Dictionary of Financial and Business Terms.pdf

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Dictionary of Finantial and Business Terms

Lico Reis – Consultoria & Línguas

licoreis@terra.com.br

The Author

Roberto de Paula Lico Júnior is a lecturer in English as a Foreign

Language and he has considerable expertise in the field of Overseas

Trade, having designed and taught a number of classes related to

International Law and Overseas Trade. He has a SRVWJUDGXDWH

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Dictionary of Finantial and Business Terms

Lico Reis – Consultoria & Línguas

licoreis@terra.com.br

Abandonment option ::The option of terminating an investment earlier than originally planned.

Abnormal returns: Part of the return that is not due to systematic influences (market wide influences). In

other words, abnormal returns are above those predicted by the market movement alone. Related: excess

returns.

Absolute priority :Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full

before junior creditors receive any payment.

Accelerated cost recovery system (ACRS) :Schedule of depreciation rates allowed for tax purposes.

Accelerated depreciation :Any depreciation method that produces larger deductions for depreciation in the

early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule

allowed for tax purposes, is one such example.

Accounting exposure :The change in the value of a firm's foreign currency denominated accounts due to a

change in exchange rates.

Accounting earnings: Earnings of a firm as reported on its income statement.

Accounting insolvency :Total liabilities exceed total assets. A firm with a negative net worth is insolvent on

the books.

Accounting liquidity :The ease and quickness with which assets can be converted to cash.

Accounts payable :Money owed to suppliers.

Accounts receivable: Money owed by customers.

Accounts receivable turnover: The ratio of net credit sales to average accounts receivable, a measure of how

quickly customers pay their bills.

Accretion (of a discount) :In portfolio accounting, a straight-line accumulation of capital gains on discount

bond in anticipation of receipt of par at maturity.

Accrual bond :A bond on which interest accrues, but is not paid to the investor during the time of accrual.

The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Accrued interest :The accumulated coupon interest earned but not yet paid to the seller of a bond by the

buyer (unless the bond is in default).

Accumulated Benefit Obligation (ABO) : An approximate measure of the liability of a plan in the event of a

termination at the date the calculation is performed. Related: projected benefit obligation.

Acid-test ratio : Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid

items to current liabilities.

Acquiree :A firm that is being acquired.

Acquirer :A firm or individual that is acquiring something.

Acquisition of assets :A merger or consolidation in which an acquirer purchases the selling firm's assets.

Acquisition of stock :A merger or consolidation in which an acquirer purchases the acquiree's stock.

Dictionary of Finantial and Business Terms

Lico Reis – Consultoria & Línguas

licoreis@terra.com.br

Act of state doctrine :This doctrine says that a nation is sovereign within its own borders and its domestic

actions may not be questioned in the courts of another nation.

Active :A market in which there is much trading.

Active portfolio strategy : A strategy that uses available information and forecasting techniques to seek a

better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy

Actuals : The physical commodity underlying a futures contract. Cash commodity, physical.

Additional hedge :A protection against borrower fallout risk in the mortgage pipeline.

Adjustable rate preferred stock (ARPS) :Publicly traded issues that may be collateralized by mortgages and

MBSs.

Adjusted present value (APV) The net present value analysis of an asset if financed solely by equity

(present value of un-levered cash flows), plus the present value of any financing decisions (levered cash

flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of

other investment tax credits are calculated separately. This analysis is often used for highly leveraged

transactions such as a leverage buy-out.

Administrative pricing rules IRS rules used to allocate income on export sales to a foreign sales corporation.

Advance commitment A promise to sell an asset before the seller has lined up purchase of the asset. This

seller can offset risk by purchasing a futures contract to fix the sales price.

Adverse selection A situation in which market participation is a negative signal.

Affirmative covenant A bond covenant that specifies certain actions the firm must take.

After-tax profit margin The ratio of net income to net sales.

After-tax real rate of return Money after-tax rate of return minus the inflation rate.

Agencies Federal agency securities.

Agency bank A form of organization commonly used by foreign banks to enter the U.S. market. An agency

bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.

Agency basis A means of compensating the broker of a program trade solely on the basis of commission

established through bids submitted by various brokerage firms. agency incentive arrangement. A means of

compensating the broker of a program trade using benchmark prices for issues to be traded in determining

commissions or fees.

Agency cost view The argument that specifies that the various agency costs create a complex environment in

which total agency costs are at a minimum with some, but less than 100%, debt financing.

Agency costs The incremental costs of having an agent make decisions for a principal.

Agency pass-throughs Mortgage pass-through securities whose principal and interest payments are

guaranteed by government agencies, such as the Government National Mortgage Association (" Ginnie Mae

"), Federal Home Loan Mortgage Corporation (" Freddie Mac") and Federal National Mortgage Association

(" Fannie Mae").

Agency problem Conflicts of interest among stockholders, bondholders, and managers.

Dictionary of Finantial and Business Terms

Lico Reis – Consultoria & Línguas

licoreis@terra.com.br

Agency theory The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of

anther person, a principal.

Agent The decision-maker in a principal-agent relationship.

Aggregation Process in corporate financial planning whereby the smaller investment proposals of each of the

firm's operational units are added up and in effect treated as a big picture.

Aging schedule A table of accounts receivable broken down into age categories (such as 0-30 days, 30-60

days, and 60-90 days), which is used to see whether customer payments are keeping close to schedule.

AIBD Association of International Bond Dealers.

All equity rate The discount rate that reflects only the business risks of a project and abstracts from the

effects of financing.

All or none Requirement that none of an order be executed unless all of it can be executed at the specified

price.

All-equity rate The discount rate that reflects only the business risks of a project and abstracts from the

effects of financing.

All-in cost Total costs, explicit and implicit.

All-or-none underwriting An arrangement whereby a security issue is canceled if the underwriter is unable

to re-sell the entire issue.

Alpha A measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A

positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market

return. For example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4%.

An alpha of -0.6 means a fund's monthly return was 0.6% less than would have been predicted from the

change in the market alone. In a Jensen Index, it is factor to represent the portfolio's performance that

diverges from its beta, representing a measure of the manager's performance.

Alpha equation The alpha of a fund is determined as follows:

[ (sum of y) -((b)(sum of x)) ] / n

where: n =number of observations (36 months)

b = beta of the fund

x = rate of return for the S&P 500

y = rate of return for the fund

Alternative mortgage instruments Variations of mortgage instruments such as adjustable-rate and variable-

rate mortgages, graduated-payment mortgages, reverse-annuity mortgages, and several seldom-used

variations.

American Depositary Receipts (ADRs) Certificates issued by a U.S. depositary bank, representing foreign

shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may

represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's

are "sponsored," the corporation provides financial information and other assistance to the bank and may

subsidize the administration of the ADRs. "Unsponsored" ADRs do not receive such assistance. ADRs carry

the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted

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