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C
Fifth letter of a
Nasdaq stock descriptor specifying that issue is exempt from Nasdaq listing requirements for a temporary period.
CA
The two-character ISO 3166
country code for CANADA.
CAD
The ISO 4217
currency code for Canada Dollar.
CADS
See Cash Available for Debt Service.
CAGR
See: Compound Annual Growth
Rate
CAMPS
See: Cumulative
Auction Market Preferred Stocks
Capex
See: Capital expenditures
CAPM
See: Capital asset pricing
model
CAPS
See: Convertible
adjustable preferred stock
CARs
See: Certificates
of Automobile Receivables
CARDs
See: Certificates
of Amortized Revolving Debt
CATS
See: Certificate
of Accrual on Treasury Securities (CATS)
CAX
The ISO 4217
currency code for Canadian Cent.
CBD
See: Cash In Advance.
CBO
See: Collateralized Bond
Obligation.
CBOE
See: Chicago Board Options Exchange
CC
The two-character ISO 3166
country code for COCOS (KEELING) ISLANDS.
CD
See: Certificate
of deposit
CD
The two-character ISO 3166
country code for CONGO, THE DEMOCRATIC REPUBLIC OF.
CDN
See: Canadian
Dealing Network
CDO
See: Collateralized Debt
Obligation.
CEC
See: Commodities Exchange
Center
CF
The two-character ISO 3166
country code for CENTRAL AFRICAN REPUBLIC.
CFAT
Cash flow after
taxes.
CFAT
See: Cash flow after
taxes
CFC
See: Controlled foreign
corporation
CFR
See: Cost and Freight
CFTC
See: Commodity
Futures Trading Commission
CG
The two-character ISO 3166
country code for The Congo.
CH
The two-character ISO 3166
country code for SWITZERLAND.
CHAP
See: Clearing
House Automated Payments System
CHESS
See: Clearing
House Electronic Subregister System
CHF
The ISO 4217
currency code for Swiss Franc.
CHIPS
See: Clearing
House Interbank Payments System
CI
The two-character ISO 3166
country code for COTE D'IVOIRE.
CIF
See: Cost Insurance and Freight
CK
The two-character ISO 3166
country code for COOK ISLANDS.
CL
The two-character ISO 3166
country code for CHILE.
CLF
The ISO 4217
currency code for Chile Unidades de Fomento.
CLO
See: Collateralized Loan
Obligation.
CLP
The ISO 4217
currency code for Chilean Peso.
CM
The two-character ISO 3166
country code for CAMEROON.
CMBS
See: Commercial
Mortgage Backed Securities
CME
See: Chicago Mercantile
Exchange
CML
See: Capital market
line
CMO
See: Collateralized
mortgage obligation
CMTA
See: Clearing Member Trade Agreement
CN
The two-character ISO 3166
country code for CHINA.
CNY
The ISO 4217
currency code for Chinese Renminbi (Yuan).
CO
The two-character ISO 3166
country code for COLOMBIA.
COP
The ISO 4217
currency code for Colombian Peso.
CDC
See: Commonwealth Development Corp
CPT
See: Carriage Paid To
CR
The two-character ISO 3166
country code for COSTA RICA.
CRB
See: Commodity Research
Bureau.
CRC
The ISO 4217
currency code for Costa Rican Colon.
CTA
See: Cumulative
Translation Adjustment. Also refers to Commodity Trading Advisor.
CU
The two-character ISO 3166
country code for CUBA.
CUP
The ISO 4217
currency code for Cuban Peso.
CUSIP
See:
Committee on Uniform Securities Identification
Procedures
CV
The two-character ISO 3166
country code for CAPE VERDE.
CVE
The ISO 4217
currency code for Cape Verde Islands Escudo.
CX
The two-character ISO 3166
country code for CHRISTMAS ISLAND.
CY
The two-character ISO 3166
country code for CYPRUS.
CYP
The ISO 4217
currency code for Cyprus Pound.
CZ
The two-character ISO 3166
country code for CZECH REPUBLIC.
CZK
The ISO 4217
currency code for Czech Republic Koruna.
Cabinet crowd
NYSE members who tradebonds with a low daily traded volume. See: Automated Bond
System.
Cabinet security
A stock or bond listed on a major exchange with low daily tradedvolume.
Cable
Exchange rate between British pound sterling and the U.S.
dollar.
CAC
40 index
A broad-basedindex of
common stocks composed of 40
of the 100 largest companies listed on the forward segment of the official list of the Paris
Bourse.
Cage
A section of a brokerage firm
used for receiving and disbursing funds.
Calendar
List of new issues scheduled
to come to market shortly.
Calendar effect
Describes the tendency of stocks to perform differently at
different times. For example, a number of researchers have documented that historically, returns tend to be higher in January compared to other months (especially February). Others have documented returns patterns across days of the week and within the day. Some of these patterns are found in volume and volatility as well as returns.
Calendar spread
Applies to derivative products. A strategy in which there is
a simultaneous purchase and sale of options of the same class at
the same strike prices, but with different expiration date.
Calendar Straddle or Combination
See Calendar Spread.
Call
An option that gives the
holder the right to buy the underlying
asset.
Call date
A date before
maturity, specified at
issuance, when the
issuer of a
bond
may retire part of the bond for a
specified call price.
Call feature
Part of the indenture
agreement between the bond issuer and buyer describing the
schedule and price of redemptions prior
to maturity.
Call loan
A loan repayable on demand. Sometimes used as a synonym for
broker loan or broker overnight loan.
Call loan rate
See: Call money
rate
Call money rate
Also called the broker
loan rate , the interest
rate that banks charge brokers
to financemarginloans to
investors. The broker charges the
investor the call
money rate plus a service charge.
Call
option
An optioncontract that gives its holder the
right (but not the obligation) to purchase a specified number of
shares of the
underlyingstock at the given
strike price, on or before
the expiration date of
the contract.
Call an option
To exercise a call option.
Call
premium
Premium in price above the
par value of a bond or share of preferred stock that must be
paid to holders to redeem the bond or share of preferred stock before its
scheduled maturity
date.
Call
price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified call date.
Call protection
A feature of some callablebonds that establishes an initial
period when the bonds may not be called.
Call provision
An embedded option
granting a bondissuer the right
to buy back all or part of an
issue prior to
maturity.
Call
risk
The combination of cash
flow uncertainty and reinvestment risk introduced
by a call
provision.
Call swaption
A swaption in which the
buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate
receiver/floating-rate
payer.
Callability
Feature of a security that
allows the issuer to redeem
the security prior to maturity by calling it in, or forcing
the holder to sell it back.
Callable
Applies mainly to convertible securities. Redeemable by the
issuer before the scheduled maturity under specific conditions
and at a stated price, which usually begins at a premium to par
and declines annually. Bonds are usually called when interest
rates fall so significantly that the issuer can save money by
issuing new bonds at lower rates.
Called away
Convertible: Redeemed before maturity.
Option: Call or put optionexercised against the stockholder.
Sale: Delivery required on a short sale.
Cumulative Auction Market Preferred Stocks (CAMPS)
Stands for Cumulative Auction Market Preferred Stocks,
Oppenheimer & Company's Dutch Auction preferred stock
product.
Canadian agencies
Agency banks established by
Canadian Banks in the U.S.
Canadian Dealing Network (CDN)
The organized OTC market of
Canada. Formerly known as the Canadian Over-the-Counter Automated
Trading System (COATS), the CDN became a subsidiary of the
Toronto Stock Exchange in 1991.
"Can get
$xxx"
Refers to over-the-counter trading. "I have a buyer who will
pay $xxx for the stock". Usually a standard markdown from
$xxx is applied to this price in bidding
the seller for its stock. Antithesis of
cost me.
Cancel
To void an order to buy or sell from (1) the floor, or (2) the
trader/salesperson's scope. In
Autex, the indication still remains on record
as having once been placed unless it is expunged.
Canceled Certificates
Before the issuance of a new certificate, the old certificate is presented to the Transfer Agent and is canceled.
"Cannot compete"
In the context of general equities, cannot accommodate
customers at that price level (i.e., compete with other market makers), often because
there is no natural opposite
side of the trade.
"Cannot complete"
In the context of general equities, inability to finish an order on a principal or agency basis, given prevailing price
instructions and/or market
conditions.
Cap
An upper limit on the interest rate on a floating-rate note (FRN) or
an adjustable-rate
mortgage (ARM). Also, an OTC derivatives contract consisting of a series of European interest rate call options; used to protect an issuer of floating-rate debt from interest rate increases. Each individual call option within the cap is called a caplet. Opposite of a floor.
Capacity
Creditgrantors' measurement
of a person's ability to repay loans.
Capacity utilization rate
The percentage of the economy's total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion.
Capital
Moneyinvested in a firm.
Capital account
Net result of public and private international investment and
lending activities.
Capital allocation
decision
Allocation of invested funds between risk-free assets and the riskyportfolio.
Capital appreciation
See: Capital
growth
Capital appreciation fund
See: Aggressive growth
fund
Capital asset
A long-termasset, such as
land or a building, not purchased or sold in the normal course of
business.
Capital asset pricing model
(CAPM)
An economic theory that describes the relationship between
risk and
expected return, and serves as
a model for the pricing of riskysecurities. The CAPM asserts that the
only risk that is priced by rational investors is
systematic risk, because that
risk cannot be eliminated by diversification. The CAPM says that
the expected return of
a security or a
portfolio is equal to the rate on a
risk-free security plus a risk premium multiplied by the asset's
systematic risk. Theory was invented by William Sharpe (1964) and
John Lintner (1965). The early work of Jack Treynor is was also instrumental in
the development of this model.
Capital budget
A firm's planned capital expenditures.
Capital budgeting
The process of choosing the firm'slong-termassets.
Capital Builder Account (CBA)
A Merrill Lynch brokerage
account that allows
investors to access the
loan value of his or her eligible
securities to
buy or sell
securities. Excess
cash in a CBA can be
invested in a
money market fund or an
insuredmoney market
deposit account without losing
access to the money.
Capital expenditures
Amount used during a particular period to acquire or improve
long-termassets such as property, plant, or
equipment.
Capital flight
The transfer of capital
abroad in response to fears of political risk.
Capital formation
Expansion of capital or
capital goods through
savings, which leads to economic growth.
Capital gain
When a stock is sold for a
profit, the capital gain is the
difference between the net sales price of the securities and their netcost, or
original basis. If a stock is
sold below cost, the difference is a capital loss.
Capital gains distribution
A distribution to the
shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the
shareholders.
Capital gains tax
The tax levied on profits
from the sale of capital assets. A long-termcapital gain, which is achieved
once an asset is held for at
least 12 months, is taxed at a maximum rate of 20% (taxpayers in
28% tax bracket) and 10%
(taxpayers in 15% tax
bracket). Assets held for less than 12 months are taxed at
regular income tax levels,
and, since January 1, 2000, assets held for at least five years
are taxed at 18% and 8%.
Capital gains yield
The price change portion of a stock's return.
Capital goods
Goods used by firms to produce other goods, e.g., office
buildings, machinery, equipment.
Capital growth
The increase in an asset'smarket price. Also called
capital appreciation.
Capital infusion
Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well,
it might benefit from an infusion of new funds from the more successful divisions. In the context of venture capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash.
Capital-intensive
Used to describe industries that require large investments in capital assets to produce their
goods, such as the automobile industry. These firms require large
profit margins and/or low
costs of borrowing to
survive.
Capital International
Indexes
Market indexes
maintained by Morgan Stanley
that track major stock
markets worldwide.
Capital investment
See: Capital
expenditure.
Capital lease
A leaseobligation that has
to be capitalized on the
balance sheet.
Capital loss
The difference between the netcost of a security and the sales price, if
the security is sold at a
loss. Also used in a more general context to refer to the market for stocks, bonds, derivatives and other investments.
Capital market
Traditionally, this has referred to the market for trading
long-termdebt instruments (those that
mature in
more than one year). That is, the market where capital is raised. More recently, capital markets is used in a more general context to refer to the market for stocks, bonds, derivatives and other investments.
Capital market efficiency
The degree to which the present asset price accurately
reflects current information in the market place. See: Efficient market
hypothesis.
Capital market imperfections
view
The view that issuingdebt is
generally valuable, but that the firm's optimal choice of
capital structure
involves various other views of capital structure ( net
corporate/personal tax, agencycost, bankruptcy cost, and pecking order), that result from
considerations of asymmetric information,
asymmetric taxes, and transaction costs.
Capital market line (CML)
The line defined by every combination of the
risk-free asset and the
market portfolio. The line
represents the risk
premium you earn for taking on extra risk. Defined by the capital asset pricing
model.
Capital rationing
Placing limits on the amount of new investment undertaken by
a firm, either by using a higher cost of capital, or by setting a
maximum on the entire capital budget or parts of
it.
Capital requirements
Financing required for the operation of a business, composed
of long-term and working capital plus fixed assets.
Capital shares
One of two types of shares
in a dual-purpose investmentcompany, which entitle the holder to the appreciation or depreciation in the value of a
portfolio, as well as the gains
from trading in the portfolio. Antithesis of income
shares.
Capital stock
Stock authorized by a firm'scharter and having par value,
stated value, or no par value. The number and the value of issued
shares are usually shown, together with the number of shares
authorized, in the capital accounts section of the balance sheet.
See: Common stock.
Capital structure
The makeup of the liabilities and stockholders'equity side of the balance sheet, especially the
ratio of debt to equity and the
mixture of short and longmaturities.
Capital surplus
Amounts of directly contributed equitycapital in excess of the par value.
Capital turnover
Calculated by dividing annual sales by average stockholderequity (net worth). The ratio indicates how
much a company could grow its current capital investment level. Low capital turnover generally corresponds to high
profit margins.
Capitalization
The debt and/or equity mix that funds a firm'sassets.
Capitalization method
A method of constructing a replicating portfolio in
which the manager purchases a number of the most highly
capitalized names in the stockindex in proportion to their
capitalization.
Capitalization rate
The interest rate used
to calculate the present
value of a number of future payments.
Capitalization ratios
Also called financial leverage
ratios, these ratios compare debt to total capitalization and thus
reflect the extent to which a corporation is trading on its
equity. Capitalization ratios can
be interpreted only in the context of the stability of industry and company earnings and cash flow.
Capitalization table
A table showing the capitalization of a firm, which
typically includes the amount of capital obtained from each source -
long-termdebt and common equity - and the respective
capitalization ratios.
Capitalization-Weighted Index
A stock index which is computed by adding the capitalization (float times price) of each individual stock in the index, and then dividing by the divisor. The stocks with the largest market values have the heaviest weighting in the index. See also Float, Divisor.
Capitalized
Recorded in asset accounts
and then depreciated or amortized, as is appropriate for
expenditures for items with useful lives longer than one
year.
Capitalized interest
Interest that is not
immediately expensed, but rather is considered as an asset and is then amortized through the income statement over
time. In the context of project financing, interest that is paid by additional borrowing.
Capped-Style Option
A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the Option's cap price.
Captive finance company
A company, usually a subsidiary that is wholly owned,
whose main function is financing consumer purchases from the
parent company.
Caput
An exotic option. It represents a call option on a put option. That is, you purchase the option to buy a put option at a particular price on or before the expiration date.
Car
A loose quantity term sometimes used to describe the amount
of a commodityunderlying one commoditycontract; e.g., "a car of bellies."
Derived from the fact that quantities of the product specified in
a contract once corresponded
closely to the capacity of a railroad car.
Caracas Stock Exchange
Originally established in 1947 and merged with a competitor in 1974 to become the only securities exchange of Venezuela.
Cargo
Goods being transported.
Carriage and Insurance Paid To (CIP)
Seller is responsible for the payment of freight to carry goods to a named overseas destination. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. The risk of loss or damage is transferred from the seller to the buyer once the goods are delivered into the carrier's custody. This term may be used for any mode of transport.
Carriage Paid To (CPT)
Seller is responsible for the payment of freight to carry goods to a named overseas destination. The risk of loss or damage is transferred from the seller to the buyer when the goods have been delivered into the carrier's custody. This term may be used for any mode of transport.
Carrot equity
British slang for an equityinvestment with the added
benefit of an opportunity to purchase more equity if the company reaches certain
financial goals.
Carry
Related: Net
financing cost.
Carry Trade
A trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose(and long-term bond prices fell as a result), the carry trade could become unprofitable. Indeed, if this occured, there could be a number of investors trying to unwind the carry trade, which would involve selling the long-term bonds. It is possible that this could exacerbate the increase in long-term interest rates, i.e. push the rates even higher.
Related: Currency Carry Trade.
Carryforwards
Tax losses allowed to be applied to offset future income in
some specified number of future years.
Carrying charge
The fee a broker charges for carryingsecurities on credit, such as on a
margin account. Also, any component of a futures basis, such as storage costs, interest charges or insurance costs on the underlying interest.
Carrying costs
Costs that increase with increases in the level of investment
in current assets.
Carrying value
Book value.
Cartel
A group of businesses or nations that act together as a
single producer to obtain marketcontrol and to influence prices in their favor by limiting
production of a product. The United States has laws prohibiting
cartels.
Carve out
Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only
offers a minority share to the equity market. Also known as equity carve out.
Cash
The value of assets that can
be converted into cash immediately, as reported by a company.
Usually includes bank accounts and marketable securities, such as
government bonds and banker's acceptances. Cash
equivalents on balance
sheets include securities
that mature within 90 days (e.g., notes).
Cash
account
A brokerage account that settles transactions on a
cash-rather than credit-basis.
Cash Available for Debt Service
Ratio of cash assets to debt service (interest plus nearby principal). Used in evaluating the risk of a project or firm. The higher the ratio the less likely the firm or project will fail to meet its debt obligations.
Cash asset ratio
Cash and marketable securities divided by current liabilities. See: Liquidity ratios.
Cashed-Based
Refering to an option or future that is settled in cash when exercised or assigned. No physical entity, either stock or commodity, is received or delivered.
Cash
basis
Refers to the accounting method that recognizes revenues and
expenses when cash is actually received or paid out.
Cash and equivalents
The value of assets that can
be converted into cash immediately, as reported by a company.
Usually includes bank accounts and marketable securities, such as
bonds and Banker's Acceptances. Cash
equivalents on balance
sheets include securities (e.g., notes) that mature within 90 days.
Cash
budget
A forecasted summary of a firm's expected cash inflows and
cash outflows as well as its expected cash and loan balances.
Cash & carry
Applies to derivative products. Combination of a long position in a stock/index/commodity and short position in the underlyingfutures, which entails a cost of carry on the long position. Also known as cash and carry arbitrage.
Cash commodity
The actual physical commodity, as distinguished from a
futures contract.
Cash conversion cycle
The length of time between a firm'spurchase of inventory and the receipt of cash
from accounts
receivable.
Cash
cow
A company that pays out most of its earnings per share to
stockholders as dividends. Or, a company or division
of a company that generates a steady and significant amount of
free cash flow.
Cash
cycle
In general, the time between cash disbursement and cash
collection. In networking
capital management, it can be thought of as the operating
cycle less the accounts
payable payment period.
Cash deficiency agreement
An agreement to investcash in
a project to the extent required to cover any cash deficiency the
project may experience.
Cash delivery
The provision of some futures contracts that
requires not delivery of
underlying assets but
settlement according to the
cash value of the asset.
Cash discount
An incentive offered to purchasers of a firm's product for
payment within a specified time period, such as ten days.
Cash dividend
A dividend paid in cash to
a company'sshareholders.
The amount is normally based on profitability and is taxable as
income. A cashdistribution may include capital gains and return of capital in addition to the
dividend.
Cash earnings
A firm'scash revenues less
cash expenses, which excludes the costs of depreciation.
Cash-equivalent items
Examples include Treasury bills and Banker's Acceptances.
Cash
flow
In investments, cash flow represents earnings before
depreciation,
amortization, and non-cash
charges. Sometimes called cash earnings.
Cash flow from operations (called
funds from operations by
real estate and other investment trusts) is
important because it indicates the ability to pay dividends.
Cash flow after interest and
taxes
Net income plus depreciation.
Cash flow break-even point
The point below which the firm will need either to obtain
additional financing or to liquidate some of its assets to meet its fixed costs.
Cash flow per common share
Cash flow from operations
minus preferred stockdividends, divided by the
number of common sharesoutstanding.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments, preferred stockdividends, and rental payments) are
covered by earnings before
interest, taxes, rental payments, and depreciation.
Cash flow matching
Also called dedicating a portfolio,
this is an alternative to multiperiod
immunization that calls for the manager to match the maturity of each element in the
liability stream, working
backward from the last
liability to assure all required
cash flows.
Cash flow from operations
A firm'snetcash inflow resulting directly from its regular
operations (disregarding extraordinary items such as the sale of
fixed assets or transaction costs associated
with issuingsecurities),
calculated as the sum of net income plus noncash expenses that
are deducted in calculating net income.
Cash flow time line
Line depicting the operating activities and cash flows for a firm over a
particular period.
Cash in Advance
A payment term meaning the buyer pays the seller before shipment is effected.
Cash In Lieu (CIL)
In a typical exchange offer, "old" shares of the target company are exchanged for "new shares".
Cash investments
Short-termdebt instruments—such as
commercial paper, banker's acceptances, and
Treasury bills—that
mature in less than one year.
Also known as money marketinstruments or
cash reserves.
Cash management
Refers to the efficient management of cash in a business in
order to put the cash to work more quickly and to keep the cash
in applications that produce income, such as the use of lock
boxes for payments.
Cash management bill
Very short-maturity bills that the Treasury occasionally sells because
its cash balances are down and it needs money for a few
days.
Cash
markets
Also called spot
markets, these are markets that involve the immediate
delivery of a
security or instrument. Related:
Derivative markets.
Cash
offer
Often used in risk arbitrage. Proposal, either hostile or
friendly, to acquire a target company through the
payment of cash for the stock of
the target. Compare to exchange offer.
Cash-on-cash return
A method used to find the return on investments when there is no activesecondary market. The
yield is determined by dividing
the annual cash income by the total investment. See: Current yield or yield to maturity.
Cash on delivery (COD)
In the context of securities, this refers to the
practice of institutional investors paying the full purchase
price for securities in
cash.
Cash-out Laws
These laws enable shareholders to sell their stakes to a "controlling" shareholder at a price based on the highest price of recently acquired shares. This works something like Fair-Price provisions extended to nontakeover situations. A few states have these laws.
Cash plus convertible
Convertible bond
that requires cash payment upon conversion.
Cash position
The percentage of a mutual
fund'sassetsinvested in
short-term reserves, such as
US Treasury bills or other
money marketinstruments.
Cash
price
Applies to derivative products. See: Spot price.
Cash
ratio
The proportion of a firm'sassets held as cash.
Cash reserves
See: Cash
investments
Cash sale/settlement
Transaction in which a contract is settled on the same day as
the trade date, or the next day
if the trade occurs after 2:30 p.m. EST and the parties agree to
this procedure. Often occurs because a party is strapped for cash
and cannot wait until the regular three-business daysettlement.
See: Settlement
date.
Cash Settlement
The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.
Cash settlement contracts
Futures contracts
such as stock index futures that settle for cash and
do not involve delivery of the
underlying.
Cash-surrender value
The amount an insurance company will pay if the policyholdertenders or cashes in a whole life insurance
policy.
Cash transaction
A transaction in which exchange is immediate in the form of
cash, unlike a forward
contract (which calls for future delivery of an asset at an agreed-upon price).
Cashbook
An accounting book that is composed of cash receipts plus disbursements. This balance is posted to the cash account in the ledger.
Cashier's check
A check drawn directly on a customer's account, making the bank the primary
obligor, and assuring firm that the amount will be paid.
Cashout
Occurs when a firm runs out of cash and cannot readily sell marketable securities.
Casualty-insurance
Insurance protecting a firm or homeowner against loss of
property, damage, and other liabilities.
Casualty loss
A financial loss caused by damage, destruction, or loss of
property as a result of an unexpected or unusual event.
Catastrophe call
Early redemption of a
municipal revenue bond
because a catastrophe has destroyed the project that provided the
revenue source backing the bond.
Cats and dogs
Speculative stocks with short
histories of sales, earnings, and dividend payments.
Caveat emptor, caveat
subscriptor
Latin expressions for "buyer beware" and "seller beware,"
which warn of overly risky,
inadequately protectedmarkets.
Cease-and-desist order
An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts.
Cede & Co.
Nominee name for The Depository Trust Company, a large clearing house that holds shares in its name for banks, brokers and institutions in order to expedite the sale and transfer of stock.
CEDEL
A centralized clearing system for Eurobonds.
Ceiling
The highest price, interest rate, or other numerical
factor allowable in a financial transaction.
Central bank
A country's main bank whose responsibilities include the
issue of currency, the
administration of monetary policy,
open market operations,
and engaging in transactions designed to facilitate
healthy business interactions. See: Federal Reserve
System.
Central bank intervention
The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.
Central Limit Theorem
The Law of Large Numbers states that as a sample of
independent, identically distributed random numbers approaches
infinity, its probability density
function approaches the normal distribution. See: Normal Distribution.
Centralized cash flow
management
Provision of consolidated cash management decisions to all
MNCunits from
one location, usually at the parent's headquarters.
Cents per share
The amount of a mutual
fund'sdividend or
capital gains distributions
that a shareholder will
receive for each share
owned.
Checkwriting
Free checkwriting privileges offered with non retirement
accounts for select mutual funds.
Certainty equivalent
An amount that would be accepted today (risk free) in lieu of
a chance to receive a possibly higher, but uncertain,
amount.
Certainty Equivalent Return
The certain (zero risk)
return an
investor would trade for a given
(larger) return with an
associated risk. For example, a
particular investor might
trade an uncertain expected 4% activereturn with 6% risk, for a certain
active return of 1.5%. Used as a way to incorporate individual investor risk tolerances into financial
decisions.
Certificate
A formal document used to record a fact and used as proof of
the fact, such as stock
certificates, that evidence ownership of stock in a corporation.
Certificate of Accrual on Treasury Securities
(CATS)
Refers to a zero-coupon US Treasuryissue that is sold at a deep discount
from the face value and pays
no couponinterest during its
lifetime, but returns the full
face value at maturity.
Certificate of deposit (CD)
Also called a time
deposit this is a certificateissued by a bank or thrift that indicates
a specified sum of money has been deposited. A CD has a maturity date and a specified
interest rate, and can be
issued in any denomination. The
duration can be up to five years.
Certificate of Origin
A document certifying the country of origin for goods sold internationally.
Certificates of Amortized Revolving Debt
(CARD)
Pass-through
securities backed by credit card receivables.
Certificates of Automobile Receivables
(CAR)
Pass-through
securities backed by automobile loan receivables.
Certificateless municipals
Municipal bonds with
one certificate which is valid for the entire issue, and having no individual
certificates, easing transactions. See: Book-entry
securities.
Certified check
A bank guaranteedcheck for which funds are immediately
withdrawn, and for which the bank is legally liable.
Certified Financial Planner
(CFP)
A person who has passed examinations accredited by the
Certified Financial Planner Board of Standards, showing that the
person is able to manage a client's banking, estate, insurance,
investment, and tax
affairs.
Certified financial
statements
Financial statements that include an accountant's opinion.
Certified Public Accountant
(CPA)
An accountant who has met certain standards, including
experience, age, and licensing, and passed exams in a particular
state.
Chair of the board
Highest-ranking member of a Board of Directors, who
presides over its meetings and who is often the most powerful
officer of a corporation.
Chaos
A deterministic non-linear dynamic system that can produce
random looking results. A chaotic system must have a fractal dimension, and
exhibit sensitive dependence on initial conditions. See: Fractal Dimension, Lyapunov Exponent, Strange Attractor.
Chapter 7 Proceedings
Provisions of the Bankruptcy Reform Act under which
the debtorfirm'sassets are liquidated by a court because
reorganization would
fail to establish a profitable
business.
Chapter 11 Proceedings
Provisions of the Bankruptcy Reform Act under which
the debtorfirm is reorganized by a court because
the estimated value of the reorganized firm exceeds the
expected proceeds from its liquidation.
Changes in financial
position
Sources and uses of funds provided from operations that alter a
company'scash flowposition: depreciation, deferred taxes, other sources,
and capital
expenditures.
Characteristic line
The market model
applied to a single security;
a regression of security returns on the benchmark return. The slope of the
regression line is a security's beta.
Characteristic portfolio
A portfolio which
efficiently represents a particular asset characteristic. For a given
characteristic, it is the minimum risk portfolio, with portfolio characteristic equal to 1.
For example, the characteristic portfolio of assetbetas is the benchmark. It is the minimum risk
beta = 1 portfolio.
Charge
The document evidencing mortgagesecurity required by Crown Law (law
derived from English law). A Fixed Charge refers to a defined set of assets and is usually registered. A Floating Charge refers to other assets which change from time to time (ie. cash, inventory, etc.), which become a Fixed
Charge after a default.
Charge
off
See: Bad debt
Charitable remainder trust
An irrevocable trust that pays income to a designated person
or persons until the grantor's death, when the income is passed
on to a designated charity. A charitable lead trust by contrast allows the charity to
receive income during the grantor's life, and the remaining
income to pass to designated family members upon the grantor's
death.
Charter
See: Articles
of incorporation
Charter Amendment Limitations
These provisions limit shareholders' ability to amend the governing documents of the corporation. This might take the form of a supermajority vote requirement for charter or bylaw amendments, total elimination of the ability of shareholders to amend the bylaws, or the ability of directors beyond the provisions of state law to amend the bylaws without shareholder approval.
Chartered Financial Analyst
(CFA)
An experienced financial analyst who has passed examinations in
economics, financial accounting, portfolio management,
security analysis, and standards
of conduct given by the Institute of Chartered Financial
Analysts.
Chartists
A technical analyst who
charts the patterns of stocks, bonds, and commodities to find trends in patterns of trading used to advise clients. Related:
Technical
analysts.
Chasing the market
Purchasing a security at a
higher price than expected because prices are rapidly climbing,
or selling a security at a
lower level when prices are quickly falling.
Chastity bonds
Bondsredeemable at par value in the case of a takeover.
Chatter
See: Whipsawed
Chattel Mortgage
A loan agreement that grants to the lender a lien on property other than real estate.
Chattel is personal or movable property.
Cheapest to deliver issue
The acceptable Treasury security with the highest implied repo rate; the rate
that a seller of a futures
contract can earn by buying an
issue and then
delivering it at the
settlement date.
Check
A bill of exchange
representing a draft on a bank from deposited funds that pays a
certain sum of money to a certain person or party.
Check clearing
The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system.
Checking the market
Searching for bid and offer prices from market makers to find the best
deal.
Chicago Board Options Exchange
(CBOE)
A securities exchange
created in the early 1970s for the public trading of standardized
optioncontracts. Primary place for the trading of stockoptions,foreign currency
options, and index
options (S&P 100, 500, and OTC 250 index)
Chicago Board of Trade (CBOT)
The second largest futures exchange in the US, and a
pioneer in the development of financial futures and options.
Chicago Mercantile Exchange
(CME)
Chicago Mercantile Exchange (CME) is the largest futures exchange in the
United States and the second largest exchange in the world for the trading
of futures and options on futures. Founded in 1898 as a not-for-profitcorporation, in November 2000 CME became the first U.S. financial exchange
to demutualize and become a shareholder-owned corporation. Its futures and options on futurestrade on CME's trading floors, on its GLOBEX electronic
trading platform and through privately negotiated transactions. CME has four
major product areas based on interest rates (including Eurodollar futures,
the world's most actively traded futures contract), stock indexes (such as
the (S&P 500 and Nasdaq-100 futures), foreign exchange and commodities.
Chicago Stock Exchange (CHX)
A major exchangetrading only stocks, with 90% of trades taking place on an automated
execution system, called MAX.
Chief Executive Officer (CEO)
A title held often by the Chairperson of the Board,
or the president. The person principally responsible for the
activities of a company.
Chief Financial Officer (CFO)
The officer of a firm responsible for handling the
financial affairs of a company.
Chief Operating Officer (COO)
The officer of a firm responsible for day-to-day management,
usually the president or an executive vice-president.
Chinese hedge
Applies mainly to convertible securities. Trading hedge in which one is short the convertible and long the underlying common, in the hope that
the convertible's premium will
fall. Antithesis of set-up.
Chinese wall
Communication barrier between financiers at a firm
(investment bankers) and traders. This barrier is erected to
prevent the sharing of inside information that bankers are likely
to have.
Choice market
Applies mainly to international equities. Locked market in London
terminology.
Churning
Excessive trading of a
client's account in order to increase the broker'scommissions.
Cincinnati Stock Exchange (CSE)
Stock exchange
based in Cincinnati that is the only fully automated stock exchange in the US. It has
no tradingfloor, but handles all members'transactions using computers.
Circle
Underwriters, actual or
potential, often seek out and "circle" investor interest in a new
issue before final pricing. The
customer circled has basically made a commitment to purchase the
issue if it is available at an agreed-upon price. If the actual
price is other than that stipulated, the customer supposedly has
first offer at the actual
price.
Circuit breakers
Measures instituted by exchanges to stop trading temporarily when the market has fallen by a certain
percentage in a specified period. They are intended to prevent a
market free fall by permitting
buy and sell orders to
rebalance.
Circus swap
A fixed-rate currency
swap against floating US dollar LIBOR payments. An acronym that stands for Combined Interest Rate and CUrrency Swap.
Citizen bonds
Certificateless municipals that can be registered on stock exchanges and are listed
in newspapers.
City code on takeovers and
mergers
See: Dawn raid
Claim dilution
A decrease in the likelihood that one or more of a firm'sclaimants will be fully repaid, including time value of money
considerations.
Claimant
A party to an explicit or implicit contract.
Class
In the case of derivative products, options of the same type-put or call-with the same underlying security. See:
Series. In general, refers to a
category of assets such as: domestic equity, fixed income,
etc.
Class A/Class B shares
See: Classified
stock
Class action
A legal complaint filed by a lawyer or group of lawyers for a
group of petitioners with an identical grievance, often with an
award proportionate to the number of shareholders involved.
Class of Options
Option contracts of the same type (call or put) and Style (American, European or Capped) that cover the same underlying security.
Classified Board
Also known as Staggered Board: is one in which the directors are placed into different classes and serve overlapping terms. Since only part of the board can be replaced each year, an outsider who gains control of a corporation may have to wait a few years before being able to gain control of the board. This slow replacement makes a classified board an effective delays of takeovers. Sometimes known as a delay provision.
Classified stock
The division of stock into
more than one class of common stock, usually called Class
A and Class B. The specific features of each class, which are set out in the charter
and bylaws, usually give certain advantages to the Class A
shares, such as increased voting power.
Claused Bill of Lading
A bill of lading with a notation that indicates damage or shortage. Also called foul bill of lading and are the opposite of clean bills of lading.
Clawback
The ability to recover prior project cash flow that may have been distributed or paid away as dividends to sponsors.
Clawback
A dividend clawback is an arrangement whereby the equity owners commit to use dividends they have
received in the past to finance the cash needs of the project or corporation in the future. Clawback has a more general definition. For example, premiums paid on an insurance policy may be refunded (or clawed back) if the policy is cancelled in a certain time frame. Such an arrangement is specified in the contract and referred to as a clawback provision.
Clean
In the context of general equities, block trade that matches buy or sell orders/interests, sparing the block trader any inventoryrisk (no net position and hence none available for
additional customers). Natural.
Antithesis of open.
Clean Bill of Lading
A bill of lading bearing no findings of damage or shortage.
Clean opinion
An auditor's opinion reflecting an unqualified acceptance of
a company'sfinancial statements.
Clean
price
Bond price excluding accrued interest.
Clean Report of Findings
A report issued by an inspection firm, indicating that price has been verified, that the goods have been inspected prior to shipment, and that both conform to buyer specifications.
Clean
up
In the context of general equities, purchase/sale of all the
remaining supply of stock, or the
last piece of a block, in a
trade-leaving a net zero position.
"Clean your skirts"
In the context of general equities, i.e. "make all your obligatedcalls" check with all prior obligations in a security. Often preceded by "subject to."
Clear
To settle a trade by the seller delivering securities and the buyer delivering
funds in the proper form. A trade that does not clear is said to
fail. Comparison of the details of a transaction between broker/dealers prior to settlement; final exchange of
securities for cash on delivery.
Clear a position
To eliminate a long or
short position, leaving no
ownership or obligation.
Clear
title
Title to ownership that is untainted by any claims on the
property or disputed interests, and therefore available for sale.
This is usually checked through a title search by a title
company.
Clearing corporations
Organizations that are affiliated with exchanges and are used to complete
securities transactions by taking care of
validation, delivery, and
settlement.
Clearing House Automated Payments System
(CHAPS)
A computerized clearing system for sterling funds that began
operations in 1984. It includes 14 member banks, nearly 450
participating banks, and is one of the clearing companies within
the structure of the Association for Payment Clearing Services
(APACS).
Clearing House Electronic Subregister System
(CHESS)
CHESS is the automatic transfer and settlement system for the
majority of Australian Stock Exchange
(ASX) listed securities.
Clearing house funds
Funds from the Federal Reserve System,
requiring three days to clear, that are passed to and from
banks.
Clearing House Interbank Payments System
(CHIPS)
An international wire transfer system for high-value payments
operated by a group of major banks.
Clearinghouse
An adjunct to a futures exchange through which
transactionsexecuted on its
floor where trades are settled by a process of matching purchases and sales. A
clearing organization is also charged with the proper conduct of
delivery procedures and the
adequate financing of the entire operation.
Clearing member
A member firm of a clearing house. Each clearing member must
also be a member of the exchange. Not all members of the
exchange, however, are members of the clearing organization. All
trades of a non-clearing member
must be registered with, and eventually settled through, a
clearing member.
Clearing Member Trade Agreement (CMTA)
An agreement that allows a client to executederivativetrades through different brokers yet consolidate positions for clearing purposes at one brokerage firm.
Clientele effect
Describes the tendency of funds or investments to be followed
by groups of investors who have similar preferences for a
firm which follows a particular financing policy, such as the amount of
leverage it uses.
Clone
fund
A new fund set up in a fund
family to emulate another successful fund.
Close
The close is the period at the end of the trading session.
Sometimes used to refer to closing price. Related: Opening.
Close a position
In the context of general equities, eliminate an investment
from one's portfolio, by
either selling a long
position or covering a short position.
Close-end credit
An agreement in which advancedcredit plus any finance charges are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements.
Close market
An market in which
there is a narrow spread between
bid and offer prices, due to a high volume of trading and many competing market makers.
Closed corporation
A corporation whose shares
are owned by just a few people, having no public market.
Closed-end management
company
An investment company
that issues a fixed number of shares of the mutual fund that it manages, and
does not create new shares if demand increases. Antithesis of an
open-end management company.
Closed-end fund
An investment company that issues shares like any other corporation and
usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its
net asset value. Related:
Open-end fund.
Closed-end management
company
An investment company
that has only a set number of shares of the mutual fund that it manages, and
does not create new shares if demand increases. Antithesis of an
open-end management company.
Closed-end mortgage
Mortgage against which no
additional debt may be issued.
Closed fund
A mutual fund that is
no longer issuingshares, mainly because it has grown too
large.
Closed
out
Position that is
liquidated when the client does not meet a margin call or cover a short sale.
Closely held
A corporation whose voting stock is owned by only a few shareholders.
Closely held company
A company who has a small group of controllingshareholders.
In contrast, a widely-held firm has many shareholders. It is
difficult or impossible to wage a proxy battle for any
closely-held firm.
Closing costs
All the expenses involved in transferring ownership of real
estate.
Closing price
Price of the last
transaction of a particular
stock completed during a
day's trading session on an
exchange.
Closing purchase
A transaction in which the purchaser's intention is to reduce
or eliminate a
short position in a
stock, or in a given
series of
options.
Closing quote
The last bid and offer prices of a particular stock at the close of a day's trading session on an
exchange.
Closing range
Also known as the range. The
high and low prices, or bids and
offers, recorded during the period
designated as the official close.
Related: Settlement
price.
Closing sale
A transaction in which the seller's intention is to reduce or
eliminate a long position
in a stock, or a given series of options.
Closing tick
The net of the number of stocks whose closing prices are higher
than their previous trades (
uptick) against the number of
stocks whose closing prices were
lower than their previous trades
(downtick). A positive closing
tick indicates "buying at the
close", or a bullishmarket; a negative closing tick indicates "selling at the close," or
a bearishmarket. See: TRIN.
Closing transaction
Applies to derivative products. Buy or sell transaction that eliminates an
existing position (selling a
long option or buying back a
short option). Antithesis of
opening
transaction.
Closing TRIN
See: TRIN
Cloud on title
Any claim or encumbrance, usually discovered in a title
search, that may impair the title to a property, and make its
validity questionable. See: bad
title.
Club
A group of underwriters who do not need to proceed to form a syndicate.
Cluster analysis
A statistical technique that identifies clusters of stocks
whose returns are highly
correlated within each cluster
and relatively uncorrelated across clusters. Cluster analysis has
identified groupings such as growth, cyclical, stable, and energy
stocks.
CMO
REIT
A very risky type of Real Estate Investment
Trustinvesting in the residual cash flows of Collateralized
Mortgage Obligation (CMOs). CMO cash flows are derived from the
difference between the rates paid by the mortgageloan holders and the lower,
shorter-term rates paid to CMO investors.
Co-financing
A type of financing in which the different lenders agree to fund under the same documentation and security packages but may have different
interest rates, repayment profiles, and terms.
Co-manager
A second-tier Participant, ranked by size of participation.
Co-agent
An institution appointed by the issuer as
co-transfer agent accepts and transfers certificates and sends daily activity journals to the primary record-keeping agent. A co-agent does not maintain security holder records, but is used to facilitate the transfer of stock in a geographic region not easily accessible to the issuer or its principal transfer agent.
Coattail investing
A riskytrading practice of making trades similar to those of other
successful investors, usually
institutional
investors.
COD transaction
See: Delivery
versus payment
Code of procedure
The guide of the National
Association of Securities Dealers used to adjudicate
complaints filed against NASD
members.
Coefficient of
determination
A measure of the goodness of fit of the relationship between
the dependent and independent variables in a regression analysis; for
instance, the percentage of variation in the return of an asset explained by the market portfolio return. Also
known as R-square.
Coefficient of Variation
A measure of investment risk that defines risk as the
standard deviation per
unit of expected
return.
Coface
The French Export Credit Agency.
Coffee, Sugar & Cocoa Exchange
(CS&CE)
The New York-based commodity exchange trading futures and options. The CS&CE shares the
trading floor at the Commodities Exchange
Center.
Cofinancing agreements
Joint participation of the World Bank and other agencies or lenders in providing funds to developing
countries.
Coherent Market Hypothesis
A hypothesis that the probability density
function of the market may be determined by a combination of
group sentiment and fundamental bias. Depending on combinations
of these two factors, the market can be in one of four states:
random walk, unstable
transition, chaos, or
coherence.
Coincident indicators
Economic indicators that give an indication of the current status of
the economy.
Coinsurance effect
Refers to the fact that the merger of two firms lessens the
probability of default on
either firm's debt.
Cold-calling
Calling potential new customers in the hope of selling
stocks,
bonds or other financial products and
receiving commissions.
Collar
Refers to the ceiling and floor of the price fluctuation of an underlying asset. A collar is usually set up with options, swaps, or by other agreements. In corporate finance,
the collar strategy of buying puts and selling calls is often used to mitigate the risk of
a concentrated position in (sometimes) restricted stock. When the
restricted owner can't sell the stock, but needs to diversify the risk, a
collar transaction is one of the few tools available. Many corporate
executives who receive chunks of their compensation in restricted stock need
to employ this strategy to mitigate the diversification risk in their
overall portfolio.
Collateral
In the context of project financing, additional security pledged to support the project financing.
Collateral trust bonds
A bond in which the issuer (often a holding company) grants
investors a lien on stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.
Collateralized Bond Obligation
(CBO)
Investment-grade bonds backed by a collection of
junk bonds with different levels
of risk, called tiers, that are determined by the quality of
junk bond involved. CBOs backed
by highly riskyjunk bonds receive higher interest rates than other
CBOs.
Collateralized Debt Obligation
(CDO)
A general inclusive term which covers Collateralized Bond Obligations,
Collateralized Loan Obligations, and
Collateralized Mortgage Obligations,
Collateralized loan obligation
(CLO)
A security backed by a
pool of commercial or personal loans , structured so that there are several classes of bondholders with varying maturities, called tranches. Similar in structure to
Collateralized Mortgage Obligations.
Collateralized mortgage obligation
(CMO)
A security backed by a
pool of pass-through
rates , structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through
securities are used to retire the bonds on a
priority basis as specified in the
prospectus. Related: mortgage
pass-through security.
Collecting Bank
A bank that assists in obtaining payment in accordance with draft payment terms.
Collection
The presentation of a negotiable instrument for payment, or the
conversion of any accounts receivable into
cash.
Collection float
The period between the time is a check is deposited in an
account and the time funds are made available.
Collection fractions
The percentage of a given month's salescollected during the
month of sale and each month following the month of sale.
Collection period
See: Collection
ratio
Collection policy
Procedures a firm follows in attempting to collectaccounts receivables.
Collection ratio
The ratio of a company'saccounts receivable to its
average daily sales, which gives the average number of days it
takes the company to convert receivables into cash.
Collective wisdom
The combination of all the individual opinions about a
stock's or
security's value.
Colombo Stock Exchange
Established in 1984, the only public stock exchange of Sri Lanka.
COLT
(Continuous on-line trading system)
Computerized OTC traders
assistance system that provides for trade entry and position monitoring, among other
functions.
Comanager
A bank that ranks just below a lead manager in a syndicatedEurocredit or
international bond issue. Comanagers may assist the lead
manager bank in the pricing and issue of the instrument.
Combination
Applies to derivative products. Arrangement of options involving two long or two short positions with different
expiration dates or
strike (exercise) prices.
See: Straddle.
Combination annuity
See: Hybrid
annuity
Combination bond
A bond backed by the
government unit issuing it as well as by revenue from the project
that is to be financed by the bond.
Combination order
See: Alternative
order
Combination matching
Also called horizon-matching, a variation of multiperiod
immunization and cash flow-matching in which
a portfolio is created that
is always duration-matched and
also cash-matched in the first few years.
Combination strategy
A strategy in which a put and
call with different strike prices and the same expiration are either both bought or
both sold. Related: Straddle
Combined financial
statement
A financial statement that merges the assets, liabilities, net worth, and operating figures of
two or more affiliated companies. A combined statement is
distinguished from a consolidated
financial statement of a company and subsidiaries, which must
reconcile investment and
capital accounts.
Come
in
In the context of general equities, a fall in price.
Come out of the trade
In the context of general equities, trader'sposition in a security that results from executing a trade (or the expectations thereof).
Antithesis of going
into the trade.
Comeout
In the context of general equities, the opening. Antithesis of the close.
COMEX
A division of the New York Mercantile Exchange (NYMEX).
Formerly known as the Commodity Exchange, COMEX is the leading US
market for metals futures and
options trading.
Comfort letter
A letter from an independent auditor included in a preliminary prospectus stating that, while a full audit has not been undertaken, the auditor has done a 'review' sufficient to assure that financial statement information in the preliminary prospectus is correctly prepared to the best of the auditor's knowledge. The auditor in effect states that, had a full audit been done, they are comfortable that the audited financial statements would not be materially different from the ones presented in the preliminary prospectus.
Commercial bank
Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and business. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.
Commercial draft
Demand for payment.
Commercial hedgers
Companies that take futurespositions in commodities so that they can
guarantee prices at which they will buy raw materials or sell
their products.
Commercial invoice
Bill for merchandise sold.
Commercial letters of
credit
Trade-related agreement that a certain amount of bank funds
is available to an entity.
Commercial loan
A short-termloan, typically 90 days, used by a company to
finance seasonal working
capital needs.
Commercial Mortgage Backed
Securities
Similar to MBS but backed by
loans secured with commercial rather than residential property.
Commercial property includes multi-family, retail, office, etc.,
They are not standardized so there are a lot of details
associated with structure, credit enhancement, diversification,
etc., that need to be understood when valuing these instruments.
Commercial paper
Short-term
promissory notes either unsecured or backed by assets such as loans or mortgages issued by a corporation. The maturity of commercial paper is typically
less than 270 days; the most common maturity range is 30 to 50 days or
less. They are usually sold, like Treasury bills, at a discount.
Commercial property
Real estate that produces some sort of income-producing
property.
Commercial risk
The risk that a debtor
will be unable to pay its debts
because of business events, such as bankruptcy.
Commingling
In the context of securities, this involves mixing
customer-owned securities with
brokerage firm-owned securities. This process is referred
to as rehypothecation,
which is the use of customers' collateral to secure their loans.
This is legal with customer consent, although some securities and collateral must be kept
separately.
Commission
The fee paid to a broker to
execute a trade, based on number of shares, bonds,
options, and/or their dollar value. In
1975, deregulation led to the establishment of
discount brokers,
who charge lower commissions than full service
brokers. Full service brokers offer
advice and usually have a staff of
analysts who follow specific
industries. Discount brokers
simply execute a client's
order and usually do not offer an
opinion on a stock. Also known as
a round-turn. Commissions are known as round-turn only in futures trading, since the commission is assessed only after liquidation of the position.
Commission broker
A broker on the floor
of an exchange who acts as
agent for a particular brokerage house and buys and sells stocks for the brokerage
house on a commission basis.
Commission house
A firm that buys and sells
futures contracts for
customer accounts. Related: futures commission
merchant, omnibus
account.
Commission-only
compensation
Payment to a financial advisers of only
commissions on investmentspurchased when the
client implements the recommended financial plan.
Commitment
Describes a trader'sobligation to accept or make delivery on a futures contract. Related:
Open interest.
Committee on Uniform Securities
Identification Procedures (CUSIP)
Committee that assigns identifying numbers and codes for all
securities. These "CUSIP" numbers and symbols are used when
recording all buy or sell orders.
Commodities Exchange Center
(CEC)
The location of five New York futures exchanges: Commodity Exchange,
Inc. (COMEX); the New York Mercantile Exchange (NYMEX); New York
Cotton Exchange, Coffee, Sugar & Cocoa Exchange (CS&CE), and
New York Futures Exchange (NYFE).
Commodity
A commodity is food, metal, or another fixed physical
substance that investorsbuy or sell, usually via futures contracts.
Commodity-backed bond
A bond with interest payments tied to the price of
an underlyingcommodity.
Commodity Bundle
One unit of the collection of the complete set of goods
produced and sold in the world market.
Commodity Channel Index
An index used in technical analysis. High values mean a
potential future correction (downward movement in underlying
asset) and low values potentially forecast a rally. Details in
Donald Lambert's October 1980 article in Commodities
Magazine.
Commodity futures contract
An agreement to buy a specific amount of a commodity at a specified price on a
particular date in the future, allowing a producer to guarantee
the price of a product or raw material used in production.
Commodity Futures Trading Commission
(CFTC)
An agency created by the US Congress in 1974 to regulate
exchange trading in futures.
Commodity indices
Indices measuring the price and performance of
physical commodities, often by the price
of futures contracts
for the commodities that are
listed on commodityexchanges.
Commodity paper
A loan or advance secured by commodities.
Commodity Research Bureau
Produces a popular price index of 17 commodities which is
often used to track inflationarytrends in the economy.
Commodity Trading Advisor
An investment manager that focuses on long and short trading in the futures markets. The trades are often intraday trades. Sometimes referred to as Managed Futures.
Common-base-year analysis
The representing of accounting information over multiple
years as percentages of amounts in an initial year.
Common code
A nine-digit identification code issued jointly by CEDEL and Euroclear. As of January 1991 common
codes replaced the earlier separate CEDEL and Euroclear codes.
Common factor
An element of return that
influences many assets. According
to multiple factor risk
models, the factors determine correlations between
asset returns. Common factors include size (often measured by
market
capitalization), valuation measures such as price to book
value ratio and dividend yield, industries and risk indices.
Common market
An agreement between two or more countries that permits the
free movement of capital and
labor as well as goods and services.
Common shares
In general, a publiccorporation has two types of shares,
common and preferred. The common shares usually entitle the
shareholders to vote at
shareholders meetings. The common shares have a discretionary
dividend.
Common-size analysis
The representing of balance sheet items as
percentages of assets and of income statement items as
percentages of sales.
Common-size statement
A statement in which all items are expressed as a percentage
of a base figure, useful for purposes of analyzing trends and
changing relationship among financial statement items. For
example, all items in each year's income statement could be
presented as a percentage of netsales.
Common stock
Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the
election of directors. They also give the holder a share in a
company's profits via dividend
payments or the capital appreciation of the security. Units of ownership of a
publiccorporation with junior status to the claims of
secured/unsecured creditors, bondholders and preferred
shareholders in the event of liquidation.
Common stock equivalent
A convertible
security that is traded like an equityissue because the optioned common stock
is trading above the conversion price.
Common stock fund
A mutual fundinvesting
only in common stock.
Common stock market
The market for trading equities, not including preferred stock.
Common stock/other equity
Value of outstandingcommon shares at par, plus
accumulatedretained earnings.
Also called shareholders' equity.
Common stock ratios
Ratios that are designed to measure the relative claims of
stockholders to earnings (cash flow per share), and equity (
book value per share) of a
firm.
Commonwealth Development Corp
A British development finance institute.
Comnmunity Bank
A smaller bank that is regulated by the Office of the Comptroller of Currency (OCC).Currently, there is no official definition
of Community Bank, i.e. in terms of asset size.
Community Reinvestment Act (CRA)
Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations.
Companion bonds
A class of a Collateralized
Mortgage Obligation (CMO) whose principal is paid off first when the
underlyingmortgages are prepaid due to falling
interest rates. When
interest rates rise, there
will be lower prepayments of the principal; companion bonds therefore absorb most of the
prepayment risk of a CMO.
Company
A proprietorship, partnership, corporation, or other form of
enterprise that engages in business.
Company doctor
An executive, usually appointed from outside, brought in to
turn a company around and make it profitable.
Company-specific risk
Related: Unsystematic
risk
Comparative advantage
Theory suggesting that specialization by countries can
increase worldwide production.
Comparative credit
analysis
Comparing a firm to others that have a desired target
debt rating in order to deduce an
appropriate financial ratio target.
Comparative statements
Financial statements for different periods, that allow the
comparison of figures to illustrate trends in a company's performance.
Comparison
Short for "comparison ticket," a memorandum between two
brokers that confirms the details
of a transaction to be
carried out.
Comparison universe
A group of money managers of similar investment style used to
assess relative performance of a portfolio manager.
Compensation trade
The form of countertrade in which an incoming investment is repaid from the revenues generated by that investment.
Compensating balance
An excess balance that is left in a bank to provide indirect
compensation for loans extended or
services provided.
Compensation
Arrangement under which the delivery of goods to a party is
paid for by buying back a certain amount of the product from the
recipient of the goods.
Compensatory Financing Facility
(CFF)
Entity that attempts to reduce the impact of export
instability on country economies.
Competence
Sufficient ability or fitness for one's needs. The necessary
abilities to be qualified to achieve a certain goal or complete a
project.
Competition
Intra- or intermarket rivalry between or among businesses
trying to obtain a larger piece of the same market share.
Competition ahead
Often used in risk arbitrage. Situation whereby another
OTC market maker has transacted with
investment bank at the stated market level before the bid/offer
has been made.
Competitive bidders
One of two categories of bidders on Treasury securities: competitive and noncompetitive. Competitive bidders are usually financial institutions.
Competitive bidding
A securitiesoffering
process in which securities firms submit competing bids to the issuer for the securities the
issuer wishes to sell.
Competitive offering
An offering of securities through competitive bidding.
Complementary Financing
A type of financing in which different lenders agree to fund under similar yet parallel documentation and a pro rata security package.
Complete
In the context of general equities, to fill an order.
Complete capital market
A market in which there is a
distinctive marketable security for each and every possible
outcome.
Complete portfolio
The entire portfolio,
including risky and risk-free assets.
Completion
In the context of project financing, occurs after a Completion Test,
when the project's cash flows become the primary method of repayment. Prior to completion, the primary source of repayment is usually from the sponsors or from the turnkey contractor.
Completion bonding
Insurance that a construction contract will be completed
successfully.
Completion risk
The risk that a project will not be brought into operation successfully or be able to pass its completion test.
Completion test
A test of the project's ability to perform as planned and generate the
expected cash flows. After the completion test, the project can move from recourse to project financing.
Completion undertaking
An undertaking either (1) to complete a project so that it
meets certain specified performance criteria on or before a
certain specified date, or (2) to repay project debt if the
completion test cannot be met.
Complexity Theory
The theory that processes with a large number of seemingly
independent agents can
spontaneously organize themselves into a coherent system.
Compliance department
A department in all organized stock exchanges to ensure that
all companies, traders, and
brokerage firms comply with Securities and Exchange Commission and
exchange rules and regulations.
Composite tape
See: Tape
Composition
Voluntary arrangement to restructure a firm'sdebt, under which payment is reduced.
Compound Annual Growth
Rate
Annual return calculated based on each year's previous balances where each previous balance includes both the original principal and all interest accrued from prior years. Best defined by example. If you invest $100 today and make 5%
in the first year and reinvest ($105) and make 8% in the second
year, the compound annualgrowth rate is 6.489%. The calculation
is $100x1.05x1.08=$113.4 which is what you end up with at the end
of year two. The average return is [square root(113.4/100) -1]=
0.06489 or 6.489%. Note 1. If we had three compounding periods we
would take the cubic root (power of 1/3). Note 2. If we had
invested at exactly 6.489 in both periods, we get
$100x1.06489x1.06489=$113.4. Note 3. The example is directed to a
return - but CAGR could be applied to earnings growth, GDP
growth, etc.
Compound Annual Return
See: Compound Annual Growth
Rate
Compound growth rate
See: Compound Annual Growth
Rate
Compound interest
Interest paid on
previously earned interest as well as on the principal.
Compound option
Option on an option.
Compounding
The process of accumulating the time value of money forward
in time. For example, interest
earned in one period earns additional interest during each
subsequent time period.
Compounding frequency
The number of compounding periods in a year. For example,
quarterly compounding has a compounding frequency of 4.
Compounding period
The length of the time period that elapses before interestcompounds (a quarter in the
case of quarterly compounding).
Comprehensive due diligence
investigation
The investigation of a firm's business in conjunction with a
securitiesoffering to determine whether the firm's business and
financial situation and its prospects are adequately disclosed in
the prospectus for the offering.
Comprehensive Income
Comprehensive income is the change in equity
of a business enterprise during a period from
transactions and other events from non-owner
sources. It includes all non-owner changes in equity (in contrast to net income which does not
include some changes in equity). Financial Accounting Standards Board
(FASB) issued the Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income. For fiscal years beginning after December 15, 1997, SFAS 130 requires the disclosure of both net income and a more 'comprehensive' measure of income which includes four items recorded as owners' equity under previous FASB pronouncements:
adjustments to unrealized gains and losses on available-for-sale marketable securities (SFAS
115), foreign currency translation adjustments (SFAS 52), minimum required pension liability
adjustments (SFAS 87), and changes in the market values of certain futures contracts qualifying
as hedges (SFAS 80).
Comptroller
The corporate manager responsible for the firm's accounting
activities. Sometimes referred to as the contoller (which means the same thing).
Comptroller of the
Currency
A government official, appointed by the President of the United States, who keeps
control over all national banks, and receives reports from the
banks at least quarterly, to be published in newspapers.
Computerized market timing
system
A computer system that compiles large amounts of trading data in search of patterns and trends to make buy and sell
recommendations.
Concave
Property that a curve is below a straight line connecting two
end points. If the curve falls above the straight line, it is
called convex.
Concentration account
A single centralized account into which funds collected at
regional locations (lockboxes) are transferred.
Concentration Banks
A small number of large banks a firm contracts with to
periodically collect the firm's deposit balances from a group of
smaller banks.
Concentration services
Movement of cash from
different lockbox locations into a single concentration account
from which disbursements and investments are made.
Concession
The per-share or per-
bondcompensation of a selling group
for participating in a corporate underwriting.
Concession agreement
An understanding between a company and the host government
that specifies the rules under which the company can operate
locally.
Conditional call
Applies mainly to convertible securities. Circumstances under
which a company can effect an earlier call, usually stated as
percentage of a stock'strading price during a particular period,
such as 140% of the exercise price during a 40-day trading
span.
Conditional call options
A protective guarantee that, in the event a high yield bond is called, the issuingcorporation will
replace the bond with a non
callable bond of the same life and terms as the
bond that is being called.
Conditional sales
contracts
Similar to equipment trust certificates, except that the
lender is either the equipment manufacturer or a bank or finance
company to which the manufacturer has sold the conditional sales contract.
Condor
Applies to derivative products. Optionstrategy consisting of
both puts and calls at different strike prices to capitalize on a
narrow range of volatility. The payoff diagram takes the shape of
a bird.
Conduit theory
A theory that because investmentcompanies are merely
conduits for capital
gains, dividends, and
interest, which are in fact
passed through to shareholders, the investmentcompany should not be
taxed at the corporate level.
Confidence indicator
A measure of investors' faith in the economy and the securities market. A low or deteriorating level of confidence is
considered by many technical analysts as a
bearish sign.
Confidence letter
Statement by an investment bank that it is highly confident
that the financing for its client/acquirer'stakeover can and
will be obtained. Often used in risk arbitrage.
Confidence level
In risk analysis, the degree of assurance that a specified
failure rate is not exceeded.
"Confirm me out"
Used for listed equity securities. "Go to the floor and check
with the specialist or floor
broker that my previously activeorder has been canceled and was not executed". One does not have to honor
any trade reported after being given a "firm out".
Confirmation
The written statement that follows any "trade" in the securities markets. Confirmation is issued immediately after a
trade is executed. It spells out
settlement date, terms,
commission, etc.
Confirmed Letter of Credit
A letter of credit which a bank other than the bank that opened it agrees to honor as though they had themselves issued it. This additional confirmation is in addition to the obligation of the bank which issued the letter of credit.
Confirming Bank
The bank which has confirmed a letter of credit opened by another bank.
Conflict between bondholders and
stockholders
Bondholders and stockholders may have interests in a
corporation that conflict. Sources of conflict include dividends, distortion of investment,
and underinvestment. Protective covenants in bond documents work to
resolve these conflicts.
Conforming loans
Mortgageloans that meet
the qualifications of Freddie
Mac or Fannie Mae, which
are bought from lenders and
issued as pass-through
securities.
Conglomerate
A firm engaged in two or more unrelated businesses.
Conglomerate merger
A merger involving two or
more firms that are in unrelated businesses.
Consensus forecast
The mean of all financial
analysts' forecasts for a company.
Consignee
The party named in the bill of lading to whom delivery is promised and/or title is passed.
Consignment
Transfer of goods to a seller while title to the merchandise
is retained by the owner.
Consol
A government bond with no maturity . Popular in Great Britain.
The formula for valuing these bonds is simple. The consol payment
divided by yield to
maturity is the price of the bond.
Consolidated financial
statement
A financial statement that shows all the assets, liabilities, and operating accounts of a parent company and its
subsidiaries.
Consolidated mortgage bond
A bond that covers several
units of property, sometimes refinancingmortgages on the properties.
Consolidated tape
Used for listed equity securities. Combined ticker tapes of the NYSE and the curb. Network A covers the NYSE-listed
securities and is used to identify the originating market.
Network B does the same for AMEX-listed securities
and also reports on securities listed on regional stock
exchanges. See: tape.
Consolidated tax return
A tax return combining the reports of affiliated companies,
that are at least 80% owned by a parent company.
Consolidation
The combining of two or more firms to form an entirely new
entity.
Consolidation loan
A loan that is used to combine and finance payments on other
loans.
Consortium
A group of companies that cooperate and share resources in
order to achieve a common objective.
Consortium banks
A merchant bankingsubsidiary set up by several banks that may or may not be of the
same nationality. Consortium banks are common in the Euromarket
and are active in loansyndication.
Constant dollar
Condition in which inflation or escalation is not applicable. Prices and costs are deescalated or reescalated to a single point in time.
Constant-dollar plan
Method of purchasing securities by investing a fixed amount
of money at set intervals. The investorbuys more shares when the price is low and fewer
shares when the price is high,
thus reducing the average cost.
Constant-growth model
Also called the Gordon-Shapiro model, an application of the
dividend discount
model that assumes (1) a fixed growth rate for future dividends,
and (2) a single discount
rate.
Constant ratio plan
Maintaining a predetermined ratio between stock and fixed income investments through regular
adjustments of distribution of funds into different investments. See: formula investing.
Constant yield method
Allocation of annual interest on a zero-coupon security for income tax use.
Construction loan
A short-termloan to finance building costs.
Constructive receipt
The date a taxpayer receives dividends or other income, for use in
the determination of taxes.
Consular Invoice
A document prepared by the shipper and certified in the country of origin by a consul of the country of importation. It shows the transaction details and origin of the goods.
Consumer Advisory Council (CAC)
A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.
Consumer credit
Credit a firm grants to
consumers for the purchase of goods or services. Also called
retail credit.
Consumer Credit Protection Act of
1968
Federal legislation establishing rules for the disclosure of
the terms of a loan to protectborrowers. See: Truth in lending.
Consumer debenture
An investmentnoteissued directly to the public by a
financial institution.
Consumer durables
Consumer products that are expected to last three years or
more, such as an automobile or a home appliance.
Consumer finance company
See: Finance
company
Consumer goods
Goods not used in production but bought for personal or
household use such as food, clothing, and entertainment.
Consumer interest
Interest paid on consumer
loans; e.g., interest on
credit cards and retailpurchases.
Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer
goods and services and is a measure of the pace of US inflation. The US Department of Labor
publishes the CPI every month.
Consumption tax
See: Value-added
tax
Contagion
Excess correlation of delivering or bondreturns. For example, under usual conditions we
might observe a certain level of correlation of market returns. A period of
contagion would be associated with much higher-than-expected
correlation. Some examples are the conjectured contagion in East
Asian markets beginning in July 1997 when the Thai currency
devalued and the impact across many emerging markets of the
Russian default. Contagion is difficult to identify because you
need some sort of measure of the expected correlation. It is
complicated because correlations are known to change through
time, for example, see Erb, Harvey and Viskanta's article in the
1994 Financial Analysts Journal. In periods of negative returns,
correlations (and volatility) are known to increase,
so what might appear to be excessive may not be contagion.
Contango
A market condition in which futures prices are higher in the
distant delivery months.
Contingency
An additional amount or percentage added to any cash flow item (ie. Capex). Care is needed to ensure it is either to be spent or to remain as a cushion.
Contingency graph
A plot of the net profit to a speculator in currency options under various exchange rate scenarios.
Contingency order
In the context of general equities, order to buy one
security, if the trader can sell another, usually given that
certain price limits or conditions reach a certain level. Swap,
switch order.
Contingent
In context of liabilities, those liabilities that do not yet appear on the balance sheet (ie. guarantees, supports, lawsuit settlements). For support or recourse, the trigger may occur at any time in the future.
Contingent claim
A claim that can be made only if one or more specified
outcomes occur.
Contingent conversion trigger
Used in the context of convertible instruments. The price of the stock must exceed the trigger price before the bond holder can convert to common stock at a pre-established conversion price. The trigger price exceeds the conversion price. In addition, after a certain number of years, the convertible instrument usually specifies that both the conversion price and the contingent conversion trigger will increase every year by, for example, a rate equal to LIBOR.
Contingent deferred sales charge
(CDSC)
The formal name for the load of a back-end load fund.
Contingent immunization
An arrangement in which the money manager pursues an activebondportfoliostrategy until an adverse
investment experience drives the then-available potential
return down to the safety net
level. When that point is reached, the money manager is obligated to
pursue an immunization strategy to
lock in the safety-net level return.
Contingent order
An order which can be executed only if another event occurs; i.e. "sell Oct 45 call 7-1/4 with stock 52 or lower".
Contingent pension
liability
Under ERISA, a firm is liable to its pension plan
participants for up to 39% of the net worth of the firm.
Contingent Voting Power
Enables preferredstockholders to vote when the
company fails to satisfy the agreement between itself and the
preferred stockholders.
Continuous compounding
The process of accumulating the time value of money forward
in time on a continuous, or instantaneous, basis. Interest is
earned constantly, and at each instant, the interest that accrues
immediately begins earning interest on itself.
Continuous net settlement (CNS)
Method of securities
clearing and settlement
using a clearing house,
which matches transactions
to securities available,
resulting in one net receive or deliver position at the end of the day.
Continuous random variable
A random value that can take any fractional value within
specified ranges, as contrasted with a discrete variable.
Contra broker
The broker on the buy side
of a sell order or the sell side
of a buy order.
Contract
A term of reference describing a unit of trading for a financial or commodityfuture. Also, the actual
bilateral agreement between the buyer and seller of a transaction
as defined by an exchange.
Contract month
The month in which futures
contracts may be satisfied by making or accepting a delivery.
Contractual Claim
An amount that by legal agreement must be paid periodically
to the buyer of a security;
contractual claim may also specify the time at which the principal must be repaid and other
details.
Contractual Intermediary
Holder of an indirect claim through a legal agreement that
specifies that the individual must make periodic, fixed payments
to the intermediary in exchange for the right to receive payments
from the intermediary in the future.
Contractual plan
A plan in which fixed dollar amounts of mutual fundshares are purchased through periodic
investments, usually featuring
some sort of additional incentive for the fixed period
payments.
Contramarket stock
In the context of general equities, stock that tends to go
against the trend of the market as a whole, such as a
commodities-related stock or one in an industry out of favor with
investors in a bull market.
Contrarian
An investment style that leads one to buyassets that have
performed poorly and sell assets that have performed well. There
are two possible reasons this strategy might work. The first is a
mean-reversion argument; that is, if the asset has deviated from
its usual level, it should eventually return to that usual level.
The second reason has to do with overreaction. Investors might
have overreacted to bad news sending the asset price lower than
it should be.
Contrarian investing
Ignoring markettrends by buyingsecurities that the investor considers
undervalued and out of
favor with other investors.
Contributed capital
See: Paid-in
capital
Contribution
Money placed in an individual retirement
account (IRA), an employer-sponsored retirement plan, or
other retirement plan for a particular tax year. Contributions
may be deductible or nondeductible, depending on the type of
account.
Contribution margin
The difference between variable revenue and variable
cost.
Control
50% of the outstanding votes plus one vote.
Control Limits
The upper and lower limits on the acceptable level of cash
that minimizes the sum of the opportunity cost of excessive
cash and the cost of marketable security transactions.
Control parameters
In a nonlinear dynamic system, the coefficient of the order parameter; the determinant of
the influence of the order parameter on the total system. See:
Order Parameter.
Control person
See: Affiliated
person
Control-share Acquisition Laws
See Supermajority.
Control stock
The shares owned by the
controllingshareholders
of a corporation. Sometimes refers to stock that has voting rights rather than stock that carries no voting rights. In a situation where all stock has voting rights, it sometimes refers to
the shareholdings of one investors or a group of investors that effectively control the firm.
Controlled commodities
Commodities regulated by
the Commodities Exchange Act of 1936 in order to prevent fraud
and manipulation in commoditiesfuturesmarkets.
Controlled disbursement
A service that provides for a single presentation of checks
each day (typically in the early part of the day).
Controlled foreign corporation
(CFC)
A foreign corporation whose voting stock is more than 50% owned by US
stockholders, each of whom
owns at least 10% of the voting power.
Controller
The corporate manager responsible for the firm's accounting
activities. Sometimes referred to as the comptroller (which means the same thing).
Convenience yield
The extra advantage that firms derive from holding the
commodity rather than a futureposition.
Convention statement
An annual statement filed by a life insurancecompany in each
state where it does business in compliance with that state's
regulations. The statement and supporting documents show, among
other things, the assets,
liabilities, and surplus of the reporting
company.
Conventional mortgage
A loan based on the credit of the borrower and on the
collateral for the mortgage.
Conventional option
An optioncontract arranged on the tradingfloor and traded regularly. The opposite of exotic option.
Conventional pass-throughs
Also called private-label
pass-throughs, any mortgage
pass-through security not guaranteed by government agencies.
Compare agency
pass-throughs.
Conventional project
A project with a negative initial cash flow (cash outflow), which is
expected to be followed by one or more future positive cash flows
(cash inflows).
Convertible
A financialinstrument that can be exchanged for another security or equity interest at a pre-agreed time and exchange ratio.
Convertible Arbitrage
In the context of hedge funds, a style of management that involves the simultaneous purchase of a convertible bond and the short sale of shares of the underlying stock. Interest rate risk may or may not be hedged.
Convergence
The movement of the price of a futures contract toward the
price of the underlying cash commodity. At the
start, the contract price is usually
higher because of time
value. But as the contract nears expiration, and time value
decreases, the futures price
and the cash price converge.
Conversion
In the context of securities, refers to the exchange of
a convertible security such as
a bond into stock.
In the context of mutual
funds, refers to the free exchange of mutual fundshares from one fund to another in a
single family.
Conversion factors
Rules set by the Chicago Board of Trade for determining the
invoice price of each
acceptable deliverable Treasuryissue against the Treasury Bondfutures contract.
Conversion feature
Specification of the right to transform a particular investment to another form of investment, such as switching
between mutual funds or
converting preferred stock or
bonds to common stock.
Conversion parity
See: Market
conversion price
Conversion parity price
Related: Market
conversion price
Conversion parity/value
Applies mainly to convertible securities. Common stock price at which a
convertible bond can
become exchangeable for common shares of equal value;
value of a convertible bond based solely on the market value of the underlyingequity. Par value plus conversion ratio. See bond value, investment value, parity.
Conversion Period
The time period during which an investor can exchange a convertible security for
common stock.
Conversion premium
The extent by which the conversion price of a convertible security
exceeds the prevailing common
stock price at the time the convertible security is issued. In general usage, the conversion premium is the amount by which the convertible security trades above its conversted value. For example, if a $1,000 par bond is trading at $1,100, it is convertible into 50 shares, and the shares are trading at $21, the converted value is 50 X 20.50 = $1,025, and the conversion premium is $75.
Conversion price
Applies mainly to convertible securities. Dollar value at
which convertible
bonds, debentures, or preferred stock can be
converted into common
stock, as specified when the convertible is issued.
Conversion ratio
Applies mainly to convertible securities. Relationship that
determines how many shares of
common stock will be received
in exchange for each convertible bond or preferred stock when a
conversion takes place. It is determined at the time of issue and is expressed either as a ratio
or as a conversion
price from which the ratio can be figured by dividing the
par value of the convertible by
the conversion
price.
Conversion value
The value of a convertible security if it
is converted immediately. Also called parity value or converted value.
Converted put
See Synthetic Put.
Convertibility
The ability to exchange a currency without government
restrictions or controls.
Convertible adjustable preferred stock
(Caps)
The interest rate on
caps is adjustable and is pegged to Treasurysecurity rates. They can be exchanged
at par value for common stock or cash after the
next period's dividend
rates are revealed.
Convertible arbitrage
A practice, usually of buying a convertible bond and shorting
a percentage of the equivalent underlyingcommon shares, to create a
positive cash flowposition (with expected returns above the
riskless rate) in a static
environment and benefit from capital appreciation should the
convertible's premium rise. This
form of investing is far from riskless and requires constant
monitoring. See: Chinese
hedge and setup
Convertible bond
General debtobligation of a
corporation that can be exchanged for a set number of common shares of the issuing
corporation at a prestatedconversion price.
Convertible eurobond
A eurobond that can be
converted into another asset,
often through exercise of
attached warrants.
Convertible exchangeable preferred
stock
Convertible
preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have
the same conversion features as the convertible preferred stock.
Convertible 100
Goldman Sachs index of the 100 convertibles of greatest
institutional importance. Weighted by issue size, it measures the performance
of its components against that of their underlyingcommon stock and against other
broad marketindexes as
well.
Convertible preferred
stock
Preferred stock
that can be converted into common stock at the option of the holder. See also: participating
convertible preferred stock.
Convertible price
The contractually specified price per share at which a convertible security can
be converted into shares of
common stock.
Convertible security
A security that can be
converted into common
stock at the option of the
securityholder; includes convertible bonds and convertible preferred
stock.
Convex
Curved, as in the shape of the outside of a circle. Usually
referring to the price/required yield relationship for option-free bonds.
Convexity
Property that a curve is above a straight line connecting two
end points. If the curve falls below the straight line, it is
called concave.
Cook the books
To deliberately falsify the financial statements of a
company. This is an illegal practice.
Cooling-off period
The period of time between the filing of a preliminary
prospectus with the Securities and
Exchange Commission and the actual public offering of the securities.
Cooperative
An organization owned by its members. Examples are
agriculture cooperatives that assist farmers in selling their
products more efficiently and apartment buildings owned by the
residents who have full control of the property.
Copenhagen Stock Exchange
The only securitiesexchange in Denmark. It features
electronic trading of stocks, bonds, futures, and options.
Core
capital
The capital required of a
thrift institution, which must be at least 2% of assets to meet the rules of the Federal Home Loan
Bank.
Core competence
Primary area of expertise. Narrowly defined fields or tasks
at which a company or business excels. Primary areas of
specialty.
Cornering the market
Purchasing a security or
commodity in such volume as
to achieve control over its price. An illegal practice.
C Corporation
A corporation that elects to be taxed as a corporation. The C
corporation pays federal and state income taxes on earnings.
When the earnings are distributed to the shareholders as dividends, this
income is subject to another round of taxation (shareholder's income).
Essentially, the C corporations' earnings are taxed twice. In contrast,
the S corporation's earnings are taxed only once.
Corporate acquisition
The acquisition of one firm by another firm.
Corporate bonds
Debtobligationsissued by corporations.
Corporate charter
A legal document creating a corporation.
Corporate equivalent yield
A comparison of the after-tax yield of government bonds selling at a discount and corporate bonds selling at par.
Corporate finance
One of the three areas of the discipline of finance. It deals with the operation of
the firm (both the investment decision and the financing decision) from the firm's point of view.
Corporate financial
management
The application of financial principles within a corporation
to create and maintain value through decision-making and proper
resource management.
Corporate financial
planning
Financial
planning conducted by a firm that encompasses preparation of
both long-and short-termfinancial plans.
Corporate financing
committee
A committee of the NASD
that reviews underwriters'SEC-required documents to ensure
that proposed markups are fair and in the publicinterest.
Corporate income fund (CIF)
A unit investment trust featuring a fixed portfolio of high-gradesecurities and other investments, usually with monthly
distribution of income.
Corporate processing float
The time that elapses between receipt of payment from a
customer and the deposit of the customer's check in the firm's
bank account; the time required to process customer
payments.
Corporate repurchase
Activebuying by a corporation of its own stock in the marketplace. Reasons for
repurchase include putting idle cash to use, raising EPS, creating support for a
stock price, increasing internal
control (shark
repellant), or stock for ESOP or pension
plans. Repurchase is subject to rules, such as that buying must
be on a zero minus or a
minus tick, after the opening and before 3:30 p.m.
Corporate tax view
The argument that double (corporate and individual) taxation
of equity returns makes debt a cheaper financing method.
Corporate taxable
equivalent
Rate of return
required on a par bond to produce
the same after-tax yield
to maturity that the quoted premium or discount bond would generate.
Corporate Trust
The function of servicing and maintaining records for debt securities issued by a corporation.
Corporation
A legal entity that is separate and distinct from its owners.
A corporation is allowed to own assets, incur liabilities, and sell securities, among other things.
Corpus
See: Principal
Correction
Reverse movement, usually downward, in the price of an
individual stock, bond, commodity, or index. If prices have been rising on the
market as a whole, and then fall
dramatically, this is known as a correction within an upward
trend. Antithesis of a technical rally. See: Dip, break.
Correlation
Statistical measure of the degree to which the movements of
two variables (stock/option/convertible prices or returns)
are related. See: Correlation
coefficient.
Correlation coefficient
A standardized statistical measure of the dependence of two
random variables,
defined as the covariance
divided by the product of the standard
deviations of two variables.
Correlation Dimension
An estimate of the Fractal Dimension which
measures the probability that two points chosen at random will be
within a certain distance of each other, and examines how this
probability changes as the distance is increased. White noise will fill its space
since its components are uncorrelated, and its correlation
dimension is equal to whatever dimension it is placed in. A
dependent system will be held together by its correlations and
retain its dimension whatever embedding dimension it is placed
in, as long as it is greater than its fractal dimension.
Correlation Integral
The probability that two points are within a certain distance
from one another. Used in the calculation of the correlation
dimension.
Correspondent
A financial organization that performs services (acts as an
intermediary) in a market for
another organization that does not have access to that market.
Correspondent bank
Bank that accepts deposits of, and performs services for, another bank (called a respondent bank); in most cases, the two banks are in different cities.
Cosigner
A term referring to a person, other than the principal borrower, who signs for a loan. The cosigner(s) assumes equal liability for the loan.
Cost
The opposite of revenue. An expense that reflects the price of purchasing goods, services and financial instruments. A cash cost means that cash is given up today to the purchase. Also, the purchase price of an investment, which is compared to the sale proceeds to determine capital gain or loss.
Cost accounting
A branch of accounting that provides information to help the
management of a firm evaluate production costs and
efficiency.
Cost and Freight (CFR)
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. This should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel.
Cost
basis
The original price of an asset, used to determine capital gains.
Cost-benefit ratio
The net present value
of an investment divided by the investment's initial cost. Also
called the profitability index.
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Out-of-pocket costs incurred while an investor has an investment position. Examples
include interest on long
positions in margin
account, dividend lost on
short margin positions,
and incidental expenses. Related: Net financing cost.
Cost-of-carry market
Applies to derivative products. Futures contractstrade in a "cost-of-carry market" where
the underlyingcommodity can be stored, insured, and
converted into the future easily and inexpensively. Arbitrageurs, because of the ease
of switching from the spot commodity to futures, will keep these markets in line with prevailing interest rates.
Cost company arrangement
Arrangement whereby the shareholders of a project receive
output free of charge but agree to pay all operating and
financing charges of the project.
Cost of equity
The required rate of
return for an investment of 100% equity.
Cost of funds
Interest rate
associated with borrowingmoney.
Cost of goods sold
The total cost of buyingraw materials, and paying for all
the factors that go into producing finished goods.
Cost of lease financing
A lease'sinternal rate of
return.
Cost of limited partner
capital
The discount rate
that equates the after-tax inflows with outflows for capital raised from limited
partners.
Cost Insurance and Freight (CIF)
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. This term should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel.
"Cost
me"
Refers to over-the-counter trading. "The price I must pay to
obtain the securities you wish
to buy is [$]". Usually, a standard
markup is then applied for resale to this buyer. Antithesis
of can get.
Cost-plus contract
A contract in which the
selling price is based on the total cost of production plus a
fixed percentage or fixed amount.
Cost-push inflation
Inflation caused by
rising prices, usually from increased raw material or labor costs
that push up the costs of production. Related: Demand-pull
inflation.
Cost
records
The records maintained by an investor of the prices at which
securitiestransactions are made, so that
capital gains can be
computed.
Cost Recovery Period
The number of years it takes to fully depreciate a capital asset. This time period
is based on classification of the depreciable life of an asset.
Council of Economic
Advisers
A group of economists appointed by the President of the
United States to provide economic counsel and help prepare the
president's budget presentation to Congress.
Countercyclical stocks
Stocks whose price tends to
rise when the economy is in recession or the market is bearish, and vice versa.
Counterpart items
In the balance of
payments, counterpart items are analogous to unrequited
transfers in the current
account. They arise through the double-entry system in
balance of payments accounting and refer to adjustments in
reserves owing to monetization or
demonetization of gold, allocation or cancellation of SDRs, and revaluation of
the various components of total reserves.
Counterparties
The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position.
Counterparty
The other participant, including intermediaries, in a swap or contract.
Counterparty risk
The risk that the other party
to an agreement will default.
In an options
contract, the risk to the optionbuyer that the option writer will not buy or sell the underlying as agreed.
Counterpurchase
Exchange of goods between two parties under two distinct
contracts expressed in monetary
terms.
Countertrade
See: barter
Country allocations
The percentages of a fund's net assetsdistributed to securities of various countries. These
percentages serve as an indicator of a fund's diversification and its
vulnerability to fluctuations in foreign financial markets or currencyexchange rates.
Country beta
Covariance of a national
economy's rate of return and the
rate of return of the world economy divided by the variance of the world economy.
Country diversification
Investment of a global or international portfolio'sassets in securities of various countries.
Country economic risk
Developments in a national economy that can affect the
outcome of an international financial transaction.
Country financial risk
Centers around the ability of a national economy to generate
enough foreign
exchange to meet payments of interest and principal on its foreign debt.
Country risk
The general level of political, financial, and economic uncertainty in a country which impacts the value of the country's bonds and equities. See:Sovereign risk.
Country selection
A type of active international management that measures the
contribution to performance attributable to investing in the
better-performing stock
markets of the world.
Coupon
The contractual interest obligation a bond or debenture issuer covenants to pay to its debtholders.
Coupon bond
A bond featuring coupons that must be presented to the
issuer in order to receive interest payments.
Coupon-equivalent rate
See: Equivalent
bond yield
Coupon equivalent yield
True interestcost
expressed on the basis of a 365-day year.
Coupon pass
Canvassing by the desk of primary dealers to determine the inventory and
maturities of their Treasury securities. The desk then decides
whether to buy or sell certain issues (coupons) in order to add or withdraw
reserves.
Coupon payments
A bond'sinterest payments.
Coupon rate
In bonds, notes, or other fixed income securities,
the stated percentage rate of interest, usually paid twice a
year.
Covariance
A statistical measure of the degree to which random variables move together.
A positive covariance implies that one variable is above (below)
its mean value when the other
variable is above (below) its
mean value.
Covenant
An agreed action to be undertaken (Positive) or not done (Negative). A
breach of a covenant is a default.
Cover
The amount above UNITY of a debt service ratio.
Coverage
See: Fixed-charge
coverage
Coverage initiated
Usually refers to the fact that analysts begin following a
particular security. This usually happens when there is enough
trading in it to warrant attention by the investment community.
Coverage ratios
Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting
debt and leaseobligations, including the interest coverage ratio
and the fixed-charge coverage
ratio.
Covered
A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put.
Covered call
A shortcall optionposition in which the writer owns the number of shares of the underlying stock represented by the
option contracts.
Covered calls generally limit the
risk the writer takes because the stock does not have to be bought at the
market price, if the
holder of that option decides to
exercise it.
Covered call writing
strategy
A strategy that involves writing a call option on securities that the investor owns. See: Covered or hedge
option strategies.
Covered foreign currency
loan
A loandenominated in a currency other than that of the
borrower's home country, for which repayment terms are
prearranged through the use of a forward currency
contract.
Covered interest arbitrage
Occurs when a portfolio managerinvests
dollars in an instrumentdenominated in a foreign currency and hedges the resulting foreign exchange risk by
selling the proceeds of the investment forward for dollars.
Covered Interest Rate
Parity
The principle that the yields
from interest-bearing foreign and domestic investments should be equal when the
currencymarket is used to predetermine the
domestic currency payoff from a foreign investment.
Covered or hedge option
strategies
Strategies that involve a position in an
option as well as a position in the
underlying stock, designed so that one
position will help
offset any unfavorable price movement in
the other, including covered call
writing and protective putbuying.
Related: Naked
strategies
Covered option
Optionposition that is offset by an equal
and opposite position in the underlying security.
Antithesis of naked
option.
Covered position
Use of an option in a
tradingstrategy in the underlyingasset which is already owned.
Covered put
A put optionposition in which the option writer also is short the corresponding stock or has deposited, in a cash
account, cash or cash equivalents equal to the exercise price of the option. This limits the option writer'srisk because money or stock is already set aside. In the event
that the holder of the put
option decides to exercise the option, the writer's risk is more limited than it would be on
an uncovered or naked put option.
Covered straddle
An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actually, this is not a "covered" strategy because assignment on the short put would require purchase of stock on margin. This method is also known as a covered combination.
Covered straddle write
The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position.
Covered writer
An investor who writes
options only on stock that he or she owns, so that
option premiums may be collected.
Covering
Using forward currency
contracts to predetermine the domestic currency amount of an expected future
foreign receipt or payment. Also, the buying back ('covering') of a short position.
CPI
A measure of inflation. See: Consumer Price Index.
Cramdown
The ability of the bankruptcy court to confirm a plan
of reorganization over the objections of some classes of creditors.
Cram-down deal
A merger in which stockholders are forced to accept
undesirable terms, such as junk
bonds instead of cash or equity, due to the absence of any better
alternatives.
Crash
Dramatic loss in market
value. The last great crash was in 1929. Some refer to
October 1987 as a crash but the market return for the entire year of 1987 was positive.
Crawling peg
An automatic system for revising the exchange rate. It involves
establishing a par value
around which the rate can vary up to a given percent. The par value is revised regularly
according to a formula determined by the authorities.
Credible signal
A signal that provides accurate information; a signal that
can distinguish among senders.
Credit
Moneyloaned.
Credit analysis
Evaluating information on companies and bondissues in order to estimate the ability
of the issuer to live up to its
future contractualobligations. Related: Default
risk.
Credit balance
The surplus in a cashaccount with a broker after purchases have been paid
for, plus the extra cash from the sale of securities.
Credit bureau
An agency that researches
the credit history of consumers so that creditors can make decisions about
granting of loans.
Credit card
Any card, plate or coupon book that may be used repeatedly to borrowmoney or buy goods and services on credit.
Credit enhancement
The purchase of the financialguarantee of a large insurance company
to raise funds. In the context of project financing, the issuance of a guarantee or
additional collateral to reinforce the credit
strength of a project financing. Also, the reduction of counterparty risk on a swap transaction through such measures as bilateral netting.
Credit history
A record of how a person has borrowed and repaid debt.
Credit insurance
Insurance against abnormal losses due to unpaid accounts receivable.
Credit linked security
A note whose cash flow depends upon a credit event or credit
measure of a referenced entity or asset such as default, credit
spread, or rating change. The manager would purchase such a note
to hedge against possible down grades, or loandefaults that
would guarantee payment into the portfolio of the manager even if
moneys on referenced assets are reduced.
Credit period
The length of time for which a firm's customer is granted
credit.
Credit Policy Delay
The period between the sale of goods for a credit and the
payment for those goods. This lag is determined largely by the
selling firm's credit policy.
Credit Rating Agencies
Firms that compile information on and issuepubliccredit ratings for a large number
of companies.
Credit Standards
The guidelines a company follows to determine whether a
credit applicant is creditworthy.
Credit Terms
The conditions under which credit will be extended to a customer.
The components of credit terms are: cash discount, credit period, net period.
Creditworthiness
The condition in which the risk of default on a debtobligation by that entity is deemed low.
Credit quality
A measure of a bondissuer's ability to repay interest and principal in a timely manner.
Rating agencies
assign letter designations such as AAA, AA, and so forth. The lower the rating, the higher
the probability of default.
Credit rating
An evaluation of an individual's or company's ability to
repay obligations or its likelihood of not defaulting See: Creditworthiness.
Credit risk
The risk that an issuer of debt securities or a borrower may default on its obligations, or that the
payment may not be made on a negotiable instrument. Related: Default risk.
Credit scoring
A statistical technique that combines several financial
characteristics to form a single score to represent a customer's
creditworthiness.
Credit spread
Applies to derivative products. Difference in the value of
two options, when the value of
the one sold exceeds the value of the one bought. One sells a
"credit spread." Antithesis of a debit spread Related: Quality spread.
Credit union
A not-for-profit institution that is operated as a
cooperative and offers financial services such as low-interestloans to its members.
Credit watch
A warning by a bond ratingfirm indicating that a company'scredit rating may change
after the current review is concluded.
Crediting rate
The interest rate
offered on an investment type insurance policy.
Creditor
Lender of money.
Creditor's committee
A group representing firms that have claims on a company
facing bankruptcy or extreme
financial difficulty.
Creditworthiness
Eligibility of an individual or firm to borrowmoney.
Creeping expropriation
The act of a government squeezing a project by taxes, regulation, access, or changes in law.
Creeping tender offer
The process by which a group attempting to circumvent certain
provisions of the Williams
Act gradually acquires
shares of a
target company in the
open market.
CREST
CREST is CrestCo's real-time settlement system for UK and
Irish shares and other corporate securities. CrestCo has provided
settlement systems for government bonds and money market instruments in the UK since 1990.
Crisp
Sets
The fuzzy set term for
traditional set theory. That is, an object either belongs to a
set, or does not.
Critical Levels
Values of control
parameters where the nature of a nonlinear dynamic system
changes. The system can bifurcate, or make the transition
from stable to turbulent behavior. An example is the straw that
breaks the camel's back.
Cross
Securitiestransaction in
which the same broker acts as
agent for both sides of the trade; a legal practice only if the
broker first offers the
securities publicly at a price higher than the bid.
Cross-border factoring
Concluding a transaction by a network of factors across
borders. The exporter's factor can contact correspondent factors
in other countries to handle the collection of accounts receivable.
Cross-border risk
Describes the volatility
of returns on international
investments caused by events
associated with a particular country as opposed to events
associated solely with a particular economic or financial agent.
Cross-Collateral
An agreement among project participants to poolcollateral, to allow recourse to each other's collateral.
Cross-default
A provision under which default on one debtobligation triggers default on another debt
obligation.
Cross hedging
Applies to derivative products. Hedging with a futures contract that is
different from the underlying being hedged. Use of a
hedging instrument different from the security being hedged. Hedging
instruments are usually
selected to have the highest price correlation to the underlying.
Cross-holdings
The holding by one corporation of shares in another firm. One needs to
allow for cross-holdings when aggregatingcapitalizations of firms.
Ignoring cross-holdings leads to double-counting.
Cross
rates
The exchange rate
between two currencies expressed as the ratio of two foreign exchange rates that
are both expressed in terms of a third currency. Foreign exchange
rate between two currencies other than the US dollar, the
currency in which most exchanges are usually quoted.
Cross-sectional analysis
Assessment of relationships among a cross-section of firms, countries, or some other variable
at one particular time.
Cross-Sectional Ratio
Analysis
A method of analysis that compares a firm's ratios with some
chosen industrybenchmark. The benchmark usually chosen is the
average ratio value for all firms in an industry for the time
period under study.
Cross-sectional approach
A statistical methodology applied to a set of firms at a
particular time.
Cross-share holdings
Often used in risk arbitrage. Corporations' or governments'
equity share ownership in
another corporation's shares.
Cross-border bonds
Bonds that firmsissue in the international
market.
Crossed market
In the context of general equities, happens when the inside market consists of a
highest bidprice that is higher than the lowest
offer price. See: Overlap the market.
Crossed trade
The prohibited practice of offsettingbuy and sell orders without recording the trade on the exchange, thus not allowing other
traders to take advantage of a
more favorable price.
Crossover rate
The return at which two
alternative projects have the same net present value.
Crowd trading
Used for listed equity securities. Group of exchange members with a defined area
of function tending to congregate around a trading post pending execution of orders. Includes specialists, floor traders, odd-lotdealers, and other brokers as well as smaller groups with
specialized functions. See: Priority.
Crowding out
Heavy federal borrowing that
drives interest rates up
and prevents businesses and consumers from borrowing when they would like to.
Crown
jewel
A particularly profitable or otherwise particularly valuable
corporate unit or asset of a
firm. Often used in risk arbitrage. The most desirable entities
within a diversified corporation as measured by asset value,
earning power, and business prospects; in takeover attempts, these entities
typically are the main objective of the acquirer and may be sold by a
takeover target to make the rest
of the company less attractive. See: Scorched earth
policy.
Crown Law
A law derived from English law (ie. England, Ireland, Canada, PNG,
Australia, Hong Kong, Singapore, India, Malaysia).
Cum
dividend
With dividend; said of a
stock whose buyer is eligible to
receive a declared dividend. Stocks are usually "cum dividend"
for trades made on or before the
third trading day preceding the record date, when the register of
eligible holders is closed for that dividend period. Antithesis
of ex-dividend.
Cum
rights
With rights.
Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock (systematic risk multiplied by the
realized market return) and the actual return often used to
evaluate the impact of news on a stock price.
Cumulative dividend
feature
A requirement that any missed preferred or preference stockdividends be paid in full
before any dividend payment on common shares is made.
Cumulative preferred stock
Preferred stock
whose dividendsaccrue, should the issuer not make timely dividend payments. Related: Non-cumulative
preferred stock.
Cumulative probability
distribution
A function that shows the probability that the random variable will attain a
value less than or equal to each value that the random variable
can take on.
Cumulative total return
The actual performance of a fund over a particular
period.
Cumulative Translation Adjustment (CTA)
account
An entry in a translated balance sheet in which gains
and/or losses from translation have been accumulated over a
period of years. The C.T.A. account is required under the
FASB No. 52 rule.
Cumulative voting
A system of voting for directors of a corporation in which
shareholder's total number of
votes is equal to the number of shares held times the number of
candidates.
The
Curb
Another name for the American Stock Exchange
(AMEX).
Cure
To make good a default.
Currency
Money.
Currency appreciation
An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.
Currency arbitrage
Taking advantage of divergences in exchange rates in different
money markets by buying a
currency in one market and
selling it in another market.
Currency basket
The value of a portfolio
of specific amounts of individual currencies, used as the basis for
setting the market value
of another currency. It is also referred to as a currency
cocktail.
Currency Board
Entity charged with maintaining the value of a local currency
with respect to some other specified currency.
Currency call option
Contract that gives the
holder the right to purchase a specific currency at a specified
price (exchange rate)
within a specific period of time.
Currency Carry Trade
A carry trade where you borrow and pay interest in order to buy something else that has higher interest. For currencies, it might be that you borrow in Yen (where the interest rate might be low) and use the proceeds to purchase U.S. dollar long term debt. While the trade might produce a positive return, it is risky in two dimensions. First, U.S. rates could increase diminishing the value of the bond you purchased. Second, the exchange rate could take an unfavorable move effectively increasing your borrowing costs.
Related: Carry Trade.
Currency depreciation
A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.
Currency devaluation
A deliberate downward adjustment in the official exchange rates established, or pegged, by a government against a specified standard, such as another currency or gold.
Currency diversification
Using more than one currency as an investing or financingstrategy. Exposure to a diversified currency portfolio typically entails less
exchange rate risk than if
all the portfolio exposure were in a single foreign currency.
Currency Exchange Risk
Uncertainty about the rate at which revenues or costs denominated in one
currency can be converted into another
currency.
Currency futures contract
Contract specifying a
standard volume of a particular
currency to be exchanged on a specific settlement date.
Currency future
A financial future
contract for the delivery of a
specified foreign currency.
Currency hedge
Applies mainly to international equities. Hedging technique to guard against
foreign exchange
fluctuations (i.e., short Euro
l00 mm when holding a long
position of Euro l00 mm in stocks).
Currency in circulation
Paper money, coins, and demand deposits that constitute all
the money circulating in the economy.
Currency no longer issued
Old and new series gold and
silver certificates, Federal Reserve notes, national banknotes, and 1890
Series Treasury notes.
Currency put option
Contract that gives the
holder the right to sell a particular currency at a specified
price (exchange rate) within a specified period of time.
Currency option
An option to buy or sell a foreign currency.
Currency overvaluation
Applies mainly to international equities: (1) consideration
that a currency is overvalued if private demand for the currency
at the going exchange
rate is less than total private supply (i.e., central banks
are buying up the difference, supporting the value of the
currency through foreign
exchange intervention); (2) currency value exceeding
purchasing power parity.
Currency revaluation
A deliberate upward adjustment in the official exchange rate established, or pegged, by government against a specified standard, such as another currency or gold.
Currency risk
Related: Exchange
rate risk
Currency selection
Asset allocation in which the
investor chooses among investmentsdenominated in different
currencies.
Currency swap
An agreement to swap a series
of specified payment obligationsdenominated in one currency for
a series of specified payment
obligations denominated in a different currency. Usually fixed for fixed.
Current account
Net flow of goods, services, and unilateral transactions
(gifts) between countries.
Current account balance
The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.
Current assets
Value of cash, accounts receivable,
inventories,
marketable securities and other assets that could be converted to cash in
less than 1 year.
Current coupon
A bond selling at or close to
par, that is, a bond with a
coupon close to the yields currently offered on new bonds of
a similar maturity and credit risk.
Current Coupon Bond
Bonds on which the coupon is set approximately equal to the
bonds'yield to maturity at the time
of their issuance.
Current-coupon issues
Related: Benchmark
issues
Current dollar
Refers to the use of actual or real prices and costs. Escalation or inflation effects are included.
Current income
Regular series of cash flows that is routinely received from
investments in the form of
dividends, interest, and other income
sources.
Current income bonds
Bonds paying semiannual
interest to holders. Interest is
not included in the accrued discount.
Current issue
In Treasury
securities, the most recently auctionedissue. Trading is more active in current issues
than in off-the-run issues. Also known as on-the-run issue.
Current liabilities
Amount owed for salaries, interest, accounts payable and other
debts due within 1 year.
Current market value
The value of a client's portfolio at today's market price, as listed in a
brokerage statement.
Current maturity
Current time to maturity
on an outstandingdebt instrument.
Current/noncurrent method
The translation of all of a foreign subsidiary'scurrent assets and liabilities into home currency at the
current exchange rate
while noncurrent assets and liabilities are translated at the
historical exchange
rate; that is, the rate in effect at the time the asset was acquired or the liability
incurred.
Current order
In the context of periodic repayment schedules, the next periodic principal repayment.
Current production rate
The highest interest
rate permissible on current Government
National Mortgage Association,mortgage-backed
securities.
Current rate method
The translation of all foreign currencybalance sheet
and income statement items at the current exchange rate.
Current ratio
Indicator of short-term debt-paying ability. Determined by
dividing current assets
by current
liabilities. The higher the ratio, the more liquid the
company.
Currency risk sharing
An agreement by the parties to a transaction to share the
currency risk associated with the
transaction. The arrangement involves a customized hedgecontract embedded in the underlying transaction.
Current yield
For bonds or notes, the coupon rate divided by the market price of the bond.
Cushion
In the context of project financing, the extra amount of netcash flow
remaining after expected debt service.
Cushion bonds
High-coupon bonds trading at a premium that tend to fall in price much less than comparable bonds when interest rates rise (hence the cushion effect), because of their high coupons.
Cushion theory
The theory that a stock with
many short positions
taken in it will rise, because these positions must be covered by the
stock.
CUSIP number
Unique number given to a security to distinguish it from other
stocks and registered bonds. See:
Committee on Uniform Securities Identification
Procedures.
Custodial fees
Fees charged by an institution that holds securities in safekeeping for an
investor.
Custodian
Either (1) a bank, agent, trust company, or other
organization responsible for safeguarding financial assets, or (2) the
individual who oversees the mutual fundassets of a minor's custodial
account.
Custodian bank
Applies mainly to international equities. Bank or other
financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual, or
corporate client. See: Depository Trust Company
(DTC)
Customary payout ratios
A range of payout
ratios that is typical according to an analysis of comparable
firms.
"Customer picking prices"
Customer is firm on price and has set the price at which to
transact.
Customer's loan consent
Agreement signed by a margin
customer that allows a broker to
borrowmargin securities up to the level of the
customer's debit balance to help cover other customers' short positions.
Customers' net debit
balance
The total amount of credit given by NYSEmember firms to finance customers
purchasing securities.
Customized benchmarks
A benchmark that is
designed to meet a client's requirements and long-term objectives.
Customs Broker
An individual or firm licensed by customs authorities to enter and clear imported goods through customs. The broker represents the importer in dealings with the customs authorities.
Customs union
An agreement by two or more countries to erect a common
external tariff and to abolish restrictions on trade among members.
Cut Off Date
The date prescribed in the unclaimed property law in most states for determining the items of property that must be turned over to the state. See: Escheat.
Cutoff point
The lowest rate of
return acceptable on investments.
Cycles
A full orbital period.
Cyclical stock
Stock that tends to rise
quickly when the economy turns up and fall quickly when the
economy turns down. Examples are housing, automobiles, and
paper.
Cyclical unemployment
Unemployment caused by a low level of aggregate demand associated with recession in the business cycle.
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Do not reproduce without explicit permission of Campbell R. Harvey. Copyright ©2000. All Worldwide Rights Reserved.
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