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B - Fifth letter of a NASDAQ stock symbol. The B
specifies a Class 'B' share of a company.
Baby Bond - A bond with a face value of less than $1,000.
Back away - To withdraw from a previously declared interest in a given
security.
Back Bond - A bond obtained through exercise of an option or warrant.
Back Contract - The latest expiration futures contract currently
trading.
Back fee - A fee paid if a buyer wishes to continue an option past the
extension date.
Back Month - Any futures contract maturity after the next expiration
month.
Back Office - A term that refers to the clerical or administrative
departments that exist within a brokerage firm.
Back Spread - Complex position consisting of at least one long option
position which causes the entire position to increase in value in
response to a significant price or rate move.
Back Stub Period - The last provisional period in the life of a swap or
other periodic reset agreement if that period is different (usually
shorter) than preceding periods.
Back Testing - The practice of applying historical data to help appraise
the model's possible usefulness when current and future data are used.
Back to back financing - An inter-company loan channeled through a bank.
Back to back loan - An international loan where two companies (from
different countries) borrow the other’s currency and repay the other’s
currency at an agreed upon rate of maturity.
Back-end loan fund - Refers to the charges imposed by a mutual fund
company, on an investor, to redeem shares. The charge usually results in
a 4 to 6 percent transaction fee.
Back-to-Back Swap - A swap agreement that reverses the cash flow pattern
of a simple swap, modifying the net paying or receiving position of the
back-to-back counterparties.
Back-up - In a scenario when prices fall and bond yields rise, the
market is in a "back-up" state.
Back-Up Facility - A stand-by underwriting or lending agreement that
will give financing to an issuer unable to gain timely financing on
reasonable terms in its traditional borrowing markets.
Backed in - A situation where unforeseen events allow for a sale at a
premium or a purchase at a discount.
Backwardation - Occurs when the futures price on an instrument is lower
than the current price of the instrument.
Baker Plan - Federal plan in which 15 principal middle-income debtor
countries implemented growth reforms and would be supported by increased
financing from the World Bank and continued lending from commercial
banks.
Balance of payments - A formulation/compilation by one country of all
economic transactions between residents of that country and residents of
all other countries during a designated period of time.
Balance Sheet - Financial statement showing a corporations assets,
liabilities and shareholder capital.
Balanced (Mutual) Fund - A fund that buys common stock, preferred stock
and bonds.
Balloon - The final payment on a bond or note that is substantially
larger than prior amortization payments.
Balloon Maturity - A large principal payment which is due at the
maturity of a loan or bond.
Band - The range of acceptable exchange rates between two currencies.
Bank Anticipation Notes - A measure of interim financing for projects
that will be funded long term through the sale of bond issues in the
future.
Bank Capital Adequacy Requirements - An international set of risk
weighted capital charges and capital requirements for banks.
Bank collection float - The elapsed time from when a check is deposited
and the funds are made available to the depositor.
Bank Discount Basis - Based on a 360 day year, this convention is used
to quote bids and offers on T-Bills based on annualized yield.
Bank Draft - A draft issued to a bank.
Bank for International Settlements (BIS) - An organization dominated by
central banks that resides over issues of international payments.
Bank Guarantee - A form of credit development in which a bank lends its
own credit to guarantee timely payment of another party's commitment(s).
Bank Line - Refers to the line of credit issued by a bank to a customer.
Bank Quality - A term used to describe the highest quality of credit
worthiness by an issue of debt securities.
Bank Wire - A computer system that link major banks for communication
purposes.
Banker's Acceptance Swap - An interest rate swap with a banker's
acceptance rate as the floating rate.
Banker’s Acceptance - A credit investment (usually short-term) and
guaranteed by a bank.
Bankruptcy - The inability to pay debts.
Bankruptcy Remote Entity - A subsidiary or affiliate corporation whose
asset/liability structure and legal status makes its obligations insured
even in the event of the bankruptcy of its parent or guarantor.
Bankruptcy Risk - Refers to the risk that a company may not meet debt
responsibilities.
Bar - A financial slang that refers to one million dollars.
Barbell Strategy - Based in a fixed income portfolio, the maturities of
the securities are located at two extremes.
Bargain Hunter - An individual who uses extreme selectivity when looking
to purchase.
Bargain-purchase-price option - An stipulation that provides the lessee
the option to purchase the asset below fair market-value when the lease
expires.
Barings Collapse - The failure of Barings, a major U.K. investment bank,
attributed to poorly controlled speculation in Japanese stock index
futures by a Singapore-based trader.
BARRA Performance Analysis - A method used by institutional investors to
evaluate the performance of their money managers.
Barrier Options - Points in an option contract that, when passed,
automatically start the buying or selling of other options.
Barrier Price - The instrike or outstrike price that activates or
deactivates a barrier option.
Base Currency - In an International portfolio, the currency in which
gains or losses are measured.
Base Probability of Loss - The probability of not reaching the expected
return in a portfolio.
Basic Balance - Basic balance = current account + capital account.
Basic Business Strategy - The strategies a business plans to take in
order to facilitate its business plan.
Basis - The difference between the price and the futures price as seen
in the market.
Basis Point - Equal to one hundredth of a percent; generally used to
describe changes in bond yields.
Basis Price - The price as expressed in either the yield to maturity or
annual rate of return.
Basis Rate Swap - A swap in which counterparties calculate swap payments
proportional to different floating rates.
Basis Risk - Uncertainty about the basis in terms of when a hedge can be
lifted.
Basis Trade - A basket trade in which the price for the position is
determined by a spread against the price of a futures contract.
Basket - A basket refers to a group of stocks that is aggregated for the
purpose of being bought or sold simultaneously.
Basket Hedging - The use of a basket of currencies to counterbalance the
risk of all the non-base currencies in a portfolio.
Basket Options - A grouping that involves the exchange of multiple
currencies (more than two) against a base currency at the time of
expiration.
Basket Swap Rate - A composite interest rate equal to a weighted average
of swap rates with a common term, but equated in different currencies.
Basle Convergence Agreement - An international agreement to create and
execute common standards for bank capital satisfactoriness.
Basle Standards for Market Risk - A set of bank capital requirements to
cover exposure to variations in market price or rate.
Bayes' Theorem - A method for estimating the conditional probability of
a cause given that a particular event has occurred.
Bear - Refers to an investor that believes the overall market is in a
state of decline.
Bear Hug - A bear hug refers to a hostile takeover attempt where an
exceptionally large premium is offered by the acquirer in an effort to
force the target to accept.
Bear Market - where the general market is in a state of declining
securities prices.
Bear Raid - Refers to an attempt by investors to manipulate a stock
price by shorting a large number of shares.
Bear Spread - An options strategy that uses two contracts with intention
to profit from a drop in an underlying stock’s price.
Bear Swap - An interest rate swap agreement that allows the fixed rate
receiver to reinvest at higher rates as interest rates rise.
Bearer Bond - A bond not registered in the name of an owner, but are the
property of the physical holder.
Bearer Share - A security that has not been registered on the books (of
issuing corporation) and payable to the holder (physical) of the share.
Beating the Gun - Getting a better price through rapid response to
developments in the market.
Bed and Breakfast - A security or a portfolio is sold to record a tax
gain or loss or to avoid revealing a position at the end of a reporting
period and bought back the following day.
Before-Tax Profit Margin - The ratio of net pre-tax income to net sales.
Behavioral Finance - The study of behavior in markets that focuses on
psychological factors that manipulate decision-making during
uncertainty.
Behind - In terms of equities, at the same price but after the order.
Belgian Option - An option originally struck slightly out of the money
that pays off like a standard option if the underlying stock is in the
money at expiration, and pays off as a fraction of the hypothetical
value of the stock as the stock moves from the original price to the
strike.
Bells and Whistles - Unique features of a financial instrument designed
to appeal to a specific issuer or investor.
Benchmark - For comparison purposes, a benchmark is established to rate
performance of a preset group of securities.
Benchmark Error - Use of an inaccurate alternate for the true market
portfolio.
Benchmark Interest Rate - The minimum interest rate acceptable to
investors for a non-Treasury security.
Benchmark Issues - The most recently auctioned Treasury issue for each
maturity.
Beneath - A lower price for listed equity securities.
Beneficial Ownership - A situation where one enjoys the benefits of
ownership without have the title in their name.
Benefit of Carry - Occurs when the income derived from an instrument
exceeds the short-term borrowing cost plus any storage charge.
Bermuda Option - Option that can be exercised on a number of
predetermined occasions as stated in the option contract.
Bernoulli Trial - A random event that has three properties: First, Its
result must be result a success or a failure; Second, The chance of
success must be the same for all trials; and, Finally, The end product
of each trial must not be associated with the outcomes of the other
trials. Ex. Dice roll
Best Efforts Sale - An underwriting method for securities. A firm will
attempt to sell as much of an offering for the issuer and return any
unsold shares.
Best Execution - In the United States, investment advisors have a
obligation to obtain the best possible net execution for the accounts
they manage. In the United Kingdom, a similar obligation falls on a
broker acting as the investment manager's agent.
Best Interests Of Creditors Test - Refers to a claim holder who votes
against a reorganization in an effort to gain as much as if the debtor
were liquid.
Beta - The measure of a stocks risk relative to the market.
Bid - The highest price an investor is willing to pay to buy a security.
Bid Wanted - Refers to a holder of a security that is willing to sell
and entertain offers.
Bid-Ask Spread - The difference in the listed price of the bid and the
ask.
Bid-to-Cover Ratio - The ratio of the number of bids in a United States
Treasury securities auction to the number of successful bids. Measures
the success of the auction.
Bidder - One that wants to buy a security.
Bidding Buyer - A buyer that awaits a natural seller in order to get a
better price.
Bidding Through the Market - A buyer that will pay a premium.
Bifurcation - Separation of a financial instrument into two pieces. The
term sometimes refers to a division for analytical or evaluation
purposes, but it more commonly suggests a more complex approach to
financial instrument taxation.
Big Board - Common nickname for the NYSE.
Bilateral Margining Agreement - A collateralization pact to assure both
parties' performance on a swap or other OTC risk management contract
that requires each counterparty to deposit margin with the other
counterparty or a third party depending on the value of its net
obligations.
Bilateral Netting - An agreement between two parties in which they
exchange only the net difference in their obligations to each other.
Used to reduce exposure to credit/settlement risk.
Bill - A debt instrument with an original life of less than one year.
Usually issued at a discount, and redeemed at par. Ex. T-bills.
Bill of Exchange - A document that demands payment.
Bill Over Bond (BOB) Spread - The yield differential between a specific
maturity Treasury bill and a designated bond.
Binary LIBOR Note - A floating rate note paying LIBOR plus a premium if
LIBOR is, for example, above a designated strike rate on the reset date
and no premium if LIBOR is below the strike rate.
Binary Swap - A fixed for floating rate swap with the floating rate set
at a spread over the reference index rate if the reference rate is in a
designated range on the reset date and with no floating rate payment if
the reference rate is outside the range.
Binomial Model - Model used to appraise option values as a function of
an increase or decrease in the price of the underlying stock.
Black Box - Any computer system, portfolio, balance sheet, or income
statement that is not clear to its users yet accepted to it’s users.
Black Market - A slang term for an illegal market.
Black Scholes Option Pricing Model - Based on arbitrage arguments, the
Black Scholes model is used for pricing call options.
Black-Derman-Toy Model - A single factor financial model used to value
options.
Blanket inventory lien - A secured loan giving a lien to the lender
against the inventory of the borrower.
Blended Index - A weighted average of two or more indexes, often used as
the subject for a financial instrument.
Blended Interest Rate Swap - A combination of two or more interest rate
swaps, usually one with a spot start and one with a forward start.
Block - Large quantity of stocks or bond being bought or sold.
Block House - A firm who finds buyers or sellers of large blocks of
stocks or bonds.
Block Trader - A dealer willing to take positions in block transactions
in an effort to accommodate block buyers ad sellers.
Block Voting - The method of shareholders getting together to vote their
shares as one.
Blocked Currency - Due to exchange controls, a blocked currency cannot
be freely converted.
Blowout Bid - A large premium over previous prices, offered to
shareholders of an acquisition target with the expectation that other
bidders will be hesitant to engage in a bidding war starting at such a
high price.
Blue Chip - A company recognized for quality, the ability to make money
and pay dividends.
Blue-Sky laws - Individual state laws pertaining to securities trading.
Board of Trade - A commodity or futures exchange.
BOAT Spread - The yield spread between German Bunds and French OATs.
BOATs - Yield differential warrants with a payout fixed to the yield
spread between the German Bunds and the French OATs.
Bobl Over Bund (BOB) Spread - An interest rate spread transaction based
on the relative yields on the five-year Bundes Obligations (Bobl) or
Bobl future and the ten-year Bundes or Bundes future-a Deutsche mark
yield curve transaction.
Bogey - Bogey refers to the rate of return a fund manager is compared to
in order to evaluate performance.
Boil Spread - The difference in return between an investment in a bond
and an oil contract.
Boiler Room - A crowded, high pressure securities or commodities sales
operation often characterized by a high noise level intended to convey
excitement and urgency to customers at the other end of a telephone
line.
Boilerplate - A term that refers to standard terms and conditions.
Bond - A bond is a form of debt issued by companies for a period of more
than one year. An investment in a bond is seen as a loan of the
investors money to an entity that agrees to repay the principal at a
specified time. Companies, governments (US and local), and institutions
all sell bonds.
Bond Agreement - Debt that is privately placed under the terms of some
contract.
Bond Basis - A method of interest calculation using a day count fraction
equal to actual days divided by actual days in a year.
Bond Covenant - A contractual term of a bond.
Bond Equivalent Yield - Using an annual percentage rate method, the bond
equivalent yield can be calculated.
Bond Indenture - A term that refers to the legal documentation that
explains the promises of a bond issuer and the rights of the investor.
Bond Indexing - Creation of a portfolio that will match the performance
of another bond index.
Bond Over Bill (BOB) Spread - The yield differential between a specific
bond and a given maturity Treasury bill.
Bond Points - The unit of measure used to determine the rate at which a
bond is selling.
Bond Value - Referring to convertible bonds. Bond value is the project
value of the security were it not convertible from the conversion
option.
Bond With Attached Warrant - This warrant usually can be traded
separately after the underwriting period and is not called in the event
that the bond is called.
Bond Yield Warrant - A warrant, often exchange-traded, with a payout
dependent upon a specific bond yield or bond yield index.
Bond-Equivalent Basis - Refers to the method used to compute the
bond-equivalent yield.
Bond-Equivalent Yield - the method that doubles the semiannual yield in
order to determine the annualized yield to maturity.
Bond-Over-Stock (BOS) Warrant - Warrant with a payout based on the
performance of a bond index less the return on a stock index.
Bondholder - A firm will usually have both bondholders and stockholders.
Bondholders have first priority in the event of a liquidation.
Boning - Refers to charging more for an asset that the actual worth of
the asset.
Book - A trader’s position.
Book Cash - The reported amount of a company’s cash balance in its
financial statements.
Book Entry Securities - Securities represented in computer records
rather than by traditional engraved certificates.
Book Runner - Term used to describe the managing underwriter for a new
issue.
Book to Bill - Book to bill measures the supply of a company’s orders
and if the amounts they can deliver.
Book Value - Book Value is determined by the equation, total assets
minus intangible assets and liabilities (debt).
Book Value Per Share - Refers to the ratio of stockholder equity to the
number of common shares.
Bookout - Cancellation of a swap or other OTC derivatives contract prior
to maturity.
Bootstrapping - An calculation technique often used in the construction
of specialized time series.
Borrow - To get money with the understanding of repayment.
Borrower Option - A cap on a forward rate agreement.
Boston Option - A deferred premium option where the premium is paid at
expiration whether or not the option is exercised.
Bottom Fisher - An investor who looks for bargains in the securities of
troubled companies.
Bottom Up - A style that focuses on individual stocks as opposed to
market and economic cycles.
Bought Deal - An event where two underwriters buy an entire security
issue.
Boundary Conditions - Limitations on the value of an option contract ,
determined by it’s relationships among the underlying price, the
intrinsic value or forward intrinsic value of the option, and the stock
price.
Bounded Rationality - Recognition that real world solutions cannot be
based on complete information and that reaching a satisfactory solution
with incomplete information is usually better than making no decision.
Box - Refers to a quotation machine
Bracket - Designates the commitment of an underwriter to a new issue.
Minor or major bracket.
Brady Bonds - Refers to bonds issued under a debt reduction plan in an
emerging country economy.
Branch - A foreign country operation incorporated in the home country.
Breadth of Market - The percentage of stocks on an exchange that are
active in a particular market move.
Break - A noticeable or rapid price decline.
Break Even Analysis - A sales analysis that determines at what level a
project would make zero profit.
Break Even Tax Rate - A tax rate at which an investor is indifferent to
either entering or not entering the transaction.
Break Forward - Used in the currency markets to obtain full
participation in a move in the underlying beyond a specified level
without payment of an option premium.
Break Price - A change in an investor’s bid or ask price in order to get
to a level where a transaction is more feasible.
Break-Even Point - Level where a transaction or an enterprise
experiences neither profit nor loss.
Break-Even Time - A technique used to value the relative attractiveness
of a convertible security and its underlying.
Breakout - Refers to the price rise or drop above or below a resistance
level. Generally signifies a continuing move in the same direction.
Bretton Woods Agreement of 1944 - A currency agreement which set fixed
exchange rates for major currencies, provided for central bank
intervention in currency markets, and set the price of gold at US$35 per
ounce. The agreement controlled currency relationships for nearly 30
years.
Bridge Financing - Financing of an interim nature that is used to
solidify a position until a more permanent financing arrangement is met.
Bring It Out - A slang term for making stocks available for sale to
indicated buyers.
British Bankers Association Interest Rate Swap - A set of standardized
terms for interest rate swaps, largely implemented by the International
Swap and Derivatives Association.
British Clearers - The dominant clearing banks in the domestic sterling
market who dominate deposit taking and short-term lending.
Broken Dates - Settlement terms for forward currency contracts that are
not written for standard contract periods.
Broken up - Refers to listed equity securities. The term applies to
being prevented, due to exchange priority, from executing a trade.
Broker - Refers to either a floor broker or a broker handling retail
customers who receive a commission for executing customer orders.
Brokered market - A market condition in which a middle man offers search
services to both buyers and sellers.
Bubble theory - A theory where prices demonstrate volatility above their
true values until the figurative "bubble bursts".
Buck investor - An investor that utilizes time as an asset, knowing that
the market will rise in the very long term (30+ years).
Buck market - Any 30+ year market where prices will be in an upward
trend, where time is the greatest asset.
Bucket Shop - Any disreputable securities firm.
Bucketizing - Dividing contractual or expected cash flows from diverse
financial instruments into categories or 'buckets' for the analysis and
measurement of risk.
Budget - A schedule of internal financial activity a company must remain
within in order to operate profitably.
Budget deficit - A situation that results when government spending
exceeds revenues.
Build a book - The process of building customer orders in an effort to
gather supply and demand so as to make a bid or offer.
Building-Block Approach - A term for any of a variety of risk management
techniques which separate a financial instrument into simpler
components, reaggregate the components into portfolios, and manage
specific types of risk in the separate portfolios.
Bull - An investor that believes the market will rise.
Bull CD, Bear CD - CD’s that pay specific to a given market index. A
bull CD pays an indicated percentage of the increase in return on a
specified market index as well as a minimum rate of return. A bear CD
pays the holder a percentage of any fall based on a given market index.
Bull market - A market where prices are involved in an upward trend.
Bull spread - A strategy where an investor purchases an out-of-the-money
put option and finances it by selling an out-of-the money call option on
the same underlying security.
Bull-bear bond - A bond in which the principal repayment is related to
the price of another security.
Bull-cum-Bear Options - A zero coupon note made up of a deep
in-the-money call and a deep in-the- money put, either of which can be
closed out prior to maturity to convert the overall position into either
a call or a put.
Bulldog bond - Refers to a bond issue that is made in London.
Bulldog market - The bulldog market refers to the foreign market in the
United Kingdom.
Bullet contract - An investment contract that is guaranteed and
purchased with one premium.
Bullet loan - A no amortization bank term loan.
Bullet Maturity Bond - A coupon paying debt instrument with no repayment
of principal until maturity.
Bullet strategy - Refers to a portfolio (fixed income) that designed so
that the maturities are highly focused at one point on the yield curve.
Bullet Swap - A swap with a constant notional principal reflecting a
constant risk-offset requirement and/or the use of a debt security with
full repayment of principal at maturity.
Bullish - An optimistic outlook on the market.
Bundling - The combination of primitive and derivative securities into
one composite hybrid.
Bunny Bond - A coupon bond giving the investor the right to receive
coupon payments in cash or in additional bonds with the same coupon as
the underlying bond.
Burnout - Slowing of a mortgage's interest rate-linked prepayment rate
when rates fall into a prepayment range for the second time in the life
of a mortgage pool.
Business cycle - The cycles defined by economic expansion and recession.
Business Day - Any day on which banks and/or securities exchanges are
open for business in a country or a market.
Business risk - A risk involving the impairment of cash flow of an
issuer due to adverse conditions, resulting in the inability to meet
operating expenses.
Busted Convertible Security - A security trading so far below conversion
value that its value as a straight debt or preferred stock obligation is
much higher than its conversion value. This causes it to trade much like
a straight, or non-convertible, security.
Busted Planned Amortization Class (PAC) Bond - A planned amortization
class tranche of a collateralized mortgage obligation (CMO) with a
prepayment range above current market rates.
Butterfly shift - Relative to the yield curve, a shift (non-parallel)
involving the height of the curve.
Butterfly spread - An options strategy where two calls are sold and two
calls are bought on the same or different markets, involving several
maturity dates.
Buy - To purchase or take a long position.
Buy and Hold Strategy - An investment strategy where there is no active
buying and selling of stocks involved from the time the time of
portfolio creation until the end of the investment period.
Buy Back - Purchase of a position to cover an option or a short
position.
Buy downs - Mortgage where the monthly payments are principal and
interest only and, in the early stage of the loan, payments are made by
a third party to lower monthly payments.
Buy in - To close out on a short postion.
Buy limit order - An purchase order indicating that the security may be
purchased specifically at the designated price or lower.
Buy on close - Purchasing within the closing range at the end of the
trading session.
Buy on margin - Using shares as collateral, an investor borrows against
these to buy additional shares.
Buy on opening - Purchasing at the open of a trading day, within the
opening range.
Buy-Out of a Swap in Termination - The payment of a swap's market value
to the net creditor to close out the transaction.
Buy-side analyst - An analyst that is usually employed by a
non-brokerage firm or a money management firm that buys for their own
accounts.
Buy-Write - Purchase of the underlying and selling it’s call
Buy-write Option UNitary DerivativeS (BOUNDS) - An Americus Trust
PRIME-like companion to the option exchanges' SCORE- like LEAPS proposed
to fill the gap created by the expiration of the Americus Trust
components. Equivalent of a covered call.
Buyer's Option - A contract for the delivery of securities on a date
specified by the buyer at the time of the transaction.
Buying the Basis - Buying a deliverable instrument or index-equivalent
position and selling an options position in an attempt to profit from a
narrowing of the basis.
Buying the index - Purchasing S&P 500 stocks relative to index
proportions in order to achieve the same return.
Buyout - To purchase a controlling percentage of shares or a controlling
interest in the stock of a company. |
