CFA #2 Flashcards
(500 cards)
1
Q
Excess reserves
A
A bank’s actual reserves minus its desired reserves.
2
Q
Exchange for physicals (EFP)
A
A permissible delivery procedure used by futures market participants, in which the long and short arrange a delivery procedure other than the normal prodedures stipulated by the futures exchange.
3
Q
Exchange ratio
A
The number of shares that target stockholders are to receive in exchange for each of their shares in the target company.
4
Q
Exchanges
A
Places where traders can meet to arrange their trades.
5
Q
Ex-dividend
A
Trading ex-dividend refers to shares that no longer carry the right to the next dividend payment.
6
Q
Ex-dividend date
A
The first date that a share trades without (i.e. “ex”) the dividend.
7
Q
Execution instructions
A
Instructions that indicate how to fill an order.
8
Q
Exercise date
A
The day that employees actually exercise the options and convert them to stock.
9
Q
Exercise or excercising the option
A
The process of using an option to buy or sell the underlying.
10
Q
Exercise price (strike price, striking price, or strike)
A
The fixed price at which an option holder can buy or sell the underlying.
11
Q
Exercise rate or strike rate
A
The fixed rate at which the holder of an interest rate option can buy or sell the underlying.
12
Q
Exercise value
A
The value obtained if an option is exercised based on current conditions.
13
Q
Exhaustive
A
Covering or containing all possible outcomes.
14
Q
Expected value
A
The probability-weighted average of the possible outcomes of a random variable.
15
Q
Expensed
A
Taken as a deduction in arriving at net income.
16
Q
Expenses
A
Outflows of economic resources or increases in liabilities that result in decreasees in equity (other than decreases because of distributions to owners); reductions in net assets associated with the creation of revenues.
17
Q
Experience cuve
A
A curve that shows the direct cost per unit of good or service produced or delivered as a typically declining function of cumulative output.
18
Q
Expiration date
A
The date on which a derivative contract expires.
19
Q
Exposure to foreign exchange risk
A
The risk of a change in value of an asset or liability denominated in a foreign currency due to a change in exchange rates.
20
Q
External diseconomies
A
Factors outside the control of a firm that rase the firm’s cost as the industry produces a larger output.
21
Q
External economies
A
Factors beyond the control of a firm that lower the firm’s costs as the industry produces a larger output.
22
Q
External growth
A
Company growth in output of sales that is achieved by buying the necessary resources externally (i.e., achieved through mergers and acquisitions).
23
Q
Externality
A
The effect of an investment on other things besides the investment itself.
24
Q
Extra or special dividend
A
A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payment.
25
Face value (also principal, par value, stated value, or maturity value)
The amount of cash payable by a company to bondholders when the bonds mature; the promised payment at maturity separate from any coupon payment.
26
Factor
A common or underlying element with which several variables are correlated.
27
Factor risk premium (or factor price)
The expected return in excess of the risk-free rate for a portfolio with a sensitivity of 1 to one factor and sensitivity of 0 to all other factors.
28
Factor sensitivity (also factor betas or factor loadings)
A measure of the response of return to each unit of increase in a factor, holding all other factors constant.
29
Fair market value
The market price of an asset or liability that trades regularly.
30
Fair value
The amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's-lenth transaction; the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betwen market participants.
31
Federal budget
The annual statement of the outlays and tax revenues of the government of the United States, together with the laws and regulations that approve and support those outlays and taxes.
32
Federal funds rate
The interest rate that the banks charge each other on overnight loans.
33
Federal Open Market Committee
The main policy-making organ of the Federal Reserve System.
34
Federal Reserve System (the Fed)
The central bank of the United States.
35
Fibonacci sequence
A sequence of numbers starting with 0 and 1, and then each subsequent number in the sequence is the sum of the two preceding numbers. In Elliott Wave Theory, it is believed that market waves follow patterns that are the ratios of the numbers in the Fibonacci sequence.
36
Fiduciary call
A combination of a European call and a risk-free bond that matures on the option expiration day and has a face value equal to the exercise price of the call.
37
FIFO method
The first in, first out, method of accounting for inventory, which matches sales against the costs of items of inventory in the order in which they were placed in inventory.
38
Finance lease (capital lease)
Essentially, the purchase of some asset by the buyer (lessee) that is directly financed by the seller (lessor).
39
Financial analysis
The process of selecting, evaluating, and interpreting financial data in order to formulate an assessment of a company's present and future financial condition and performance.
40
Financial distress
Heightened uncertainty regarding a company's ability to meet its various obligations because of lower or negative earnings.
41
Financial flexibility
The ability to react and adapt to financial adversities and opportunities.
42
Financial futures
Futures contracts in which the underlying is a stock, bond, or currency.
43
Financial leverage
The extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in the operating income; also, short for the financial leverage ratio.
44
Financial risk
The risk that environmental, social, or governance risk factors will result in significant costs or other losses to a company and its shareholders; the risk arising from a company's obligation to meet required payments under its financing agreements.
45
Financing activities
Activities related to obtaining or repaying capital to be used in the business (e.g., equity and long-term debt).
46
Firm
An economic unit that hires factors of production and organizes that factors to produce and sell goods and services.
47
First-differencing
A transofrmation that subtracts the value of the time series in period t-1 from its value in period t.
48
First-order serial correlation
Correlation between adjacent obervations in a time series.
49
Fiscal imbalance
The present value of the government's commitments to pay benefits minus the present value of its tax revenues.
50
Fiscal policy
The government's attempt to achieve macroeconomic objectives such as full employment, sustained long-term economic growth, and price level stability by setting and changing tax rates, making transfer payments, and purchasing goods and services.
51
Fixed asset turnover
An activity ratio calculated as total revenue divided by average net fixed assets.
52
Fixed charge coverage
A solvency ratio measuring the number of times interest and lease payments are covered by operating income, calculated as (EBIT + lease payments) divided by (interest payments + lease payments).
53
Fixed costs
Costs that remain at the same level regardless of a company's level of production and sales.
54
Fixed price tender offer
Offer made by a company to repurchase a specific number of shares at a fixed price that is typically at a premium to the current market price.
55
Fixed rate perpetual preferred stock
Nonconvertible, noncallable preferred stock that has a fixed dividend rate and no maturity date.
56
Fixed-income forward
A forward contract in which the underlying is a bond.
57
Flags
A technical analysis continuation pattern formed by parallel trendlines, typically over a short period.
58
Flating-rate loan
A loan in which the interest rate is reset at least once after the starting date.
59
Flip-in pill
A poison pill takeover defense that dilutes an acquirer's ownership in a target by giving other existing target company shareholders the right to buy additional target company shares at a discount.
60
Float
In the context of customer receipts, the amount of money that is in transit between payments made by customers and the funds that are usable by the company.
61
Float factor
An estimate of the average number of days it takes deposited checks to clear; average daily float divided by average daily deposit.
62
Float-adjusted market-capitalization weighting
An index weighting method in which the weight assigned to each constituent security is determined by adjusting its market capitaliation for its market float.
63
Floation cost
Fees charged to companies by investment bankers and other costs associated with raising new capital.
64
Floor
A combination of interset rate put options designed to hedge a lender against lower rates on a floating-rate loan.
65
Floor traders or locals
Market makers that buy and sell by quoting a bid and an ask price. They are the primary providers of liquidity to the market.
66
Floored swap
A swap in which the floating payments have a lower limit.
67
Floorlet
Each component put option in a floor.
68
Foreign currency transaction
Transactions that are denominated in a currency other than a company's functional currency.
69
Foreign exchange gains (or losses)
Gains (or losses) that occur when the exchange rate changes between the investor's currency and currency that foreign securities are denominated in.
70
Forward contract
An agreement between two parties in which one party, the buyer, agrees to buy from the other party, the seller, an underlyying asset at a later date for a price established at the stat of the contract.
71
Forward integration
A merger involving the purchase of a target that is farther along the value or production chain; for example, to acquire a distributor.
72
Forward price or forward rate
The fixed price or rate at which the transaction scheduled to occur at the expiration of a forward contract will take place. This price is agreed on at the intial date of the contract.
73
Forward rate agreements (FRA)
A forward contract calling for one party to make a fixed interest payment and the other to make an interest payment at a rate to be determined at the contract expiration.
74
Forward swap
A forward contract to enter into a swap.
75
Four-firm concentration ratio
A measure of market power that is calclated as the percentage of the value of sales acounted for by the four largest firms in an industry.
76
Free cash flow
The actual cash that would be available to the company's investors after making all investments necessary to maintain the company as an ongoing enterprise (also referred to as free cash flow to the firm); the internally generated funds that can be distributed to the company's investors (e.g., shareholders and bondholders) without impairing the value of the company.
77
Free cash flow hypothesis
The hypothesis that higher debt levels discipline managers by forcing them to make fixed debt service payments and by reducing the copmany's free cash flow.
78
Free cash flow to equity
The cash flow available to a company's common shareholders after all operating expenses, interest, and principal payments have been made, and necessary investments in working and fixed capital have been made.
79
Free cash flow to the firm
The cash flow available to the company's suppliers of capital after all operating expenses have been paid and necessary investments in working capital and fixed capital have been made.
80
Free float
The number of shares that are readily and freely tradable in the secondary market.
81
Free-cash-flow-to-equity models
Valuation models based on discounting expected future free cash flow to equity.
82
Frequency distribution
A tabular display of data summarized into a relatively small number of intervals.
83
Frequency polygon
A graph of a frequency distribution obtained by drawing straight lines joining successive points representing the class frequencies.
84
Frictional unemployment
The unemployment that arises from normal labor turnover--from people entering and leaving the labor force and from the ongoing creation and destruction of jobs.
85
Friendly transaction
A potential business combination that is endorsed by the managers of both companies.
86
Full empolyment
A situation in which the quantity of labor demanded equals the quantity supplied. At full employment, there is no cyclical unemployemnt--all unemployment is frictional and structural.
87
Full price
The price of a security with accrued interest.
88
Full-employment equilibrium
A macroeconomic equilibrium in which real GDP equals potential GDP.
89
Functional currency
The currency of the primary economic environment in which an entity operates.
90
Fundamental (or intrinsic) value
The underlying or true value of an asset based on an analysis of its qualitative and quantitative characteristics.
91
Fundamental analysis
The examination of publicly available information and the forumulation of forecasts to estimate the intrinsic value of assets.
92
Fundamental factor models
A multifactor model in which the factors are attributes of stocks or companies that are important in explaining cross-sectional differences in stock prices.
93
Fundamental weighting
An index weighting method in which the weight assigned to each constituent security is based on its underlying company's size. It attempts to address the disadvantages of market-capitalization weighting by using measures that are independent of the constituent security's price.
94
Fundmental beta
A beta that is based at least in part on fu ndamental data for a company.
95
Future value (FV)
The amount to which a payment or series of payments will grow by a stated future date.
96
Futures commission merchants (FCMs)
Individuals or companies that execute futures transactions for other parties off the exchange.
97
Futures contract
A variation of a forward contract that has essentially the same basic definition but with some additional features, such as a clearinghouse guarantee against credit losses, a daily settlement of gains and loses, and an organized electronic or floor trading facility.
98
Futures exchange
A legal corporate entity whose shareholders are its members. The members of the exchange have the privilege of executing transactions directly on the exchange.
99
Gains
Asset inflows not directly related to the ordinary activities of the business.
100
Game theory
A tool that economists use to analyze strategic behavior--behavior that takes into account the expected behavior of others and the recognition of mutual interdependence.
101
Gamma
A numerical measure of how sensitive an option's delta is to a change in the underlying.
102
Generalized least squares
A regression estimation technique that addresses heteroskedasticity of the error term.
103
Generational accounting
An accounting system that measures the lifetime tax burden and benefits of each generation.
104
Generational imbalance
The division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits.
105
Geometric mean
A measure of central tendency computed by taking the nth root of the product of n non-negative values.
106
Giro system
An electronic payment system used widely in Europe and Japan.
107
Global depository receipt
A depository receipt that is issued outside of the company's home country and ouside of the United States.
108
Global minimum-variance portfolio
The portfolio on the minimum-variance frontier with the smallest variance of return.
109
Global registered share
A common share that is traded on different stock exchanges around the world in different currencies.
110
Golden cross
A technical analysis term that describes a situation where a short-term moving average crosses from below a longer-term moving average to above it; this movement is considered bullish.
111
Good-on-close (market on close)
An execution instruction specifying that an order can only be filled at the close of trading.
112
Good-on-open
An execution instruction specifying that an order can only be filled at the opening of trading.
113
Good-till-cancelled order
An order specifying that it is valid until the entity placing the order has cancelled it (or, commonly, until some specified amount of time such as 60 days has elapsed, whichever comes sooner).
114
Goodwill
An intangible asset that represents the excess of the purchase price of an acquired company over the value of the net assets acquired.
115
Government debt
The total amount that the government has borrowed. It equals the sum of past budget deficits minus the sum of past budget surpluses.
116
Government expenditure multiplier
The magnification effect of a change in government expenditure on goods and services on equilibrium expenditure and real GDP.
117
Grant date
The day that options are granted to employees; usually the date that compensation expense is measured if both the number of shares and option price are known.
118
Greenmail
The purchase of the accumulated shares of a hostile investor by a company that is targeted for takeover by that investor, usually at a substantial premium over market price.
119
Gross profit (gross margin)
Sales minus the cost of sales (i.e., the cost of goods sold for a manufacturing company.
120
Gross profit margin
The ratio of gross profit to revenues.
121
Grouping by function
With reference to the presentation of expenses in an income statement, the grouping together of expenses servicing the same function, e.g. all items that are costs of goods sold.
122
Grouping by nature
With reference to the presentation of expenses in an income statement, the groupoing together of expenses by similar nature, e.g., all depreciation expenses.
123
Growth cyclical
A term sometimes used to describe companies that are growing rapidly on a long-term basis but that will experience above-average fluctuation in their revenues and profits over the course of a business cycle.
124
Growth investors
With reference to equity investors, investors who seek to invest in high-earnings-growth companies.
125
Growth option or expansion option
The ability to make additional investments in a project at some future time if the financial results are strong.
126
Harmonic mean
A type of weighted mean computed by averaging the reciprocals of the observations, then taking the reciprocal of that average.
127
Head and shoulders pattern
In technical analysis, a reversal pattern that is formed in three parts: a left shoulder, head, and right shoulder; used to predict a change from an uptrend to a downtrend.
128
Hedge fund
A historically loosely regulated, pooled investment vehicle that may implement various investment stategies.
129
Hedge funds
Private investment vehicles that typically use leverage, derivatives, and long and short investment strategies.
130
Hedge ratio
The relationship of the quantity of an asset being hedged to the quantity of the derivative used for hedging.
131
Hedging
A general strategy usually thought of as reducing, if not eliminating, risk.
132
Herding
Clustered trading that may or may not be based on information.
133
Herfindahl-Hirschman Index
A measure of market concentration that is calculated by summing the squared market shares for competing companies in an industry; high HHI readings or mergers that would result in large HHI increases are more likely to result in regulatory challenges.
134
Heteroskedastic
With reference to the error term of a regression, having a variance that differs across observations.
135
Heteroskedasticity
The property of having a nonconstant variance; refers to an error term with the property that its variance differs across observations.
136
Heteroskedasticity-consistent standard errors
Standard errors of the estimated parameters of a regression that correct for the presence of heteroskedasticity in the regression's error term.
137
Hidden order
An order that is exposed not to the public but only to the brokers or exchanges that receive it.
138
Histogram
A bar chart of data that have been grouped into a frequency distribution.
139
Historical cost
In reference to assets, the amount paid to purchase an asset, including any costs of acquisition and/or preparation, with reference to liabilities, the amount of proceeds received in exchange in issuing the liability.
140
Historical equity risk premium approach
An estimate of a country's equity risk premium that is based upon the historical averages of the risk-free rate and the rate of return on the market portfolio.
141
Historical exchange rates
For accounting purposes, the exchange rates that existed when the assets and liabilities were initially recorded.
142
Historical method
A method of estimating VAR that uses data from the returns of the portfolio over a recent past period and compiles this data in the form of a histogram.
143
Historical simulation (or back simulation)
Another term for the historical method of estimating VAR. This term is somewhat misleading in that the method involves not a simulation of the past but rather what actually happened in the past, sometimes adjusted to reflect the fact that a different portfolio may have existed in the past than is planned for the future.
144
Holder-of-record date
The date that a shareholder listed on the corporation's books will be deeemed to have ownership of the shares for purposes of receiving an upcoming dividend; two business days after the ex-dividend date.
145
Holding period return
The return that an investor earns during a specified holding period; a synonym for total return.
146
Holding period yield (HPY)
The return that an investor earns during a specified holding period; holding period return with reference to a fixed-income instrument.
147
Homogeneity of expectations
The assumption that all investors have the same economic expectations and thus have the same expectations of prices, cash flows, and other investment characteristics.
148
Homogenization
Creating a contract with standard and generally accepted terms, which makes it more acceptable to a broader group of participants.
149
Homoskedasticity
The property of having a constant variance; refers to an error term that is constant across observations.
150
Horizontal analysis
Common-size analysis that involves comparing a specific financial statement with the statement in prior or future time periods; also, cross-sectional analysis of one company with another.
151
Horizontal common-size analysis
A form of common-size analysis in which the accounts in a given period are used as the benchmark or base period, and every account is restated in subsequent periods as a percentage of the base period's same account.
152
Horizontal merger
A merger involving companies in the same line of business, usually as competitors.
153
Hostile transaction
An attempt to acquire a company against the wishes of the target's managers.
154
Hurdle rate
The rate of return that must be met for a project to be accepted.
155
Hypothesis
With reference to statistical inference, a statement about one or more populations.
156
Hypothesis testing
With reference to statistical inference, the subdivision dealing with the testing of hypothesis about one or more populations.
157
Iceberg order
An order in which the display size is less than the order's full size.
158
Identifiable intangible
An intangible that can be acquired singly and is typically linked to specific rights or privileges having finite benefit periods (e.g., a patent or trademark).
159
If-converted method
A method for accounting for the effect of convertible securities on earnings per share (EPS) that specifies what EPS would have been if the convertible securities had been converted at the beginning of the period, taking account of the effects of conversion on net income and the weighted average number of shares outstanding.
160
Immediate or cancel order (fill or kill)
An order that is valid only upon receipt by the broker or exchange. If such an order cannot be filled in part or in whole upon receipt, it cancels immediately.
161
Impairment
Diminishment in value as a result of carrying (book) value exceeding fair value and/or recoverable value.
162
Impairment of capital rule
A legal restruction that dividends cannot exceed retained earnings.
163
Implicit rental rate
The firm's opportunity cost of using its own capital.
164
Implied repo rate
The rate of return from a cash-and-carry transaction implied by the futures price relative to the spot price.
165
Implied volatility
The volatility that option traders use to price an option, implied by the price of the option and a particular option-pricing model.
166
Implied yield
A measure of the yield on the underlying bond of a futures contract implied by pricing it as though the underlying will be delivered at the futures expiration.
167
Imputation
In reference to corporate taxes, a system that imputes, or attributes, taxes at only one level of taxation. For countries using an imputation tax system, taxes on dividends are effectively levied only at the shareholder rate. Taxes are paid at the corporate level but they are attributed to the shareholder. Shareholders deduct from their tax bill their portion of taxes paid by the company.
168
Incentive system
A method of organizing production that uses a market-like mechanism inside the firm.
169
Income
Increases in economic benefits in the form of inflows or enhancements of assets, or decreases of liabilities that result in an increase in equity (other than increases resulting from contributions by owners).
170
Income elasticity of demand
The responsiveness of demand to a change in income, other things remaining the same. It is calculated as the percentage change in the quantity demanded divided by the percentage change in income.
171
Income statement (statement of operations or profit and loss statement)
A financial statement that provides information about a company's profitability over a stated period of time.
172
Income tax paid
The actual amount paid for income taxes in the period; not a provision, but the actual cash outflow.
173
Income tax payable
The income tax owed by the company on the basis of taxable income.
174
Income tax recoverable
The income tax expected to be recovered, from the taxing authority, on the basis of taxable income. It is a recovery of previously remitted taxes or future taxes owed by the company.
175
Income trust
A type of equity ownership vehicle established as a trust issuing ownership shares known as units.
176
Incremental cash flow
The cash flow that is realized because of a decision; the changes or increments to cash flows resulting from a decision or action.
177
Independent
With reference to events, the property that the occurrence of one event does not affect the probability of another event occurring.
178
Independent and identically distributed (IID)
With respect to random variables, the property of random variables that are independent of each other but follow the identical probability distribution.
179
Independent projects
Independent projects are projects whose cash flows are independent of each other.
180
Independent variable
A variable used to explain the dependent variable in a regression; a right-hand-side variable in a regression equation.
181
Index amortizing swap
An interest rate swap in which the notional principal is indexed to the level of interest rates and declines with the level of interest rates according to a predefined schedule. This type of swap is frequently used to hedge securities that are prepaid as interest rates decline, such as mortgage-backed securities.
182
Index option
An option in which the underlying is a stock index.
183
Indexing
An investment strategy in which an investor constructs a portfolio to mirror the performance of a specified index.
184
Indifference curve
The graph of risk-return combinations that an investor would be willing to accept to maintain a given level of utility.
185
Indirect format (indirect method)
With reference to cash flow statements, a format for the presentation of the statement which, in the operating cash flow section, begins with net income then shows additions and subtractions to arrive at operating cash flows.
186
Induced taxes
Taxes that vary with real GDP.
187
Industry
A group of companies offering similar products and/or services.
188
Industry analysis
The analysis of a specific branch of manufacturing, service, or trade.
189
Inelastic demand
A demand with a price elasticity between 0 and 1; the percentage change in the quantity demanded is less than the percentage change in price.
190
Inflation premium
An extra return that compensates invesetors for expected inflation.
191
Inflation rate
The annual percentage change in the price level.
192
Inflation rate targeting
A monetary policy strategy in which the central bank makes a public commitment to achieve an explicit inflation rate and to explain how its policy actions will acieve that target.
193
Inflationary gap
The amount by which real GDP exceeds potential GDP.
194
Information cascade
The transmission of information from those participants who act first and whose decision influence the decisions of others.
195
Information ratio (IR)
Mean active return divided by active risk.
196
Informationally efficient market
A market in which asset prices reflect new information quickly and rationally.
197
Information-motivated traders
Traders that trade to profit from information that they believe allows them to preduct futures prices.
198
Initial margin
The amount that must be deposited in a clearinghouse account when entering into a futures contract.
199
Initial margin requirement
The margin requirement on the first day of a transaction as well as on any day in which additional margin funds must be deposited.
200
Initial public offering (IPO)
The first issuance of common shares to the public by a formerly private corporation.
201
In-sample forecast errors
The residuals from a fitted time-series model within the sample period used to fit the model.
202
Instability in the minimum-variance frontier
The characteristic of minimum-variance frontiers that they are sensitive to small changes in inputs.
203
Installment
Said of a sale in which proceeds are to be paid in installments over an extended period of time.
204
Installment method (installment-sales method)
With respect to revenue recognition, a method that specifies that the portion of the total profit of the sale that is recognized in each period is determined by the percentage of the total sales price for which the seller has received cash.
205
Instrument rule
A decision rule for monetary policy that sets the policy instrument at a level that is based on the current state of the economy.
206
Intangible assets
Assets lacking physical substance, such as patents and trademarks.
207
Intereset rate floor or floor
A series of put options on an interest rate, with each option expiring at the date on which the floating loan rate will be reset, and with each option having the same exercise rate. A floor in general can have an underlying other than the interest rate.
208
Interest coverage
A solvency ratio calculated as EBIT divided by interest payments.
209
Interest rate
A rate of return that reflects the relationship between differently dated cash flows; a discount rate.
210
Interest rate call
An option in which the holder has the right to make a known interest payment and receive an unknown interest payment.
211
Interest rate cap or cap
A series of call options on an interest rate, with each option expiring at the date on which the floating loan rate will be reset, and with each option having the same exercise rate. A cap in general can have an underlying other than an interest rate.
212
Interest rate collar
A combination of a long cap and a short floor, or a short cap and a long floor. A collar in general can have an underlying other than an interest rate.
213
Interest rate forward
See Forward rate agreement; A forward contract calling for one party to make a fixed interest payment and the other to make an interest payment at a rate to be determined at the contract expiration.
214
Interest rate option
An option in which the underlying is an interest rate.
215
Interest rate parity
A formula that expresses the equivalence or parity of spot and forward rates, after adjusting for differences in the interest rates.
216
Interest rate put
An option in which the holder has the right to make an unknown interest payment and receive a known interest payment.
217
Interest rate swap
A swap in which the underlying is an interest rate. Can be viewed as a currency swap in which both currencies are the same and can be created as a combination of currency swaps.
218
Intergenerational data mining
A form of data mining that applies information developed by previous researchers using a dataset to guide current research using the same or related dataset.
219
Intermarket analysis
A field within technical analysis that combines analysis of major categories of securities--namely, equities, bonds, currencies, and commodities--to identify market trends and possible inflections in a trend.
220
Internal rate of return (IRR)
The discount rate that makes net present value equal 0; the discount rate that makes the present value of an investment's cost (outflows) equal to the present value of the investment's benefits (inflows).
221
Interquartile range
The difference between the third and first quartiles of a dataset.
222
Interval
With reference to grouped data, a set of values within which an observation falls.
223
Interval scale
A measurement scale that not only ranks data but also gives assurance that the differences between scale values are equal.
224
In-the-money
Options that, if exercised, would result in the value received being worth more than the payment required to exercise.
225
Inventory
The unsold units of product on hand.
226
Inventory blanket lien
The use of inventory as collateral for a loan. Though the lender has claim to some or all of the company's inventory, the company may still sell or use the inventory in the ordinary course of business.
227
Inventory turnover
An activity ratio calculated as cost of goods sold divided by average inventory.
228
Inverse floater
A floating-rate note or bond in which the coupon is adjusted to move opposite to a benchmark interest rate.
229
Investing activities
Activities which are associated with the acquisition and disposal of property, plant, and equipment; intangible assets; other long-term assets; and both long-term and short-term investments in the equity and debt (bonds and loans) issued by other companies.
230
Investment banks
Financial intermediaries that provide advice to their mostly corporate clients and help them arrange transactions such as initial and seasoned securities offerings.
231
Investment opportunity schedule
A graphical depiction of a company's investment opportunities ordered from highest to lowest expected return. A company's optimal capital budget is found where the investment opportunity schedule intersects with the company's marginal cost of capital.
232
Investment policty statement (IPS)
A written planning document that describes a client's investment objectives and risk tolerance over a relevant time horizon, along with contraints that apply to the client's portfolio.
233
Investment strategy
A set of rules, guidelines, or procedures that is used to analyze and select secruities and manage portfolios.
234
IRR rule
An investment decision rule that accepts projects or investments for which the IRR is greater than the opportunity cost of capital.
235
January effect (also turn-of-the-year effect)
Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first five trading days in January.
236
Joint probability
The probability of the joint occurrence of stated events.
237
Joint probability function
A function giving the probability of joint occurrences of values of stated random variables.
238
Joint venture
An entity (partnership, corporation, or other legal form) where control is shared by two or more entities called venturers.
239
Just-in-time method
Method of managing inventory that minimizes in-process inventory stocks.
240
Keynesian
A macroeconomist who believes that left alone, the economy would rarely operate at full employment and that to achieve full employment, active help from fiscal policy and monetary policy is required.
241
Keynesian cycle theory
A theory that fluctuations in investment driven by fluctuations in business confidence--summarized in the phrase "animal spirits"--are the main source of fluctuations in aggregate demand.
242
Kondrateiff wave
A 54-year long economic cycle postulated by Nikolai Kondrateiff.
243
k-percent rule
A rule that makes the quantity of money grow at a rate of k percent a year, where k equals the growth rate of potential GDP.
244
kth Order autocorrelation
The correlation between observations in a time series separated by k periods.
245
Kurtosis
The statistical measure that indicates the peakedness of a distribution.
246
Labor force
The sum of the people who are employed and who are unemployed.
247
Labor force participation rate
The percentage of the working-age population who are members of the labor force.
248
Labor union
An organized group of workers whose purpose is to increase wages and to influence other job conditions.
249
Laddering strategy
A form of active strategy which entails scheduling maturities on a systematic basis within the investment portfolio such that investments are spread out equally over the term of the ladder.
250
Laffer curve
The relationship between the tax rate and the amount of tax revenue collected.
251
Law of diminishing returns
As a firm uses more of a variable input, with a given quantity of other inputs (fixed inputs), the marginal product of the variable input eventually diminishes.
252
Law of one price
The condition in a financial market in which two equivalent financial instruments or combinations of financial instruments can sell for only one price. Equivalent to the principle that no arbitrage opportunties are possible.
253
Lead underwriter
The lead investment bank in a syndicate of investment banks and brokers-dealers involved in a securities underwriting.
254
Legal monopoly
A market structure in which there is one firm and entry is restricted by the granting of a public franchise, government license, patent, or copyright.
255
Legal risk
The risk that failures by company managers to effectively manage a company's environmental, social, and governance risk exposures will lead to lawsuits and other judicial remedies, resulting in potentially catastrophic losses for the company; the risk that the legal system will not enforce a contract in case of dispute or fraud.
256
Legislative and regulatory risk
The risk that governmental laws and regulations directly or indirectly affecting a company's operations will change with potentially severe adverse effects on the company's continued profitability and even its long-term sustainability.
257
Leptokurtic
Describes a distribution that is more peaked than a normal distribution.
258
Lessee
The party obtaining the use of an asset through a lease.
259
Lessor
The owner of an asset that grants the right to use the asset to another party.
260
Level of significance
The probability of a Type I error in testing a hypothesis.
261
Leverage
In the context of corporate finance, leverage refers to the use of fixed costs within a company's cost structure. Fixed costs that are operating costs (such as depreciation or rent) create operating leverage. Fixed costs that are financial costs (such as interest expense) create financial leverage.
262
Leveraged buyout (LBO)
A transaction whereby the target company management team converts the target to a privately held company by using heavy borrowing to finance the purchase of the target company's outstanding shares.
263
Leveraged floating-rate note or leveraged floater
A floating-rate note or bond in which the coupon is adjusted at a multiple of a benchmark interest rate.
264
Leveraged recapitalization
A post-offer takeover defense mechanism that involves the assumption of a large amount of debt that is then used to finance share repurchases; the effect is to dramatically change the company's capital structure while attempting to deliver a value to target shareholders in excess of a hostile bid.
265
Liabilities
Present obligations of an enterprise arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits; creditors' claims on the resources of a company.
266
Life-cycle stage
The stage of the life cycle: embryonic, growth, shakeout, mature, declining.
267
LIFO layer liquidation (LIFO liquidation)
With respect to the application of the LIFO inventory method, the liquidation of old, relatively low-priced inventory; happens when the volume of sales rises above the volume of recent purchases so that some sales are made from relatively old, low-priced inventory.
268
LIFO method
The last in, first out, method of accounting for inventory, which matches sales against the costs of items of inventory in the reverse order the items were placed in inventory (i.e., inventory produced or acquired last are assumed to be sold first).
269
LIFO reserve
The difference between inventory reported at FIFO and inventory reported at LIFO (FIFO inventory value less LIFO inventory value).
270
Likelihood
The probability of an observation, given a particular set of conditions.
271
Limit down
A limit move in the futures market in wh ich the price at which a transaction would be made is at or below the lower limit.
272
Limit move
A condition in the futures markets in which the price at which a transaction would be made is at or beyond the price limits.
273
Limit order
Instructions to a broker or exchange to obtain the best price immediately available when filling an order, but in no event accept a price higher than a specified (limit) price when buying or accept a price lower than a specified (limit) price when selling.
274
Limit order book
The book or list of limit orders to buy and sell that pertains to a security.
275
Limit pricing
The practice of setting the price at the highest level that inflicts a loss on an entrant.
276
Limit up
A limit move in the futures market in which the price at which a transaction would be made is at or above the upper limit.
277
Line chart
In technical analysis, a plot of price data, typically closing prices, with a line connecting the points.
278
Linear (arithmetic) scale
A scale in which equal distances correspond to equal absolute amounts.
279
Linear association
A straight-line relationship, as opposed to a relationship that cannot be graphed as a straight line.
280
Linear interpolation
The estimation of an unknown value on the basis of two known values that bracket it, using a straight line between the two known values.
281
Linear regression
Regression that models the straight-line relationship between the dependent and independent variable(s).
282
Linear trend
A trend in which the dependent variable changes at a constant rate with time.
283
Liquid
An asset that can be easily converted into cash in a short period of time at a price close to fair market value.
284
Liquid market
Said of a market in which traders can buy or sell with low total transaction costs when they want to trade.
285
Liquidating dividend
A dividend that is a return of capital rather than a distribution from earnings or retained earnings.
286
Liquidation
To sell the assets of a company, division, or subsidiary piecemeal, typically because of bankruptcy; the form of bankruptcy that allows for the orderly satisfaction of creditors' claims after which the company ceases to exist.
287
Liquidity
The ability to purchase or sell an asset quickly and easily at a price close to fair market value. The ability to meet short-term obligations using assets that are the most readily converted into cash.
288
Liquidity premium
An extra return that compensates investors for the risk of loss relative to an investment's fair value if the investment needs to be converted to cash quickly.
289
Liquidity ratios
Financial ratios measuring the company's ability to meet its short-term obligations.
290
Liquidity risk
The risk that a financial instrument cannot be purchased or sold without a significant concession in price due to the size of the market.
291
Living wage
The hourly wage rate that enables a person who works a 40-hour work week to rent adequate housing for not more than 30 percent of the amount earned.
292
Load fund
A mutual fund in which, in addition to the annual fee, a percentage fee is charged to invest in the fund and/or for redemptions from the fund.
293
Local currency
The currency of the country where a company is located.
294
Lockbox system
A payment system in which customer payments are mailed to a post office box and the banking institution retrieves and deposits these payments several times a day, enabling the company to have use of the fund sooner than in a centralized system in which customer payments are sent to the company.
295
Locked limit
A condition in the futures markets in which a transaction cannot take place because the price would be beyond the limits.
296
Logarithmic scale
A scale in which equal distances represent equal proportional changes in the underlying quantity.
297
Logit model
A qualitative-dependent-variable multiple regression model based on the logistic probability distribution.
298
Log-linear model
With reference to time-series models, a model in which the growth rate of the time series as a function of time is constant.
299
Log-log regression model
A regression that expresses the depend and independent variables as natural logarithms.
300
London Interbank Offer Rate (LIBOR)
The Eurodollar rate at which London banks lend dollars to other London banks; considered to be the best representative rate on a dollar borrowed by a private, high-quality borrower.
301
Long
The buyer of a derivative contract. Also refers to the position of owning a derivative.
302
Long position
A position in an asset or contract in which one owns the asset or has an exercisable right under the contract.
303
Long run
A period of time in which the quantities of all resources can be varied.
304
Longitudinal data
Observations on characteristic(s) of the same observational unit through time.
305
Long-lived assets (or long-term assets)
Assets that are expected to provide economic benefits over a future period of time, typically greater than one year.
306
Long-run aggregate supply
The relationship between the quantity of real GDP supplied and the price level in the long run when real GDP equals potential GDP.
307
Long-run average cost curve
The relationship between the lowest attainable average total cost and output when both plant size and labor are varied.
308
Long-run industry supply curve
A curve that shows how the quantity suppled by an industry varies as the market price varies after all the possible adjustments have been made, including changes in plant size and the number of firms in the industry.
309
Long-run macroeconomic equilibrium
A situation that occurs when real GDP equals potential GDP--the economy is on its long-run aggregate supply curve.
310
Long-run Phillips curve
A curve that shows the relationship between inflation and unemployment when the actual inflation rate equals the expected inflation rate.
311
Long-term contract
A contract that spans a number of accounting periods.
312
Long-term debt-to-assets ratio
The proportion of a company's assets that is financed with long-term debt.
313
Long-term equity anticipatory securities (LEAPS)
Options originally created with expirations of several years.
314
Long-term liability
An obligation that is expected to be settled, with the outflow of resources embodying economic benefits, over a future period generally greater than one year.
315
Look-ahead bias
A bias cased by using information that was unavailable on the test date.
316
Losses
Asset outflows not directly related to the ordinary acitivities of the business.
317
Lower Bound
The lowest possible value of an option.
318
M1
A measure of money that consists of currency and traveler's checks plus checking deposits owned by individuals and businesses.
319
M2
A measure of money that consists of M1 plus time deposits, savings deposits, and money market mutual funds, and other deposits.
320
M2
A measure of what a portfolio would have returned if it had taken on the same total risk as the market index.
321
Macaulay duration
The duration without dividing by 1 plus the bond's yield to maturity. The term, named for one of the economists who first derived it, is used to distinguish the calculation from modified duration. (see also modified duration.)
322
Macroeconomic factor
A factor related to the economy, such as the inflation rate, industrial production, or economic sector membership.
323
Macroeconomic factor model
A multifactor model in which the factors are surprises in macroeconomic variables that significantly explain equity returns.
324
Macroeconomic long run
A time frame that is sufficiently long for the real wage rate to have adjusted to achieve full employment: real GDP equal to potential GDP, unemployment equal to the natural unemployment rate, the price level is proportional to the quantity of money, and the inflation rate equal to the money growth rate minus the real GDP growth rate.
325
Macroeconomic short run
A period during which some money prices are sticky and real GDP might be below, above, or at potential GDP and unemployment might be above, below, or at the natural rate of unemployment.
326
Maintenance margin
The minimum amount that is required by a futures clearinghouse to maintain a margin account and to protect against default. Participants whose margin balances drop below the required maintenance margin must replenish their accounts.
327
Maintenance margin requirement
The margin requirement on any day other than the first day of a transaction.
328
Management buyout (MBO)
An event in which a group of investors consisting primarily of the company's existing management purchase all of its outstanding shares and take the company private.
329
Managerialism theories
Theories that posit that corporate executives are motivated to engage in mergers to maximize the size of their company rather than shareholder value.
330
Manufacturing resource planning (MRP)
The incorporation of production planning into inventory m anagement. A MRP analysis provides both a materials acquisition schedule and a production schedule.
331
Margin call
A notice to deposit additional cash or securities in a margin account.
332
Margin loan
Money borrowed from a broker to purchase securities.
333
Marginal cost
The opportunity cost of producting one more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output.
334
Marginal cost pricing rule
A rule that sets the price of a good or service equal to the marginal cost of producing it.
335
Marginal product
The increase in total product that results from a one-unit increase in the variable input, with all other imputs remaining the same. It is calculated as the increase in total product divided by the increase in the variable input employed, when the quantities of all other imputs are constant.
336
Marginal revenue
The change in total revenue that results from a one-unit increase in the quantity sold. It is calculated as the change in total revenue divided by the change in quantity sold.
337
Marginal revenue product
The change in total revenue that results from employing one more unit of a factor of production (labor) while the quantity of all other factors remains the same. It is calculated as the increase in total revenue divided by the increase in the quantity of the factor (labor).
338
Market
A means of bringing buyers and sellers together to exchange goods and services.
339
Market anomaly
Change in the price or return of a security that cannot directly be linked to current relevant information known in the market or to the release of new information into the market.
340
Market bind-ask spread
The difference between the best bid and the best offer.
341
Market float
The number of shares that are available to the investing public.
342
Market model
A regression equation that specifies a linear relationship between the return on a security (or portfolio) and the return on a broad market index.
343
Market order
Instructions to a broker or exchange to obtain the best price immediately available when filling an order.
344
Market power
The ability to influence the market, and in particular the market price, by influencing the total quantity offered for sale.
345
Market price of risk
The slope of the capital market line, indicating the market risk premium for each unit of market risk.
346
Market rate
The rate demanded by purchasers of bonds, given the risks associated with future cash payment obligations of the particular bond issue.
347
Market risk
The risk associated with interest rates, exchange rates, and equity prices.
348
Market risk premium
The expected excess return on the market over the risk-free rate.
349
Market value
The price at which an asset or security can currently be bought or sold in an open market.
350
Marketable limit order
A buy limit order in which the limit price is placed above the best offer, or a sell limit order in which the limit price is placed below the best bid. Such orders generally will partially or completely fill right away.
351
Market-capitalization weighting (or value weighting)
An index weighting method in which the weight assigned to each constituent security is determined by dividing its market capitaliztion by the total market capitalization (sum of the market capitalization) of all securities in the index.
352
Market-orieted investors
With reference to equity investors, investors whose investment disciplines cannot be clearly categorized as value or growth.
353
Marking to market
A prodedure used primarily in futures markets in which the parties to a contract settle the amount owed daily. Also known as the daily settlement.
354
Markowitz decision rule
A decision rule for choosing between two investments based on their means and variances.
355
Markowitz efficient frontier
The graph of the set of portfolios offering the maximum expected return for their level of risk (standard deviation of return).
356
Mark-to-market
The revaluation of a financial asset or liability to its current market value of fair value.
357
Matching principle
The accounting principle that expenses should be recognized when the associated revenue is recognized.
358
Matching strategy
An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities.
359
Materiality
The condition of being of sufficient importance so that omission or misstatement of the item in a finacial report could make a difference to users' decisions.
360
Matrix pricing
In the fixed income markets, to price a securtiy on the basis of valuation-relevant characteristics (e.g. debt-rating approach).
361
Maturity premium
An extra return that compensates investors for the increased sensitivity of the market value of debt to a change in market interest rates as maturity is extended.
362
McCallum rule
A rule that makes the growth rate of the monetary base respond to the long-term average growth rate of real GDP and medium-term changes in the velocity of circulation of the monetary base.
363
Mean
The sum of all values in a distribution or dataset, divided by the number of values summed; a synonym of arithmetic mean.
364
Mean absolute deviation
With reference to a sample, the mean of the absolute values of deviations from the sample mean.
365
Mean excess return
The average rate of return in excess of the risk-free rate.
366
Mean rate of return
The average rate of return on an investment over time.
367
Mean reversion
The tendency of a time series to fall when its level is above its mean and rise when its level is below its mean; a mean-reverting time series tends to return to its long-term mean.
368
Means of payment
A method of settling a debt.
369
Mean-variance analysis
An approach to portfolio analysis using expected means, variances, and covariances of asset returns.
370
Measure of central tendency
A quantitative measure that specifies where data are centered.
371
Measure of location
A quantitative measure that describes the location or distribution of data; includes not only measures of central tendency but also other measures such as percentiles.
372
Measurement scales
A cheme of measuring differences. The four types of measurement scales are nominal, ordinal, interval, and ratio.
373
Median
The value of the middle item of a set of items that has been sorted into ascending or descending order; the 50th percentile.
374
Merger
The absorption of one company by another; that is, two companies become one entity and one or both of the pre-merger companies ceases to exist as a separate entity.
375
Mesokurtic
Describes a distribution with kurtosis identical to that of the normal distribution.
376
Minimum efficient scale
The smallest quantity of output at which the long-run average cost curve reaches its lowest level.
377
Minimum wage
A regulation that makes the hiring of labor below a specified wage rate illegal. The loewst wage at which a firm may legally hire labor.
378
Minimum-variance frontier
The graph of the set of portfolios that have minimum variance for their level of expected return.
379
Minimum-variance portfolio
The portfolio with the minimum variance for each given level of expected return.
380
Minority active investments
Investments in which investors exert significant influence, but not control, over the investee. Typically, the investor has 20 to 50% ownership in the investee.
381
Minority interest (noncontrolling interest)
The proportion of the ownership of a subsidiary not held by the parent (controlling company).
382
Minority passive investments (passive investments)
Investments in which the investor has no significant influence or control over the opreations of the investee.
383
Mismatching strategy
An active inevstment strategy whereby the timing of cash outflows is not matched with investment maturities.
384
Mixed factor models
Factor models that combine features of more than one type of factor model.
385
Mixed offering
A merger or acquisition that is to be paid for with cash, securities, or some combination of the two.
386
Modal interval
With reference to grouped data, the most frequently occurring interval.
387
Mode
The most frequently occurring value in a set of observations.
388
Model risk
The use of an inaccurate pricing model for a particular investment, or the improper use of the right model.
389
Model specification
With reference to regression, the set of varaibles included in the regression and the regression equation's functional form.
390
Modern portfolio theory (MPT)
The analysis of rational portfolio choices based on the efficient use of risk.
391
Modified duration
A measure of a bond's price sensitivity to interest rate movements. Equal to the Macaulay duration of a bond divided by one plus its yield to maturity.
392
Momentum oscillators
A graphical representation of market sentiment that is constructed from price data and calculated so that it oscillates either between a high and a low or around some number.
393
Monetarist
A macroeconomist who believes that the economy is self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady.
394
Monetarist cycle theory
A theory that fluctuations in both investment and consumption expnditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
395
Monetary assets and liabilities
Assets and liabilities with value equal to the amount of currency contracted for, a fixed amount of currency. Examples are cash, accounts receivable, mortgages receivable, accounts payable, bonds payable, and mortgages payable. Inventory is not a monetary asset. Most liabilities are monetary.
396
Monetary base
The sum of Federal Reserve notes, coins and banks' deposits at the Fed.
397
Monetary policy
The Fed conducts that nation's monetary policy by changing interest rates and adjusting the quantity of money.
398
Monetary policy instrument
A variable that the Fed can control directly or closely target.
399
Monetary/nonmonetary method
Approach to translating foreign currency financial statements for consolidation in which monetary assets and liabilities are translated at the current exchange rate. Nonmonetary assets and liabilities are translated as historical exchange rates (the exchange rates that existed when the assets and liabilities were acquired).
400
Money
Any commodity or token that is generally aceptable as the means of payment.
401
Money market
The market for short-term debt instruments (one-year maturity or less).
402
Money market yield (or CD equivalent yield)
A yield on a basis comparable to the quoted yield on an interest-bearing money market instrument that pays interest on a 360-day basis; the annualized holding period yield, assuming a 360-day year.
403
Money multiplier
The ratio of the change in quantity of money to the change in the monetary base.
404
Moneyness
The relationship between the price of the underlying and an option's exercise price.
405
Money-weighted rate of return
The internal rate of return on a portfolio, taking account of all cash flows.
406
Monitoring costs
Costs borne by owners to monitor the management of the company (e.g., board of director expenses).
407
Monopolistic competition
A market structure in which a large number of firms copete by making similar buy slighly different products.
408
Monopoly
A market structure in which there is one firm, which produces a good or service that has no close substitutes and in which the firm is protected from competition by a barrier preventing the entry of new firms.
409
Monopsony
A market in which there is a single buyer.
410
Monte Carlo simulation method
An approach to estimating a probability distribution of outcomes to examine what might happen if particular risks are faced. This method is widely used in the sciences as well as in business to study a variety of problems.
411
Moving average
The average of the closing price of a security over a specified number of periods. With each new period, the average is recalculated.
412
Moving-average convergence/divergence oscillator (MACD)
A momentum oscillator that is constructed based on the difference between short-term and long-term moving averages of a security's price.
413
Multicollinearity
A regression assumption violation that occurs when two or more independent variables (or combinations of independent variables) are highly but not perfectly correlated with each other.
414
Multi-factor model
A model that explains a variable in terms of the values of a set of factors.
415
Multi-market index
An index comprised of indices from different countries, designed to represent multiple security markets.
416
Multiple linear regression model
A linear regression model with two or more independent variables.
417
Multiple R
The correlation between the actual and forecasted values of the dependent variables in a regression.
418
Multiplication rule for probabilities
The rule that the joing probability of events A and B equals the probablity of A given B times the probability of B.
419
Multiplier models (or market multiple models)
Valuation models based on share price multiples or enterprise value multiples.
420
Multi-step format
With respect to the format of the income statement, a format that presents a subtotal for gross profit (revenue minus cost of goods sold).
421
Multivariate distribution
A probability distribution that specifies the probabilities for a group of related random variables.
422
Mutual fund
A professionally managed investment pool in which investors in the fund ty pically each have a pro-rata claim on the income and value of the fund.
423
Mutually exclusive projects
Mutually exclusive projects compete directly with each other. For example, if Projects A and B are mutually exclusive, you can choose A or B, but you cannot choose both.
424
Nash equilibrium
The outcome of a game that occurs when player A takes the best possible action given the action of player B and player B takes the best possible action given the action of payer A.
425
Natural monopoly
A monopoly thqat occurs when one firm can supply the entire market at a lower price than two ore more firms can.
426
Natural unemployment rate
The unemployment rate when the economy is at full employment. There is no cyclical unemployment; all unemployment is fricitonal, structural, and seasonal.
427
Needs-tested spending
Government spending on programs that pay benefits to suitably qualified people and businesses.
428
Negative serial correlation
Serial correlation in which a positive error for one observation increases the chance of a negative error for another observation, and vice versa.
429
Net asset balance sheet exposure
When assets translated at the current exchange rate are greater in amount than liabilities translated at the current exchange rate. Assets exposed to translation gains or losses exceed the exposed liabilities.
430
Net book value
The remaining (undepreciated) balance of an asset's purchase cost. For liabilities, the face value of a bond minus any unamortized discount, or plus any unamortized premium.
431
Net income (loss)
The difference between revenue and expenses; what remains after subtracting all expenses (including depreciation, interest, and taxes) from revenue.
432
Net liability balance sheet exposure
When liabilities translated at the current exchange rate are greater than assets translated at the current exchange rate. Liabilities exposed to translation gains or losses exceed the exposed assets.
433
Net operating assets
The difference between operating assets (total assets less cash) and operating liabilities (total iabilities less total debt).
434
Net operating cycle
An estimate of the average time that elapses between paying suppliers for material and collecting cash from the subsequent sale of goods produced.
435
Net operating profit less adjusted taxes, or NOPLAT
A company's operating profit with adjustments to normalize the effects of capital structure.
436
Net present value (NPV)
The present value of an investment's cash inflows (benefits) minus the present value of its cash outflows (costs).
437
Net profit margin (profit margin or return on sales)
An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses.
438
Net realizable value
Estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
439
Net revenue
Revenue after adjustments (e.g., for estimated returns or for amounts unlikely to be collected).
440
Netting
When parties agree to exchange only the net amount owed from one party to the other.
441
New classical
A macroeconomist who holds the view that business cycle fluctuations are the efficient responses of a well-functioning market economy bombarded by shocks that arise from the uneven pace of technological change.
442
New classical cycle theory
A rational expectations theory of the business cycle that regards unexpected fluctuations in aggregate demand as the main source of fluctuations of real GDP around potential GDP.
443
New Keynesian
A macroeconomist who holds the view that not only is the money wage rate sticky but also that the prices of goods and services are sticky.
444
New Keynesian cycle theory
A rational expectations theory of the business cycle that regards unexpected and currently expected fluctuations in aggregate demand as the main source of fluctuation of real GDP around potential GDP.
445
New-issue DRP (scrip dividend schemes)
Dividend reinvestment plan in which the company meets the need for additional shares by issuing them instead of purchasing them.
446
nFactorial
For positive integer n, the product of the first n possitive integers; 0 factorial equals 1 by definition. N factoral is written as n!.
447
Node
Each value on a binomial tree from which successive moves or outcomes branch.
448
No-load fund
A mutual fund in which there is no fee for investing in the fund or for redeeming fund shares, although there is an annual fee based on a percentage of the fund's net asset value.
449
Nominal rate
A rate of interest based on a security's face value.
450
Nominal risk-free interest rate
The sum of the real risk-free interest rate and the inflation premium.
451
Nominal scale
A measurement scale that categorizes data but does not rank them.
452
Nonconventional cash flow
In a nonconventional cash flow pattern, the intial outflow is not followed by inflows only, but the cash flows can flip from positive (inflows) to negative (outflows) again (or even change sign several times).
453
Non-cumulative preference shares
Preference shares for which dividends that are not paid in the current or subsequent periods are forfeited permanently (instead of being accrued and paid at a later date).
454
Noncurrent
Not due to be consumed, converted into cash, or settled within one year after the balance sheet date.
455
Noncurrent assets
Assets that are expcted to benefit the company over an extended period of time (usually more than one year).
456
Non-current liability
An obligation that broadly represents a probable sacrifice of economic benefits in periods generally greater than one year in the future.
457
Non-cyclical
A company whose performance is largely independent of the business cycle.
458
Nondelivarable forwards (NDFs)
Cash-settled forward contracts, use predominately with respect to foreign exchange forwards.
459
Nonlinear relation
An assocation or relationship between variables that cannot be graphed as a straight line.
460
Nonmonetary assets and liabilities
Assets and liabilities that are not monetary assets and liabilities. Nonmonetary assets include inventory, fixed assets, and intangibles, and nonmonetary liabilities include deferred revenue.
461
Nonparametric test
A test that is not concerned with a parameter, or that makes minimal assumptions about the population from which a sample comes.
462
Non-participating preference shares
Preference shares that do not entitle shareholders to share in the profits of the company. Instead, shareholders are only entitled to receive a fixed dividend payment and the par value of the shares in the event of liquidation.
463
Nonrenewable natural resources
Natural resources that can be used only once and that cannot be replaced once they have been used.
464
Nonstationarity
With reference to a random variable, the property of having characteristics such as mean and variance that are not constant through time.
465
Nonsystematic risk
Unique risk that is local or limited to a particular asset or industry that need not affect assets outside of that asset class.
466
Normal backwardation
The condition in futures markets in which futures prices are lower than expected spot prices.
467
Normal contango
The condition in futures markets in which futures prices are higher than expected spot prices.
468
Normal distribution
A continuous, symmetric probability distribution that is completely dscribed by its mean and its variance.
469
Normal profit
The return that an entrepreneur can expect to receive on the average.
470
Notes payable
Amounts owed by a business to creditors as a result of borrowings that are evidenced by (short-term) loan agreements.
471
n-Period moving average
The average of the current and immediately prior n - 1 values of a time series.
472
NPV rule
An investment decision rule that states that an investment should be undertaken if its NPV is positive but not undertaken if its NPV is negative.
473
Null hypothesis
The hypothesis to be tested.
474
Number of days of inventory
An activity ratio equal to the number of days in a period divided by the inventory ratio for the period; an indication of the number of days a company ties up fund in inventory.
475
Number of days of payables
An activity ratio equal to the number of days in a period divided by the payables turnover ratio for the period; an estimate of the average number of days it takes a company to pay its suppliers.
476
Number of days of receivables
Estimate of the average number of days it takes to collect on credit accounts.
477
Objective probabilities
Probabilities that generally do not vary from person to person; includes a priori and objetive probabilities.
478
Off-balance sheet financing
Arrangements that do not result in additional liabilities on the balance sheet but nonetheless create economic obligations.
479
Off-market FRA
A contract in which the intial value is intentionally set at a value other than zero and therefore requires a cash payment at the start from one party to the other.
480
Offsetting
A transaction in exchange-listed dervative markets in which a party re-enters the market to close out a position.
481
Oligopoly
A market structure in which a small number of firms compete.
482
One-sided hypothesis test (or one-tailed hypothesis test)
A test in which the null hypothesis is rejected only if the evidence indicates that the population parameter is greater than (small than) ?0. The alternative hypothesis also has one side.
483
Open market operation
The purchase or sale of government securities--U.S. Treasury bills and bonds--by the Federal Reserve in the open market.
484
Open-end fund
A mutual fund that accepts new investment money and issues additional shares at a value equal to the net asset value of the fund at the time of investment.
485
Open-market DRP
Dividend reinvestment plan in which the company purchases shares in the open market to acquire the additional shares credited to plan participants.
486
Operating activities
Activities that are part of the day-to-day business functioning of an entity, such as selling inventory and providing services.
487
Operating breakeven
The number of units produced and sold at which the company's operating profit is zero (revenues = operating costs).
488
Operating cycle
A measure of the time needed to convert raw materials into cash from a sale; it consists of the number of days of inventory and the number of days of receivables.
489
Operating lease
An agreement allowing the lessee to use some asset for a period of time; essentially a rental.
490
Operating leverage
The use of fixed costs in operations.
491
Operating profit (operating income)
A company's profits on its usual business activities before deducting taxes.
492
Operating profit margin (operating ROA)
A profitability ratio calculated as operating income divided by average total assets.
493
Operating risk
The risk attributed to the operating cost structure, in particular the use of fixed costs in operations; the risk arising from the mix of fixed and variable costs; the risk that a company's operations may be severly affected by environmental, social, and governance risk factors.
494
Operationally efficient
Said of a market, a financial system, or an economy that has relatively low transaction costs.
495
Operations risk or operational risk
The risk of loss from failures in a company's systems and prodecures (for example, due to computer failures or human failures) or events completely outside of the control of organizations (which would include "acts of God" and terrorist actions).
496
Opportunity cost
The value that investors forgo by choosing a particular course of action; the value of something in its best alternative use.
497
Opportunity set
The set of assets available for investments.
498
Optimal capital structure
The capital structure at which the value of the company is maximized.
499
Optimizer
A specialized computer program or a spreadhseet that solves for the portfolio weights that will result in the lowest risk for a specified level of expected return.
500
Option (or option contract)
A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time. Also, referred to as contingent claims.
