AGEC FINAL

Question 1

The restatement of an interest rate (e.g., continuously compounded) in terms of an annualized simple interest rate.

Answer 1

Annual Percentage Rate (APR):

Question 2

: a contract between you and another party in which one of you receives regular payments over a fixed period of time, either beginning immediately or at some point in the future

Answer 2

Annuity

Question 3

: A system of mediating disputes before going to the courts

Answer 3

Arbitration

Question 4

The price at which a dealer offers to sell securities to a customer

Answer 4

Ask (or offer) price

Question 5

A futures market where the futures price is lower than the spot price. Opposite to contango

Answer 5

Backwardation:

Question 6

The spot price minus the futures price

Answer 6

Basis:

Question 7

One-hundredth (1/100th) of 1 percent

Answer 7

Basis point (or bp):

Question 8

A trade benefiting from decrease in security price

Answer 8

Bearish trade

Question 9

is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole.

Answer 9

Beta

Question 10

The price at which a dealer is willing to buy securities from a customer.

Answer 10

Bid price

Question 11

The debt issued by a borrower who promises both to pay interest on the borrowing and to repay the principal borrowed at some future date

Answer 11

Bond or fixed-income security

Question 12

The return earned on a bond if held until maturity. Same as Yield-to-Maturity

Answer 12

Bond-equivalent yield

Question 13

A financial intermediary who matches buyers and sellers and earns commissions for this service

Answer 13

Broker:

Question 14

: A trade benefiting from increase in security price

Answer 14

Bullish trade

Question 15

Jargon for “taking a long position in a futures contract”

Answer 15

Buying a future

Question 16

A financial security that gives the owner the right to buy a specified quantity of a financial or real asset on or before a fixed future date by paying an exercise price agreed on when the contract is written.

Answer 16

Call option

Question 17

Profit/loss realized by selling an asset at a price higher/lower than the purchase price

Answer 17

Capital gain or loss

Question 18

Ending a derivatives contract by making a cash payment instead of exchanging physical securities or commodities

Answer 18

Cash settlement

Question 19

When buy and sell orders are matched, the trade is officially recognized, and the trade is recorded by the exchange’s clearinghouse

Answer 19

Clearing (a trade):

Question 20

An entity associated with or part of an exchange that clears trades

Answer 20

Clearinghouse

Question 21

The end of a day’s trading session

Answer 21

Close (markets)

Question 22

A trade that cancels an outstanding open position. Same as offsetting trade

Answer 22

Closing transaction (or a reversing trade)

Question 23

an organized exchange for the trading of futures and options

Answer 23

CME (Chicago Mercantile Exchage)

Question 24

Futures trader such as a farmer, manufacturer, or commodities dealer who has legitimate hedging needs because of her commercial activity with the underlying commodity.

Answer 24

Commercial trader (futures)

Question 25

The US federal government agency regulating futures and futures on option markets

Answer 25

Commodity Futures Trading Commission (CFTC)

Question 26

An idealized description of a market populated by a large number of traders who are too insignificant to influence prices.

Answer 26

Competitive market

Question 27

A futures market where the futures price is higher than the spot price

Answer 27

Contango

Question 28

refers to costs associated with the carrying value of an investment.

Answer 28

Cost-of-carry

Question 29

A hedge in which the spot and futures positions do not exactly offset each other.

Answer 29

Cross-hedge (imperfect hedge)

Question 30

A limit order that gets cancelled if it is not executed by the end of the trading day during which it is placed.

Answer 30

Day order:

Question 31

Trader who tries to profit from daily price movements, opening trading positions in the morning and closing them out at night.

Answer 31

Day trader

Question 32

A financial intermediary who posts prices at which she buys

Answer 32

Dealer

Question 33

A failure to pay a promised payment on a financial contract at the promised time.

Answer 33

Default

Question 34

A predetermined date on which a seller of a futures contract agrees to deliver the underlying commodity to the buyer in exchange for the futures price

Answer 34

Delivery date (or maturity date):

Question 35

Time period during which delivery of the underlying commodity can occur

Answer 35

Delivery period (futures)

Question 36

A financial contract that derives its value from an underlying variable such as a stock price, a commodity price, or even an interest rate.

Answer 36

Derivative (or a derivative security)

Question 37

A risk that can be eliminated in a portfolio of securities via diversification.

Answer 37

Diversifiable risk:

Question 38

is a risk management strategy that mixes a wide variety of investments within a portfolio.

Answer 38

Diversification

Question 39

Payment in the form of cash or stocks made to existing stockholders

Answer 39

Dividend

Question 40

A hedge that is regularly adjusted over time to maintain a riskless position

Answer 40

Dynamic hedging

Question 41

the quantitative application of statistical and mathematical models using data to develop theories or test existing hypotheses in economics and to forecast future trends from historical data

Answer 41

Econometrics

Question 42

A market in which security prices "fully and accurately" reflect all relevant information

Answer 42

Efficient market

Question 43

A physical or electronic location where buyers and sellers meet to trade a standardized commodity under a given set of rules.

Answer 43

Exchange

Question 44

Terminating a futures contract with a spot trade in which the buyer and the seller privately negotiate the delivery of the commodity at a location different from those specified in the futures contract.

Answer 44

Exchange for physical (EFP)

Question 45

A trade is executed when the counterparties agree on the terms, conditions, price, and quantity and commit to transact.

Answer 45

Execution

Question 46

The last day that an option holder gets to exercise the option.

Answer 46

Expiration date (option)

Question 47

Paper assets such as stocks, bonds, and currencies that represent claims to real assets.

Answer 47

Financial assets

Question 48

Futures contracts based on financial assets (like foreign currencies) or financial variables (like interest rates).

Answer 48

Financial futures (or financials):

Question 49

A binding agreement between a buyer and a seller to trade some commodity at a fixed price at a later date

Answer 49

Forward contract

Question 50

A futures contract is an exchange-traded agreement between a buyer and a seller to trade a specific commodity at a fixed price at a later date

Answer 50

Futures contract (or futures):

Question 51

Every commodity, such as gold, oil, wheat, or beef, is priced in a couple of ways: its spot price and its futures price.

Answer 51

Futures price

Question 52

The ratio of the size of futures or option position used for hedging and the size of the asset being hedged.

Answer 52

Hedge ratio

Question 53

an investment that is made with the intention of reducing the risk of adverse price movements in an asset

Answer 53

Hedge

Question 54

Trader whose aim is to reduce pre-existing risk by trading derivatives and other securities

Answer 54

Hedger

Question 55

A computerized trading strategy pursuing fleeting profit opportunities by trading at the blink of an eye

Answer 55

High-frequency trading (HTF)