nonqualified dividends.

Off-Floor Order

An investor's directive to buy or sell securities when that directive is given to a broker, not to a trader working on the trading floor of an exchange. Exchange rules require off-floor orders, which are made on behalf of customers, to be executed before on-floor orders, which are made for exchange members'own accounts. In some cases, an off-floor order can be reclassified as an on-floor order where a conflict of interest might exist. I: To be a floor trader, one must be associated with a member firm. Member firms pay hefty fees for the privilege of trading on the floor.

Bagging the Street

An investor's failure to avoid trading in the stocks that are part of a block and also within a specified amount of time. Bagging the street refers to a situation where an investor or a trader trades the securities shortly following initiation of the trade. Traders who frequently practice bagging the street will often have their margin requirements revoked by a brokerage. I: Block trades are usually for large quantity of stocks; therefore, and thus can have an impact on the price of shares underlying the block, especially if those securities are illiquid. Therefore, traders who practice bagging the street will attempt to gain an unfair disadvantage if the block trade is large enough to impact stock prices. Once the block trade fully goes through and the market quickly absorbs the impacts, investors are free to resume their desired trading strategies.

Deal Breaker

An issue that, if left unresolved, prompts one party to discontinue discussions. A deal breaker may involve the presence of a particular requirement in a contract, or the lack of a certain provision. I: For negotiations that are non-iterative, meaning that there is no further interaction once terms are satisfied, the parties involved can be unwilling to budge over certain issues because they know that this is their only chance at getting what they want. The presence of a deal breaker, however, helps both parties in a negotiation know how to maneuver and help determine each other's pain points. For example, a company attempting to merge with a competitor may discover that the competitor will only let the merger proceed if a certain number of its employees are kept on board with the new venture. This may be a deal breaker for the acquiring company.

Saturday Night Special

An obsolete takeover strategy where one company attempted a takeover of another company by making a sudden public tender offer, usually over the weekend. This merger and acquisition (M&A) technique was popular in the early 1970s when the Williams Act required only seven calendar days between the time that a tender was publicly announced and its deadline. Catching the target company off guard and over the weekend, effectively reducing its time for a response, often afforded the acquiring company an advantage. I: A tender offer is basically an attempt to takeover control of a company by asking shareholders to sell their shares at a specified price (usually above market). If enough shareholders sell their shares, the takeover is complete. The Saturday Night Special was effective when the Williams Act required a minimum of seven days between the public announcement of the tender and its deadline. When the time period was extended to 20 days, this technique failed to be the quick strike it was originally intended to be. In addition, acquisitions of 5% or more of equity now need to be disclosed to the Securities Exchange Commission (SEC).

Rebate Option

An offer to consumers for a cash discount on the purchase of a consumer good. The rebate option may also be called "cash back", though the consumer will not actually receive cash in hand - the "cash back" is used to directly reduce the purchase price. The rebate option is one of two common choices consumers can make when negotiating a price; the other choice is a reduced interest rate. Dealers offer these options as incentives to entice people to buy. I: Customers who are financing a product will need to decide between the two choices. While the rebate option makes the most sense for cash buyers, on a loan, the principal and interest both affect the monthly payment, so the buyer who is financing should consider what the monthly payment will be under both options, and what the total cost will be during the time he plans to own the vehicle.

Takeunder

An offer to purchase or acquire a public company at a price per share that is less than its current market price. A takeunder is almost always unsolicited and generally occurs when the target company is in severe financial distress or has some other major problem that threatens its long-term viability, as a going concern. A takeunder is similar to a takeover in most respects, except for price, since a conventional takeover target would usually receive a premium to its market price from a potential bidder. I: For example, a company that receives an offer to be acquired at $20 per share when its shares are trading at $22 would be considered to be the subject of a takeunder offer. Note that in a takeunder situation, the offer is unlikely to be at a very large discount to the current market price, since the target company's shareholders would be quite unlikely to tender their shares if the offer is substantially below the current market price. As well, existing shareholders can sell their shares at the (higher) market price, rather than the takeunder price. The target company may reject a takeunder attempt outright as a low-ball offer, but it may give the offer due consideration if it is faced with insurmountable challenges. This may include dire financial straits, steep erosion in market share, legal challenges and so on. In such cases, if the company believes that its chances of survival are much better if it is acquired rather than continuing as a stand-alone entity, it may recommend to its shareholders to accept the takeunder offer.

Earnings Announcement

An official public statement of a company's profitability for a specific time period, typically a quarter or a year. An earnings announcement is typically made on a specific date during earnings season and is preceded by earnings estimates issued by equity analysts. When the company has been profitable leading up to the announcement, their share price will usually increase after the information is released. I: Because the earnings announcement is the official statement of a company's profitability, the days leading up to the announcement are often filled with speculation. Analyst estimates can be notoriously off-the-mark, and can rapidly adjust up or down the days leading up to the announcement. This can attract the attention of investors who take the estimates at face value, artificially inflating the share price on speculative trading.

Ombudsman

An official who investigates complaints (usually lodged by private citizens) against businesses, financial institutions and/or the government. An ombudsman can be likened to a private investigator; although the decision is not typically binding, it does carry considerable weight with those who are sanctioned to uphold the rules and regulations pertaining to each specific case. When appointed, the ombudsman is typically paid via levies and case fees. I: One high-profile case featuring an ombudsman, was the European Commission's antitrust action against Intel in 2009. After European Union antitrust regulators fined Intel over a billion dollars in May of that year, an ombudsman claimed that he had "found maladministration" in the commission's investigation of the chip maker. The ombudsman pointed out that the commission had failed to properly document a meeting with Dell Inc. in 2006 that was relevant to the case.

Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA

An indicator of a company's financial performance which is calculated in the following EBITDA calculation: EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. I: This is a non-GAAP measure that allows a greater amount of discretion as to what is (and is not) included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next. EBITDA first came into common use with leveraged buyouts in the 1980s, when it was used to indicate the ability of a company to service debt. As time passed, it became popular in industries with expensive assets that had to be written down over long periods of time. EBITDA is now commonly quoted by many companies, especially in the tech sector - even when it isn't warranted. A common misconception is that EBITDA represents cash earnings. EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant. Consequently, EBITDA is often used as an accounting gimmick to dress up a company's earnings. When using this metric, it's key that investors also focus on other performance measures to make sure the company is not trying to hide something with EBITDA. Understand th EBITDA with practical examples by reading A Clear Look at EBITDA and EBITDA: Challenging the Calculation

Earnings Before Interest & Tax - EBIT

An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as "operating earnings", "operating profit" and "operating income", as you can re-arrange the formula to be calculated as follows: EBIT = Revenue - COGS- Operating Expenses Also known as Profit Before Interest & Taxes (PBIT), EBIT equals Net Income with interest and taxes added back to it. I: In other words, EBIT is all profits before taking into account interest payments and income taxes. An important factor contributing to the widespread use of EBIT is the way in which it nulls the effects of the different capital structures and tax rates used by different companies. By excluding both taxes and interest expenses, the figure hones in on the company's ability to profit and thus makes for easier cross-company comparisons. EBIT was the precursor to the EBITDA calculation, which includes depreciation and amortization expenses.

Canadian Royalty Trust - CANROY

An oil, gas or mineral company that is organized as a trust rather than as a traditional corporation. The CANROY does not physically operate the oil, gas or mineral assets; operational activities are run by outside parties. Because they are organized as a trust, Canadian Royalty Trusts initially were not taxed at the corporate tax rate. This allowed a CANROY to save more cash, which it used to pay a larger-than-average dividend to its investors. The Canadian government changed its tax policy. I: Investing in a royalty trust such as a CANROY allows the investor to gain exposure to the energy industry without having limited exposure to a certain company's operations. Because the primary draw of a CANROY is that it pays a high dividend, investors can experience higher volatility and risk when interest rates or oil prices change. Royalty trusts tend to involve older mines and wells, meaning that the productivity of these assets is on the decline, and thus income from the trust declines over time unless more assets are purchased. Unlike royalty trusts in the United States, CANROYs may be actively managed and can acquire new properties (U.S. trusts have to stick to their original properties), allowing them to theoretically keep income levels stable.

Illiquid Option

An option contract that cannot be sold for cash quickly at the prevailing market price. Illiquid options have very low or no open interest. I: Most options are illiquid when they are far away from their expiration dates. If you're holding an illiquid option, you will usually notice a very large bid-ask spread on the contract. This is because there are not enough buyers to accommodate those wanting to sell. Unfortunately, if you are trying to sell an illiquid option, there is a good chance you'll be selling at a discount, if at all.

Balloon Option

An option contract where the strike price increases significantly after the underlying asset's price reaches a predetermined threshold. A balloon option increases the investor's leverage on the underlying asset. I: The main idea behind the balloon option is that after the threshold is exceeded, the regular payout is increased. For example, let's say that the threshold is $100. After the underlying exceeds this amount, rather than paying the regular dollar-for-dollar amount, the option payment would balloon to $2 for every $1 change against the strike price.

Dealer Option

An option issued on the physical inventory of a commodity. A dealer option is typically issued by companies that buy, sell or otherwise use a commodity in conducting business. This type of option is not traded on an exchange, meaning that it is traded as an over-the-counter security, and thus are less subject to scrutiny and regulation. I: These options are typically written by firms such as clearing houses, which hold the physical commodities and offer them to the public on the over-the-counter market. While dealer options exist outside of traditional trading markets, their sale is still heavily scrutinized because they represent a contract between parties.

Lattice-Based Model

An option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option's life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. The lattice model is particularly suited to the pricing of employee stock options, which have a number of unique attributes. I: The lattice model's flexibility in incorporating expected volatility changes is especially useful in certain circumstances, such as pricing employee options at early-stage companies. Such companies may expect lower volatility in their stock prices in the future as their businesses mature. This assumption can be factored into a lattice model, enabling more accurate option pricing than the Black-Scholes model, which inputs the same level of volatility over the life of the option.

Ratio Call Write

An option strategy in which an investor owns shares in the underlying stock and writes more at-the-money call options than the amount of underlying shares owned. The goal of a ratio call write is to capture the premiums received by the option sale. The call writer hopes that there is little volatility in the underlying stock over the same period.. I: In ratio call writing, the ratio represents the amount of options sold for every 100 shares owned in the underlying stock. For example, a 3:1 ratio call write implies writing three call option contracts (a total of 300 call options) and being long one hundred shares of the asset. The payoff from holding the asset and writing the calls resembles a reverse straddle. The profit range for ratio call writes is often very narrow. A large drop in price may end up costing the trader a considerable sum of money. If the price of the underyling shares increases too much, the trader will lose. There is no limit to the potential downside with an increasing underlying price.

Ladder Option

An option that locks-in gains once the underlying reaches predetermined price levels or "rungs," guaranteeing some profit even if the underlying security falls back below these levels before the option expires. I: For example, consider a ladder call option with an underlying price of 50, with a strike price of 55 and rungs at 60, 65 and 70. If the underlying price reached 62, the profit would be locked-in to be at least 5 (60-55); however, if the underlying reached 71, then the profit would be locked-in to being at least 15 (70-55), even if the underlying falls below these levels before the expiration date.

Knock-Out Option

An option with a built in mechanism to expire worthless, should a specified price level be exceeded. A knock-out option sets a cap to the level an option can reach, in favor of the holder. As knock-out options limit the profit potential for the option buyer, they can be purchased for a smaller premium than an equivalent option without a knock-out stipulation. I: For example, an option writer may write a call option on a $40 stock, with a strike price of $50 and a knock out level of $60. This option only allows the option holder to profit up to $60, at which point the option will expire worthless, thus limiting the loss potential for the option writer. Knock-out option are considered to be exotic options and are primarily used for commodities and currency options.

Land Lease Option

An option within a lease contract that grants the lessee the right to extend the period of the lease beyond the original length of time. Usually, the lessee is required to pay a premium for the option, such as a small amount of money in each year of the original lease. I: Like all options contracts, the land lease option allows its holder to act on favorable future market conditions. The lessee may want an option for many reasons. If the future market value of the land is uncertain, an option will allow the lessee to extend a relatively cheap lease in a rising price environment. For corporations, lease options allow them to reevaluate operations based on leased land in the future, before locking themselves into very long-term contracts.

Naked Writer

An options seller who does not own the underlying security for the options contract he or she is offering. Options are contracts that give the buyer the right but not the obligation to buy (call) or sell (put) shares at a particular price and future date. Since a naked writer does not hold a position in the underlying security represented in the options contract, the investor is exposed to more risk. Also called uncovered writer or uncovered options writer. I: Naked writers are exposed to additional risk, since they hold no position with which to hedge against the adverse movement of the underlying security's price. If the options contract is exercised, the naked writer would be forced to buy or sell a certain number of shares at a potentially undesirable price. Naked writers try to profit by receiving premiums for writing the contracts without the need to purchase share lots.

Odd Lot

An order amount for a security that is less than the normal unit of trading for that particular asset. Odd lots are considered to be anything less than the standard 100 shares for stocks. Trading commissions for odd lots are generally higher on a percentage basis than those for standard lots, since most brokerage firms have a fixed minimum commission level for undertaking such transactions. I: Odd lots may inadvertently arise in an investor's portfolio through reverse splits or dividend reinvestment plans. For example, a 1-for-8 reverse split of a security, of which the investor holds 200 shares, will result in a post-split amount of 25 shares. While trading commissions for odd lots may still be higher than for standard lots on a percentage basis, the popularity of online trading platforms and the consequent plunge in brokerage commissions means that it is no longer as difficult or expensive for investors to dispose of odd lots as it used to be in the past.

Backorder

An order for a good or service that cannot be filled at the current time due to a lack of available supply. The higher the number of items backordered, the higher the demand for the item. I: Backorders are an important factor in inventory management analysis. If a company consistently sees items in backorder then this could be taken as a signal that it is running too lean - and that it is losing out on business by not providing the products demanded by its customers.

Quick Ratio

An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows: Quick ratio = (current assets - inventories) / current liabilities, or = (cash and equivalents + marketable securities + accounts receivable) / current liabilities The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company's liquidity position. Also known as the "acid-test ratio" or "quick assets ratio." I: For example, consider a firm with the following current assets on its balance sheet: Cash $5 million, marketable securities $10 million, accounts receivable $15 million, inventories $20 million. This is offset by current liabilities of $20 million. The quick ratio in this case is 1.5 and the current ratio is 2.5. The quick ratio is more conservative than the current ratio because it excludes inventories from current assets. The ratio derives its name presumably from the fact that assets such as cash and marketable securities are quick sources of cash. Inventories generally take time to be converted into cash, and if they have to be sold quickly, the company may have to accept a lower price than book value of these inventories. As a result, they are justifiably excluded from assets that are ready sources of immediate cash. Whether "accounts receivable" is a source of ready cash is debatable, however, and depends on the credit terms that the company extends to its customers. A firm that gives its customers only 30 days to pay will obviously be in a better liquidity position than one that gives them 90 days. But the liquidity position also depends on the credit terms the company has negotiated from its suppliers. For example, if a firm gives its customers 90 days to pay, but has 120 days to pay its suppliers, its liquidity position may be reasonable. The other issue with including accounts receivable as a source of quick cash is that unlike cash and marketable securities - which can typically be converted into cash at the full value shown on the balance sheet - the total accounts receivable amount actually received may be slightly below book value because of discounts for early payment and credit losses.

Nasdaq-100 After Hours Indicator

An indicator of post-market sentiment and trading activity, calculated by measuring the after-hours price levels of stocks within the Nasdaq 100 and using the same methodology as that used to create the Nasdaq 100 during regular trading sessions. Because some stocks may not be trading in the after-hours session, their prices will remain at the daily close when calculating the Nasdaq 100 after-hours indicator. I: Indicators of after-hours activity can be hard to come by and decipher, but in recent years the sheer rise in volume has made evaluating after-hours trading easier. For investors looking to place trades in the after hours markets, it is still always advisable to use limit orders, as trading levels are often thin in specific stocks. Typical after-hours trading sessions run from 4pml 6:30pm Eastern Standard Time for the Nasdaq 100.

Gift In Trust

An indirect bequest of assets to a beneficiary by means of a special legal and fiduciary arrangement. The purpose of a gift in trust is to avoid taxes on gifts that exceed the annual gift tax exclusion amount. Gift taxes are almost always paid by the gift giver and if they exceed $13,000 in one year the excess is taxable. I: Gift givers can give gifts in excess of the annual exclusion without paying taxes by establishing a special type of trust, such as a Crummey trust. A gift to a Crummey trust allows the beneficiary to withdraw the gift for a limited time, which makes the gift a present interest and makes it eligible for the gift tax exclusion. If the gift did not have these limited-time withdrawal rights, it would be considered a future interest and it would be subject to gift taxes. That being said, it is generally understood that the beneficiary will not actually withdraw the funds during the withdrawal period. Gifts in trust are commonly used by parents or grandparents who want to establish a trust fund for their children or grandchildren.

Killer Bees

An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an attempted hostile takeover from occurring. Companies use a variety of anti-takeover measures, sometimes referred to as shark repellents, to discourage unfriendly takeover attempts from happening. Once an unfriendly takeover attempt has been initiated, the company can use other anti-takeover measures to deter or prevent the takeover. The use of killer bees is one anti-takeover measure that a company can employ. Other tactics include the white knight - a more friendly acquiring company willing to enter the bidding war; the standstill agreement - a negotiated agreement that limits the takeover company's holding in the target company; the Pacman defense - the target company makes a takeover bid for the stock of the bidding company; and litigation - to delay a takeover attempt. I: The merger and acquisition boom of the late 1980s forced companies to develop strategies to thwart would-be takeovers. Killer bees, named for the insect that aggressively swarms and overpowers its victims with hundreds of stings, act aggressively on behalf of a firm that is under the threat of an unfriendly or hostile takeover. The killer bee may employ tactics such as making the target company less attractive or more difficult to acquire.

Raider

An individual or organization that tries to take over a company by initiating a hostile takeover bid. Raiders look for companies with undervalued assets and then attempt a hostile takeover by purchasing enough shares to gain a controlling interest. The raider's objective is usually to generate huge profits in a reasonably short span of time, by breaking up the target company and selling off its assets, rather than attempting to turn its operations around and unlock value over the long haul. Modern-day raiders prefer to go by the moniker "activist shareholders." I: Raiders need to have deep pockets and plenty of financial support in order to embark upon their raids. They must also have a well-defined exit strategy to realize profits through asset sales. Companies with substantially undervalued assets on their books and no measures in place to protect against hostile takeovers, are vulnerable to raider attacks. For example, consider a company with a market value of $100 million, no debt and $25 million in cash, giving it an enterprise value of $75 million. If the market value of the company's tangible assets is about $200 million, a raider may be tempted to mount a hostile bid in order to capture the huge gains that could be realized by selling its assets.

Paper Millionaire

An individual who has achieved a high net worth as a result of the large total market value of the assets he or she owns. This phenomenon usually occurs when investors buy marketable securities that are later bid up to much higher prices on the open market. While this creates large amounts of "paper profit", the paper millionaire's riches usually aren't safe until these holdings are liquidated. I: It is important to note that paper millionaires are not the same as true millionaires, which generally refers to people who have more than $1 million in cash in the bank. For example, consider a hypothetical investor during the 1990s technology bubble who invested in startup dotcom companies. Assuming that none of this investor's shares is sold, he or she would have become a paper millionaire, as recorded on the brokerage statement, despite having very little cash in the bank. However, once the dotcom bubble burst, technology stocks saw their share prices collapse, and former paper millionaires once again found themselves poor, owning only pieces of paper (i.e. share certificates) that were no longer worth the millions of dollars at which the market had previously valued them.

Qualified Appraiser

An individual who has earned an appraisal designation from a professional appraiser organization, or has met minimum education and experience requirements in the subject matter in which he or she issues appraisals. A qualified appraiser performs appraisals on a regular basis, and receives compensation for his or her work. The professional must not be prohibited from practicing before the Internal Revenue Service (IRS). I: Qualified appraisers are required by the IRS to appraise any piece of property valued at $5,000 or more on which a taxpayer requests a tax deduction. Because qualified appraisers are more experienced and knowledgeable about a particular type of property, the IRS uses them in order to ensure that the taxpayer is not overstating the value of the donated property. A qualified appraiser must perform an appraisal based on generally accepted appraisal standards.

Cambrist

An individual who is deemed to have above-average knowledge of the foreign exchange market. A cambrist can relate to anyone who deals with currencies and foreign exchange on a regular basis and is adept at recognizing factors and situations that affect foreign exchange. Foreign exchange traders often come to mind when discussing cambrists. I: A cambrist will typically have a great understanding of foreign exchange trade, macroeconomics, political events and technical analysis techniques as they relate to foreign exchange and currencies. As previously mentioned, forex traders often possess all of these skills, as do some economists and certain types of bankers.

Qualified Eligible Participant - QEP

An individual who meets requirements to trade in different investment funds, such as futures and hedge funds. The rules for defining a QEP are outlined under Rule 4.7 of the Commodity and Exchange Act. I: Some of the conditions that a person must meet in order to be classified as a QEP are:- Must own securities and other investments with a market value of at least $2,000,000.- Has or has had an account open with a futures commisssion merchant at any time during the preceding six month period (along with $200,000 or more initial margin and option premiums for commodity interest transactions).- Has a combined portfolio of the investments specified in the two requirements above.

Oil Refinery

An industrial plant that refines crude oil into petroleum products such as diesel, gasoline and heating oils. Oil refineries essentially serve as the second stage in the production process following the actual extraction by oil rigs. The first step in the refining process is distillation where crude oil is heated at extreme temperatures to separate the different hydrocarbons. I: The crude oil components, once separated can be sold to different industries for a broad range of purposes. Lubricants can be sold to industrial plants immediately after distillation, but other products require more refining before reaching the final user. Major refineries have the capacity to process hundreds of thousand barrels of crude oil a day.

National Association Of Federal Credit Unions - NAFCU

An industry trade group founded in 1967 that represents federal credit unions. Its membership is made up of both large and small credit unions, including about 80% of the 100 largest credit unions. Its activities include representing, informing, educating and assisting its members regarding industry issues. Headquartered in Arlington, Virginia, one of its main purposes is to influence the laws and regulations affecting federal credit unions. I: Federal credit unions are similar to banks, but are owned by their members and are organized under federal rather than state law. They are regulated by the National Credit Union Administration, and members' deposits are protected by the National Credit Union Share Insurance Fund, which is similar to FDIC insurance.

Real Gross Domestic Product (GDP)

An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. Often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP". I: Unlike nominal GDP, real GDP can account for changes in the price level, and provide a more accurate figure.Let's consider an example. Say in 2004, nominal GDP is $200 billion. However, due to an increase in the level of prices from 2000 (the base year) to 2004, real GDP is actually $170 billion. The lower real GDP reflects the price changes while nominal does not.

Paris Club

An informal group of creditor nations whose objective is to find workable solutions to payment problems faced by debtor nations. The Paris Club has 19 permanent members, including most of the western European and Scandinavian nations, the United States of America, the United Kingdom and Japan. The Paris Club stresses the informal nature of its existence and deems itself a "non-institution." As an informal group, it has no official statutes and no formal inception date, although its first meeting with a debtor nation was in 1956, with Argentina. I: The members of the Paris Club meet each month in the French capital, except for the months of February and August. These monthly meetings may also include negotiations with one or more debtor countries that have met the Club's pre-conditions for debt negotiation. The main conditions a debtor nation has to meet are that it should have a demonstrated need for debt relief and should be committed to implementing economic reform, which in effect means that it must already have a current program with the International Monetary Fund (IMF) supported by a conditional arrangement. The Paris Club has five key functioning principles: case by case, consensus, conditionality, solidarity and comparability of treatment.

Bag Holder

An informal investment term used to describe an investor who holds a position in a stock which decreases in value until it is worthless. Typically, the bag holder will hold the position for an extended period of time in which most of the investment is lost. I: Symbolically, the investor is left holding a bag full of worthless material, representing worthless stock. The bag holder, typically, will retain an investment even though there is convincing evidence that the value will continue to drop.There are several reasons this might happen, such as neglecting an underperforming portfolio, an investor not wanting to admit a mistake, or just plain hope that the stock will recover. Setting limits on losses and having a good exit strategy are ways to avoid this situation.

Back-Of-The-Envelope Calculation

An informal mathematical computation, often performed on a scrap of paper such as an envelope. A back-of-the-envelope calculation uses estimated and/or rounded numbers to quickly develop a ballpark figure. The result should be more accurate than a guess, but will be less accurate than a formal calculation performed using precise numbers and a spreadsheet or calculator. I: Back-of-the-envelope calculations might be used to determine whether further research and more detailed calculations are warranted. For example, an investor might look at a company's annual report and do a back-of-the-envelope calculation to get its price-to-earnings ratio. If it is low enough to imply value, the investor can do a proper calculation which might include factoring in the weighted average shares outstanding for the year. If the quick estimate gave a high P/E ratio, time could be saved.

T-Account

An informal term for a set of financial records that use double-entry bookkeeping. The term T-account describes the appearance of the bookkeeping entries. If a large letter T were drawn on the page, the account title would appear just above the T, debits would be listed under the top line of the T on the left side and the credits would be listed under the top line of the T on the right side, with the middle line separating the debits from the credits. I: In double-entry bookkeeping, a widespread accounting method, all financial transactions are considered to affect at least two of a company's accounts. Because of this, the credits and debits on each side of the T account must match. If a bookstore sold $20 worth of books, it might debit its cash account $20 and credit its books or inventory account $20. This double-entry system shows that the company now has $20 more in cash and a corresponding $20 less in books.

Qualified Domestic Institutional Investor - QDII

An institutional investor that has met certain qualifications to invest in securities outside its home country. The most popular QDII program comes from the People's Republic of China, where the main regulatory body (the China Securities Regulatory Commission) may grant a limited avenue for institutional investors such as banks, funds and investment companies to invest in foreign-based securities. The overall restrictions on ownership are in place for several reasons, including currency conversion concerns in nations where the currency is not free-floating. I: QDII programs are used in places where the capital markets are not yet completely open to all investors. For example, any institutional investor in China that obtains approval to be a QDII may invest up to 50% of net assets into allowable foreign securities, so long as not more than 5% is invested in any one security. Only certain foreign markets are eligible for investment, including Britain and Hong Kong.The QDII program in China was set up partly to provide the growing number of domestic investors with a place to park their funds; only a few hundred local stocks are listed on the Shanghai and Shenzhen stock exchanges.

Participating Policy

An insurance contract that pays dividends to the policy holder. Dividends are generated from the profits of the insurance company that sold the policy and are typically paid out on an annual basis over the life of the policy. Most policies also include a final or terminal payment that is paid out to the holder when the contract matures. Some participating policies may include a guaranteed dividend amount, which is determined at the onset of the policy.Also referred to as a "with-profits policy". I: Participating policies are typically life insurance contracts such as a whole life participating policy. The dividend received by the policy holder can be used in several different ways. First, the policy holder can apply the dividend proceeds to the insurance policy's premium payment. Second, the dividend can be kept with the insurance as a deposit in order to generate interest much like a savings account at a bank. Finally, the policy holder can simply receive the dividend payment in cash, much like a dividend payment on a stock.

Joint Life With Last Survivor Annuity

An insurance product that, when annuitized, makes payments to the annuitant, the annuitant and his/her spouse, or the annuitant and another beneficial party until both the annuitant and his/her spouse have passed away. These annuities are not term certain, so they continue paying out to the annuitant, and whoever he or she designates to receive payments, until the death of the annuitant and the designated third party. The annuitant may also designate a beneficiary, who can, but doesn't have to be the same person as the designated third party. I: These insurance products are an excellent way for an annuitant to provide for him/herself and his/her spouse until the annuitant's death and to provide for the spouse and the beneficiary following the annuitant's death. Annuitants may elect to have their spouse and beneficiary receive reduced payments after their death, so as to maximize the amount of money that will be transferred to the death benefit of the policy.

Knowledge Capital

An intangible asset that comprises the information and skills of a company's employees, their experience with business processes, group work and on-the-job learning. Knowledge capital is not like the physical factors of production - land, labor and capital - in that it is based on skills that employees share with each other in order to improve efficiencies, rather than on physical items. Having employees with skills and access to knowledge capital puts a company at a comparative advantage to its competitors. I: Businesses develop knowledge capital by encouraging employees to share information through white papers, seminars and person-to-person communication. Knowledge capital is important because it reduces the odds that a company will have to "reinvent the wheel" each time a particular process is undertaken because its employees have access to documents detailing the necessary steps, and personnel who have undertaken similar activities.

Manufacturing Resource Planning - MRP II

An integrated information system used by businesses. Manufacturing Resource Planning (MRP II) evolved from early Materials Requirement Planning (MRP) systems by including the integration of additional data, such as employee and financial needs. The system is designed to centralize, integrate and process information for effective decision making in scheduling, design engineering, inventory management and cost control in manufacturing. I: MRP II is a computer-based system that can create detail production schedules using realtime data to coordinate the arrival of component materials with machine and labor availability. MRP II is used widely by itself, but also as a module of more extensive enterprise resource planning (ERP) systems.

Federal Financial Institutions Examination Council - FFIEC

An interagency body of the U.S. government made up of several U.S. financial regulatory agencies. The FFIEC prescribes uniform principles, standards, and report forms for the federal inspection of financial institutions. The FFIEC was created in 1979, and is meant to promote consistent and uniform standards for financial institutions. I: The FFIEC is made up of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). In 1980, the council was given the responsibility of facilitating public access to mortgage information from financial institutions in accordance with the Home Mortgage Disclosure Act of 1975.

Hara-Kiri Swap

An interest rate or cross-currency swap devoid of any profit margin for the originator. The term gets its name from Japanese banks' and securities houses' 1980s strategy of offerings very low rates in order to obtain business. In Japan, hara-kiri is a form of slow ritual suicide; the swaps were dubbed hara-kiri because they turned out to be a form of financial suicide for the institutions that offered them. I: Although hara-kiri swaps provide no intrinsic benefits to the parties that offer them, there are a variety of extrinsic benefits to consider. For example, the practice often involves USD/JPY cross-currency swaps, which have typically been attached to new issues with the aim of obtaining a leading underwriting position.

Real Interest Rate

An interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower, and the real yield to the lender. The real interest rate of an investment is calculated as the amount by which the nominal interest rate is higher than the inflation rate. Real Interest Rate = Nominal Interest Rate - Inflation (Expected or Actual) I: The real interest rate is the growth rate of purchasing power derived from an investment. By adjusting the nominal interest rate to compensate for inflation, you are keeping the purchasing power of a given level of capital constant over time. For example, if you are earning 4% interest per year on the savings in your bank account, and inflation is currently 3% per year, then the real interest rate you are receiving is 1% (4% - 3% = 1%). The real value of your savings will only increase by 1% per year, when purchasing power is taken into consideration.

Implied Rate

An interest rate that is determined by the difference between the spot rate and the forward/futures rate. The degree of relative costliness of a future rate can be assessed by comparing the implied rate with the spot rate.Calculated as: I: For example, if the present spot rate of LIBOR is 5% and the forward rate for LIBOR is 6%, the implied rate is 1%. This situation merits the impression that the future rate for borrowing will be more expensive.

Kyoto Protocol

An international agreement that aims to reduce carbon dioxide emissions and the presence of greenhouse gases. Countries that ratify the Kyoto Protocol are assigned maximum carbon emission levels and can participate in carbon credit trading. Emitting more than the assigned limit will result in a penalty for the violating country in the form of a lower emission limit in the following period. I: The Kyoto Protocol separates countries into two groups. Annex I includes developed nations, while Non-Annex I refers to developing countries. Emission limitations are only placed on Annex I countries. Non-Annex I nations participate by investing in projects that lower emissions in their own countries. For these projects, they earn carbon credits. These credits can be traded or sold to Annex I countries, which allow them a higher level of maximum carbon emissions for that period.

CAMELS Rating System

An international bank-rating system where bank supervisory authorities rate institutions according to six factors. The six factors are represented by the acronym "CAMELS." I: The six factors examined are as follows: C - Capital adequacyA - Asset qualityM - Management qualityE - EarningsL - LiquidityS - Sensitivity to Market Risk Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for each factor. If a bank has an average score less than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.

HEC International Business School

An internationally-acclaimed business school. The HEC School boasts over 100 full-time professors and state-of-the-art facilities. The school offers both MBA and PhD level programs in business and specialized fields. I: The HEC International Business School has been in operation for over 125 years and is located in Paris, France, in the middle of the business community. It now has satellite institutions around the globe in Eastern Europe and Latin America.

HedgeStreet

An internet-based, government-regulated market that allows traders to perform hedging activities or speculate on specific economic events. Binaries and futures contracts are provided on different markets including commodities, currencies, employment, inflation and other economic indicators. I: HedgeStreet was developed to give the average investor the ability to profit from the outcomes of certain economic events. HedgeStreet benefits small investors by having small contract sizes at low prices. HedgeStreet is regulated by the Commodity Futures Trading Commission.

Hard-To-Borrow List

An inventory used by brokerages to indicate securities that are unavailable for borrowing for short sale transactions. A brokerage firm's hard-to-borrow list provides an up-to-date catalog of securities that cannot be shorted. The security may be on the hard-to-borrow list because it is in short supply or because of its volatility. In order to enter a short sale, a brokerage client must first borrow the shares from the broker. To provide the shares, the broker can use its own inventory or borrow from the margin account of another client or from another brokerage firm. I: Investors who enter short sale transactions attempt to capture profits in a declining market. For example, an investor may think that stock ABC will drop in price in the future. The investor can short stock ABC and, if the price drops as he or she anticipated, buy to cover for a profit. If the stock rises, however, the investor will lose money. The hard-to-borrow list is updated on a daily basis. In order to enter a short transaction, the broker must be able to provide, or locate, the shares to loan to the brokerage client making the short sale. Regulation SHO, implemented on Jan. 3, 2005, has a "ocate"condition that requires broker to have a reasonable belief that the equity to be shorted can be borrowed and delivered to a short seller. The regulation is intended to prevent naked short selling practices. While a brokerage firm's hard-to-borrow list is typically an internal list (and one that is not available to clients), the firm' clients generally have access to the easy-to-borrow list. Brokerage clients may have to pay hard-to-borrow fees on certain short sales. The hard-to-borrow list is the opposite of the easy-to-borrow list which is an inventory of securities that are available for short sale transactions. In general, an investor can assume that a security that is not included on the hard-to-borrow list will be available for the purposes of short selling.

Economic Order Quantity - EOQ

An inventory-related equation that determines the optimum order quantity that a company should hold in its inventory given a set cost of production, demand rate and other variables. This is done to minimize variable inventory costs. The full equation is as follows: where : S = Setup costs D = Demand rate P = Production cost I = Interest rate (considered an opportunity cost, so the risk-free rate can be used) I: The EOQ formula can be modified to determine production levels or order interval lengths, and is used by large corporations around the world, especially those with large supply chains and high variable costs per unit of production. Despite the equation's relative simplicity by today's standards, it is still a core algorithm in the software packages that are sold to the largest companies in the world.

90/10 Strategy

An investing strategy that involves deploying 90% of one's investment capital in interest-bearing instruments that have a lower degree of risk, and the balance 10% in high-risk investments. This is a relatively conservative investment strategy that aims to generate higher yields on the overall portfolio. Potential losses will typically be limited to the 10% that is invested in the high-risk investments, depending on the quality of bonds purchased. I: A common application of the 90/10 strategy involves the use of short-term Treasury Bills for the fixed-income component (90% of the portfolio), with the balance 10% used for higher risk securities such as equity or index options or warrants. For example, assume an investor with a $100,000 portfolio uses the 90/10 strategy. He or she invests $90,000 in one-year Treasury Bills that yield 4% per annum, with the balance $10,000 deployed in equity in the S&P 500. If the S&P 500 returns 10% at the end of one year, the overall return on the portfolio would be 4.6% (0.90 x 4% + 0.10 x 10%). However, if the S&P 500 declines by 10%, the overall return on the portfolio after one year would be 2.6% (0.90 x 4% + 0.10 x -10%).

Managed Account

An investment account that is owned by an individual investor and looked after by a hired professional money manager. In contrast to mutual funds (which are professionally managed on behalf of many mutual-fund holders), managed accounts are personalized investment portfolios tailored to the specific needs of the account holder. I: For example, if an investor buys ABC Mutual Funds, which invests in Company 1 and Company 2, and that investor wants to reduce the weighting of Company 1 in the fund, the fund company wouldn't allow it since the money manager looking after the fund cannot make investment decisions based on one investor's preferences. On the other hand, with managed accounts, investors are given the freedom and ability to do what they want with the investments within the portfolio, and any decision made by the money manager is based on the individual investor's goals and objectives. Thus, if an investor holds a managed account and wants to reduce holdings in Company 1, he or she could do so.

Abnormal Earnings Valuation Model

A method for determining a company's worth that is based on book value and earnings. Also known as the residual income model, it looks at whether management's decisions cause a company to perform better or worse than anticipated. The model says that investors should pay more than book value if earnings are higher than expected and less than book value if earnings are lower than expected I: There are numerous other methods for valuing companies, including P/E ratio, price-to-book value ratio, return on equity, return on capital employed and discounted cash flow. Investors and analysts should not place too much emphasis on any one of these (or a number of other) measures of value because no single method can provide a complete picture of a company's financial performance.

Federal Covered Advisor

An investment advisor in the United States that manages more than $25 million in assets for other investors or who is providing services in 30 or more states. Federal covered advisors are required to be registered and file annually with the U.S. Securities and Exchange Commission (SEC). In addition, federal covered advisors must meet specific regulations set forth by individual states. Also called federal covered investment advisor. I: Federal covered advisors are required to file a notice with the state in which they plan to conduct investment advisor business. A state covered investment advisor is an investment advisory firm that has assets under management of less than $25 million. States require federal covered advisors to file a notice if the firm has six or more clients who are residents of that state, or if the firm is operating a place of business in that state. The Investment Advisors Supervision Coordination Act, which became effective on July 8, 1997, was established to reallocate federal and state regulation of investment advisors. The Act was designed to make states responsible for smaller advisors and the SEC responsible for larger advisors.

Fallen Angel

1. A bond that was once investment grade but has since been reduced to junk bond status. 2. A stock that has fallen substantially from its all time highs. I: There is a fine line between fallen angels that are value stocks and those that are headed straight towards bankruptcy.

Healthcare Sector

A category of stocks relating to medical and healthcare goods or services. The healthcare sector includes hospital management firms, health maintenance organizations (HMOs), biotechnology and a variety of medical products. I: Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness. Having a consistent demand for goods and services makes this sector less sensitive to business cycle fluctuations.

5 By 5 Power In Trust

A common clause included in many trusts allowing for beneficiary withdrawals from the trust. Specifically, '5 by 5 Power' or the '5 by 5 clause', gives the beneficiary power to withdraw the greater of: a) $5,000 or b) 5% of the trust's fairmarket value from the trust each year. I: For income tax purposes, should the beneficiary not exercise the '5 by 5 Powers', over time the beneficiary could become the owner of the trust and become liable for taxes on the trust's capital gains, deductions and income.

Learning Curve

A concept that describes how new skills or knowledge can be quickly acquired initially, but subsequent learning becomes much slower. At first, a minimal investment of resources yields significant results, but the payback from continuing effort is smaller. The learning curve was first described by psychologist Hermann Ebbinghaus in 1885 and elaborated by psychologist Arthur Bills in 1934. I: In a visual representation of a learning curve, a steeper curve indicates faster, easier learning and a flatter curve indicates slower, more difficult learning. The concept of a learning curve is important to companies in hiring and training new employees and managers, in working to increase production efficiency, and in budgeting and forecasting costs.

Backorder Costs

A cost incurred by a business when it is unable to fill an order and must complete it later. A backorder cost can be discrete, as in the cost to replace a specific piece of inventory, or intangible, such as the effects of poor customer service. Backorder costs are usually computed and displayed on a per-unit basis. I: Backorder costs are important for companies to track, as the relationship between holding costs of inventory and backorder costs will determine whether a company should over- or under-produce. If the carrying cost of inventory is less than backorder costs (this is true in most cases), the company should over-produce and keep an inventory.

National Association of Realtors (NAR)

A national organization of real estate brokers. The National Association of Realtors was created to promote the real estate profession and foster professional behavior in its members. The association has its own code of ethics that it requires its members to adhere to. I: The National Association of Real Estate Brokers has over 600,000 members nationwide. It has 50 state associations as well as a number of affiliate organizations.

National Association Of Insurance And Financial Advisors - NAIFA

A nonprofit group that works on behalf of its members to promote a favorable regulative environment, provide professional education services and ensure ethical professional conduct for insurance and financial advisors. The NAIFA also provides its members with sales training, networking facilities and other tools to help them succeed and build their practices. In addition, they lobby on Capitol Hill to promote favorable legislation for the insurance and financial advisory industry. I: The NAIFA was originally founded in 1890 as the National Association of Life Underwriters. The organization believes that life insurance and other risk mitigation practices should be at the core of a solid financial plan. NAIFA has many endorsements from large insurance and financial corporations, who encourage their employees to join a local NAIFA chapter.

Hammer

A price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price. This pattern forms a hammer-shaped candlestick. I: A hammer occurs after a security has been declining, possibly suggesting the market is attempting to determine a bottom.The signal does not mean bullish investors have taken full control of a security, it simply indicates that the bulls are strengthening.

A Ton Of Money

A slang term used to describe a significant amount of money. The amount implied typically depends on the person, company or situation. I: We may all have a different idea of what constitutes a "ton of money", but according to the Bureau of Engraving and Printing, a ton of $1 bills amounts to $908,000 - nearly $1 million!If you're talking about a ton of coins, then it's a different story - a ton of quarters is worth $40,000, and one ton of pennies (363,000 pennies to be exact) is worth $3,630.

Lanchester Strategy

A war strategy that has been successfully applied in the business context to entering new markets. The strategy is named after British engineer Frederick W. Lanchester, who published the laws governing the war strategy in a landmark publication titled "Aviation in Warfare: The Dawn of the Fourth Arm" in 1916. In business, the strategy is typically used to choose market types for new and existing businesses, in an attempt to find the easiest markets to penetrate. I: Lanchester's laws were implemented in successful war strategies by the Allies in World War II. After World War II, renowned quality expert Edward Deming applied the laws into operations research. The Lanchester Strategy was introduced in Japan in the 1950s and popularized by Japanese consultant Nobuo Taoka in the 1960s. The Lanchester Strategy was increasingly used to capture market share, with Canon being one of the first companies to utilize the strategy globally during its fierce battle with Xerox in the photocopier market in the 1970s and 1980s.

Omnibus Account

An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined in this type of account, allowing for easier management by the futures merchant. I: This protects the identities of the individual account holders, because the futures merchant transacts for them.

Japan Credit Rating Agency - JCR

One of the key credit rating agencies in Japan. JCR provides a number of services, including rating debt securities of all types, as well as financial market and industry research. JCR also offers political and economic research, and various publication and informational services for its data. I: JCR was founded in 1985 with $584 million of capital. The types of debt that it rates include both long- and short-term, as well as medium-term notes and asset-backed securities. JCR provides ratings and research on firms in the financial, medical and educational sectors.

Implied Volatility - IV

The estimated volatility of a security's price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets. Implied volatility is sometimes referred to as "vols." I: In addition to known factors such as market price, interest rate, expiration date, and strike price, implied volatility is used in calculating an option's premium. IV can be derived from a model such as the Black-Scholes Model.

Absolute Rate

The fixed portion of an interest-rate swap, expressed as a percentage rather than as a premium or a discount to a reference rate. I: The absolute rate is a combination of the reference rate and the premium or discounted fixed percentage. For example, if the LIBOR is 3% and the fixed interest portion of the swap is at a 7% premium, the absolute rate is 10%. It is sometimes also referred to as an absolute swap yield.

Natural Unemployment

The lowest rate of unemployment that an economy can sustain over the long run. Keynesians believe that a government can lower the rate of unemployment (i.e. employ more people) if it were willing to accept a higher level of inflation (the idea behind the Phillips Curve). However, critics of this say that the effect is temporary and that unemployment would bounce back up but inflation would stay high. Thus, the natural, or equilibrium, rate is the lowest level of unemployment at which inflation remains stable. Also known as the "non-accelerating inflation rate of unemployment" (NAIRU). I: When the economy is said to be at full employment, it is at its natural rate of unemployment. Economists debate how the natural rate might change. For example, some economists think that increasing labor-market flexibility will reduce the natural rate. Other economists dispute the existence of a natural rate altogether!

On-The-Run Treasuries

The most recently issued U.S. Treasury bond or note of a particular maturity. "On-the-run" Treasuries are the opposite of "off-the-run" Treasuries, which refer to Treasury securities that have been issued before the most recent issue and are still outstanding. Media mentions about Treasury yields and prices generally reference "on-the-run" Treasuries. I: The on-the-run bond or note is the most frequently traded Treasury security of its maturity. Because on-the-run issues are the most liquid, they typically trade at a slight premium and therefore yield a little less than their off-the-run counterparts. Some traders successfully exploit this price differential through an arbitrage strategy that involves selling (or going short) on-the-run Treasuries and buying off-the-run Treasuries.

Dark Pool Liquidity

The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is represented by block trades facilitated away from the central exchanges.Also referred to as the "upstairs market," "dark liquidity" or "dark pool." I: The dark pool gets its name because details of these trades are concealed from the public, clouding the transactions like murky water. Some traders that use a strategy based on liquidity feel that dark pool liquidity should be publicized, in order to make trading more "fair" for all parties involved.

Accelerated Option

This term refers to an option in an insurance contract, usually in the form of a rider, that allows for accelerated benefits or partial benefits sooner than they would otherwise be payable. Alternatively, in life insurance contracts, an accelerated option can refer to the option that allows the policy holder to apply the accumulated cash value to pay off the policy. I: One form of an accelerated option is the accelerated death benefit rider in a whole life insurance policy. The terms and conditions of receiving the benefits are outlined in advance, and almost always include a provision for benefits if the policyholder becomes terminally ill. Another form is the option to use the cash value of the policy to prepay the remaining balance of premiums due in a lump sum payment.

Bag Man

Any person in charge of organizing, collecting and transporting money, generally in connection with illegal or illicit activities. A bag man is someone who collects and delivers money on behalf of a boss or organization. Nowadays, bag man can be used pejoratively to describe an individual who is in charge of collecting and delivering contributions to political parties or funds gathered for political purposes. I: The term was originally used to describe Mafia members who collected money for the Mafia bosses, and was later used to describe the corrupt practice in which police officers would pick up and deliver bribes from local Mafia to the precinct police captain. A bag man typically receives a percentage of the collected and delivered money in exchange for his or her services.

Joint Owned Property

Any property held in the name of two or more parties. The two parties could be a husband and wife, business partners or any other combination of people who have a reason to own property together. Property that is jointly owned may be held in one of several legal forms including joint tenancy, tenancy by the entirety, community property or in a trust. I: Choosing the best form of ownership for joint property can greatly simplify things if one of the owners die. For example, joint tenancy is commonly used to avoid probate, a lengthy, costly and public process of distributing the deceased's assets in court. To prevent a conflict, if one party wants to sell their interest in the property at some point in the future, the owners should sign a buyout agreement, ideally when the property is first taken into joint ownership.

Real Estate Short Sale

Any sale of real estate that generates proceeds that are less than the amount owed on the property. A real estate short sale occurs when the lender and borrower decide that selling the property and absorbing a moderate loss is preferable to having the borrower default on the loan. It is therefore an alternative to foreclosure. I: Real estate short sales can be done only by mutual consent of borrower and lender. Both parties can benefit greatly from this type of transaction. Borrowers can avoid having a foreclosure appear on their credit report, while lenders can avoid substantial fees associated with foreclosure.

Quick Assets

Anything having commercial or exchange value that can easily be converted into cash, or that is already in cash form. Quick assets are the highly liquid assets held by a company, including cash, marketable securities and accounts receivable. Quick assets are often calculated as current assets (cash + marketable securities + accounts receivable) minus inventories (since inventories are often a firm's least-liquid current assets). Quick assets are used by companies to calculate certain financial ratios that are used in decision making, including the quick ratio. I: The quick ratio (sometimes called the quick asset ratio or "acid test") is a financial ratio that divides a company's cash + marketable securities + accounts receivable by its current liabilities.By keeping inventories out of the equation, the quick ratio allows the company to focus on its quick assets - those that could be quickly converted to cash - and helps the company determine if it could meet its financial obligations if sales (and revenues) were to cease.The current ratio, on the other hand, is equal to current assets (including inventories and any assets that could be converted into cash within a "normal" 12-month operating period) divided by current liabilities.

Safe Asset

Assets which, in and of themselves, do not carry a high likelihood of lawsuit risk. Mere ownership of this type of asset does not expose the asset owner to a significant risk of litigation.Assets such as stocks, mutual funds, bonds, bank accounts and your personal residence are examples of safe assets. I: The distinction between safe assets and dangerous assets is particularly important in asset-protection planning. Mixing the two could cause contamination of the safe assets by being housed in an investment vehicle with dangerous assets. Safe assets, due to the relatively low degree of litigation risk involved with their ownership, can be owned together with other safe assets. However, safe assets are also more vulnerable to creditor seizure to satisfy a debt or judgment.

Baby Berkshire

Baby Berkshire refers to the 50:1 stock split after the market close on January 20th, 2010 by Berkshire Hathaway Class B shares. This split made the value of each share much smaller as far as price was concerned. At the market close, Berkshire Class B shares were trading at $3,476. The stock split came as a result of Berkshire's acquisition of Burlington Northern Santa Fe. I: Prior to the stock split, Berkshire Class B shares did not have enough trading volume to make them eligible for inclusion in the S&P 500 market index. However, lowering the market price through the stock split put the stock into a more conventional trading range, where it became much more frequently traded. Berkshire Class B shares were added to the S&P 500 on February 12th, 2010, taking the spot previously held by Burlington Northern Santa Fe.The nickname of Baby Berkshire follows the tradition of Baby Bells and Baby Bills.

Earnings Allowance

Calculation on the net funds available in a checking account and the credit amount can be used to offset all or a portion of monthly service charges. The rate for the earnings allowance is set at the bank's discretion. I: The earnings allowance, or ECR, is not an account by itself. The rate is variable as it is usually based on some percentage of the 13-week T-Bill rate.

Calendar Year Accounting Incurred Losses

Calendar year accounting incurred losses is a term used in the insurance industry to describe the losses incurred by an insurance company by the payment of claims, the re-evaluation of claims already in the company's books and any negative or positive changes in loss reserves in a particular calendar year. I: Loss reserves are the amount of money budgeted or set aside by the management of an insurance company, at the beginning of the year, for payment of old and new claims by the company.The insurance industry views the amounts paid out to claimants as losses because the money expended for claims is money that is going out of the company as opposed to remaining with it. So, at the end of every calendar year, insurance companies look at their reserves and calculate losses by subtracting the amounts paid for old and new claims, any changes in reserve levels made by management and any changes in claims already in the books that haven't been paid out yet.

Canadian Securities Institute - CSI

Canada's leading provider of professional credentials and compliance programs for the financial services industry. The Canadian Securities Institute was created in 1970 and has served an excess of 700,000 professionals over more than four decades. The non-profit Canadian Securities Institute was transformed into the for-profit CSI Global Solutions in 2003. CSI offers over 170 courses for the securities, wealth management, commercial banking and insurance industries. It is the sole provider of the well-recognized Canadian Securities Course, the basic requirement for qualification as a licensed securities dealer in Canada. I: Through its global partners, CSI also provides financial proficiency training in a number of regions across the world including China, Europe, the Middle East, the Caribbean and Central America. In November 2010, CSI was acquired by Moody's Corporation for C$155 million and commenced operating as a separate company within Moody's Analytics. Investment Industry Regulatory Organization of Canada (IIROC), Canada's stock exchanges and Canada's securities regulatory commissions all endorse the CSI.

Canadian Depository For Securities Limited - CDS

Canada's national securities depository, clearing and settlement hub. The Canadian Depository for Securities Limited, widely known by its acronym CDS, provides reliable and cost-effective depository, clearing and settlement services to participants in Canada's equity, fixed income and money markets. It was incorporated in June 1970, in response to rising costs for back-office functions and increased trading volumes in the Canadian capital market. CDS holds over $3.5 trillion on deposit, and handles more than 360 million domestic and cross-border securities trades annually. I: CDS's responsibilities include the safe custody and movement of securities, post-trade transactions processing, accurate record-keeping and the collection and distribution of securities entitlements such as dividends and interest payments. CDS is regulated by the securities commissions of Ontario and Quebec, and the Bank of Canada.

Cancel Former Order - CFO

An order from an investor to a broker, to cancel a previously placed order that has not yet been filled. Cancel former order (CFO) is used by an investor who has changed his or her mind about a securities transaction that has not yet been executed or filled, and wishes to change one or more of the order parameters, such as price or amount. By canceling the previous order, a CFO ensures that no order duplication takes place if the client generates a new order for the same security. I: It goes without saying that a CFO can only be used to replace unfilled orders; orders where a fill has been received are binding contracts and cannot be revoked. A CFO is often used in cases where market conditions prompt the investor to change the order parameters. For example, in a plunging market the investor may use a CFO to lower the price at which he or she wants to purchase a security. Conversely, if a stock is rising rapidly, the investor may change a limit order to a market order to ensure that an order fill is obtained. As an example, assume an investor wants to buy 100 shares of Widget Co, which is trading at $10.25, and places a limit order at $10.00. If Widget Co begins rising on news of a positive development and is now trading at $10.50, the investor may CFO his or her previous order and place a new market order, so as to buy 100 shares of Widget Co at the current market price.

Day Order

An order to buy or sell a security that automatically expires if not executed on the day the order was placed. A day order is an order that is good for that day only. If it is not filled it will be canceled, and it will not be filled if the limit or stop order price was not met during the trading session. It is one of several different order duration types that determine how long the order will be in the market before it is canceled. For example, a "good till canceled (GTC)" order will remain active until it is manually canceled, while an "immediate or cancel (IOC)" order fills all or part of an order immediately and cancels the remaining part of the order. I: Many trading platforms have "day orders" (often appearing simply as "day") as the default order duration. Unless the trader specifies a different time frame for the expiration of the order, any order to buy or sell a security would be a day order by default. These orders are only good during the current trading day, and are automatically canceled at the end of the day if they have not yet been filled. Most trading platforms support a wide variety of duration types, including those that are based on an action (such as Fill-Or-Kill) and durations that are based on a specified time period: one, three or five minutes.

Immediate Or Cancel Order - IOC

An order to buy or sell a security that if not immediately filled, will be canceled. An IOC order is one of several "duration orders" that investors and traders can use to specify how long the order will remain active in the market and under what conditions the order will be canceled. An IOC order requires all or part of the order to be executed immediately, otherwise the order (or any unfilled parts of the order) will be canceled. Partial fills are accepted with this type of order duration, unlike a fill-or-kill order, which must be filled immediately in its entirety or be canceled. I: An IOC duration may be specified when a large order is submitted to the market. Filling a large order may be difficult; to avoid having the order filled at a wide variety of prices, an IOC will automatically cancel any part or the order that does not fill right away. When a trader or investor submits an order to buy or sell a security or other instrument, he or she can specify both the type of order - such as market or limit - and the duration of the order. Order entry interfaces that are part the various available trading platforms allow traders and investors to choose from a number of durations in addition to the immediate-or-cancel orders. Other durations include day (automatically canceled at the end of the regular trading session); good-till-canceled (remains active until the trade is executed or canceled); and good-till-date (remains active until a user-specified date, unless it has been executed or canceled).

Take-Profit Order - T/P

An order used by currency traders specifying the exact rate or number of pips from the current price point where to close out their current position for a profit. The rate deemed to be the level where the trader wants to take a profit is sometimes referred to as the "take-profit point". I: As the name suggests, take-profit orders are used to lock in profits in the event the rate moves in a favorable direction. For example, if you are long a currency pair position and believe the price will rise to a certain level, but are unsure what it will do beyond that level, placing a take-profit order at that point will automatically close out your position allowing you to lock in profit. Example: Buy $100 worth of yen at 107.4 yen per dollar = 100*107.40 = 10,740 yen Place a take-profit order at 108.80. Price then rises from 107.40 to 108.80 Take-profit order automatically executed to sell $100 and buy 10,880 yen Profit of 140 yen realized.

Labor Union

An organization intended to represent the collective interests of workers in negotiations with employers over wages, hours and working conditions. Labor unions are often industry-specific and tend to be more common in manufacturing, mining, construction, transportation and the public sector. I: Labor union representation in the United States has declined significantly in the private sector. It is commonly believed that union security clauses compel workers to join unions and pay full dues as a condition of employment, but it is actually illegal for a union to force an employee into full union membership. Well-known American labor unions include the American Postal Worker's Union, the Screen Actor's Guild, the International Brotherhood of Teamsters, the National Education Association, the United Auto Workers and the United Steel Workers.

Gas Exporting Countries Forum (GECF)

An organization of the world's leading gas producers that was established in 2001 to represent and promote their mutual interest. GECF members collectively hold more than 70% of the world's natural gas reserves. As of 2010, the GECF has 11 regular members - Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad & Tobago and Venezuela. It also has three members with observer status - Kazakhstan, Netherlands and Norway. I: Given that a number of GECF members also belong to OPEC, there has long been speculation about the organization becoming a "Gas OPEC." However, some observers believe that the fundamental differences in the two organizations, as well as the fact that crude oil and natural gas are very different commodities, may hinder the formation of GECF into a gas cartel along the lines of OPEC.

Canada Mortgage and Housing Corporation - CMHC

An organization sponsored by the Canadian government that provides mortgage loans to home buyers. Started as a crown corporation, the Canada Mortgage and Housing Corporation offered housing to soldiers returning from WWII. Over time the CMHC evolved to also include the planning and development of housing projects in urban areas, as well as research into real estate trends. I: While smaller than its United States counterpart, the CMHC is a valuable asset to both residential homeowners and cities. Canadian cities are able to borrow from the organization at low interest rates for the development of housing projects.

Real Estate Investment Group

An organization that builds or buys a group of properties and then sells them to investors as rental properties. In exchange for finding tenants, handling maintenance and other responsibilities, the organization receives a portion of the investors' monthly rent proceeds. I: These groups provide a service for rental properties that is similar to mutual funds in that investors can reap some of the benefits of owning rental properties without having to manage them. Most real estate investment groups include provision that require that investors pool a portion of their rent to cover mortgage payments in the event of vacancies.

Joint Stock Company

An organization that falls between the definitions of a partnership and corporation. This type of company issues stock and allows for secondary market trading; however, stockholders are liable for company debts. I: This is a type of company that has access to the liquidity and financial reserves of stock markets, but also has the restrictions of a partnership.

Health Maintenance Organization - HMO

An organization that provides health coverage with providers under contract. A Health Maintenance Organization (HMO) differs from traditional health insurance by the contracts it has with its providers. These contracts allow for premiums to be lower, because the health providers has the advantage of having patients directed to them; but these contracts also add additional restrictions to the HMO's members. I: HMO's are believed to have been started in the early 1900s when companies began to offer employees plans of prepaid medical service, and have done very well since. The HMO Act of 1973 helped to cement the HMO into the U.S. health system by providing grants to start or expand HMOs, removing many restrictions imposed by the individual states, and required employers with more than 25 employees to offer a federally-certified HMO to employees.

Failure To Deliver

An outcome in a transaction where one of the counterparties in the transaction fails to meet their respective obligations. When failure to deliver occurs, either the party with the long position does not have enough money to pay for the transaction, or the party in the short position does not own the underlying assets that are to be delivered. Failure to deliver can occur in both equity and derivatives markets. I: Whenever a trade is made, both parties in the transaction will have to transfer the cash and assets before the settlement date. Subsequently, if the transaction is not settled, one side of the transaction has failed to deliver. Failure to deliver also can occur if there is a technical problem in the settlement process carried out by the respective clearing house. For forward contracts, a party with the short position's failure to deliver can cause significant problems for the party with the long position, because these contracts often involve significant volumes of commodities that are pertinent to long position's business operations. Failure to deliver is also important when discussing naked short selling. When naked short selling occurs an individual agrees to sell a stock that they neither own nor have borrowed. Subsequently, the failure to deliver creates what are called "phantom shares" in the market which may dilute the price of the underlying stock.

Balloon Payment

An oversized payment due at the end of a mortgage, commercial loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender. Balloon payments are often prepackaged into what are called "two-step mortgages." In this type of mortgage, the balloon payment is rolled into a new or continuing amortized mortgage at the prevailing market rates. Balloon payments can occur within a fixed-rate or adjustable-rate mortgage (ARM). I: The average homeowner could not make a balloon payment at the end of a mortgage, even if substantial principal payments were made over the life of the loan. Because of this, most homeowners and borrowers plan in advance to either refinance a mortgage near the balloon-payment date, or simply sell the home before the maturity date. Balloon payments can be a big problem in a falling housing market. As house prices fall, the odds of homeowners having positive equity in their homes also drops, and they may not be able to sell their homes for the prices they anticipated. Homeowners looking to reset their mortgages can usually do so if they have not been late on their payments, entered foreclosure or lost a substantial portion of their household income.

Camouflage Compensation

Compensation that is granted to upper echelon employees, directors, consultants and related parties that is not fully disclosed in mandatory company filings. In some cases of camouflage compensation, the compensation is fully disclosed, but in such a way that it is very difficult for the average investor to decipher the true value of gross pay compensation. I: Non-qualified deferred compensation plans, SERPs, stock options, stock appreciation rights and share grants are all potential places where compensation can be hidden from analysts and shareholders. The SEC has proposed new regulations to more completely disclose the full cost of compensation to related parties, consultants, directors and employees.

Backflip Takeover

An uncommon type of takeover in which the acquirer becomes a subsidiary of the acquired or targeted company, with business after the takeover conducted in the name of the acquired company. A backflip takeover gets its name from the fact that it runs counter to the norm of a conventional acquisition, where the acquirer is the surviving entity and the acquired company becomes a subsidiary of the acquirer. While the acquired company's assets are subsumed into the acquiring company, control of the combined entity is generally in the hands of the acquirer. I: While companies may consider a backflip takeover for a number of valid reasons, a common motive for such a structure is much stronger brand recognition and goodwill for the target company than the acquirer in their major markets. Often, the acquirer may be struggling with problems of its own. For instance, the acquirer may be a hitherto sizeable and successful company that has had its image tarnished by one or more negative issues such as a large product recall, well-publicized product deficiencies, accounting fraud and so on. These issues may significantly impede its future business prospects, leading it to consider other options for its long-term survival and success. One of these options is to acquire a rival company that has complementary businesses and sound prospects, but which needs significantly more financial and operational resources to expand than it could raise on its own. For example, DullCo is a large company that has fallen on relatively hard times because the massive recall of one of its biggest-selling products has hurt its finances and caused large-scale customer defections. Management decides that its brand has suffered irreparable damage, and decides to use its financial resources - which are still substantial - to acquire smaller and fast-growing rival Hotshot Inc. DullCo's management also decides that business after the completed takeover will be conducted under the Hotshot name, which will be the surviving entity, with DullCo becoming a Hotshot subsidiary. Why would Hotshot's management want to sell out to a larger, struggling competitor? Probably because Hotshot's executive team believes it can use DullCo's huge resources to expand faster than it could on its own. Hotshot's management is also very likely to bargain for a substantial presence on the Board of Directors and management of the combined entity.

Quantitative Easing

An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes. I: Typically, central banks target the supply of money by buying or selling government bonds. When the bank seeks to promote economic growth, it buys government bonds, which lowers short-term interest rates and increases the money supply. This strategy loses effectiveness when interest rates approach zero, forcing banks to try other strategies in order to stimulate the economy. QE targets commercial bank and private sector assets instead, and attempts to spur economic growth by encouraging banks to lend money. However, if the money supply increases too quickly, quantitative easing can lead to higher rates of inflation. This is due to the fact that there is still a fixed amount of goods for sale when more money is now available in the economy. Additionally, banks may decide to keep funds generated by quantitative easing in reserve rather than lending those funds to individuals and businesses. For more information on the policy of quantitative easing, read Quantitative Easing: What's In A Name?

Management Audit

Analysis and assessment of competencies and capabilities of a company's management in order to evaluate their effectiveness, especially with regard to the strategic objectives and policies of the business. The objective of a management audit is not to appraise individual executive performance, but to evaluate the management team in relation to their competition. I: Management audits are often necessitated by major changes in a business. Some of the events that call for a management audit are top management changes, mergers and acquisitions, and succession planning.

Income Annuity

Annuities designed to start paying income as soon as the policy is initiated. The income annuity is annuitized immediately, although the underlying income units may be in either fixed or variable investments. As such, the income payments may fluctuate over time.An income annuity is typically purchased with a lump sum payment, often by people who are at or near retirement. Also known as an "immediate annuity". I: Investors seeking income annuities should have clear picture of how much income will be received and for how long. Most annuities pay out until the death of the annuitant and some pay out until the death of spouse. Although the insurance product may be annuitized immediately, variable investments can allow for some principal protection by participating in equity markets. Even if all income units are in fixed investments, there may be a provision allowing for a higher return if a specific benchmark index performs extremely well.

Abatement Cost

A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created. Abatement costs are generally incurred when corporations are required to reduce possible nuisances or negative byproducts created during production. I: Examples of abatement costs would be the pollution reduction costs of paper mills and noise reduction costs of manufacturing plants.

Absolute Breadth Index - ABI

A market indicator used to determine volatility levels in the market without factoring in price direction. It is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues. Typically, large numbers suggest volatility is increasing, which is likely to cause significant changes in stock prices in the coming weeks. I: This tool is classified as a breadth indicator because the advancing/declining values are the only values used to create it. This index can be calculated using any exchange or a subset of an exchange, but traditionally the New York Stock Exchange has been the accepted standard.

Abnormal Return

A term used to describe the returns generated by a given security or portfolio over a period of time that is different from the expected rate of return. The expected rate of return is the estimated return based on an asset pricing model, using a long run historical average or multiple valuation. I: An abnormal return can be either a good or bad thing, as it is merely a summary of how the actual returns differ from the predicted return. For example, earning 30% in a mutual fund that is expected to average 10% per year would create a positive abnormal return of 20%. If, on the other hand, the actual return was 5%, this would generate a negative abnormal return of 5%.

Off-Premise Banking

Any bank location other than its main location that provides banking services of any kind that don't require tellers. Off-premise banking locations can be found in convenience stores, airports and shopping centers. ATMs can normally be referred to as off-premise banking locations. I: Off-premise banking locations are usually very expensive to establish; however, they tend to be profitable entities for the bank over the long run. This is because they tend to have a superior cost-to-transaction ratio than traditional bank locations staffed by personnel.

Inbound Cash Flow

Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow can include sales revenue generated through business operations, refunds received from suppliers, financing transactions and amounts won through legal proceedings. I: Any positive cash additions to an entity's bank account. When a salesperson is paid from their employer for their time spent working, this an inbound cash flow for the employee. Conversely, this payment to the employee represents an outbound cash flow for the employer. When the salesperson successfully completes a sale to a customers, this represents and inbound cash flow for the company.As well, consider a company going through a round of debt financing. When a company issues bonds, they are borrowing money, which will need to be repaid in the future (with interest). However, at the time the bond is sold, the company receives the cash, which makes it an inbound cash flow for the company. When the bond is later repaid, this is an outbound cash flow for the company.

Lawful Money

Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves. Fiat money includes legal tender such as paper money, checks, drafts and bank notes. Also known as "specie", which means "in actual form." I: Oddly enough, the dollar bills that we carry around in our wallets are not considered lawful money. The notation on the bottom of a U.S. dollar bill reads "Legal Tender for All Debts, Public and Private", and is issued by the U.S. Federal Reserve, not the U.S. Treasury. Legal tender can be exchanged for an equivalent amount of lawful money, but effects such as inflation can change the value of fiat money. Lawful money is said to be the most direct form of ownership, but for purposes of practicality it has little use in direct transactions between parties anymore.

Absolute Physical Life

The length of time that it takes for an asset takes to become fully depreciated, at which time it provides no additional use. The absolute physical life is often taken into consideration when companies purchase assets. The measure is typically associated with assets that have low risk of becoming technically obsolete. I: When looking at the life of an asset, people can take contrasting perspectives. For example, let's examine a manager's decision to purchase new computers for his or her business. The manager may decide to base the decision on how long it will be until the computers become obsolete by conventional standards. On the other hand, if the manager isn't worried about having older technology, he or she may care only about the absolute physical life of the computers, which can be considerably longer.

Absorption Rate

The rate at which available homes are sold in a specific real estate market during a given time period. It is calculated by dividing the total number of available homes by the average number of sales per month. The figure shows how many months it will take to exhaust the supply of homes on the market. A high absorption rate may indicate that the supply of available homes will shrink rapidly, increasing the odds that a homeowner will sell a piece of property in a shorter period of time. I: For example, suppose that a city has 1,000 homes currently on the market to be sold. If buyers snap up 100 homes per month, the supply of homes will be exhausted in 10 months (1,000 homes divided by 100 homes sold per month). If a homeowner is looking to sell a piece of property, he knows that half of the market will be sold out in five months. This rate does not take in to account additional homes that enter the market. The absorption rate can also be a signal to developers to start building new homes.

Abacus

1. A calculation tool used by sliding counters along rods or grooves, used to perform mathematical functions. In addition to calculating the basic functions of addition, subtraction, multiplication and division, the abacus can calculate roots up to the cubic degree.2. A semi-annual accounting journal published and edited by the University of Sydney. Published in 1965, this journal covers all areas of accounting. I: It is believed that the abacus was first used by the Babylonians, as early as 2,400 B.C. Since that time, the physical structure of abaci have changed. However, the idea has survived almost five millenia, and is still being used today.The Chinese and Japanese use different finger techniques with their abaci. The Chinese use three fingers (thumb, index, and middle) to move the beads; while the Japanese only use their thumb and index fingers.

Acceleration Life Insurance

A type of policy that pays a portion (typically 25\% or 50\%) of the death benefits (the face amount of the policy, less any outstanding loans or fees) in case of a specified illness or medical emergency. I: The accelerated death benefit provides funds necessary to pay for medical costs, to extend the life of the insured. Insurance companies pay the specified percentage of the death benefit in a lump sum.Upon death, the remainder of the insured's death benefit is paid to the beneficiary, just as under a traditional life insurance policy.

Call Premium

1. The dollar amount over the par value of a callable fixed-income debt security that is given to holders when the security is called by the issuer. 2. The amount the purchaser of a call option must pay to the writer. I: 1. The call premium is somewhat of a penalty paid by the issuer to the bondholders for the early redemption. 2. In order to receive the rights associated with a call option, the premium must be paid to the seller.

Quality Spread Differential - QSD

In an interest rate swap, the difference between the interest rates of debt obligations offered by two parties of different creditworthiness that engage in the swap. A swap transaction is considered beneficial to both parties only when the QSD is positive. I: For example, suppose ABC Corp can borrow debt at a fixed rate of 10.75% or at a floating rate of LIBOR. And let's say that XYZ Corp. can borrow debt at a fixed rate of 10% or at a floating rate of LIBOR -0.25%. The fixed rate differential would be 0.75% and the floating rate differential would be 0.25%. The QSD would be 0.5%. Since the QSD is positive, both companies would benefit from entering into a swap transaction.

Fail

In common trading terms, if a seller does not deliver securities or a buyer does not pay owed funds by the settlement date, then the transaction is said to fail. In a stock exchange, this occurs if a stockbroker does not deliver or receive securities, within a specified time after a security sale or a security purchase. When a seller cannot deliver the contracted securities, this is called a short fail. If a buyer is unable to pay for the securities, this is called a long fail. I: Presently, firms have three days after the date of a trade to settle stock transactions. Within this time frame, securities and cash must be delivered to the clearing house for settlement. If firms are unable to meet this deadline, a fail will occur. Settlement requirements for stock, options, futures contracts, forwards and fixed-income securities differ. Fail is also used as a bank term when a bank is unable to pay its debt to other banks. The inability of one bank to pay its debt to other banks in interbank fund transfer systems, can potentially lead to a domino effect, causing several banks to become insolvent.

SBD

In currencies, this is the abbreviation for the Solomon Islands Dollar. I: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion.

Q

A Nasdaq stock symbol specifying that a particular stock is in bankruptcy proceedings. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

Earnings Power

A business's ability to generate profit from conducting its operations. Earnings power is used to analyze stocks to assess whether the underlying company is worthy of investment. Possessing greater long-term earnings power is one indication that a stock may be a good investment. I: Many metrics are used to solely determine a company's earnings power. For example, analyzing a company's return on assets (ROA) and return on equity (ROE) determines the company's ability to generate profit from its assets and shareholder's equity, respectively.Individual sectors or industries may place greater importance on certain metrics for earnings power purposes compared to others. For example, the dividend yield may be more relevant for a long-lived blue chip company compared to a rapidly growing start-up, because the start-up will more likely be investing its money back into the firm to sustain its growth rather than dispensing dividends.

Occupancy Rate

In real estate, the number of units in a building that have been rented out as compared to the total number of units in the building. An apartment building containing 20 units, 18 of which had renters, would have a 90% occupancy rate. A 200-room hotel with 150 rooms occupied would have a 75% occupancy rate. Conversely, the vacancy rate is the number of units in a building that are not rented out as compared to the total number of units in the building. I: Occupancy rates are important to real estate investors because they provide an indication of anticipated cash flows. A commercial real estate investor looking for a shopping center to buy would probably not be interested in one that only had a 25% occupancy rate, meaning that tenants were leasing just 25% of the available space. An investor in such a property would have to spend time and money to find additional tenants and would risk not earning any income from 75% of the space he owned, while he would still have to pay maintenance and property taxes on that space. The low occupancy rate probably indicates that something real or perceived is wrong with the shopping center, such as its location or amenities. In some cases, one or two tenants leaving a shopping center can have a domino effect that creates a low occupancy rate.

Gartley Pattern

In technical analysis, it is a complex price pattern based on Fibonacci numbers/ratios. It is used to determine buy and sell signals by measuring price retracements of a stock's up and down movement in stock price. Source: www.harmonictrader.com I: The above Gartley example shows an uptrend XA with a price reversal at A. Using Fibonacci ratios, the retracement AB should be 61.8% of the price range A minus X, as shown by line XB. At B, the price reverses again. Ideally, retracement BC should be between 61.8% and 78.6% of the AB price range, not the length of the lines, and is shown along the line AC. At C, the price again reverses with retracement CD between 127% and 161.8% of the range BC and is shown along the line BD. Price D is the point to buy/sell (bullish/bearish Gartley pattern) as the price is about to increase/decrease.

Pattern

In technical analysis, the distinctive formation created by the movement of security prices on a chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time. Chartists try to identify patterns to try to anticipate the future price direction. Also known as "trading pattern". I: Patterns in security prices occur daily. However, although the various kinds of price patterns may in hindsight be easy to understand and see on paper, it is much harder to spot, and trade these formations in real time. There are many different kinds of patterns in technical analysis: the cup and handle, ascending/descending channels and, among others, the head-and-shoulders pattern.

Quiet Period

In terms of an IPO, the period where an issuer is subject to a SEC ban on promotional publicity. The quiet period usually lasts either 40 or 90 days from the IPO. I: In other words, If you take your company public, you can't talk about your stock to anybody for 3 months.

Daily Cut-Off

In the forex market, a particular point in time specified by a forex dealer to stand as the end of the current trading day and the beginning of a new trading day. This is done for primarily administrative and logistical reasons, because although the forex market trades 24 hours a day, the market and its intermediaries require a specified beginning and end to each trading day in order to record trade dates and define settlement periods. I: For example, let's say a forex dealer specified that the daily cut-off was 5pm every day, and a trader placed two forex trades on the evening of January 1 - one at 4:50pm and another at 5:15pm. Since the daily cut-off is 5pm, the first trade would be booked as taking place on January 1, while the second would be recorded as a January 2 trade, since it took place after the daily cut-off.

Saucer

A technical charting formation that indicates that a stock's price has reached its low and that the downward trend has come to a close. I: Saucer formations will exhibit very low volume figures at the point when the stock's price was the lowest.

Make A Market

An action whereby a dealer stands by ready, willing and able to buy or sell a particular security at the quoted bid and ask price. I: By being able to make a market allows the brokerage to fill customer orders out of the brokerage inventory, which is faster and easier than filling orders from other brokerages or investors.

Earned Income

Income derived from active participation in a trade or business, including wages, salary, tips, commissions and bonuses. This is the opposite of unearned income. I: Earned income includes any income that a person or company receives for work they have done. If your boss gives you an advance on your next check, this would be considered unearned income because you haven't yet done anything to earn it.

Federal Home Loan Bank System - FHLB

An organization created by the Federal Home Loan Bank Act of 1932 to increase the amount of funds available for lending institutions who provide mortgages and similar loan agreements to individuals. This system was created in response to the depressive economic conditions of the era, which had impaired the U.S. banking system. Also referred to as the "FHL Bank System". I: Having served its original objectives well, the FHLB system now primarily focuses on increasing the amount of loanable funds available for affordable housing and community development projects. It continues to have a material impact on housing and development financing, offering funds to member institutions at rates that are usually lower than commercially competitive prices.

Gerard J. Arpey

Became the chairman of AMR Corp. and American Airlines in 2004 and the president and CEO of AMR and American one year earlier in 2003. Arpey joined American Airlines in 1982 as a financial analyst and held a variety of management positions before rising to chief executive. As its leader, Arpey helped American recover from a scandal it suffered under its previous CEO, and avoid bankruptcy. I: Arpey was born in 1958 in New York City and earned his MBA from the University of Texas at Austin. He is also a private pilot with an FAA multi-engine instrument rating and a director of S. C. Johnson & Son, Inc. American Airlines flies to more than 250 cities in 40 countries worldwide.

Official Staff Commentary

Commentary published by the Federal Reserve. Official staff commentaries are laid out in a question-and-answer format. They are used by the Federal Reserve Board's Division of Consumer and Community Affairs to provide formal interpretations of regulations. I: For example, an official staff commentary was covered to address Regulation E and electronic transfers of funds (EFTs). Another official staff commentary was issued concerning Regulation Z and consumer credit.

S&P 500 Dividend Aristocrats

Companies in the S&P 500 who have increased their dividends for at least 25 consecutive years. The S&P 500 Dividend Aristocrats index tracks their performance, and is mainly comprised of large, well-known blue-chip companies. Standard & Poors will remove companies from the index if they fail to increase their dividends from the previous year. The index is updated annually in January. I: In addition to consistently increasing dividends, dividend aristocrats must have a float-adjusted market capitalization of at least $3 billion and an average trading volume of at least $5 million. The list typically contains 40 to 50 companies. The strength of the dividend aristocrats lies not just in their ability to continually increase dividend payments to shareholders, but in their overall performance. These companies have historically outperformed the S&P 500 by a little more than 1% per year and have been slightly less volatile. Dividend aristocrats come from a wide variety of industries and sectors. Some companies have been dividend aristocrats for decades, such as Emerson Electric Co., which sells electronic products and engineering services predominantly to industrial clients. Others, such as Bemis Company, Inc., an industrial packaging products manufacturer, are relatively new to the list. The recession of 2008-2009 caused many companies, such as Bank of America, General Electric and Pfizer, to be removed from the list. A company can be dropped from the list if it does not increase its dividend or if it is removed from the S&P 500. One criticism of companies on the dividend aristocrats list is that they sometimes use share repurchases to facilitate dividend increases. The complaint is that a true dividend aristocrat should be increasing its overall payout to shareholders from year to year and, particularly if the company is overpaying for its shares, it may not be acting in shareholders' best interests overall, even if dividends are going up.

Backdating

Dating any document by a date earlier than the one on which the document was originally drawn up. Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period. I: Sometimes certain claims (such as insurance claims) can be backdated if the could not be completed at an earlier date, although there must be good reason for neglecting to claim in advance. If your backdated claim is approved, you will be able to receive benefits from a certain date in the past.

Qualified Distribution

Distributions made from a Roth IRA that are tax and penalty free. In order to be a qualified distribution, the following two requirements must be met: 1) It must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA2) At least one of the following requirements must be met: a) The Roth IRA holder must be at least age 59.5 when the distribution occurs. b) Distributed assets limited to $10,000 are used towards the purchase or rebuilding of a first home for the Roth IRA holder or a qualified family member. c) The distribution occurs after the Roth IRA holder becomes disabled. d) The assets are distributed to the beneficiary of the Roth IRA holder after his/her death. I: Distributions that do not meet the above criteria are considered non-qualified and may be subject to income tax and early distribution penalties.

Jesse L. Livermore

Livermore rose from a humble farming background to become a stock trader in Boston. Over the course of his career, he won and lost several fortunes in many arenas. A self-made man with no formal education or trading experience, Livermore focused on making money from the overall market directions and not concentrating on individual stocks. He believed that insider and professional research opinions were not a just means for stock picking as investors had to perform their own analysis. I: Livermore lived from 1877 to 1940. He espoused the strategy of buying and holding during bull markets and selling when market momentum began to shift. He believed that effort was a key component that separated the winners and losers in the investment world.

Qualified Production Activities Income - QPAI

Income derived from domestic production that qualifies for reduced taxation. More specifically, qualified production activities income is the difference between the manufacturer's domestic gross receipts and aggregate cost of goods and services related to producing the domestic goods. This reduced tax is intended to reward manufacturers for producing goods domestically instead of overseas. I: The IRS mandates that any domestic manufacturer of goods can exclude 6% of all income derived from goods production from income taxation in 2008 and 2009. The tax-free rate for QPAI increases to 9% in 2010. This type of income does not include revenue generated from the restaurant industry, electricity or natural gas production or real estate transactions.

ABCD Counties

Categories of U.S. counties devised by AC Nielsen Company that are based on U.S. Census Bureau population data and proximity to major metropolitan areas. A counties are the largest U.S. counties by population, and D counties are the smallest. Counties are classified on the basis of data from the latest census, which takes place every 10 years. The county classification is used by marketing and advertising agencies, and advertisers in the preparation and analysis of advertising and media plans. I: A counties are classified as any county located in the 25 largest U.S. metropolitan areas, which will be the highest density. B counties are considered any county that is not an A county and has a population exceeding 150,000 or is part of a metropolitan area with a population over 150,000. C counties are seen as any county that is not classified as an A or B county, and has a population between 40,000 and 150,000. D counties are any county that not classified as an A, B or C county.

Call Money

Money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use call money as a short-term source of funding to cover margin accounts or the purchase of securities. The funds can be obtained quickly. I: Brokerages know that they are taking on risk by using funds that can be called at any time, so they typically use call money for transactions that will be resolved quickly. If the bank recalls the funds then the broker can issue a margin call on its clients in order to make the repayment. The call money rate is used as the interest rate on the loans.

Saïd Business School - SBS

Oxford University's business school. The Saïd Business School (SBS) offers both undergraduate and graduate progams in finance, business and management. The school has several MBA and doctorate programs covering various aspects of business and finance. I: Established in 1996, the Saïd Business School is one of the newest players in the premier business school arena. Still, it has been ranked consistently among the top business schools in the world. This program has superseded the old Oxford Centre for Management Studies.

Patrick J. Moore

Patrick J. Moore became Chairman and CEO of Smurfit-Stone Container Corporation in 2002. Born in 1954 in Chicago, Moore joined the company in 1987 when it was Jefferson Smurfit Corporation. He became president and CEO in 2002, and chairman in 2003. As vice president, Moore oversaw the divestiture of Stone Container Corporation's assets after its 1998 merger with Jefferson Smurfit. I: Smurfit-Stone is a paperboard and paper-based packaging company headquartered in Chicago, IL, and Creve Coeur, MO. The company also operates 31 full-service recycling processing facilities.

A-B Split

A method of testing the effectiveness of marketing methods or media. Using A-B split marketing, a list of target names is split into two groups on a random basis, with one group designated as a control group and the other as a test group. The objective of the A-B split is to determine which single variable is the most effective in improving response rates to a marketing campaign or achieving some other desired outcome. I: A-B split has been been used for mailing campaigns in the past, but has also successfully adapted for use in interactive media, for testing the effectiveness of e-mail blasts and banner advertisements. For example, an email campaign by a newsletter publisher may include a specific "call to action" - such as subscribe within 48 hours to receive a 20% discount - embedded in the message to half the target audience, and no call to action (i.e. no solicitation to subscribe or mention of a discount) in the message to the other half. This will enable the publisher to determine if the "call to action" really works, and whether the response rate is good enough to justify the 20% discount.

Abatement

A reduction in the level of taxation faced by an individual or company. Examples of an abatement include a tax decrease, a reduction in penalties or a rebate. If an individual or business overpays its taxes or receives a tax bill that is too high, it can request an abatement from the tax authorities. I: A common type of tax abatement is property tax abatement. Individuals who believe that the assessed value of their property is too high, can appeal to their local tax assessor for a tax abatement. Some localities offer property tax abatement to owners who restore, or improve, historic properties located in designated neighborhoods. Some types of properties, such as those containing non-profit businesses, will be granted tax abatements based on the owner's tax-exempt status.

Absolute Priority

A rule that stipulates the order of payment - creditors before shareholders - in the event of liquidation. The absolute priority rule is used in bankruptcies to decide what portion of payment will be received by which participants. Debts to creditors will be paid first and shareholders (partial owners) divide what remains. Regarding the estate of a deceased person, the absolute priority rule will ensure payment of outstanding debts before the distribution to beneficiaries. Also known as "liquidation preference." I: Absolute priority specifies the pecking order. Senior creditors always get first grabs at the proceeds from liquidation, and shareholders are the last to get paid. This rule provides a degree of protection to creditors in the event of insolvency or death. The division of benefits (cash) is not always the result of a bankruptcy. It can also occur due to the liquidation of assets in order to pay down a company's liabilities. In estate cases if the resources of the estate are insufficient to pay off the debts, assets will need to be liquidated to handle the obligations.

Abeyance

A situation in which the rightful owner of a property, office or title has not yet been decided. Abeyance results when the current owner or holder does not declare a single current beneficiary. Instead, the new owner is determined through the outcome of a particular event at some time in the future. Thus, the ownership of the property, office, or title is left unfilled. Abeyance is derived from the Old French word "abeance." which means a longing or gaping, with future expectation. I: Many estates are placed in trusts with stipulations that must be fulfilled before ownership can be taken. For example, if a trust fund is to be given to a child once he or she finishes college, the funds are said to be in abeyance until the goal is reached. Abeyance also exists when there is no one who can easily declare future ownership. For example, a trust could be set up by a parent who has no grandchildren, but hopes to have grandchildren one day, and wishes to leave funds to them at some future date. Because these grandchildren do not yet exist, the proceeds would be held in abeyance until these children are born.

Abu Dhabi Investment Council - ADIC

A sovereign wealth fund owned by Abu Dhabi, the capital of the United Arab Emirates (UAE). It is wholly owned and administered by the UAE. The Abu Dhabi Investment Council is funded by revenue from the country's oil industry, and invests those revenues in a wide range of asset classes, including equities, debt, real estate, infrastructure and private equity. Its sister fund is the Abu Dhabi Investment Authority (ADIA), which is one of the world's largest sovereign wealth funds. I: The Abu Dhabi Investment Council was established in 2007. While the fund does invest in assets across the globe, the primary focus of the ADIC is to invest in Abu Dhabi's economy. Domestic assets include banks, investment houses and insurance companies.

Acceptable Quality Level - AQL

A statistical measurement of the maximum number of defective goods considered acceptable in a particular sample size. If the acceptable quality level (AQL) is not reached for a particular sampling of goods, manufacturers will review the various parameters in the production process to determine the areas causing the defects. The AQL is an important statistic to companies seeking a Six Sigma level of quality control. I: The AQL of a product can vary from industry to industry. For example, medical products are more likely to have a more stringent AQL because defective products can result in health risks. Companies have to weigh the added cost associated with the stringent testing and potentially higher spoilage due to a lower defect acceptance with the potential cost of a product recall.

Absolute Return Index

A stock index designed to measure absolute returns. The absolute return index is actually a composite index made up of five other indexes. This index is used to compare the absolute returns posted by the hedge fund market as a whole against individual hedge funds. I: The hedge fund absolute return index (HFRX) measures the comprehensive overall returns of hedge funds. Since hedge funds explore unique investment strategies and seek to obtain absolute returns rather than focus on beating the benchmark, the HFRX is representative of all hedge fund strategies.

Accelerated Payments

A term associated with making additional unscheduled payments on a loan at predetermined, or random intervals. Making additional unscheduled payments reduces the principal balance of the loan, meaning that more principal and less interest is paid off in subsequent payments. Making accelerated payments will lead to the early pay-off of a loan. I: Most loans have an amortization schedule that defines how much principal and interest will be paid with each scheduled payment, so that the loan will be paid-off at the end of an established term. Also, the amount of interest paid with each payment is a function of the remaining principal balance of the loan at that time. The higher the rate of interest on a loan, the more beneficial it can be to make accelerated payments. The faster the borrower applies accelerated payments toward the principal balance of a loan, the more interest that is saved.

Above Par

A term used to describe the price of a security when it is trading above its face value. A security usually trades at above par when its income distributions are higher than those of other instruments currently available in the market.If an investor purchases a security above face value, he or she will incur a capital loss at maturity when it is redeemed for face value. I: For example, a 5-year bond with $1,000 face value that pays a coupon of 10% annually may trade closer to $1,168 if similar bond rates decline to 6%. This is because investors are willing to pay more for a higher coupon; thus, it is said to be trading above par.In order to make its yield equal current market rates, the bond should trade at its present value.In the above example, the following calculation was used to determine the theoretical price the bond would trade atN = 5 yearsI/Y = 6 (market rate, 6%)FV = $1,000 (face value)PMT = $100 (10% coupon)Payments/Year = 1 (annual coupon payment)

A-B Trust

A trust created by a married couple with the objective of minimizing estate taxes. An A-B trust is is a trust that divides into two upon the death of the first spouse. It is formed with each spouse placing assets in the trust and naming as the final beneficiary any suitable person except the other spouse. The trust gets its name from the fact that it splits into two upon the first spouse's death - trust A or the survivor's trust, and trust B or the decedent's trust. I: The surviving spouse has complete control over the survivor's trust, which contains his or her property interests, but has limited control over the assets in the deceased spouse's trust. However, this limited control over the assets in the decedent's trust will still enable the surviving spouse to live in the couple's house and draw income from the trust, provided these terms are stipulated in the trust. Upon the death of the surviving spouse, the property in the decedent's trust passes to the beneficiary(s) named in this trust. As this property is not considered part of the second spouse's estate for purposes of estate tax, double-taxation is avoided.

Absolute Auction

A type of auction where the sale is awarded to the highest bidder. Absolute auctions do not have a reserve price which sets a minimum required bid for the item to be sold. One type of absolute auction relates to foreclosed properties, where the winning bid acquires the foreclosed property. This is opposed to a lender confirmation auction, where the lender must approve the bid in order to complete the transaction. I: An absolute auction can occur in various venues including the foreclosure marketplace, the online marketplace (such as eBay.com) or live auction events. In this type of auction, the highest bidder "wins" the item, whether it is real estate property or any other type of product. Absolute auctions are often implemented where there is an immediate demand to sell an item.

ABA Transit Number

A unique number assigned by the American Bankers Association (ABA) that identifies a specific federal or state chartered bank or savings institution. In order to qualify for an ABA transit number, the financial institution must be eligible to hold an account at a Federal Reserve bank. ABA transit numbers are also known as ABA routing numbers, and are used to identify which bank will facilitate the payment of the check. I: The ABA Transit number was originally developed in 1910 to indicate check processing endpoints. Since then, the number's use has increased to include participants in check clearing between banking institutions, automated clearing houses and online banking activities. The ABA check routing number is usually the first nine digits in the bottom row of numbers on any check. For example, if the bottom row showed 123456789 0100100120: 0123, the ABA routing number would be 123456789.

Gap Amount

Insurance will only cover a certain amount of coverage if leased items are stolen or totaled. There is often a difference between the amount the insurance company covers and the amount of the vehicle that is owed under the lease agreement, because of the way lease agreements are structured. Gap amount is the portion of a leased item's value that is not covered by insurance, in the event of a total loss from an accident or theft. Its calculation is based on the terms of the lease's early termination payoff provision. To protect against losing money because of the gap amount, consumers can purchase gap insurance. I: The lease payments at the beginning of the lease term do not fully cover the vehicle's depreciation, because vehicles depreciate in value more quickly when they are newer and because a consumer's vehicle lease payments are flat amounts paid monthly over a period of several years. For example, a consumer might lease a $25,000 car for three years. It might depreciate by $5,000 in the first year, but the lessee might only pay a total of $3,600 in lease payments during that time. If the car is totaled at the end of the first year, the consumer will need to make up for the difference between what they paid and the value the car has lost. The gap amount would be $1,400, in this case.

Odd-Days Interest

Interest that is earned from a mortgage or other loan with closed-end installments that contain a nonstandard payment period. In most cases, the additional interest is added on to the first payment. All remaining payment periods are uniform, assuming the loan has fixed payments and amortizes fully. Also referred to as "interim interest." I: An example of when odd-days interest is paid is when a mortgage begins in the middle of a month. For example, suppose you get a mortgage on September 20th; you would pay 10 days' worth of interest to cover the days to the beginning of October.

Inchoate Interest

Interests, generally property interests, that are likely to vest but have not yet actually done so. The inchoate interest usually is dependent on an event occurring that triggers the interest, such as a relative's death triggering an inheritance. The interest that the inheriting relative has in the inheritance is inchoate until the death occurs, at which point it becomes a real interest. I: Note that inchoate interests are not certain to vest. There is still the possibility of a change in circumstances that would prevent the interests from vesting or occurring.

Natural Gas Liquids - NGL

Components of natural gas that are separated from the gas state in the form of liquids. This separation occurs in a field facility or in a gas processing plant through absorption, condensation, adsorption or other method. Natural gas liquids as classified based on their vapor pressure: Low = condensateIntermediate = natural gasHigh = liquefied petroleum gas I: NGL are naturally occurring elements found in natural gas, and include propane, butane and ethane, among others. NGL are valuable as separate products and it is therefore profitable to remove them from the natural gas.The liquids are first extracted from the natural gas and later separated into different components.

Passive Income

Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service (IRS). I: There are three main categories of income: active income, passive income and portfolio income. Passive income does not include earnings from wages or active business participation, nor does it include income from dividends, interest or capital gains. For tax purposes, it is important to note that losses in passive income generally cannot offset active or portfolio income. It is important to note that, by some, portfolio income is considered passive income; in which case dividends and interest would be considered passive. The important definition is the one the IRS uses, and to be sure your taxes are filed correctly, it would be prudent to check with the IRS or a tax professional on this matter if you have a blend of active, passive, and portfolio income.

Health Reimbursement Account - HRA

Employer-funded plans that reimburse employees for incurred medical expenses that are not covered by the company's standard insurance plan. Because the employer funds the plan, any distributions are considered tax deductible (to the employer). Reimbursement dollars received by the employee are generally tax free. The downside to HRAs is that companies may choose whether to start or fund such a plan. Also, if a plan has already been established, the employer has the right to cancel it at virtually any time. I: As a benefit, an employee may be reimbursed for qualified medical expenses from his or her employer. The funds received are tax-free, but because the plan is employer funded, the employer has the right to cancel or alter the distributions at any time. In spite of this, many employees consider HRAs as a valuable benefit given the rising cost of health care.

Federal Funds

Excess reserves that commercial banks deposit at regional Federal Reserve banks. Federal funds can then be lent to other commercial banks with insufficient reserves. These loans are made at a relatively low interest rate, called the federal funds rate or overnight rate, and they typically have an extremely short duration: overnight. Federal funds help commercial banks meet their daily reserve requirements. Banks are required to maintain a certain level of reserves based on the amount of customer deposits they are responsible for. I: When federal funds are freely available for borrowing, credit is easy to obtain and the credit market is considered healthy. When federal funds are difficult to obtain, credit becomes tight. If credit is too freely available, the Federal Reserve may buy back some of the government bonds it has issued to decrease the money supply and try to prevent inflation. The federal funds rate is closely related to short-term interest rates in the broader market.

Natural Gas ETF

Exchange-traded funds (ETFs) that invest in natural gas futures and other products in an effort to closely track the price of delivered natural gas at market. Natural gas ETFs are set up as commodity pools, which issue limited partnership interests as opposed to shares. The fund may also invest in heating oil, crude oil and gasoline futures. I: Natural gas ETFs (and those of other natural resources/commodities) opened well when they first began trading on the American Stock Exchange (AMEX). Having a more liquid way to access natural gas as both a speculative and hedging play is very useful to both retail and institutional investors. Investors should expect small tracking errors over shorter time frames, but see strong correlation to the spot price of natural gas over medium and longer time horizons.

General And Administrative Expense - G&A

Expenditures related to the day-to-day operations of a business. General and administrative expenses pertain to operation expenses rather that to expenses that can be directly related to the production of any goods or services. General and administrative expenses include rent, utilities, insurance and managerial salaries. I: General and administrative expenses encompass a variety of expenses associated with performing the daily operations in a company. In the company's income statement, these expenses with generally appear under operating expenses. Legal expenses, other professional expenses and executive salaries may also be included.

Incidental Expenses

Expenses including fees and tips for porters, baggage handlers and other personal service employees. These expenses are part of the "meals and incidental expenses reimbursement" rates provided by the IRS. Unreimbursed incidental expenses are deductible according to a schedule prescribed by the IRS. I: Incidental expenses that are incurred as a result of casualty or theft, such as emergency room treatment for injury suffered as a result of mugging, are not deductible as a casualty loss. Also note that incidental expense rates differ by region.

Participatory Notes

Financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India to invest in Indian securities. Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.Also referred to as "P-Notes" I: In many ways, this is similar to an informal ADR process, where brokerages hold on to stocks for foreign investors. However, Indian regulators are not very happy about participatory notes because they have no way to know who owns the underlying securities. Regulators fear that hedge funds acting through participatory notes will cause economic volatility in India's exchanges.

Labor Market Flexibility

Firms' ability to make changes to their workforce in terms of the number of employees they hire and the number of hours worked by the employees. Labor market flexibility also includes areas such as wages and unions. A flexible labor market is one where firms are under fewer regulations regarding the labor force and can therefore set wages (i.e. no minimum wage), fire employees at will and change their work hours. A labor market with low flexibility is bound by rules and regulations such as minimum wage restrictions and requirements from trade unions. I: Supporters of increased labor market flexibility argue that it leads to lower unemployment rates and higher GDP. However, its opponents claim that flexibility puts all the power in the hands of the employer, resulting in an insecure workforce.

Accelerated Amortization

Extra payments made towards paying down a mortgage principal. With accelerated amortization, the loan borrower is allowed to add additional payments to their mortgage bill in order to pay off a mortgage before the loan settlement date. The benefit of doing so is reduced overall interest payments. I: For example, take a mortgage originated for $200,000 at 7% interest for 30 years. The monthly principal and interest payment is $1330.60. Increasing the payment by $100 per month will result in a loan payoff period of 24 years instead of the original 30 years, saving the borrower six years of interest. Paying a mortgage in an accelerated manner decreases the loan premium faster and diminishes the amount of additional interest the borrower is required to pay on the loan.

Economic Man

First coined in the late 19th century, the term 'Economic Man' has developed to refer to a hypothetical individual who acts rationally and with complete knowledge, but entirely out of self-interest and the quest to maximize personal utility. Economic Man is an imaginary figure who is able to satisfy economic models that push for consumer equilibrium. All of Economic Man's choices are based on the fulfillment of his or her "utility function", meaning the ability to maximize any situation that involves choice. I: Many economic models are hypothetical, and the assumptions on which they are built deviate from real-world conditions. For example, many economic-modeling assumptions assume that demand is a linear function of price. While this may sometimes be the case with certain goods, it is not reflective of the actual consumer environment. Economic Man is the principal, symbolic of every individual in society, whose preferences satisfy the condition specified in the models.

Real Estate

Land plus anything permanently fixed to it, including buildings, sheds and other items attached to the structure. Although, media often refers to the "real estate market" from the perspective of residential living, real estate can be grouped into three broad categories based on its use: residential, commercial and industrial. Examples of real estate include undeveloped land, houses, condominiums, townhomes, office buildings, retail store buildings and factories. I: Unlike other investments, real estate is dramatically affected by the condition of the immediate area where the property is located - hence the well-known real-estate maxim, "location, location, location." With the exception of a national or global recession, real estate values are affected primarily by local factors such as the availability of jobs, crime rates, school quality and property taxes. For more, check out Exploring Real Estate Investments: Introduction

500 Shareholder Threshold

Legislation that provides additional standards to Section 12(g) of the Exchange Act to provide adequate disclosure of private companies. The 500 shareholder threshold forces companies that have more than 499 investors to divulge information about their financial performance. Although the company may still remain private, it must file similar documents to those of public companies. If the number of investors falls back below 500, then the disclosures can be omitted. I: The 500 shareholder threshold was introduced to address complaints of fraudulent activity in the over-the-counter market. Since firms with fewer than the threshold number of investors were not required to disclose their financial information, outside buyers were not able to make fully informed decisions regarding their investments. The Exchange Act mandates that investors in over-the-counter securities be provided with the equivalent information as those trading stocks on the major exchanges.

Baby Bond

Fixed income securities issued in small denominations, generally with a maximum face value of $5,000. The small denominations enhance the attraction of baby bonds to the average retail investor. Baby bonds are now issued mainly by municipalities, counties and states to fund expensive infrastructure projects and capital expenditures. These tax-exempt municipal bonds are generally structured as zero-coupon bonds with a maturity of between eight and 15 years. I: Baby bonds may also refer to a series of small denomination bonds with face value ranging from $75 to $1,000, issued by the U.S. government from 1935 to 1941. These tax-exempt bonds were sold at 75% of face value and had a maturity of 10 years. In the U.K., baby bonds refer to a type of bond launched in the late 1990s with the objective of stimulating savings for children by their parents. Parents had to make small monthly contributions for at least 10 years; in return, the child received a guaranteed minimum amount tax-free upon turning 18.

Mac Crawford

Former CEO, president and chairman of Nashville-based Caremark, a mail-order pharmaceutical and pharmacy benefits management company. In 1997, Mac Crawford became president and CEO of physician-practice management company MedPartners. When he joined MedPartners, it was struggling with operating losses and a high level of debt. It sold most of its physician-practice management companies to focus on pharmacy benefits management and changed its name to Caremark. In 1998, Crawford became the company's CEO, president and chairman. He increased Caremark's revenues, paid off its debt and helped it acquire rival AdvancePCS. In 2007, Caremark merged with pharmacy CVS to become the Fortune 20 company CVSCaremark. After leaving Caremark, Crawford became the co-founder and principal in 2008 of CrawfordSpalding Group, a business advisory and management services company whose services are based on Crawford's experience in turning around struggling companies. I: Born in 1949, Crawford earned his bachelor of science degree in accounting from Auburn University and began his career as an accountant with Arthur Young & Co. in 1971. He joined GTI in 1981 as its CFO, became CFO of Oxylance in 1985, became president of Mulberry Street Investment Company in 1986 and later became chairman, CEO and president of Charter Medical Corp., which he helped rescue from Chapter 11 bankruptcy. In 1995, Crawford became chairman, CEO and president of Magellan Health Services when Charter purchased Magellan and took its name.

Jim Cramer

Former hedge fund manager, columnist and author as well as host of CNBC's "Mad Money" and CBS radio's "Real Money". Cramer's claim to fame is his bombastic and 'in your face' behavior in which he gives recommendations and analysis on featured and viewer-suggested stocks. Jim Cramer is also one of the founders of TheStreet.com, a popular financial website. I: Although Cramer does give his opinion on the investment value of any given stock, he prefers that his viewers go out and conduct their own research on the underlying businesses before buying stocks. However, many of Cramer's viewers do go and purchase stocks just because he recommended them. This effect is so prominent that the price of a stock can actually go up significantly for a couple of days after his recommendation, due to the increased buying pressure.Critics often point out that Cramer can be very fickle in his investment outlook, because he appears to frequently flip-flop from a bullish position to a bearish position to reflect the market's current sentiment.

AARP

Formerly known as the American Association of Retired Persons, AARP is the nation's leading organization for people age fifty and older. Founded in 1958 by retired educator Dr. Ethel Percy Andrus, it is a nonprofit, nonpartisan association with a membership of 40 million. It provides information, education, research, advocacy and community services through a nationwide network of local chapters and experienced volunteers. It focuses its work on consumer issues, economic security, work, health and independent living issues, and engages in legislative, judicial and consumer advocacy in these areas. I: AARP is considered a powerful lobbying group as well as a successful business, selling insurance, investment funds and other financial products. It is also an independent publisher, offering Modern Maturity magazine and the monthly AARP Bulletin.

Health Plan Categories

Four types of health insurance plans that are differentiated based on the average percentage of health-care expenses that will be paid by the plan. Under the Patient Protection and Affordable Care Act (ACA), the U.S. health reform enacted March 23, 2010, health insurance plans are offered in four actuarial levels: Bronze, Silver, Gold and Platinum. The level defines the amount of expenses each type of plan covers. The higher the actuarial value (i.e. Gold and Platinum), the more the plan will pay, on average, toward health-care expenses; the lower the actuarial value (Bronze and Silver), the less the plan will pay. I: On average, the actuarial values for the four coverage tiers are: Bronze = 60% Silver = 70% Gold = 80% Platinum = 90% All plans cover the same set of Essential Health Benefits. Because each plan is different in terms of deductible, copayments and coinsurance amounts, your share of the costs may come in the form of a large deductible with low coinsurance (for example, a $4,000 deductible with 10% coinsurance) or a small deductible with high coinsurance (such as a $1,500 deductible with 30% coinsurance). With all health plans, consumers pay a monthly fee known as a premium whether or not they use health-care services. Premiums are typically higher for plans that pay more of your medical expenses when you get care, such as Gold and Platinum plans. In general, premiums are also higher for plans that have lower deductibles and lower coinsurance amounts. In addition to the four "metallic" coverage tiers, a catastrophic level is available to people under age 30 and to certain people over age 30 who are granted hardship exemptions based on income and other circumstances that would prevent them from getting a Bronze, Silver, Gold or Platinum plan. There are 12 reasons for which someone may be granted a hardship exemption, including being homeless, having substantial property damage resulting from fire, flood or other disaster, and filing for bankruptcy in the last six months.

Factor Income

Income received from the factors of production - land, labor, and capital. Factor income on the use of land is called rent, income generated from labor is called wages and income generated from capital is called profit. The factor income of all normal residents of a country is referred to as the national income, and factor income plus current transfers is referred to as private income. I: Factor income is most commonly used in macroeconomic analysis, and helps governments determine the difference between Gross Domestic Product and Gross National Product. For most countries the difference between GDP and GNP is small, since income generated by citizens abroad and by foreigners domestically often offset each other. A large difference in factor income is more likely to be found in small, developing nations, where a significant portion of income may be generated by foreign direct investment. The proportional distribution of factor income across the factors of production is also important in country-level analysis. Countries with low populations but great mineral wealth may see a low proportion of factor income stemming from labor, but a high proportion stemming from capital. Nations focusing on agriculture may see an uptick in factor income derived from land, though crop failures or declining prices may lead to decreases. Industrialization and increased productivity generally cause rapid shifts in factor income distribution.

Par Value

The face value of a bond. Par value for a share refers to the stock value stated in the corporate charter. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. Par value for a bond is typically $1,000 or $100. Shares usually have no par value or very low par value, such as 1 cent per share. The market price of a bond may be above or below par, depending on factors such as the level of interest rates and the bond's credit status. In the case of equity, par value has very little relation to the shares' market price. Also known as nominal value or face value. I: For example, a bond with par value of $1,000 and a coupon rate of 4% will have annual coupon payments of $40. A bond with par value of $100 and a coupon rate of 4% will have annual coupon payments of $4. One of the main factors that causes bonds to trade above or below par value is the level of interest rates in the economy, as compared to the bonds' coupon rates. A bond with a 4% coupon will trade below par if interest rates are at 5%. This is because in such a scenario, investors have a choice of buying similar-rated bonds that have a 5% coupon. The price of a lower-coupon bond therefore must decline to offer the same 5% yield to investors. Likewise, a bond with a 4% coupon will trade above par if interest rates are at 3%. A bond that is trading above par is said to be trading at a premium, while a bond trading below par is regarded as trading at a discount. During periods when interest rates are low or have been trending lower, a larger proportion of bonds will trade above par or at a premium. When interest rates are high, a larger proportion of bonds will trade at a discount. If an investor buys a taxable bond for a price above par, the premium can be amortized over the remaining life of the bond, offsetting the interest received from the bond and hence reducing the investor's taxable income from the bond. Such premium amortization is not available for tax-free bonds purchased at a price above par.

Madrid Stock Exchange (MAD) .MA

The largest securities market in Spain, also known as the Bolsa de Madrid. In 1809, Jose I Bonaparte attempted to establish Spain's first stock exchange in Madrid but it failed because Madrid was not a major business center at the time. 1831 saw the enactment of the law creating the Madrid Stock Exchange with securities of banks, railways and iron and steel companies being the first traded. I: The Exchange remained open during WWI, but closed during the Spanish Civil War from 1936 through early 1940. The Spanish Stock Exchange was transformed in 1988 with Spain's incorporation into the European Monetary System. In 1993, the Madrid Stock Exchange switched to all-electronic trading for fixed-income securities. In 1999 Spain's securities markets began trading in Euros. Its regulatory body is the Spanish Stock Exchange Commission.

Federal Open Market Committee Meeting - FOMC Meeting

The meeting of the Federal Open Market Committee (FOMC) that occurs eight times a year. In the FOMC meeting, the FOMC, consisting of 12 members, determines near-term monetary policy. The changes that are decided on, are announced immediately after the FOMC Meeting. I: Because the Fed determines interest rate policy at the FOMC meeting, the announcement following this meeting is very important. Speculation often occurs weeks in advance, about what will happen with interest rates following the meeting. The minutes of this meeting are released three weeks after the gathering. This is a vast improvement over the six to eight week lag that existed prior to December 14, 2004.The expected change in rate (if any), is often priced into the markets prior to the announcement, which can cause drastic market action should the announcement be different from what was expected. Interest rate cuts can stimulate the economy, but at the same time, reduce the value of the currency.

Gamma

The rate of change for delta with respect to the underlying asset's price. Gamma is an important measure of the convexity of a derivative's value, in relation to the underlying. In a delta-hedge strategy, gamma is sought to be reduced in order to maintain a hedge over a wider price range. A consequence of reducing gamma, however, is that alpha too will be reduced. I: Mathematically, gamma is the first derivative of delta and is used when trying to gauge the price movement of an option, relative to the amount it is in or out of the money. When the option being measured is deep in or out of the money, gamma is small. When the option is near or at the money, gamma is at its largest. Gamma calculations are most accurate for small changes in the price of the underlying asset.

Accelerated Benefits

A clause in certain life insurance policies that enables the policy holder to receive the benefits before death. Accelerated benefits are normally reserved for those that suffer from a terminal illness, have a long term high-cost illness, require permanent nursing home confinement or have a medically incapacitating condition. Some insurance companies differ on how much cash can be pulled out and how close to death the insured has to be in order to receive these benefits. Insurers offer anywhere from 25% to 100% of the death benefit as an early payment. Also referred to as living benefits. I: The accelerated benefit is deducted from the death benefit that will be paid to the beneficiary upon the insured's death. It is paid for by adding the cost to the insurance premium. However, some companies do not add the cost to the premium, but instead charge the policyholder only if and when the holder actually needs this benefit. Universal life insurance policies, other permanent life insurance policies, term life insurance and group term or group permanent life insurance policies can offer this benefit.

A. Michael Spence

An American economist who has won the Nobel Memorial Prize in Economic Sciences. Spence is a professor emeritus of management in the Graduate School of Business at Stanford University, and a senior fellow at the Hoover Institution - a Stanford-based free-market think tank. Spence received the Nobel Memorial Prize in 2001, along with George Akerlof and Joseph Stiglitz, for his analysis of information asymmetry - specifically of how individuals can use their education credentials as a signal to potential employers. Spence is also a recipient of the John Bates Clark Medal. Prior to teaching at Stanford, Spence taught economics and business administration at Harvard. I: Born in 1943 in New Jersey, Spence grew up in Canada. His research subjects include emerging markets, information economics, dynamic competition and leadership's effect on economic growth. He has also served as a director on the boards of numerous public and private companies.

Ability To Pay

An economic principle stating that the amount of tax an individual pays should be dependent on the level of burden the tax will create relative to the wealth of the individual. The ability to pay principle suggests that the real amount of tax paid is not the only factor that has to be considered, and that other issues such as ability to pay should also factor into a tax system. I: The application of this principle is a progressive tax system, in which individuals with higher incomes are asked to pay more tax than individuals with lower incomes. Classical economists like Adam Smith believed any elements of socialism, such as a progressive tax, would destroy the initiative of the population within a free market economy. However, many countries have blended capitalism and socialism with a great degree of success.

Abeyance Order

An order that is temporarily placed on hold or held in suspension, due to prevailing circumstances, until it can be fulfilled. In advertising, an abeyance order refers to an order from an advertiser for a media slot on television or radio that is temporarily unavailable. As a result, the order may be held in abeyance until a suitable advertising slot opens up. I: In the legal context, an abeyance order generally refers to an order used in bankruptcy proceedings where the court declares that a claim on a property is held in abeyance. This can occur, for example, if the rightful owner or the holder of the mortgage on a property cannot be clearly identified. This situation was not uncommon after the U.S. housing market collapse from 2008 onwards.

Above The Market

An order to buy or sell at a price set higher than the current market price of the security. Examples of above the market orders include: a limit order to sell, a stop order to buy, or a stop-limit order to buy. I: This is a strategy that is often used by momentum traders. For example, a stop order would be placed above the resistance level to buy. Should the security's price break through the resistance level, the investor may be able to participate in the upward trend.

Academy Of Financial Divorce Practitioners

An organization dedicated to the development of financial expertise with respect to divorce. The Academy of Financial Divorce Practitioners trains its members in the financial aspects of divorce, such as alimony, property settlements, child support and retirement assets. Members of the academy, known as certified financial divorce practitioners (CFDPs), supply unbiased financial expertise to facilitate equitable divorce proceedings. I: The Academy of Financial Divorce Practitioners provides its members with two avenues of training. Prospective CFDPs may train in the classroom or undergo a self-study program. The academy also supplies its members with specialized software for financial planning.

B-Note

The secondary tranche in a commercial mortgage-backed security. B notes are a component of A/B financing or A/B/C financing. They have a lower credit rating than a class-A notes, but a higher credit rating than a class-C notes. The financed property serves as collateral for a B note. Also known as a "class B note". I: As long as the borrower is paying the mortgage on time (in other words, as long as the loan is performing), investors in all tranches will receive their respective shares of the borrower's payments concurrently. However, if the borrower defaults, holders of class A notes are paid their interest and principal payments before holders of class B notes. Similarly, holders of class B notes are paid before holders of class C notes. The interest rate and rating on class B notes reflects this level of risk. Alternatives to A/B note or A/B/C note financing include preferred equity, mezzanine debt and second mortgages, all of which are forms of secondary financing used in addition to a first mortgage.

Death Knell Stocks

The shares of a publicly traded company that is on the verge of insolvency or bankruptcy. A death knell stock typically trades for less than $1. Death knell stocks are considered a very high risk investment. Sometimes companies can recover from such a poor financial position, but even if they do, they still may not be stable or be expected to last in the long run. Investors in death knell stocks may not earn a return on their investments and may even lose their principal. I: Despite their low share price, death knell stocks should not be confused with penny stocks; the latter are typically micro-cap stocks that trade over the counter and have low volume. A historical example of a death knell stock is Lehman Brothers' stock, which collapsed in the blink of an eye in 2008 as the company went under.

Incentive Distribution Rights - IDRs

These give a limited partnership's general partner an increasing share in the incremental distributable cash flow the partnership generates. This occurs alongside of per-unit distribution increases to the limited partners. The general partner's share of incremental distributable cash flow usually starts at 2% and climbs to higher levels such as 20% or 50%. I: These rights are thought to motivate the general partner to rapidly grow the distributions to the limited partners. Incentive distribution rights are generally determined based on quarterly distribution figures.

S&P MidCap 400 Index

This Standard & Poor's index serves as a barometer for the U.S. mid-cap equities sector and is the most widely followed mid-cap index in existence. To be included in the index, a stock must have a total market capitalization that ranges from roughly $750 million to $3 billion dollars. Stocks in this index represent household names from all major industries including energy, technology, healthcare, financial and manufacturing. I: Like many other stock market indexes, the S&P 400 MidCap Index is a value-weighted index, meaning that the stocks with the largest market capitalization have the most significant impact on the movement of the index. Similarly, smaller movements in the smallest companies in the index have virtually no effect on the overall movement of the index. This is an important fact to remember for investors seeking diversification, as market-cap weighted index funds primarily expose an investor to the movements of a small group of stocks, despite the broad name of the index itself.

Real Estate Settlement Procedures Act - RESPA

This act was designed to protect potential homeowners and enable them to become more intelligent consumers. RESPA requires that lenders provide greater amounts of information to prospective borrowers at certain points in the loan settlement process. It also prohibits the various parties involved from paying kickbacks to each other. I: Originally passed by Congress in 1974, the latest RESPA regulations were published on November 17, 2008 and were scheduled to go into effect on January 1, 2010. Before this act was created, it was a common practice for a lender to advertise a loan at a certain rate of interest provided the borrower use the lender's title insurance company or other affiliate at a greatly inflated price. The affiliate would then pay the lender a portion of the inflated fee as a kickback.

Bad Paper

Unsecured short-term fixed income instrument that is issued either by a corporation, city, state or country, that has a high probability of defaulting on their promissory notes. Since bad paper is not backed by collateral, it is sold at a discount to the equivalent collateral-backed fixed-income securities. However, in contrast to regular commercial paper which typically has a strong rating from a credit agency, bad paper does not possess this quality. I: Bad paper is risky. Not only is it not backed by collateral, it is also issued by an entity that could potentially fail to meets its obligations. Bad-paper investors take on high levels of risk and, as a result, would be offered an attractive interest rate as proper compensation.

Paper Trade

Using simulated trading to practice buying and selling securities without actual money being involved. While a paper trade can be done by simply keeping track of hypothetical trading positions, it usually involves the use of a stock market simulator that has the look and feel of an actual stock market where budding investors can hone their trading skills. The proliferation of online trading platforms has made it easy to practice paper trading without committing actual capital. Another benefit of a paper trade is that it can be used to test a new investment strategy before putting new money into it. I: To derive the most benefit from paper trading, it should be taken seriously, with investment decisions made based on the same risk-return objectives, investment constraints and trading horizon as in real life. So, for example, if you are a risk-averse individual, it would make little sense to paper trade like a day trader and make dozens of very short-term trades. Paper trading may also give novice investors or traders the impression that trading is quite easy, and lull them into a false sense of security. This is because paper trading does not involve putting one's hard-earned money on the line. As a result, basic investment strategies such as buying low and selling high - which are quite difficult to adhere to in real life - appear relatively easy to make while paper trading. The first lesson of paper trading, therefore, is that while it is a great practice tool, it is very different from actual trading with real money.

B1/B+

Usually the lowest investment grade rating assigned to a security or insurance carrier. This rating signifies that the issuer or carrier is relatively stable with a moderate chance of default. Investors and policyholders of the rated entity are taking a low to medium risk. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

Panic Selling

Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell. I: The main problem with panic selling is that investors are selling in reaction to pure emotion and fear, rather than evaluating fundamentals. Almost every market crash is a result of panic selling. Most major stock exchanges use trading curbs and halts to limit panic selling, to allow people to digest any information on why the selling is occurring, and to restore some degree of normalcy to the market.

Safety-First Rule

Within the context of post-modern and modern portfolio theory, a safety-first rule involves creating a portfolio based on a minimum level of portfolio returns, which is called the minimum acceptable return. By setting up a minimum acceptable return, investors will mitigate the risk of not achieving their investment objective. I: A safety-first rule is a form of margin of safety that can be used when creating a portfolio using post-modern portfolio theory. When maximizing the objective function, the expected return used in the security market line equation in lowered, to reflect this margin of safety. The objective function in this capacity is the Sharpe ratio or the Sortino ratio.

Abend

An unexpected end to a computer program that results in the system crashing or closing down. Derived from the abbreviated version of the term "abnormal end", abend crashes in a business setting can cost companies a significant amount of money. This is why many information technology (IT) departments spend a lot of resources to detect and correct bugs in software. I: An abnormal end, rather than a planned termination, of a computer program may either be due to an easily resolved problem (such as insufficient memory) or on account of a technical glitch that is difficult to identify. The term "abend" is an archaic one that is more commonly used with reference to older mainframe computers such as the IBM 360, rather than modern desktops and laptops.

Accelerated Depreciation

Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. I: The straight-line depreciation method spreads the cost evenly over the life of an asset. On the other hand, a method of accelerated depreciation like the double declining balance (DDB) allows you to deduct far more in the first years after purchase.

Abandoned Property

Assets such as cash, stocks, bonds, mutual funds, uncashed checks, land, life insurance policies and the contents of safe deposit boxes that have been turned over to the state after several years of inactivity. Some states hold onto such property and allow the original owners and heirs to claim it indefinitely. In other states, if the property goes unclaimed for too long, it may become the state's property through a process known as escheatment. One purpose of abandoned property laws is to relieve the asset holder of liability. I: In the United States, state laws determine when an asset is legally considered abandoned. In Massachusetts, for example, a bank account that has seen no activity for more than three years will be turned over to the state, but owners can file a claim to collect their abandoned property at any time. To locate abandoned property, also called unclaimed property, individuals can do a free search through state-sponsored websites or they can contact the state treasury or comptroller's office. States may also try to locate owners of unclaimed property through letters and newspaper announcements.

Santiago Stock Exchange (SSE) .SN

Located in Santiago, the SGO is the premier stock exchange of Chile. It trades stocks, bonds, investment funds, derivatives and gold and silver Chilean coins. It also has an electronic trading platform called Telepregon, which trades U.S. dollars. Only market shares are traded on the floor in conjunction with screen trades. I: The SGO was founded in 1893. It runs from 9:30am to 4:30pm in the winter and stays open until 5:30pm in the summer. The SGO posts three major indices, the General Stock Price Index, the Selective Stock Price Index and the Inter-10 Index.

Hedge

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. I: An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations. Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).

Imbalance Only Orders (IO)

Limit orders that provide liquidity during the opening cross and closing cross on the Nasdaq. Imbalance Only (IO) orders will execute only on the opening cross or closing cross. IO buy orders only execute at or below the 9:30am or 4pm bid price, while IO sell orders only execute at or above the offer price. Before opening/closing crosses are executed, buy/sell IO orders are re-priced to the best bid and ask price, respectively, on the Nasdaq book. IO orders must necessarily be limit orders; market IO orders are not permitted. I: IO orders are not displayed or disseminated. They neither add to an imbalance, nor do they establish the opening or closing price. Since IO orders are only executable during the opening cross or closing cross, they are not at risk of being executed prior to market open or close, unlike continuous market orders. IO orders are accepted on the Nasdaq starting from 7am. Market participants cannot update IO orders for the opening cross after 9:28am, or update IO orders for the closing cross after 3:50pm. However, in both cases, new IO orders can still be entered after those deadlines. Note that IO orders can sell short. Sell-short IO orders and sell IO orders priced at or below the best bid price are re-priced to the best offer price at 4pm. During the closing cross, sell-short IO orders are executed on a downtick only if the closing price is better than the best bid; these orders will not participate if the closing price is at or below the best bid.

Dealer Financing

Loans that are originated by a retailer to its customers and are then sold to a bank or other third-party financial institution. The bank purchases these loans at a discount and then collects principle and interest payments from the borrower. Also called an indirect loan. I: A well-known example of dealer financing is auto dealers that offer car purchase financing. Many car dealers markup the finance company's interest rate and keep the difference as additional profit.

Above Ground Risk

Non-quantifiable risks that can adversely affect a project or investment. Above ground risk is generally used in the energy industry to refer to non-technical risks such as environmental issues and the regulatory climate. More broadly, above ground risk refers to a wide range of somewhat nebulous risks such as political risk, corporate risk, security and corporate governance whose impact is difficult to quantify, but could be significant should one or more of these risks become a real threat. I: Above grounds risks may also include a number of risks that are less acknowledged such as corruption, bribery and conflicts of interest. The degree of above ground risk differs from one nation to the next. Countries with pro-business policies, strong governance and efficient legal systems may have a lower degree of above ground risk than those nations that do not possess these attributes.

Abandon Rate

The percentage of inbound phone calls made to a call center or service desk that are abandoned by the customer before speaking to an agent. It is calculated as abandoned calls divided by total inbound calls (in percent). Abandon rates have a direct relation to waiting times. The longer the time that customers have to wait before being connected to an agent, the higher the abandon rate is likely to be. I: For example, if a call center receives an average of 1,000 calls a day, of which 40 are abandoned by customers, the abandon rate is 4%. High abandon times may indicate under-allocation of resources to the call center or help desk by the company, and can saddle a company with the reputation of offering poor customer service. It may also result in lost sales opportunities and highly dissatisfied customers, as anyone who has spent a significant amount of time waiting in a virtual queue for customer service can attest.

Acceptance Market

Investment market based on short-term credit instruments. An acceptance is a time draft or bill of exchange that is accepted as payment for goods. A banker's acceptance, for example, is a time draft drawn on and accepted by a bank, which is a common method of financing short-term debts in international trade including import-export transactions. I: The acceptance market is useful to exporters, who are immediately paid for exports; for importers, who do not need to pay until possession of goods occurs; for the financial institutions, that are able to profit from the acceptances; and for investors who trade acceptances in the secondary market. Acceptances are sold in the secondary market at a discount from face value (similar to the Treasury Bill market), at published acceptance rates.

T. Boone Pickens

One of America's foremost oil and gas entrepreneurs, T. Boone Pickens chairs the BP Capital Management Hedge Fund. He is one of the richest men in the world, with a net worth in the billions. He became well known for his successful business takeover tactics in the 1980s. I: T. Boone Pickens was born on May 22, 1928, and graduated from Oklahoma State University with a geology degree in 1951. He founded the BP management fund in 1997, and runs two hedge funds: Capital Commodity and Capital Equity, both of which invest primarily in oil and gas. He was a major financial support of President George W. Bush.

Kappa

One of the "Greeks," kappa is the ratio of the dollar price change of an option to a 1% change in the expected price volatility (also called implied volatility) of the underlying asset. Kappa tells investors how much an option's price will change for a given change in implied volatility, even if the actual price of the underlying stays the same. Kappa is higher the further away an option's expiration date is and falls as the expiration date approaches. Just as individual options each have a kappa, an options portfolio has a net kappa that is determined by adding up the kappas of each individual position. I: A positive kappa is associated with a long option and means that the option becomes more valuable as volatility increases, and a negative kappa is associated with a short option and means the option becomes more valuable as volatility decreases. Kappa, also called vega, is one of the most important options Greeks. Other important options Greeks include delta, which measures the impact of a change in the underlying asset's price; gamma, which measures the rate of change of delta; and theta, which measures the impact of a change in time remaining to expiration.

Jarrow Turnbull Model

One of the first reduced-form models for pricing credit risk. Developed by Robert Jarrow and Stuart Turnbull, the model utilizes multi-factor and dynamic analysis of interest rates to calculate the probability of default. Reduced-form models are one of two approaches to credit risk modeling, the other being structural. I: Structural models assume that the modeler - like a company's managers - has complete knowledge of its assets and liabilities, leading to a predictable default time. Reduced-form models assume that the modeler - like the market - has incomplete knowledge about the company's condition, leading to an inaccessible default time. Jarrow concludes that for pricing and hedging, reduced-form models are the preferred methodology.

Call On A Put

One of the four types of compound options, this is a call option on an underlying put option. If the option owner exercises the call option, he or she receives a put option, which is an option that gives the owner the right but not the obligation to sell a specific asset at a set price within a defined time period. The value of a call on a put changes in inverse proportion to the stock price, i.e. it decreases as the stock price increases, and increases as the stock price decreases. Also known as a split-fee option. I: A call on a put will have therefore two strike prices and two expiration dates, one for the call option and the other for the underlying put option. As well, there are two option premiums involved; the initial premium is paid upfront for the call option; the additional premium is only paid if the call option is exercised and the option owner receives the put option. The premium in this case would generally be higher than if the option owner had only purchased the underlying put option to begin with. For example, consider a U.S. company that is bidding on a contract for a European project; if the company's bid is successful, it would receive say 10 million euros upon project completion in one year's time. The company is concerned about the exchange risk posed to it by the weaker euro if it wins the project. Buying a put option on 10 million euros expiring in one year would involve significant expense for a risk that is as yet uncertain (since the company is not sure that it would be awarded the bid). Therefore, one hedging strategy the company could use would be to buy, for example, a two-month call on a one-year put on the euro (contract amount of 10 million euros). The premium in this case would be significantly lower than it would be if it had instead purchased the one-year put option on the 10 million euros outright. On the two-month expiry date of the call option, the company has two alternatives to consider. If it has won the project contract or is in a winning position, and still desires to hedge its currency risk, it can exercise the call option and obtain the put option on 10 million euros. Note that the put option will now have ten months (i.e. 12 - 2 months) left to expiry. On the other hand, if the company does not win the contract, or no longer wishes to hedge currency risk, it can let the call option expire unexercised and walk away.

Savings And Loan Crisis - S&L

One of the largest financial scandals in U.S. history, the Savings and Loan Crisis emerged in the late 1970s and came to a head in the 1980s, finally ending in the early 1990s. In the volatile interest rate climate of the '70s, large numbers of depositors removed their funds from savings and loan institutions (S&Ls) and put them in money market funds, where they could get higher interest rates since money market funds weren't governed by Regulation Q, which capped the amount of interest S&Ls could pay to depositors. S&Ls, which were largely making their money from low-interest mortgages, did not have the means to offer higher interest rates, though they tried to once interest rate ceilings were dropped in the early '80s. As S&L regulations loosened, they engaged in increasingly risky activities, including commercial real estate lending and investments in junk bonds.Also known as "thrifts". I: Because S&L deposits were insured by the Federal Savings and Loan Insurance Corporation (FSLIC), depositors continued to put money into these risky institutions. A complex web of these factors and others, combined with widespread corruption, led to the insolvency of the FSLIC, the government bailout of the thrifts to the tune of $124 billion in taxpayer dollars and the liquidation of 747 insolvent S&Ls by the U.S. government's Resolution Trust Corporation. One of the largest S&L failures was that of Lincoln Savings & Loan, part of the Keating Five scandal which exposed the political corruption that was part of the S&L Crisis.

National Australia Bank - NAB

One of the major banking entities in Australia. The National Australia Bank (NAB) provides a wide range of financial services, including banking, wealth management and a platform for investment banking. The NAB has locations throughout Australia and New Zealand, as well as the U.K. and the United States. The NAB also has a highly regarded economics research division, which releases the NAB Business Confidence leading indicator every month that is followed by traders worldwide. I: The NAB is one of the "big four" banks in Australia, with over 1,800 branches (as of 2009). Clydesdale and Yorkshire banks are its two subsidiaries that operate in the U.K., and it purchased Great Western Bank in the U.S. to gain a foothold here as well. NAB also provides a range of investment and insurance services for institutional clients.

John Neff

One of the most acclaimed mutual fund investors and portfolio managers of the past 40 years. John Neff is often considered a contrarian investor who is not largely concerned with rigorous security analysis and implemented such strategies as emphasizing a low P/E ratio investments. He resembles other investors such as Warren Buffett in that he looks strongly to ROE (return on equity) as a prime quality indicator. I: John managed Vanguard's Windsor fund from 1961 to 1995. In that time, the fund averaged 13.7% per year, compared to 10.6% for the Standard and Poor's 500 Index. He also published a highly acclaimed book on investment strategies in 2001, "John Neff on Investing".

Odious Debt

Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated. In practice, countries often end up repaying it to uphold their ability to borrow at favorable interest rates. I: Legal scholars have identified regimes associated with odious debt in Nicaragua, the Philippines, Haiti, South Africa, Congo, Niger, Croatia and other countries whose rulers have looted national funds for their personal accounts or used the money to restrict liberties and inflict violence on their own citizens. In the European debt crisis of the early 2010s, some critics called Greek's debt odious.

Income

Money that an individual or business receives in exchange for providing a good or service or through investing capital. Income is consumed to fuel day-to-day expenditures. Most people age 65 and under receive the majority of their income from a salary or wages earned from a job. Investments, pensions and Social Security are primary sources of income for retirees. In businesses, income can refer to a company's remaining revenues after all expenses and taxes have been paid. In this case, it is also known as "earnings". Most forms of income are subject to taxation. I: Most individuals gain income through earning wages by working and/or making investments into financial assets like stocks, bonds and real estate. In most countries, earned income is taxed by the government before it is received. The revenue generated by income taxes finances government actions and programs as determined by federal and state budgets. The IRS calls income from sources other than a job, such as investment income, "unearned income". The wages, salaries, interest, dividends, business income, capital gains, pension and annuity payments, rental income, farming and fishing income, unemployment compensation, jury duty pay, gambling income, bartering income, retirement plan distributions and stock options an individual receives in a given tax year are considered taxable income in the United States. Types of income that may be tax-exempt include interest income from U.S. Treasury securities (which is exempt at the state and local levels), interest from municipal bonds (which is potentially exempt at the federal, state and local levels) and capital gains that are offset by capital losses. Types of income that may be taxed at lower rates include qualified dividends and long-term capital gains. Social Security income is sometimes taxable, depending on how much other income the taxpayer receives during the year. The money an individual has left after taxes are subtracted from income is called disposable income. Most people spend this money on necessities like housing, food and transportation and on discretionary items like restaurant meals, vacations and cable television.

Same-Day Funds

Money that can be transferred or withdrawn the same day that it is deposited. Same-day funds are subject to the net settlement of accounts between the banks that present and remit the funds. Most customer deposits are not same-day funds and are usually not available for withdrawal until the next business day. I: "Same-day funds" can also refer to federal funds that are sent via bank wire. This money would be sent between banks via Fedwire the same day. Clearing House Interbank Payments System transfers in New York are also known as same-day funds.

Idle Funds

Money that is not invested and, therefore, earning no interest or investment income. Idle funds are simply funds that are not deposited in an interest bearing or investment tracking vehicle, that is, not participating in the economic markets. These funds are often thought of as "wasted" funds, since they do not appreciate in any manner. I: In instances where there is a positive inflation rate in a domestic nation, idle funds will actually decrease in value from a purchasing power perspective, as the funds fail to keep up with the rate of inflation. One option individuals have to earn income on funds, while maintaining liquidity of those funds, is to invest in money market or short-term interest accounts that will provide the depositor with a short-term rate of interest.

Cancellation

Notice by a broker informing his or her client that an erroneous trade was made and that the situation is being addressed. For example, if a broker purchased 3,000 shares in the Acme Widget Company and the order was supposed to be for 2,000 shares, the broker will need to sell the additional shares at his or her expense. Thereafter, the broker will need to inform his or her client of the transaction. I: Even in this era of electronic trading, mistakes get made. And when they do, it is important for the broker that made the mistake to quickly rectify the situation. Naturally, everything is recorded and statements are sent, showing the cancellation to ensure that the broker in question is not improperly handling the account.

Earnings Surprise

Occurs when a company's reported quarterly or annual profits are above or below analysts' expectations. These analysts, who work for a variety of financial firms and reporting agencies, base their expectations on a variety of sources - previous quarterly or annual reports, current market conditions, as well as the company's own earnings' predictions or "guidance." I: Earnings surprises can have a huge impact on a company's stock price. Several studies suggest that positive earnings surprises not only lead to an immediate hike in a stock's price, but also to a gradual increase over time. Hence, it's not surprising that some companies are known for routinely beating earning projections. A negative earnings surprise will usually result in a decline in share price.

Acceleration Clause

A contract provision that allows a lender to require a borrower to repay all or part of an outstanding loan if certain requirements are not met. An acceleration clause outlines the reasons that the lender can demand loan repayment. Also known as "acceleration covenant". I: For example, a borrower who fails to make a payment or who breaks a covenant may be required to pay the lender the balance on a loan. In this case, the borrower is considered in breach of contract. Acceleration clauses are most commonly found in mortgage and real estate loans. Since these loans tend to be so large, the clause helps protect the lender from the risk of borrower default.

Absolute Frequency

A statistical term describing the total number of trials or observations within a given interval or frequency bin. The frequency bins can be of any size, but they must be mutually exclusive, exhaustive and the data must be grouped. I: The absolute frequency is simply the total number of observations or trials within a given range. For example, assume there is a collection of grouped data for the percentage returns for a particular stock, which is ranged from lowest to highest. If there are 56 observations within the 5-7% frequency bin, then the absolute frequency of this bin is 56.

Accelerated Cost Recovery System - ACRS

A system of depreciation introduced by the Economic Recovery Tax Act of 1981. ACRS depreciation is based on recovery periods instead of useful life. These periods were predetermined by the IRS. I: The modified accelerated cost recovery system (MACRS) replaced ACRS for property placed into service after 1986.

Absolute Performance Standard

A way of measuring an organization's progress and how effective and efficient it is at running its business. The absolute performance standard is a benchmark for quality control that is only attainable in theory. However, it is a good way to measure how well a business and its workers are doing. I: Many organizations implement different forms of performance standards that measure different aspects. Some companies use "pay for performance" incentive programs based on merit for workers who do well in their job. Performance standards should be attainable, specific, observable, meaningful, measurable and stated in terms of quality, quantity, timeliness or cost.

Above The Line Deduction

Above the line deductions are certain types of deductions that are subtracted from your income before the adjusted gross income is calculated for tax purposes. I: Above the line deductions include such items as losses on a property sale, alimony payments and educational expenses. Since above the line deductions are generally deducted from taxable income, they are advantageous to taxpayers in the sense that they reduce the overall tax burden.

Salad Oil Scandal

One of the worst corporate scandals of its time. It occurred when Allied Crude Vegetable Oil Company discovered that banks would make loans secured by its salad oil inventory. When the ships full of salad oil would arrive in the docks, inspectors would test it and confirm that the ship was full of salad oil. However, the company didn't remind anyone that oil floats on water. They had filled salad oil tanks with water and put a few feet of oil on top, fooling everyone. The company would even transfer oil to different tanks while taking inspectors out to lunch. In 1963, the scam was busted and over $175 million worth of salad oil was missing. I: Commodities trader and company founder Anthony De Angelis was convicted of fraud and conspiracy in the scandal and served seven years in prison. American Express took one of the biggest hits from the scandal, losing nearly $58 million and experiencing a 50% drop in AMEX stock as a result.

Canada Pension Plan - CPP

One of three levels of Canada's retirement income system, which is responsible for paying retirement or disability benefits. The Canada Pension Plan was established in 1966 to provide a basic benefits package for retirees and disabled contributors. If the recipient dies, survivors receive the plan's provided benefits. The CPP pays a monthly amount, which is designed to replace about 25% of the contributor's earnings on which initial contributions were based, and is indexed to the Consumer Price Index. I: There are several rules governing the amount an individual will receive upon retirement or disability. This amount is based on the person's age and how much he or she contributed to CPP while working. CPP benefits are considered taxable income. This is why some households elect to share the income, which can reduce taxes.CPP is roughly equivalent to the U.S. Social Security program. People residing in Quebec contribute to and receive the Quebec Pension Plan (QPP), not the CPP.

Joint-Life Payout

One of two options normally available for retirees to choose as the method of payout for their employee retirement benefits. The joint-life payout option allows the retiree to receive benefits during the remainder of his/her life and guarantees income for another person after he/she has died, most often this other person is the retiree's spouse. Unless the retiree's statements explicitly states the joint-life payout, the default payout option is the single-life option. I: In contrast, a single-life option will pay out benefits to a retiree starting at retirement, but the payouts cease upon the retiree's death. Choosing a payout option is an important decision and several factors should be taken into consideration, such as health, anticipated life expectancy and family's financial circumstances.

Health Insurance Marketplace

Organizations that facilitate structured and competitive markets for purchasing health coverage. The Health Insurance Marketplace, or "Exchange," offers standardized health insurance plans to individuals, families and small businesses. Certain states operate their own marketplace, while others opt for a partnership exchange where the federal government manages the marketplace. In each state, various private insurance companies submit plans to be included in the marketplace. The marketplace plans are separated into four primary levels: Bronze, Silver, Gold and Platinum, each based on the average percentage the plan pays toward health-care services. Also known as Health Insurance Exchange. I: The Health Insurance Marketplace was established as part of the Patient Protection and Affordable Care Act (ACA), the U.S. health reform signed into law by President Barack Obama on March 23, 2010. The marketplaces are intended to provide places where consumers can compare and purchase standardized health coverage that includes a mandatory set of covered health-care items and services known as essential health benefits. These benefits are minimum requirements for all health plans offered to individuals or through the small-group market to employers with 50 or fewer employees. They include ambulatory patient services, emergency services, hospitalization, laboratory services, maternity/newborn care, mental health services and addiction treatment, rehabilitative services and devices, pediatric services, prescription drugs, preventive and wellness services, and chronic disease management. Most individuals and families qualify for federal subsidies that can help lower health insurance costs. Cost-sharing reductions can help lower out-of-pocket costs such as deductibles, copayments and coinsurance, and advanced premium tax credits can reduce the amount consumers pay each month for their health insurance premiums. Both subsidies are available only to qualified individuals who meet certain income requirements and who are ineligible for public coverage (such as Medicaid and the Children's Health Insurance Plan), are unable to get qualified health insurance through an employer, and who purchase health coverage on the Health Insurance Marketplace.

Qualified Mortgage Insurance Premium

Premium paid by homeowners on mortgage insurance for FHA loans that can be deducted in the same manner as home mortgage interest. Qualified mortgage-insurance premiums can be deducted in addition to allowable mortgage interest for up to three years. In order to qualify, the mortgage must have been originated after 2006. I: The amount you can deduct is reduced by 10% for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately).

Real Estate Owned - REO

Property owned by a lender - usually a bank - after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: the minimum bid in most foreclosure auctions equal the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale. I: If the property is real estate owned, the bank will then go through the process of trying to sell the property on its own. It will try to remove some of the liens and other expenses on the home, and then try to sell it on the market. Real estate investors will often go after these properties as banks are not in the business of owning homes and, in some cases, the house can be bought at a discount to its market value.

Raúl Alarcón Jr.

Raúl Alarcón Jr. is the president, CEO and chairman of the Spanish Broadcasting System (SBS). Alarcón Jr. became president in 1985, CEO in 1994 and chairman in 1999. He was born in 1956 in Havana and joined SBS as an account executive in 1983, the year the company was founded. Alarcón Jr.'s father was also in the Spanish-language radio broadcasting business. I: SBS is a publicly traded company that owns Spanish-language radio stations providing music tailored to the growing U.S. Hispanic population in Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco. In addition to its numerous radio stations, SBS produces live concerts and has a small television and internet presence.

Occupational Labor Mobility

Refers to the ease with which workers can switch career fields to find gainful employment or meet labor needs. Higher levels of occupational labor mobility help to maintain strong employment and productivity levels, leading many governments to provide occupational retraining to help workers acquire necessary skills and expedite the process. I: A lack of occupational labor mobility is often referred to as "golden handcuffs," meaning that higher paid workers with only one unique skill-set cannot quickly change career fields without a major financial adjustment. The ongoing struggles of the U.S. autoworker have provided a painful example of this, with many downsized workers not being able to find employment with compensation anywhere close to their previous levels.

Nationalization

Refers to the process of a government taking control of a company or industry, which can occur for a variety of reasons. When nationalization occurs, the former owners of the companies may or may not be compensated for their loss in net worth and potential income.Nationalization is most common in developing countries subject to frequent leadership and regime changes. In these instances, nationalization is often a way for a government to expand its economic resources and power.The opposite of nationalization is privatization, when government-owned companies are spun off into the private business sector. I: In the United States, true nationalization is a rare occurrence. The last true nationalization of an industry was the government takeover of airport security after the September 11th tragedies in 2001. Prior to that, there were some selective nationalizations of savings and loan institutions in the early 1980s, as well as much of the railroad industry in the 1970s. Many have argued that the government takeover of a number of failing companies, such as GM and AIG, has also amounted to nationalization, even though the U.S. government exerts very little control over these companies.

Recapitalization

Restructuring a company's debt and equity mixture, most often with the aim of making a company's capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company's capital structure and replacing them with bonds. I: Recapitalization can be undertaken for a number of reasons, such as defending against a hostile takeover, minimizing taxes or to implement an exit strategy for venture capitalists. Companies often want to diversify their debt-to-equity ratio to improve liquidity. A good example is when a company issues stock in order to buy back debt securities, thus increasing its proportion of equity capital as compared to its debt capital.Generally speaking, when a company's debt decreases in proportion to its equity, it has lower leverage and thus, ceteris paribus, its earnings per share should decrease following the change, however its shares would be incrementally less risky, since the company's shareholders have fewer debt obligations which must be paid by the company before shareholders can see profits.

Kiwi Bond

Retail stock offered directly to the public and available only to New Zealand residents. Application forms and investment statements are available from the new Zealand Debt Management Office (NZDMO) Registry, as well as some registered banks, NZX firms, NZX brokers, chartered accountant, solicitors, investment advisors and investment brokers. I: New Zealanders are often referred to as Kiwis. Kiwi bonds are denominated in new Zealand dollars, with a fixed interest rate that is paid quarterly in arrears. Kiwi bonds are redeemable on maturity or at the option of the bondholder and are issued in six-month, one-year and two-year maturities. The minimum investment is $1,000 New Zealand dollars, with a maximum investment of $500,000 on any single issue. Interest rates for Kiwi bonds are set periodically by the New Zealand Debt Management Office (NZDMO) based on moving averages of domestic wholesale rates.

Idiosyncratic Risk

Risk that is specific to an asset or a small group of assets. Idiosyncratic risk has little or no correlation with market risk, and can therefore be substantially mitigated or eliminated from a portfolio by using adequate diversification. Research suggests that idiosyncratic risk, rather than market risk, accounts for most of the variation in the risk of an individual stock over time. Similar to unsystematic risk. I: Since idiosyncratic risk is by definition generally unpredictable, investors should seek to minimize its negative impact on a portfolio by diversification or hedging. For example, the risk of a pipeline company incurring massive damages because of an oil spill can be mitigated by investing in a broad cross-section of stocks within the portfolio.As another example, consider a mining exploration company that is operating in a nation where the risk of nationalization is fairly high. This risk can be diversified either by investing in other mining companies that do not operate in the same nation, or can be hedged through the use of options or other hedging instruments.

Oil Sands

Sand and rock material which contains crude bitumen (a heavy, viscous form of crude oil). Oil sands are found primarily in the Athabasca region of northern Alberta, Canada, and in areas of Venezuela. Bitumen is extracted and processed using two methods:1. Mining - Large areas of land are cleared of trees and brush, then the top soil and clay are removed to expose the oil sand. This surface mining method uses large trucks and shovels to remove the sand, which can have a volume of anywhere from 1-20% of actual bitumen. After processing and upgrading, the end result is sent to refineries, where it's made into gasoline, jet fuel and other petroleum products.2. In Situ - This relatively new method is mainly used to get bitumen in oil sand that is buried too deep below the earth's surface to be recovered with a truck and shovel. In situ technology injects steam deep beneath the earth to separate the viscous bitumen from the sand and pump it up to the surface. The bitumen then goes through the same upgrading process as it would in the mining method. I: The Alberta government estimates that there are 1.7 to 2.5 trillion barrels of oil trapped in the oil sands, but some industry groups and organizations dispute this claim. The end product from oil sand is very similar to, if not better than, that of conventional oil extraction (using oil rigs). But the intensive mining, extraction and upgrading process means that oil from oil sands typically costs several times more money to produce than conventional methods.1. The mining method is considered to be very damaging to the environment, as it involves leveling hundreds of square miles of land, trees and wildlife. Oil companies using this method are required to return the area to its original environmental condition once the mining is completed, adding further to costs.2. The in situ method is more costly than the mining method, but it's much less damaging to the environment, requiring only a few hundred meters of land and a nearby water source to operate. It's estimated by the Alberta government that 70-80% of oil in the oil sands is buried too deep for open pit mining; therefore, in situ methods will likely be the future of extracting oil from oil sands. The most common form of in situ is called Steam Assisted Gravity Drainage (SAGD).

Mandatorily Redeemable Shares

Shares owned by an individual or entity which are required to be redeemed for cash or another such property at a stated time or following a specific event. Mandatorily reedemable shares are often issued by employers as a sort of compensation kicker to employees; however, the employer would require the employees to redeem these shares for cash or bonds, for example in the case of certain prescribed events or timelines. I: One example of a situation where an employer would issue manditorily redeemable shares would be in the case of an employee quitting the firm. The employer would excercise its "call" option on these shares forcing the exiting employee to sell back his or her company shares. An employer might do this in a situation where the shares are restricted and greatly in the money, or if it is a closely-held company with relatively few shares in float.

OHLC Chart

Short for "Open, High, Low, Close chart." This is a securities chart that clearly shows the opening, high, low and closing prices for a security. I: This type of chart is often used by technical analysts to spot trends and view stock movements, particularly on a shorter term basis.

Oligopsony

Similar to an oligopoly (few sellers), this is a market in which there are only a few large buyers for a product or service. This allows the buyers to exert a great deal of control over the sellers and can effectively drive down prices. I: A good example of an oligopsony would be the U.S. fast food industry, in which a small number of large buyers (i.e. McDonald's, Burger King, Wendy's) controls the U.S. meat market. Such control allows these fast food mega-chains to dictate the price they pay to farmers for meat and to influence animal welfare conditions and labor standards.

3-6-3 Rule

Slang used to refer to an "unofficial rule" under which the banking industry once operated, which alludes to it being noncompetitive and simplistic.The 3-6-3 rule describes how bankers would give 3% interest on depositors' accounts, lend the depositors money at 6% interest and then be playing golf at 3pm. This alludes to how a bank's only form of business is lending out money at a higher rate than what it is paying out to its depositors. I: Many attribute the problems faced by the banking industry during the events that lead up to the Great Depression as reasons why the government implemented tighter banking regulations. These regulations controlled the rates at which banks can lend and borrow money. Unfortunately, the regulations made it difficult for banks to compete with each other and the banking industry became stagnant. However, with the loosening of banking regulations and the widespread adoption of information technology such as the internet, banks now operate in a much more competitive and complex manner. For example, banks are now providing insurance, brokerage and other forms of financial services.

Hard Skills

Specific, teachable abilities that can be defined and measured. By contrast, soft skills are less tangible and harder to quantify. Examples of hard skills include job skills like typing, writing, math, reading and the ability to use software programs; soft skills are personality-driven skills like etiquette, getting along with others, listening and engaging in small talk. In business, hard skills most often refer to accounting and financial modeling. I: Hard and soft skills are often referred to when applying for a job. For most jobs, while the hard skills are essential to getting the interview, it's the soft skills that will land the job because employers want someone who won't just perform their job function, but will be a good personality fit for the company and make a good impression on clients.

Backup Withholding

Tax that is levied on investment income, at an established tax rate, as the investor withdraws it. Backup withholding helps to ensure that government tax-collecting agencies (such as the IRS or Canada Revenue Agency) will be able to receive income taxes owed to them from investors' earnings. Backup withholding may be applied when an investor has not met rules regarding taxpayer identification numbers (TIN). At the time the investor withdraws his or her investment income, the amount mandated by the backup withholding tax is remitted to the government, providing the tax-collecting body with the required funds immediately, but leaving the investor with less short-term cash flow. I: Investors commonly earn income - for example, interest payments, dividends, capital gains - from assets in which they have invested. While this income is taxable at the time it is received, the taxes owed on any calendar year's worth of investment income only come due once every year, during tax season.Thus, an investor could potentially spend all of his investment income before his annual income taxes come due, leaving him unable to pay taxes, and leaving the IRS with the difficult and expensive job of collecting the taxes owed. It is primarily this risk that motivates the government to sometimes require backup withholding taxes to be levied by financial institutions at the time investment income is earned.

1913 Federal Reserve Act

The 1913 U.S. legislation that created the current Federal Reserve System. The Federal Reserve Act intended to establish a form of economic stability through the introduction of the Central Bank, which would be in charge of monetary policy, into the United States. The Federal Reserve Act is perhaps one of the most influential laws concerning the U.S. financial system. I: Prior to 1913, panics were common occurrences, as investors were unsure about the safety of their deposits. The Federal Reserve Act gave the 12 Federal Reserve banks the ability to print money in order to ensure economic stability. In addition to this task, the Fed had the power to adjust the discount rate/the fed funds rate and buy & sell U.S. treasuries.

David M. Cote

The CEO and chairman and former president of Honeywell International. Cote achieved these positions in 2002, and since then has dealt with asbestos lawsuits, company debt and falling stock prices. He helped Honeywell improve its manufacturing processes and improve its financial position by increasing sales, earnings per share and cash flow. He holds a bachelor's degree from the University of New Hampshire and has also served on the board of JP Morgan Chase. I: Born in 1952, Cote began his career with General Electric in 1974 as a factory laborer and worked his way up to president and CEO of appliances by helping the company cut costs and increase sales, especially in Asia. He joined TRW in 1999 and became its president, CEO and chairman and helped the company improve its manufacturing processes and create a subsidiary, Velocium.

James R. Crosby

The CEO of HBOS Plc from 1998 to 2006. Crosby trained as an actuary and joined Halifax Building Society in 1994 as a managing director. Through the acquisition of two insurance companies, Crosby helped turn Halifax from a mortgage bank into a broader financial services company. In 2001, Crosby engineered a merger between Halifax and the Bank of Scotland, creating HBOS. HBOS was a leader in its sector in 2003, although it was experiencing financial trouble in 2002 from bad loans. The bank ended up collapsing in 2008, and Lloyds TSB, one of HBOS's main competitors, took over HBOS in 2009 to form Lloyds Banking Group. I: Crosby was born in 1956 in Britain and began his career in 1977 as a fund manager with life insurance company Scottish Amicable. He has also been an adviser to former British Prime Minister Gordon Brown. Crosby stepped down from HBOS in 2006; he was also forced to resign from Britain's Financial Services Authority, which regulates the UK's financial service providers, after being accused of firing the head of HBOS's risk team for his acting as a whistleblower and warning that the bank was engaging in excessively risky behavior. Crosby was criticized for the high pension he was due to receive despite the crisis at HBOS.

CalPERS

The California Public Employees' Retirement System (CalPERS), an organization that provides numerous benefits to its more than 1.6 million members, including health insurance, long-term care insurance, death benefits, mortgage program, and distribution of pension and retirement-related financial benefits. CalPERS Investments is the nation's largest public pension fund and, given its size, it is able to exercise significant pressure to make desired changes within the companies in which it invests. I: CalPERS Investments publishes an annual "Focus List," which contains companies with concerning financial performance and questionable or undesirable corporate governance practices. Instead of boycotting these companies - and posing a significant threat to their attractiveness as a business for investment by other firms - the organization works with listed companies to improve their performance. The resulting turnaround for companies on the Focus List has created a phenomenon known as the "CalPERS effect."

Canadian Institute Of Actuaries - CIA

The Canadian Institute of Actuaries, or CIA, is an organization of the actuarial profession in Canada. The CIA's vision is to for actuaries to be recognized as the leading professionals in the financial modeling and risk management fields. It is the Canadian version of the AmericanAcademy of Actuaries. I: The Canadian Institute of Actuaries was established in March, 1965, by an act of Canada's federal Parliament. The organization requires members to reside in Canada and to belong to an approved actuarial organization. The institute is also responsible for issuing the Fellow of the Canadian Institute of Actuaries (FCIA) designation to actuaries, which is a requirement under Canadian law for practicing actuaries. In Canada, there are regulations that require non insured pension plans to be valued once every three years by an FCIA. In order for an actuary to be designated an FCIA, the actuary is required to pass an exam issued by the Society of Actuaries, another professional actuary organization in Canada, and Practice Education Course (PEC), which is administered by the CIA.

S&P/TSX Composite Index

The Canadian equivalent to the S&P 500 market index in the United States. The S&P/TSX Composite Index contains stocks of the largest companies on the Toronto Stock Exchange (TSX). The index is calculated by Standard and Poor's, and contains both common stock and income trust units. Additions to the index are generally based on quarterly reviews. I: The Toronto Stock Exchange is dominated by a lot of commodity stocks, most notably crude oil, due to the concentration of natural resources in Canada. Thus, the S&P/TSX Composite Index is more correlated to the fluctuation in commodity prices than its counterparts in the U.S.

Farm Credit System - FCS

The Farm Credit System is a nationwide network of cooperative banks and associations that provide credit to farmers, agricultural concerns and related businesses. It was created by Congress in 1916 and was originally funded by the federal government to ensure American agriculture had a dependable source of credit. It is now self-funding and owned by its member-borrowers. I: The FCS makes loans for a variety of purposes, including agricultural processing and marketing activities, rural housing initiatives, farm-related businesses, rural utilities and foreign and domestic companies involved in agricultural trade.The FCS provides access to critically needed credit in rural areas where national and regional banks typically do not have a presence.

Immediate Credit

The Federal Reserve practice of "clearing" checks deposited by member banks on the same day they're deposited. This service is only available when the Federal Reserve has one of its branches in the same city as the bank wishing to process the check. Normally, checks are subject to "deferred availability" which means the amounts are made available within two days of deposit. I: The Federal Reserve's policies on immediate credit and deferred availability often have little to do with the actual policies at your local bank. Some banks make funds immediately available on any checks deposited by their customers, some place limits on the amount available, while still others hold all checks over a certain amount. Consumers should be wary of banks that routinely hold checks even when there is no history of bounced checks. This is often a bad sign, in that a bank may be trying to earn a little extra interest off their customers' money.

CAC 40

The French stock market index that tracks the 40 largest French stocks based on market capitalization on the Paris Bourse (stock exchange). I: The CAC 40 is used as a benchmark index for funds investing in the French stock market and also gives a general idea of the direction of the Paris Bourse. The CAC 40 is similar to the Dow Jones Industrial Average in that it is the most commonly used index that represents the overall level and direction of the market in France. At the time of writing (Aug 2005), the CAC 40 included such companies as Renault, Michelin, L'Oreal and Vivendi Universal.

Karl Albrecht

The German billionaire entrepreneur who founded discount supermarket chain Aldi and one of the richest people in the world according to Forbes. As of 2010, Aldi had more than 4,000 stores in Germany plus another 8,000-plus stores in Australia, France, Great Britain, Greece, Poland, Portugal, Spain, Switzerland and the United States amongst other countries. It's biggest competitor is another German discount supermarket chain, Lidl. I: In addition to groceries, Aldi also sells skin care products and some household items. Aldi primarily sells its own brand of products. Other ways the store keeps costs down include charging customers for shopping bags, not accepting credit cards or charging a fee to accept them and using a coin-machine system to lend shopping carts to consumers so they will return them to the store.

Fabless Company

The Global Semiconductor Alliance defines fabless as follows: Fabless (without fab) refers to the business methodology of outsourcing the manufacturing of silicon wafers, which hundreds of semiconductor companies have adopted. Fabless companies focus on the design, development and marketing of their products and form alliances with silicon wafer manufacturers, or foundries. I: The fabless model is an attractive and popular option for many semiconductor companies. By adopting a fabless business strategy, a company can focus time and resources on the design of innovative integrated circuits, while avoiding the high cost of building, operating, and upgrading a manufacturing facility.

Sanku (Three Gaps) Pattern

The Japanese word for a candlestick pattern that consists of three individual gaps located within a well-defined trend. After the appearance of the third gap, the pattern is used to suggest an impending reversal in the direction of the current trend. I: This pattern is used by traders to predict situations of exhaustion and change in a trend. Ultimately, the current trend is said to be reversed when the price of the asset fills the third gap. Technical traders should not rely solely on the three gaps pattern to predict a reversal; rather, they should combine this technique with other technical indicators.

Khazanah Nasional Berhad

The Khazanah Nasional is a government-owned investment organization that manages the sovereign wealth fund for the Government of Malaysia and was incorporated in 1993. The sole shareholder is the Malaysian Ministry of Finance. According to the Sovereign Wealth Fund Institute, the Kazanah had approximately $25 billion in assets under management in 2009. I: The Khazanah Nasional is governed by a nine-member board of directors with members from both the public and private sectors. The goal of the Khazanah Nasional is to promote economic growth in Malaysia and make strategic investments on behalf of the Malaysian government. Its investments are spread across many business sectors, but are geographically focused on firms operating in Malaysia and Southeast Asia.

Korea Investment Corporation

The Korea Investment Corporation (KIC) is a government-owned investment organization that manages the sovereign wealth fund for the Government of South Korea. The KIC was established by law in 2005. The KIC received initial deposits of $17 billion from the Bank of Korea and $3 billion from the Korean Ministry of Strategy and Finance. The KIC has approximately USD$29.6 billion in assets under management as of the end of 2009. I: The KIC is restricted to investing only in assets which fall under the guidelines provided by the Korea Investment Corporation Act. The KIC's objectives are to enhance Korea's sovereign wealth and to contribute to the development of the Korean financial industry. The KIC is governed by a steering committee consisting of nine members plus the chairman.

Kuwait Investment Authority

The Kuwait Investment Authority (KIA) is a government-owned corporation responsible for managing the sovereign wealth fund of Kuwait. The KIA was initially created in 1953 to create a fund for future use and lessen the country's dependence on its oil reserves. The source of the money for the sovereign wealth fund is derived primarily from the excess proceeds from Kuwait's oil reserves. I: The sovereign wealth fund is divided into the General Reserve Fund and the Future Generations Fund. According to the Sovereign Wealth Fund Institute, the Kuwait Investment Authority controls the seventh-largest sovereign wealth fund in the world, with approximately $202.8 billion in assets under management.

Nasdaq SmallCap Market

The Nasdaq equity market for companies that have relatively small levels of market capitalization. Listing requirements for such "small cap" companies on the Nasdaq SmallCap Market are less stringent than for other Nasdaq markets that list larger companies with significantly higher market capitalization. In 2005, the Nasdaq SmallCap Market was renamed the Nasdaq Capital Market in order to reflect its core function of raising capital. I: The Nasdaq Capital Market makes it relatively easier for early-stage companies to get listed compared to other senior exchanges with more onerous requirements. In order to list initially on the Nasdaq Capital Market, companies must meet all of the criteria under at least one of three listing standards - the equity standard, the market value of listed securities standard, or the total assets/total revenue standard.

On-The-Run Treasury Yield Curve

The U.S. Treasury yield curve derived using on-the-run treasuries. The on-the-run Treasury curve is the primary benchmark used in pricing-fixed income securities. I: While the on-the-run Treasury yield curve is typically used to price fixed-income securities, its shape is sometimes distorted by up to several basis points if an on-the-run Treasury goes "on special". A Treasury goes on special when its price is temporarily bid up, usually as the result of demand by securities dealers to use the security as a hedging vehicle.

GBP/USD (British Pound/U.S. Dollar)

The abbreviation for the British pound and U.S. dollar (GBP/USD) currency pair or cross. The currency pair tells the reader how many U.S. dollars (the quote currency) are needed to purchase one British pound (the base currency).Trading the GBP/USD currency pair is also known as trading the "Cable". I: The value of the GBP/USD pair is quoted as 1 British pound per X U.S. dollars. For example, if the pair is trading at 1.50 it means that it takes 1.5 U.S. dollar to buy 1 British pound.The GBP/USD is affected by factors that influence the value of the British pound and/or the U.S. dollar in relation to each other and other currencies. For this reason, the interest rate differential between the Bank of England (BoE) and the Federal Reserve (Fed) will affect the value of these currencies when compared to each other. When the Fed intervenes in open market activities to make the U.S. dollar stronger, for example, the value of the GBP/USD cross could decline, due to a strengthening of the U.S. dollar when compared to the British pound. The GBP/USD tends to have a negative correlation with the USD/CHF and a positive correlation to the EURO/USD currency pairs. This is due to the positive correlation of the euro, Swiss franc and the British pound.

GBP

The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories of South Georgia, the South Sandwich Islands and British Antarctic Territory and the UK's Crown Dependencies: the Isle of Man and the Channel Islands. The African country of Zimbabwe also uses the pound. The British pound is pegged to the Falkland Islands pound, Gibraltar pound, Saint Helenian pound, Jersey pound (JEP), Guernsey pound (GGP), Manx pounds, Scotland notes and Northern Ireland notes. I: The British pound sterling is symbolized by the pound sign (£) and is nicknamed "quid." Because stocks are traded in pence (the British term for pennies), investors may see stock prices listed as pence sterling - GBX, or GBp.

Leadership

The ability of a company's management to make sound decisions and inspire others to perform well. Effective leaders are able to set and achieve challenging goals, to take swift and decisive action even in difficult situations, to outperform their competition, to take calculated risks and to persevere in the face of failure. Strong communication skills, self-confidence, the ability to manage others and a willingness to embrace change also characterize good leaders. I: Leadership is often overlooked by investors. This may be because it is tough to place a value on qualitative aspects of a company (leadership being one), compared to quantitative metrics, which are commonly tracked and much easier to compare between companies. Individuals with strong leadership skills in the business world often rise to executive positions such as CEO, COO, CFO, president and chairman. A successful businessman who has frequently been admired for his leadership skills is Jack Welch, former CEO of General Electric. He eliminated inefficiencies, dramatically increased the value of the company and routinely fired underperforming managers while rewarding the best.

IEP (Irish Pound)

The currency abbreviation or currency symbol for the Irish pound (IEP), the currency of Ireland until 2002. The Irish pound was made up of 100 pennies ("pingin" in Irish) and was often represented by the symbol £ or IR£ to set it apart from other currencies based in pounds.Also known as the punt Éireannach in Irish. I: The first Irish pound was established in 1938, when the Irish Constitution changed the states name. The value of the pound remained the same as the pounds that proceeded it. No changes were made until February of 1971, when the currency was decimalized along with the British pound (GBP). The Irish pound was replaced by the euro in January of 1999, but the pound was still accepted as legal tender until February of 2002.

ILS (Israeli New Shequel)

The currency abbreviation or currency symbol for the Israeli new sheqel (ILS), the currency for Israel. The new sheqel is made up of 100 agorot. This symbol represents a combination of the first letters in Hebrew for the words "sheqel" and "hadash". The currency itself is actually produced by a South Korean company, as there is no mint in Israel. I: The new sheqel was first seen in 1986 when it replaced the original sheqel currency at a ratio of 1000:1. It became a freely convertible currency in 2003, and began trading derivatives in 2006. The currency became fully convertible in 2008.

JOD

The currency abbreviation or currency symbol for the Jordanian Dinar (JOD), the currency for Jordan. The dinar is made up of 10 dirham, 100 qirsh or 1000 fils and has no official symbol, but is often presented with the informal notation (JD). The dinar is also circulated on Israel's West Bank. I: The dinar was first seen replacing the Palestinian pound in 1949. Dinarian coins were denominated in Arabic until 1992 and then changed to english. The dinar has been pegged to the International Money Fund's Special Drawing Rights since October of 1995. It is also unofficially pegged to the U.S. dollar.

JOD (Jordanian Dinar)

The currency abbreviation or currency symbol for the Jordanian dinar (JOD), the currency for Jordan. The dinar is made up of 10 dirham, 100 qirsh or 1000 fils and has no official symbol, but is often presented with the informal notation JD. The dinar is also circulated on Israel's West Bank. I: The dinar was first seen replacing the Palestinian pound in 1949. Dinarian coins were denominated in Arabic until 1992 and then changed to English. The dinar has been pegged to the International Money Fund's Special Drawing Rights since October of 1995. It is also unofficially pegged to the U.S. dollar.

KZT

The currency abbreviation or currency symbol for the Kazakhstan tenge (KZT) is for the currency of Kazakhstan. The tenge is made of 100 tiyn and is often presented with the symbol (__). The name of the currency denotes a set of equal scales. I: The tenge was first seen in 1993, replacing the Russian ruble. The first tenge coins were actually minted in Germany, and a mint for paper currency began operation within the country in 1995. This mint printed a new, much more decorative series of banknotes in 2006.

KZT (Kazakhstan Tenge)

The currency abbreviation or currency symbol for the Kazakhstan tenge (KZT), the currency of Kazakhstan. The tenge is made of 100 tiyn and is often presented with a symbol that looks like the capital letter T with a horizontal line above it. The name of the currency denotes a set of equal scales. I: The tenge was first seen in 1993, replacing the Russian ruble. The first tenge coins were actually minted in Germany, and a mint for paper currency began operation within Kazakhstan in 1995. This mint printed a new and more decorative series of banknotes in 2006.

KES

The currency abbreviation or currency symbol for the Kenyan shilling (KES), the currency for Kenya. The Kenyan shilling is made up of 100 cents and is often presented with the symbol (KSh). The Kenyan shilling is the strongest and most stable shilling in east Africa and is often used in unstable regions of Sudan and Somalia instead of local currencies. I: The Kenyan shilling was first seen replacing the East African shilling in 1966 in both coin and bill form. Many notes have since been replaced by coins, and larger denominations of bills have been put into circulation. A new set of bills was launched in 2003 to celebrate 40 years of Kenyan independence.

KES (Kenyan Shilling)

The currency abbreviation or currency symbol for the Kenyan shilling (KES), the currency for Kenya. The Kenyan shilling is made up of 100 cents and is often presented with the symbol KSh. The Kenyan shilling is the strongest and most stable shilling in east Africa and is often used in unstable regions of Sudan and Somalia instead of local currencies. I: The Kenyan shilling was first seen replacing the East African shilling in 1966 in both coin and bill form. Many notes have since been replaced by coins, and larger denominations of bills have been put into circulation. A new set of bills was launched in 2003 to celebrate 40 years of Kenyan independence.

KWD (Kuwaiti Dinar)

The currency abbreviation or currency symbol for the Kuwaiti dinar (KWD), the currency for Kuwait. The Kuwaiti dinar is made of 1000 fils. The dinar has the highest value of any currency in the world, with a value of US$3.42 or 2.63 euros as of April 22, 2009. I: The dinar was first seen in 1961, replacing the Gulf rupee. Iraq replaced the Kuwaiti dinar with the Iraqi dinar, and large amounts of Kuwaiti currency were "requisitioned" by invading Iraqi forces. After Kuwait regained its independence, it issued a new dinar currency that rendered the stolen currency obsolete.

KWD

The currency abbreviation or currency symbol for the Kuwaiti dinar (KWD), the currency of Kuwait. The dinar is made of 1000 fils, and it is often presented with the symbol (__). The dinar has the highest value of any currency in the world. I: The dinar was first seen in 1961, replacing the Gulf rupee. Iraq replaced the Kuwaiti dinar with the Iraqi dinar, and large amounts of Kuwaiti currency was "requisitioned" by invading Iraqi forces. After Kuwait regained it's independence, it issued a new dinar currency that rendered the stolen currency obsolete.

LBP

The currency abbreviation or currency symbol for the Lebanese pound (LBP), the currency for Lebanon. The Lebanese pound is made up of 100 qirsh or piastres, and is often presented with the symbol (__). This currency is also called lira in Arabice or livre in French, and all notes and coins are printed and stamped in both Arabic and French. I: The Lebanese pound was first seen in coin form in 1924 with paper currency following a year later. It officially separated from Syrian currency in 1939 and became linked with the British pound after France was conquered by the Nazis in 1941. It was relinked with the franc after the war but delinked again in 1949.

OMR (Oman Rial)

The currency abbreviation or currency symbol for the Oman rial (OMR), the currency of Oman. The Oman rial is made up of 1000 baiza. As of January 2005 it was the fourth highest-valued currency in the world when compared with the United States Dollar (USD) with an exchange rate of US$2.59 to 1 Oman rial. I: A multitude of currencies were used in the area before the rial Saidi replaced the Gulf rupee in 1970 at a rate of 21 rupees to 1 rial. This made the rial equivalent to the British pound (GBP). In 1973, the rial Saidi was replaced by the Omani rial.

PAB (Panamanian Balboa)

The currency abbreviation or currency symbol for the Panamanian balboa (PAB), the currency of Panama. The Panamanian balboa is made up of 100 centesimo and is often represented by the symbol B/. or B. The Panamanian balboa is a currency made up completely of coins. The United States dollar (USD) banknotes are the only paper currency in circulation. I: The Panamanian balboa replaced the Columbian peso shortly after the country claimed independence in 1904. Since this time, the balboa has been on a fixed peg with the USD at par.

IDR

The currency abbreviation or the currency symbol for the Indonesian Rupiah (IDR). The Rupiah is made up of 100 sen, and is often presented with the symbol (Rp). The Rupiah derives its name from its sister currency the Indian Rupee. The Riau Islands and the Indonesian half of New Guinea both had their own versions of the Rupiah at one time, but both have been absorbed by the Indonesian currency. I: The Indonesian Rupiah was first seen in October of 1946 and substantially revised in 1950, when it received international recognition and replaced all former Dutch, Javanese and Japanese currencies being used. It underwent a 1000 to 1 reversion in 1965, but continued to lose value over the years. Its devaluation played a substantial role in the overthrow of the Suharto regime in 1998.

JMD

The currency abbreviation or the currency symbol for the Jamacian dollar (JMD), the currency for Jamaica. The currency is made up of 100 cents and is often presented with the symbol (J$) or (JA$). The Jamaican dollar was also formerly used in the Cayman Islands. I: The Jamaican dollar was first seen replacing the Jamaican pound in 1969. Both coins and notes were issued, but its value has fallen substantially since then, reaching new lows early in 2009. Many bills have been replaced by coins, and a $1000 note began circulating in 2000.

SAR (Saudi Riyal)

The currency abbreviation the Saudi riyal (SAR), the currency for Saudi Arabia. The Saudi riyal is made up of 100 halala or 20 ghirsh, and is often presented with the symbol SR. The Saudi riyal is pegged to the U.S. dollar at about 3.75 SAR. I: In 1932, Saudi Arabia was created by the combination of the Hejazi Kingdom and the Sultanate of Nejd. After its creation, Saudi Arabia used a bimetallic monetary system based on British gold sovereigns and silver riyals. In 1952, the monetary system was reformed to use a single currency. This currency, the Saudi riyal, was backed by Saudi gold guineas equivalent to the British gold sovereign until 1959, when a system based on fiat money issued by the Saudi Arabian Monetary Agency was created.

Oman Rial - OMR

The currency of Oman. The Omani rial is broken into smaller units, called baisa, and is found in both coin and banknote form. It is managed by the Central Bank of Oman. I: The Omani rial was created during the early 1970s, as a replacement to the Indian rupee and Maria Teresa Thaler. It was part of a modernization effort, undertaken in the wake of a rebellion. The currency is pegged to the U.S. dollar, though the rate was adjusted in 1986.

KPW (North Korean Won)

The currency symbol or currency abbreviation for the North Korean won (KPW), the currency for North Korea. The won is divided into 100 chon and is often presented with the symbol W. The word "won" is a hybrid of the Chinese word "yuan" and Japanese "yen". I: The won was first seen in 1947, replacing the previous Korean yen. It underwent a 100:1 revaluation in 1959. The North Korean government abandoned the set exchange rate with the U.S. dollar in 2001, and the real exchange rate has dropped precipitously since then.

Balance Of Trade - BOT

The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.Also referred to as "trade balance" or "international trade balance." I: The balance of trade is one of the most misunderstood indicators of the U.S. economy. For example, many people believe that a trade deficit is a bad thing. However, whether a trade deficit is bad thing is relative to the business cycle and economy. In a recession, countries like to export more, creating jobs and demand. In a strong expansion, countries like to import more, providing price competition, which limits inflation and, without increasing prices, provides goods beyond the economy's ability to meet supply. Thus, a trade deficit is not a good thing during a recession but may help during an expansion.

Early Exercise

The exercise of an option prior to its expiration date. Early exercise is only possible with American-style option contracts, which can be exercised at any time up to expiration, as opposed to European options, for which early exercise is not possible as they can only be exercised on the expiration date. Early exercise of a call option enables the call option buyer to purchase the underlying security at the strike price before expiration, while early exercise of a put option enables the put option buyer to sell the underlying security at the strike price before expiration. I: While early exercise is generally not advisable, because the time value inherent in the option premium is lost upon doing so, there are certain circumstances under which early exercise may be advantageous. For example, an investor may choose to exercise a call option that is deeply in-the-money (such an option will have negligible time value) just before the ex-dividend date of the underlying stock. This will enable the investor to capture the dividend paid by the underlying stock, which should more than offset the marginal time value lost due to early exercise.

Lease Balance

The amount of money that a customer owes under the terms of a vehicle lease contract. The lease balance becomes important in two main situations. The first is in the event that a car is stolen and not recovered, is totaled in an accident or is otherwise destroyed. The second situation is if the lessee wants to terminate the lease early for any other reason. I: A vehicle's fair market value is often different from its lease balance, because vehicles depreciate quickly at the beginning of their life but lease payments are flat over the life of the agreement. When a lease agreement is terminated for any reason, the lease's early termination payoff provision is used to calculate the lease balance and determine how much the lessee must pay to end the agreement. This amount could be several thousand dollars. In the first situation, insurance will cover only the vehicle's fair market value, and the lessee must make up the difference through gap insurance or by paying out of pocket. In the second situation, the lessee cannot simply turn in the car to the dealer and walk away; he must pay the difference out of pocket or avoid the payment by transferring the lease to another party.

Savings Rate

The amount of money, expressed as a percentage or ratio, that one deducts from his/her disposable personal income to set aside as a nest egg or for retirement. The cash accumulated is typically put into very low-risk investments (depending on various factors such as expected time until retirement), like a money market fund or a personal IRA comprised of non-aggressive mutual funds, stocks and bonds. I: For years, the savings rate in the United States has declined. In the 1970s and 1980s, personal savings rates were in the 5% to 7% range but then decreased to 1% to 3% range in the 21st Century. These averages figure tend to fall even lower as the American population, as a whole, continues to age. The national average savings rate is often determined by how a particular culture views debt and values possessions.

Earnings

The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year. Earnings typically refer to after-tax net income.Ultimately, a business's earnings are the main determinant of its share price, because earnings and the circumstances relating to them can indicate whether the business will be profitable and successful in the long run. I: Earnings are perhaps the single most studied number in a company's financial statements because they show a company's profitability. A business's quarterly and annual earnings are typically compared to analyst estimates and guidance provided by the business itself. In most situations, when earnings do not meet either of those estimates, a business's stock price will tend to drop. On the other hand, when actual earnings beat estimates by a significant amount, the share price will likely surge.

Lead Time

The amount of time that elapses between when a process starts and when it is completed. Lead time is examined closely in manufacturing, supply chain management and project management, as companies want to reduce the amount of time it takes to deliver products to the market. In business, lead time minimization is normally preferred. I: Lead time is broken into several components: preprocessing, processing and post processing. Preprocessing involves determining resource requirements and initiating the steps required to fill an order. Processing involves the actual manufacturing or creation of the order. Post processing involves delivery of products to the market. Companies look at each component and compare it against benchmarks to determine where slowdowns are occurring.

Econometrics

The application of statistical and mathematical theories to economics for the purpose of testing hypotheses and forecasting future trends. Econometrics takes economic models and tests them through statistical trials. The results are then compared and contrasted against real-life examples. I: Econometrics can be subdivided into two major categories: theoretical and applied. Econometrics uses tools such as frequency distributions, probability and probability distributions, statistical inference, simple and multiple regression analysis, simultaneous equations models and time series methods. An example of a real-life application of econometrics would be to study the hypothesis that as a person's income increases, spending increases. Lawrence Klein, Ragnar Frisch and Simon Kuznets each won the Nobel Prize in economics for their research in econometrics.

Federal Open Market Committee - FOMC

The branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the board of governors, which has seven members, and five reserve bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other reserve banks rotate their service of one-year terms. I: The FOMC meets eight times per year to set key interest rates, such as the discount rate, and to decide whether to increase or decrease the money supply, which the Fed does by buying and selling government securities. For example, to tighten the money supply, or decrease the amount of money available in the banking system, the Fed sells government securities. The meetings of the committee, which are secret, are the subject of much speculation on Wall Street, as analysts try to guess whether the Fed will tighten or loosen the money supply, thereby causing interest rates to rise or fall.

Economic Capital

The amount of capital that a firm, usually in financial services, needs to ensure that the company stays solvent. Economic capital is calculated internally and is the amount of capital the firm should have to support any risks it takes on. The measurement process involves converting a given risk to the amount of capital that is required to support it. The calculations are based on the institution's financial strength (e.g., credit rating) and expected losses.Financial strength is represented by the probability of the firm not becoming insolvent over the measurement period and is the confidence level in the statistical calculation. Most banks will use a confidence measurement of between 99.96% and 99.98%, which is the insolvency rate expected for an institution with a AA or Aa credit rating. The firm's expected loss is the anticipated average loss over the measurement period. Expected losses represent the cost of doing business and are usually absorbed by operating profits. The relationship between frequency of loss, amount of loss, expected loss, financial strength and economic capital can be seen in the following graph: I: Economic capital is used for measuring and reporting market and operational risks across a financial organization. Economic capital measures risk using economic realities rather than accounting and regulatory rules, which have been known to be misleading. As a result, it is thought to give a more realistic representation of a firm's solvency.

Oil Initially In Place - OIIP

The amount of crude first estimated to be in a reservoir. Oil initially in place differs from oil reserves, as OIIP refers to the total amount of oil that is potentially in a reservoir and not the amount of oil that can be recovered. Calculating OIIP requires engineers to determine how porous the rock surrounding the oil is, how high water saturation might be and the net rock volume of the reservoir. I: Determining oil initially in place is one of the major components undertaken by analysts determining the economics of oil field development. Oil operations do not typically recover the entire amount of oil that a reservoir may have available, meaning that not all fields will be economical unless oil prices warrant the effort.

Quality Of Earnings

The amount of earnings attributable to higher sales or lower costs rather than artificial profits created by accounting anomalies such as inflation of inventory. I: Quality of earnings is considered poor during times of high inflation. Also, earnings that are calculated conservatively are considered to have higher quality than those calculated by aggressive accounting policies.

Kellogg School Of Management

The business school at Northwestern University. The Kellogg School of Management provides both full- and part-time programs as well as an executive curriculums at both the master's and doctorate levels. The school has partnerships with learning institutions in several other countries, including China, India, Hong Kong, Israel and Germany. I: The Kellogg School of Management was founded in 1908 and has locations in Evanston, Illinois, Chicago and Miami. The school began as a part-time program to instill ethics in local business leaders and executives. Over the past decades it has been ranked among the top business schools in the world.

Manchester Business School - MBS

The business school at the University of Manchester in Manchester, England. The Manchester Business School offers top-level MBA and doctoral programs. The school's doctoral programs have historically been ranked above other prestigious institutions such as the Wharton School of Business and MIT. The school also offers an international exchange program. I: The Manchester Business School was founded in 1918 as the Department of Industrial Administration. A new version of the school was reinstituted in 2004. This institution is a combination of the old business school, Victoria University of Manchester's school of accounting and finance, the Manchester School of Management and the Institute of Innovation Research.

Kelley School Of Business - Indiana University

The business school of Indiana University. The Kelley School of Business offers both undergraduate and graduate programs in many fields, including finance, accounting, marketing and managment. It is one of only three schools to have all of its graduate and undergraduate programs ranked in the top 20 by U.S. News and World Report. I: The Kelley School of Business was founded in 1920. It has locations on both the Bloomington and Indianapolis campuses of Indiana University. Corporate headhunters looking for management, financial and marketing talent heavily recruit students from the school. The school also offers a distance-learning program known as "Kelley Direct" that teaches over 1,000 students.

Jesse H. Jones Graduate School Of Business - Rice University

The business unit of Rice University. The Jesse H. Jones Graduate School of Business offers several types of MBA programs, as well as customized executive education and training programs. The school offers undergraduate minors as well. I: The Jesse H. Jones school was founded with a grant in 1974, and is located in Houston, Texas. The school prides itself on its low student-to-faculty ratio, and many of its masters programs are accredited by AACSB International.

Natural Gas Equivalent

The amount of energy used by the burning of natural gas versus that of crude oil. The term natural gas equivalent is used in the oil and gas industry and represents a comparison between natural gas and crude oil. 6,000 cubic feet of natural gas is equivalent to one barrel of oil. "Billions of cubic feet equivalent" (BCFE), a term commonly found in the annual reports of natural gas and oil companies, is used to measure the amount of natural gas that is being pumped and delivered over an extended period of time, or that is untapped in reserves. BCFE is used to quantify the energy that is being produced, or that could potentially be produced, by an oil company's reserves. Investors can compare the production and/or reserves of oil and gas companies by looking at the natural gas equivalent figures. I: Natural gas is a naturally occurring mixture of hydrocarbon gases from underground sources. These gases are composed mostly of methane (greater than 85% in certain instances), ethane, propane, butane, pentane and impurities such as carbon dioxide, hydrogen sulfide, helium and nitrogen. Natural gas liquids (NGLs) are natural gas components that are liquid at surface conditions. This includes ethane, propane, butane, pentane and condensates; it does not include methane, which remains gaseous at surface conditions.

Manufacturer's Suggested Retail Price - MSRP

The amount of money for which the company that produces a product recommends that it be sold in stores. MSRP does not necessarily correspond to the price retailers actually use or to the price customers are willing to pay. Retailers may need to set their prices below MSRP to move inventory, especially for items with low demand or in a sluggish economy. I: One industry in which MSRP is frequently used is in car sales, where it must be displayed on a sticker on the car's windshield or on a spec sheet on one of the car's windows. The MSRP can help the customer determine a fair price to pay for the vehicle. The concept of MSRP exists in many industries, but outside of the auto industry it often has a different name, such as "list price."

Canadian Derivatives Clearing Corporation - CDCC

The central clearing counterparty for exchange-traded derivative products, such as options and futures, in Canada. The Canadian Derivatives Clearing Corporation (CDCC) also acts as the clearinghouse for a growing range of over-the-counter financial instruments including fixed income and foreign exchange, and is the only integrated central clearing counterparty in North America that clears and settles options, futures and options on futures. CDCC is a wholly-owned subsidiary of the Montreal Exchange. I: The organization was first referred to as Trans Canada Options (TCO), which was established in 1977 through the merger of the Montreal and Toronto options clearinghouses. Trans Canada Options changed its name to Canadian Derivatives Clearing Corporation in 1996. In 2000, CDCC became entirely owned by the Montreal Exchange. In 2008, the Montreal exchange and the TSX group merged to become the TMX group, the current owner and operator of the CDCC.

Earnings Recast

The act of amending and re-releasing a previously released earnings statement, with specified intent. Some of the most typical reasons for recasting earnings are to show the impact of a discontinued business or to separate out earnings-related events that are deemed to be non-recurring or otherwise non-representative of normal business earnings.Also known as an "earnings restatement". I: An earnings recast or restatement is usually done to several years of income statements, depending on how far back the recasting goes. This benefits investors by making the earnings statement more useful for research and analysis. Information regarding any earnings recast released by a publicly traded company should be stated in the footnotes for the earnings report.

Daniel P. Amos

The chairman and CEO of insurance company Aflac (as of 2010). Born in 1951, Dan Amos joined Aflac in 1973 as a salesman. He became CEO in 1990 and chairman in 2001. Before that, he served as the company's president and later as its COO. The company's extremely successful ad campaign, created by Amos, is based on a white duck that quacks, "Aflac". Amos has significantly increased the company's revenues during his tenure, and "Fortune" magazine has repeatedly named Aflac to its lists of America's Most Admired Companies and 100 Best Companies to Work For. "Institutional Investor" magazine has repeatedly named Amos one of America's best CEOs. I: Aflac is one of the largest life insurance company in Japan, and as of 2009, more than half of Aflac's revenues come from that country. However, it also has a strong U.S. presence. Aflac is a publicly traded Fortune 500 company that specializes in supplemental insurance coverage.

Jamie Dimon

The chairman, CEO and former president of JPMorgan Chase & Co. He joined Chase as its president in 2004, when Chase acquire Bank One, the U.S.'s sixth-largest bank. He became the company's CEO in December, 2005. In 2007, Dimon was elected to a three-year term as a class A director of the Federal Reserve Bank of New York. He has also been a director of Yum! Brands and the Chicago Clearing House Association. I: Born in 1956 in New York City, Dimon earned his MBA from Harvard Business School in 1982. He began his career in 1978 as an intern for Goldman Sachs. He worked for numerous financial companies, including American Express, Commercial Credit Group, Primerica, Smith Barney (COO then chairman and CEO), Citigroup (president) and Bank One (chairman and CEO).

John W. Conway

The chairman, president and CEO of Philadelphia-based Crown Holdings, a company that produces metal packaging such as soft drink cans, candy tins and aerosol containers for beauty products and industrial products. When Conway became CEO in 2001, the company had a large market share but a recession was hurting its business. Conway cut costs by closing several of the company's plants. He also oversaw the company's expansion in Vietnam, Cambodia and the Middle East and the sale of its cosmetics packaging business and global plastic closures business. I: Born in 1945, Conway holds a Juris Doctor from Columbia Law School and has also been a board member of PPL and West Pharmaceutical Services. Conway began his career with Continental Can International, which was acquired by Crown Cork & Seal in 1991 and became Crown Holdings in 2003. He became president and COO of Crown in 1991 and CEO and chairman in 2001.

Eating Someone's Lunch

The act of an aggressive competition that results in one company taking portions of another company's market share. Market share is the percentage of an industry or market's total sales that is achieved by one company during a specified time period. A more aggressive company "eats the lunch" of another company when it take some of its competitor's market share. This can be achieved through the release of a better or newer product, aggressive pricing or marketing strategies or other competitive advantages. When these strategies result in one company having a bigger market share for a particular product or service, the company enjoying the larger market share is said to be eating someone's lunch. I: Eating someone's lunch generally refers to defeating or outwitting an opponent. In the business world, it describes situations where one company outperforms another and earns a larger market share. Eating someone's lunch is considered a necessary component of a competitive market, and may help bring better pricing and services to consumers as companies compete for larger market shares. A company may eat someone's lunch at one point in time, only to have their own lunch eaten during a subsequent time as competitors fight back for market share.

Manipulation

The act of artificially inflating or deflating the price of a security. In most cases, manipulation is illegal. It is much easier to manipulate the share price of smaller companies, such as penny stocks, because they are not as closely watched by analysts as the medium- and large-sized firms. Also known as "price manipulation." I: One way people can deflate the price of a security is by placing hundreds of small orders at a significantly lower price than the one at which it has been trading. This gives investors the impression that there is something wrong with the company, so they sell, pushing the prices even lower. Another example of manipulation would be to place simultaneous buy and sell orders through different brokers that cancel each other out but give the perception, because of the higher volume, that there is increased interest in the security.

Make-Or-Buy Decision

The act of choosing between manufacturing a product in-house or purchasing it from an external supplier. In a make-or-buy decision, the two most important factors to consider are cost and availability of production capacity. An enterprise may decide to purchase the product rather than producing it, if is cheaper to buy than make or if it does not have sufficient production capacity to produce it in-house. With the phenomenal surge in global outsourcing over the past decades, the make-or-buy decision is one that managers have to grapple with very frequently. I: Factors that may influence a firm's decision to buy a part rather than produce it internally include lack of in-house expertise, small volume requirements, desire for multiple sourcing, and the fact that the item may not be critical to its strategy. Similarly, factors that may tilt a firm towards making an item in-house include existing idle production capacity, better quality control or proprietary technology that needs to be protected.

Impose

The act of placing a fee, levy, tax or charge on an asset or transaction to the detriment of the investor. The imposition of fees is a common practice in most investment products and services, and may be used as a deterrent to selling or exiting a financial position early. I: Fees are inevitable, regardless of whether you are a small retail investor or a multinational investment bank. Just about every financial service involves a payment to the party that helps to facilitate the transaction. Most fees should be made known to investors before they purchase a new security or move funds in a way that will incur a charge of some kind.Many fees are imposed not at the time of transaction, but instead levied on an annual basis as a percentage of assets or holdings.

Back Stop

The act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares. A company will try and raise capital through an issuance and to guarantee the amount received through the issue, the company will get a back stop from an underwriter or major shareholder to buy any of the unsubscribed shares. I: For example, in a rights offering you might hear "ABC Company will provide a 100% back stop of up to $100 million for any un-subscribed portion of the XYZ Company rights offering." If XYZ is trying to raise $200 million but only raises $100 million through investors then ABC Company will purchase the remainder.

Fair Credit Reporting Act - FCRA

The act that regulates the collection of credit information and access to your credit report. It was passed in 1970 to ensure fairness, accuracy and privacy of the personal information contained in the files of the credit reporting agencies. It requires that any person or entity requesting your report must demonstrate a permissible purpose for the information before it is released. It also designates the Federal Trade Commission (FTC) as the enforcement authority for the provisions of the act. I: Under this act, you have the right to: Know what's in your file.Free file disclosure once per year from each of the major credit bureaus.Ask for your credit score (there may be a fee).Verify accuracy of report when required for employment purposes.Notification if your file has been used against you.Dispute and correct information that is incomplete or inaccurate.Remove outdated, negative information (seven-years old or 10 years in the case of bankruptcy).

Salary Freeze

The action of a company suspending salary increases for a period of time. By freezing salary increases for a given period, management is hoping that the company will be able to produce better bottom line results by keeping fixed costs controlled. The downside of a salary freeze for a company is that employee morale will typically take a hit and the firm may end up losing valuable employees due to compensation issues. I: A salary freeze typically occurs when a company is experiencing financial difficulties. It may choose to freeze salaries temporarily in order to minimize layoffs. Once the company is in a better financial position, the salary freeze would likely be lifted.

Realized Yield

The actual amount of return earned on a security investment over a period of time. This period of time is typically the holding period which may differ from the expected yield at maturity. The realized yield also includes the returns that have been earned from reinvested interest, dividends and other cash distributions. I: The realized yield tends to differ from the yield at maturity in scenarios where the holding period is less than that of the maturity date. In other words, the security is settled or sold prior to the maturity date given at the time of purchase. For example, suppose an investor purchases a 10-year bond for $1,000 that issues a 5% annual coupon. Furthermore, if the investor sells the bond for $1,000 at the end of the first year (and after receiving the first coupon payment), her realized yield would only include the $50 coupon payment.

Leads And Lags

The alteration of normal payment or receipts in a foreign exchange transaction because of an expected change in exchange rates. An expected increase in exchange rates is likely to speed up payments, while an expected decrease in exchange rates will probably slow them down. I: Accelerating the transaction is known as "leads", while slowing it down is known as "lags". Leads will result when firms or individuals making payments expect an increase in the foreign-exchange rate, while lags arise when the exchange rate is expected to fall. Leads and lags are used in an attempt to improve profits.

Paid-Up Capital

The amount of a company's capital that has been funded by shareholders. Paid-up capital can be less than a company's total capital because a company may not issue all of the shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on equity financing. I: Paid-up capital is money that a company has received from the sale of its shares, and represents money that is not borrowed. A company that is fully paid-up has sold all available shares, and thus cannot increase its capital unless it borrows money through debt or is authorized to sell more shares.

Paid In Capital

The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares themselves. Paid in capital represents the funds raised by the business from equity, and not from ongoing operations.Paid in capital is a company balance sheet entry listed under stockholder's equity, often shown alongside the balance sheet entry for additional paid-in capital. It may also be referred to as "contributed capital". I: Paid in capital can be compared to additional paid in capital, and the difference between the two values will equal the premium paid by investors over and above the par value of the shares. Preferred shares will sometimes have par values that are more than marginal, but most common shares today have par values of just a few pennies. Because of this, "additional paid in capital" tends to be representative of the total paid-in capital figure, and is sometimes shown by itself on the balance sheet.

Lease Rate

The amount of money paid over a specified time period for the rental of an asset, such as real property or an automobile. The lease rate that the lender earns from allowing someone else to use his property compensates him for not being able to put that property to another use during the term of the lease. I: In commercial real estate, the lease rate is commonly stated as a dollar amount per square foot of space per year. To get a true idea of the cost of renting a space, in addition to the lease rate, the potential tenant will need to know if the lease is single, double or triple net. In other words, whether it is he or the property owner who will be responsible for expenses such as utilities, maintenance and property taxes. In the case of an automobile lease, the monthly payment on the vehicle is based on the car's expected depreciation and residual value (a predetermined amount that the car will be worth at the end of the lease term) as well as the lease rate, which is usually stated as a percentage. Through monthly payments, the lessee compensates the automobile dealer for both the vehicle's depreciation and for tying up assets in vehicles instead of investing that money elsewhere.

Generally Accepted Accounting Principles - GAAP

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. I: GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary! That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures. So, even when a company uses GAAP, you still need to scrutinize its financial statements. What to know more about GAAP? Please read: The Impact Of Combining The U.S. GAAP and IFRS

Identity Theft

The crime of obtaining the personal or financial information of another person for the sole purpose of assuming that person's name or identity in order to make transactions or purchases. I: Identity theft is committed many different ways. Some identity thieves sift through trash bins looking for bank account and credit card statements; other more high-tech methods involve accessing corporate databases to steal lists of customer information. Once they have the information they are looking for, identity thieves can ruin a person's credit rating and the standing of other personal information. Many types of identity theft can be prevented. One way is to continually check the accuracy of personal documents and promptly deal with any discrepancies.

NAD (Namibian Dollar)

The currency abbreviation for the Namibian dollar (NAD), the currency for Namibia. The Namibian dollar is made up of 100 cents and is often presented with the symbol $ or N$ to set it apart from other dollar-denominated currencies. I: The Namibian dollar replaced the South African rand in 1993, three years after Namibia gained its independence from South Africa. Because the dollar is pegged to the rand at par, the rand is still legal tender in Namibia, and both currencies circulate alongside each other in the nation.

SBD (Solomon Islands Dollar)

The currency abbreviation for the Solomon Islands dollar (SBD), the currency for the Solomon Islands. The Solomon Islands dollar is made up of 100 cents and is often presented with the symbol $ or SI$ to set it apart from other dollar-based currencies. I: The Solomon Islands dollar replaced the Australian dollar (AUD) at a rate of 1:1 in 1977, and was pegged at SI$1.05 to AU$1 for five months before being allowed to float freely. However, inflation has moved the value of the Solomon Islands dollar away from the Australian dollar.

KHR (Cambodian Riel)

The currency abbreviation or currency symbol for the Cambodian riel (KHR), the currency for Cambodia. The riel is made up of 100 sen. Although the riel has been used in two forms since its inception, no monetary system was used in Cambodia from 1975 to 1980. I: The Cambodian riel was first seen in 1953 and was divided into 100 centimes. These were changed to sen in 1959, but the riel was discontinued under the Khmer Rouge in 1975. It was reintroduced in 1980 and is still in use today, although U.S. dollars are also often used in urban and tourist areas.

CAD (Canadian Dollar)

The currency abbreviation or currency symbol for the Canadian dollar (CAD). The Canadian dollar is made up of 100 cents and is often presented with the dollar sign as C$ to allow it to be distinguished from other currencies denominated in dollars, such as the U.S. dollar (USD). CAD is considered to be a benchmark currency, meaning that many central banks across the globe keep Canadian dollars as a reserve currency. I: The Canadian dollar has been in use since 1858 when the Province of Canada replaced the Canadian pound with its first official Canadian coins. This dollar was pegged to the U.S. dollar at par using the gold standard system of 1 dollar equaling 23.22 grains of gold. In 1871, the federal government passed the Uniform Currency Act, which replaced the various currencies of the provinces with the one national Canadian dollar. Over its history, the Canadian dollar has moved back and forth between being pegged to the U.S. dollar and being allowed to float freely. The Canadian dollar was first allowed to float in 1950; from 1962 - 1970 it was pegged again and has since been allowed to float.

KYD (Cayman Islands Dollar)

The currency abbreviation or currency symbol for the Cayman Islands dollar (KYD), the currency for the Cayman Islands. The Cayman Islands dollar is made up of 100 cents and is often presented with the symbol $ or CI$. In terms of value, the KYD is ranked ninth in the world. I: The Cayman Island dollar was first seen in 1972, replacing the Jamaican dollar on a 1:1 basis. Both Jamaican and Cayman Island currency were used in the Cayman Islands until 1972, when use of Jamaican currency was discontinued. The Cayman Islands dollar was pegged to the U.S. dollar in 1974, but is now valued slightly below its peg rate.

KYD

The currency abbreviation or currency symbol for the Cayman Islands dollar (KYD), the currency for the Cayman Islands. The Cayman Islands dollar is made up of 100 cents and is often presented with the symbol ($) or (CI$). Surprisingly, this currency is the ninth-highest in the world in terms of value. I: The Cayman Island dollar was first seen in 1972, replacing the Jamacian dollar one a one-to-one basis. Both Jamaican and Cayman Island currency was used until 1972, when Jamacian currency was discontinued. The CI dollar was pegged to the U.S. dollar in 1974 but is now valued slightly below its peg rate.

G.I. Bill

The informal name of a United States law that gives military veterans a variety of benefits, including business loans, mortgages, education-expense assistance and unemployment payments. The G.I. Bill, formally called the Servicemen's Readjustment Act of 1944, provided these benefits to men and women following WWII. I: The G.I. Bill is considered one of the most significant pieces of 20th century legislation passed by the U.S. Congress. Much of the impetus behind the Bill's passage stemmed from the country's experience with veterans following WWI, when returning veterans were not effectively assimilated back into the workforce. The lack of support and the advent of the Great Depression led to public protests, including the Bonus Army marchers in 1932. The Bill did much to increase the number of college-educated Americans following the war, as many veterans who would have rejoined the workforce instead opted for degrees. In 1947, considered the peak of the Bill's use, roughly 49% of college admissions were of veterans. The original G.I. Bill ended in 1956, at which point more than half of veterans had opted to receive technical training or attend college. The Bill also supplied more than 2 million home loans to veterans by 1952. The G.I. Bill has been updated several times since 1944, including 1985 (the Montgomery G.I. Bill) and 2008 (the Post-9/11 G.I. Bill).

Magnetic Ink Character Recognition Line - MICR

The information that appears at the bottom of a check that includes the bank's routing number, the customer's account number, and the check number. The magnetic ink character recognition line is printed using technology that allows computers to read the printed information. Using MICR, computers can quickly read routing numbers, account numbers and other information from printed documents including checks. MICR numbers, letters and symbols are printed with magnetic ink or toner, usually in one of two major MICR fonts. The magnetic ink allows the computer to read the characters even if they have been covered with signatures, cancellation marks or other marks. I: MICR (often pronounced micker) is used mainly by the banking industry. A benefit of MICR over other computer-readable information such as bar codes is that humans are able to read MICR. The two MICR fonts that are used worldwide are E-13B and CMC-7. These unique fonts are used to help computers recognize the characters and limit check fraud.

Federal Funds Rate

The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The federal funds rate is generally only applicable to the most creditworthy institutions when they borrow and lend overnight funds to each other. The federal funds rate is one of the most influential interest rates in the U.S. economy, since it affects monetary and financial conditions, which in turn have a bearing on key aspects of the broad economy including employment, growth and inflation. The Federal Open Market Committee (FOMC), which is the Federal Reserve's primary monetary policymaking body, telegraphs its desired target for the federal funds rate through open market operations. Also known as the "fed funds rate". I: The higher the federal funds rate, the more expensive it is to borrow money. Since it is only applicable to very creditworthy institutions for extremely short-term (overnight) loans, the federal funds rate can be viewed as the base rate that determines the level of all other interest rates in the U.S. economy. Banks and other depository institutions maintain accounts at the Federal Reserve to make payments for themselves or on behalf of their customers. The end-of-the-day balances in these accounts are used to meet the reserve requirements mandated by the Federal Reserve. If a depository institution expects to have a larger end-of-day balance than it needs, it will lend the excess amount to an institution that expects to have a shortfall in its own balance. The federal funds rate thus represents the interest rate charged by the lending institution. The target for the federal funds rate - which as noted earlier is set by the FOMC - has varied widely over the years in response to prevailing economic conditions. While it was as high as 20% in the inflationary early 1980s, the rate has declined steadily since then. The FOMC has maintained the target range for the federal funds rate at a record low of 0% to 0.25%, from December 2008 onward, to combat the Great Recession of 2008-09 and stimulate the U.S. economy.

Call Money Rate

The interest rate on a type of short-term loan that banks give to brokers who in turn lend the money to investors to fund margin accounts. For both brokers and investors, this type of loan does not have a set repayment schedule and must be repaid on demand. I: Trading on margin is a risky strategy in which investors make trades with borrowed money. The advantage of margin trading is that investment gains are magnified; the disadvantage is that losses are also magnified. When investors trading on margin experience a decline in equity past a certain level relative to the amount they have borrowed, the brokerage will issue a margin call that requires them to deposit more cash in their account or to sell enough securities to make up the shortfall.

Federal Discount Rate

The interest rate set by the Federal Reserve that is offered to eligible commercial banks or other depository institutions in an attempt to reduce liquidity problems and the pressures of reserve requirements. The discount rate allows the federal reserve to control the supply of money and is used to assure stability in the financial markets. I: A decrease in the discount rate makes it cheaper for commercial banks to borrow money, which results in an increase in the supply of money in the economy. Conversely, a raised discount rate will make it more expensive for the banks to borrow, and would thereby decrease the money supply. Funds borrowed from the fed are processed through the discount window and the rate is reviewed every 14 days.

Gearing

The level of a company's debt related to its equity capital, usually expressed in percentage form. Gearing is a measure of a company's financial leverage and shows the extent to which its operations are funded by lenders versus shareholders. The term "gearing" also refers to the ratio between a company's stock price and the price of its warrants. Gearing can be measured by a number of ratios, including the debt-to-equity ratio, equity ratio and debt-service ratio. The appropriate level of gearing for a company depends on its sector, as well as the degree of leverage employed by its peers. I: For example, a gearing ratio of 70% shows that a company's debt levels are 70% of its equity. Is this too much debt? That depends on the industry in which the company operates. A gearing ratio of 70% may be very manageable for a utility, but it may be far too much for a technology company. In general, a company with excessive leverage as demonstrated by its high gearing ratio may be more vulnerable to economic downturns. This is because it has to make interest payments and service its debt through cash flows that may be significantly lower due to the downturn. The flipside of this argument is that leverage works well during good times, since all the excess cash flows accrue to shareholders once the debt service payments have been made.

52-Week Range

The lowest and highest prices at which a stock has traded in the previous 52 weeks. The 52-week range is provided in a stock's quote summary along with information such as today's change and year-to-date change. Companies that have been trading for less than a year will still show a 52-week range even though there isn't data for the full range. I: Technical analysts compare a stock's current trading price to its 52-week range to get a broad sense of how the stock is doing, as well as how much the stock's price has fluctuated. This information may indicate the potential future range of the stock and how volatile the shares are.

Johannesburg Interbank Agreed Rate - JIBAR

The money market rate that is used by South Africa. The rate comes in one-month, three-month, six-month and 12-month discount terms. I: The rate is determined as an average of the rates indicated by local and international banks. JIBAR is calculated as a yield and then converted into a discount. The rate is calculated daily after all of the rates are received by participating banks.

Paradox of Rationality

The irony that rational decision-making in game theory situations often has poorer payoffs or outcomes than choices made illogically or naively. The paradox of rationality underscores the contradiction between intuition and reasoning according to game theory. This paradox arises because the rational outcomes predicted by backward induction, the main form of game theory analysis, diverge widely from intuitive choices. The paradox of rationality is consistently observed in experimental studies of game theory using such well-known games as prisoner's dilemma and the centipede game. I: The paradox of rationality is highlighted by a popular game theory scenario known as the Traveler's Dilemma, devised by economist Kaushik Basu in 1994. Traveler's Dilemma presents a scenario in which an airline damages identical antiques purchased by two independent travelers. When pressed for compensation by the travelers for the damage, the airline manager - who has no clue about the value of the damaged goods - comes up with a novel solution to the problem of estimating the antiques' value. He tells the two travelers to separately write down the value as any number between $2 and $100. If both write down the same number, the inference is that they are telling the truth and the airline will reimburse them that amount. But if they write different numbers, the manager will assume that the lower number is the actual value and that the higher value is inaccurate. The airline will therefore pay both travelers the lower figure, with a bonus of $2 for the traveler who wrote the lower number and a penalty of $2 for the traveler with the higher number. Thus, if A writes $50 and B write $55, A receives $52 ($50 + $2 bonus) as compensation, while B gets $48 ($50 - $2 penalty). According to backward induction, the rational choice in terms of the Nash equilibrium is $2. However, in experimental studies, most people pick $100 or a number close to it. This includes people who have made a naïve selection without thinking the problem through, as well as those who are aware that they are deviating from the rational choice. The fact that substantially higher payoffs are possible by rejecting the rational choice and acting illogically or naively is the paradox of rationality.

Late Majority

The last sizable segment of a population to adopt an innovative technology. The late majority accounts for roughly 34% of the population, and will adopt a new product only after seeing that the majority of the population already has. People in this segment are typically older, less affluent and less educated than segments that more readily adopt innovating products. I: Populations in innovation adoption are broken into five primary segments: innovators (the first to adopt an innovation), early adopters, early majority, late majority and laggards. Companies evaluate how their products will fare by taking into account the time it will take for more than 50% of the market to adopt a new product. It may take a long time for the majority to adopt groundbreaking products.

Qualified Widow Or Widower

The least common of the five types of tax filing status each taxpayer must select from when preparing their personal tax return. A qualified widow or widower is entitled to use the "married filing jointly" tax rates on an individual return for up to two years following the death of the spouse. I: The qualified widow or widower status is provided as a measure of financial relief for those who have lost their spouse and may be struggling with medical or funeral bills. After two years, surviving spouses who have not remarried must file as either single or head of household.

Fallout Risk

The lending risk that occurs when the terms of a loan are confirmed simultaneously with the terms of a property sale. Because the mortgage terms are set but the sale is not finalized, there is a risk that the transaction may not be completed. This represents a risk to the mortgage pipeline, as the loan may not be issued. I: When a mortgage originator confirms the details of a loan, it expects the lending process to be completed. Arrangements are usually made to package the loan for resale in the secondary mortgage market. With fallout risk, the deal might not be completed and the loan will fall out of the mortgage pipeline.

Economic Life

The expected period of time during which an asset is useful to the average owner. The economic life of an asset could be different than the actual physical life of the asset. Estimating the economic life of an asset is important for businesses so that they can determine when it is worthwhile to invest in new equipment. In addition, businesses must plan so that they have sufficient funds to purchase replacements for expensive equipment once it has exceeded its useful life. I: The concept of economic life is also connected to depreciation schedules. Accounting standards bodies usually set generally accepted guidelines for estimating and adjusting this time period. In theory, businesses recognize depreciation expenses on a schedule that approximates the rate at which economic life is used up. This is not always true for tax purposes, however. Because owners may have superior information about specific assets, the economic life used in internal calculations may differ significantly from the depreciable life required for tax purposes. In addition, many businesses recognize depreciation expense differently based on management's goals. For example, a business might want to recognize costs as quickly as possible in order to minimize current tax liabilities and may do this by choosing accelerated depreciation schedules.

L

The fifth character added to a stock symbol listed on the Nasdaq to denote a miscellaneous situation. When L is present as the fifth letter of a Nasdaq ticker symbol, it indicates a subordinate issue including certificates of participation, preferred participation and stubs, which represents a stock that is made up of the converted bonds of a distressed company. I: Generally, common stock will have a four-letter symbol on the Nasdaq. When a fifth letter is added, such as an L or Z, it indicates that the shares are different or special in some way. Depending on the letter used that may mean they are non-voting shares, they are rights, it is a second or third offering or that its part of a reorganization.

"A" Round Financing

The first major round of business financing by private equity investors or venture capitalists. In private equity investing, an "A" round, or Series A financing, is usually in the form of convertible preferred stock. An "A" round by external investors generally takes place after the founders have used their seed money to provide a "proof of concept" demonstrating that their business concept is a viable - and eventually profitable - one. I: When investing in companies, private equity investors typically prefer convertible preferred stock to common stock for the various rounds of financing, such as Series A, Series B etc., because of the special features of the security. Convertible preferred stock have features such as dividend accrual and convertibility into common stock, which may become very profitable. As well, preferred stock will have a higher degree of rights compared to a common shareholder.

Early Majority

The first sizable segment of a population to adopt an innovative technology. The early majority tends to be roughly 34% of the population, and will adopt a new product after seeing it used successfully by either "innovators" and "early adopters" that they know personally. People in this segment are less affluent and less educated than innovators and early adopters, but are willing to take a chance with a new product. I: Populations in innovation adoption are broken into five primary segments: innovators (the first to adopt an innovation), early adopters, early majority, late majority and laggards. Companies use the diffusion of innovation theory to evaluate how long it will take a new product to be adopted by at least 50% of the population. "Innovators" and "early adopters" tend to try a new product out relatively quickly, but it may take a while for the early majority to feel comfortable enough with the technology to make a purchase.

F. Duane Ackerman

The former CEO of BellSouth from 1997 to 2006 and chairman from 1998 to 2006. F. Duane Ackerman led the company through the deregulation of the telephone industry, helped it expand its international presence and oversaw its 2006 merger with AT&T. I: Ackerman joined the company in the customer service department in 1964. Born in Florida in 1942, he earned his MBA from the Massachusetts Institute of Technology. Ackerman has also served as a member of the board for Allstate, the United Parcel Service and Home Depot. Atlanta-based BellSouth became a part of AT&T after a merger in late 2006 and stopped doing business as BellSouth in mid 2007. It was one of the "Baby Bells" formed after the 1984 breakup of AT&T forced by the U.S. Justice Department's antitrust lawsuit.

Jack Welch

The former chairman and CEO of General Electric (GE) from 1981 - 2001. Welch expanded the company and dramatically increased its market value from $14 billion to $410 billion during his tenure. Welch has a reputation as one of the top CEOs of all time, as evidenced by Fortune magazine's recognition of him in 1999 as Manager of the Century. His management strategies included embracing change and reinvention, leading rather than controlling, giving employees at all levels responsibility and freedom, being focused, being consistent and following up. I: Prior to leading GE, Welch had worked there for 21 years. He was hired as a junior engineer in 1960. During the 1980s Welch was given the nickname "Neutron Jack" for eliminating employees while leaving the office buildings intact. Welch adopted the Six Sigma quality program in 1995. The program led to greatly increased profits during the late 1990s and early 2000s.

Ralph Wanger

The former chief portfolio manager for the Acorn Fund who founded Wanger Asset Management. Ralph Wanger also gained acclaim for his witty investment newsletters to shareholders for his established small-cap invesment fund. Wanger was a firm believer that the only way to really beat the market over time was to find a long-term macroeconomic trend that would give a well managed company some sort of edge against its competitors. I: Ralph Wanger obtained both his bachelor's and master's degrees from MIT, finishing in 1955. Five years later he entered the investment arena, finally becoming the manager of the Acorn fund in 1977. He retired from the fund in 2003, having posted an impressive annual return in the fund of just over 16% per year - outperforming the S&P 500 by a whopping 4%.

Madeira Escudo

The former currency of Madeira, an island off the coast of Portugal. The Madeira escudo was used as Madeira's currency until it adopted the euro along with Portugal on January 1, 2002. Madeira belongs to Portugal, but has been an autonomous region since 1976, meaning that it has its own government and legislature and can make its own decisions on regional matters. It has Portugal's second highest GDP after Lisbon and is a popular EU tourist destination, perhaps best known for its fortified wine production. The escudo was also the former official currency of Portugal until the adoption of the euro. I: Madeira along with Portgual adopted the euro to help facilitate trade among EU countries, eliminating the uncertainties imposed by fluctuating exchange rates and the need to exchange currencies before completing a transaction. The euro also prevents individual EU member countries from inflating their currencies to eliminate government debt (though the EU central bank still has that power). Critics have pointed out that widespread implementation of the euro decreases currency competition, giving people fewer options for holding their money in a different currency when faced with wealth-eroding monetary policies such as inflation. Others have pointed out that widespread use of the euro could be followed by tax harmonization policies that would decrease tax competition among member states and stifle economic growth.

Sandwich Generation

The generation of middle-aged individuals who are pressured to support both aging parents and growing children. The sandwich generation is named so because they are effectively "sandwiched" between the obligation to care for their aging parents - who may be ill, unable to perform various tasks or in need of financial support - and children, who require financial, physical and emotional support. The trends of increasing lifespans and having children at an older age have contributed to the sandwich generation phenomenon. I: A 2005 Pew Center study estimated that one in eight Americans between the ages of 40 and 60 are simultaneously providing some financial assistance to both a child and a parent. The obligations placed on the sandwich generation demand considerable time and money. With the added pressures of managing one's own career and personal issues, as well as the need to contribute to one's own retirement, the individuals of the sandwich generation are under significant stress. In some cases, these baby boomers are having to postpone their own retirements because of the added financial obligations. Also, some members of the sandwich generation are further overextended by caring for their grandchildren.

AAA

The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has an exceptional degree of creditworthiness and can easily meet its financial commitments. Ratings agencies such as Standard & Poor's and Fitch Ratings use the AAA nomenclature to indicate the highest credit quality, while Moody's uses Aaa. I: As bonds that are rated AAA are perceived to have little risk of default, they offer investors the lowest yields among bonds of comparable maturity. The global credit crisis of 2008 resulted in a number of companies, including General Electric, losing their AAA rating. By the end of 2009, only four companies in the S&P 500 possessed the coveted AAA rating: Automatic Data Processing, Johnson & Johnson, Microsoft and ExxonMobil.

Naked Shorting

The illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen. While no exact system of measurement exists, most point to the level of trades that fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades. I: Naked shorting is illegal because it allows manipulators a chance to force stock prices down without regard for normal stock supply/demand patterns. In 2007, the Securities and Exchange Commission (SEC) amended Regulation SHO to further limit possibilities for naked shorting by removing loopholes that existed for some broker/dealers. Regulation SHO requires lists to be published that track stocks with unusually high trends in "fail to deliver" shares. Some analysts point to the fact that naked shorting, albeit inadvertently, may help markets stay in balance by allowing the negative sentiment to be reflected in certain stocks' prices.

Pari-Mutuel Revenues

The income a gaming company earns from customers' mutual betting activities, most commonly on horse racing. Churchill Downs is an example of a company that achieves a significant percentage of its earnings from pari-mutuel revenues. In addition to pari-mutuel revenues, gaming companies may also earn income from other types of gambling, like online poker and casino games. I: In pari-mutuel wagering, the top three winning bettors have their bets pooled and share the earnings. Rather than betting against the house, the players bet against each other. Success depends on a combination of luck, experience and the ability to stick to one's overall strategy in the face of changing emotions. The rate of return on winning plays that allows one to earn a profit after factoring in losing plays, transaction costs and breakage (the rounding down of winning bets to the nearest dime or nickel) is called the "take."

National Futures Association - NFA

The independent self-regulatory organization for the U.S. futures market. NFA membership is mandatory for all participants in the futures market, providing assurance to the investing public that all firms, intermediaries and associates who conduct business with them on the U.S. futures exchanges must adhere to the same high standards of professional conduct. The NFA operates at no cost to the taxpayer, as it is financed exclusively by membership dues paid by members and assessment fees paid by users of futures markets. The national headquarters is in Chicago and there is an office in New York. I: The NFA began operating in 1982, subsequent to the establishment of the Commodity Futures Trading Commission in 1974; this legislation also authorized the creation of registered futures exchanges, thereby facilitating the creation of a national self-regulatory organization. In addition to regulation of the U.S. futures market, the NFA's duties and functions include registration, compliance and arbitration. It combats fraud and abuse in the futures markets through a combination of rigorous registration requirements, stringent compliance rules, strong enforcement authority and real-time market surveillance.

Hedge Fund Manager

The individual who oversees and makes decisions about the investments in a hedge fund. Managing a hedge fund can be an attractive career option because of its potential to be extremely lucrative. To be successful, a hedge fund manager must consider how to have a competitive advantage, a clearly defined investment strategy, adequate capitalization, a marketing and sales plan and a risk management strategy. I: Individuals wishing to invest in hedge funds must meet income and net worth requirements. Hedge funds can be considered high risk because they pursue aggressive investment strategies and are less regulated than many other types of investments. The hedge fund manager is responsible for the investment decisions and the operations of the fund.

Take-Home Pay

The money that an individual actually receives from working after employment taxes and the cost of benefits and retirement contributions are subtracted. Take-home pay is calculated by taking an individual's monthly gross income and subtracting federal income tax, Social Security and Medicare taxes, any state or local income taxes, monthly health and dental insurance premiums, 401(k) contribution and contributions to a flexible spending account. The money that remains is what an employee actually has available for expenses like paying the mortgage, buying groceries and paying for discretionary purchases. I: Because of all these payroll deductions, an individual's take home pay (or net pay) often differs significantly from their gross pay. When considering a salary offer for a job, raise or promotion, individuals should look at what their take home-pay, not their gross pay, will be. Similarly, when an employer extends a job offer, pay raise or promotion, he must consider that his true cost of having that employee is not just the employee's nominal salary, but also the matching portion of Social Security and Medicare taxes; contributions to the employee's health insurance premiums, retirement plan and any other benefits; pay for vacation days, sick days and personal days; and the employee's share of operating expenses (such as office space, equipment, utilities and parking).

Last Fiscal Year - LFY

The most recent 12-month accounting period that a business uses when determining its annual financial performance. The SEC requires businesses to list their last fiscal year's revenue (in addition to other financial figures) in their 10-Q filings.Analysts and management will often use figures and metrics from a company's last fiscal year in order to forecast whether or not a business's current performance will outdo that of the previous fiscal year. I: For example, ABC Corporation's fiscal year starts and ends in February, and it is currently July. If it were to list its revenue from the last fiscal year, it would show the results that took place from February 1st of the previous year to January 31st of the current year.However, the inclusion of one-time financial anomalies in the last fiscal year's results may cause an ineffective comparison, as one-time non-operating events could skew a company's metrics. For example, ABC Corporation sold a factory for $1 million and it reported the cash as revenue in the last fiscal year's financial statements. Unless it is specified that the extra million dollars was not from its regular operations, individuals may mistakenly believe that ABC Corp.'s operations generated an extra million dollars.

Deal Flow

The rate at which business proposals and investment pitches are being received by financiers such as investment bankers and venture capitalists. Rather than a rigid quantitative measure, the rate of deal flow is somewhat qualitative and is meant to provide an indication of whether business is good or bad. The state of the economy has a significant influence on the level of deal flow. Economic expansion and robust equity markets will usually generate healthy deal flow for most financiers, while a recession and/or sluggish equity markets may generate some deal flow for only the most established players. I: Deal flow can comprise many different types of proposals: venture funding, private placements, syndications, initial public offerings (IPO), mergers and acquisitions. While large investment banks can handle most of these activities, specialist financiers such as venture capitalists and angel investors will generally focus on deal flow only in their area of expertise. While deal flow can be generated from a number of sources, the proposals that are likely to garner the most attention are the ones from companies or entrepreneurs where a previous investment has been successful, or where there is a solid existing relationship. On the other hand, unsolicited proposals from untried entities are likely to be given short shrift by most established financiers.

Old Age, Survivors And Disability Insurance Program - OASDI

The official name for Social Security in the United States. The OASDI is a comprehensive federal benefits program that provides benefits to retirees, disabled people and their survivors. The program was ushered in through the Social Security Act, signed by President Franklin D. Roosevelt on August 14, 1935, when the U.S. economy was in the depths of the Depression. I: The U.S. Social Security program is the largest such system in the world and is also the biggest expenditure in the federal budget. One in seven Americans receives a Social Security benefit and more than 90% of all American workers are in jobs covered by Social Security. The program has grown in leaps and bounds over the decades: In 1940, just over 222,000 people received a total of $35 million in Social Security benefits. By 2009, that number had increased to almost 51 million Social Security recipients who collectively received $650 billion in benefits.

Far Option

The option with the longer time to expiration in a calendar option spread, which involves buying or selling options with different expirations. In such a spread, the shorter-dated option will be the near option. Because far options have more time to attain an in-the-money status, they are associated with larger premiums. I: For example, a calendar spread strategy may involve selling May calls and buying October calls on the same stock. In this case, assuming it is April, the October calls would be the far options and the May calls would be the near options.

Hard Call Protection

The period in the life of a callable bond during which the issuing company is not permitted to redeem the bond. Hard call bonds have this feature as a sweetener for investors, because even if interest rates drop, which would normally cause a bond to be called and reissued at the lower interest rate, hard call protection guarantees investors will receive the stated return for a fixed number of years, before the bond can be called. This protection typically lasts for the first three to five years of the bond's life. Also called "absolute call protection." I: After the hard call protection period expires, the bond may continue to be partially protected by soft call protection. This feature requires certain conditions to exist before the bond can be called. For example, in the case of convertible callable bonds, soft call protection would prevent the issuer from calling the bond until the price of the underlying stock rose to a certain percentage above the conversion price. Callable bonds pay a higher return because of the risk that the issuer will redeem them before maturity. Retail notes are an example of a type of bond that commonly includes call protection.

Implied Repo Rate

The rate of return that can be earned by simultaneously selling a bond futures or forward contract and then buying an actual bond of equal amount in the cash market using borrowed money. The bond is held until it is delivered into the futures or forward contract and the loan is repaid. I: The implied repo rate comes from the reverse repo market, which has similar gain/loss variables as the implied repo rate. All types of futures and forward contracts have an implied repo rate, not just bond contracts.For example, the price at which wheat can be simultaneous purchased in the cash market and sold in the futures market (minus storage, delivery and borrowing costs) is an implied repo rate. In the mortgage-backed securities TBA market, the implied repo rate is known as the dollar roll arbitrage.

Pass-Through Rate

The rate on a securitized asset pool - such as a mortgage-backed security (MBS) - that is "passed-through" to investors once management fees and guarantee fees have been paid to the securitizing corporation. The pass-through rate (also known as the coupon rate for the MBS) will be lower than the interest rate on the individual securities within the offering. I: For example, suppose that an agency takes two million dollars' worth of mortgage loans, each of which pays 6% interest, and turns them into a 5.5% mortgage-backed security. The 5.5% reflects the pass-through rate, and the agency takes the remaining 0.5% as a cut of the proceeds.The largest issuers of securitized assets are the Sallie Mae, Fannie Mae and Freddie Mac corporations. While these companies are for-profit business, their guarantees are backed by the U.S. government, giving them high credit ratings.

Earnings Per Share - EPS

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. Calculated as: When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. I: Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. For example, assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M). An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures. For more on EPS read The 5 Different Types Of Earnings Per Share (EPS) and How To Evaluate The Quality Of EPS

Geographical Diversification

The practice of diversifying an investment portfolio across different geographic regions so as to reduce the overall risk and improve returns on the portfolio. The term also refers to the strategy employed by large companies of locating their operations in different regions or countries in order to reduce business and operational risk. I: As with diversification in general, geographical diversification is based on the premise that financial markets in different parts of the world may not be highly correlated with one another. For example, if the US and European stock markets are declining because their economies are in a recession, an investor may choose to allocate part of his portfolio to emerging economies with higher growth rates such as China, Brazil and India. Most large multinational corporations also have a high degree of geographic diversification. This enables them to reduce expenses by locating plants in low-cost jurisdictions and also lowers the effect of currency volatility on their financial statements. In addition, geographic diversification may have a positive impact on a corporation's revenues, since high-growth regions may offset the effects of lower-growth regions.

Gazump

The practice of raising the price of a previously agreed-upon real estate transaction. A gazump refers to a situation where a seller and buyer of a piece of real estate (such as a parcel of land or a house) have in place a verbal agreement regarding price, but where the price is suddenly raised shortly before or at the signing. This sudden increase in price is a gazump, and while the procedure typically falls within the boundary of the law, it is often considered an unethical practice in real estate. I: A seller who raises the price at the last minute may try to justify the gazump by citing competing bids. In this case, the seller states that another, higher bid has been made on the property, thereby compelling the buyer to agree to the higher price or risk losing the property. The seller may also infer that if the buyer does not agree to this new price the price could continue to increase with additional competing bids. If the buyer is motivated to purchase the property, he or she may agree to the higher price to avoid losing property or facing an even higher price. Conversely, the buyer can choose to walk away from the property because the transaction has not yet been closed.For example, assume a home is on the market with a listing price of $200,000. You make an offer to buy the property for $195,000, and the offer is accepted by the seller. Before the closing, however, the seller informs you that he has received another offer for $199,000, and he will sell to the new buyer unless you increase your offer to $199,000 or more. Because the seller had already agreed to your offer for $195,000 and is now asking for a higher price, you have been gazumped. If the seller had not already agreed to your offer, then you would have simply been outbid. A gazump is more likely to occur in robust real estate markets where prices are increasing, or in situations where the sale progresses too slowly and the seller is getting anxious (for example, if the buyer has not yet sold his or her property).

John T. Chambers

The president and CEO of Cisco Systems, a consumer electronics, networking and communications technology company, since 1995 and chairman since 2006. Chambers joined the company in 1991 as senior vice president of Worldwide Sales and Operations. Among Chambers' numerous leadership awards, he has been named one of Time magazine's 100 Most Influential People and has repeatedly earned Cisco a spot on Fortune's "America's Most Admired Company" list. Cisco has also been named a top place to work in India, Australia, Belgium, Saudi Arabia, Spain, Norway, France, Italy, Germany, the U.K. and Canada. I: Born in 1949 in Cleveland, Chambers earned his undergraduate and law degrees from West Virginia University and his MBA from Indiana University. Chambers previously worked at Wang Laboratories and IBM, and is a former Walmart board member.

QQQQ

The previous ticker symbol for the Nasdaq 100 Trust, an ETF that trades on the Nasdaq. This security offers broad exposure to the tech sector by tracking the Nasdaq 100 Index, which consists of the 100 largest and most actively traded non-financial stocks on the Nasdaq. It is also known as "cubes" or the "quadruple-Qs". This is now known as the QQQ. I: The QQQQ was a great way to invest in the long-term prospects of the technology industry. It offers diversification across various companies and business types with a range of market caps. It changed its symbol to QQQ in early 2011.

Call Price

The price at which a bond or a preferred stock can be redeemed by the issuer. This price is set at the time the security is issued. Also referred to as "redemption price". I: For example, let's say the TSJ Sports Conglomerate issues 100,000 preferred shares with a face value of $100 with a call provision built in at $110. This means that if TSJ were to exercise its right to call the stock, the call price would be $110.A company may exercise its right to call preferred stock if it wishes to discontinue payment of the dividend associated with the shares. It may choose to do this in an effort to increase earnings for common shareholders.

Fair Market Value

The price that a given property or asset would fetch in the marketplace, subject to the following conditions:1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.2. A reasonable time period is given for the transaction to be completed.Given these conditions, an asset's fair market value should represent an accurate valuation or assessment of its worth. I: Fair market values are widely used across many areas of commerce. For example, municipal property taxes are often assessed based on the fair market value of the owner's property. Depending upon how many years the owner has owned the home, the difference between the purchase price and the residence's fair market value can be substantial.Fair market values are often used in the insurance industry as well. For example, when an insurance claim is made as a result of a car accident, the insurance company covering the damage to the owner's vehicle will usually cover damages up to the fair market value of the automobile.

Objective Probability

The probability that an event will occur based an analysis in which each measure is based on a recorded observation, rather than a subjective estimate. Objective probabilities are a more accurate way to determine probabilities than observations based on subjective measures, such as personal estimates. I: For example, one could determine the objective probability that a coin will land "heads" up by flipping it 100 times and recording each observation. When performing any statistical analysis, it is important for each observation to be an independent event that has not been subject to manipulation. The less biased each observation is, the less biased the end probability will be.

Economic Forecasting

The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators. Some of the most well-known economic indicators include inflation and interest rates, GDP growth/decline, retail sales and unemployment rates. I: While economic forecasting is not an exact science, it remains an important decision-making tool for businesses and governments as they formulate financial policy and strategy.

De-hedge

The process of closing out positions that were originally put in place to act as a hedge in one's portfolio. De-hedging involves going back into the marketplace and closing out hedged positions, which were previously taken to limit an investor's risk of price fluctuations in relation to their underlying asset. I: De-hedging is done when holders of an underlying asset have a bullish outlook on their investment. Therefore, the investor would prefer to remove their hedged position to gain exposure to the expected upward price fluctuations of their investment. For example, a hedged investor in gold who feels the price of their asset is about to go up would buy back any gold futures contracts they had sold in the futures market. By doing this, the investor will have positioned themselves to reap the rewards of an increase in the price of gold if their bullish prediction on gold is correct.

Call Privilege

The provision in a bond indenture that gives the bond issuer the option to redeem all or part of the bond issue, at pre-determined prices on certain specified dates. These dates are known as "call dates" and form the call schedule. The term "call privilege" derives its name from the fact that the issuer's option to redeem the bond issue, is akin to a call option on the bonds. In return for this privilege, the issuer will generally pay a coupon rate that is higher than that paid by straight bonds of comparable maturity and credit quality. I: The pre-determined price at which a bond can be called is generally higher than the par or issue price. This call premium is demanded by investors to justify the risk involved in holding bonds that have call privileges embedded in them. Since an issuer is quite likely to exercise its call privilege when prevailing interest rates are significantly lower than they were at the time the bond was issued, buyers of callable bonds have to deal with reinvestment risk, or the risk of investing bond proceeds at lower interest rates. In the case of bonds that contain call privileges, "yield to call" may be a better measure of the yields that investors can expect from such bonds, rather than "yield to maturity."

Lambda

The ratio of the percentage change in an option contract's price to the percentage change in the option's underlying price. Lambda is one of the Greeks - a collection of risk measures or risk sensitivities that are frequently used in options and derivatives analysis. Each Greek measures the sensitivity of a value in relation to a small change in an underlying parameter. Lambda measures the change in option premiums for a percentage point change in its implied volatility. When the lambda value is high, the price of an option will be more sensitive to small changes in volatility. Conversely, when lambda is low, changes in volatility will have less impact on the option's value. I: Lambda is one of many Greeks used in determining and managing risk in options and derivatives trading and investing. The most common Greeks used are: Delta, which measures the rate of change of option value in response to changes in the price of the underlying instrument; Vega, which measures sensitivity to volatility; Theta, which measures the sensitivity of the value against the passage of time; Rho, which measures sensitivity to the interest rate and Gamma, which measures the rate of change in the Delta with respect to changes in the price of the underlying instrument.

Headline Inflation

The raw inflation figure as reported through the Consumer Price Index (CPI) that is released monthly by the Bureau of Labor Statistics. The CPI calculates the cost to purchase a fixed basket of goods as a way of determining how much inflation is occurring in the broad economy. The CPI uses a base year and indexes current year prices based on the base year's values. The headline figure is not adjusted for seasonality or for the often volatile elements of food and energy prices, which are removed in the Core CPI. Headline inflation will usually be quoted on an annualized basis, meaning that a monthly headline figure of 4\% inflation equates to a monthly rate that, if repeated for 12 months, would create 4\% inflation for the year. Comparisons of headline inflation are typically made on a year-over-year basis. Also known as "top-line inflation". I: Inflation is a great threat to long-term investors because it erodes the value of future dollars. Inflation can stifle economic growth and cause a rise in prevailing interest rates.While headline inflation tends to get the most attention in the media, core inflation is often considered the more valuable metric to follow. Core inflation removes the CPI components that can exhibit large amounts of volatility month to month, which can cause unwanted distortion to the headline figure. Both headline and core results are followed closely by investors, and are also used by economists and central banking figures to set economic growth forecasts and monetary policy.

Rate And Term Refinance

The refinancing of an existing mortgage for the purpose of changing the interest and/or term of a mortgage without advancing new money on the loan. This differs from a cash-out refinance, in which new money is advanced on the loan. Rate and term refinances can carry lower interest rates than cash-out refinances. I: Rate and term refinancing activity is driven primarily by a drop in interest rates, while cash-out refinance activity is driven by increasing home values. Because there are pros and cons associated with a rate and term and cash-out refinancing, the borrower must weigh the pros and cons of each before making any final decisions.

Okun's Law

The relationship between an economy's unemployment rate and its gross national product (GNP). Twentieth-century economist Arthur Okun developed this idea, which states that when unemployment falls by 1%, GNP rises by 3%. However, the law only holds true for the U.S. economy, and only applies when the unemployment rate falls between 3-7.5%. Other version of Okun's Law focus on a relationship between unemployment and GDP, whereby a percentage increase in unemployment causes a 2% fall in GDP. I: The percentage by which GNP changes when unemployment changes by 1% is called the "Okun coefficient". Industrialized nations with labor markets that are less flexible than those of the United States, such as France and Germany, tend to have higher Okun coefficients. In those countries, the same percentage change in GNP has a smaller effect on the unemployment rate than it does in the United States.

Sales Mix

The relative amounts purchased of each of the products or services a company sells. A clothing company's sales mix might include 100 pairs of shoes, 200 shirts, 100 jeans, 25 suits, 50 dresses and 200 accessories. Sales mix is important because some of a company's products or services may be more profitable than others. If a company's sales mix changes, its profits may rise or fall accordingly. I: A company that is not performing as well as it would like can analyze its sales mix and see if changes can be made to increase profits. Perhaps the company should deemphasize or even stop selling a low-profit product or service and focus on increasing sales of a high-profit product or service. Also, investors may look at a company's sales mix to see if its prospects for overall growth and profitability look promising.

Early Withdrawal

The removal of funds from a fixed-term investment before the maturity date, or the removal of funds from a tax-deferred investment account or retirement savings account, such as an IRA or 401(k) before a prescribed time. Early withdrawal could be anything earlier than the account owner's attainment of a prescribed minimum age requirement, or the maturity of a fixed-term investment, such as a certificate of deposit (CD). I: When an early withdrawal is made, the investor usually incurs an early withdrawal fee, which acts as a deterrent to frequent withdrawals before the end of the early withdrawal period. As such, an investor would usually only opt for early withdrawals if there were pressing financial concerns that warranted it, or if he or she had a markedly better use for the funds.

Calcutta Stock Exchange (CAL) .CL

The securities market in Calcutta, India. The country's second-oldest exchange began in 1908 as the Calcutta Stock Exchange Association with the trading of securities in the East India Company. At this time, it had 150 members. In 1923, the Association became a limited liability concern. In 1980, the exchange was permanently recognized by India's government. In 1997, The Exchange was the largest in the country, and it replaced its manual trading system with a computerized trading system called C-Star. I: C-Star was subject to a major payment settlement system scam in 2001 that closed down the exchange and resulted in the suspension of 300 CSE members, many of whom were able to get their licenses back several years later. Many companies delisted from the CSE and joined the Bombay Stock Exchange (BSE) or National Stock Exchange instead. In 2007, the CSE entered a piggyback arrangement with the BSE. 2,500 companies are listed exclusively on the CSE, but critics say that there are not enough companies in East India and that very few of CSE's exclusive listings are good companies.

Taiwan Stock Exchange (TAI) .TW

The securities trading center in Taiwan. The Taiwan Stock Exchange (TWSE) was established in 1961 and began operations in February 1962. Its listed securities include stocks, government bonds, convertible bonds, entitlement certificates of convertible bonds, exchange-traded funds, call warrants, put warrants and Taiwan Depository Receipts. Its trading system has been fully computerized since 1993. I: In conjunction with its governing body, the Financial Supervisory Commission, the TWSE supervises and regulates listed companies, investigates unusual circumstances, makes daily reports to investors of any unusual trading activity, and verifies listed companies' disclosures. The TWSE's stated goals include developing new financial products, improving Taiwan's capital markets, and strengthening the nation's international competitiveness.

Federal Poverty Level - FPL

The set minimum amount of gross income that a family needs for food, clothing, transportation, shelter and other necessities. In the United States, this level is determined by the Department of Health and Human Services. FPL varies according to family size. The number is adjusted for inflation and reported annually in the form of poverty guidelines. Public assistance programs, such as Medicaid in the U.S., define eligibility income limits as some percentage of FPL. I: The poverty guidelines are typically issued every February and correspond to the year in which they are issued. For example, the guidelines issued in Feb 2011 are designated as the 2011 poverty guidelines. (In 2011, the gross yearly FPLs were $18,530, $22,350 and $26,170 for families sizes of three, four and five, respectively.) However, when determining an individual's or a family's eligibility for receiving benefits, some government agencies compare before-tax income to the poverty guidelines, while others compare after-tax income. Likewise, eligibility limits may be based on gross income, net income or some other measure of income.

Economic Conditions

The state of the economy in a country or region. Economic conditions change over time in line with the economic and business cycle, as an economy goes through expansion and contraction. Economic conditions are considered to be sound or positive when an economy is expanding, and are considered to be adverse or negative when an economy is contracting. A country's economic conditions are influenced by numerous macroeconomic and microeconomic factors, including monetary and fiscal policy, the state of the global economy, unemployment levels, productivity, exchange rates, inflation and so on. I: There are numerous economic indicators that are used to define the state of the economy or economic conditions. Some of these are the unemployment rate, levels of current account and budget surpluses or deficits, GDP growth rates, inflation rates and more. Economic data is released on a regular basis, generally weekly or monthly, and sometimes quarterly. Some economic indicators like the unemployment rate and GDP growth rate are watched closely by market participants, as they help to make an assessment of economic conditions and potential changes in them.

Bahrain Stock Exchange - BSE

The stock exchange headquartered in Manama, Bahrain. Bahrain Stock Exchange was established in 1987, but did not begin operating until 1989. The exchange trades both equities and indexes along with derivative instruments on those securities. I: The Bahrain Stock Exchange (BSE) officially began operations in June 17, 1989 with just under 30 listed companies. Today, the exchange lists around 50 companies. The BSE operates autonomously, but is supervised by an independent goard of directors and is chaired by the governor of the Central Bank of Bahrain.

Paired Shares

The stock of two separate companies that are under the management or supervision of a single corporation. Paired shares are traded as if they are one stock and are sold as one unit. The stock of both companies typically appears on one stock certificate, with each stock printed on one side of the stock certificate. In general, one stock yields a higher dividend, while the other has a greater potential for growth. A share of stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. Also called "Siamese Shares" and "Stapled Stock." I: For example, Carnival Corporation and plc (known previously as P&O Princess Cruises plc), completed a dual listed company transaction in April 2003. Shares of Carnival Corporation common stock were paired with trust shares of beneficial interest in the P&O Princess Special Voting Trust. These new shares were referred to as the "trust shares" or "paired shares."

Safekeeping

The storage of assets or other items of value in a protected area. Individuals may use self-directed methods of safekeeping or the services of a bank or brokerage firm. Financial institutions are custodians and are therefore legally responsible for the items in safekeeping. Also known as "safekeep". I: Individuals who place an asset in safekeeping are also issued a safekeeping receipt. These receipts indicate that the asset of the individual does not become an asset of the institution and that the asset may be returned to the individual upon request. A fee may be required for these services.

Pairs Trade

The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in. I: It's the ultimate strategy for stock pickers, because stock picking is all that counts. What the actual market does won't matter (much). If the market or the sector moves in one direction or the other, the gain on the long stock is offset by a loss on the short.

Kakaku Yusen

The system of pricing that is used by the Tokyo Stock Exchange. Under the Kakaku Yusen system, a lower-priced trade is given priority over a higher-priced trade for a sell order. Conversely, higher-priced trades take precedence over lower-priced trades for buy orders. I: The Kakaku Yusen system serves as a tiebreaker for trades that are received or placed at the same time. This system is complementary to the exchange's other tiebreaker mechanism, which gives priority to an earlier-placed trade when two trades come in at the same price. The Kakaku Yusen system is opposite of how trades are filled on American exchanges.

Economic Network

A combination of individuals, groups or countries interacting to benefit the whole community. Economic networks use the various competitive advantages and resources of each member to increase the production and wealth of all the members. These economic networks could be static networks where members do not change, or dynamic ones in which the network is constantly changing as members are added or leave. I: Mergers and acquisitions are based on the individual characteristics of each company as well the as synergies between the companies. Economic networks are also taken into account in M&As and are often treated as a resource that is difficult to reproduce. These networks can increase a company's ability to trade in a financially beneficial way. .

10-K

A comprehensive summary report of a company's performance that must be submitted annually to the Securities and Exchange Commission. Typically, the 10-K contains much more detail than the annual report. It includes information such as company history, organizational structure, equity, holdings, earnings per share, subsidiaries, etc. I: The 10-K must be filed within 60 days (it used to be 90 days) after the end of the fiscal year.10-K = Yearly 10-Q = Quarterly

Real Time Forex Trading

A form of speculation in which a trader bets on the movement in the exchange rates of foreign currency pairs. Real-time forex trading involves placing an order to buy or sell a specific currency pair at the current exchange rate. I: Electronic currency traders, or forex traders, use analysis based on technical and fundamental indicators to help them forecast the movement of the currency pair being traded. Because real-time currency trading is wholly electronic, execution speeds are extremely fast, allowing the trader to quickly buy and sell currencies to cut losses and take profit.

General Obligation Bond - GO

A municipal bond backed by the credit and "taxing power" of the issuing jurisdiction rather than the revenue from a given project. I: General obligation bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or revenue from projects. No assets are used as collateral.

Oligopoly

A situation in which a particular market is controlled by a small group of firms. An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market. I: The retail gas market is a good example of an oligopoly because a small number of firms control a large majority of the market.

Parabolic Indicator

A technical analysis strategy that uses a trailing stop and reverse method called "SAR," or stop-and-reversal, to determine good exit and entry points. Also known as Parabolic Stop And Reverse (PSAR) I: This method was developed by J. Wells Wilder. Basically, if the stock is trading below the parabolic SAR (PSAR) you should sell. If the stock price is above the SAR then you should buy (or stay long).

Dalal Street

A term that refers to the Bombay Stock Exchange, the major stock exchange in India. The street is home not only the Bombay Stock Exchange but also a large number of other financial institutions. I: The term "Dalal Street" is used in the same way as "Wall Street" in the U.S., referring to the country's major stock exchanges and overall financial system. These terms are often seen in the financial media.

Mandatory Convertible

A type of convertible bond that has a required conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying common stock. These securities provide investors with higher yields to compensate holders for the mandatory conversion structure. I: These are often used when a traditional equity issuance would otherwise place severe market pressure on the underlying stock.

T+1 (T+2,T+3)

Abbreviations that refer to the settlement date of security transactions. The T stands for transaction date, which is the day the transaction takes place. The numbers 1, 2 or 3 denote how many days after the transaction date the settlement or the transfer of money and security ownership takes place. I: For determining the settlement date the only days that are counted are those on which the stock market is open. T+1 means that if a transaction occurs on a Monday, settlement must occur by Tuesday. Likewise, T+3 means that a transaction occurring on a Monday must be settled by Thursday, assuming no holidays occur between these days. But if you sell a security with a T+3 settlement date on a Friday, ownership and money transfer does not have to take place until the following Wednesday. Do not, however, think of the period between transaction and settlement as a flex time in which you can back out of the deal. The deal is done on the transaction day--it's just the transfer that does not take place until later.

Savings

According to Keynesian economics, the amount left over when the cost of a person's consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time. I: For those who are financially prudent, the amount of money that is left over after personal expenses have been met can be positive. For those who tend to rely on credit and loans to make ends meet, they will have negative savings. Savings can be turned into further increased income through investing.

Passive Activity

Activity in which the taxpayer did not materially participate in during the tax year. Internal Revenue Service (IRS) defines two types of passive activity: trade or business activities not materially participated in, and rental activities even if the taxpayer materially participated in them (unless the taxpayer is a real estate professional). Material participation is defined by the IRS as involvement in the activity of the business on a regular, continuous and substantial basis. The passive activity rules apply to individuals, estates, trusts (except grantor trusts), closely held corporations, and personal service corporations. I: Income from rental properties is a suitable example of a passive activity. Making a distinction between passive and active income is important because the taxpayer can claim a passive loss only against income generated from passive activities. A passive loss cannot be claimed against active income. Any excess passive activity loss can be carried forward to future years until used, or until it can be deducted in the year when the taxpayer disposes of the passive activity in a taxable transaction.

Sanford J. Grossman

An American economist and CEO of the hedge fund Quantitative Financial Strategies (QFS), which he founded in 1988. Sanford Jay Grossman was born in 1953 in New York City and holds a Ph.D. in economics from the University of Chicago. He has held academic appointments at Princeton, been an economics professor at the University of Chicago and held the position of Steinberg Trustee Professor of Finance at the Wharton School at the University of Pennsylvania. I: Dr. Grossman's areas of expertise include corporate structure, risk management, securities markets and property rights. He won the John Bates Clark Medal in 1987. QFS hedge fund implements a variety of investment strategies through its currency program, macro program, fixed income program and portable alpha program.

Lawrence Klein

An American economist and winner of the 1980 Nobel Memorial Prize in Economics for his studies of econometrics and the creation of computer models that became widely used by other economists. In addition to econometrics, a discipline that combines statistics with economics to forecast trends, Klein's research also focuses on macroeconomics. I: Born in 1920 in Omaha, Neb., Klein earned his Ph.D. at the Massachusetts Institute of Technology while studying and writing his dissertation under fellow economist and Nobel laureate Paul Samuelson. He has also taught at the University of Michigan, Oxford University and the University of Pennsylvania, won the John Bates Clark Medal, and was the chief economic advisor to President Jimmy Carter.

Gary S. Becker

An American economist who won the 1992 Nobel Prize in Economics for his microeconomic analysis of human behavior and interaction. Before Becker, human behavior was primarily analyzed within the framework of other social sciences, such as sociology. His prize-winning research focused on investments in human capital, family/household behavior, crime and punishment and discrimination in markets. I: Born in 1930 in Pennsylvania, Becker earned his Ph.D. from the University of Chicago, and numerous universities have awarded him honorary doctorate degrees. He taught at Columbia University before returning to the University of Chicago, to continue teaching in the departments of economics and sociology and in the business school. In addition to the Nobel Prize, Becker was awarded the John Bates Clark medal in 1967 and the Presidential Medal of Freedom in 2007.

James Tobin

An American economist who won the Nobel Memorial Prize in Economics in 1981 for his analysis of financial markets and specifically for his development of portfolio-selection theory, which describes how investors mitigate risk in their portfolios by selecting some combination of high and low-risk investments. Tobin was a Keynesian economist and his research interests included macroeconomics and monetary and fiscal policy. I: Tobin earned his Ph.D. in economics from Harvard and taught economics at Yale from 1950 to 1988. Among his other accomplishments, he won the John Bates Clark medal and worked as an economic advisor to President Kennedy. Tobin was born in Illinois in 1918 and died in 2002.

Oliver E. Williamson

An American economist, the recipient of the 2009 Nobel Prize in Economics, along with Elinor Ostrom, "for his analysis of economic governance, especially the boundaries of the firm," and professor emeritus of business, economics and law at the University of California, Berkeley. Williamson has been a groundbreaking researcher in organizational economics and transaction-cost economics. I: Born in Wisconsin in 1932, Williamson has also taught at the University of Pennsylvania and Yale. He holds an MBA from Stanford and a Ph.D. in economics from Carnegie Mellon. He has received numerous awards, honors and fellowships. Williamson also invented the term "information impactedness."

Callable Certificate Of Deposit

An FDIC insured certificate of deposit (CD) that contains a call feature similar to other types of callable fixed-income securities. Callable CDs can be redeemed (called away) by the issuing bank prior to their stated maturity, usually within a given time frame, and at a preset call price. I: A bank adds a call feature to a CD so it does not have to continue paying a higher rate to the CD holder if interest rates drop. Callable CDs are often redeemed at a premium to their purchase price as an incentive for investors to take the call risk. For example, if a bank issues a traditional CD that pays 4.5% to the investor, and interest rates fall to a point where the bank could issue the same CD to someone else for only 3.5%, the bank would be paying 1% higher rate for the duration of the CD. By using a callable CD, the bank can pay a premium to stop paying the higher rate.

Gharar

An Islamic finance term describing a risky or hazardous sale, where details concerning the sale item are unknown or uncertain. Gharar is generally prohibited under Islam, which explicitly forbids trades that are considered to have excessive risk due to uncertainty. I: There are strict rules in Islamic finance against transactions that are highly uncertain or may cause any injustice or deceit against any of the parties. In finance, gharar is observed within derivative transactions, such as forwards, futures and options, in short selling, and in speculation. In Islamic finance, most derivative contracts are forbidden and considered invalid because of the uncertainty involved in the future delivery of the underlying asset.

Health Savings Account - HSA

An account created for individuals who are covered under high-deductible health plans (HDHPs) to save for medical expenses that HDHPs do not cover. Contributions are made into the account by the individual or the individual's employer and are limited to a maximum amount each year. The contributions are invested over time and can be used to pay for qualified medical expenses, which include most medical care such as dental, vision and over-the-counter drugs. I: The HSA account has three major tax savings: the money contributed into the account is tax deductible, it grows tax free, and certain withdrawals are tax free if they are for qualified medical expenses. To qualify for an HSA account, you must have coverage from a high-deductible health plan and you must not be enrolled in Medicare or be listed as a dependent on another person's tax return.

Impound

An account maintained by mortgage companies to collect amounts such as hazard insurance, property taxes, private mortgage insurance and other required payments from the mortgage holders; these payments are necessary to keep the home but are not technically part of the mortgage. Impound accounts are often required of borrowers who put down less than 20%, but are usually optional in other cases. The purpose of the impound account is to protect the lender. Because low down-payment borrowers are considered high risk, the impound account assures the lender that the borrower will not lose the home because of liens or loss, as the lender pays insurance, taxes, etc. from the impound account when they are due. I: Though the impound account is designed to protect the lender, it can also help the mortgage holder. By paying for these big-ticket housing expenses gradually throughout the year, the borrower avoids the sticker shock of paying large bills once or twice a year, and is assured that the money to pay those bills will be there when they need it. However, if the mortgage company does not pay these bills when they are due, the borrower will be held responsible, so borrowers should keep an eye out to make sure their mortgage companies are fulfilling their end of the bargain.

Managed Futures Account

An account that is like a mutual fund, except that positions in government securities, futures contracts and options on futures contracts are used to manage the portfolio. I: Professional money managers known as "commodity trading advisors" look after managed futures accounts, deciding on their positions based on expected profit potential. Among other advantages, managed futures offer the potential for reduced portfolio volatility and the ability to earn profit in any economic environment. Managed futures have seen increased institutional use in recent years.

Generational Accounting

An accounting method that considers how current fiscal policies affect future generations. Generational accounting analyzes whether government spending and tax programs that benefit current members of society will produce an unfair tax obligation for future generations. The purpose of this accounting style is to achieve generational balance, where current and future generations have equivalent lifetime net tax rates, which allows for fiscal sustainability. I: The government's tax programs and fiscal policy can be adjusted to provide more care and benefits for certain members of a country's population. However, focusing programs on a specific group forces other generations to pay the costs, essentially imposing a taxation without representation. For example, spending on retirement programs for the elderly requires that younger generations foot the bill. This concept can be extended to future generations. Let's say the government were to lavishly spend on programs to benefit its current population in the short term. The debt obligations could be so large, that they could not be repaid by the current population in an average lifetime. In this case, the debt would be passed on to the next generation of citizens, who must then pay for benefits they never received. Generational accounting aims to eliminate policies that negatively impact future generations.

Lapping Scheme

An accounting method that involves altering the accounts receivable section of the balance sheet when cash that is intended for the payment of a receivable is stolen. The method involves taking the first receivable collected and using that to cover the theft, while the second receivable collected is accounted to the first, the third receivable to the second, and so on. I: For example, assume that $100 that was to be used to pay for a receivable is stolen from ZXC Inc. The next receivable ($125) is paid to ZXC a few days later. In a lapping scheme, the first $100 of this second payment will be accounted to the first receivable account, while the remaining $25 will be put toward the second receivable.A lapping scheme may initially be a convenient way for a company to account for theft, but the firm must eventually account for the theft as a loss and deduct it from net income.

On Account

An accounting term that denotes partial payment of an amount owed or the purchase/sale of merchandise or a service on credit. For example, if a firm purchases $5,000 worth of merchandise on account, this refers to the purchase of the goods on credit and a deferral of payment. I: Most lenders will accept payments on account. All installment payments of any kind, including mortgage payments, could be considered payments on account. Any purchases with credit can be referred to as purchases on account.

JAJO

An acronym that represents the months of January, April, July and October. Many companies that pay dividends announce their intentions to pay them - or declare a dividend payable on a certain date - four times per year, in January, April, July and October, the months included in JAJO. I: JAJO also refers to an option cycle - a pattern of months in which options contracts expire. Other option cycles include MJSD, which stands for March, June, September and December; and FMAN, representing February, May, August and November.

Health Insurance Portability And Accountability Act - HIPAA

An act created by the U.S Congress in 1996 that amends both the Employee Retirement Income Security Act (ERISA) and the Public Health Service Act (PHSA) in an effort to protect individuals covered by health insurance and to set standards for the storage and privacy of personal medical data. I: The HIPAA ensures that individual health care plans are accessible, portable, and renewable, and it sets the standards and the methods for how medical data is shared across the U.S. health system in order to prevent fraud. It pre-empts state law unless the state's regulations are more stringent. This act has been modified since 1996 to include processes for safely storing and sharing patient medical information electronically. The act also has an administrative simplification provision, which is aimed at increasing efficiency and reducing administrative costs by establishing national standards.Health insurers, health maintenance organizations (HMOs), healthcare billing services and other entities that handle sensitive personal medical information must comply with the standards set by the HIPAA. Noncompliance may result in civil or criminal penalties.

FED Pass

An action taken by the Federal Reserve that looks to increase the availability of credit by moving additional reserves into the banking system. The supply of loans is increased as more funds are injected into major banks, typically allowing lenders to originate more mortgages at lower interest rates. I: The FED Pass is an aspect of monetary policy that aims to affect the amount of money in circulation and increase lending. This action could be used as a method to combat economic difficulties, such as a credit crunch.

5-1 Hybrid Adjustable-Rate Mortgage - 5-1 Hybrid ARM

An adjustable-rate mortgage (ARM) with an initial five-year fixed-interest rate. After this initial five-year period, the interest rate begins to adjust on an annual basis according to an index plus a margin (or, the fully indexed interest rate). The speed and the extent to which the fully indexed interest rate can adjust are usually limited by an interest rate cap structure. There are several different indexes that the fully indexed interest rate might be tied to. While the index is variable, the margin is fixed for the life of the loan. Also known as a "five-year fixed-period ARM". I: There is little probability that the fully indexed interest rate might be lower than the initial fixed interest rate on a 5-1 ARM. The more likely scenario is that the fully interest rate will be higher, leading to an increase in the monthly payment amount beginning in year six. Depending on the slope of the yield curve, a 5-1 ARM can have an interest rate advantage over a 30-year fixed-rate mortgage. Most borrowers who choose a 5-1 ARM intend to refinance or move before the expiration of the fixed interest rate period. There is some risk in this scenario, because personal finances or general market conditions might make moving or refinancing difficult, or even impossible, five years in the future.

5-6 Hybrid Adjustable-Rate Mortgage - 5-6 Hybrid ARM

An adjustable-rate mortgage with an initial five year fixed interest rate after which the interest rate begins to adjust every six months according to an index plus a margin (or, the fully indexed interest rate). The index is variable while the margin is fixed for the life of the loan. 5-6 ARMs are usually tied to the six-month London Interbank Offered Rate (LIBOR) index. . I: When shopping for an ARM, the index, the margin and the interest rate cap structure should not be overlooked. In a rising interest rate environment, the longer the time period between interest rate reset dates, the more beneficial it will be for the borrower. So, in this case, a 5-1 ARM would be better than a 5-6 ARM. The opposite would be true in a falling interest rate environment.Additionally, different indexes behave differently in different interest rate environments. Those with a built-in lag effect, such as the Moving Treasury Average (MTA) Index are more beneficial in a rising interest rate environment than short-term interest rate indexes such as the one-month LIBOR. The interest rate cap structure determines how quickly and to what extent the interest rate can adjust over the life of the mortgage. Different cap structures might be available for certain types of ARMs. Finally, the margin is fixed for the life of the loan, but it can frequently be negotiated with the lender before signing mortgage documents.

Land Contract

An agreement between a buyer and seller of property in which the buyer makes payments toward full ownership (as with a mortgage), but in a land contract, the title or deed is held by the owner until the full payment is made. This type of contract is technically not a legally binding agreement and, therefore, many different types of payment formats can be found. As in a standard mortgage, there is an agreed upon price and payment schedule, but the payments are often not amortized evenly, so that a large balloon payment may be required to complete the purchase. Also known as an installment purchase contract or an installment sale agreement. I: A land contract can be thought of as a "lease with an option to buy". Certain states have more generous legal rights for land contract holders than others. As a result, the world of land contracts can be difficult to navigate. As such, a land contract buyer must be very careful to ensure that the terms of the contract are legally binding in case a dispute arises in the future. Land contracts are often used by purchasers that would not otherwise qualify for a mortgage, or by investors who wish to complete a purchase faster than a regular mortgage would allow.

ABC Agreement

An agreement made between a purchasing member with a seat on the NYSE and the firm in which he or she works. With the approval of the NYSE, this agreement stipulates that the employee of the firm may: a) transfer the seat to another employee of the firm b) retain ownership and purchase a new seat for another individual designated by the firm c) sell the seat and transfer any gains to the firm. I: ABC agreements are important because the firm pays for the seat on the NYSE that the employee is using. As such, the firm wishes to insure itself against the possibility of the employee - should he or she no longer work for the firm - negatively impacting the firm's ability to trade on the NYSE. The ABC agreement is so named because of the three main provisions it allows. Similar types of arrangements exist between firms and their employees on various other exchanges.

Call Option

An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. I: It may help you to remember that a call option gives you the right to "call in" (buy) an asset. You profit on a call when the underlying asset increases in price.

Parsonage Allowance

An allowance designated by a church or other organization for its church professionals (clergy) for the expenses of providing and maintaining a home. I: This is basically a housing allowance for ministers. Parsonage allowance is excluded from gross income, but it is included under a self-employment tax.

Tainted Alpha

An alpha return that cannot be attributed solely to the money manager due to consequential beta exposure. Tainted alpha is seen when money managers invest in individual equities, instead of using market neutral strategies such as arbitrage, and hedging. I: Due to many individual investors being unable to invest in funds that use pure alpha strategies (i.e. hedge funds), tainted alpha is common among the majority of managed portfolios. For most this is acceptable, because of the benefits of passively capturing gains that are associated with long term beta exposure, along with a money manager's stock picking ability.

Managed Futures

An alternative investment strategy in which professional portfolio managers use futures contracts as part of their overall investment strategy. Managed futures provide portfolio diversification among various types of investment styles and asset classes to help mitigate portfolio risk in a way that is not possible in direct equity investments. I: Professional money managers, known as commodity trading advisors, typically monitor managed futures accounts. These accounts can have various weights in stocks and derivative investments. A diversified managed futures account will generally have exposure to a number of markets such as commodities, energy, agriculture and currency. Introducing futures into a portfolio reduces risk because of the negative correlation between asset groups.

Real Option

An alternative or choice that becomes available with a business investment opportunity. Real options can include opportunities to expand and cease projects if certain conditions arise, amongst other options. They are referred to as "real" because they usually pertain to tangible assets such as capital equipment, rather than financial instruments. Taking into account real options can greatly affect the valuation of potential investments. Oftentimes, however, valuation methods, such as NPV, do not include the benefits that real options provide. I: Note that this kind of option is not a derivative instrument, but an actual option (in the sense of "choice") that a business may gain by undertaking certain endeavors. For example, by investing in a particular project, a company may have the real option of expanding, downsizing or abandoning other projects in the future. Other examples of real options may be opportunities for R&D, M&A and licensing.

Hawala

An alternative remittance channel that exists outside of traditional banking systems. Hawala is a method of transferring money without any actual movement. One definition from Interpol is that Hawala is "money transfer without money movement." Transactions between Hawala brokers are done without promissory notes because the system is heavily based on trust. I: Hawaladars, or Hawala dealers, arrange money transfers that are often backed only by trust, family connections or regional relationships. Hawala originated in South Asia during ancient times, and is used throughout the world today, particularly in the Islamic community as an alternative means of conducting funds transfers. Hawala is frequently referred to as underground banking, which is a misnomer because Hawala services often operate openly and legitimately.

Taiwan OTC Exchange (TWO) .TWO

An alternative securities exchange in Taiwan with listing criteria that are lower than those of the Taiwan Stock Exchange (TSE). For companies making an initial public offering, listing on the TWO can be a step toward getting listed on the TSE. Initial funding of the non-profit TWO was donated by the Taiwan Securities Association, the TSE Corp. and the Taiwan Depository & Clearing Corp. I: The Taiwan OTC Exchange, also known as Gre Tai Securities Market (GTSM), was established in November 1994. It deployed a weighted average stock index a year later. The GreTai Securities Market Index tracks the performance of all stocks that have been listed on the TWO for more than one month. The exchange trades stocks (including emerging stocks), bonds (including government bonds, convertible bonds and international bonds), and derivatives.

Balance Sheet Reserves

An amount expressed as a liability on the insurance company's balance sheet for benefits owed to policy owners. Balance sheet reserves represent the amount of money insurance companies set aside for future insurance claims or claims that have been filed but not yet reported to the insurance company or settled. The amount of balance sheet reserves to be maintained is regulated by law. Also known as "claim reserves." I: Balance sheet reserves are required of insurance companies by law to guarantee that an insurance company is able to pay any claims, losses or benefits promised to customers and claimants.

Debt

An amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest. I: Bonds, loans and commercial paper are all examples of debt. For example, a company may look to borrow $1 million so they can buy a certain piece of equipment. In this case, the debt of $1 million will need to be paid back (with interest owing) to the creditor at a later date.

12B-1 Fee

An annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered an operational expense and, as such, is included in a fund's expense ratio. It is generally between 0.25-1% (the maximum allowed) of a fund's net assets. The fee gets its name from a section in the Investment Company Act of 1940. I: Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund, its assets would increase and management could lower expenses because of economies of scale. This has yet to be proved. With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward intermediaries for selling a fund's shares, are seriously questioning the justification for using it. As a commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a fund.

Immediate Payment Annuity

An annuity contract that is purchased with a single lump-sum payment and in exchange, pays a guaranteed income that starts almost immediately. An immediate payment annuity is especially suitable for retirees who are concerned about outliving their savings. However, one disadvantage is that an immediate payment annuity is irreversible once it has been purchased. This may pose a problem should the annuitant need a large sum to deal with an emergency. I: Another large drawback of an immediate payment annuity is that it is terminated upon death of the annuitant. This means that in the event of the annuitant's premature death, the size of the estate left to his or her heirs may be much smaller than it would have been if the immediate payment annuity had not been purchased. Since the annuity payments are terminated upon the death of the annuitant, financial planners do not recommend this type of annuity for retirees who are not in good health.

Qualified Appraisal

An appraisal document that is created, signed and dated by a qualified appraiser and meets the requirements set forth by the Internal Revenue Service (IRS). A qualified appraisal is made no sooner than 60 days before a piece of property is donated. The document is used to notify the IRS that the value of a piece of property is in excess of $5,000. A qualified appraisal is attached to Form 8283 and filed with a tax return if a deduction is being requested. I: Determining the value of a piece of property is especially important when making a donation, since an improper valuation can result in either a deduction lower than what the property could bring or a red flag by the IRS for a valuation that seems too high.

Macaroni Defense

An approach taken by a company that does not want to be taken over. The company issues a large number of bonds with the condition they must be redeemed at a high price if the company is taken over. I: Why is it called Macaroni Defense? Because if a company is in danger, the redemption price of the bonds expands like Macaroni in a pot!

Lease To Own

An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time. More often than not, a portion of the total rental payment goes toward paying down the value of the item leased in the event that the renter wishes to exercise the option. I: For housing properties, the cost involved in lease-to-own agreements tend to be more expensive compared to standard rental agreements. In addition to paying rent, lease-to-own contract users need to pay an option fee, similar to an amount paid to buy a traditional stock option, and usually, a rent premium as well, which is not returned to the renter in the event that he or she does not exercise the option to buy the leased item.

Hardship Exemption

An approved excuse from paying a penalty fee for not having health insurance. A hardship exemption can be granted if an individual is in a situation that affects his or her ability to purchase health coverage. Hardship exemptions are a provision in the Patient Protection and Affordable Care Act (ACA), signed into law on March 23, 2010 by President Barack Obama. Starting in 2014, most individuals are required to have an acceptable health-coverage level known as minimum essential coverage, or pay a fee (called the "individual shared responsibility payment"). In certain cases, people can qualify for exemptions, including hardship exemptions, whereby no penalty is assessed for having no insurance. I: A hardship exemption may be granted for 12 accepted circumstances: You are homeless. You have been evicted in the last six months or are facing foreclosure. You received a shut-off notice from a utility company. You were the victim of recent domestic violence. You experienced the recent death of a close family member. You experienced a fire, flood or other disaster (either natural or human-caused) that resulted in substantial damage to your property. You filed for bankruptcy during the previous six-month period. You had medical expenses you were unable to pay in the last 24 months. You had unexpected increases in necessary expenses related to caring for an ill, disabled or aging family member. You expect to claim a child as a tax dependent who has been denied coverage in Medicaid and CHIP, and another person is under a court order to provide medical support for the child (in this case, you do not owe the penalty for the child). As a result of an eligibility appeals decision, you can enroll in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you were not enrolled in the QHP. You are ineligible for Medicaid because your state did not expand its eligibility under the ACA. Eligible individuals can apply for a hardship exemption through the Health Insurance Marketplace.

Leaseback

An arrangement where the seller of an asset leases back the same asset from the purchaser. In a leaseback arrangement, the specifics of the arrangement are made immediately after the sale of the asset, with the amount of the payments and the time period specified. Essentially, the seller of the asset becomes the lessee and the purchaser becomes the lessor in this arrangement. I: A leaseback arrangement is useful when companies need to un-tie the cash invested in an asset for other investments, but the asset is still needed in order to operate. Leaseback deals can also provide the seller with additional tax deductions. The lessor benefits in that they will receive stable payments for a specified period of time. Also known as a "sale and leaseback."

Identifiable Asset

An asset of an acquired company that can be assigned a fair value and can be reasonably expected to provide a benefit for the purchasing company in the future. Identifiable assets can be both tangible and intangible assets. I: If an asset is deemed to be identifiable, the purchasing company records it as part of its assets on its balance sheet. If an asset is not deemed to be an identifiable asset, then its value is considered part of the goodwill amount arising from the acquisition transaction.For example, suppose ABC conglomerate company purchases both a smaller manufacturing firm and a smaller start-up internet marketing company. The manufacturing company would likely have most of its value tied up in property, equipment, inventory and other physical assets, so virtually all of its assets would be identifiable. The internet marketing company, on the other hand, would likely have very few identifiable assets, and its value as a company would be based on its future earnings potential. As such, the purchase of the marketing company would generate a lot more goodwill on ABC's books, because it would gain few identifiable assets from the marketing company.

Canadian Council Of Insurance Regulators - CCIR

An association that was created to advocate for an effective regulatory system in Canada. In addition, the CCIR frequently works jointly with other financial regulators to improve consumer protection laws and to promote harmonization of regulations across various jurisdictions. I: The Canadian Councile of Insurance Regulators (CCIR) represents regulators from the federal government, and each province and territory. The CCIR works collaboratively with these agencies to create solutions to regulatory issues in Canada.

John Maynard Keynes

An author and economist who is well-known for his stance that national governments should attempt to smooth out the effects of expansion and contraction in the business cycle by using fiscal and monetary policy. Keynes is regarded as one of the founding fathers of modern day macroeconomic theory, and his views on economic theory have developed into a subset of economic theory called "Keynesian economics". I: Keynes was one of the most groundbreaking economists of his day. He created many of the new ideas that went on to become accepted post World War II. Many national governments began to follow certain macroeconomic statistics more closely, including interest rates and employment because of Keynes academic efforts.

Nakahara Prize

An award issued to a Japanese economist under the age of 45 who has made important contributions to the field of economics. The Nakahara Prize is awarded annually by the Japanese Economic Association and is named after Nobuyuki Nakahara, a former board member of the Bank of Japan. I: The Nakahara Prize was first awarded in 1995, and focuses on economists who earn international recognition rather than solely domestic recognition for their work. It is designed to award younger economists, as the maximum age of a winner is set at 45.

Oil Reserves

An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.Reserves are calculated based on a proven/probably basis. I: Saudi Arabia, Kuwait, Iran, Iraq, Venezuela, Russia, Mexico and Canada are some of the world leaders in oil reserves. Canada has over 150 billion barrels of oil reserves, a large portion of which is concentrated in the Alberta oil sands. If the rate of technological improvement exceeds the rate of extraction, national oil reserves will increase.

In Escrow

An item such as money or a piece of property that has been transferred to a third party with the intentions of delivery to a grantee as part of a binding agreement. Valuables in escrow are delivered, generally by an escrow agent, to a grantee upon satisfaction of outlined terms. I: Escrowed items are most commonly found in real estate transactions. Property, cash and the title to the property are often held in escrow until all specified conditions are met, and transfer of ownership can occur. Lawyers will most commonly act as escrow agents in such situations.

Joint Liability

An obligation, including an obligation to repay a debt between two or more parties. A joint liability allows parties to share the risks associated with taking on additional debt, and to protect themselves in the event of legal litigation and lawsuits. I: A joint liability for a debt is the result of two or more parties applying jointly for credit as co-borrowers, which is implied in a general partnership. Under the regulations of a general partnership, any partner entering into a contract with or without the knowledge of other partners automatically binds all partners to that contract.A co-signer of a loan or another debt obligation also has joint liability for a debt; however, this is contingent upon default by the borrower.

Gentleman's Agreement

An unwritten agreement or transaction backed only by the integrity of the counterparty to actually abide by the terms of the agreement. An agreement like this is not legally binding and could have a negative effect on business relationships if one party decides to default on their promise. I: For example, if an employee at a company says they will get you a job and you have nothing to worry about, this is an example of a gentleman's agreement. However if they are unable to get you the job then you have no legal recourse.

Sao Paolo Stock Exchange (SAO) .SA

Based in Sao Paolo, Brazil, this exchange has the fourth-largest market cap in all of the Americas and the 13th largest in the world. It is also known as the BM&F Bovespa. The main index of this exchange is the Indice Bovespa. I: The Sao Paolo Exchange, formerly known as the Bovespa, merged with the Brazil Mercantile and Futures Exchange in 2008 to create the BM&F Bovespa Exchange. As of April 30, 2008, 450 companies traded on the exchange. The original exchange was founded in 1890.

Above-The-Line Costs

Costs incurred during the production of an advertising commercial that are associated with the creative side of it. These costs include those incurred for actors, music and photography. Because creativity cannot be measured directly, above-the-line costs may have little correlation with the creativity of an advertisement or commercial. That is, incurring high above-the-line costs may not necessarily result in a commercial with a high degree of creativity, while a low-budget commercial with minimal above-the-line costs may still be quite creative. In accounting, above-the-line costs can also refer to costs included in the calculation of net income in the income statement. I: Above-the-line costs are the polar opposite of below-the-line costs in advertising, which are costs associated with the non-creative part of the advertising commercial production. Below-the-line costs include expenses for props and equipment.

Abenomics

Nickname for the multi-pronged economic program of Japanese prime minister Shinzō Abe. Abenomics seeks to remedy two decades of stagnation by increasing the nation's money supply, boosting government spending and enacting reforms to make the economy more competitive. I: After serving as prime minister briefly from 2006 to 2007, Shinzō Abe began a second term in December 2012. Soon after resuming office, he launched an ambitious plan to bolster Japan's economy, which had been struggling with deflation and a lack of growth for nearly two decades. Abe's program consists of three "arrows." The first consists of printing additional currency - between 60 trillion yen to 70 trillion yen - to make Japanese exports more attractive and generate modest inflation. The second arrow entails new government spending programs to stimulate demand. The third component of Abenomics is more complex - a reform of various regulations to make Japanese industries more competitive. This includes making it easier for companies to fire ineffective workers, something that historically has been difficult from a legal standpoint. Proposed legislation also aims to restructure the utility and pharmaceutical industries and modernize the agricultural sector.

Gift

Property, money or assets that one person transfers to another while receiving nothing or less than fair market value in return. Under certain circumstances, the IRS collects a tax on gifts. Transfers of money or property that are given freely or exchanged for less than market value may be subject to the gift tax if the donor has exceeded the annual or lifetime gift exemption. I: If you receive a gift, you aren't required to report it as income; it is the gift giver who is responsible for paying any tax and filing a gift tax return. Gifts of any amount to spouses or political organizations, and payments of tuition and medical expenses on behalf of others, are generally not taxable as gifts. Estate planning can help wealthy individuals avoid paying gift taxes.

Fair Funds for Investors

Provision introduced in 2002, under Section 308(a) of the Sarbanes-Oxley Act. Fair Funds for Investors was put into place to benefit those investors who have lost money because of the illegal or unethical activities of individuals or companies that violate securities regulations. Essentially, this provision enabled the Securities and Exchange Commission (SEC) to add civil money penalties to disgorgement funds for the relief of the victims of stock swindles. I: The SEC anticipates that fair funds will play an important role in encouraging investors to continue to place trust in U.S. stock markets. Fair funds are playing an increasing role in the SEC's enforcement of regulations, and they are particularly favored when investors who have lost money can be identified and their financial losses can be calculated. So far, however, these funds have paid out little of their value.

JMD (Jamaican Dollar)

The currency abbreviation or the currency symbol for the Jamacian dollar (JMD), the currency for Jamaica. The currency is made up of 100 cents and is often presented with the symbol J$ or JA$. The Jamaican dollar was also formerly used in the Cayman Islands. I: The Jamaican dollar was first seen replacing the Jamaican pound in 1969. At the time, both coins and notes were issued, but its value has fallen substantially since then, reaching new lows in early 2009. Many bills have been replaced by coins, and a $1000 note began circulating in 2000.

Fake Claims

The term fake claims refers to insurance claims that are made fraudulently. These claims are made in an attempt for the policy holder to benefit financially from making claims that are false or exaggerated. While such practices are a fairly common occurrence, they are highly illegal. I: Fake claims are often exaggerations of valid claims to an insurance policy. For example, a homeowner insurance policy holder may have been the victim of a breaking and entering where items were stolen. The number (and value) of the stolen items may be exaggerated on the claims report, indicating that more items were stolen than really were. This exaggeration could lead to the homeowner receiving a larger claim settlement than that to which he or she is truly entitled. Large claims are often investigate to mitigate such problems.

October Effect

The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological expectation rather than an actual phenomenon. Most statistics go against the theory. I: Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. Black Monday, Tuesday and Thursday all occurred in October 1929, after which came the Great Depression. In addition, the great crash of 1987 occurred on October 19, and saw the Dow plummet 22.6% in a single day.

Law Of One Price

The theory that the price of a given security, commodity or asset will have the same price when exchange rates are taken into consideration. The law of one price is another way of stating the concept of purchasing power parity. I: The law of one price exists due to arbitrage opportunities. If the price of a security, commodity or asset is different in two different markets, then an arbitrageur will purchase the asset in the cheaper market and sell it where prices are higher.When the purchasing power parity doesn't hold, arbitrage profits will persist until the price converges across markets.

Calendar Year Experience

The underwriting result based on earned premiums and booked incurred losses for the same calendar-year accounting period. This term is used in the insurance industry to signify an insurance company's "experience" during a calendar year, in terms of the premiums earned and the losses incurred. Losses incurred refer to claims paid out during the year and changes to the loss reserves. Also referred to as accident year experience and underwriting year experience. I: Underwriting can be defined as the process of insuring someone. Insurance underwriters usually assess a client, decide how much coverage the client should receive, how much the clients should pay for the coverage or whether to accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk.

Economic Espionage

The unlawful targeting and theft of a nation's critical economic intelligence. Economic espionage may include the clandestine acquisition or outright theft of invaluable proprietary information in a number of areas including technology, finance and government policy. Economic espionage differs from corporate or industrial espionage in a number of ways - it is likely to be state-sponsored, have motives other than profit or gain (such as closing a technology gap) and be much larger in scale and scope. Recognizing the threat from such activity, the U.S. signed the Economic Espionage Act into law in October 1996. I: According to the FBI, foreign competitors conduct economic espionage in three main ways: By recruiting insiders working for U.S. companies and research institutions that typically share the same national background. Using methods such as bribery, cyber-attacks, "dumpster diving" and wiretapping. Establishing seemingly innocent relationships with U.S. companies to gather economic intelligence including trade secrets. The FBI recommends that to counter this threat, companies should take a number of steps that include implementing a proactive plan to safeguard trade secrets, securing physical and electronic versions of intellectual property, and training employees. In November 2011, the U.S. accused China of being the world's "most active and persistent" perpetrator of economic espionage, and also identified Russia as one of the most aggressive collectors of U.S. economic information and technology. The problem's scale was evident in subsequent media reports that said hundreds of leading U.S. companies had been targeted by overseas entities for economic espionage.

Parity Bond

Two or more bond issues with equal rights to one another. In other words, a parity bond is an issued bond with equal rights to a claim as other bonds already issued. For example, unsecured bonds have equal rights in that coupons can be claimed without any one bond having priority over another. Therefore, unsecured bonds would be referred to as parity bonds. A parity bond is also referred to as part passu bond. I: These types of fixed-income securities are commonly issued by municipalities as a way to gather finance capital. Parity bonds are similar to pari passu securities, which are securities or debts that have equal claims on a right. For example, common shares all have equal rights to claim a dividend without one share having priority over another.

Joint Float

Two or more countries agreeing to keep their currencies at a same exchange rate relative to one another, but not relative to other countries. The countries involved in a joint float agreement form a sort of partnership where their currencies move jointly. The central banks of the countries participating in this agreement maintain the joint float by buying and selling each others currencies. I: Countries that decide to link their currencies do it for various reasons. For example, a small country next to a larger one will be affected more severely by currency exchange rates. In this case, a minimal shift from one currency to another will impact the price of the currency in the smaller country more than it would impact the larger country. The goal is that if the countries form a joint float by linking their currencies to form a fixed exchange rate, their currencies become stronger and better able to withstand currency fluctuations. West Germany, France, Italy, the Netherlands, Belgium and Luxembourg created a European joint float in 1972.

Layered Fees

Two sets of management fees that are paid by an investor for the same group of assets. This practice is found in many types of investment vehicles such as wrap funds, variable annuities, registered investment advisor client accounts and even mutual funds. I: Information about layered fees in an investment product should be stated in the prospectus. Layered fees should generally be avoided by an investor because paying money managers for assets they are not directing is wasteful.However, layered fees should be considered if there is truly a case to be made for the primary manager to add value. There are several cases where paying a layered fee can be acceptable, such as:1. Investments in foreign companies. This is because of the higher costs and complexities in investing in these companies directly.2. A low cost ETF or other fund purchased to provide exposure to a commodity, such as gold or silver.3. As a hedge, such as in the case of a short fund or interest rate instrument.

Garbage Fees

Unnecessary fees tacked onto mortgage closing costs by lenders to pad the lender's profit. Garbage fees may have names such as "administrative fee", "application fee", appraisal review fee", "courier fee", "document preparation fee", "document review fee","loan origination fee" and "settlement fee". These charges are usually either blatantly illegitimate or are typical costs of business but either way, they are dramatically exaggerated before being passed on to the customer. I: Although some people see garbage fees as a necessary evil in the financing or refinancing of a home purchase, it is often possible for borrowers to get lenders to reduce or eliminate these bogus fees by speaking up and expressing an unwillingness to pay them. The best time to do this is before signing a good faith estimate.

Idle Time

Unproductive time on the part of employees or machines as a result of factors beyond their control. Idle time is the time associated with waiting, or when a piece of machinery is not being used but could be. Idle time could also be associated with computing, and in that case refers to processing time. I: Time management is extremely important in any business. This includes timing the completion of one project to coordinate with the beginning of another to reduce idle time. For example, if department A is unable to work on assembly because department B has not finished creating the parts required, the two departments need to be synchronized so that this handoff can go more smoothly, thus reducing idle time.

Paper Profit (Paper Loss)

Unrealized capital gain (or capital loss) in an investment. It is calculated by comparing the market price of a security to the original purchase price. Gains or losses only become realized when the security is sold. I: Investors commonly justify bad investment decisions because of paper gains or losses. Two examples: 1. Although you officially recognize a transaction when you sell a security, many investors believe they haven't lost any money in a sinking investment because they haven't yet sold it. While you don't have a capital loss for tax purposes, there is a loss in value. 2. On the flip side, the dotcom boom saw many "paper millionaires;" created due to stock options. The problem was that rules in options contracts made it impossible for these people to sell their stock and realize their wealth. Consequently, after the dotcom market crashed, many paper millionaires went broke.

Dawn Raid

When a firm or investor buys a substantial number of shares in a company first thing in the morning when the stock markets open. Because the bidding company builds a substantial stake in its target at the prevailing stock market price, the takeover costs are likely to be significantly lower than they would be had the acquiring company first made a formal takeover bid. I: Like the dawn raid in war, the corporate dawn raid is done early in the morning, so by the time the target realizes it's being attacked, it's too late - the investor has already scooped up some controlling interest. However, only a minority interest in a firm's shares can be bought this way. So, after a successful dawn raid, the raiding firm is likely to make a takeover bid to acquire the rest of the target company.

Gambler's Fallacy

When an individual erroneously believes that the onset of a certain random event is less likely to happen following an event or a series of events. This line of thinking is incorrect because past events do not change the probability that certain events will occur in the future. I: For example, consider a series of 20 coin flips that have all landed with the "heads" side up. Under the gambler's fallacy, a person might predict that the next coin flip is more likely to land with the "tails" side up.This line of thinking represents an inaccurate understanding of probability because the likelihood of a fair coin turning up heads is always 50%. Each coin flip is an independent event, which means that any and all previous flips have no bearing on future flips.This can be extended to investing as some investors believe that they should liquidate a position after it has gone up in a series of subsequent trading session because they don't believe that the position is likely to continue going up.

Divergence

When the price of an asset and an indicator, index or other related asset move in opposite directions. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators, such as the money flow index (MFI), are moving in opposite directions. I: In technical analysis, divergence is considered either positive or negative, both of which are signals of major shifts in the direction of the price. Positive divergence occurs when the price of a security makes a new low while the indicator starts to climb upward. Negative divergence happens when the price of the security makes a new high, but the indicator fails to do the same and instead closes lower than the previous high.

Offset

1. To liquidate a futures position by entering an equivalent, but opposite, transaction which eliminates the delivery obligation.2. To reduce an investor's net position in an investment to zero, so that no further gains or losses will be experienced from that position. I: 1. Investors will offset futures contracts and other investment positions in order to remove themselves from any associated liabilities. Almost all futures positions are offset before the terms of the futures contract are realized. Despite the fact that most positions are offset near the delivery term, the benefits of the futures contract as a hedging mechanism are still realized. 2. If the initial investment was a purchase, a sale is made to neutralize the position; to offset an initial sale, a purchase is made to neutralize the position. For example, if you wanted to offset a long position in a stock, you could short sell an identical number of shares. By doing so, your net ownership of the stock would be zero, and you would not incur any further gains or losses from the position.

Debasement

1. To lower the value, quality or status of something or someone.2. To lower the value (of a coin) by adding metal of inferior value. I: In other words, debasement is the degrading of the value of something or character of someone. In the context of coins, it is the process of melting down a coin and mixing it with a lower quality metal to create additional coins of the same denomination.

Canadian Investor Protection Fund - CIPF

A Canadian not-for-profit organization set up by the investment industry designed to protect investors from the bankruptcy of an individual investment firm.Accounts are covered for up to $1 million in shortfall of securities, commodity and futures contracts, segregated insurance funds and cash. Shortfall is the difference between the market value of the account and what the insolvent company can return to the customer. I: While investment firms rarely become insolvent, the CIPF exists to protect the investment accounts of customers.The size of the fund's resources is close to $300 million.

F

A Nasdaq stock symbol specifying that the stock is a foreign company. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

D

A Nasdaq stock symbol specifying that the stock is a new issue. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock

A

A Nasdaq stock symbol specifying that the stocks are Class "A" shares of the company. I: Nasdaq-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

S-8 Filing

A SEC filing required for companies wishing to issue equity to their employees. I: Similar to filing a prospectus, the S-8 outlines the details of an internal issuing of stock or options to employees.

Joint Account

A bank or brokerage account that is shared between two or more individuals. Joint accounts are most likely to be used between relatives, couples or business partners who have a level of familiarity and trust for each other, as this type of account typically allows anyone named on the account to access funds within it. I: Joint accounts can be established on a permanent basis, such as an account between a couple where their salaries are deposited, or may be temporary, such as an account between two parties who contribute funds for a short-term purpose. In the event of a death of one of the account holders, the remaining account holders will have sole access to the funds, as well as any debts associated with the account.

Safe Deposit Box

A box - usually located inside a bank - which is used to store valuables. A safe deposit box is rented from the institution and can be accessed with keys, pin numbers or some other security pass. Valuables such as documents and jewelry are placed inside and customers rely on the security of the building to protect those valuables. I: The contents of a safe deposit box are not insured in the same way bank deposits are. The Federal Deposit Insurance Corporation insures cash deposits up to a certain limit, but due to the fact that there is no way to verify the contents of a safe deposit box, banks will not insure their contents. Also, if heirs are not told about the location of the drawer, upon non-payment, the box is considered abandoned, and its contents are turned over to the state's unclaimed-property offices for auction.

Gap

A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. Gaps can be created by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release. I: An example of two different gaps can be seen in the chart above. Notice how the stock closes the trading session before the first gap at $50 and opens the next trading day near $46 with no trading occurring between the two prices. Gaps are a regular occurrence in all financial markets. However, they are rarely seen in the forex market since it is highly liquid and trades 24 hours a day.

Salary Reduction Contribution

A cash- or deferred-contribution arrangement of an employer-sponsored retirement plan, under which participants can choose to set aside part of their pre-tax compensation as a contribution to the plan. I: This kind of contribution is also called an elective-deferral contribution. Employees defer the tax on the money until it is distributed to them.

Passbook Loan

A personal loan extended to a savings-account holder by the custodial bank. Passbook loans use the balance of the savings account as collateral for the loan. The amount of the loan therefore cannot exceed the savings-account balance. I: Passbook loans are considered low-risk transactions due to the accessibility of their collateral to the lender. The borrower must hand over the passbook to the bank until the loan is repaid. The bank can also simply place a hold on the funds in the savings account up to the amount of the loan.

Tag-Along Rights

A contractual obligation used to protect a minority shareholder (usually in a venture capital deal). If a majority shareholder sells his or her stake, then the minority shareholder has the right to join the transaction and sell his or her minority stake in the company. Also referred to as "co-sale rights". I: Tag-alongs effectively oblige the majority shareholder to include the holdings of the minority holder in the negotiations in order to facilitate the possibility that a tag-along right is exercised.

Back Order

A customer order that has not been fulfilled. A back order generally indicates that customer demand for a product or service exceeds a company's capacity to supply it. Total back orders, also known as backlog, may be expressed in terms of units or dollar amount. I: Companies have to walk a fine line in managing their back orders. While consistently high levels of back orders indicate healthy demand for a company's product or service, there is also a risk that customers will cancel their orders if the waiting period for delivery is too long. This is less of a risk for innovative products with strong brand recognition in areas such as technology.

Earnings Credit Rate - ECR

A daily calculation of interest paid on idle funds that reduce bank service charges. A calculated amount is then used to pay for banking fees. Therefore, customers with larger deposits and balances tend to pay lower bank fees for their accounts. The rate paid is often pegged to the U.S. Treasury bill rate. I: Banks have great discretion for determining the earnings allowance. While the ECR can offset fees, be sure you are only being charged for services you use.

Dangling Debit

A debit entry with no offsetting credit entry. Dangling debit occurs when a company purchases goodwill or services to create a debit. When adding the journal entry to financial statements a corresponding credit balance is not reported and cannot be written off. Dangling debit can be received when a company is acquired but is not recorded on the balance sheet. I: When a company purchases goodwill, the company will receive a debit entry on its financial statements, but no entry is entered on the credit side and therefore a dangling debit is created. When a company uses dangling debit in their financial statements, it is offset by affecting the equity of the company by being listed as deductions or negative reserves.

Call Rule

A exchange rule whereby the official bidding price for a cash commodity is competitively established at the end of each trading day and held until the opening of the exchange the following trading day. I: The call rule attempts to reduce overnight volatility by ensuring commodity prices begin trading near the previous day's closing bid.

Qualifying Relative

A federal income tax designation that allows a taxpayer to claim as a dependent someone for whom he or she provided considerable financial support during the tax year. Claiming a qualifying relative as a dependent will allow the taxpayer to take an additional exemption, which will reduce his taxable income, dollar for dollar. I: The IRS requires four tests to be passed for a person to be classified as a qualifying relative. They must not be a qualifying child; they must live in the taxpayer's household (but certain types of relatives, including children, siblings, parents, grandparents, nieces, nephews, aunts, uncles, certain in-laws and certain step-relatives are not required to live in the household); must have had a gross income of less than $3,650 (in 2009), and must have received more than half of their financial support for the year from the taxpayer. A qualifying relative can be any age. IRS Publication 501 provides details about meeting the qualifying relative tests.

Fair Credit Billing Act - FCBA

A federal law designed to protect consumers from unfair credit billing practices. The Fair Credit Billing Act (FCBA) provides guidelines for both consumers and creditors including procedures to manage disputes regarding billing statements. In addition, any interest accrued on the billing error has to be dropped if your claim is confirmed. I: One of FCBA's provisions states that consumers with a dispute must notify the creditor in writing within 60 days of a billing statement and the creditor must acknowledge receipt of the letter within 30 days. Examples of billing errors include charging the wrong account, calcuation errors and charges for goods that haven't been received.

Canadian Competition Act

A federal law that governs business practices in Canada. The Canadian Competition Act includes criminal and civil provisions intended to prevent anti-competitive practices in the marketplace. The Act seeks to: Promote the adaptability and efficiency of Canada's economy Expand opportunities for participation in worldwide markets Create an economic environment in which small and medium-sized enterprises have equitable opportunities The Canadian Competition Act Provide Canada's consumers with competitive product varieties and prices through such means as monitoring merger and acquisition activity to ensure that any such practices provide an overall benefit to the Canadian economy. I: The Canadian Competition Act is similar to the U.S. Antitrust Law in that they prevent companies from attaining a market monopoly. The Canadian Competition Bureau, an independent law enforcement agency, is the primary agency responsible for the enforcement of the Canadian Competition Act, which provides for the regulation of trade and commerce in regards to trade practices, conspiracies and mergers that affect competition.

Daisy Chain

A group of unscrupulous investors who, practicing a kind of fictitious trading or wash selling, artificially inflate the price of a security so that they sell it at a profit. Price manipulation is typically very difficult in stocks with heavy volumes, so the stocks with low liquidity are much more susceptible to daisy chains. I: Investors who do not look carefully at a stock are the usual prey of a daisy chain. As a stock rises due to increased volume, investors who didn't do all their homework may be attracted to the stock because they want to participate in the rising price. These investors are typically caught owning a stock that continues to depreciate long after the daisy chain sells out their positions for a profit.

Qualified Charitable Organization

A nonprofit organization that qualifies for tax-exempt status according to the U.S. Treasury. Qualified charitable organizations must be operated exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to animals or children, or the development of amateur sports. Nonprofit veterans' organizations, fraternal lodge groups, cemetery and burial companies and certain legal corporations can also qualify. Even federal, state and local governments can be considered qualified charitable organizations if money that is donated to them is earmarked for charitable causes. I: Only donations that are made to a qualified charitable organization are tax-deductible. Organizations that do not qualify for this status are considered for-profit and are taxed accordingly. For example, political contributions are not tax-deductible, because political parties are not charitable institutions. On the other hand, contributions to an organization dedicated to building hospitals in third-world countries would likely be a charitable organization, and contributions would be tax deductible.

3C1

A portion of the Investment Company Act of 1940 that permits the exclusion of investment companies from standard registration requirements with the Securities and Exchange Commission (SEC) if they have fewer than 100 U.S. investors. I: This particular section is one of two policies used frequently by hedge fund companies to avoid certain SEC requirements.

Natural Capital

A reference to the stock of natural resources, such as water and oil. Unlike other forms of equity (such as machines and buildings), which can be created on a regular basis, many natural resources are nonrenewable. Natural capital includes many resources that humans and other animals depend on to live and function, which leads to a dilemma between depleting and preserving those resources. I: In economics, depletion of natural resources is a consequence that needs to be accounted for when looking at a company's effect on total welfare. A company might be making big profits, but if it is doing a lot of damage to the natural capital of an economy, it may actually have a negative effect on total welfare.

Qualified Disclaimer

A refusal to accept property that meets with provisions set forth in the Internal Revenue Code Tax Reform Act of 1976 allowing for the property or interest in property to be treated as an entity that has never been received. These types of refusals can be used to avoid federal estate tax and gift tax, and to create legal inter-generational transfers which avoid taxation, provided they meet the following set of requirements: 1. The disclaimer must be made in writing and signed by the disclaiming party.2. The disclaimer must identify the property, or interest in property that is being disclaimed.3. The disclaimer must be delivered, in writing, to the person or entity charged with the obligation of transferring assets from the giver to the receiver(s).4. The disclaimer must be written less than nine months after the date the property was transferred. In the case of a disclaimant aged under 21, the disclaimer must be written less than nine months after the disclaimant reaches 21. Disclaimed property is given to the "contingent beneficiary" by default. I: Due to the strict regulations that determine whether disclaimers are considered "qualified" according to the standards of the Internal Revenue Code, it is essential that the renouncing party understand the risk involved in disclaiming property. In most cases, the tax consequences of receiving property fall far short of the value of the property itself. It is usually more beneficial to accept the property, pay the taxes on it, and then sell the property, instead of disclaiming interest in it. When used for succession planning, qualified disclaimers should be used in light of the wishes of the deceased, the beneficiary and the contingent beneficiary.

Same Property Rule

A regulation relating to IRA rollovers stipulating that whenever a financial asset is withdrawn from a retirement account or IRA (for the purpose of funding a new IRA, for example), it must be rolled over into the same property (or format) of an IRA. Unless the party involved is over 59.5 years of age, failure to comply with this rule will result in the IRS taxing the withdrawn asset as ordinary income. I: Suppose George, a 50-year-old male, decided to buy some shares with money from his IRA account. After, he decides to place the shares in a new IRA in order to defer taxes. Since his withdrawal asset changed properties (it changed from cash to shares) during the rollover and he is under 59.5, he will end up owing tax on the withdrawn amount at a rate that equals his normal income tax rate and also incur a 10% penalty.

Generic Securities

A security backed by recently issued loans or mortgages. Its value is less than that of a security whose backing is over one year old. Securities over a year old are called seasoned securities. I: A generic security does not yet have a history that potential investors can look to for past performance rating as a seasoned security does. However, as they are valued less by investors, generic securities are less expensive to purchase.

Korean Composite Stock Price Indexes - KOSPI

A series of indexes that track the overall Korean Stock Exchange and its components. These indexes use a weighted average based on market calculation to calculate the value of the indexes. I: The most well-known KOSPI index is the KOSPI 200, which comprises the 200 largest publicly-traded companies on the Korean Exchange. This index is seen as a barometer of the overall movements of the Korean stock market, and is used to benchmark the performance of investors and funds in the Korean market.

Take A Bath

A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative position. Investors whose shares have declined significantly are said to have taken a bath. I: For example, following the technology boom of the late 1990s and early 2000s, many investors, because of their huge losses, were said to have taken a bath.

Date Certain

A term identifying the date on/by which the specified actions of a contract can be reasonably completed. This date is important, as it is generally considered legally binding. I: The third Friday of each month is an example of a date certain for option expiry. Remember, options (and in fact all derivatives) are simply contracts between two parties.

J Curve

A theory stating that a country's trade deficit will worsen initially after the depreciation of its currency because higher prices on foreign imports will be greater than the reduced volume of imports. I: The effects of the change in the price of exports compared to imports will eventually induce an expansion of exports and a cut in imports--which, in turn, will improve the balance of payments.

Harmless Warrant

A warrant that requires the holder to surrender a similar bond when purchasing a new fixed-income instrument. For the warrant to be exercisable, the two bonds must have similar terms, such as maturity, yield and principal.Also known as a "wedding warrant." I: Issuing a harmless warrant provides the debt issuer with some call protection. Under a normal warrant, bond holders might all opt to buy more instruments, drastically increasing the firm's level of debt. With a harmless warrant, the original bond must be surrendered at the time of purchase, allowing the level of debt to remain constant.

B-School

Abbreviation of business school, an educational institution that focuses on teaching business-related courses. While business schools may offer courses ranging from undergraduate degrees to postdoctoral programs, their prime offering is the Master of Business Administration (MBA) program. Top-tier business schools are usually renowned for the high quality of their graduates, many of whom climb the corporate ladder steadily to eventually become among the highest ranking executives in their organizations. I: A business school's curriculum will include subjects such as finance, marketing, statistics and operations management. Despite the spiraling costs of obtaining a business degree, demand for B-school degrees remains high. Some of the top business schools such as Harvard, Wharton and London Business School attract thousands of qualified candidates every year, resulting in very high competition.

Macro Accounting

Accounting for the total or aggregate economic activities of a nation. Macro accounting forms the basis for the official statistics that summarize a nation's economic development and performance, and looks at the whole economic picture rather than focusing on individuals or single companies. Also known as "national accounting. I: Macro accounting deals with national statistics and economic indicators such as a nation's gross domestic product, external debt and so on. These figures are released on a periodic basis, usually monthly or quarterly by government bodies. They are closely watched by financial market participants to assess a nation's economic performance.

90-Day Letter

An IRS notice sent after an audit stating that there was a discrepancy or error within an individuals taxes and they will be assessed unless petitioned. I: You have 90 days to respond, otherwise the audit deficiencies will result in reassessment.

Codicil

An addendum of any kind to a will. Codicils can alter, change, add to or subtract from the provisions in the will. They can be used to keep a will and testament current and up to date. I: Codicils must be created by the original creator of the will. They are separate documents in and of themselves and can effect either minor or major changes in the will. All codicils must meet the same legal administrative requirements as the original will and testament, and they must each affirm that the original will is valid except for the changes outlined inside.

Earnings Multiplier

An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used to discount future earnings, and allows investors to compare expected growth to an amount of money invested over the same period at current rates. I: The earnings multiplier is similar to a discounted cash flow in that future earnings are rolled back to determine how much they are worth in today's dollars. Investors use the earnings multiplier to figure out how much a company is worth, today, based on how it is expected to grow in the future.

Farmers Home Administration - FmHA

An agency of the U.S. Department of Agriculture created to assist farmers and families living in rural areas by financing and insuring loans for housing and other farming-related needs. The Farmers Home Administration (FmHA) provides credit and technical assistance to rural families and communities through four major programs: a housing program, utilities program, business program and community development program. The agency has about 1,900 county and district loans offices nationwide. I: The agency was created to provide families with financing tools - such as loans and grants - to help them re-establish self-sufficient farming efforts in the aftermath of the Great Depression. It was originally named the Resettlement Administration and subsequently changed names to Farm Security Administration, Farmers Home Administration and most-recently the Rural Economic and Community Development Service.

Jackson Hole Economic Symposium

An annual symposium sponsored by the Federal Reserve Bank of Kansas City since 1978, and held in Jackson Hole, Wyoming, since 1981. The symposium focuses on an important economic issue that faces U.S. and world economies. Participants include prominent central bankers and finance ministers, as well as academic luminaries and leading financial market players from around the world. The Symposium proceedings are closely followed by market participants, as unexpected remarks emanating from the heavyweights at the Symposium have the potential to affect global stock and currency markets. I: The topic for the 2010 Symposium was "Macroeconomic Challenges: The Decade Ahead." Speakers included Federal Reserve chairman Ben Bernanke, ECB President Jean-Claude Trichet, and Kansas City Fed President Tom Hoenig.

Qualified Joint And Survivor Annuity - QJSA

An annuity payment from a qualified plan or 403(b) account that provides a life annuity to the participant and a survivor annuity for the spouse after the participant's death. QJSA rules apply to money-purchase pension plans, defined-benefit plans and target benefits. They can also apply to profit-sharing and 401(k) plans, but only if so elected under the plan. I: The plan document usually provides the annuity percentage, but the general requirement is that the survivor annuity must be 50-100% of the annuity paid to the participant. If the participant is unmarried, the annuity is over his or her life expectancy.Participants can waive the QJSA payment and receive lump-sum or ad-hoc distributions instead, provided the participant's spouse consents to the waiver and the spousal waiver is witnessed by a plan representative or notary public.

John Harsanyi

An economist who won the Nobel Memorial Prize in 1994 along with John Nash and Reinhard Selten for his research on game theory, a mathematical system for predicting the outcomes of competitions and conflicts. Harsanyi is also noted for his contributions to moral philosophy. I: Born in 1920 in Budapest, Harsanyi escaped first the Nazis and then communist Hungary to end up in Australia before coming to the United States. Having already earned a Ph.D. in philosophy from the University of Budapest, he went on to earn another Ph.D. in economics from Stanford University and became a professor at the University of California, Berkeley.

Last-Sale Reporting

An electronic entry, to the Nasdaq stock market, of the amount and price of shares involved in a transaction's not less than a board lot. I: Trades reported must be submitted to Nasdaq within 90 seconds of the execution of the trade.

Earnings Before Interest, Tax and Depreciation - EBITD

An indicator of a company's financial performance, which is calculated as: This measure attempts to gauge a firm's profitability before any legally required payments, such as taxes and interest on debt, are paid. Depreciation is removed because this is an expense the firm records, but does not necessarily have to pay in cash. I: EBITD is very similar to earnings before interest, taxes, depreciation and amortization (EBITDA), but excludes amortization. The difference between amortization and depreciation is subtle, but worth noting. Depreciation relates to the expensing of the original cost of a tangible assets over its useful life, while amortization is the expense of an intangible asset's cost over its useful life. Intangible assets include, but are not limited to, goodwill and patents, and are unlikely to represent a large expense for most firms. Using either the EBITD or EBITDA measures should yield similar results.

Odd Lotter

An individual investor who buys securities, usually stocks, in odd lots. This is the opposite of someone who buys securities in round lots. I: A round lot is 100 stocks; therefore, someone buying any number that is not a multiple of 100 would be considered an odd lotter.

Early Adopter

An individual or business who uses a new product or technology before others. An early adopter is likely to pay more for the product than later adopters, but accepts this premium if using the product improves efficiency, reduces cost, increases market penetration or simply raises the early adopter's social status. Companies rely on early adopters to provide feedback about product deficiencies, and to cover the cost of the product's research and development. I: The rate of diffusion, or adoption, of a new product by the market at large can vary according to the type of product and its price. Early adopters in the business world face a high level of risk in that they are using a product or technology that may not be perfected, and which may not work with the products used by suppliers and customers or may not be compatible with other products they own.

Bait Record

An internal control used in accounting to detect fraud and improper usage. Bait records are planted in computerized files so that if the files are improperly accessed, it will be possible to track who accessed them. Bait records get their name because the parties intent on fraud and misuse are tempted to "take the bait." I: For example, financial services firms are often the target of "phishing" email attacks from hackers and criminals looking to perpetrate identity theft. Bait records - consisting of fictional identities - planted in the firms' databases may enable law-enforcement agencies to better track who may be committing such fraud.

Passive Investing

An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance. I: Also known as a buy-and-hold or couch potato strategy, passive investing requires good initial research, patience and a well diversified portfolio. Unlike active investors, passive investors buy a security and typically don't actively attempt to profit from short-term price fluctuations. Passive investors instead rely on their belief that in the long term the investment will be profitable.

Taiwan, Israel, Chile and Korea - TICK

An investment theme focusing on four economies that rank between the developed and developing nations. The four nations of Taiwan, Israel, Chile and Korea - collectively known as TICK - share some common characteristics that enhance their investment appeal. In addition to having functioning economies with healthy growth rates and prosperous citizenry, these nations possess strong legal and business frameworks that reduce political and country risk. The TICK investment theme came about as a counterpoint to the popular BRIC, which encompasses the giant economies of Brazil, Russia, India and China. I: A number of experts believe that the TICK nations are more appealing than the BRIC bloc from an investment viewpoint, given their smaller size, higher living standards and dynamic economies. Some also argue that the TICK nations possess sounder economic fundamentals than the BRIC giants, with historically lower rates of inflation and unemployment.

Partial Redemption

An investment-transaction classification that refers to the withdrawal of a portion of a security's value by the owner. Rather than withdrawing the entire amount of his or her security's value from the account, an investor may prefer to keep a portion of the value invested in the asset while still obtaining some cash. I: For example, a partial redemption occurs if an investor orders the withdrawal of a portion of Treasury notes held in an account. The account owner would specify the proportion of the asset he or she would like to withdraw; the amount withdrawn includes a portion of the asset's principal and interest earned.

Takeover Artist

An investor or company whose primary goal is to identify companies that are attractive to buy and that can be turned around to make a profit. A takeover artist will usually use a lot of debt (leverage) to make the purchase, and restructure the company for resale or add the company to an existing group of companies. I: Takeover artists are also sometimes referred to as corporate raiders. Frequently, the reason for a takeover is to remove entrenched management that the corporate raider believes is incompetent. For example, in the 1980s, Carl Icahn (a well-known takeover artist), launched a takeover of Trans World Airlines and turned the company from an unprofitable company to a profitable one in a few short years. He took the company from a loss of $193 million in 1985 to a profit of $106 million in 1987, and $250 million the next year. However, it was short-lived, as Trans World Airlines posted a $298 million loss in 1989.

Hands-On Investor

An investor who holds a large portion of a company's shares and takes an active management role. A hands-on investor can also be called a majority shareholder, or activist shareholder. Such investors see their ownership stake in a firm as the reason to become actively engaged in the firm's decision making process. I: The majority shareholders are usually hands-on investors and have a great influence on the company's management decisions. This may or may not lead to tension with company managers, who typically prefer not to be directed by single shareholders, especially when such shareholders do not have the same level of experience or business acumen as company management.

Late-Day Trading

An unethical (if not illegal) practice of a hedge fund purchasing and then selling securities (usually shares of a mutual fund) after the close of a trading day, but making the transactions appear as though they occurred before the market close. I: For mutual funds, net asset value is (NAV) determined at 4pm EST (the market close), and it does not change until the market opens again. Hedge funds involved in late-day trading work out a special relationship with a mutual fund that, usually for higher-than-average fees/commissions, allows the hedge fund to buy and sell mutual fund shares after hours but record the trade at 4pm. This practice gives the hedge fund an opportunity to profit when material information affecting the fund is released after the market close. In such cases, because it is stagnant, the NAV may not represent the actual asset value, which won't materialize until the market opens again - at which time late-day traders sell their shares at a profit.

Incidents Of Ownership

Any interests or rights that an individual maintains in an asset, including property and insurance, that allow the person to change, modify, use or benefit from that asset. This is important for determining estate taxes. An individual can reduce the size of his or her estate by gifting assets to beneficiaries, but, to avoid estate tax on the gift, the original owner must not retain any incidents of ownership in the gifted assets. I: In insurance, incidents of ownership exist on a policy if an individual has the right to change the beneficiary, transfer ownership of the policy, use the policy value as collateral for a loan, or any other traditional rights of ownership. In terms of property, if an individual has the right to possess or use that asset, or if he or she benefits in any other way from the property, this would be considered an incident of ownership.

Ba3/BB-

Bonds rated Ba3/BB- are generally considered speculative in nature and are not considered to be investment-grade bonds suited for people wishing to avoid the risk of losing their principal. These bonds are commonly referred to as junk bonds, though this rating indicates that they are towards the more stable end of the junk-bond rating spectrum. Ba3 is a long-term bond rating provided by the Moody's rating service, while BB- is the parallel rating provided by both the S&P and Fitch rating services. Ba2/BB is the rating that falls directly above Ba3/BB-, while B1/B+ falls directly below. I: Bonds rated Ba3/BB- provide a yield-to-maturity or yield-to-call rate that is well above bonds with higher ratings, especially those issued by the U.S. government, municipalities and the largest global corporations. However, it is important for investors to realize that this higher rate serves as compensation for investing money in a company or government that may not be financially sound and may result in the loss of one's investment.

Lawrence Ellison

Born in 1944, Lawrence (Larry) Ellison has been the Chief Executive Officer of Oracle Corporation since founding it in 1977. Oracle is the world's largest enterprise software company, which as of 2010 employed up to 110,000 people worldwide. I: Lawrence Ellison is one of the world's richest billionaires and is an active philanthropist. Known for his extravagant lifestyle, Ellison is an avid sailboat racer and pilot, and owns many exotic cars.

Job Hunting Expenses

Costs that individuals may be allowed to deduct on their federal tax returns to reduce their total taxable income. Job hunting expenses, officially called job search expenses, are deductible if you are searching for a job in the same line of work. Qualifying job hunting expenses include fees paid to employment and outplacement agencies, costs to prepare and mail resumes, and travel expenses for a trip primarily to look for a new job. I: Job hunting expenses are not deductible when searching for your first job after completing school, when searching for a job in a new line of work or when there has been a substantial break in your employment. Also, they fall into the miscellaneous itemized deductions category, meaning that they can only be deducted to the extent that job hunting expenses plus other miscellaneous expenses exceed 2% of your adjusted gross income.

Family Offices

Family offices are private wealth management advisory firms that serve ultra-high net worth investors. Family offices are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of a affluent individual or family. For example, many family offices offer budgeting, insurance, charitable giving, family-owned businesses, wealth transfer and tax services. I: There are two types of family offices, single family offices and multi-family offices sometimes referred to as MFOs. Single family offices serve one ultra affluent family while multi-family offices are more closely related to traditional private wealth management practices, seeking to build their business upon serving many clients. In addition, the family office can also handle non-financial issues such as private schooling, travel arrangements and miscellaneous other household arrangements.

Pass-Through Certificate

Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by the Government National Mortgage Association (Ginnie Mae). I: Mortgage-backed certificates are the most common type of pass-through, where homeowners' payments pass from the original bank through a government agency or investment bank to investors.

General Equilibrium Theory

General equilibrium theory studies supply and demand fundamentals in an economy with multiple markets, with the objective of proving that all prices are at equilibrium. The theory analyzes the mechanism by which the choices of economic agents are coordinated across all markets. General equilibrium theory is distinguished from partial equilibrium theory by the fact that it attempts to look at several markets simultaneously rather than a single market in isolation. I: The theory was first proposed by French economist Leon Walras in the 1870s, while the modern concept of general equilibrium was developed jointly by Arrow, Debreu and McKenzie in the 1950s. From the 1970s onwards, technological advances and increases in computing power made it possible to develop models for national economies and attempt empirical solutions for general equilibrium prices and quantities.

Landlocked

In a business sense, a piece of property that is totally inaccessible via public thoroughfare, except through an adjacent lot. A vacant lot that is located behind a strip mall and can only be reached by walking through the mall qualifies as this type of lot. Landlocked property is "locked up" all around by other property. I: Landlocked property is generally worth less than other properties, due to its inaccessibility. As the old saying goes in real estate, "location, location, location." This disadvantage makes these properties harder to sell in many instances.

NAD

In currencies, this is the abbreviation for the Namibia Dollar. I: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion.

PAB

In currencies, this is the abbreviation for the Panama Balboa. I: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion.

Rebound

In financial terms, a rebound means a recovery from prior negative activity. For a security, a rebound means that it has moved higher from a lower price. For the general economy, a rebound means that economic activity has increased from lower levels, like the bounce back following a recession. I: A recession is defined by economists as two consecutive quarters without economic growth. Recessions are part of the business cycle which consists of: expansion, peak, recession, trough and recovery. A rebound from a recession would occur in the recovery stage.

Dealing Desk

In foreign currency markets, the location of a financial institution's forex dealers. Since the forex market is open around-the-clock, many institutions have dealing desks around the world. Dealing desks can also be found outside the foreign exchange markets, such as in banks and finance companies, to execute trades in securities. I: The term "desk" may be a bit of a misnomer, given its connotation of a table shared by a couple of traders. Large financial institutions often have dealing facilities that are staffed by hundreds of dealers. In a large institution, major currencies, such as the euro and yen, may have several dealing desks staffed by dozens of traders who specialize in these currencies.

False Signal

In technical analysis, a false signal refers to an indication of future price movements which gives an inaccurate picture of the economic reality. False signals may arise due to a number of factors, including timing lags, irregularities in data sources, smoothing methods or even the algorithm by which the indicator is calculated. I: It is important for technicians to have a thorough understanding of the technical indicators they are using so that they are better able to detect false signals when they arise. Also, many technicians prefer to use a mix of technical indicators to function as a checking mechanism. Since trading on false signals can be extremely costly, trades are only placed when there is a consensus of technical indicators showing a future price movement.

National Bank

In the United States, a commercial bank chartered by the comptroller of the currency of the U.S. Treasury. A national bank functions as a member bank of the Federal Reserve in the capacity of investing member of its district Federal Reserve Bank. These banks may facilitate the auction process of U.S. Treasury bonds and must be members of the Federal Deposit Insurance Corporation (FDIC). Internationally, "national bank" is synonymous with "central bank," or a bank controlled by the national government of a country. Central banks set monetary policies within national economies. I: National banks in both structures have an important role in that they help structure a country's financial system. Having an efficient banking system, whether through a central bank or the Federal Reserve, is important to the financial stability of a country's economy.National banks also facilitate daily transactions with their local Federal Reserve Bank, such as Fed bank wires. They must generate call reports to the Fed each quarter and also make the reports public. The first national bank in the U.S. was founded under the plans of George Washington.

Federal Farm Credit System - FFCS

In the United States, a network of federally chartered financial institutions designed to provide credit-related services to the agricultural and farming sectors of the economy. In total, this government-sponsored enterprise comprises approximately 100 financial institutions that serve all 50 states and Puerto Rico. I: Unlike commercial banks, the banks in this system do not take deposits, nor do they usually borrow from other banks. Instead, these banks raise funds by issuing farm credit debt securities on a worldwide basis in the domestic and global capital markets. Although the debt securities are not guaranteed by the U.S. government, the FFCS possesses a farm credit insurance fund, which would supply principal and interest payments should a system bank go bankrupt. System institutions are federally chartered under the Farm Credit Act and are subject to supervision, examination and regulation by a federal agency, the Farm Credit Administration.

Japanese Housewives

In the foreign exchange world, a collective term for the legions of Japanese housewives who resorted to currency trading in the first decade of the new millennium. With Japanese interest rates near zero percent for most of the decade, their motivation for currency trading was to increase the low returns on their portfolios. These homemaker-traders are also called "Mrs. Watanabes." I: Japanese housewives have had a discernible impact on currency markets. Bank of Japan officials said in 2007 that the housewives' trading activity helped to stabilize currency markets because of their tendency to buy on dips and sell into rallies. A significant amount of this trading was carried out through online margin accounts, which offered leverage of 20 to 100 times. Carry trades, which involve borrowing in low-interest rate currencies and investing in higher yield assets, were also a favored strategy for many of the Japanese housewives.

Facility Operations

Includes all the services required to ensure a facility will do what it is designed to do. Facility operations typically includes the day to day operations of the facility. Depending on the industry, each facility will operate differently. I: An example would be a manufacturing facility. It could be broken down into process, production and maintanence departments with each department having teams to oversee. The facility operations are the way each department and the teams work and help the manufacturing facility attain its goals.

Cancellation Provision Clause

It is a provision in an insurance policy that permits an insurer or an insurance company to cancel a property and casualty or a health insurance policy at any time before its expiration date. Life insurance policies do not contain cancellation clauses, and while health insurance policies contain cancellation clauses, the clause does not allow the insurer to cancel the policy. I: Generally, a cancellation provision clause requires that whenever a party chooses to cancel the policy, that party must send a written notice to the other one. The insurance company is also obligated to refund any prepaid premium on a pro rata basis. For example, if the insured paid premium for three months and chose to cancel the policy at the end of the second month, the insurance company is required to calculate the premium that applies to the last month and refund it to the insured party.

Implied Contract Terms

Items that a court will assume are intended to be included in a contract, even though they are not expressly stated. Businesspeople generally do not want to rely upon a court's interpretation of implied terms, so a good contract will often be very lengthy so that as many material items as possible are written into the contract. However, when it is not possible to cover every possible detail, a lawyer may appeal that such terms were implied in order to give force to the intent of the contract. I: Contract terms can be implied in a number of ways. For example, in many transactions involving the purchase of goods or services, there is an implied warranty of merchantability. That is, it is implied that what you are buying will serve the purpose that would be reasonably expected. This contract term is implied even when there is no written or oral contract. In other cases, contract terms may be implied where the intent of a contract obviously necessitates the inclusion of certain items. Even stating express terms to the contrary may not be sufficient to negate certain terms implied by the law.

Margin Creep

Margin creep refers to the behavior of a company that chooses to focus only on the high-end, high-margin products, even if customers show an inclination towards more value-oriented products and/or services. A product's margin is the difference between the cost of the good or service and the retail price; the greater the difference, the higher the margin. I: While any products or services that are successfully marketed and sold may result in a solid margin, other potential sales will be lost if value-minded consumers are price-sensitive. The tendency for margin creep within a company can have long-term implications on its sustainability.

Tailored Advertising

Marketing and advertising campaigns that place emphasis on the needs and wants of a small sets of people or on an individual consumer, as opposed to targeting a mass audience. Tailored advertising may involve providing a coupon for a specific type of good or service based on the past purchases, using demographic information to present an advertising message to a particular market segment, or running a campaign designed for a specific city or metro area. Because it is more specialized, tailored advertising tends to be more expensive to develop than mass-market advertising. I: Tailored advertising has become a more common technique with the advent of the internet, since companies are able to track individual consumer behavior more readily. For example, a consumer buys milk at a grocery store where he is a member of that store's loyalty program. The loyalty program collects information on that consumer's shopping habits and is able to compare what this consumer purchases with what others purchase. The information it aggregates suggests that most consumers buying milk also buy bread. At the checkout, the store may print out a coupon for 10% off the price of bread.

Cabinet Crowd

Members of the NYSE who typically trade in inactive bonds. The cabinet crowd is made up of a relatively small group of traders and investors who deal in inactive fixed-income securities. These bonds are inactive due to the fact that they are not actively traded and, thus, are deemed more illiquid, causing bid-ask spreads to be much wider than active or more liquid bonds. Also known as the "inactive bond crowd" or "book crowd." I: The name cabinet crowd arises from the fact that historically these members would typically enter limit orders for transacting these bonds, which were kept in "cabinets" adjacent to the bond trading floor until the limit prices were attained. Once these limit prices were reached, the orders would then be removed from said cabinets and executed.

Paris Stock Exchange (PAR) .PA

Now known as the NYSE Euronext (NYX), the Paris Stock Exchange trades both equities and derivatives and posts the CAC 40 Index. This index is made up of French companies, although nearly half of these are owned by foreign entities. NYX seeks to offer the most modern and advanced trading platform and services available to traders. I: The NYX is the first European integrated stock exchange. It was created in 2000 when the Paris, Brussels and Amsterdam exchanges all merged. It employs the NSC system for trading and uses LCH Clearnet to clear its transactions.

J. D. Rockefeller

One of the great entrepreneurs in American history, J.D. Rockefeller became the world's richest man and the first U.S. billionaire. Rockefeller was an oil baron who founded the Standard Oil Company and persuaded over 32 competitors to sell out to him. Rockefeller pulled himself up by his own bootstraps in the oil industry, using hard-nosed business tactics to win over his competitors. I: Rockefeller was born in 1839 and died in 1937. His oil company was eventually broken up by antitrust laws. By then he had practically abandoned his oil company and gone into charity work, establishing the Rockefeller foundation which supported such organizations as schools, community works, and health organizations. This institution has donated millions of dollars to worthy causes of many kinds over the years and still exists today.

Joint Return Test

One of the tests administered by the IRS that potential dependents must pass in order to be claimed as such by another taxpayer. The joint return test stipulates that no dependent can file a joint return with a spouse and still be claimed as a dependent on someone else's return, such as that of a parent or guardian. There are, however, exceptions to this rule. I: A taxpayer filing a joint return can be claimed as a dependent under two separate exceptions. One is when neither the dependent nor his or her spouse is required to file a tax return, except to claim a refund. The other is when neither the dependent nor his or her spouse would owe any tax if he or she were to file separately instead of jointly. In these cases, another taxpayer may claim this person as a dependent.

A+/A1

One of the top ratings that a ratings agency assigns to an issuer or insurer. This rating signifies that the security or carrier has stable financial backing and ample cash reserves. The risk of default for investors or policyholders is very low. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

National Welfare Fund (Russia)

One of two parts of the Russian sovereign wealth fund, the other being the Reserve Fund. The National Welfare Fund invests its funds abroad to counteract inflation in the Russian ruble. Combined, the Reserve Fund and National Welfare Fund make up one of the largest sovereign wealth funds in the country. I: The National Welfare Fund originated from the Stabilization Fund of the Russian Federation, which was established to help balance the Russian government's fiscal budget. In 2008, the fund was split into a Reserve Fund and the National Welfare Fund. The Reserve Fund is invested in conservative foreign investments and is used as a stabilization fund to balance the federal budget. The National Welfare Fund is invested more aggressively.

General Partner

Owners of a partnership who have unlimited liability. A general partner is also commonly a managing partner, which means that this person is active in the day-to-day operations of the business. Because any partner in a general partnership can act on behalf of the entire business without the knowledge or permission of the other partners, being a general partner offers poor asset protection. I: If a general partner is ever required to meet the partnership's financial obligations, his or her personal assets may be subject to liquidation. In the case of a limited partnership, only one of the partners will be the general partner and have unlimited liability. The other partners will have limited liability as long as they do not take an active role in managing the business, so their personal assets will not be at risk.

Real Asset

Physical or tangible assets that have value, due to their substance and properties. Real assets include precious metals, commodities, real estate, agricultural land and oil. They are appropriate for inclusion in most diversified portfolios - with their proportion dependent on the investor's risk tolerance and preferences - because of their relatively low correlation with financial assets, such as stocks and bonds. They are particularly well-suited for inflationary times, because of their tendency to outperform financial assets during such periods. I: Real assets are a separate and distinct asset class from financial assets, whose value is derived from a contractual claim on an underlying asset, which may be real or intangible. For example, commodities and property are real assets, but commodity futures and ETFs, as well as real estate investment trusts, constitute financial assets whose value depends on the underlying real assets. Higher carrying and storage costs, increased transaction fees and lower liquidity, are some common drawbacks of real assets in relation to financial assets.

Heavy Industry

Relates to a type of business that typically carries a high capital cost (capital-intensive), high barriers to entry and low transportability. The term "heavy" refers to the fact that the items produced by "heavy industry" used to be products such as iron, coal, oil, ships, etc. Today the reference also refers industries that cause disruption to the environment in the form of pollution, deforestation, etc. I: Industries that are typically considered heavy include: 1. Chemicals and plastics 2. Steel and oil refining, production 3. Mining 4. Industrial machinery 5. Mass transit (railways, airlines, shipbuilders) Another trait of heavy industry is that it most often sells its goods to other industrial customers, rather than to the end consumer. Heavy industries tend to be a part of the supply chain of other products. As a result, their stocks will often rally at the beginning of an economic upturn and are often the first to benefit from an increase in demand.

Quarterly Income Preferred Securities - QUIPS

Shares that are an interest in a limited partnership that exists solely for the purpose of issuing preferred securities and lending the proceeds of the sales to its parent company. They usually have a $25 par value, NYSE listing and cumulative quarterly distributions. I: QUIPS are an example of hybrid securities, combining features of preferred stock and corporate bonds. Hybrids can pay a higher rate of return than preferred stock because dividends are paid with pretax dollars and, therefore, they generate a sizable tax break for corporations.

Quid

Slang for the pound sterling, the currency of the United Kingdom. A quid is equivalent to 100 pence. It is thought to come from the Latin phrase "quid pro quo" meaning "something for something," or an equal exchange for goods or services. I: The use of the word quid is similar to the use of buck in the United States, and is more likely to be heard in less formal shops and exchanges. The pound sterling is also referred to as the British pound.

Back Up The Truck

Slang that refers to the purchase of a large position in a stock or other financial asset by an investor or trader. Typically, when someone is willing to back up the truck on a financial asset, this implies that they're extremely bullish on that asset's performance. I: For example, if an analyst recommends that it is time to start backing up the truck on XYZ stock, this means that he or she is extremely confident and upbeat about how well XYZ stock will be doing in the foreseeable future. The term refers to the imagery derived from a truck backing up to a warehouse or some other commercial building to load up goods.

Federal Agencies

Special government organizations set up for a specific purpose such as the management of resources, financial oversight of industries or national security issues. These organizations are typically created by legislative action, but may initially be set up by a presidential order as well. The directors of these agencies are typically selected by Presidential appointment. A number of these organizations issue securities such as stocks and bonds that have been historically popular with investors. I: At last count, there were over 125 different government agencies and commissions, only a small portion of which directly affect investors. Some organizations, such as the Federal Deposit Insurance Corporation (FDIC) and the Government National Mortgage Association (GNMA) have their operations explicitly backed by the U.S. Treasury. Other organizations, such as Fannie Mae, Freddie Mac, and Sallie Mae are only provided with an implied guarantee from the U.S. Treasury.

Half Stock

Stock sold with a par value half of what is considered standard. Half stock can be either common or preferred and, other than the reduced par value, acts as a regular share of stock. The par value of a typical share of stock is $100, meaning that half stock has a par value of $50. I: The valuation of a share of common stock is typically the same for both a regular share of stock and half stock, since much of the stock's value is related to growth potential. Par value is an important factor in determining the dividend of a share of stock, making it more important for preferred stock. Additionally, preferred stock may have a higher claim on the proceeds of a company being liquidated, typically equivalent to its par value. This means that a half stock share of preferred stock would potentially receive less in liquidation.

Death Taxes

Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the beneficiary that receives the property in the deceased's will; the tax amount is based on the property's value at the time of the owner's death. Also called death duties or inheritance tax. I: The term was first coined in the 1990s to describe estate and inheritance taxes by those who want such taxes eliminated.

1040EZ Form

The 1040EZ is an alternative to the Internal Revenue Service's (IRS) 1040 income tax form and offers a faster and easier way to file taxes, meant for taxpayers with rudimentary tax situations. In order to be eligible to use this form, the individual must have a taxable income of less than $100,000, interest income of $1,500 or less, possess no dependents and fulfill other requirements set by the IRS. Also known as "income tax return for single and joint filers with no dependents" and unofficially as the "easy form". I: For most individuals, the 1040EZ is the first tax form they will fill out. For example, a young adult with a part-time job will file a tax return at the end of the year. This person will have a straightforward and simple tax situation if she or he has no real estate assets, no tax shelters and no foreign income; only the most basic information is needed to determine whether any money is owed or refunded. As an individual's taxation situation becomes more complicated by having a child and claiming a dependent, he or she may need to file under the Form 1040A or Form 1040.

183-Day Rule

The 183-day rule is part of the "substantial presence test" used by the Internal Revenue Service to determine if a person, who is a dual taxpayer, will have to pay taxes in the United States. It is commonly used by aliens to establish residency in the United States. The determining factor is whether the number of days on which the person was present in the United States exceeds 183 days. I: The United States has tax treaties with other countries that contain a provision for resolution of conflicting claims of residence. The Internal Revenue Code section that contains the definition of the "substantial presence test" and the relevant multiplier is 26 IRC 7701(b)(3)(A)(ii).

John R. Coomber

The CEO of U.K.-based Pension Corporation, a company that helps defined-benefit pension funds manage risk, and a former CEO of Zurich-based reinsurance company Swiss Re. Coomber has also been the owner, chairman and non-executive director of UK-based technology services company Telent and the chairman of Mactavish, a research company serving the insurance industry. Coomber began his career with Phoenix Insurance Company in 1970, then joined Swiss Re in 1973 as an actuarial trainee, becoming the company's first non-Swiss CEO in 2003. He helped the company navigate the aftermath of 9/11, which heavily affected the insurance industry, and helped the company increase its revenue and earnings, making it the largest life reinsurance company in the world. He retired from Swiss Re in 2005. I: Coomber was born in 1949 in England and educated at Nottingham University, where he majored in theoretical mechanics.Coomber is also chairman of an environmental advocacy organization called The Climate Group and a member of the Deutsche Bank Climate Advisory Panel.

Economic And Social Stabilization Fund - Chile

The Economic and Social Stabilization Fund is a government-owned investment organization that manages a sovereign wealth fund for the government of Chile. The funds deposited in the ESSF were sourced from surplus revenues from Chile's copper exports. According to the Chilean Ministry of Finance, the ESSF has approximately $11.13 billion in assets under management as of March 2010. I: The ESSF was established in 2007 with a contribution of $2.58 billion, most of which was from the dissolution of the Copper Stabilization Fund, which the ESSF replaced. The purpose of the ESSF is to stabilize revenues for the government of Chile, allowing the government to finance fiscal deficits without resorting to issuing debt. The ESSF receives deposits from the Chilean government each year where there is a fiscal surplus. The ESSF is managed by the Ministry of Finance, which is assisted by a Financial Committee made up of financial and economic experts.

Family And Medical Leave Act - FMLA

The Family and Medical Leave Act (FMLA) was signed into law on August 5, 1993 by President Bill Clinton. The FMLA is a labor law requiring larger employers to provide employees unpaid leave for serious health conditions, to care for a sick family member, or to care for a newborn or adopted child. I: An employee who takes unpaid leave that falls under the FMLA is job-protected; that is, the employee can return to the same position held before the leave began. If the same position is unavailable, the employer must provide a position that is substantially equal in pay, benefits and responsibility. To qualify for FMLA, an employee must be employed by a business with 50 or more employees within a 75 mile radius of his or her work site. The employee must have worked for the employer for at least 12 months and 1,250 hours within the last 12 months. The FMLA mandates unpaid, job-protected leave for up to 12 weeks a year.

National Association Of Securities Dealers - NASD

The NASD was a self-regulatory organization of the securities industry responsible for the operation and regulation of the Nasdaq stock market and over-the-counter markets. It also administrated exams for investment professionals, such as the Series 7 exam. I: The NASD watches over the Nasdaq to make sure the market operates correctly. In 2007, the NASD merged with the New York Stock Exchange's regulation committee to form the Financial Industry Regulatory Authority, or FINRA.

Nasdaq National Market Securities - Nasdaq-NM

The Nasdaq National Market consists of over 3000 companies that have a national or international shareholder base, meet stringent financial requirements and agree to specific corporate governance standards. I: This is what most people are referring to when they talk about the Nasdaq. The larger companies trade on the Nasdaq National Market, while the smaller companies trade on the Nasdaq Small Cap Market. To list initially, companies are required to have significant net tangible assets or operating income, a minimum public float of 500,000 shares, at least 400 shareholders, and a bid price of at least $5.

National Pensions Reserve Fund

The National Pensions Reserve Fund is a public pension fund established by the Republic of Ireland. The Government of Ireland makes annual deposits of 1% of GNP into the fund. According to the Sovereign Wealth Fund Institute, the fund has approximately $30.6 billion in assets under management. I: The National Pensions Reserve Fund was established in 2001. The goal of the fund is to support the monetary needs of Ireland's social welfare and public service pensions from 2025 onwards. No withdrawals may be made from the fund until 2025. The fund's target asset allocations are roughly 56% large cap equities, 5% small cap equities, 5% emerging markets equities, 10% private equity, 8% real property, 2% commodities, 13% bonds and 1% in currency.

Natural Gas Storage Indicator - EIA Report

The U.S. Energy Information Administration (EIA) weekly estimate of working natural gas volumes held in underground storage facilities at the national and regional levels. Changes in these gas inventories on a weekly basis primarily reflect net withdrawals or injections. The report is generally reported every Thursday at 10:30am EST. Unexpected changes such as above-average withdrawals or injections can have an immediate impact on natural gas prices. I: Working gas, the volume of gas in a reservoir that is above the level of base gas, is the amount of gas that is available to the marketplace. The EIA report shows gas inventories for the reporting week and previous week, as well as the net change, on a national basis and for East, West and Producing regions. It also provides inventories for a year ago and the five-year average for historical comparison.

S&P Core Earnings

The Standard and Poor's revised version of the measurement of core earnings, which excludes any gains related to pension activities, net revenues from the sale of assets, impairment of goodwill charges, prior-year charge and provision reversals, and settlements related to litigation or insurance claims. Expenses related to employee stock option grants, pensions, restructuring of present operations or any merger and acquisition costs, R&D purchases, write-downs of depreciable or amortizable operating assets, and unrealized gains/losses from hedging activities are all included in the core earnings. I: This is a new standard created by S&P with the assistance from the financial and investment community. These core earnings provide for transparency and consistency, as well as a more stringent definition of a company's core earnings, clearly setting out exactly what can and cannot be considered earnings and expenses.

Federal Deposit Insurance Corporation - FDIC

The U.S. corporation insuring deposits in the U.S. against bank failure. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices. I: The FDIC will insure deposits of up to US$250,000 per institution as long as the bank is a member firm. Before opening an account with a financial institution, be sure to check that it is FDIC insured.

Geometric Mean

The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio. Technically defined as "the 'n'th root product of 'n' numbers", the formula for calculating geometric mean is most easily written as: Where 'n' represents the number of returns in the series.The geometric mean must be used when working with percentages (which are derived from values), whereas the standard arithmetic mean will work with the values themselves. I: The main benefit to using the geometric mean is that the actual amounts invested do not need to be known; the calculation focuses entirely on the return figures themselves and presents an "apples-to-apples" comparison when looking at two investment options.

Ledger Balance

The balance of a customer account as shown on the bank statement. The ledger balance is found by subtracting the total number of debits from the total number of credits for a given accounting period. The ledger balance is used solely in the reconciliation of book balances. I: The ledger balance should not be confused with the customer's available balance, which is the amount of funds available for withdrawal. The ledger balance includes any and all checks outstanding that have not yet cleared the account. This is partly why it differs from the available balance.

S&P/ASX 200 Index

The benchmark stock index for the Austrailian markets. It was created for the sake of investment managers who held Australian securities and needed a sufficiently large and liquid portfolio with which they could compare their investment performance. The index trades on the Australian Stock Exchange under the symbol XJO. I: The S&P/ASX 200 Index is composed of the S&P ASX 100 Index plus another 100 stocks. ASX mini futures 200 contracts are also based on this index. There is also an ETF that owns and tracks this index, along with futures contracts that trade with the index as their basis.

Office Of Thrift Supervision - OTS

The bureau of the U.S. Treasury Department that is responsible for issuing and enforcing regulations governing the nation's savings and loan industry. I: This bureau is responsible for ensuring the safety and soundness of deposits in thrift banks. It does this by auditing and inspecting the banks to see if government regulations and policies are being adhered to.

Kenneth I. Chenault

The chairman and CEO of American Express. Chenault joined the company in 1981 as a director of strategic planning and moved through various management positions in the company's different divisions before becoming president and COO in 1997, and chairman and CEO in 2001. Chenault is the third ever African American CEO of a Fortune 500 company. I: Born in 1951 in New York, Chenault earned his undergraduate degree from Bowdoin College and his JD from Harvard. He began his career as an associate with Rogers & Wells then worked as a management consultant for Bain & Company before joining American Express. He helped increase the company's market share by expanding its customer base. Chenault achieved this in part by offering credit cards in addition to charge cards and offering membership rewards programs.

Macro Environment

The conditions that exist in the economy as a whole, rather than in a particular sector or region. In general, the macro environment will include trends in gross domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. The macro environment is closely linked to the general business cycle, as opposed to the performance of an individual business sector. I: The macro environment in which a company or sector operates will influence its performance, and the amount of the influence will depend on how much of the company's business is dependent on the health of the overall economy. Cyclical industries, for example, are heavily influenced by the macro environment, while consumer staples are less so.

HARPEX Shipping Index

The container ship index of ship brokers Harper Petersen & Co. The HARPEX Shipping Index tracks weekly container shipping rate changes in the time charter market for eight classes of all-container ships. The index was compiled in 2004, but by using a database of 10,000 records, can be calculated retrospectively back to 1986. I: The HARPEX index is considered a suitable indicator of global economic fleet shipping activity since it tracks changes in freight rates for container ships over broad categories. This index is slightly different than the better-known Baltic Dry Index that tracks freight costs for dry bulk ships that usually carry bulk cargoes and raw materials such as coal, ore and grain.

Real Time Gross Settlement - RTGS

The continuous settlement of payments on an individual order basis without netting debits with credits across the books of a central bank. I: Basically, this is a system for large-value interbank funds transfers. This system lessens settlement risk because interbank settlement happens throughout the day, rather than just at the end of the day.

Bailment

The contractual transfer of possession of assets or property for a specific objective. In bailment, the deliverer of the asset is the bailor, and the receiver is the bailee. In a bailment transaction, ownership is never transfered, and the bailor is generally not entitled to use the property while it's in possession of the bailee. In these ways, bailment differs from gifting and leasing. I: Bailment is a legal relationship between two parties, whereby the owner retains full rights to the assets or property but the possesses the property. For example, when a bank holds a borrower's asset as collateral for a secured loan, this is a form of bailment. In this case, the bank is the bailee and the borrower is the bailor.

Manufacturing Production

The creation and assembly of components and finished products for sale. Three common types of manufacturing production are make-to-stock (MTS), make-to-order (MTO) and make-to-assemble (MTA). I: The MTS strategy is based on demand forecasts, so it makes the most sense when demand can be predicted with reasonable accuracy. Companies can lose money with this strategy if they manufacture too much or too little. MTO allows customers to order products built to their specifications. Companies alleviate inventory problems with MTO, but customer wait time is usually longer. MTA is a hybrid of the two: companies stock basic parts based on demand predictions, but do not assemble them until customers place their orders and can offer customization.

KRW

The currency abbreviation or currency symbol for the Korean won (KRW), the former currency for Korea. The won was made up of 100 chon and is often presented with the symbol (__). No banknotes denominated in won were ever issued. I: The won was first seen in 1902, replacing the yang. It appeared in the form of coins of various denominations which were equal to the Japanese yen, which along with the Korean yen replaced this currency in 1910.

J. Harold Chandler

The current COO of Univers Workplace Benefits and a former president, CEO and chairman of disability insurance provider Unum Provident. In 1993, Chandler became president and CEO of Provident Life and Accident Company of America. Provident was doing poorly, but Chandler helped return the company to profitability through changes such as the acquisitions of the Paul Revere Corporation and Genex. Chandler also led a 1999 merger with another insurance company, Unum Corporation, to form Unum Provident. He became COO, then CEO, of the new company. He was fired in 2003 after the company experienced bad publicity over numerous customer complaints and negative financial results. I: Born in South Carolina in 1949, Chandler earned his undergraduate degree from Wofford College and his MBA from the South Carolina Graduate School of Business Administration. Upon completing his MBA, he went to work for Citizens and Southern National Bank. When it merged with Sovran Corp. in 1990, he became executive vice president of corporate marketing of the new company, C&S/Sovran. Chandler also attended Harvard Business School's Advanced Management Program.

Dated Date

The date at which interest begins to accrue on a fixed-income security. Investors who purchase a fixed-income security between interest payment dates must also pay the seller or issuer any interest that has accrued from the dated date to the purchase date, or settlement date, in addition to the face value. I: If the fixed-income security's date of issuance is the same as the dated date, the dated date is also the issue date.

Call Date

The date on which a bond can be redeemed before maturity. If the issuer feels there is a benefit to refinancing the issue, the bond may be redeemed on the call date at par or at a small premium to par. I: The call date is important to be aware of when buying a bond. You are only guaranteed interest payments up to this date.

Incestuous Dealing

The dealing of securities among multiple parties, in order to create advantageous financial benefits for one or more of the parties involved. Incestuous dealing typically involves two or more parties and is done with the intention to create a tax benefit, through the trading of securities. Although the dealings may not be illegal in any way, it still may be considered dishonest or a way of skirting taxation. I: Incestuous dealing may also be a legitimate practice, if the dealing of securities is done in a way in which the tax benefits are created as a function of genuine practices, rather than for the sole intent of creating a taxable benefit through opportune trading. Although not uncommon, tax officials are always watching for situations of incestuous dealings between firms.

Earnings Yield

The earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company. The earnings yield is used by many investment managers to determine optimal asset allocations. I: Money managers often compare the earnings yield of a broad market index (such as the S&P 500) to prevailing interest rates, such as the current 10-year Treasury yield. If the earnings yield is less than the rate of the 10-year Treasury yield, stocks as a whole may be considered overvalued. If the earnings yield is higher, stocks may considered undervalued relative to bonds. Economic theory suggests that investors in equities should demand an extra risk premium of several percentage points above prevailing risk-free rates (such as T-bills) in their earnings yield to compensate them for the higher risk of owning stocks over bonds and other asset classes.

Headline Effect

The effect that negative news in the popular press has on a corporation or an economy. Whether it is justified or not, the investing public's reaction to various headlines can be very dramatic. Many economists believe that negative news headlines make consumers more reluctant to spend money. I: An example of a headline effect is the media's extensive coverage of the impact of rising gas prices on consumers. Some economists believe that the more attention that is paid to small increases in the price of gasoline, the more likely it is that consumers will be more cautious about spending their discretionary dollars. The headline effect can be regarded as the difference between rationally justifiable decreases in discretionary spending and those that occur as the result of a newsworthy event.

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting to determine depreciation amounts and in the tax system to determine deductions. The value can be a best guess of the end value or can be determined by a regulatory body such as the IRS. I: The salvage value is used in conjunction with the purchase price and accounting method to determine the amount by which an asset depreciates each period. For example, with a straight-line basis, an asset that cost $5,000 and has a salvage value of $1,000 and a useful life of five years would be depreciated at $800 ($5,000-$1,000/5 years) each year. Within the tax system, when a person donates a car he or she receives a tax deduction. The value of this deduction depends on the salvage value of the car. This salvage value is determined to be the current fair market value that could be obtained had the car been sold on that day rather than donated.

M

The fifth letter of a Nasdaq stock symbol that specifies the issue is the firm's fourth class of preferred shares. Securities that are listed on the Nasdaq exchange have four or five letters.When a fifth letter appears, it identifies the issue as being one that is other than a single issue of common stock or capital stock. A "P" indicates that the issue is the company's first class of preferred shares; an "O" indicates that the issue is the company's second class of preferred shares; "N" indicates the third class of preferred shares. "M" indicates the fourth class. I: Preferred shares give holders a class of ownership that has a higher claim on assets and earnings than holders of the company's common stock. Dividends for preferred shares are paid out before dividends to common stockholders. However, preferred shareholders generally do not have any voting rights. Dividends for preferred shares are fixed; that is, they do not fluctuate like the dividends for the company's common shares. Nasdaq symbols utilize other fifth-letter identifiers such as "A" for class A shares; "B" for class B shares, "C" for issuer qualification exception; "D" for new issue; "E" for delinquent.

Kuala Lumpur Stock Exchange (KLS) .KL

The former name for what became the Bursa Malaysia in 2004, the Kuala Lumpur Stock Exchange was established in 1976. Its precursors were the Singapore Stockbrokers' Association, which was established in 1930 and went through several name changes over the years. Its main index is the Kuala Lumpur Composite Index. I: Bursa Malaysia was demutualized and became an exchange holding company with publicly traded shares in 2004. Its traded securities include stocks, bonds, derivatives and ETFs. It has a fully automated trading system launched in late 2008 and is one of the larger securities exchanges in Asia with around 1,000 listed companies.

Major Pairs

The four forex pairs which are considered to be the most heavily traded in the forex market. The four major pairs are: EUR/USD, USD/JPY, GBP/USD, USD/CHF. I: These currency pairs are considered by many to drive the global forex market and are the most heavily traded. Although it is widely regarded that the major pairs consist of only four pairs, some believe that the USD/CAD and USD/AUD pairs should also be regarded as majors. However, these two pairs can be found in the group of pairs known as the "commodity pairs".

52-Week High/Low

The highest and lowest prices that a stock has traded at during the previous year. Many traders and investors view the 52-week high or low as an important factor in determining a stock's current value and predicting future price movement. I: As a stock trades within its 52-week price range (the range that exists between the 52-week low and the 52-week high), investors may show increased interest as price nears either the high or the low. A popular strategy used by stock traders is to buy when price exceeds its 52-week high, or to sell when price falls below its 52-week low. The rationale behind this strategy is that if price breaks out from the 52-week range (either above or below) there will be enough momentum to continue the price move in a favorable direction. Alternatively, another strategy is to sell when price reaches its 52-week high on the assumption that price will recede, or to buy when price reaches its 52-week low in anticipation of a value play. Traders and investors typically conduct additional technical and/or fundamental analysis for confirmation.

Obligation

The legal responsibility to meet the terms of a contract. If the obligation is not met there is often recourse for the other party to the contract. I: In the financial world, obligation refers to an outstanding debt that a party must still repay - and if they do not pay, they default on the debt. For example, when the U.S. government issues Treasury bonds it has the obligation to pay back the principal to the debt holders.

Management Tenure

The length of time that a manager(s) has been at the helm of a mutual fund. A long-term fund performance record, preferably of five to 10 years, is a key indicator of a fund manager's investing abilities. I: Mutual fund investors are best served by investment managers who have proved themselves over an extended period of time. The more closely matched a manager's tenure is with a solid fund performance record, the better.For example, let's compare two different funds: The XYZ Fund has an annualized average 10-year total return of 11% and has been run by the same manager over that period. The ABC Fund has the same 10-year annualized average total return of 11%, but it has had two different managers. One's tenure covered the first nine years and the second has only been on the job for one year. Will the second manager be just as good as the first? We hope so, but making a decision on current managerial quality is difficult because fund performance and managerial tenure don't match.For obvious reasons, mutual funds under team management or index funds are not subject to questions concerning manager tenure.

Head Trader

The manager of a trading business. He or she is responsible for the positions, risk and ultimate profitability of that business. In a registered securities firm, the head trader supervises all traders and other personnel within his or her purview. Most notably, the head trader is charged with insuring regulatory and internal compliance for every employee who is part of the trading operation (i.e., not just traders). I: Any head trader in a securities operation with supervisory and/or approval responsibilities must be a registered principal, meaning they must hold all the basic securities licenses and possess one of the following: a series 4, 9, 10, 23, 24, 51 and/or 53 license. The exact principal exams required depend on the scope of the head trader's responsibilities. In smaller firms, there may only be one or two head traders, but in large firms there are frequently many head traders, each in charge of a specific market. The head trader for municipal securities, for example, would have, at a minimum, a series 53 license. Different licenses apply for futures and commodities trading operations. A registered options principal, for example, will hold a series 4 license.

Gator

The name of a software company best known for its adware products. Adware is pop-up interest advertising and Gator was one of the first companies to promote widespread adware. In addition to pop-up advertising, Gator adware tracks an online user's browsing habits and also silently downloads its software which can create significant computer problems for users by creating arbitrary coding. Some of the most common sites that utilized Gator adware and software installation include Limewire, eWallet and KaZaa. I: The company, which was founded in 1998, changed its name from Gator to Claria Corporation in 2003, but ended up going completely out of business in 2008. Gator's software, also known as Gain AdServer remains installed on millions of PCs.

Economic Cycle

The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle. I: An economy is deemed to be in the expansion stage of the economic cycle when gross domestic product (GDP) is rapidly increasing. During times of expansion, investors seek to purchase companies in technology, capital goods and basic energy. During times of contraction, investors will look to purchase companies such as utilities, financials and healthcare.

Rebalancing

The process of realigning the weightings of one's portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation. I: For example, say your original target asset allocation was 50% stocks and 50% bonds. If your stocks performed well during the period, it could have increased the stock weighting of your portfolio to 70%. You may then decide to sell some of your stocks and buy bonds to get it back to your original target allocation of 50/50.

Path Dependent Option

The right, but not the obligation, to buy or sell an underlying asset at a predetermined price during a specified time period, where the price is based on the fluctuations in the underlying's value during all or part of the contract term. A path dependent option's payoff is determined by the path of the underlying asset's price. I: A basic American option is one type of path dependent option. Because it can be exercised at any time prior to expiration, its value will change as the underlying asset's value changes. An Asian option, also called an average option, is another type of path dependent option, because its payoff is based on the average price of the underlying asset during the contract term. Similarly, a barrier option would be considered a path dependent option because its value changes if the underlying asset reaches or surpasses a specified price. The lookback option and Russian option are also path-dependent options.

Quote Currency

The second currency quoted in a currency pair in forex. In a direct quote, the quote currency is the foreign currency. In an indirect quote, the quote currency is the domestic currency.Also known as the "secondary currency" or "counter currency". I: Understanding the quotation and pricing structure of currencies is essential for anyone wanting to trade currencies in the forex market. If you were looking at the CAD/USD currency pair, the U.S. dollar would be the quote currency, and the Canadian dollar would be the base currency. Major currencies that are usually shown as the quote currency include the U.S. dollar, the British pound, the euro, the Japanese yen, the Swiss franc and the Canadian dollar.

Paid-Up

The state of a settlement when all payment obligations for a security have been completed in a customer account. When an individual has paid up, he or she has paid for the security in full. I: For example, when an investor buys stock, he/she is given three days to pay (known as the three-day settlement period). If the investor does not pay the balance owing for the purchase by day three, the brokerage has the right to liquidate the holdings until the balance is paid-up, or paid in full. This also applies to margin accounts with outstanding margin calls and interest charges that need to be paid-up before a broker will allow a client to resume trading in the account.

S&P Phenomenon

The tendency for a stock that has been recently added to the S&P composite index to experience a temporary price increase. The S&P index to which this phenomenon refers to is the S&P 500 - the Standard & Poor's index that is based on 500 leading companies in predominant industries of the U.S. economy. When a stock is newly added to the S&P composite index, it is often accompanied by a significant number of buy orders as many S&P-related index funds add the particular instrument to their portfolios. This increase in buy orders temporarily drives up the price, creating the S&P phenomenon. I: The S&P 500 is often considered the best single gauge of the large cap U.S. equities market. The index, which was first published in 1957, is followed by many traders and investors as a means of keeping a pulse on the overall market. The index is maintained by the S&P Index Committee, which includes Standard & Poor's economists and index analysts. This team meets regularly to monitor the index and to consider and implement changes to the index. Criteria for index additions include: being a U.S. company, market capitalization in excess of $4 billion, a public float of at least 50%, financial viability, adequate liquidity and reasonable price, sector representation and company type. Criteria for index removals include: violation of one or more index inclusion criteria, mergers, acquisitions or restructuring that changes inclusion status.

Random Walk Theory

The theory that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement. I: In short, this is the idea that stocks take a random and unpredictable path. A follower of the random walk theory believes it's impossible to outperform the market without assuming additional risk. Critics of the theory, however, contend that stocks do maintain price trends over time - in other words, that it is possible to outperform the market by carefully selecting entry and exit points for equity investments.This theory raised a lot of eyebrows in 1973 when author Burton Malkiel wrote "A Random Walk Down Wall Street", which remains on the top-seller list for finance books.

Canada Learning Bond

This bond is intended to help low-income families pay for higher education expenses. The Canada Learning Bond is funded by the Canadian government as part of a program to help less privileged families send their children to college. This bond has a maximum benefit of $2,000 per child. I: The Canada Learning Bond was instituted in 2004 by the Canadian Minister of Finance. Unfortunately, only a small percentage of eligible Canadian families took advantage of this program. As a result, the government has made efforts to increase publicity for the bond. This program depends largely on the National Child Benefit Program to determine eligibility for aid.

Ba1/BB+

This is generally one of the lowest investment grade ratings that a ratings agency assigns to a security or insurance carrier. This rating signifies a low to moderate level of risk for investors or policyholders. Entities that are assigned this rating generally possess adequate reserves and are reasonably stable but not as solid as higher-rated securities or carriers. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

B2/B

This is generally the highest rating assigned to a non-investment grade security or carrier. This rating signifies that the security or carrier is not creditworthy enough to be considered as an investment, and is therefore considered speculative. Investors or policyowners are taking a higher level of risk with this entity. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

Harvard Business School

This is one of America's top business schools and is located at Harvard University. Harvard business school was founded in 1908 and is widely considered to be one of the world's best graduate business schools. The school also owns Harvard Business School Publishing Corporation, which publishes numerous business books, business cases and the Harvard Business Review. I: The admissions process at Harvard Business School is one of the most highly competitive in the country. The Harvard Business School offers a full-time MBA program, doctoral programs and numerous executive education programs. The school also offers joint degree programs with other Harvard schools, including the John F. Kennedy School of Government and Harvard Law School.

Ba2/BB

This is the next rating down from the highest non-investment grade rating, regarded as speculative. This rating is assigned to less creditworthy carriers and securities by the ratings agencies. Investors and policyholders of these entities face a higher risk of default. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

Hamburg Stock Exchange (HAM) .H

This now-defunct exchange was located in Hamburg, Germany. It traded stocks, bonds and other securities and was a financial pillar of the city. It offered investment plans such as FONDS-X that impacted both open and closed-end funds. I: The HAM was the oldest stock exchange in Germany, founded in 1558. The Hamburg Stock Exchange merged with the Hanover Stock Exchange in 1999 to form the BOAG Borgen AG. However, the Frankfurt exchange has made this new entity virtually obsolete. The former exchange ran from 9:00 AM to 8:00 PM.

National Bureau of Economic Research - NBER

This private, non-profit, non-partisan research organization's main aim is to promote greater understanding of how the economy works. It disseminates economic research among public policymakers, business professionals and the academic community. I: Hundreds of the nation's leading scholars in economics and business are also NBER researchers, who focus on four types of empirical research: developing new statistical measurements, estimating quantitative models of economic behavior, assessing the effects of public policies on the U.S. economy, and projecting the effects of alternative policy proposals. Twelve of the 31 American Nobel Prize winners in Economics have been researchers at the bureau.

Kill

To cancel a trade or order that has been placed, but not filled. A trader or investor may desire to kill an unfilled order when the market has moved against him or her (or merely because he or she has changed his or her mind), especially if the order is a market order rather than a limit order. Given the split seconds with which orders are executed today, a kill command needs to be sent almost instantly after the buy or sell order has been transmitted. Even then, there is no guarantee that the original order will be killed. I: It may be especially difficult to kill unfilled orders in volatile markets with heavy volumes. This is because exchanges are sometimes unable to handle exceptionally heavy volumes; in such situations, the trader may be unable to receive confirmation of whether his or her original order was filled, or whether it has been killed. Note that the trader or investor is liable for the order once it has been filled.

Quantitative Trading

Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify trading opportunities. Price and volume are two of the more common data inputs used in quantitative analysis as the main inputs to mathematical models. As quantitative trading is generally used by financial institutions and hedge funds, the transactions are usually large in size and may involve the purchase and sale of hundreds of thousands of shares and other securities. However, quantitative trading is also commonly used by individual investors. I: Quantitative trading techniques include high-frequency trading, algorithmic trading and statistical arbitrage. These techniques are believed to contribute to increased market volatility because of the rapid-fire nature of their trading and extremely short investment horizon. Many individual investors are more familiar with quantitative tools such as moving averages and oscillators.

Import And Export Prices

Two indexes that monitor the prices of imports and exports in the United States. The import and export prices indexes are created by compiling the prices of goods purchased in the U.S. but produced out of country (imports) and the prices of goods purchased out of country but produced in the U.S. (exports). I: The data from these indexes often has a direct impact on the bond markets. The indexes are used to help measure inflation in products that are traded globally. Bond prices will often decrease when importing inflation becomes to high, because it erodes the value of the original investment (principal). Inflation can also hurt the equity markets, because as inflation increases, interest rates are often raised to help curtail the rising prices. Rising interest rates often mean falling stock prices.

Implied Warranty

Under a sales contract, whether written or oral, there is a guarantee that the item sold is merchantable and fit for the purpose intended. This guarantee arises by operation of law and is in addition to any expressed warranties that are provided at the time of sale. These implied warranties exist to protect consumers who might otherwise pay for products that are not as represented by the merchant. I: Most products you buy do not come with a written warranty. For example, when you go to the supermarket, you assume that the stocked items are fresh and edible. This is especially important when the food is prepackaged and you can't visibly inspect it. In such cases, you are relying on the market's implied warranties when you check out and pay your bill. If you get home and the milk is sour, you can expect to return it for a full refund.

Malfeasance

Used in regards to performance on a contract, malfeasance is an act of outright sabotage in which one party to the contract commits an act which causes intentional damage. A party that incurs damages by malfeasance is entitled to settlement through a civil law suit. I: Proving malfeasance in the court of law is often difficult, as the true definition is rarely agreed upon. All courts agree that the concept has to do with wrongful doing, however, defining wrongful doing and proving intent are often difficult to do.

A/A2

Usually the second- or third-highest rating that a rating agency assigns to a security or carrier. This rating signifies that there is a relatively low risk of default because the issuer or carrier is fairly stable. Investors and policyholders are therefore taking very little risk with these companies. I: The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can therefore be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

Tailgating

When a broker or advisor buys or sells a security for a client(s) and then immediately makes the same transaction in his or her own account. I: This is not illegal like front running, but it is not looked upon favorably because the broker is mostly likely placing a trade for his or her own account based on what the client knows (like inside information).

Real Time

When a system relays information to a user at a speed that is near instantaneous or has a short delay from when the event actually occurred. Online brokerages often provide a real-time data feed that displays stock quotes and their respective real-time changes, with a very insignificant lag time, so that clients can base their investing decisions on the most up-to-date information. I: While many financial websites do offer free stock quotes to the general public, many of these feeds are not real time and may be delayed up to 20 minutes. Therefore, when viewing stock quotes from any financial website, be aware of the time that is posted near the stock quote to verify whether the quote is actually in real time.Possessing accurate real-time quotes is especially important for traders, as even the smallest time discrepancy between a provided quote and the real-time situation can change a profitable position into a loss.

Takeover

When an acquiring company makes a bid for a target company. If the takeover goes through, the acquiring company becomes responsible for all of the target company's operations, holdings and debt. When the target is a publicly traded company, the acquiring company will make an offer for all of the target's outstanding shares. I: A welcome takeover generally goes smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can be quite unpleasant. The acquiring firm can use unfavorable tactics such as a dawn raid (where it buys a substantial stake in the target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening). The target firm's management and board of directors may strongly resist takeover attempts through tactics such as a poison pill, which lets the target's shareholders purchase more shares at a discount in order to dilute the acquirer's holdings and make a takeover more expensive. A takeover is virtually the same as an acquisition, except that "takeover" has a negative connotation, indicating the target does not wish to be purchased. Why would one company want to buy another company against that company's will? The bidder might be seeking to increase its market share or to achieve economies of scale that will help it reduce its costs and thereby increase its profits. Companies that make attractive takeover targets include those that have a unique niche in a particular product or service, small companies with viable products or services but insufficient financing, a similar company in close geographic proximity where combining forces could improve efficiency and otherwise viable companies that are paying too much for debt that could be refinanced at a lower cost if a larger company with better credit took over.

Earnings Momentum

When corporate earnings per share (EPS) growth is accelerating or decelerating from the prior fiscal quarter or fiscal year. Earnings momentum typically coincides with accelerating revenues and/or expanding margins caused by increased sales, cost improvements or overall market expansion. I: Because of the quarterly reporting system required by the SEC, most earnings momentum analysis will rely on quarterly data, as the smaller reporting period can highlight momentum more clearly if it exists. Investors are always on the lookout for positive earnings momentum, as it will usually propel a stock price higher over time, depending on how anticipated the momentum is. Earnings multiples (as in the P/E ratio) are the foundation for most stock prices, and if earnings are increasing at a faster clip than expected, then current multiples can quickly appear too low. As a result, investors will bid up the stock to reach a new level of equilibrium. On the other hand, if earnings momentum falls away, the price of the underlying stock may drop despite the fact that earnings as a whole are still increasing.

Dash To Trash

When investors flock to a class of securities or other assets, bidding up prices to beyond what can be justified by valuation or other fundamental measures. While the dash-to-trash effect can occur within any type of security, the phrase is typically used to describe low-quality stocks and high-yield bonds, both of which can be subject to periods of overbuying in the markets. I: As the name graphically implies, investors are buying low-quality assets or assets that do not correctly price in the risks associated with them. The dash to trash often occurs near the end of a prolonged bull market, when investors begin to seek higher returns regardless of the risks involved. The longer it has been since a market downturn, the more likely it becomes that large pockets of investors will feel bulletproof.

Joint And Several Liability

When multiple parties can be held liable for the same event or act and be responsible for all restitution required. In cases of joint and several liability, a person who was harmed or wronged by several parties could be awarded damages and collect from any one, several, or all of the liable parties. The liable parties would be required to pay the entire damage award, which could be split among multiple parties or could come from just one party. Each party would be liable for part of the damages, or up to as much as all of the damages. I: Joint and several liability favors the plaintiff suing for damages because it enables him or her to seek payment from the party or parties with the deepest pockets. Joint and several liability differs from comparative fault, where the multiple parties would be assigned responsibility for a portion of the damages in relation to the percentage of fault that they bore for the harm. In comparative fault, if the greatest percentage of harm comes from the least financially solvent liable party, this might leave the plaintiff in the position of seeking damages from an insolvent party.

One-Sided Market

When the market for a security only shows either one bid or one ask. I: Market makers are required to maintain a two-sided market where both a bid and an ask price are shown to investors.

Haggle

When two parties involved in the purchase of a good and service negotiate the price until both parties can mutual agree on a price. The process of haggling involves two parties making offers and counteroffers to each other. The individual trying to buy the good and service is trying to pay the least amount possible, while the seller's primary objective is to maximize gains. I: Globally, haggling has different accepted levels of tolerance. In Europe and North America, haggling is generally accepted for larger ticket items like automobiles, jewelry and real estate but not for smaller day-to-day items. In other regions around the world, haggling for smaller items is generally accepted and is part of the culture. In these region,, children are taught to haggle at a young age to ensure that they are receiving the best perceived deal when making any type of purchase. The acceptance of haggling can also be determined by location. In department and grocery stores, haggling is prohibited, but at places like flea markets, marketplaces and bazaars, haggling is accepted and encouraged.

Call Auction

Where participants buy or sell units of a good. At a call auction, participants place orders to buy or sell units at certain buying or selling prices. Orders collected during a call auction are matched to form a contract. Call auction rules vary by auction. I: In the securities market, this procedure replaces the method of continuously matching orders. Buyers set a maximum price at which they will buy the shares and sellers set a minimum price at which they are willing to sell the stock shares. Advantages of call auctions include a decrease in price instability.

O

A component of a stock symbol that indicates the shares of that stock are a second class of preferred shares. The "O" identifier can be seen after the dot of a NYSE stock symbol, or as the fifth letter of a Nasdaq symbol. I: Every security on the market is assigned a ticker symbol, and preferred stocks use the letters M, N, O and P to denote the preferred stock's class. Companies can issue several classes of preferred stock at a time, and the highest-ranked preferred stock receives dividend payments first.

Jobs Growth

A component of the Employment Situation Summary, reported monthly by the Bureau of Labor Statistics. The job growth figure is expressed as the gross number of jobs created in the American economy in the previous month. I: A job growth figure between 100,000 and 150,000 new jobs per month is considered to be the minimum level of job growth needed to mitigate the effects of new entrants to the workforce.

Fed Model

A model thought to be used by the Federal Reserve that hypothesizes a relationship between long-term Treasury notes and the market return of equities. Many security analysts use this model in valuing equities. I: The Fed doesn't endorse this tool. In fact, it was named the "Fed model" by Prudential Securities strategist Ed Yardeni. This model suggests that returns on 10-year Treasury notes should be similar to the S&P 500 earnings yield. Differences in these returns identify an overpriced or underpriced securities market.

Reasonableness Standard

1) A requirement of the Consumer Leasing Act that takes into consideration the individuals' circumstances according to the amount of harm experienced by the lessor if they early terminate, make late payments or cease to make payments. The reasonableness standard looks at delinquency, default or early termination based on the anticipated or actual harm caused by such delinquency, default or early termination; the difficulties in proving the loss; and finally the inconvenience in finding a solution. 2) A benchmark used in court when reviewing the decisions made by a particular party. The reasonableness standard is a test which asks whether the decisions made were legitimate and designed to remedy a certain issue under the circumstances at the time. Courts using this standard look at both the ultimate decision, and the process by which a party went about making that decision. I: 1) A good rule to use in evaluating the early termination of any vehicle lease is to compare the blue book value of the car at the time to the total payments made under the lease up to the surrender date. Under the Consumer Leasing Act, you have the right to get an independent appraisal by someone agreed to by you and the leasing company. 2) Along with the business judgment rule, the reasonableness standard makes up the backbone of many business-related court cases. Courts must determine whether or not a particular decision is arbitrarily made, or if it is designed to address a defined issue or risk. One of the major factors influencing a court's decision is whether a party's actions affect "health, happiness and enjoyment of life", and that a party's actions do not disproportionately affect others.

National Association of Personal Financial Advisors (NAPFA)

A U.S.-based professional association for professional fee-only financial advisors. Formed in 1983, NAPFA requires its members to adhere to the organization's code of ethics and take an annual fiduciary oath. Members must provide independent, objective financial advice to their clients and uphold the highest standards in the financial planning profession. They must earn their income from fees, not commissions. I: Financial planners can be broadly divided into two categories: 1) those who are compensated with commissions from recommending specific investments to clients, and 2) those compensated with a fee for providing objective investment advice. NAPFA requires its members to be paid in fees rather than commissions, because an advisor who is paid in commissions has an incentive to recommend the investments that he or she receives the highest commissions for, rather than the investments that are best for the client. By charging an hourly fee or a fee based on a percentage of the client's assets under management, the advisor's incentives are aligned with the client's incentives. NAPFA members are also prohibited from receiving referral fees for sending the client to another professional. NAPFA has additional requirements for its members. They must strive to provide objective advice and avoid giving advice in areas they are not knowledgeable in. They must keep all client information confidential unless the client authorizes sharing information. NAPFA members are required to earn continuing education credits to keep their knowledge and skills current. Financial advisors who join NAPFA must additionally be transparent in their interactions with their clients and do their best to ensure that clients understand how their money is being managed. NAPFA members are also required to act in a way that reflects positively on both NAPFA and the financial planning profession.

Federal Housing Administration - FHA

A United States government agency that provides mortgage insurance to qualified, FHA-approved lenders. FHA mortgage insurance helps protect lenders from losses associated with mortgage default; if a borrower defaults on a loan, the FHA will pay a specified claim amount to the lender. I: When the Federal Housing Administration was established in 1934, it was intended to stimulate the housing industry. By providing insurance to lenders, the idea was that more people would be able to qualify for mortgages, and therefore, purchase a home. FHA loans are generally given to people who otherwise would be unable to qualify for a conventional home mortgage loan.

Fair Labor Standards Act - FLSA

A United States law which sets out various labor regulations regarding interstate commerce employment, including minimum wages, requirements for overtime pay and limitations on child labor. In general, the FLSA is intended to protect workers against certain unfair pay practices or work regulations. The Fair Labor Standards Act is one of the most important laws for employers to understand since it sets out a wide array of regulations for dealing with employees. I: The law goes on to specify at which times workers are "on the clock" and which times are not paid hours. There are also elaborate rules concerning whether employees are exempt or non-exempt from Fair Labor Standards Act overtime regulations. The FLSA requires overtime to be paid at 1.5 times the regular hourly rate for all hours worked in excess of 40 hours during a seven-day work week.

General Partnership

A arrangement by which partners conducting a business jointly have unlimited liability, which means their personal assets are liable to the partnership's obligations. I: Since all partners have unlimited liability, even innocent partners can be held responsible when another partner commits inappropriate or illegal actions. This fact alone demonstrates how an investor should heed caution when deciding on whether to become a general partner.

General Provisions

A balance sheet item representing funds set aside by a company to pay for losses that are anticipated to occur in the future. The actual losses for the earmarked funds have not yet occured, but the general provisions account is counted as an asset on the balance sheet. For banks, a general provision is considered to be supplementary capital under the first Basel Accord. I: General provisions are found most often on the balance sheets of financial firms. For example, a bank would set aside funds in the case of a set of questionable loans. General provisions are considered to be a higher risk asset, because it is assumed that the underlying funds will be in default in the future.

Call Deposit Account

A bank account for investment funds that offers the advantages of both a savings and a checking account. A call deposit account, like a checking account, has no fixed deposit period, provides instant access to funds and allows unlimited withdrawals and deposits. Like a savings account, a call deposit account pays interest. The rate of interest a call deposit account pays depends on the amount of money in the account, a system commonly referred to as banded interest rates. Also, different currencies may earn different interest rates. Depositors may have to meet a minimum balance threshold before they earn any interest. I: Call deposit accounts allow investors to deposit and withdraw funds in several currencies, which commonly include the U.S. dollar, the euro and the British pound. This flexibility reduces investors' exposure to foreign exchange expenses and currency risk. Call deposit accounts often have minimum deposit requirements to establish an account and may have minimum daily balance requirements, too.

Leased Bank Guarantee

A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years. The issuing bank will send the guarantee to the borrower's main bank, and the issuing bank then becomes a backer for debts incurred by the borrower, up to the guaranteed amount. I: Leased bank guarantees tend to be very expensive; fees can run as high as 15% of the guarantee amount every year. The fee is usually made up of an initial setup fee and an annual fee, both of which will be a percentage of the dollar amount to be "guaranteed", or covered by the issuing bank in the event that the company can't promptly pay its debts. This option for financial backing is typically only used by smaller enterprises that are desperate to expand operations or fund a specific project; they will have typically exhausted other opportunities to raise financing or obtain a letter of credit from their own bank.Many top worldwide banks will lease bank guarantees, usually with a minimum amount of $5 million to $10 million, all the way up to $10 billion and more.

Days Payable Outstanding - DPO

A company's average payable period. Days payable outstanding tells how long it takes a company to pay its invoices from trade creditors, such as suppliers. DPO is typically looked at either quarterly or yearly. The formula to calculate DPO is written as: ending accounts payable / (cost of sales/number of days). These numbers are found on the balance sheet and the income statement. I: Companies must strike a delicate balance with DPO. The longer they take to pay their creditors, the more money the company has on hand, which is good for working capital and free cash flow. But if the company takes too long to pay its creditors, the creditors will be unhappy. They may refuse to extend credit in the future, or they may offer less favorable terms. Also, because some creditors give companies a discount for timely payments, the company may be paying more than it needs to for its supplies. If cash is tight, however, the cost of increasing DPO may be less than the cost of foregoing that cash earlier and having to borrow the shortfall to continue operations. Most companies' DPO is about 30, meaning that it takes them about a month to pay their vendors. DPO can vary by industry, and a company can compare its DPO to the industry average to see if it is paying its vendors too quickly or too slowly. If the industry standard is 45 days and the company has been paying its invoices in 15 days, it may want to stretch out its payment period to improve cash flow, as long as doing so won't mean losing a discount, getting hit with a price increase or harming the relationship with the vendor. DPO can vary significantly from year to year, company to company and industry to industry based on how well or how poorly the company, the industry and the overall economy are performing.

Death Star IPO

A company's highly anticipated initial public offering (IPO) that becomes a blockbuster with investors. The Death Star IPO is a reference to the DS-1 Orbital Battle Station, also more popularly know as the "Death Star," from the movie "Star Wars." This planetary weapon had the ability to destroy entire planets with a single beam, resulting in a massive explosion. In the stock market, stocks that have the ability to explode out of the gate are usually highly anticipated tech stocks, although stocks from other sectors can also fit the bill. I: Broadly speaking, to be considered a Death Star IPO, the IPO would have to be a multi-billion dollar offering that is also in very high demand with investors. Some examples of Death Star IPOs include Google's IPO in 2004 and Yahoo! in 1996. Both IPOs were highly anticipated events and both stocks exploded on stock markets once the shares became publicly available.

General Ledger

A company's main accounting records. A general ledger is a complete record of financial transactions over the life of a company. The ledger holds account information that is needed to prepare financial statements, and includes accounts for assets, liabilities, owners' equity, revenues and expenses.A general ledger is typically used by businesses that employ the double-entry bookkeeping method - where each financial transaction is posted twice, as both a debit and a credit, and where each account has two columns. Because a debit in one account is offset by a credit in a different account, the sum of all debits will be equal to the sum of all credits. I: A company's general ledger can either be a physical book into which credits and debits are posted, or an accounting computer program where the various credits and debits are entered. The general ledger's double-entry bookkeeping requires that each transaction will be entered on the left side, or debit side, of one account and simultaneously on the right side, or credit side, of another account. A general ledger is used to prepare financial statements directly from the accounts, and as a means to identify errors and/or instances of fraud.

Sales To Cash Flow Ratio

A comparison of a company's sales to its cash flow. The sales to cash flow ratio is expressed on a per-share basis and is calculated by dividing sales per share by the cash flow per share: Sales to Cash Flow Ratio = Sales Per Share_____Cost Flow Per Share Higher ratios are more favorable and are indicative of positive financial strength within a company. The sales to cash flow ratio is an important metric for measuring financial strength, because it takes into consideration the company's output (sales) as the primary means of inbound cash flow. I: The two metrics used in the sales to cash flow ratio are sales per share and cash flow per share. Sales per share (also known as revenue per share) is a ratio that computes the total revenue earned per share throughout a 12-month period. It is calculated by dividing total revenue earned (in a fiscal year) by the weighted average of shares outstanding (for the same fiscal year): Sales Per Share = Total Revenue/Sales____Average Shares Outstanding A company's cash flow per share is another measure of financial strength that is calculated by subtracting preferred dividends from operating cash flow and dividing the difference by common shares outstanding: Cash Flow Per Share = (Operating Cash Flow - Preferred Dividends)Common Shares Outstanding

Real Estate Mortgage Investment Conduits - REMIC

A complex pool of mortgage securities created for the purpose of acquiring collateral. This base is then divided into varying classes of securities backed by mortgages with different maturities and coupons. I: As a synthetic investment vehicle, REMICs consist of a fixed pool of mortgages broken apart and marketed to investors as individual securities.

Financial Account

A component of a country's balance of payments that covers claims on or liabilities to non-residents, specifically in regard to financial assets. Financial account components include direct investment, portfolio investment and reserve assets, and are broken down by sector. When recorded in a country's balance of payments, claims made by non-residents on the financial assets of residents are considered liabilities, while claims made against non-residents by residents are considered assets. The financial account differs from the capital account in that the capital account deals with transfers of capital assets. Additionally, the financial account can include claims on land. I: The financial account involves financial assets, such as gold, currency, derivatives, special drawing rights, equity and bonds. During a complex transaction that contains both capital assets and financial claims, a country may record part of a transaction in its capital account and the other part in its current account. Additionally, because entries in the financial account are net entries that offset credits with debits, they may not appear in a country's balance of payments, even if transactions are occurring between residents and non-residents. Easing access to a country's capital is considered part of a broader movement toward economic liberalization, with a more liberalized financial account providing the benefit of opening a country up to capital markets. Reducing restrictions to the financial account does have its risks. The more a country's economy is integrated with other economies around the world, the higher the likelihood that economic troubles abroad may find their way back home. This potential outcome is weighed against the potential benefits: lower funding costs, access to global capital markets and increased efficiency.

Satisfaction of Mortgage

A document generated and signed by a mortgage lender, acknowledging that the borrower has paid off the mortgage loan in full and that the mortgage is not a lien on the property. The Satisfaction of Mortgage document must be filed with the county office or land registry office in order to get the property deed updated and to obtain clear title to the property. I: Getting the Satisfaction of Mortgage from the lender can take a few weeks after the final mortgage payment has been made. In the event that no Satisfaction of Mortgage is recorded despite the mortgage having been paid off in full, the property will continue to show a lien against it. Most U.S. states stipulate a penalty for the lender if a Satisfaction of Mortgage is not filed within a reasonable period of time after a mortgage debt is discharged in full. Many financial planners recommend accelerating mortgage payments in order to pay off the mortgage faster. Making the occasional extra mortgage payment - assuming the lender allows it without penalty - can slash months off the mortgage term and save thousands in interest costs. A viable strategy to expedite paying off a mortgage will help homeowners get the coveted Satisfaction of Mortgage document even sooner. The Satisfaction of Mortgage is also useful if the owner wants to pledge the property as collateral for a business or personal loan. Of course, the merits of taking out a loan using the house as collateral, after spending decades paying off the mortgage, should be thoroughly considered before being done. Note that even if the mortgage loan is paid off in full, if other liens such as tax liens are attached to the property, they will continue to remain in place.

Ocean Bill Of Lading

A document required for the transportation of goods overseas. An ocean bill of lading serves as both the carrier's receipt to the shipper and as a collection document. The document specifies the details of the goods being transported, such as quantity, type and destination. I: A non-negotiable ocean bill of lading allows the buyer to receive the goods upon showing identification. If the bill is deemed negotiable, then the buyer will be required to pay the shipper for the products and meet any of the seller's other conditions.An ocean bill of lading allows the shipper to move goods across international waters. If the goods are to be initially shipped over land, an additional document, known as an "inland bill of lading", will be required. The inland bill only allows the materials to reach the shore, while the ocean bill allows them to be transported overseas.

Safekeeping Certificate

A document that represents ownership of a security or certificate of deposit. Safekeeping certificates are the investor's claim against the institution that is holding his or her financial instruments. These documents are most commonly used to facilitate international securities trading and foreign investment; they benefit both the companies and investors who use them. I: Depositary receipts are a common example of safekeeping certificates. These documents often represent ownership of securities issued and traded outside the United States. Depositary receipts can be bought and sold like stocks and can help investors diversify their holdings.Other methods for investing internationally include purchasing U.S.-traded international stocks, purchasing stock in U.S.-based multinational corporations, and investing in international index funds and foreign country mutual funds through U.S. brokerages. When assets are placed with a broker, a safekeeping certificate is issued.

Fama And French Three Factor Model

A factor model that expands on the capital asset pricing model (CAPM) by adding size and value factors in addition to the market risk factor in CAPM. This model considers the fact that value and small cap stocks outperform markets on a regular basis. By including these two additional factors, the model adjusts for the outperformance tendency, which is thought to make it a better tool for evaluating manager performance. I: Fama and French attempted to better measure market returns and, through research, found that value stocks outperform growth stocks; similarly, small cap stocks tend to outperform large cap stocks. As an evaluation tool, the performance of portfolios with a large number of small cap or value stocks would be lower than the CAPM result, as the three factor model adjusts downward for small cap and value outperformance.There is a lot of debate about whether the outperformance tendency is due to market efficiency or market inefficiency. On the efficiency side of the debate, the outperformance is generally explained by the excess risk that value and small cap stocks face as a result of their higher cost of capital and greater business risk. On the inefficiency side, the outperformance is explained by market participants mispricing the value of these companies, which provides the excess return in the long run as the value adjusts.

Death By A Thousand Cuts

A failure that occurs as a result of many smaller problems. Death by a thousand cuts could refer to the termination of a proposed deal as a result of several small issues rather than one major cause. This term can also apply to a product or idea that is destroyed by too many minor changes or the failure of a plan as a result of a cumulative chain of events. I: This buzz word is derived from the idea that a small cut will not kill you but, if you get enough of them, you could bleed to death. The term is derived from an ancient form of torture, in which the condemned person was subjected to a number of less devastating wounds over time until the accumulation of damage eventually became fatal.

George Soros

A famous hedge fund manager who is widely considered to be one of the world's greatest investors. Soros managed the Quantum Fund, a fund that achieved an average annual return of 30% from 1970-2000. Besides his investing prowess, Soros is also known for his vast philanthropic activities, and has donated billions of dollars to various causes through the Soros Foundation. I: Soros is most famous for his single-day gain of US$1 billion on September 16, 1992, which he made by short selling the British pound. At the time, England was part of the European Exchange Rate Mechanism, a fixed exchange-rate system which included other European countries. The other countries were pressuring England to devalue its currency in relation to the other countries in the system or to leave the system. England resisted the devaluation, but with continued pressure from the fixed system and speculators in the currency market, England floated its currency and the value of the pound suffered. By leveraging the value of his fund, Soros was able to take a $10 billion short position on the pound, which earned him US$1 billion. This trade is considered one of the greatest trades of all time.

Dealer Market

A financial market mechanism wherein multiple dealers post prices at which they will buy or sell a specific security of instrument. In a dealer market, a dealer - who is designated as a "market maker" - provides liquidity and transparency by electronically displaying the prices at which it is willing to make a market in a security, indicating both the price at which it will buy the security (the "bid" price) and the price at which it will sell the security (the "offer" price). Bonds and foreign exchange trade primarily in dealer markets, while stock trading on the Nasdaq is a prime example of an equity dealer market. I: A market maker in a dealer market stakes its own capital to provide liquidity to investors. The primary mode of risk control for the market maker is therefore the use of the bid-ask spread, which represents a tangible cost to investors. For example, if Dealer A has ample inventory of WiseWidget Co. stock - which is quoted in the market by other market makers at $10 / $10.05 - and wishes to offload some of its holdings, it can post its bid-ask quote as $9.98 / $10.03. Rational investors looking to buy WiseWidget Co. would then take Dealer A's offer price of $10.03, since it is 2 cents cheaper than the $10.05 price at which it is offered by other market makers. Conversely, investors looking to sell WiseWidget Co. stock would have little incentive to "hit the bid" of $9.98 posted by Dealer A, since it is 2 cents less than the $10 price that other dealers are willing to pay for the stock. A dealer market differs from an auction market primarily in this multiple market maker aspect. In an auction market, a single specialist in a centralized location (think of the trading floor on the New York Stock Exchange, for instance) facilitates trading and liquidity by matching buyers and sellers for a specific security.

Days Sales Of Inventory - DSI

A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory (including goods that are work in progress, if applicable) into sales. Generally, the lower (shorter) the DSI the better, but it is important to note that the average DSI varies from one industry to another. Here is how the DSI is calculated: Also known as days inventory outstanding (DIO). I: This measure is one part of the cash conversion cycle, which represents the process of turning raw materials into cash. The days sales of inventory is the first stage in that process. The other two stages are days sales outstanding and days payable outstanding. The first measures how long it takes a company to receive payment on accounts receivable, while the second measures how long it takes a company to pay off its accounts payable. Learn more about this inventory ratio in the article Measuring Company Efficiency.

EBITDA to sales ratio

A financial metric used to assess a company's profitability by comparing its revenue with earnings. More specifically, since EBITDA is derived from revenue, this metric would indicate the percentage of a company is remaining after operating expenses.Sometimes referred to as "EBITDA margin".Calculated as: I: For example, if XYZ Corp's EBITDA is $1 billion and its revenue is $10 billion, then its EBITDA to sales ratio is 10%. Generally, a higher value is appreciated for this ratio as that would indicate that the company is able to keep its earnings at a good level via efficient processes that have kept certain expenses low.However, when comparing company's EBITDA margin, make sure that the companies are in related industries as different size companies in different industries are bound to have different cost structures, which could make comparisons irrelevant.

Facilitating Payment

A financial payment that may constitute a bribe and that is made with the intention of expediting an administrative process. A facilitating payment is a payment made to a public or government official that acts as incentive for the official to complete some action or process expeditiously, to the benefit of the party making the payment. In general, a facilitating payment is made to smooth the progress of a service to which the payer is legally entitled, without making such a payment. In some countries, these payments are considered normal, whereas in other countries, facilitating payments are prohibited by law and considered bribes. Also called facilitation payments. I: Generally, facilitating payments are demanded by low-level, low-income officials in exchange for providing a service to which the payer is entitled even without the payment. Certain countries do not consider facilitating payments bribes as long as such payment is not made to earn or maintain business, or to create an unfair or improper advantage over another business. Such countries may believe these payments are simply a part of the cost of doing business. In other countries, including the United Kingdom and Germany, facilitating payments made abroad are considered bribes and are prohibited. An example of a facilitating payment may be illustrated in the following scenario. Assume a business required a particular license or permit in order to operate. The company is entitled to the license or permit because it has met all the requirements. The business is otherwise poised to open its doors for business, but is legally bound to wait until the license or permit has been issued. The company may make a facilitating payment to an official who can help expedite the licensing or permitting process. In many countries, this payment would be acceptable as long as it does not involve a payment made to a foreign entity. In other countries, this would still be considered a bribe (and thus illegal). The United Nations Convention against Corruption (UNCAC) prohibits facilitation payments. The legal status of facilitating payments varies by country. The Business Anti-Corruption Portal maintains information regarding different countries' profiles regarding corruption, bribes and facilitating payments.

EBITDARM

A financial performance measure that stands for earnings before interest, taxes, depreciation, amortization, rent and management fees. EBITDARM is used in comparison to more common measures such as EBITDA when a company's rent and management fees represent a larger-than-normal percentage of operating costs. I: EBITDARM is not a measure in accordance with generally accepted accounting principles (GAAP), but is instead used for internal analysis and for presentation to investors and creditors. It is also reviewed by credit rating agencies when assessing a company's overall debt servicing ability and credit rating, which is an important factor, as many of the companies who present this measure carry high debt loads. EBITDARM is most likely to be found in the statements of a healthcare company, such as a hospital or nursing facility operator. Industries such as these often lease the spaces they use, so rent fees can become a major operating cost. EBITDARM may be measured against rent fees to see how effective capital allocation decisions are within the company, and to review its ability to service debt. Measures like EBITDARM are most informative to investors if they are examined in conjunction with net earnings and more refined non-GAAP measures like EBITDA and EBIT.

Identity Fraud Reimbursement Program

A financial product that offers reimbursment for the costs associated with having been a victim of identity theft. These costs may include getting affidavits notarized for police and financial institutions, postage for sending certified mail to police and financial institutions, lost earnings resulting from time spent recovering one's identity, and legal fees. I: In addition to providing monetary compensation, these programs often provide a wealth of information to victims on the steps they need to take to resolve the matter and clear up their credit reports. These programs tend to provide reimbursement ranging from $10,000 to $25,000 and can usually be purchased individually for around $25 to $50 annually. They may also be offered as an employee benefit or as an add-on product to other types of insurance. Some homeowners' insurance companies include this protection in their standard policies.

Law Of Demand

A microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa. The law of demand says that the higher the price, the lower the quantity demanded, because consumers' opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product. I: The chart below depicts the law of demand using a demand curve, which is always downward sloping. Each point on the curve (A, B, C) reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The law of demand is so intuitive that you may not even be aware of all the examples around you. -When shirts go on sale, you might buy three instead of one. The quantity that you demand increases because the price has fallen. -When plane tickets become more expensive, you're less likely to travel by air and more likely to choose the less expensive options of driving or staying home. The amount of plane tickets that you demand decreases to zero because the cost has gone up. The law of demand summarizes the effect price changes have on consumer behavior. For example, a consumer will purchase more pizzas if the price of pizza falls. The opposite is true if the price of pizza increases. John might demand 10 pizzas if they cost $10 each, but only 7 pizzas if the price rises to $12, and only 4 pizzas if the price rises to $20. The law of demand is one of the most fundamental concepts in economics. It works with the law of supply to explain how market economies allocate resources and determine the prices of goods and services.

Law Of Supply

A microeconomic law that states, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale. I: The chart below depicts the law of supply using a supply curve, which is always upward sloping. A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). So, at point A, the quantity supplied will be Q1 and the price will be P1, and so on. The law of supply is so intuitive that you may not even be aware of all the examples around you. -When college students learn computer engineering jobs pay more than English professor jobs, the supply of students with majors in computer engineering will increase. -When consumers start paying more for cupcakes than for donuts, bakeries will increase their output of cupcakes and reduce their output of donuts in order to increase their profits. -When your employer pays time and a half for overtime, the number of hours you are willing to supply for work increases. The law of supply summarizes the effect price changes have on producer behavior. For example, a business will make more video game systems if the price of those systems increases. The opposite is true if the price of video game systems decreases. The company might supply 1,000,000 systems if the price is $200 each, but if the price increases to $300, they might supply 1,500,000 systems. The law of supply is one of the most fundamental concepts in economics. It works with the law of demand to explain how market economies allocate resources and determine the prices of goods and services.

Hedonic Pricing

A model identifying price factors according to the premise that price is determined both by internal characteristics of the good being sold and external factors affecting it. I: The most common example of the hedonic pricing method is in the housing market: the price of a property is determined by the characteristics of the house (size, appearance, features, condition) as well as the characteristics of the surrounding neighborhood (accessibility to schools and shopping, level of water and air pollution, value of other homes, etc.) The hedonic pricing model is used to estimate the extent to which each factor affects the price.

Bailard, Biehl And Kaiser Five-Way Model

A model of five investor categories developed by fund managers Tom Bailard, Larry Biehl and Ron Kaiser. The Bailard, Biehl and Kaiser (BB&K) Five-Way Model defines investor personalities based on their confidence level and preferred method of action. The five categories thus defined are - Individualists, Adventurers, Celebrities, Guardians and Straight Arrows. I: The BB&K classification system enables investment advisors to target the right kind of clients for their particular business specialty and provide a higher level of service. For example, an advisor who specializes in aggressive option strategies would be better off targeting his or her marketing efforts to celebrities rather than guardians.

Game Theory

A model of optimality taking into consideration not only benefits less costs, but also the interaction between participants. Game theory attempts to look at the relationships between participants in a particular model and predict their optimal decisions. I: One frequently cited example of game theory is the prisoner's dilemma. Suppose there are two brokers accused of fraudulent trading activities: Dave and Henry. Both Dave and Henry are being interrogated separately and do not know what the other is saying. Both brokers want to minimize the amount of time spent in jail and here lies the dilemma. The sentences vary as follows: 1) If Dave pleads not guilty and Henry confesses, Henry will receive the minimum sentence of one year, and Dave will have to stay in jail for the maximum sentence of five years. 2) If nobody makes any implications they will both receive a sentence of two years. 3) If both decide to plead guilty and implicate their partner, they will both receive a sentence of three years. 4) If Henry pleads not guilty and Dave confesses, Dave will receive the minimum sentence of one year, and Henry will have to stay in jail for the maximum five years. Obviously, pleading guilty is the most attractive should the other plead not guilty since the sentence is only one year. However, if the other party also chooses to plead guilty, both will have to serve three years. On the other hand, if both parties plead not guilty, they'd have to serve two years in jail. Consequently, the risk of pleading not guilty is a five-year sentence, should the other choose to confess.

Heath-Jarrow-Morton Model - HJM Model

A model that applies forward rates to an existing term structure of interest rates to determine appropriate prices for securities that are sensitive to changes in interest rates. I: The HJM model is very theoretical and is used at the most advanced levels of financial analysis. It is used mainly by arbitrageurs seeking arbitrage opportunities.

Qualified Foreign Institutional Investor - QFII

A program that permits certain licensed international investors to participate in China's mainland stock exchanges. The Qualified Foreign Institutional Investor program was launched by the People's Republic of China in 2002 to allow foreign investors access to its stock exchanges in Shanghai and Shenzhen. Prior to QFII, foreign investors were not able to buy or sell shares on China's stock exchanges because of China's tight capital controls. With the launch of the QFII program, licensed investors can buy and sell yuan-denominated "A" shares. Foreign access to these shares is limited by specified quotas that determine the amount of money that the licensed foreign investors are permitted to invest in China's capital markets. I: As of April, 2012, the combined quota for the Qualified Foreign Institutional Investor program was set at U.S. $80 billion. The quotas are granted by SAFE - China's State Administration of Foreign Exchange, and the quotas can be adjusted to reflect and respond to the country's economic and financial situation. Type of investments include listed stocks (excluding foreign-oriented, or "B" shares); Treasury bonds, corporate debentures and convertible bonds, and other financial instruments approved by the China Securities Regulatory Commission (CSRC). To be approved as a licensed investor, certain qualifications must be met (qualifications are dependent upon the type of investor - such as fund management companies and insurance companies). For example, fund management companies are required to have a minimum of five years of experience in assets management and must have managed at least U.S. $5 billion in securities assets in the most recent accounting year. A specified amount of foreign currency, transferred and converted to local currency, is also required for approval.

Federal Direct Student Loan Program - FDSLP

A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct Student Loan Program is issued and managed by the U.S. Department of Education and is the only government-backed loan program in the United States. Students who wish to apply for funding from the FDSLP must first submit the Free Application for Federal Student Aid (FAFSA). I: Several types of loans are available under the FDSLP, including subsidized direct loans, unsubsidized direct loans, Direct Plus Loans and Direct Consolidation loans. All loans that are granted through the FDSLP have maximum amounts set each year, with each successive year allowing for an increase in the total maximum yearly amount, with set aggregate amounts.

David Dreman

A prominent private investor who founded the investment company Dreman Value Management. David Dreman has also published three books and is on the board of directors for the Institute of Behavioral Finance. He is also the co-editor of the Journal of Psychology and Financial Markets. I: Dreman received his juris doctorate in law from the University of Manitoba in 1999. He previously served as a senior investment officer with Seligman Funds and was also the former senior editor for Value Line. His investment company manages money for mutual funds, pension and high net-worth individuals.

Rain Check

A promise or commitment by a seller to a buyer that an item currently out of stock can be purchased at a later date for today's sale price. I: The term originated from baseball; spectators at games that were postponed because of rain would receive a check that could be used to attend a future game.

Saber Currency

A proposed Brazilian currency that would be handed out by the Ministry of Education to 7-year-olds to be redeemed only for university tuition. Saber currency is a complementary currency that was proposed by Bernard Lietaer to help Brazilian schools offer more educational opportunities, regardless of a lack of available funds. A type of educational voucher, the Saber is intended to facilitate more learning opportunities for a larger number of students, without adding any new financial pressures to the economy. The planned Saber currency has three capacities: 1. The Ministry of Education allocates Sabers to the youngest students (for example, 7-year-olds) in schools in economically disadvantaged areas. The young students must choose an older student (10 years old, for instance) as a mentor, and pays the mentor with the Sabers. The 10-year-old then does the same, finding an older student to mentor him or her. Down the line, 17 year olds will have collected the Sabers to be used towards university tuition. Redeemed Sabers are reallocated to young students. 2. Children or adults who help elderly or handicapped individuals can also earn Sabers. 3. Certain laborers could elect to be paid in the standard pay for the job, or at a reduced pay plus additional Sabers, an incentive for parents of children planning on attending university. I: The word "saber" is the Portuguese (and Spanish) verb "to know." After Brazil privatized the mobile telephone industry, the country enacted a 1% tax allocated for educational purposes. When the Education Fund had grown to about 3 billion reals (US$1 billion), alternative solutions for its use were discussed, including the implementation of the Saber currency. A goal would be to provide a "multiplier of learning" to increase the number of students who can afford a college education in Brazil.

Sales Lead

A prospective consumer of a product or service that is created when an individual or business shows interest and provides his or her contact information. Businesses gain access to sales leads through advertising, trade shows, direct mailings and other marketing efforts. They can also purchase sales leads from third-party companies. A sales lead is not a sales prospect, meaning that further qualification of the lead is necessary to determine intent and interest. I: The sales process begins once a sales lead is identified, qualified and placed into a company's sales pipeline. The lead's contact information is used to make outbound sales calls, send sales e-mails and provide direct marketing material. The quality of the sales lead depends on whether the individual or business was incentivized to provide its contact information, or if the sales lead was aware of what he or she was signing up for. The more qualified a sales lead is, the more expensive it tends to be for a business to acquire it.

Hedge Clause

A provision included in published financial reports that indemnifies the author, or authors, against any responsibility for any errors, omissions, or oversights contained within the report. Hedge clauses can be found predominately in analyst reports, company press releases and on most investing websites.A hedge clause is also known as a "disclaimer". I: Investors will find hedge clauses in nearly every financial report published today, and even though they are often glossed over, they are very important for investors to read and understand. One example is the "safe harbor" provision found in most company press releases. Potential conflicts of interest from, for example, a stock analyst writing a recommendation for one of his own holdings, must also be included in the hedge clause for that report.

Bailout Takeover

A scenario in which a government or profitable company acquires control of a financially unstable company with the goal of returning it to a position of financial strength. In a bailout takeover, the government or strong company takes over the weak company by purchasing its shares, exchanging shares or both. The acquiring entity develops a rehabilitation plan for the weak company, describing how it will be managed and by whom, how shareholders will be protected and how its financial position will be turned around. I: An example of a bailout takeover is NPNC Financial Services' 2008 takeover of National City Corp. National City experienced massive losses because of the subprime mortgage crisis, and PNC used TARP funds to bail it out. PNC purchased about $5.2 billion in National City's stock to acquire it; some people said the purchase price was less than National City's fair market value. PNC became the fifth-largest U.S. bank as a result of the bailout takeover, but numerous National City employees lost their jobs at the bank's headquarters. Another example of a bailout takeover is the U.S. government's takeover of Chrysler and General Motors in 2008 to prevent the companies' bankruptcy and the subsequent loss of approximately 1 million jobs in the industry. Under the takeover's terms, the government loaned the two companies $17.4 billion and required them to reduce their debt, decrease workers' wages and benefits, and create restructuring plans. The government retained the ability to call the loans if the companies didn't uphold their end of the bargain. The companies later received additional funds from the government, but they were forced through bankruptcy anyway, causing both stockholders and bondholders to lose everything. The bailout was criticized as primarily benefiting labor unions since workers kept their jobs but investors lost everything.

Gen-Saki

A secondary market in Japan, also known as a repo market for its similarity to repurchase agreements. It is a medium for government bonds, in the Japanese market only, to be reissued and resold at the new rate. Gen-Saki is available to both corporations and financial institutions. I: When setting the Gen-Saki rate, the yen London interbank offered rate is heavily considered as it accurately reflects the deposit market rate.

Habendum Clause

A section in a real estate contract that transfers ownership of a property with no restrictions. The new owner has absolute ownership of the property and has the right to sell it, bequeath it to an heir, and so on. Because the clause begins with the phrase, "To have and to hold," the habendum clause is sometimes called the "to have and to hold clause." I: The type of property title transferred using a habendum clause is called "fee simple absolute." A fee simple absolute grants complete ownership of a property, subject to government laws and powers.

Management Discussion and Analysis - MD&A

A section of a company's annual report in which management discusses numerous aspects of the company, both past and present. I: Among other things, the MD&A provides an overview of the previous year of operations and how the company fared in that time period. Management will usually also touch on the upcoming year, outlining future goals and approaches to new projects.The MD&A is a very important section of an annual report, especially for those analyzing the fundamentals, which include management and management style. Although this section contains useful information, investors should keep in mind that the section is unaudited.

Oil Services Industry ETF

A sector exchange-traded fund (ETF) that invests in companies engaged in providing services such as drilling and seismic testing to the oil exploration & production (E&P) industry. Oil service companies generally do not produce oil and gas themselves, since their core competency lies in supplying services and associated products to energy producers. I: The fortunes of an oil services ETF are closely tied to those of the overall energy industry, whose outlook in turn depends on prices of oil and natural gas. The performance of the oil services sector and related ETFs depends on the current stage of the economic cycle. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order

Gaming Industry ETF

A sector exchange-traded fund that invests solely in gaming companies, so as to generate investment returns that correspond to those of an underlying gaming index. A gaming ETF consists of a wide range of stocks, from casino operators and manufacturers of gaming systems to companies that accept bets on sporting events. A gaming ETF may be vulnerable to economic downturns. I: A gaming ETF may hold stocks of international gaming companies, in addition to those of domestic companies. It is yet another example of a niche ETF. U.S. companies that would be included in a gaming ETF are well-known casino resort operators. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

Death Bond

A security backed by life insurance which is derived by pooling together a number of transferable life insurance policies. Similar to mortgage-backed securities, the life insurance policies are pooled together and then repackaged into bonds to be sold to investors. I: Death bonds provide investors with an unusual instrument that is less affected by standard financial risks. The only risk of holding a death bond lies with the underlying insured person. If the person lives longer than expected, the bond's yield will begin declining. However, because the death bonds are created from an underlying pool of assets, the individual risk associated with one policy is spread out, making the instruments more stable.

Cabinet Security

A security that is listed under a major financial exchange, such as the NYSE, but is not actively traded. A cabinet security is traded by an inactive investment crowd, and is more likely to be a bond than a stock. I: The "cabinet" in cabinet security refers to the physical place where bond orders were stored off of the trading floor. The cabinets would typically hold limit orders, and the orders were kept on hand until they expired or were executed.

Katie Couric Clause

A slang term for a controversial proposed clause from a Securities and Exchange Commission (SEC) rule (formally known as the Executive Compensation and Related Party Disclosure). This clause, if implemented, would require publicly-traded companies to disclose not only the salaries of their top five executives, but also those of top earning non-executives, including actors, directors and TV news anchors.The term refers to former "Today Show" host Katie Couric, who became CBS's highest paid newscaster in April 2006, with a reported salary of US $15 million over five years. As of July 26, 2006 the SEC decided not to implement this specific clause, but did agree that rules regarding highly compensated non-executives merit a subsequent look. I: Many major media companies, such as CBS, NBC and the Walt Disney Co., opposed the SEC's controversial proposal. Media giants are often reluctant to disclose detailed compensation information, which might invade the privacy of its employees and also expose proprietary information that may make it easier for key employees to be headhunted. While the employees in question would not have to be named, many believe that it would not be hard to attach a name to the details.Current SEC rules demand that salaries of the top five executives in publicly-traded companies to be disclosed. If this new rule is adopted, companies would have to disclose the overall compensation of up to three non-executive employees whose total compensation exceeds that of any of its top five managers. Supporters of this proposal say this rule would create greater transparency and give investors increased access to information, which should make for better-informed decisions.

Jobber

A slang term for a market maker on the London Stock Exchange prior to October 1986. Jobbers, also called "stockjobbers," acted as market makers. They held shares on their own books and created market liquidity by buying and selling securities, and matching investors' buy and sell orders through their brokers, who were not allowed to make markets. The term "jobber" is also used to describe a small-scale wholesaler or middleman in the retail goods trade. I: Little is known about jobbers' activities because they kept few records, but in the early 19th century, London had hundreds of jobbing firms. Jobbers' numbers declined dramatically over the course of the 20th century until they ceased to exist in October 1986. This month was when the "Big Bang," a major shift in the London Stock Exchange's operations, occurred. London's financial sector was suddenly deregulated, fixed commissions were replaced by negotiated commissions and electronic trading was implemented.

C-Note

A slang term for a one hundred dollar banknote. The "C" in C-note refers to the Roman numeral for 100, which was printed on $100 bills. "C" can also refer to century. I: The term came to prominence in the 1920s and 1930s, and was popularized in a number of gangster films. C-note is used less frequently in modern slang, and has been replaced by "Benjamin" as Benjamin Franklin, one of the founding fathers of the United States, is on the $100 banknote.

Gadfly

A slang term for an investor who attends the annual shareholders meeting to criticize the corporation's executives. A gadfly addresses many issues for the shareholders, often grilling the management by asking difficult or embarrassing questions. I: Named after small insects that bite and annoy livestock, the gadfly looks to irritate a corporation's management until it acts on shareholder concerns. Questions regarding executive compensation or inconvenient annual meeting locations are often brought to light by a gadfly. A gadfly adds value for other shareholders by vocalizing their concerns and inciting action.

Dead Money

A slang term for money invested in a security with minor hopes of appreciation or earning a return. The stock may also be referred as dead money by analysts, as a warning to investors who might purchase the shares. I: Funds that are not earning interest or income are known as dead money. Some investors will hold a stock despite recent price drops, hoping that it will turn around and earn back some of the lost value. However, if the investment is dead money, the likelihood of a turnaround is low, and investors should consider selling the shares before incurring additional losses.

Kicking The Tires

A slang term for researching an investment before putting any money into it. The process of kicking the tires for a stock might include reading the company's annual report, examining the company's management, looking at its historical performance, considering the company's competitors and reading news articles about the company. I: The steps involved in kicking the tires depend somewhat on the type of investment. Someone considering putting money in a hedge fund would want to research the hedge fund manager first, while someone considering putting money in a CD would want to research interest rates available at different banks and make sure their investment would be FDIC-insured.

Back Up

A slang term for the movement in spread, price or yield of a security, which makes it more expensive to issue. Back up is characterized by an increase in bond yields and a decrease in price. The price of a security "backs up" when a company finds the security more costly to issue when raising funds. I: When a back up occurs, the fund raising efforts of a company are diminished. For example, if interest rates increase, the required yields on most bonds will rise as well. This forces a company to either raise the coupon on their bond issue, which increases the interest payment, or sell the bonds at a discount, reducing the level of incoming cash.

Samurai Market

A slang term for the stock market in Japan. Samurai market is usually used buy non-residents of Japan, with a reference to the iconic Japanese warrior - the samurai. I: The term Samurai market was used in business slang but has become widely accepted, much like the "Yankee market" refers to U.S. markets and the "bulldog market" refers to the market in the United Kingdom.

Kids In Parents' Pockets Eroding Retirement Savings - KIPPERS

A slang term referring to adult children who are out of school and in their working years, but are still living at home with their parents. These parents face the challenge of managing their own finances and planning for retirement while dealing with the added expense of providing for adult offspring. I: According to recent studies, most parents report that having KIPPERS is a pleasant experience - they like living with their adult children. However, it usually results in the parents saving less than they otherwise would for their retirement.Contrast this to the situation of a married, working couple with no children at home, where discretionary income is often higher and saving for retirement is easier. This demographic group is sometimes referred to as Dual Income No Kids (DINKs).

P/E 10 Ratio

A valuation measure, generally applied to broad equity indices, that uses real per-share earnings over a 10-year period. The P/E 10 ratio uses smoothed real earnings to eliminate the fluctuations in net income caused by variations in profit margins over a typical business cycle. The ratio was popularized by Yale University professor Robert Shiller, who won the Nobel Prize in Economic Sciences in 2013. It attracted a great deal of attention after Shiller warned that the frenetic U.S. stock market rally of the late-1990s would turn out to be a bubble. The P/E 10 ratio is also known as the "cyclically adjusted PE (CAPE) ratio" or "Shiller PE ratio." I: The P/E 10 ratio is based on the work of renowned investors Benjamin Graham and David Dodd in their legendary 1934 investment tome "Security Analysis." Graham and Dodd recommended using a multi-year average of earnings per share (EPS) - such as 5, 7 or 10 years - when computing P/E ratios to control for cyclical effects. The P/E 10 ratio is calculated as follows - take the annual EPS of an equity index such as the S&P 500 for the past 10 years. Adjust these earnings for inflation using the CPI. Take the average of these real EPS figures over the 10-year period. Divide the current level of the S&P 500 by the 10-year average EPS number to get the P/E 10 ratio or CAPE ratio. The P/E 10 ratio varies a great deal over time. According to data first presented in Shiller's bestseller "Irrational Exuberance" (which was released in March 2000, coinciding with the top of the dot-com boom), updated to cover the period 1881 to November 2013, the ratio has varied from a low of 4.78 in December 1920 to a peak of 44.20 in December 1999. A criticism of the P/E 10 ratio is that it is not always accurate in signaling market tops or bottoms. For example, an article in the September 2011 issue of the "American Association of Individual Investors' Journal" noted that the CAPE ratio for the S&P 500 was 23.35 in July 2011. Comparing this ratio to the long-term CAPE average of 16.41 would suggest that the index was more than 40% overvalued at that point. The article suggested that the CAPE ratio provided an overly bearish view of the market, since conventional valuation measures like the P/E showed the S&P 500 trading at a multiple of 16.17 (based on reported earnings) or 14.84 (based on operating earnings). Although the S&P 500 did plunge 16% during a one-month span from mid-July to mid-August 2011, the index subsequently rose more than 35% from July 2011 to new highs by November 2013.

Manifest Variable

A variable that can be directly measured or observed. It is the opposite of a latent variable, which can not be directly observed. Manifest variables are used in latent variable statistical models, which test the relationships between a set of manifest variables and a set of latent variables. Manifest variables are considered either continuous or categorical (a countable range). I: Statisticians use several different analysis tests when examining manifest variables and latent variables. The four most frequently used models are factor analysis, latent trait analysis, latent profile analysis, and latent class analysis. Which model is ultimately used depends on whether the manifest variables are continuous or categorical, and whether the latent variables are continuous or categorical.

General And Administrative Leverage

A variable within a cost benefit analysis of an acquisition where the potential reduction in overall general and administrative expenses of the combined company are considered. Through synergies and cost-saving programs, the general and administrative costs of the combined company often will be considerably less than the sum of the general and administrative costs of the two independent companies. The more the potential savings, the more attractive the acquisition becomes, when all else is equal. I: When valuing an acquisition it is essential that a company accurately value the benefit of a target company's general and administrative leverage. One of the reasons, a company would want to acquire another company is the economies of scale that can be achieved. Subsequently, if the cost savings that have been identified from general and administrative leverage are overestimated, the acquiring company may be worse off after the acquisition. But it is important to note that this is only one aspect of the overall analysis of a potential acquisition.

Quotation

A very common term which actually refers to two numbers - the highest bid price currently available for a security or commodity and the lowest ask price currently available for the same security/commodity. I: A security's or commodity's quotation represents two pieces of information: the price an investor would need to pay to purchase an asset at a particular moment in time (the lowest price "asked" by sellers) and the price an investor would receive for the same asset if they sold it at the same time (the highest "bid" by potential buyers). Taken together, the difference between the two represents the liquidity cost an investor incurs when trading an asset, since they must buy at the bid price and sell as the ask price.

Heatmap

A visual representation of data using colors. A heatmap can be used with all sorts of data, from representing the number of foreclosures to the spreads of credit default swaps. For example, a heatmap of foreclosures data could show parts of the U.S. experiencing high rates of foreclosure in a dark color and states with low foreclosure rates in lighter colors. A color-gradient legend typically accompanies a heatmap to specify the data. I: Heatmaps became especially popular during the recession that began in 2008. Many people used heatmaps to quickly see the foreclosure rates in various states and compared them to heatmaps from previous months.

Keltner Channel

A volatility based 'envelope' indicator that measures the movement of stocks in relation to an upper and lower moving-average band. I: This indicator, named after Chester W. Keltner, is used by sophisticated investors to predict the trend of the market. An overbuy occurs when prices move above the upper band, and an oversell occurs when prices move below the lower band.

Naked Warrant

A warrant that is issued without a host bond. A naked warrant allows the holder to buy or sell a particular financial instrument, such as a bond or shares, but unlike a normal warrant, it is not sold with an accompanying bond. Naked warrants are typically issued by banks or other financial institutions that are not also issuing a bond, and can be traded in the stock market. I: Normal warrants are issued with an accompanying bond (a warrant-linked bond), giving the investor holding the warrant the right to exercise it and acquire shares of the company that issued the underlying bond. The company writing the bond is typically the same company issuing the underlying bond. Naked warrants, on the other hand, can be backed by a variety of underlying investments, including stocks, and are considered more flexible.

1%/10 net 30

A way of providing cash discounts on purchases. It means that if the bill is paid within 10 days, there is a 1% discount. Otherwise, the total amount is due within 30 days. For example, if "$1000 1/10 net 30" is written on a bill, the buyer can take a 1% discount ($1000 x .01 = $10) and make a payment of $990 within 10 days, or pay the entire $1000 within 30 days. I: Manufacturers offer discounts like this to encourage retailers to pay quickly. This calculation is the same regardless of what discount is used. For example "2/10 net 30" just means there is a 2% discount.

Heckscher-Ohlin Model

An economic theory that states that countries export what they can most easily and abundantly produce. The Heckscher-Ohlin model is used to evaluate international trade, specifically trade equilibriums between countries that may have different features. The model emphasizes how countries with comparative advantages should export goods that require factors of production that they have in abundance, while importing goods that it cannot produce as efficiently. The model was developed by two economists, Bertil Ohlin and Eli Heckscher. I: At heart, the Heckscher-Ohlin model seeks to mathematically explain how countries should operate when resources are not distributed equally around the world. For example, some countries have ample oil reserves but little iron ore, while other countries have access to precious metals but not agriculture. The model goes beyond tradable commodities by also including other factors of production, such as labor. Because global labor costs vary, countries with cheap labor should focus on goods that are too labor-intensive in other countries. The model emphasizes how countries can benefit from international trade by exporting what they have in abundance. By not having to rely solely on internal markets, countries are able to take advantage of more elastic demand. As countries develop and labor costs increase, their marginal productivity declines. By trading internationally, they are able to shift to capital-intensive goods, which could not occur if they only can sell internally. Despite sounding reasonable, economists have had difficulty finding evidence that supports the Heckscher-Ohlin model. Other models have tried to explain how industrialized countries tend to trade with each other more than they trade with developing countries, as outlined in the Linder hypothesis.

Quantity Theory Of Money

An economic theory which proposes a positive relationship between changes in the money supply and the long-term price of goods. It states that increasing the amount of money in the economy will eventually lead to an equal percentage rise in the prices of products and services. The calculation behind the quantity theory of money is based upon Fisher Equation:Calculated as: Where: M represents the money supply.V represents the velocity of money.P represents the average price level.T represents the volume of transactions in the economy. I: This theory originated in the sixteenth century as European economists noticed higher levels of inflation associated with importing gold or silver from the Americas. According to how the formula is derived, holding the transaction volume and velocity of money constant, any increases in the money supply will yield a proportional increase in the average price level.

Eco-Communalism

An economic/environmental philosophy focused upon local economies, sustainability and self-sufficiency. Eco-communalism is centered upon the belief that many self-sufficient local economies connected to one another will be a greater benefit to society as a whole than a centralized capitalistic one. The primary principles of eco-communalism include green economics, biodiversity and decentralization of government. I: Eco-communalists believe that the goodness of society is the key to creating a world that is less reliant on capitalistic traits and more concerned with the common good. In this vain eco-communalism is often closely associated with the ideals of eco-socialism, which is focused on moving towards a more socialist mandate and away from the materialism of modern capitalism.

Jerry A. Hausman

An economics professor and director of the MIT Telecommunications Economics Research Program at the Massachusetts Institute of Technology. Hausman's research has focused on applied microeconomics, econometrics, differentiated products, telecommunications, taxation, energy, aging, the environment and energy. Born in West Virginia in 1946, he first joined MIT in 1973 as an assistant professor. I: Hausman holds a Ph.D. from Oxford University, where he was a Marshall Scholar, and has earned numerous awards, honors and fellowships, including the John Bates Clark Award and the Frisch Medal. His well-known Hausman Specification Test shows whether statistical models correspond to the data. He is widely published and has been an associate or advisory editor for numerous economics journals.

Near Money

An economics term describing non-cash assets that are highly liquid, such as bank deposits, certificates of deposit (CDs) and Treasury Bills. Central banks, economists and statisticians may utilize near money when determining the current money supply. Near money refers to assets that can be quickly converted into cash. Also called quasi-money. I: Examples of liquid assets that are near money include bonds, money markets, savings accounts and widely traded foreign currencies. Assets that are considered near money may differ depending on the time frame that is used in the definition. Bank accounts, such as savings accounts, allow instant conversion to cash with no penalties. Other near money assets may take longer to access or may incur penalties, such as early withdrawal from a certificate of deposit.

Fear And Greed Index

An index developed and used by CNNMoney to measure the primary emotions that drive investors: fear and greed. The Fear and Greed Index is based on seven indicators:1. Stock Price Momentum - as measured by the S&P 500 versus its 125-day moving average2. Stock Price Strength - based on the number of stocks hitting 52-week highs versus those hitting 52-week lows on the NYSE3. Stock Price Breadth - as measured by trading volumes in rising stocks against declining stocks.4. Put and Call Options - based on the Put/Call ratio5. Junk Bond Demand - as measured by the spread between yields on investment grade bonds and junk bonds6. Market Volatility - as measured by the CBOE Volatility Index or VIX7. Safe Haven Demand - based on the difference in returns for stocks versus Treasuries Each of these seven indicators is measured on a scale from 0 to 100, with 50 denoting a neutral reading, and a higher reading signaling more greed. The index is then computed by taking an equal-weighted average of the seven indicators. I: The Fear and Greed Index is a contrarian index of sorts, which is based on the premise that excessive fear can result in stocks trading well below their intrinsic values, while unbridled greed can result in stocks being bid up far above what they should be worth. The index can therefore be used to signal potential turning points in the equity markets. For example, the index sank to a low of 12 on Sept. 17, 2008, when the S&P 500 fell to a three-year low in the aftermath of the Lehman Brothers bankruptcy and the near-demise of insurance giant AIG. It traded over 90 in September 2012 as global equities rallied following the Federal Reserve's third round of quantitative easing (QE3).

NASDAQ Global Market Composite

An index made up of stocks that represent the Nasdaq Global Market. The NASDAQ Global Market Composite consists of 1,450 stocks that meet Nasdaq's strict financial and liquidity requirements, and corporate governance standards. The Global Market Composite is less exclusive than the Global Select Market Composite. I: This stock index was created in July 2006 when the Nasdaq National Market, created in 1984, split into two tiers, the Nasdaq Global Market and the Nasdaq Global Select Market. The change was nominal, as it did not affect listing standards, but rather was meant to reflect the global scope of the index and the companies listed on it.

IMF Nonfuel Commodity Index

An index of nonfuel commodities developed and maintained by the International Monetary Fund. The index defines nonfuel commodities as industrial metals, food, beverages and agricultural raw materials, along with certain energy sources such as coal. It excludes precious metals such as gold I: Weights of the nonfuel commodities in the index use 2005 as the base year. Many developing nations are very dependent on nonfuel commodities for export earnings and monitor the IMF Nonfuel Commodity Index for market trends. Prices of some nonfuel commodities such as metals have occasionally increased faster than oil prices.

Keefe Bank Index

An index of regional bank and money centers. The Keefe Bank Index is compiled by Keefe, Keefe, Bruyette and Woods, an investment banking firm in New York City that focuses on banking stocks. The banks in this index are weighted according to capitalization. I: The full name of the Keefe index is the KBW Bank Sector Index. This index is a common benchmark in the banking industry and trades on the Philadelphia Stock Exhange. The ticker symbol for this index is BK. The BK has been posted since the firm's inception in 1962.

S&P 600

An index of small-cap stocks managed by Standard and Poor's. The S&P 600 SmallCap Index covers a broad range of small cap stocks in the United States. The index is weighted according to market capitalization and covers about 3-4% of the total market for equities in the United States. I: The S&P 600 is somewhat comparable to the Russell 2000 Index in that both measure the performance of small-cap stocks. Most references to the S&P index are regarding the S&P 500 since its stocks are better knowns. There are several ETFs available for investors who wish to purchase this index.

Nasdaq-100 Pre-Market Indicator

An index of trading activity based on pre-market open prices for the Nasdaq-100. The Nasdaq-100 Pre-Market Indicator (PMI) was developed by nasdaq.com to give traders and investors a big-picture view of market activity based on actual trading data for Nasdaq-100 stocks. The PMI helps investors gauge pre-market trends, based on market reaction to overnight news, and use them to predict opening prices. The PMI uses the same calculation used for the Nasdaq-100 index during regular market hours. It is calculated based on the last sale prices of the Nasdaq-100 stocks during pre-market trading, which takes place from 4 a.m. to 9:30 a.m. EST. I: The Nasdaq-100 comprises the top 100 domestic and international non-financial companies listed on the Nasdaq in terms of market capitalization. Major industry groups on it include computer hardware and software, biotechnology and telecommunications. The Nasdaq-100 includes some of the best-known companies and brands on the planet such as Amazon.com, Apple, Facebook, Gilead Sciences, Google, Intel, Microsoft and Qualcomm. Despite its heavy technology weighting, the index is widely considered to be a good overall market barometer because of the Nasdaq-100 constituents' importance to the U.S. and global economy. The Nasdaq-100 PMI is therefore useful to investors as a leading market action indicator during regular trading hours. It also helps traders assess the likely opening price for a stock and the extent of market support for that price. The Nasdaq-100 PMI is calculated using last sale prices during pre-market trading, but if a Nasdaq-100 security does not trade in the pre-market, the calculation uses the previous day's 4 p.m. close price. The indicator also uses editing logic to filter out bad trades and provide a more accurate reading of market trends. The Nasdaq-100 PMI, together with the Nasdaq-100 After Hours Indicator (AHI), gives investors and traders valuable insights into extended-hours trading trends.

S&P/Case-Shiller U.S. National Home Price Index

An index that measures the change in value of the U.S. residential housing market. The S&P/Chase-Shiller U.S. National Home Price Index tracks the growth in value of real estate by following the purchase price and resale value of homes that have undergone a minimum of two arm's-length transactions. The index is named for its creators, Karl Chase and Robert Shiller. I: The S&P/Case-Shiller U.S. National Home Price Index is a good benchmark to use when comparing growth rates of residential real estate. Individual metropolitan areas can be compared to the index to see if they are outperforming the national average. The index encompasses all nine U.S. census divisions and is released quarterly.

Leading Lipstick Indicator

An indicator based on the theory that a consumer turns to less expensive indulgences, such as lipstick, when she (or he) feels less than confident about the future. Therefore, lipstick sales tend to increase during times of economic uncertainty or a recession. Also known as the "lipstick effect." I: This term was coined by Leonard Lauder (chairman of Estee Lauder), who consistently found that during tough economic times, his lipstick sales went up. Believe it or not, the indicator has been quite a reliable signal of consumer attitudes over the years. For example, in the months following the September 11 terrorist attacks, lipstick sales doubled.

Balassa-Samuelson Effect

Countries with high productivity growth also experience high wage growth, which leads to higher real exchange rates. The Balassa-Samuelson effect suggests that an increase in wages in the tradable goods sector of an emerging economy will also lead to higher wages in the non-tradable (service) sector of the economy. The accompanying increase in inflation makes inflation rates higher in faster growing economies than it is in slow growing, developed economies. The effect was proposed by economists Bela Balassa and Paul Samuelson in 1963. I: The Balassa-Samuelson effect suggests that the optimal inflation rate for developing economies is higher than it is for developed countries. Developing economies grow by becoming more productive and using land, labor and capital more efficiently. This results in wage growth in both the tradable good and non-tradable good components of an economy. People consume more goods and services as their wages increase, which in turn pushes up prices. As emerging economies develop and become more productive they also see increased wages, but they see these increases in both tradable and non-tradable goods sectors of the economy. When wages increase at a slower rate than productivity, countries wind up producing more than they can consume. These countries then have a current-account surplus. When wages grow faster than the productivity rate, workers consumer more goods and the current-account surplus falls. The effect an appreciating real exchange rate has on an emerging economy depends on whether the country has a fixed exchange rate or floating exchange rate. Fixed exchange rate economies will see an increase in overall prices, while floating exchange rates will see increases in the exchange rate.

Gann Angles

Created by W.D. Gann, a method of predicting price movements through the relation of geometric angles in charts depicting time and price. I: The ideal balance between time and price exists when prices move identically to time, which occurs when the Gann angle is at 45 degrees. In total, there are nine different Gann angles that are important for identifying trend lines and market actions. When one of these trend lines is broken, the following angle will provide support or resistance.

Joint Credit

Credit issued to two or more people based on their combined incomes, assets and credit histories. Joint credit can be issued to multiple individuals or organizations. The parties involved accept joint responsibility for repaying the debt. I: Many married couples apply for joint credit. This is especially true with the purchase of a home. Joint credit is an issue and concern in divorce proceedings, under which the terms may give one partner responsibility for certain debts and the other partner responsibility for other debts. It is possible that subsequent to the divorce proceedings, the former partners may still affect one another's credit.

E-Micro Forex Futures

Currency futures contracts traded on CME Globex that are one-tenth the size of standard Forex futures. Currency futures are exchange-traded futures contracts that have currency exchange rates as the underlying commodity. There are standard and E-micro contracts to suit a variety of traders' needs, accounts and risk tolerances. I: The E-micro Forex futures contracts are offered exclusively by the CME Group and traded on CME Globex, an electronic futures trading platform. Unlike Forex, the currency futures market is regulated as a futures market and therefore has centralized pricing and clearing. Available E-micro Forex futures contracts include: ·EUR/USD - euro/US dollar ·USD/JPY - US dollar/Japanese yen ·GBP/USD - British pound/US dollar ·USD/CAD - US dollar/Canadian dollar ·AUD/USD - Australian dollar/US dollar·USD/CHF - US dollar/Swiss franc

Land

Property or real estate, not including buildings or equipment, that does not occur naturally. Depending on the title, land ownership may also give the holder the rights to all natural resources on the land. These may include water, plants, human and animal life, fossils, soil, minerals, electromagnetic features, geographical location, and geophysical occurrences. I: In the traditional school of economics, land is considered a factor of production, along with labor and capital. Selling land results in a capital gain or loss. As opposed to almost any other asset, land is not a depreciable asset under IRS tax laws. Land ownership does not contain or include any permissions to develop the property, as opposed to a 'plot', which is a real property that is slated for development.

Backing Away

Failure by a market maker in a security to honor the quoted bid and ask prices for a minimum quantity. Backing away constitutes a serious violation of industry regulations. NASD Regulation Inc uses an automated market surveillance system to enable the resolution of backing-away complaints in real time. I: Backing away constitutes a breach of SEC Rule 11Ac1-1 or the firm quote rule, which requires a market maker to execute an order presented to it at a price at least as favorable as its published quotation, up to its published quotation size. A potential backing-away complaint has to be brought to the attention of the Market Regulation Department within five minutes of the alleged offense. Otherwise, it may be difficult for department staff to obtain a contemporaneous trade execution from the market maker. NASD Regulation does not pursue immediate disciplinary action for an individual backing-away complaint where a contemporaneous trade execution from the market maker is obtained or offered. However, department staff keep a record of such transgressions, and repeated non-compliance with the firm quote rule could result in disciplinary action.

Farm Income

Farm income refers to profits and losses incurred through the operation of a farm. A farm income statement (sometimes called a farm profit and loss statement) is a summary of income and expenses that occurred during a specified accounting period. This period is usually the calendar year for farmers (January 1 - December 31). I: In U.S. agricultural policy, farm income can be divided as follows:Gross Cash Income: the sum of all receipts from the sale of crops, livestock and farm related goods and services, as well as any direct payments from the government.Gross Farm Income: the same as gross cash income with the addition of non-money income, such as the value of home consumption of self-produced food.Net Cash Income: the gross cash income less all cash expenses, such as for feed, seed, fertilizer, property taxes, interest on debt, wagers, contract labor and rent to non-operator landlords.Net Farm Income: the gross farm income less cash expenses and non-cash expenses, such as capital consumption and farm household expenses.Net Cash Income: a short-term measure of cash flow.

National Housing Act

Federal legislation passed in 1934 to create the Federal Housing Administration (FHA). Its purpose is to make credit more available to lenders for home repairs and construction and to make better housing available to low- and moderate-income families. The National Housing Act also led to the 1937 creation of Fannie Mae, a national mortgage association that provides a secondary mortgage market and further improves the availability of loan money. I: To this day, the FHA plays a major role in making home ownership a possibility for greater numbers of people. For example, it facilitates mortgages with down payments as low as 3.5% instead of the 20% traditionally required by conventional lenders. Its lending guidelines also allow banks to consider an applicant's whole financial picture instead of relying solely on strict guidelines and formulas.

Jakarta Stock Exchange (JKT) .JK

Indonesia's first stock exchange. Founded in 1912 for the interest of the Dutch East India Company, the Jakarta Stock Exchange was closed during parts of World Wars I and II. When it reopened in 1952, the only exchanged security was the Indonesian government bond. The exchange became inactive from 1956-1977, and despite being reactivated in 1977, trading activity continued to be slow, with only 24 companies listed. I: Regulatory changes between 1988 and 1992 improved trading activity. The Exchange introduced its automatic trading system in 1995 and began to implement remote trading in 2002. In 2007, the Jakarta Stock Exchange merged with the Surabaya Stock Exchange to form the Indonesia Stock Exchange.

Hazard Insurance

Insurance that protects a property owner against damage caused by fires, severe storms, earthquakes or other natural events. As long as the specific event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred. Typically, the property owner will be required to pay for a year's worth of premiums at the time of closing, but this will depend on the exact details of the policy. I: A typical property or homeowners' insurance policy usually won't cover all events that could do damage to your property. Some events will definitely be excluded from homeowners' insurance in high-risk areas. For example, Florida is prone to hurricanes and is, therefore, considered high risk. If the homeowner lives in a high-risk area, he or she may need a separate policy - such as a flood insurance policy.

Garage Liability Insurance

Insurance typically purchased by automobile dealerships and repair shops that covers property damage and bodily injury resulting from the operations of an auto garage. It typically does not cover accidents and damage to cars that are brought into the shop, as there is a separate insurance contract for such cases, but it does cover vehicles that are owned by the shop. I: Basically, garage liability insurance provides coverage for the day-to-day operations of a garage. Dealership and repair shop owners should consider incorporating their businesses in order to limit personal liability. Without incorporation, an accident that exceeds the garage liability insurance coverage might wind up costing the owner out-of-pocket money.

Ratio Analysis

Quantitative analysis of information contained in a company's financial statements. Ratio analysis is based on line items in financial statements like the balance sheet, income statement and cash flow statement; the ratios of one item - or a combination of items - to another item or combination are then calculated. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time is studied to check whether they are improving or deteriorating. Ratios are also compared across different companies in the same sector to see how they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental analysis. I: While there are numerous financial ratios, most investors are familiar with a few key ratios, particularly the ones that are relatively easy to calculate. Some of these ratios include the current ratio, return on equity, the debt-equity ratio, the dividend payout ratio and the price/earnings (P/E) ratio. For a specific ratio, most companies have values that fall within a certain range. A company whose ratio falls outside the range may be regarded as grossly undervalued or overvalued, depending on the ratio. For example, if the average P/E ratio of all companies in the S&P 500 index is 20, with the majority of companies having a P/E between 15 and 25, a stock with a single-digit P/E would be considered undervalued, while one with a P/E of 50 would be considered overvalued. Of course, this ratio would typically only be considered as a starting point, with further analysis required to identify if these stocks are really as undervalued or overvalued as the P/E ratios suggest. As well, ratios are usually only comparable across companies in the same sector, since an acceptable ratio in one industry may be regarded as too high in another. For example, companies in sectors such as utilities typically have a high debt-equity ratio, but a similar ratio for a technology company may be regarded as unsustainably high. Ratio analysis can provide an early warning of a potential improvement or deterioration in a company's financial situation or performance. Analysts engage in extensive number-crunching of the financial data in a company's quarterly financial reports for any such hints. Successful companies generally have solid ratios in all areas, and any hints of weakness in one area may spark a significant sell-off in the stock. Certain ratios are closely scrutinized because of their relevance to a certain sector, as for instance inventory turnover for the retail sector and days sales outstanding (DSOs) for technology companies.

Qualification Ratio

Ratio of debt to income and housing expense to income that is used by mortgage lenders to determine a borrower's credit-worthiness for certain loan amounts. Generally, a borrower's debt-to-income ratio, which includes housing expenses plus long-term debt, cannot exceed 36% of the person's monthly gross income. Housing expenses alone, which include home owner's insurance, taxes, condominium fees, homeowner's fees, etc. cannot exceed 28% of a borrower's monthly gross income. I: Mortgage programs are available for borrowers who do not meet the standard qualifying ratios, but the added risk of default by the borrower means that such mortgages generally carry higher interest rates than mortgages where the standard qualifying ratios are met.

Quiet Filing

The name given to an IPO filing where important details are intentionally excluded. Sent to the SEC in order to begin the process of issuing a new security, these details must be submitted through amendments. This form of filing generally takes longer than the conventional methods. I: This type of filing is used when all the details of a new issue are not known. Parties involved in the offering try to ensure that the filings are in place and most of the details correct, reducing the future time spent on paperwork after all the details are ironed out.

Qualified Adoption Expenses - QAE

The necessary costs paid to adopt a child younger than 18 years of age or any disabled person who requires care. Qualified adoption expenses (QAE) are those that the Internal Revenue Service (IRS) defines as reasonable and necessary, including adoption fees, court costs, attorney fees, travel costs and other expenses directly related to the adoption. These fees can be used to claim an adoption credit or exclusion that reduces the adopting parents' taxable income. I: Eligible taxpayers use IRS form 8839 to provide the information required to claim the adoption credit on their federal tax returns. Taxpayers must provide the adopted child's first and last names, year of birth and identifying number. They must also note whether the child has special needs or was foreign born and attach the required adoption documents. The tax credit for QAE phases out for taxpayers whose modified adjusted gross incomes exceed a certain threshold. Taxpayers may not claim the adoption credit for any fees paid or reimbursed by an employer or government program. They also may not claim the credit when adopting a spouse's child.

Badwill

The negative effect felt by a company when shareholders and the investment community find out that is has done something that is not in accordance with good business practices. Although typically not expressed in a dollar amount, badwill can play out in the form of decreased revenue, loss of clients or suppliers, loss of market share and federal indictments for any crimes committed. I: There are several cases in which badwill caused a severe downturn in company stock, such as Tyco, Adelphia, Martha Stewart, Enron and Worldcom. In each new bull market, we are likely to see the same offenses committed by new people. This phenomenon has caused a rise in "socially conscious" investing, where companies promoting badwill are excluded as a matter of policy.

Paradox Of Thrift

The notion that individual savings rather than spending can worsen a recession, or that individual saving is collectively harmful. This idea is generally attributed to John Maynard Keynes, who said that consumer spending contributes to the collective good, because one person's spending is another person's income. Thus, when individuals save rather than spend, they cause collective harm because businesses don't earn as much and have to lay off employees who are then unable to save. Therefore, an increase in individual savings rates is believed to create a flattening or diminishing of the total savings rate. I: It is important to note that the paradox of thrift is a theory, not a fact, and is widely disputed by non-Keynesian economists. One of the main arguments against the paradox of thrift is that when people increase savings in a bank, the bank has more money to lend, which will generally decrease the interest rate and spur lending and spending.

Jobless Claims

The number of people who are filing or have filed to receive unemployment insurance benefits, as reported weekly by the U.S. Department of Labor. There are two categories of jobless claims - initial, which comprises people filing for the first time, and continuing, which consists of unemployed people who have been receiving unemployment benefits for a while. Jobless claims are an important leading indicator on the state of the employment situation and the health of the economy. Average weekly initial jobless claims are one of the 10 components of The Conference Board Leading Economic Index. I: Initial jobless claims, rather than continuing claims, are closely watched by financial market participants, since a sustained increase would indicate rising unemployment and a challenging economic environment. Since initial jobless claims may be volatile from week to week, the four-week moving average of jobless claims is also observed to get a better indication of the underlying trend.

Backward Induction

The process of deducing backwards from the end of a problem or scenario to infer a sequence of optimal actions in game theory. Backward induction starts at the final step in a game, and by anticipating what the last player in a two-player game will do at that point, determines what moves likely lead to it. The results inferred from backward induction often do not hold up in real life. Backward induction was first mentioned by game theory inventors John von Neumann and Oskar Morgenstern in 1944. I: There are several problems associated with the results obtained from backward induction. Firstly, it may not reflect how players in a game actually play, as the actual pattern of play may differ from the pattern deduced by backward induction. Secondly, people who play naively or illogically may actually end up obtaining higher payoffs or utilities than the payoffs predicted by backward induction in well-known game theory games such as Centipede and Traveler's Dilemma. For example, the Centipede Game is an extensive-form game in which two players alternately get a chance to take the larger share of a stash of money from two piles of money (contributed by a third party). Each time the money passes across the table, the quantity doubles. The game concludes as soon as a player takes the stash, with that player getting the larger portion and the other player getting the smaller portion. A total of 99 rounds are played, and if both players always choose to pass (rather than take), they each receive an equal payoff of $50 at the end of the game. Backward induction predicts that the first player will choose to take on the very first move. However, in experimental studies, only a very small percentage of subjects chose to take on the first move, which is intuitively not surprising given the tiny starting payoff when compared with the much larger payoffs as the game progresses.

Managerial Accounting

The process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals. This is also known as "cost accounting." I: The key difference between managerial and financial accounting is that managerial accounting information is aimed at helping managers within the organization make decisions. In contrast, financial accounting is aimed at providing information to parties outside the organization.

Scale In

The process of purchasing shares as the price decreases. To scale in (or scaling in) means to set a target price and then invest in increments as the stock falls below that price. This buying continues until the price stops falling or the intended trade size is reached. Scaling in will, ideally, lower the average purchase price. If the stock does not come back to the target price, however, the investor ends up purchasing a losing stock. I: Scaling in gives an investor the option of buying additional stock as the price drops. For example, if a stock is worth $20 and an investor wants 1,000 shares, he or she can scale in, rather than purchasing all the shares at once. When the price reaches $20, the investor could buy 250 shares right away, then 250 shares at $19.90, 250 at $19.80 and 250 at $19.70. If the stock price stops falling, the investor would stop scaling in. The average purchase price would then be $19.85, rather than $20.

Reassessment

The process of redetermining the value of a parcel of real estate for property tax purposes. A reassessment is done to determine the property tax bills. Property bills are based on both the assessed value of the property and the property tax rates. A reassessment usually causes an increase or decrease in a property owner's tax bill. Different jurisdictions have different processes for assessing real property. Some reassess values once a year, some do it once every two years and others do it only when the property changes owners. Property owners who disagree with the assessed value of their properties can request a reassessment. I: Changes in tax rates, the addition of new taxes and an overall increase or decrease in real estate values because of market conditions can also affect the amount of a property tax bill. In some jurisdictions, the taxable value of a property will be less than its assessed value because of something called a homestead exemption, which provides a minor tax break for owner-occupants.

Backtesting

The process of testing a trading strategy on prior time periods. Instead of applying a strategy for the time period forward, which could take years, a trader can do a simulation of his or her trading strategy on relevant past data in order to gauge the its effectiveness. Most technical-analysis strategies are tested with this approach. I: When you backtest a theory, the results achieved are highly dependent on the movements of the tested period. Backtesting a theory assumes that what happens in the past will happen in the future, and this assumption can cause potential risks for the strategy. For example, say you want to test a strategy based on the notion that Internet IPOs outperform the overall market. If you were to test this strategy during the dotcom boom years in the late 90s, the strategy would outperform the market significantly. However, trying the same strategy after the bubble burst would result in dismal returns. As you'll frequently hear: "past performance does not necessarily guarantee future returns".

Laddering

The promotion of inflated pre-IPO prices for the sake of obtaining a greater allotment of the offering. Laddering is an illegal IPO practice in which the underwriter engages in the sale of IPO shares to clients with the implicit agreement that more shares will be purchased post IPO, leading to big gains for both parties. Once the price increases a certain level, "insiders" then sell their shares and take their profits. I: An underwriter will push up the issue price of an IPO through promotion, in order to please the issuer and secure a larger allotment. By agreeing to allocate additional shares to choice clients, the underwriter and clients can make big gains on the IPO shares, while the firm offering shares in the IPO are happy with the underwriter for creating increased market value.

Obsolescence Risk

The risk that a process, product or technology used or produced by a company for profit will become obsolete, and therefore no longer competitive in the marketplace. Obsolescence risk is most significant for technology-based companies or companies with products or services based on technological advantages. I: Obsolescence risk is a factor for all companies to some degree, and is a necessary side effect of a thriving and innovative economy. This risk comes into play, for example, when a company is deciding how much to invest in a new technology. Will that technology remain superior long enough for the investment to pay off, or will it become obsolete so soon that the company loses money? Obsolescence risk also means that companies wanting to remain competitive and profitable need to be prepared to make large capital expenditures any time a major product, service or factor of production becomes obsolete. This is challenging because it can be difficult to predict obsolescence and to budget accordingly. A publishing company, for example, is an example of one that faces obsolescence risk. As computers, tablets and smart phones have become more popular and affordable, increasing numbers of consumers have begun reading magazines, newspapers and books on these devices instead of in their print forms. For the publishing company to remain competitive, it must minimize its investments in the old paper publications and maximize its investments in new technologies. Even as it makes this shift, it must remain alert to new and unimagined technologies that could supplant the currently popular ways of reading and require still more investment. The stock market "graveyards" are littered with dead companies whose products or technology were rendered obsolete. Examples are the technology companies Control Data and Digital Equipment from Morgan Stanley's 1982 "recommended" list.

Management Risk

The risks associated with ineffective, destructive or underperforming management, which hurts shareholders and the company or fund being managed. This term refers to the risk of the situation in which the company and shareholders would have been better off without the choices made by management. I: Management risk refers to the chance that company managers will put their own interests ahead of the interest of the company and shareholders. An example of this is the recent scandals with Enron, Worldcom and other large companies, whose managers acted in a manner that eventually bankrupted the companies and destroyed shareholder wealth. Management risk also applies to investment managers, whose decisions and actions may divert from the investors' wishes or reduce the value of an investment portfolio.

Mandatory Mortgage Lock

The sale of a mortgage in the secondary mortgage market with terms that require the seller of the mortgage to make delivery to the buyer by a certain date or pair-out of the trade. The requirement to make delivery of the mortgage or pair-out of the trade makes a mandatory mortgage lock different from a best-efforts mortgage lock. A mandatory mortgage lock also carries more risk for the seller of the mortgage. I: Mandatory mortgage locks or trades generally command a higher price in the secondary mortgage market than best-efforts locks. This is because there are fewer hedge costs associated with mandatory mortgage locks.

Babcock Graduate School of Management

The school of business at Wake Forest University. It has an enrollment of approximately 500 students. The Babcock Graduate School of Management offers graduate degree programs in a variety of business disciplines, and has centers devoted to entrepreneurship and family-run businesses. I: Located in Winston-Salem, North Carolina, the Babcock Graduate School of Management was established in 1969. In 2009, the business school was ranked 34th out of 75 schools according to Forbes.

Manderson Graduate School of Business

The school of business at the University of Alabama. The Manderson Graduate School of Business offers undergraduate, graduate and doctoral programs in a variety of business disciplines, including accounting, economics, finance, management, marketing, information sciences, operations management and statistics. I: Located in Tuscaloosa, Alabama, the Manderson Graduate School of Business was established in 1943. In 2007, The Manderson MBA program was ranked in the top 10 in several categories, according to The Princeton Review.

Job Footprint

The scope and range of an employee's duties while under a company's employ. A secretary's job footprint might include answering phones, greeting visitors, scheduling meetings and appointments and typing up documents. If she were promoted to office manager, her job footprint might change or expand to include ordering office supplies and equipment, managing office recordkeeping and filing systems and overseeing all administrative support staff. I: Employees generally expect that, as their job footprint increases, their pay and/or benefits will increase to compensate them for the additional work. One feature of the 2008-2009 recession was that employees who kept their jobs saw their job footprints increase as they took over the responsibilities of laid off workers, but they did not receive any, or very little, increase in pay or benefits.

Quantitative Easing 2 - QE2

The second round of the Federal Reserve's monetary policy used to stimulate the U.S. economy following the recession that began in 2007/08. QE2 was initiated in the fourth quarter of 2010 in order to jump-start the sluggish economic recovery. The Federal Reserve announced plans to buy $600 billion in long-term Treasuries, in addition to the reinvestment of an additional $250 billion to $300 billion in Treasuries from earlier proceeds from mortgage-backed securities. This, in theory, would push yields on Treasuries and bonds down, creating a surge in investment and consumption expenditures. I: Quantitative easing was intended to stimulate an economy through a central bank's purchase of government bonds or other financial assets. Often, central banks use quantitative easing when interest rates are already zero bound, or at near 0% levels. This type of monetary policy increases the money supply and typically raises the risk of inflation. Quantitative easing is not specific to the U.S., however, and is used in a variety of forms by other major central banks.

Call Loan Rate

The short term interest rate charged by banks on loans extended to broker-dealers. A call loan rate is an interest charged on loans made to broker-dealers who use the funds to make margin loans to their margin account clients. These loans are payable by the broker-dealer on call (i.e. on demand or immediately) upon receiving such request from the lending institution. The call loan rate forms the basis upon which margin loans are priced. The call loan rate can fluctuate daily in response to factors such as market interest rates, funds' supply and demand, and economic conditions. The rate is published in daily publications including the Wall Street Journal and Investor's Business Daily (IBD). Also called broker's call. I: A call loan is a loan given to a broker-dealer that is used to finance client margin accounts. The interest rate on a call loan is calculated daily; this rate is known as the call loan rate, or broker's call. A margin account is a type of brokerage account in which the broker lends the client cash that is used to purchase securities. The loan is collateralized by the securities held in the account, and by cash that the margin account holder is required to have deposited. A margin account enables investors to use leverage; that is, they are able to trade larger positions than they would otherwise be able to. While this has the potential to magnify profits, trading on margin can also result in magnified losses. Clients must be approved for margin accounts and are required to make a minimum initial deposit, known as the minimum margin, in the account. Once the account is approved and funded, investors can borrow up to 50% of the purchase price of the transaction. If the account value falls below a stated minimum (known as the maintenance margin), the broker will require the account holder to deposit more funds or liquidate position(s) to pay down the loan.

Key Rate

The specific interest rate that determines bank lending rates and the cost of credit for borrowers. The two key interest rates in the United States are the discount rate and the Federal Funds rate. I: The key rates are one of the chief tools used by the Federal Reserve system to implement monetary policy. When the Fed wants to expand the money supply, it will typically lower one or both key rates in order to decrease the cost of borrowing. When the Fed is in a contractionary phase, it will raise the rates to increase the cost of borrowing.

Rate Of Change

The speed at which a variable changes over a specific period of time. Rate of change is often used when speaking about momentum, and it can generally be expressed as a ratio between a change in one variable relative to a corresponding change in another. Graphically, the rate of change is represented by the slope of a line. I: Rate of change is often illustrated by the Greek letter delta. Many traders pay close attention to the speed at which one variable changes relative to another. For example, option traders study the relationship between the rate of change in the price of an option relative to a small change in the price of the underlying asset, known as an options delta.

1040 Form

The standard Internal Revenue Service (IRS) form that individuals use to file their annual income tax returns. The form contains sections that require taxpayers to disclose their financial income status for the year in order to ascertain whether additional taxes are owed or whether the taxpayer is due for a tax refund. 1040 forms need to be filed with the IRS by April 15. Also known as the "U.S. individual income tax return" or the "long form". I: While the 1040 form is composed of only a couple of pages, taxpayers may need to fill out extra sections called schedules. For example, if a taxpayer received dividends that totaled more than $1,500, he or she will need to fill out Schedule B, which is the section for reporting interest and ordinary dividends. There are several variations of the 1040 depending on your individual tax situation. For example, taxpayers that possess very simple taxation circumstances can fill out the Form 1040EZ, which is a less comprehensive form.

Illiquid

The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Illiquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset. The lack of ready buyers also leads to larger discrepancies between the asking price (from the seller) and the bidding price (from a buyer) than would be found in an orderly market with daily trading activity. I: Some examples of inherently illiquid assets include houses, cars, antiques, private company interests and some types of debt instruments. On the other end of the spectrum, most listed securities traded at major exchanges, such as stocks, funds, bonds and commodities are very liquid, and can be sold instantaneously during regular market hours at fair market price. Illiquid securities carry higher risks than liquid ones; this becomes especially true during times of market turmoil when the ratio of buyers to sellers may be thrown out of balance. During these times, holders of illiquid securities may find themselves unable to unload them at all, or unable to do so without losing a lot of money.

Accelerative Endowment

An option in a whole life insurance policy to use accumulated dividends to convert the policy into an endowment policy prior to its normal maturity date. An endowment policy provides for a lump sum payment to the insured after a certain period. I: An accelerative endowment is a form of an accelerated option that allows policyholders to access the value of their life insurance policies prior to death. The lump sum received can be invested any way you want or it can be used to buy an annuity policy to generate some fixed income.

Absorbed

1. In a general business sense, when a cost is treated as an expense instead of being passed on to the customer in the form of higher prices. 2. In underwriting, when an issue has been completely sold to the public. However, the underwriter may absorb (purchase) any shares it is unable to sell in the IPO in order to support the company's share price. 3. In mergers, when an acquired firm is folded into the acquiring company. The acquired firm is said to have been "absorbed" and the acquiring firm is called the "absorbing firm." This type of merger is called an "absorption." I: 1. For example, if a peanut butter company's cost for peanuts increases from 50 cents per jar to $1.00 per jar but the company keeps the cost of one jar at $3 instead of raising it to $3.50, it has absorbed the increase in peanut prices. 2. There are several basic types of agreements underwriters can make to sell the issuing company's stock. In a best efforts agreement, the underwriter is not responsible for any unsold shares and they revert to the issuer. In a bought deal, the underwriter agrees to buy all the shares and must resell them to recoup its investment. In a standby agreement, the underwriter specifically agrees to absorb any unsold shares. 3. An alternative to absorption is the creation of a new company. These different choices have different tax implications for both the company and its shareholders.

Above Water

1. Refers to the condition of a company's asset when its actual value is higher than the book value used in its financials. 2. Financially referring to a person staying out of economic trouble or a company remaining financially viable. I: 1. Generally, the book value of an asset listed in a company's balance sheet cannot be adjusted according to Generally Accepted Accounting Principles (GAAP). Should the asset appreciate, its market value would be "above water". A company with above water assets tends to attract value investors. This is because of the hidden value that most investors won't discover if they don't look beyond the financials. For example, if a company purchased a piece of land for $100,000 and the company later discovered an oil reserve on the property, the market value of the land would increase and be above water, because the book value would remain at $100,000. 2. Used in the context of "keeping their head above water" symbolizing the ability to stay alive. For example, company XYZ kept its head above water with an increase in profit even though its revenue dropped.

Accelerated Death Benefit - ADB

A benefit that can be attached to a life insurance policy that enables the policy holder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness. Many individuals who choose the accelerated death benefit have less than one year to live and use the money for treatments and other costs needed to stay alive. I: Choosing an insurance policy with an accelerated death benefit allows the policy holder to pay for their daily living in an effort to make it the most comfortable while also allowing the holder to look after his or her family once they pass away. This type of benefit was originally started in the late 1980s in an attempt to alleviate the financial pressures of those that were diagnosed with AIDS.Some policies might have this option available even though it's not mentioned in the contract.

Absolute Value

A business valuation method that uses discounted cash flow analysis to determine a company's financial worth. The absolute value method differs from the relative value models that examine what a company is worth compared to its competitors. Absolute value models try to determine a company's intrinsic worth based on its projected cash flows. I: In addition to looking at ratios such as price to earnings and price to book value, value investors like to calculate what an entire business is worth when they are considering whether to buy a particular stock. Discounted cash flow models are one way to determine this worth. They estimate a company's future free cash flows, then discount that value to the present to determine an absolute value for the company. By comparing what a company's share price should be given its absolute value to the price the stock is actually trading it, investors can determine if a stock is currently under or overvalued.

Abandonment Option

A clause granting parties the option of withdrawing from the contract before the fulfillment or completion of all contractual duties. This clause adds value by giving the parties the ability to end the obligation if it is unprofitable. A type of "real option". I: Abandonment options are commonly used in bilateral agreements without a set time frame for expiry. Usually, one party may decide to exit from the relationship without penalty. An abandonment option often appears in contracts between financial planners and their clients.

Abandonment Clause

A clause in a property insurance contract that, under certain circumstances, permits the property owner to abandon lost or damaged property and still claim a full settlement amount. If the insured party's property cannot be recovered, or the cost to recover or repair it is more than its total value, it can be abandoned and the insured party is entitled to a full settlement amount. I: This type of insurance clause typically comes into play with marine property insurance, such as boats or watercraft. If a property owner's ship is sunk or lost at sea, the abandonment clause affords the owner the right to essentially "give up" on finding or recovering his or her property and subsequently collect a full insurance settlement from the insurer.

Absorption Costing

A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption costing uses the total direct costs and overhead costs associated with manufacturing a product as the cost base. Generally accepted accounting principles (GAAP) require absorption costing for external reporting.Absorption costing is also known as "full absorption costing". I: Some of the direct costs associated with manufacturing a product include wages for workers physically manufacturing a product, the raw materials used in producing a product, and all of the overhead costs, such as all utility costs, used in producing a good. Absorption costing includes anything that is a direct cost in producing a good as the cost base. This is contrasted with variable costing, in which fixed manufacturing costs are not absorbed by the product. Advocates promote absorption costing because fixed manufacturing costs provide future benefits.

Acceptance

A contractual agreement on a time draft or sight draft to pay the amount due at a specified date. The party who is expected to pay the draft writes "accepted", or similar wording indicating acceptance, next to his or her signature along with the date. This person then becomes the acceptor, and is obligated to make the payment by the maturity date.A banker's acceptance is a time draft honored by a bank, and is typically used in international trade. A trade acceptance is a time draft drawn by the seller of goods on a buyer. In a trade acceptance, the buyer is the acceptor. I: An acceptance agreement strengthens a time draft by putting the acceptor under contractual obligation to pay. International trade is facilitated by banks enacting banker's acceptances, thereby guaranteeing the payment for goods.

AC-DC Option

A derivative that gives an investor the right - but not the obligation - to buy (call) or sell (put) a security at a certain price (strike), and in which the investor makes the buy or sell decision at a specific time after the option is in force, rather than at the time of purchase. The AC-DC option is basically an option, which on a future date can become a call or put option at the buyer's discretion. Also called a "chooser option" or "hermaphrodite option". I: The value of an AC-DC option is based on a complex formula that takes all of these variables into account. An AC-DC option is a type of exotic option, meaning it has more complicated terms than traditional, plain-vanilla options.

ABX index

A financial benchmark that measures the overall value of mortgages made to borrowers with subprime or weak credit. The ABX index uses credit default swap contracts to come up with an overall value and is made up of 20 bonds that is comprised of groups of subprime mortgages. Using this index, financial institutions are able to determine if the market for these securities are improving or worsening. Also referred to as Asset-Backed Securities Index. I: For example, if the ADX Index increases, this means there is less risk with subprime mortgages and vice versa. It was created by Markit and is useful for investors interested in subprime mortgages. Subprime mortgages being mortgages given to customers with faulty or weak credit.

Accelerated Bookbuild

A form of offering in the equity capital markets. It involves offering shares in a short time period, with little to no marketing. The bookbuild of the offering is done vey quickly in one or two days. Underwriters may sometimes guarantee a minimum price and proceeds to the firm. I: An accelerated bookbuild is often used when a company is in immediate need of financing and debt financing is out of the question. This can be the case when a firm is looking to make an offer to acquire another firm. For example, BetandWin.com used an accelerated bookbuild to raise between 200 and 300 million euros to help fund the acquisition of Ongame E-Solutions, the operator of pokerroom.com, one of the most popular poker websites.

Accelerated Vesting

A form of vesting that takes place at a faster rate than the initial vesting schedule in a company's stock option plan. This allows the option holder to receive the monetary benefit from the option much sooner. If a company decides to undertake accelerated vesting, then it may expense the costs associated with the stock options sooner. I: Prior to the adoption of FAS-123(R), U.S. companies were not required to account for stock option compensation paid to employees and executives. As a result of FAS-123(R), companies were required to account for stock option expenses, which amounted to a large expense for many companies. By adopting an accelerated vesting program, companies can expense their vesting costs over a longer period of time, which makes their future incomes higher than they would be if the options were vested on schedule.

Abu Dhabi Investment Authority - ADIA

A government-owned investment organization that manages the sovereign wealth fund for Abu Dhabi, United Arab Emirates. According to the Sovereign Wealth Fund Institute's rankings, the ADIA sovereign wealth fund ranked as the largest in the world in 2010. It is also one of the world's largest institutional investors. I: The huge amount of wealth managed by the ADIA is sourced primarily from Abu Dhabi's large oil reserves. The ADIA prefers to remain secretive, so not a great deal is known about its investment methodology or portfolio of holdings.

Above Full-Employment Equilibrium

A macroeconomic term used to describe the real gross domestic product (GDP) is currently in excess of its long-run average, or some other historical measure. Accordingly, the amount that the current real GDP is greater then the historic average is called an inflationary gap, as this will create inflationary pressures in this particular economy. I: Above full-employment equilibrium simply means that a given economy is producing goods, as measured by its GDP, at a higher level then it usually does. Because this market is in equilibrium, there will not be any excess supply in the short run, but this overly active economy will create more demand for goods and services, which will push prices upwards and possibly, lead to a greater level of inflation.

Accelerator Theory

An economic theory that suggests that as demand or income increases in an economy, so does the investment made by firms. Furthermore, accelerator theory suggests that when demand levels result in an excess in demand, firms have two choices of how to meet demand. Raise prices to cause demand to drop. Increase investment to match demand. The accelerator theory proposes that most companies choose to increase production thus increase their profits. The theory further explains how this growth attracts more investors, which accelerates growth. I: The accelerator theory was developed early in the twentieth century by Thomas Nixon Carver and Albert Aftalion, among others. Although this theory was conceived before Keynesian economics, it emerged just as the Keynesian theory came to dominate the economic mindset of the twentieth century. Critics argue that accelerator theory should not be used because it eliminates the possibility of controlling demand through price controls. However, empirical research on the accelerator theory has supported its use. The accelerator theory is interpreted to create economic policies. For example, would it be better to use tax cuts to create more disposable income for consumers who would then demand more products, or would it be faster to give those cuts to business, which will then be able to use more capital for growth? Every government and their economists create their own interpretation of accelerator theory and the questions it can be used to answer.

Accelerated Reply Mail - ARM

An expedited delivery of business reply mail offered by the U.S. Postal Service. Reply mail may be routed to a postal facility other than the one to which the mail is addressed, and is available for pickup by the ARM customer, or reshipped by express mail to the customer. The ARM service is generally used to receive orders and payments faster, thus reducing order-processing times and enabling more efficient cash management. I: Since there are costs involved in using the ARM service, it only becomes economical above certain thresholds for reply mail volumes. While the ARM service may not offer an attractive payoff for small businesses, it may be a necessary cost of doing business for larger companies. For such companies, faster receipt of receivables improves cash flow, thereby providing a return on investment that may be an order of magnitude higher than the cost of the service.

Abandonment And Salvage

An expression that describes the forfeiture of property and the ensuing claim over that property by a second party. Abandonment and salvage can be added as a clause in an insurance contract; this gives the insurance company the ability to accept the abandoned property. Abandonment must be expressed with intent. The potential financial rewards mean that salvage rights are sometimes legally contested by several parties. I: Salvage and abandonment clauses are usually found in marine insurance contracts. For example, if a vessel sinks and the owner thinks it would be too expensive to reclaim the ship, he or she could declare it abandoned. The insurance company could then claim ownership and salvage rights to the sunken ship. Advancements in technology have made it possible and financially viable to reach previously inaccessible wrecks, resulting in increased salvage claims.

Absentee Landlord

An individual or entity that rents or leases real estate to another party, but does not reside on the premises. An absentee landlord could be anyone from a local investor to an overseas conglomerate. Regardless of the size of their operations, absentee landlords generally seek to generate rental income from their holdings. Absentee landlords with substantial holdings usually employ management companies to maintain their properties and collect rental payments. I: Absentee landlords are the norm, rather than the exception, for commercial properties. The term "landlord" may indicate that the individual or entity's real estate holdings are likely to be sizable. An absentee landlord may also have a long-term perspective with regard to real estate investments, with ongoing rental income rather than capital appreciation being the primary investment objective.

Absentee Owner

An individual who owns a piece of real estate but does not live in it. An absentee owner may also be an entity such as a corporation or real estate investment trust (REIT). The real estate held by an absentee owner can range widely - while an individual may own a single condominium or apartment, a corporation may own a large chunk of real estate such as an apartment building or shopping mall. The primary motivation of absentee owners is to generate returns from their real estate holdings in the form of rental income and potential capital appreciation. I: The proportion of absentee owners in the population at large is directly correlated to the degree of real estate speculation prevalent in the economy. A strong property market and economy coupled with relatively low interest rates may result in a higher proportion of absentee owners, while a sluggish market and economy may limit the number of absentee owners.

Ability To Repay

An individual's financial capacity to make good on a debt. Specifically, the phrase "ability to repay" was used in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act in Title XIV, the Mortgage Reform and Anti-Predatory Lending Act, to describe the requirement that mortgage originators substantiate that potential borrowers can afford the mortgage they are applying for. Originators are required to look at a borrower's total current income and existing debt, for example, to make sure that the existing debt plus the potential mortgage debt, property taxes and required insurance do not exceed a stated percentage of the borrower's income. I: The purpose of this legislation and the "ability to repay" standard was to prevent lenders from employing the same loose lending criteria used during the housing bubble of the mid-2000s, in which many people were allowed to take out mortgages they couldn't really afford, then lost their homes to foreclosure a few years later. Under the new laws, individuals who are not properly subjected to the ability to repay standard during the origination process may have a defense against foreclosure.

Abusive Tax Shelter

An investment scheme that claims to reduce income tax without changing the value of the user's income or assets. Abusive tax shelters serve no economic purpose other than lowering the federal or state tax owed when filing. Often, these schemes channel funds through trusts or partnerships to avoid taxation. I: People who invest in abusive tax shelters can be penalized by the Internal Revenue Service (IRS). Typically, when the IRS determines someone has used such a scheme, the person will owe back taxes with accrued interest. To help taxpayers recognize potential schemes, the IRS has compiled a list of transactions that are abusive tax shelters. If a tax shelter resembles a listed transaction, it is considered abusive and the users may face penalties.

A Priori Probability

Probability calculated by logically examining existing information. A priori probability can most easily be described as making a conclusion based upon deductive reasoning rather than research or calculation. The largest drawback to this method of defining probabilities is that it can only be applied to a finite set of events. I: Priori probabilities are most often used within the deduction method of calculating probability. This is because you must use logic to determine what outcomes of an event are possible in order to determine the number of ways these outcomes can occur. For example, consider how the price of a share can change. Its price can increase, decrease or remain the same. Therefore, according to a priori probability, we can assume that there is a 1-in-3, or 33%, chance of one of the outcomes occurring (all else remaining equal).

A-Shares

Shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system. I: Most companies listed on Chinese exchanges will offer two shares classes: A-shares and B-shares. B-shares are quoted in foreign currencies (such as the U.S. dollar) and are open to both domestic and foreign investment (provided that locals set up a foreign currency account), while A-shares are only quoted in Chinese renminbi. A-shares experienced explosive growth in the 2005-2007 period as restrictions preventing investment by Chinese citizens slowly began to peel away. In fact, demand was so high for A-shares that they would trade for much higher valuations than what the same stock could be purchased for on a different exchange. The Peoples' Republic of China is working to blend the two classes of stock together, and eventually allow direct foreign investment in mainland companies. It is one of many major financial reforms that the advanced economies of the world hope will occur in the next several years; there is a tremendous amount of pent-up demand for Chinese equity, provided that regulations become uniform and reporting requirements are in-line with global standards.

Ability-To-Pay Taxation

Taxation in the form of a progressive tax. The ability-to-pay principle in taxation maintains that taxes should be levied according a taxpayer's ability to pay. This progressive taxation approach places an increased tax burden on individuals, partnerships, companies, corporations, trusts and certain estates with higher incomes. The theory is that individuals who earn more money can afford to pay more in taxes. I: Ability-to-pay taxation requires that higher earning individuals pay a higher percentage of income towards taxes. The tax rate increases as a percentage along with income. For example, in the United States in 2010, a tax rate of 10% applied to incomes between $0 - $8,375; the tax rate increased incrementally up to 35% for those whose incomes were $373,651 or greater (these figures are based on single filers). Critics of ability-to-pay taxation state that the progressive tax reduces the incentive to earn more money, and penalizes those whose hard work and ingenuity have helped them earn higher incomes.

Absolute Advantage

The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. Entities with absolute advantages can produce a product or service using a smaller number of inputs and/or using a more efficient process than another party producing the same product or service. I: Here are some examples of how absolute advantage works: -The United States produces 700 million gallons of wine per year, while Italy produces 4 billion gallons of wine per year. Italy has an absolute advantage because it produces many more gallons of wine (the output) in the same amount of time (the input) as the United States. -Jane can knit a sweater in 10 hours, while Kate can knit a sweater in 8 hours. Kate has an absolute advantage over Jane, because it takes her fewer hours (the input) to produce a sweater (the output). An entity can have an absolute advantage in more than one good or service. Absolute advantage also explains why it makes sense for countries, individuals and businesses to trade with one another. Because each has advantages in producing certain products and services, they can both benefit from trade. For example, if Jane can produce a painting in 5 hours while Kate needs 9 hours to produce a comparable painting, Jane has an absolute advantage over Kate in painting. Remember Kate has an absolute advantage over Jane in knitting sweaters. If both Jane and Kate specialize in the products they have an absolute advantage in and buy the products they don't have an absolute advantage in from the other entity, they will both be better off.

Absolute Return

The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a mutual fund - achieves over a given period of time. Absolute return differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark. I: In general, a mutual fund seeks to produce returns that are better that its peers, its fund category, and/or the market as a whole. This type of fund management is referred to as a relative return approach to fund investing. As an investment vehicle, an absolute return fund seeks to make positive returns by employing investment management techniques that differ from traditional mutual funds. Absolute return investment techniques include using short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets.Alfred Winslow Jones is credited with forming the first absolute return fund in New York in 1949. In recent years, this so-called absolute return approach to fund investing has become one of the fastest growing investment products in the world and is more commonly referred to as a hedge fund.

Abandonment Value