Unit 2 (Glossary) Flashcards
Active Management
A type of investment approach employed to
generate returns in excess of an investment
benchmark index. Active management is
employed to exploit pricing anomalies in those
securities markets that are believed to be
subject to mispricing by utilising fundamental
analysis and/or technical analysis to assist in the
forecasting of future events and the timing of
purchases and sales of securities.
Acquisition
An acquisition is the term that is typically used
when one company buys another for cash,
or where the company being purchased is
significantly smaller than the predator company
that buys it. Rather than the two initial groups
of shareholders coming together in a merger
of their interests, the shareholders of the target
either accept cash and lose their involvement in
the new combination, or play a much reduced
role in the new combination
AIM
The London Stock Exchange’s (LSE’s) market
for smaller UK public limited companies (plcs).
AIM has less demanding admission requirements
and places less onerous continuing obligation
requirements upon those companies admitted
to the market than those applying for a full list
on the LSE.
Alpha
The return from a security or a portfolio in excess
of a risk-adjusted benchmark return.
Alternative Trading Systems (ATSs)
An ATS is a platform for trading that is not a
recognised stock exchange.
American Depositary Receipt (ADR)
An ADR is a security that represents securities of
a non-US company that trades in the US financial
markets.
Amortisation
The depreciation charge applied in company
accounts against capitalised intangible assets.
Annual General Meeting (AGM)
The annual meeting of directors and ordinary
shareholders of a company. All companies are
obliged to hold an AGM at which the shareholders
receive the company’s report and accounts and
have the opportunity to vote on the appointment
of the company’s directors and auditors and
the payment of a final dividend recommended
by the directors. Also referred to as an Annual
General Assembly in some jurisdictions.
Arbitrage
The process of deriving a risk-free profit by
simultaneously buying and selling the same
asset in two related markets where a pricing
anomaly exists.
Asset Allocation
The process of deciding on the division of a
portfolio’s assets between asset classes and
geographically before deciding upon which
particular securities to buy.
Auction
System used to issue securities where the
successful applicants pay the price that they
bid. Examples of its use include the UK Debt
Management Office (DMO) when it issues gilts.
Auctions are also used by the LSE to establish
prices, such as opening and closing auctions on
SETS.
Base Currency
The currency against which the value of a quoted
currency is expressed. The base currency is
currency X for the X/Y exchange rate.
Bear Market
A negative move in a securities market,
conventionally defined as a 20%+ decline. The
duration of the market move is immaterial.
Bearer Securities
Those whose ownership is evidenced by the
mere possession of a certificate. Ownership can,
therefore, pass from hand to hand without any
formalities.
Beta
The relationship between the returns on a stock
and returns on the market. Beta is a measure of
the systematic risk of a security or a portfolio in
comparison to the market as a whole.
Bonds
Securities issued by an organisation, such as a
government or corporation. Bonds pay regular
interest and repay their principal or face value at
maturity. One of the most common underlying
assets for derivative contracts.
Bonus Issue
The free issue of new ordinary shares to a
company’s ordinary shareholders, in proportion
to their existing shareholdings through the
conversion, or capitalisation, of the company’s
reserves. By proportionately reducing the market
value of each existing share, a bonus issue makes
the shares more marketable. Also known as a
capitalisation issue or scrip issue.
Broker-Dealer
An exchange member firm that can act in a dual
capacity both as a broker acting on behalf of
clients and as a dealer dealing in securities on
their own account.
Captive Insurance
The creation of a specialist insurance entity to
provide insurance to other companies within the
same group.
Central Bank
Central banks typically have responsibility for
setting a country’s or a region’s short-term
interest rate, controlling the money supply,
acting as banker and lender of last resort to the
banking system and managing the national debt.
Circuit Breaker
An automated suspension of trading on an
exchange when prices move by more than a
predetermined amount to enable market
participants to reflect and prevent panic buying
or selling.
Clean Price
The quoted price of a bond. The clean price
excludes accrued interest to be added or to be
deducted, as appropriate.
Closed-Ended
Organisations such as companies which are a
fixed size as determined by their share capital.
Commonly used to distinguish investment trusts
(closed-ended) from unit trusts and OEICs (openended
Collective Investment Scheme (CIS)
A CIS is essentially a way of investing money
with other people to participate in a wider range
of investments than those feasible for most
individual investors, and to share the costs of
doing so. Terminology varies by country, but
collective investments are often referred to as
investment funds, managed funds, mutual funds
or simply funds.
