·
Accrued
interest: Interest due from
issue date or from the last coupon payment date to the settlement date. Accrued
interest on bonds must be added to their purchase price.
·
Arbitrage: Buying a financial instrument in one market
in order to sell the same instrument at a higher price in another market.
·
Ask
Price: The lowest price at
which a dealer is willing to sell a given security.
·
Asset-Backed
Securities (ABS): A type of security
that is backed by a pool of bank loans, leases, and other assets. Most ABS are
backed by auto loans and credit cards – these issues are very similar to
mortgage-backed securities.
·
At-the-money: The exercise price of a derivative that is
closest to the market price of the underlying instrument.
·
Basis
Point: One hundredth of 1%.
A measure normally used in the statement of interest rate e.g., a change from
5.75% to 5.81% is a change of 6 basis points.
·
Bear
Markets: Unfavorable markets
associated with falling prices and investor pessimism.
·
Bid-ask
Spread: The difference
between a dealer’s bid and ask price.
·
Bid
Price: The highest price
offered by a dealer to purchase a given security.
·
Blue
Chips: Blue chips are unsurpassed
in quality and have a long and stable record of earnings and dividends. They
are issued by large and well-established firms that have impeccable financial
credentials.
·
Bond: Publicly traded long-term debt securities,
issued by corporations and governments, whereby the issuer agrees to pay a
fixed amount of interest over a specified period of time and to repay a fixed
amount of principal at maturity.
·
Book
Value: The amount of
stockholders’ equity in a firm equals the amount of the firm’s assets minus the
firm’s liabilities and preferred stock
·
Broker: Individuals licensed by stock exchanges to
enable investors to buy and sell securities.
·
Brokerage
Fee: The commission
charged by a broker.
·
Bull
Markets: Favorable markets
associated with rising prices and investor optimism.
·
Call
Option: The right to buy the
underlying securities at a specified exercise price on or before a specified
expiration date.
·
Callable
Bonds: Bonds that give the
issuer the right to redeem the bonds before their stated maturity.
·
Capital
Gain: The amount by which
the proceeds from the sale of a capital asset exceed its original purchase
price.
·
Capital
Markets: The market in which
long-term securities such as stocks and bonds are bought and sold.
·
Certificate
of Deposits (CDs): Savings instrument
in which funds must remain on deposit for a specified period, and premature
withdrawals incur interest penalties.
·
Closed-end
(Mutual) Fund: A fund with a fixed
number of shares issued, and all trading is done between investors in the open
market. The share prices are determined by market prices instead of their net
asset value.
·
Collateral: A specific asset pledged against possible
default on a bond. Mortgage bonds are backed by claims on property. Collateral
trusts bonds are backed by claims on other securities. Equipment obligation
bonds are backed by claims on equipment.
·
Commercial
Paper: Short-term and
unsecured promissory notes issued by corporations with very high credit
standings.
·
Common
Stock: Equity investment
representing ownership in a corporation; each share represents a fractional
ownership interest in the firm.
·
Compound
Interest: Interest paid not
only on the initial deposit but also on any interest accumulated from one
period to the next.
·
Contract
Note: A note which must
accompany every security transaction which contains information such as the
dealer’s name (whether he is acting as principal or agent) and the date of
contract.
·
Controlling
Shareholder: Any person who is,
or group of persons who together are, entitled to exercise or control the
exercise of a certain amount of shares in a company at a level (which
differs by jurisdiction) that triggers a mandatory general offer, or more of
the voting power at general meetings of the issuer, or who is or are in a
position to control the composition of a majority of the board of directors of
the issuer.
·
Convertible
Bond: A bond with an
option, allowing the bondholder to exchange the bond for a specified number of
shares of common stock in the firm. A conversion price is the specified value
of the shares for which the bond may be exchanged. The conversion premium is
the excess of the bond’s value over the conversion price.
·
Corporate
Bond: Long-term debt
issued by private corporations.
·
Coupon: The feature on a bond that defines the
amount of annual interest income.
·
Coupon
Frequency: The number of coupon
payments per year.
·
Coupon
Rate: The annual rate of
interest on the bond’s face value that a bond’s issuer promises to pay the
bondholder. It is the bond’s interest payment per dollar of par value.
·
Covered
Warrants: Derivative call
warrants on shares which have been separately deposited by the issuer so that
they are available for delivery upon exercise.
·
Credit
Rating: An assessment of the
likelihood of an individual or business being able to meet its financial
obligations. Credit ratings are provided by credit agencies or rating agencies
to verify the financial strength of the issuer for investors.
·
Currency
Board: A monetary system in
which the monetary base is fully backed by foreign reserves. Any changes in the
size of the monetary base has to be fully matched by corresponding changes in
the foreign reserves.
·
Current
Yield: A return measure
that indicates the amount of current income a bond provides relative to its
market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.
·
Custody
of Securities: Registration of
securities in the name of the person to whom a bank is accountable,
or in the name of the bank’s nominee; plus deposition of securities in a
designated account with the bank’s bankers or with any other institution
providing custodial services.
·
Default
Risk: The possibility that
a bond issuer will default ie, fail to repay principal and interest in a timely
manner.
·
Derivative
Call (Put) Warrants: Warrants issued by a
third party which grant the holder the right to buy (sell) the shares of a
listed company at a specified price.
·
Derivative
Instrument: Financial instrument
whose value depends on the value of another asset.
·
Discount
Bond: A bond selling below
par, as interest in-lieu to the bondholders.
·
Diversification: The inclusion of a number of different
investment vehicles in a portfolio in order to increase returns or be exposed
to less risk.
·
Duration: A measure of bond price volatility, it
captures both price and reinvestment risks to indicate how a bond will react to
different interest rate environments.
·
Earnings: The total profits of a company after
taxation and interest.
·
Earnings
per Share (EPS): The amount of annual
earnings available to common stockholders as stated on a per share basis.
·
Earnings
Yield: The ratio of
earnings to price (E/P). The reciprocal is price earnings ratio (P/E).
·
Equity: Ownership of the company in the form of
shares of common stock.
·
Equity
Call Warrants: Warrants issued by a
company which give the holder the right to acquire new shares in that company
at a specified price and for a specified period of time.
·
Ex-dividend
(XD): A security which no
longer carries the right to the most recently declared dividend or the period
of time between the announcement of the dividend and the payment (usually two
days before the record date). For transactions during the ex-dividend period,
the seller will receive the dividend, not the buyer. Ex-dividend status is
usually indicated in newspapers with an (x) next to the stock’s or unit trust’s
name.
·
Face
Value/ Nominal Value: The value of a
financial instrument as stated on the instrument. Interest is calculated on
face/nominal value.
·
Fixed-income
Securities: Investment vehicles
that offer a fixed periodic return.
·
Fixed
Rate Bonds: Bonds bearing fixed
interest payments until maturity date.
·
Floating
Rate Bonds: Bonds bearing
interest payments that are tied to current interest rates.
·
Fundamental
Analysis: Research to predict
stock value that focuses on such determinants as earnings and dividends
prospects, expectations for future interest rates and risk evaluation of the
firm.
·
Future
Value: The amount to which
a current deposit will grow over a period of time when it is placed in an
account paying compound interest.
·
Future
Value of an Annuity: The amount to which
a stream of equal cash flows that occur in equal intervals will grow over a
period of time when it is placed in an account paying compound interest.
·
Futures
Contract: A commitment to
deliver a certain amount of some specified item at some specified date in the
future.
·
Hedge: A combination of two or more securities into
a single investment position for the purpose of reducing or eliminating risk.
·
Income: The amount of money an individual receives
in a particular time period.
·
Index
Fund: A mutual fund that
holds shares in proportion to their representation in a market index, such
as the S&P 500.
·
Initial
Public Offering (IPO): An event where a
company sells its shares to the public for the first time. The company can be
referred to as an IPO for a period of time after the event.
·
Inside
Information: Non-public knowledge
about a company possessed by its officers, major owners, or other individuals
with privileged access to information.
·
Insider
Trading: The illegal use of
non-public information about a company to make profitable securities
transactions
·
Intrinsic
Value: The difference of
the exercise price over the market price of the underlying asset.
·
Investment: A vehicle for funds expected to increase its
value and/or generate positive returns.
·
Investment
Adviser: A person who carries
on a business which provides investment advice with respect to securities and
is registered with the relevant regulator as an investment adviser.
·
IPO
price: The price of share
set before being traded on the stock exchange. Once the company has gone
Initial Public Offering, the stock price is determined by supply and demand.
·
Junk
Bond: High-risk securities
that have received low ratings (i.e. Standard & Poor’s BBB rating or below;
or Moody’s BBB rating or below) and as such, produce high yields, so long as
they do not go into default.
·
Leverage
Ratio: Financial ratios
that measure the amount of debt being used to support operations and the
ability of the firm to service its debt.
·
Libor: The London Interbank Offered Rate (or LIBOR)
is a daily reference rate based on the interest rates at which banks offer to
lend unsecured funds to other banks in the London wholesale money market (or
interbank market). The LIBOR rate is published daily by the British Banker’s
Association and will be slightly higher than the London Interbank Bid Rate
(LIBID), the rate at which banks are prepared to accept deposits.
·
Limit
Order: An order to buy
(sell) securities which specifies the highest (lowest) price at which the order
is to be transacted.
·
Limited
Company: The passive
investors in a partnership, who supply most of the capital and have liability
limited to the amount of their capital contributions.
·
Liquidity: The ability to convert an investment into
cash quickly and with little or no loss in value.
·
Listing: Quotation of the Initial Public Offering
company’s shares on the stock exchange for public trading.
·
Listing
Date: The date on which
Initial Public Offering stocks are first traded on the stock exchange by the
public
·
Margin
Call: A notice to a client
that it must provide money to satisfy a minimum margin requirement set by an
Exchange or by a bank / broking firm.
·
Market
Capitalization: The product of the
number of the company’s outstanding ordinary shares and the market price of
each share.
·
Market
Maker: A dealer who
maintains an inventory in one or more stocks and undertakes to make continuous
two-sided quotes.
·
Market
Order: An order to buy or
an order to sell securities which is to be executed at the prevailing market
price.
·
Money
Market: Market in which
short-term securities are bought and sold.
·
Mutual
Fund: A company that
invests in and professionally manages a diversified portfolio of securities and
sells shares of the portfolio to investors.
·
Net
Asset Value: The underlying value
of a share of stock in a particular mutual fund; also used with preferred
stock.
·
Offer
for Sale: An offer to the
public by, or on behalf of, the holders of securities already in issue.
·
Offer
for Subscription: The offer of new securities
to the public by the issuer or by someone on behalf of the issuer.
·
Open-end
(Mutual) Fund: There is no limit to
the number of shares the fund can issue. The fund issues new shares of stock
and fills the purchase order with those new shares. Investors buy their shares
from, and sell them back to, the mutual fund itself. The share prices are
determined by their net asset value.
·
Open
Offer: An offer to current
holders of securities to subscribe for securities whether or not in proportion
to their existing holdings.
·
Option: A security that gives the holder the right
to buy or sell a certain amount of an underlying financial asset at a specified
price for a specified period of time.
·
Oversubscribed: When an Initial Public Offering has more
applications than actual shares available. Investors will often apply for more
shares than required in anticipation of only receiving a fraction of the
requested number. Investors and underwriters will often look to see if an IPO
is oversubscribed as an indication of the public’s perception of the business
potential of the IPO company.
·
Par
Bond: A bond selling at
par (i.e. at its face value).
·
Par
Value: The face value of a
security.
·
Perpetual
Bonds: Bonds which have no
maturity date.
·
Placing: Obtaining subscriptions for, or the sale of,
primary market, where the new securities of issuing companies are initially
sold.
·
Portfolio: A collection of investment vehicles
assembled to meet one or more investment goals.
·
Preference
Shares: A corporate security
that pays a fixed dividend each period. It is senior to ordinary shares but
junior to bonds in its claims on corporate income and assets in case of
bankruptcy.
·
Premium
(Warrants): The difference of
the market price of a warrant over its intrinsic value.
·
Premium
Bond: Bond selling above
par.
·
Present
Value: The amount to which
a future deposit will discount back to present when it is depreciated in an
account paying compound interest.
·
Present
Value of an Annuity: The amount to which
a stream of equal cash flows that occur in equal intervals will discount back
to present when it is depreciated in an account paying compound interest.
·
Price/Earnings
Ratio (P/E): The measure to
determine how the market is pricing the company’s common stock. The
price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to
the market price of its stock.
·
Privatization: The sale of government-owned equity in
nationalized industry or other commercial enterprises to private investors.
·
Prospectus: A detailed report published by the Initial
Public Offering company, which includes all terms and conditions, application
procedures, IPO prices etc, for the IPO
·
Put
Option: The right to sell
the underlying securities at a specified exercise price on of before a
specified expiration date.
·
Rate
of Return: A percentage showing
the amount of investment gain or loss against the initial investment.
·
Real
Interest Rate: The net interest
rate over the inflation rate. The growth rate of purchasing power derived from
an investment.
·
Redemption
Value: The value of a bond
when redeemed.
·
Reinvestment
Value: The rate at which an
investor assumes interest payments made on a bond which can be reinvested over
the life of that security.
·
Relative
Strength Index (RSI): A stock’s price that
changes over a period of time relative to that of a market index such as the
Standard & Poor’s 500, usually measured on a scale from 1 to 100, 1 being
the worst and 100 being the best.
·
Repurchase
Agreement: An arrangement in
which a security is sold and later bought back at an agreed price and time.
·
Resistance
Level: A price at which
sellers consistently outnumber buyers, preventing further price rises.
·
Return: Amount of investment gain or loss.
·
Rights
Issue: An offer by way of
rights to current holders of securities that allows them to subscribe for
securities in proportion to their existing holdings.
·
Risk-Averse, Risk-Neutral, Risk-Taking: Risk-averse
describes an investor who requires greater return in exchange for greater risk.
·
Risk-neutral
describes an investor who does not require greater return in exchange for
greater risk.
·
Risk-taking
describes an investor who will accept a lower return in exchange for greater
risk.
·
Senior
Bond: A bond that has
priority over other bonds in claiming assets and dividends.
·
Short
Hedge: A transaction that
protects the value of an asset held by taking a short position in a futures
contract.
·
Settlement: Conclusion of a securities transaction when
a customer pays a broker/dealer for securities purchased or delivered,
securities sold, and receives from the broker the proceeds of a sale.
·
Short
Position: Investors sell
securities in the hope that they will decrease in value and can be bought at a
later date for profit.
·
Short
Selling: The sale of borrowed
securities, their eventual repurchase by the short seller at a lower price and
their return to the lender.
·
Speculation: The process of buying investment vehicles in
which the future value and level of expected earnings are highly uncertain.
·
Stock
Splits: Wholesale changes in
the number of shares. For example, a two for one split doubles the number of
shares but does not change the share capital.
·
Subordinated
Bond: An issue that ranks
after secured debt, debenture, and other bonds, and after some general
creditors in its claim on assets and earnings. Owners of this kind of bond
stand last in line among creditors, but before equity holders, when an issuer
fails financially.
·
Substantial
Shareholder: A person acquires an
interest in relevant share capital equal to, or exceeding, 10% of the share
capital.
·
Support
Level: A price at which
buyers consistently outnumber sellers, preventing further price falls.
·
Technical
Analysis: A method of
evaluating securities by relying on the assumption that market data, such as
charts of price, volume, and open interest, can help predict future (usually
short-term) market trends. Contrasted with fundamental analysis which involves
the study of financial accounts and other information about the company. (It is
an attempt to predict movements in security prices from their trading volume
history.)
·
Time
Horizon: The duration of time
an investment is intended for.
·
Trading
Rules: Stipulation of
parameters for opening and intra-day quotations, permissible spreads according
to the prices of securities available for trading and board lot sizes for each
security.
·
Trust
Deed: A formal document
that creates a trust. It states the purpose and terms of the name of the
trustees and beneficiaries.
·
Underlying
Security: The security subject
to being purchased or sold upon exercise of the option contract.
·
Valuation: Process by which an investor determines the
worth of a security using risk and return concept.
·
Warrant: An option for a longer period of time giving
the buyer the right to buy a number of shares of common stock in company at a
specified price for a specified period of time.
·
Window
Dressing: Financial
adjustments made solely for the purpose of accounting presentation, normally at
the time of auditing of company accounts.
·
Yield
(Internal rate of Return):
The compound annual rate of return earned by an investment
·
Yield
to Maturity: The rate of return
yield by a bond held to maturity when both compound interest payments and the
investor’s capital gain or loss on the security are taken into account.
·
Zero
Coupon Bond: A bond with no
coupon that is sold at a deep discount from par value.
