American Depositary Receipts (ADRs) Certificates issued b
y
a U.S. depositar
y
bank, representin
g
forei
g
n shares held
b
y
the bank, usuall
y
b
y
a branch or correspondent in the countr
y
of issue. One ADR ma
y
represent a portion of
a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's
are "sponsored," the corporation provides financial information and other assistance to the bank and may
subsidize the administration of the ADRs. "Unsponsored" ADRs do not receive such assistance. ADRs carry
the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted
Alternative mortgage instruments Variations of mort
g
a
g
e instruments such as ad
j
ustable-rate and variable- rate
several seldom-used mortgages, and mortgages,
variations.
graduated-payment mortgages, reverse-annuity
y = rate of return for the fund
x = rate of return for the S&P 500
b = beta of the fund
where: n =number of observations (36 months)
[ (sum of y) -((b)(sum of x)) ] / n
Alpha equationThe alpha of a fund is determined as follows:
Alpha A measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A positive
alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. For
example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4%.
An alpha of -0.6 means a fund's monthly return was 0.6% less than would have been predicted from the change
in the market alone. In a Jensen Index, it is factor to represent the portfolio's performance that diverges from its
beta, representing a measure of the manager's performance.
All-or-none underwriting An arran
g
ement whereb
y
a securit
y
issue is canceled if the underwriter is unable to
re-sell the entire issue.
All-in cost Total costs, explicit and implicit.
All-equity rateThe discount rate that reflects onl
y
the business risks of a pro
j
ect and abstracts from the effects
of financing.
All or none Requirement that none of an order be executed unless all of it can be executed at the specified price.
All equity rate The discount rate that reflects onl
y
the business risks of a pro
j
ect and abstracts from the effects
of financing.
AIBD Association of International Bond Dealers.
Aging schedule A table of accounts receivable broken down into a
g
e cate
g
ories (such as 0-30 da
y
s, 30-60 da
y
s,
and 60-90 days), which is used to see whether customer payments are keeping close to schedule.
Aggregation Process in corporate financial plannin
g
whereb
y
the smaller investment proposals of each of the firm's
operational units are added up and in effect treated as a big picture.
Agent The decisio
n
-maker in a principal-a
g
ent relationship.
Agency theory The anal
y
sis of principal-a
g
ent relationships, wherein one person, an a
g
ent, acts on behalf of
anther person, a principal.
5
Dictionary of Finantial and Business Terms
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Annuity A re
g
ular periodic pa
y
ment made b
y
an insurance compan
y
to a polic
y
holder for a specified period of
time.
Annualized holding period return The annual rate of return that when compounded t times, would have given
the same t-period holding return as actually occurred from period 1 to period t.
Annualized gain If stock X appreciates 1.5% in one month, the annualized
g
ain for that sock over a twelve month
period is 12*1.5% = 18%. Compounded over the twelve month period, the gain is (1.015)^12 = 19.6%.
Annual report Yearl
y
record of a publicl
y
held compan
y
's financial condition. It includes a description of the firm's
operations, its balance sheet and income statement. SEC rules require that it be distributed to all shareholders.
A more detailed version is called a 10-K.
Annual percentage yield (APY) The effective, or true, annual rate of return. The APY is the rate actuall
y
earned or
paid in one year, taking into account the affect of compounding. The APY is calculated by taking one plus the
periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of
12.68% (1.01^12).
Annual percentage rate (APR) The periodic rate times the number of periods in a year. For example, a 5%
quarterly return has an APR of 20%.
Annual fund operating expenses For investment companies, the mana
g
ement fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements, and
providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.
Announcement date Date on which particular news concernin
g
a
g
iven compan
y
is announced to the public. Used
in event studies, which researchers use to evaluate the economic impact of events of interest.
Angels Individuals providin
g
venture capital.
Analyst Emplo
y
ee of a brokera
g
e or fund mana
g
ement house who studies companies and makes bu
y
-and-sell
recommendations on their stocks. Most specialize in a specific industry.
Amortizing interest rate swap Swap in which the principal or national amount rises (falls) as interest rates rise
(decline).
Amortization factor The pool factor implied by the scheduled amortization assuming no prepayemts.
Amortization The repayment of a loan by installments.
American-style option An option contract that can be exercised at an
y
time between the date of purchase and the
expiration date. Most exchange-traded options are American style.
American Stock Exchange (AMEX) The second-lar
g
est stock exchan
g
e in the United States. It trades
mostly in small-to medium-sized companies.
American shares Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign issuer
The certificates represent claims to foreign equities.
American option An option that ma
y
be exercised at an
y
time up to and includin
g
the expiration date.
Related: European option
for the SDR/ordinar
y
ratio, are kept essentiall
y
identical b
y
arbitra
g
e. American depositar
y
shares(ADSs) are a
similar form of certification.
6
Dictionary of Finantial and Business Terms
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Asian option Option based on the average price of the asset during the life of the option.
Asian currency units (ACUs) Dollar deposits held in Singapore or other Asian centers.
Articles of incorporation Legal document establishing a corporation and its structure and purpose.
ARMs Ad
j
ustable rate mort
g
a
g
e. A mort
g
a
g
e that features predetermined ad
j
ustments of the loan interest rate at
re
g
ular intervals based on an established index. The interest rate is ad
j
usted at each interval to a rate equivalent
to the index value plus a predetermined spread, or margin, over the index, usually subject to per- interval and to
life-of-loan interest rate and/or payment rate caps.
Arm's length price The price at which a willing buyer and a willing unrelated seller would freely agree to
transact.
Arms index Also known as a tradin
g
index (TRIN)= (number of advancin
g
issues)/ (number of declinin
g
issues)
(Total up volume )/ (total down volume). An advance/decline market indicator. Less than 1.0 indicates bullish demand,
while above 1.0 is bearish. The index often is smoothed with a simple moving average.
Arithmetic mean return An avera
g
e of the subperiod returns, calculated b
y
summin
g
the subperiod returns and
dividing by he number of subperiods.
Arithmetic average (mean) rate of return Arithmetic mean return.
Arbitrageurs People who search for and exploit arbitra
g
e opportunities.
Arbitrage-free option-pricing models Yield curve option-pricing models.
Arbitrage Pricing Theory (APT) An alternative model to the capital asset pricin
g
model developed b
y
Stephen Ross and based purely on arbitrage arguments.
Arbitrage The simultaneous bu
y
in
g
and sellin
g
of a securit
y
at two different prices in two different markets,
resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly
efficient markets seldom exist.
Appropriation request Formal request for funds for capital investment project.
Appraisal rights A ri
g
ht of shareholders in a mer
g
er to demand the pa
y
ment of a fair price for their shares, as
determined independently.
Appraisal ratio The si
g
nal-to-noise ratio of an anal
y
st's forecasts. The ratio of alpha to residual standard
deviation.
Antidilutive effect Result of a transaction that increases earnings per common share (e.g. by decreasing the
number of shares outstanding).
Anticipation Arrangements whereby customers who pay before the final date may be entitled to deduct a normal
rate of interest.
Annuity in arrearsAn annuity with a first payment on full period hence, rather than immediately.
Annuity factor Present value of $1 paid for each of t periods.
Annuity due An annuit
y
with n pa
y
ments, wherein the first pa
y
ment is made at time t = 0 and the last
payment is made at time t = n - 1.
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Dictionary of Finantial and Business Terms
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Assignment The receipt of an exercise notice b
y
an options writer that requires the writer to sell (in the case of a
call) or purchase (in the case of a put) the underlying security at the specified strike price.
Assets requirements A common element of a financial plan that describes pro
j
ected capital spendin
g
and the
proposed uses of net working capital.
Assets A firm's productive resources.
Asset pricing model A model, such as the Capital Asset Pricin
g
Model (CAPM), that determines the required rate
of return on a particular asset.
Asset turnover The ratio of net sales to total assets.
Asset swap An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
provide a better match with its iabilities.
Asset substitution problem Arises when the stockholders substitute riskier assets for the firm's existin
g
assets
and expropriate value from the debtholders.
Asset substitution A firm's investing in assets that are riskier than those that the debtholders expected.
Asset pricing model A model for determining the required rate of return on an asset.
Asset for asset swap Creditors exchan
g
e the debt of one defaultin
g
borrower for the debt of another
defaulting borrower.
Asset-coverage test A bond indenture restriction that permits additional borrowin
g
on if the ratio of assets to debt
does not fall below a specified minimum.
Asset classes Categories of assets, such as stocks, bonds, real estate and foreign securities.
Asset-based financing Methods of financin
g
in which lenders and equit
y
investors look principall
y
to the cash
flow from a particular asset or set of assets for a return on, and the return of, their financing.
Asset-backed security A security that is collateralized by loans, leases, receivables, or installment contracts on
personal property, not real estate.
Asset allocation decision The decision re
g
ardin
g
how an institution's funds should be distributed amon
g
the ma
j
or
classes of assets in which it may invest.
Asset activity ratios Ratios that measure how effectively the firm is managing its assets.
Asset/liability management Also called surplus mana
g
ement, the task of mana
g
in
g
funds of a financial
institution to accomplish the two goals of a financial institution: (1) to earn an adequate return on funds
invested and (2) to maintain a comfortable surplus of assets beyond liabilities.
Asset/equity ratio The ratio of total assets to stockholder equity.
Asset Any possession that has value in an exchange.
Ask price A dealer's price to sell a securit
y
; also called the offer price.
Ask This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practicall
y
speakin
g
, this is the
quoted offer at which an investor can buy shares of stock; also called the offer price.
8
Dictionary of Finantial and Business Terms
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Average life Also referred to as the wei
g
hted-avera
g
e life (WAL). The avera
g
e number of
y
ears that each dollar
of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted
Average cost of capital A firm's required pa
y
out to the bondholders and to the stockholders expressed as a
percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total
required cost of capital by the total amount of contributed capital.
Average collection period, or days' receivables The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).
Average age of accounts receivable The weighted-average age of all of the firm's outstanding invoices.
Average accounting return The avera
g
e pro
j
ect earnin
g
s after taxes and depreciation divided b
y
the avera
g
e book
value of the investment during its life.
Average An arithmetic mean of selected stocks intended to represent the behavior of the market or some
component of it. One good example is the widely quoted Dow Jones Industrial Avera
g
e, which adds the current
prices of the 30 DJIA's stocks, and divides the results by a predetermined number, the divisor.
Availability float Checks deposited by a company that have not yet been cleared.
Autoregressive Usin
g
past data to predict future data.
Automatic stay The restrictin
g
of liabilit
y
holders from collection efforts of collateral seizure, which is
automatically imposed when a firm files for bankruptcy under Chapter 11.
Automated Clearing House (ACH) A collection of 32 re
g
ional electronic interbank networks used to
process transactions electronically with a guaranteed one-day bank collection float.
Autocorrelation The correlation of a variable with itself over successive time intervals.
Authorized shares Number of shares authorized for issuance by a firm's corporate charter.
Auditor's report A section of an annual report containin
g
the auditor's opinion about the veracit
y
of the
financial statements.
Auction rate preferred stock (ARPS) Floating rate preferred stock, the dividend on which is adjusted every seven
weeks through a Dutch auction.
Auction markets Markets in which the prevailin
g
price is determined throu
g
h the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.
Attribute bias The tendency of stocks preferred by the dividend discount model to share certain equity attributes
such as low price-earnings ratios, high dividend yield, high book-value ratio or membership in a particular
industry sector.
At-the-money An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.
Asymmetric taxes A situation wherein participants in a transaction have different net tax rates.
Asymmetric information Information that is known to some people but not to other people.
Asymmetry A lack of equivalence between two thin
g
s, such as the unequal tax treatment of interest expense and
dividend payments.
9
Dictionary of Finantial and Business Terms
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Balance sheet identity Total Assets = Total Liabilities + Total Stockholders' Equity
Balance sheet exposure See:accounting exposure.
Balance sheet Also called the statement of financial condition, it is a summary of the assets, liabilities, and
owners' equity.
Balance of trade Net flow of goods (exports minus imports) between countries.
Balance of payments A statistical compilation formulated b
y
a soverei
g
n nation of all economic transactions
between residents of that nation and residents of all other nations during a stipulated period of time, usually a
calendar year.
Baker Plan A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor countries
(the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased financing from
the World Bank and continued lending from commercial banks.
Backwardation A market condition in which futures prices are lower in the distant deliver
y
months than in the
nearest delivery month. This situation may occur in when the costs of storing the product until eventual delivery
are effectively subtracted from the price today. The opposite of contango.
Back-up (1) When bond
y
ields and prices fall, the market is said to back-up. (2) When an investor swaps out of one
security into another of shorter current maturity he is said to back up.
Back-to-back loan A loan in which two companies in separate countries borrow each other's currency for a
specific time period and repay the other's currency at an agreed upon maturity.
Back-to-back financing An intercompany loan channeled through a bank.
Back-end loan fund A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from
4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a designated
time, such as one year. The commission decreases the longer the investor holds the shares. The formal name for
the back-end load is the contingent deferred sales charge, or CDSC.
Back officeBrokera
g
e house clerical operations that support, but do not include, the tradin
g
of stocks and other
securities. Includes all written confirmation and settlement of trades, record keeping and regulatory compliance.
Back fee The fee paid on the extension date if the buyer wishes to continue the option.
Away A trade, quote, or market that does not originate with the dealer in question, e.g., "the bid is 98-10 away
from me."
Average tax rate Taxes as a fraction of income; total taxes divided by total taxable income.
Average rate of return (ARR) The ratio of the average cash inflow to the amount invested.
Average (across-day) measures An estimation of price that uses the avera
g
e or representative price of a lar
g
e
number of trades.
Average maturity The avera
g
e time to maturit
y
of securities held b
y
a mutual fund. Chan
g
es in interest rates have
greater impact on funds with longer average life.
10
Dictionary of Finantial and Business Terms
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average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal
paydowns.
Bankruptcy risk The risk that a firm will be unable to meet its debt obli
g
ations. Also referred to as default or
insolvency risk.
Bankruptcy cost view The ar
g
ument that expected indirect and direct bankruptc
y
costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.
Bankruptcy State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from the
stockholders to the bondholders.
Bank for International Settlements (BIS) An international bank headquartered in Basel, Switzerland, which serves
as a forum for monetar
y
cooperation amon
g
several European central banks, the Bank of Japan, and the U.S. Federal
Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it now
international banking activity and promulgates rules concerning monitors and collects data
international bank regulation.
on
Banker's acceptance A short-term credit investment created by a non-financial firm and guaranteed by a bank as
to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments
have been a popular investment for money market funds. They are commonly used in international
transactions.
Bank wire A computer messa
g
e s
y
stem linkin
g
ma
j
or banks. It is used not for effectin
g
pa
y
ments, but as a
mechanism to advise the receivin
g
bank of some action that has occurred, e.
g
. the pa
y
ment b
y
a customer of funds
into that bank's account.
Bank line Line of credit granted by a bank to a customer.
Bank draft A draft addressed to a bank.
Bank discount basis A convention used for quotin
g
bids and offers for treasur
y
bills in terms of annualized
y
ield ,
based on a 360-day year.
Bank collection float The time that elapses between when a check is deposited into a bank account and when the
funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.
Bane In the words of Warren Buffet, Bill Bane Sr., is, "a great American and one of the last real traders around.
I like to call him 'Salvo.'" His wife, Carol, is a huge NASCAR fan, and in her own words "delights in pulling the legs off
central bankers." Cooper Bane, son number two, is a thriving artiste who specializes in making art that is much
better than the stuff most folks are doing. Jackson, son number three, is a world renowned master chef and plans
on opening a restaurant. Bill Bane Jr., son number one, plans on giving Mr. Monroe Trout a run for his money. [Bill
Bane, Jr. helped Professor Harvey put the hypertextual glossary together while an MBA student at Duke University.]
BAN (Bank anticipation notes) Notes issued b
y
states and municipalities to obtain interim financin
g
for
projects that will eventually be funded long term through the sale of a bond issue.
Balloon maturity An
y
lar
g
e principal pa
y
ment due at maturit
y
for a bond or loan with or without a a sinkin
g
fund
requirement.
Balanced mutual fund This is a fund that buys common stock, preferred stock and bonds. The same as a
balanced fund.
Balanced fund An investment compan
y
that invests in stocks and bonds. The same as a balanced mutual fund.
11
Dictionary of Finantial and Business Terms
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Bear An investor who believes a stock or the overall market will decline. A bear market is a prolon
g
ed period of
falling stock prices, usually by 20% or more. Related: bull.
Basket trades Related: Program trades.
Basket options Packages that involve the exchange of more than two currencies against a base currency at expiration. The
basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange
for a base currency, either at the prevailing spot market rate or at a prearranged rate of exchange. A basket option is
generally used by multinational corporations with multicurrency cash flows since it is generally cheaper to buy an
option on a basket of currencies than to buy individual options on each
of the currencies that make up the basket.
Basis risk The uncertaint
y
about the basis at the time a hed
g
e ma
y
be lifted. Hed
g
in
g
substitutes basis risk for price
risk.
Basis price Price expressed in terms of yield to maturity or annual rate of return.
Basis point In the bond market, the smallest measure used for quotin
g
y
ields is a basis point. Each percenta
g
e point
of
y
ield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis
points greater than an interest rate of 4.5%.
Basis Re
g
ardin
g
a futures contract, the difference between the cash price and the futures price observed in the market.
Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to determine
capital gains or losses for tax purposes when the stock is sold.
Basic IRR rule Accept the project if IRR is greater than the discount rate; reject the project is lower than the
discount rate.
Basic business strategies Ke
y
strate
g
ies a firm intends to pursue in carr
y
in
g
out its business plan.
Basic balance In a balance of pa
y
ments, the basic balance is the net balance of the combination of the current
account and the capital account.
Base probability of loss The probability of not achieving a portfolio expected return.
Base interest rate Related: Benchmark interest rate.
Barrier options Contracts with tri
gg
er points that, when crossed, automaticall
y
g
enerate bu
y
in
g
or sellin
g
of other
options. These are very exotic options.
BARRA's performance analysis (PERFAN) A method developed by BARRA, a consulting firm in Berkeley,
Calif. It is commonly used by institutional investors applying performance attribution analysis to evaluate their
money managers' performances.
Bargain-purchase-price option Gives the lessee the option to purchase the asset at a price below fair market value
when the lease expires.
Barbell strategy A strate
gy
in which the maturities of the securities included in the portfolio are concentrated at two
extremes.
Bar Slan
g
for one million dollars.
Bankruptcy view The ar
g
ument that expected bankruptc
y
costs preclude firms from bein
g
financed entirel
y
with
debt.
12
Dictionary of Finantial and Business Terms
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licoreis@terra.com.br
y = rate of return for the fund
x = rate of return for the S&P 500 Index
where: n = # of observations (36 months)
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]
The beta of a fund is determined as follows:
Beta equation (Mutual Funds)
Beta (Mutual Funds) The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means the
fund's total return is likely to move up or down 70% of the market change; 1.3 means total return is likely to move
up or down 30% more than the market. Beta is referred to as an index of the systematic risk due to general market
conditions that cannot be diversified away.
Best-interests-of-creditors test The requirement that a claim holder voting against a plan of reorganization must
receive at least as much as he would have if the debtor were liquidated.
Best-efforts sale A method of securities distribution/ underwritin
g
in which the securities firm a
g
rees to sell
as much of the offerin
g
as possible and return an
y
unsold shares to the issuer. As opposed to a
g
uaranteed or fixed price
sale, where the underwriter a
g
rees to sell a specific number of shares (with the securities firm holdin
g
an
y
unsold
shares in its own account if necessary).
Benchmark issues Also called on-the-run or current coupon issues or bellwether issues. In the secondar
y
market
,
it's the most recently auctioned Treasury issues for each maturity.
Benchmark interest rate Also called the base interest rate, it is the minimum interest rate investors will
demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on a
comparable-maturity Treasury security that was most recently issued ("on-the-run").
Benchmark errorUse of an inappropriate proxy for the true market portfolio.
Benchmark The performance of a predetermined set of securities, for comparison purposes. Such sets ma
y
be based
on published indexes or may be customized to suit an investment strategy.
Bellwether issues Related:Benchmark issues.
Beggar-thy-neighbor devaluation A devaluation that is desi
g
ned to cheapen a nation's currenc
y
and thereb
y
increase its exports at other countries' expense and reduce imports. Such devaluations often lead to trade wars.
Beggar-thy-neighbor An international trade polic
y
of competitive devaluations and increased protective
barriers where one country seeks to gain at the expense of its trading partners.
Before-tax profit marginThe ratio of net income before taxes to net sales.
Bear raid A situation in which large traders sell positions with the intention of driving prices down.
Bear market Any market in which prices are in a declining trend.
Bearer bond bonds that are not re
g
istered on the books of the issuer. Such bonds are held in ph
y
sical form b
y
the
owner, who receives interest pa
y
ments b
y
ph
y
sicall
y
detachin
g
coupons from the bond certificate and deliverin
g
them to the paying agent.
13
Dictionary of Finantial and Business Terms
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Blocked currency A currency that is not freely convertible to other currencies due to exchange controls.
Block votingA group of shareholders banding together to vote their shares in a single block.
Block tradeA lar
g
e tradin
g
order, defined on the New York Stock Exchan
g
e as an order that consists of 10,000
shares of a given stock or a total market value of $200,000 or more.
Block houseBrokerage firms that help to find potential buyers or sellers of large block trades.
Blanket inventory lienA secured loan that
g
ives the lender a lien a
g
ainst all the borrower's inventories.
Black-Scholes option-pricing modelA model for pricin
g
call options based on arbitra
g
e ar
g
uments that uses the
stock price, the exercise price, the risk-free interest rate, the time to expiration, and the standard deviation of the
stock return.
Black market An illegal market.
Binomial option pricing model An option pricin
g
model in which the underl
y
in
g
asset can take on onl
y
two
possible, discrete values in the next time period for each value that it can take on in the preceding time period.
Bill of ladingA contract between the exporter and a transportation compan
y
in which the latter a
g
rees to
transport the goods under specified conditions which limit its liability. It is the exporter's receipt for the goods
as well as proof that goods have been or will be received.
Bill of exchange General term for a document demanding payment.
Big Board A nickname for the New York Stock Exchange. Also known as The Exchange. More than 2,000 common and
preferred stocks are traded. Founded in 1792, the NYSE is the oldest exchange in the United States, and the largest.
It is located on Wall Street in New York City.
Big Bang The term applied to the liberalization in 1986 of the London Stock Exchange in which trading was
automated with the use of computers.
Bidder A firm or person that wants to bu
y
a firm or securit
y
.
Bid-asked spread The difference between the bid and asked prices.
Bid price This is the quoted bid, or the hi
g
hest price an investor is willin
g
to pa
y
to bu
y
a securit
y
. Practicall
y
speaking, this is the available price at which an investor can sell shares of stock. Related: Ask , offer.
Biased expectations theories Related: pure expectations theor
y
.
y = rate of return for the stock
x = rate of return for the S&P 500 Index
where: n = # of observations (24-60 months)
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
The beta of a stock is determined as follows:
Beta equation (Stocks)
14
Dictionary of Finantial and Business Terms
Lico Reis - Consultoria & L?nguas
licoreis@terra.com.br
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