FINANCIAL TERMS MADE EASY BY ADEEL AND MOHSIN A

Accrual -Estimates of costs incurred but not yet invoiced. They are charged to the Profit and
Loss Account and will also appear as liabilities in the Balance Sheet. Examples: A business records its utility bills as soon as it receives them and not when they are paid, because the service has already been used. The company ignored the date when the payment will be made. An airline sells its tickets days or even weeks before the flight is made, but it does not record the payments as revenue because the flight, the event on which the revenue is based has not occurred yet.

Acquisition - When one company purchases a majority interest in the acquired. Ad valorem -A tax based on the assessed value of real estate or asset. Ad valorem taxes
can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenue for state and municipal governments.

Explanation: The phrase ad valorem is Latin for "according to value". In the case of municipal property taxes, property owners have their property assessed on a periodic basis by a public tax assessor.

Aging schedule - Table that classifies accounts payable or accounts

receivable according to their dates. It helps in analyzing which payments are behind their due date, and by how many days.

American depository receipt-A negotiable certificate issued by a U.S. bank

representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be

levied on each transaction. Explanation: This is an excellent way to buy shares in a foreign company while realizing any dividends and
capital gains in U.S. dollars. However, ADRs do not eliminate the currency and economic risks for the underlying shares in another country. For example, dividend payments in euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with the deposit agreement. ADRs are listed on either the NYSE, AMEX or Nasdaq as well as OTC.

Amortization - A process of decreasing, or accounting for, an amount over a period. When

used in the context of a home purchase, amortization is the process by which loan principal decreases over the life of a loan. With each mortgage payment that is made, a portion of the payment is applied towards reducing the principal, and another portion of the payment is applied towards paying the interest on the loan.

Annuity - An Annuity is any continuing payment with a fixed total annual amount. In
most cases an Annuity may refer to a financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

Arbitrage - The simultaneous purchase and sale of an asset in order to profit from a
difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.

Ask price - The price a seller is willing to accept for a security, also known as the offer price.
This is the opposite of bid, which is the price a buyer is willing to pay for a security, and the ask will always be higher than the bid. The terms "bid" and "ask" are used in nearly every financial market in the world covering stocks, bonds, currency and derivatives.

Asset Allocation - An investment strategy that aims to balance risk and reward
by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.

Asset Play - An incorrectly-valued stock that is attractive because its combined asset value
is higher than its market capitalization. "Asset play" is a stock market term that refers to a stock that is believed by investors to be undervalued because the current price does not reflect the current value of the corporation's assets. This type of stock is called an asset play because the driving force behind the purchase of the stock is the fact that the company's assets are being offered to the market relatively cheaply, making it an attractive buy or play. Many investors consider asset plays to be sound investments since they are backed by strong assets.

Auditors - External Auditors are External Accountants who report on the "truth and fairness"
of the published financial statements. Internal Auditors co-operate with the External Auditors but also review management data and operational aspects of the business.

Aum (Assets Under Management) - The market value of assets that an

investment company manages on behalf of investors. Assets under management (AUM) is looked at as a measure of success against the competition and consists of growth/decline due to both capital appreciation/losses and new money inflow/outflow.

Authorized share capital - The authorized capital of a company (sometimes

referred to as the authorized share capital, registered capital or nominal capital) is the maximum amount of share capital that the company is authorized by its constitutional documents to issue (allocate) to shareholders. Part of the authorized capital can (and frequently does) remain unissued. This number can be changed by shareholders' approval. The part of the authorized capital which has been issued to shareholders is referred to as the issued share capital of the company.

Auction rate bond - A debt security with an adjustable interest rate and fixed term
of 20-30 years. An auction rate bond's (ARB) interest rate is determined through a modified Dutch auction (where the price starts high and gets lower and lower until buyers are found) on a set schedule every seven, 14, 28 or 35 days. Non-profit institutions and municipalities utilize ARBs as a means to reduce borrowing costs for long-term financing. Explanation - The rates on ARBs are set in a similar way to how rates on new U.S. Treasury bills are set when they are issued. However, when an auction fails due to a lack of buyers, both bondholders and bond issuers are negatively impacted. The bondholders can't sell what is supposed to be a liquid investment and issuers are forced to pay higher default rates (set when the bonds were initially sold).

B
Bad debt - A debt that is not collectible and therefore worthless to the creditor. This occurs
after all attempts are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. This debt, once considered to be bad, will be written off by the company as an expense.

Balance of payment - A record of all transactions made between one particular

country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.

Balloon payment - An oversized payment due at the end of a mortgage, commercial

loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender.

Bank rate - The interest rate at which a nation's central bank lends money to domestic
banks. Often these loans are very short in duration. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity. Lower bank rates can help to expand the economy, when unemployment is high, by lowering the cost of funds for borrowers. Conversely, higher bank rates help to reign in the economy, when inflation is higher than desired.

Banking Ombudsmen Scheme - The Banking Ombudsman Scheme enables

an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services. The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The current scheme became operative from the 1 January 2006, and replaced and superseded the banking Ombudsman Scheme 2002.

Basis point - A unit that is equal to 1/100th of 1%, and is used to denote the change in a
financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

Example-The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point. So, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.

Behavioral finance - A field of finance that proposes psychology-based theories to

explain stock market anomalies. Within behavioral finance, it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.

Beta - A measure of the volatility, or systematic risk, of a security or a portfolio in comparison

to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns.Also known as "beta coefficient.

Explanation- Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-based stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk.

Bid price - The price a buyer is willing to pay for a security. This is one part of the bid with
the other being the bid size, which details the amount of shares the investor is willing to purchase at the bid price. The opposite of the bid is the ask price, which is the price a seller is looking to get for his or her shares. Explanation - The use of bid and ask is a fundamental part of the market system, as it details the exact amount that you could buy or sell at any point in time. Remember that the current price is not the price for which you can purchase the security, but the price at which the shares last traded hands. If you want to get an idea of the price for which you can buy a security, you need to look at the bid and ask prices because they will often differ from the current price.

Bill of exchange - A non-interest-bearing written order used primarily in international

trade that binds one party to pay a fixed sum of money to another party at a predetermined future date. Explanation -Bills of exchange are similar to checks and promissory notes. They can be drawn by individuals or banks and are generally transferable by endorsements. The difference between a promissory note and a bill of exchange is that this product is transferable and can bind one party to pay a third party that was not involved in its creation. If these bills are issued by a bank, they can be referred to as bank drafts. If they are issued by individuals, they can be referred to as trade drafts.

Bill of Lading (BoL) - A document issued by a carrier to a shipper

acknowledging that specified goods are received on board as cargo for conveyance to a named place for delivery to the consignee. Often shortened to BL, BoL or B/L.

Bond rating - A grade given to bonds that indicates their credit quality. Private
independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or its the ability to pay a bond's principal and interest in a timely fashion.

Explanation - Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("junk"), which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves.

To illustrate the bond ratings and their meaning, we'll use the Standard & Poor's format: AAA and AA:High credit-quality investment gradeAA and BBB:Medium credit-quality investment gradeBB, B, CCC, CC, C: Low credit-quality (non-investment grade), or "junk bonds" .D: Bonds in default for non-payment of principal and/or interest

Bonus share - A bonus share is a free share of stock given to current shareholders in
a company, based upon the number of shares that the shareholder already owns. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant.

Bracket creep -A situation where inflation pushes income into higher tax brackets. The
result is an increase in income taxes but no increase in real purchasing power.

Breakeven point 1. In general, the point at which gains equal losses.

2. In options, the market price that a stock must reach for option buyers to avoid a loss if they exercise. For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid.

Bridge loan - A short-term loan that is used until a person or company secures permanent
financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory. Also known as "interim financing", "gap financing" or a "swing loan".

Explanation - As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations and individuals and can be customized for many different situations. For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. In the case of an individual, bridge loans are common in the real estate market. As there can often be a time lag between the sale of one property and the purchase of another, a bridge loan allows a homeowner more flexibility.

Budget deficit - A financial situation that occurs when an entity has more money going out

than coming in. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When it refers to central government spending, a budget deficit is also known as the "national debt." The opposite of a budget deficit is a budget surplus, and when inflows are equal to outflows, the budget is said to be balanced. Explanation - Government budget deficits can be cured by cutting spending, raising taxes or a combination of the two. Deficits must be financed by borrowing money. Interest must be paid on borrowed funds, which worsens the deficit.

C
CAG (comptroller and auditor general) - Comptroller and auditorgeneral is the title of a government official in jurisdictions including the UK, the Republic of Ireland and India. A comptroller is responsible for supervising the quality of accounting and financial reporting of an organization. Similar roles in other countries include the Comptroller General of the United States and the Auditor General of China.

Cap - An upper limit placed on the payoff of a trade, limiting the upside to the buyer and
the downside to the seller.

Capital Employed - The value of all resources available to the company, typically
comprising share capital, retained profits and reserves, long-term loans and deferred taxation. Viewed from the other side of the balance sheet, capital employed comprises fixed assets, investments and the net investment in working capital (current assets less current liabilities). In other words: the total long-term funds invested in or lent to the business and used by it in carrying out its operations.

Capital markets - A market in which individuals and institutions trade financial

securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets. Explanation-Both the stock and bond markets are parts of the capital markets. For example, when a company conducts an IPO, it is tapping the investing public for capital and is therefore using the capital markets. This is also true when a country's government issues Treasury bonds in the bond market to fund its spending initiatives.

Capitalism
Capitalism as an economy is based on a democratic political ideology and produces a free market economy, where businesses are privately owned and operated for profit; in capitalism, all of the capital investments and decisions about production, distribution, and the prices of goods, services, and labor, are determined in the free market and affected by the forces of supply and demand.

Cash dividend - Money paid to stockholders, normally out of the corporation's current
earnings or accumulated profits. All dividends must be declared by the board of directors and are taxable as income to the recipients.

Explanation - Long-term investors who want to maximize their gains should consider reinvesting the dividends. Most brokers offer a choice as to whether you wish to reinvest or take cash dividends.

Characteristic line - A line formed using regression analysis that summarizes a

particular security or portfolio's systematic risk and rate of return. The rate of return is dependent on the standard deviation of the asset's returns and the slope of the characteristic line, which is represented by the asset's beta.

Explanation -A characteristic line of a stock is the same as the security market line, and is very useful when employing the capital asset pricing model, or when using modern portfolio formation techniques. The slope of the line, which is a measure of systematic risk, determines the risk-return tradeoff. According to this metric, the more risk you take on - as measured by variability in returns the higher the returns you can expect to earn. There is considerable controversy regarding the use of beta as a measure of risk and return.

Chart patterns - A Price pattern is a pattern that is formed within a chart when prices
are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals.

Circuit filter - Circuit filters are price bands imposed by the Securities Exchange
Board of India (SEBI) to restrict the movement of stock prices (up or down), of listed securities. This is to curb manipulation done in share prices by operators. Stock exchanges introduced circuit filters, as per SEBI guidelines to prevent a steel fall/rise in stock prices and to safe gaurd interest of investors from volatility in price.

Explanation - When the stock price breaches a stipulated price band as decided by stock exchanges, trading in that particular stock is suspended. For example, if you have a share price of Rs 100, and there is a circuit breaker of 5%, it will stop trading if the share price goes above Rs 105. Similarly.if the stock drops below Rs 95, the lower end circuit filter is applied and trading is suspended.

Clean price - The price of a coupon bond not including any accrued interest. A clean price
is the discounted future cash flows, not including any interest accruing on the next coupon payment date. Immediately following each coupon payment, the clean price will equal the dirty price.

Confidence index - A confidence indicator calculated by dividing the average yield on

high-grade bonds by the average yield on intermediate-grade bonds. The discrepancy between the yields is indicative of investor confidence. A rising ratio indicates investors are demanding a lower premium in yield for increased risk and so are showing confidence in the economy.

Explanation: The theory is that if investors are optimistic they are more likely to invest in the more speculative grade of bonds, driving yields downwards and the confidence index upwards. The opposite is true if investors are pessimistic.

Collateral - An acceptable asset or cash posted to/by a counterparty used as a credit risk
mitigation tool.

Consortium - A group made up of two or more individuals, companies or governments

that work together toward achieving a chosen objective. Each entity within the consortium is only responsible to the group in respect to the obligations that are set out in the consortium's contract. Therefore, every entity that is under the consortium remains independent in his or her normal business operations and has no say over another member's operations that are not related to the consortium. Explanation: Consortiums are often used within the non-profit sector, specifically with educational institutions. They often pool resources such as libraries and professors and share them among the members of the group. Several groups of North American colleges and universities operate under consortiums.

For-profit consortiums also exist, but they are less prevalent. One of the most famous for-profit consortiums is the airline manufacturer Airbus.

Consolidated Fund - This fund is made of the revenues that is received by

Government plus the loans that is raised by this revenue as well as the receipts from recoveries of loans granted by it.

Convertible bond - A bond that can be converted into a predetermined amount of

the company's equity at certain times during its life, usually at the discretion of the bondholder. Convertibles are sometimes called "CVs."

Contingency Fund - The fund that is used by the government in order to meet
the unforeseen expenditure or incase to meet emergencies. The contingency fund is generally used when the government cannot wait for long for the parliament to authorise the expenses on the expenditure.

Cost of capital - The required return necessary to make a capital budgeting project,
such as building a new factory, worthwhile. Cost of capital includes the cost of debt and the cost of equity. Explanation: The cost of capital determines how a company can raise money (through a stock issue, borrowing, or a mix of the two). This is the rate of return that a firm would receive if it invested in a different vehicle with similar risk.

Cost of goods sold (COGS) - COGS is the costs that go into creating the
products that a company sells; therefore, the only costs included in the measure are those that are directly tied to the production of the products. For example, the COGS for an automaker would include the material costs for the parts that go into making the car along with the labor costs used to put the car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be excluded.

Coupon rate - The yield paid by a fixed income security. A fixed income security's coupon
rate is simply just the annual coupon payments paid by the issuer relative to the bond's face or par value. The coupon rate is the yield the bond paid on its issue date. This yield, however, will change as the value of the bond changes, thus giving the bond's yield to maturity.

Credit rating - An assessment of the credit worthiness of individuals and corporations.

It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities.

Cash Reserve Ratio (CRR) - The portion (expressed as a percent) of

depositors' balances banks must have on hand as cash. This is a requirement determined by the country's central bank, which in India is the RBI. The reserve ratio affects the money supply in a country. This is also referred to as the "cash reserve ratio" (CRR). Explanation: For example, if the reserve ratio in India is determined by the RBI to be 11%, this means all banks must have 11% of their depositers' money on reserve in the bank. So, if a bank has deposits of Rs.1 crore, it is required to have Rs.11 Lakh on reserve.

D
Debt/Equity Ratio
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as corporate ones.

Explanation
A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing.

The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5.

Debt-Service Coverage Ratio - DSCR

In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments. In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts. In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations. In general, it is calculated by:

A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.

Demutualization - When a mutual company owned by its users/members converts

into a company owned by shareholders. In effect, the users/members exchange their rights of use for shares in the demutualized company. A mutual company (not to be confused with a mutual fund) is a company created to provide specific services at the lowest possible price to benefit its users/members. In demutualization, ownership of the mutual company is separated from the exclusive right to use the services provided by the company.

Devaluation - Devaluation in modern monetary policy is a reduction in the value of

a currency with respect to those goods, services or other monetary units with which that currency can be exchanged. Devaluation means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency.

Dilution of shares - A reduction in earnings per share of common stock that occurs
through the issuance of additional shares or the conversion of convertible securities. In simple words,
Adding to the number of shares outstanding reduces the value of holdings of existing shareholders.

Dirty price - A bond pricing quote referring to the price of a coupon bond that includes
the present value of all future cash flows, including interest accruing on the next coupon payment. The dirty price is how the bond is quoted in most European markets, and is the price an investor will pay to acquire the bond. Accrued interest is earned when a coupon bond is currently in between coupon payment dates. As the next coupon payment date approaches, the accrued interest increases until the coupon is paid. Immediately following the coupon payment, the clean price and dirty price will be equal. The dirty price is sometimes called the "price plus accrued".

Disintermediation
1. In finance, withdrawal of funds from intermediary financial institutions, such as banks and savings and loan associations, in order to invest them directly.

2. Generally, removing the middleman or intermediary. Disintermediation is usually done in order to invest in instruments yielding a higher return.

Disinvestment

The action of an organization or government selling or liquidating an asset or subsidiary. Also known as "divestiture". A reduction in capital expenditure, or the decision of a company not to replenish depleted capital goods. Explanation: A company or government organization will divest an asset or subsidiary as a strategic move for the company, planning to put the proceeds from the divestiture to better use that garners a higher return on investment. A company will likely not replace capital goods or continue to invest in certain assets unless it feels it is receiving a return that justifies the investment. If there is a better place to invest, they may deplete certain capital goods and invest in other more profitable assets. Alternatively a company may have to divest unwillingly if it needs cash to sustain operations.

Dividend 1. A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Also referred to as "Dividend Per Share (DPS)." 2. Mandatory distributions of income and realized capital gains made to mutual fund investors.

Explanation
1. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth. 2. Mutual funds pay out interest and dividend income received from their portfolio holdings as dividends to fund shareholders. In addition, realized capital gains from the portfolio's trading activities are generally paid out (capital gains distribution) as a year-end dividend.

Dividend stripping - Dividend stripping is the purchase of shares just before

a dividend is paid, and the sale of those shares after that payment, i.e. when they go exdividend. This may be done either by an ordinary investor as an investment strategy, or by a company's owners or associates as a tax avoidance strategy.

Dual purpose fund - A fund created by a closed-ended investment company that

offers two classes of stock. Each class offers entitlements to either income or capital appreciation. The two types of stock offered by a dual purpose fund are capital and income. The fund's two kinds of potential cash flows allow individual investors to choose classes that are more in line with their investment objectives.

E
Economic value added - A measure of a company's financial performance based
on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".) The formula for calculating EVA is as follows:

= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital). This measure was devised by Stern Stewart & Co. Economic value added attempts to capture the true economic profit of a company.

EEFC Account - Exchange Earners' Foreign Currency Account (EEFC) is an account

maintained in foreign currency with an Authorised Dealer i.e. a bank dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs.

EPS - The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability. Calculated as:

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.

Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.

For example, assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, and then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M). An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.

Eurobond - A bond issued in a currency other than the currency of the country or market in which
it is issued.

Usually, a Eurobond is issued by an international syndicate and categorized according to the currency in which it is denominated. A Eurodollar bond that is denominated in U.S. dollars and issued in Japan by an Australian company would be an example of a Eurobond. The Australian company in this example could issue the Eurodollar bond in any country other than the U.S.

Eurobonds are attractive financing tools as they give issuers the flexibility to choose the country in which to offer their bond according to the country's regulatory constraints. They may also denominate their Eurobond in their preferred currency. Eurobonds are attractive to investors as they have small par values and high liquidity.

Excess reserves - Capital reserves held by a bank or financial institution in excess of

what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities. These required reserve ratios set the minimum liquid deposits (such as cash) that must be in reserve at a bank; more is considered excess. Explanation - Financial firms that carry excess reserves have an extra measure of safety in the event of sudden loan losses or cash withdrawals by customers. This may increase the attractiveness of the company that holds excess reserves to investors, especially in times of economic uncertainty. Boosting the level of excess reserves can also improve an entity's credit rating, as measured by ratings agencies like Standard & Poor's. Reserves need to be in liquid forms of capital such as cash in a vault, which does not create income. Banks will therefore try to minimize their excess reserves by lending the maximum allowable amount to borrowers.

Export credit agency - A financial institution or agency that provides trade

financing to domestic companies for their international activities. Export credit agencies (ECAs) provide financing services such as guarantees, loans and insurance to these companies in order to promote exports in the domestic country. The primary objective of ECAs is to remove the risk and uncertainty of payments to exporters when exporting outside their country. ECAs take the risk away from the exporter and shift it to themselves, for a premium. ECAs also underwrite the commercial and political risks of investments in overseas markets that are typically deemed to be high risk.

F
Fallout risk - The lending risk that occurs when the terms of a loan are confirmed
simultaneously with the terms of a property sale. Because the mortgage terms are set but the sale is not finalized, there is a risk that the transaction may not be completed. This represents a risk to the mortgage pipeline, as the loan may not be issued. Explanation- When a mortgage originator confirms the details of a loan, it expects the lending process to be completed. Arrangements are usually made to package the loan for resale in the secondary mortgage market. With fallout risk, the deal might not be completed and the loan will fall out of the mortgage pipeline.

Filter rule - A trading strategy where technical analysts set rules for when to buy and sell
investments, based on percentage changes in price from previous lows and highs. The filter rule is based on a certainty in price momentum, or the belief that rising prices tend to continue to rise and falling prices tend to continue to fall. It is often considered a subjective screener, due to it being set by an analyst's own interpretation of a stock's historical price history.

Fiscal deficit - When a government's total expenditures exceed the revenue that it generates
(excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits. A fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.

Float
1. The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares. 2. A float can also refer to a small portion of the money supply representing a balance that is simultaneously present in a buyers and a payers account. A float results from the delay occurring between the time that a cheque is written and the money actually being deducted from the writer's account. These balances are temporarily double counted as part of the overall money supply.

Floating Rate - Interest rate which is not fixed over the lifetime of an instrument.
Such rates take any specific index or base rate as a reference to establish the interest rate. One of the most commonly used base rates as a benchmark for applying rate is LIBOR.

Foreign currency convertible bond - A type of convertible

bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock.

Explanation - Foreign Currency Convertible Bonds commonly referred to as FCCB's are a special category of bonds. FCCB's are issued in currencies different from the issuing company's domestic currency. Corporates issue FCCB's to raise money in foreign currencies. These bonds retain all features of a convertible bond making them very attractive to both the investors and the issuers. These bonds assume great importance for multi-nationals and in the current business scenario of globalisation where companies are constantly dealing in foreign currencies. FCCBs are quasi-debt instruments and tradable on the stock exchange. Investors are hedge-fund arbitrators or foreign nationals. FCCB's appear on the liabilities

side of the issuing company's balance-sheet Under IFRS provisions; a company must markto-market the amount of its outstanding bonds

Forfeited Share - A share in a company that the owner loses (forfeits) by failing
to meet the purchase requirements. Requirements may include paying any allotment or call money owed, or avoiding selling or transferring shares during a restricted period. When a share is forfeited, the shareholder no longer owes any remaining balance, surrenders any potential capital gain on the shares and the shares become the property of the issuing company. The issuing company can re-issue forfeited shares at par, a premium or a discount as determined by the board of directors. In certain cases, companies allow executives and employees to receive a portion of their cash compensation to purchase shares in the company at a discount. This is commonly referred to as an employee stock purchase plan. Typically, there will be restrictions on the purchase (i.e. stock cannot be sold or transferred within a set period of time after the initial purchase). If an employee remains with the company and meets the qualifications, he or she becomes fully vested in those shares on the stated date. If the employee leaves the company and/or violates the terms of the initial purchase he or she will most likely forfeit those shares.

Forward discount - In a foreign exchange situation where the domestic current spot
exchange rate is trading at a higher level then the current domestic futures spot rate for a maturity period. A forward discount is an indication by the market that the current domestic exchange rate is going to depreciate in value against another currency. A forward discount means the market expects the domestic currency to depreciate against another currency, but that is not to say that will happen. Although the forward expectation's theory of exchange rates states this is the case, the theory does not always hold.

Forward premium - When dealing with foreign exchange (FX), a situation where the spot
futures exchange rate, with respect to the domestic currency, is trading at a higher spot exchange rate then it is currently. A forward premium is frequently measured as the difference between the current spot rate and the forward rate, but any expected future exchange rate will suffice. It is a reasonable assumption to make that the future spot rate will be equal to the current futures rate. According to the forward expectation's theory of exchange rates, the current spot futures rate will be the future spot rate. This theory is routed in empirical studies and is a reasonable assumption to make in the long term.

Futures market - An auction market in which participants buy and sell commodity/future
contracts for delivery on a specified future date. Trading is carried on through open yelling and hand signals in a trading pit.

G
Gain - In finance, gain is a profit or an increase in value of an investment such as
a stock or bond. Gain is calculated by fair market value or the proceeds from the sale of the investment minus the sum of the purchase price and all costs associated with it. If the investment is not converted into cash or another asset, the gain is then called an unrealized gain.

GDP The monetary value of all the finished goods and services produced within a
country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDR (Global Depository Receipt) - A bank certificate issued in more than

one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches.

GNP - An economic statistic that includes GDP, plus any income earned by residents from overseas
investments, minus income earned within the domestic economy by overseas residents. GNP is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders.

Go Go funds - A slang name for a mutual fund that has an investment strategy that focuses on
high-risk securities in an attempt to capture above average returns. A go-go fund's aggressive approach usually involves holding large positions in growth stocks. Go-go funds entice investors by promising large, abnormal returns created from shifting portfolio weights around speculative information. While investors may experience superior profits, they are also bearing a great deal of risk. These types of mutual funds were highly valued in the 1960s, but became less popular after large downturns in their speculative holdings.

GILT FUND - A mutual fund that invests in several different types of medium and long-term
government securities in addition to top quality corporate debt.

GOING PUBLIC - The process of selling shares that were formerly privately held to new
investors for the first time. Also known as Initial public offering(IPO).

GREEN FIELD INVESTMENT - A form of foreign direct investment where a

parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

GREENSHOE OPTION - A provision contained in an underwriting agreement that gives

the underwriter the right to sell investors more shares than originally planned by the issuer.

GROWTH FUND - A diversified portfolio of stocks that has capital appreciation as its
primary goal, and thereby invests in companies that reinvest their earnings into expansion, acquisitions, and/or research and development.

GUIDANCE - Information that a company provides as an indication or estimate of their future

earnings.

H
HAIRCUT - The difference between prices at which a market maker can buy and sell a
security.

HEDGE FUND - Hedge means to reduce financial risk. A hedge fund is

an investment fund open to a limited range of investors and requires a very large initial minimum investment. It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment.

Hire purchase - A method of buying goods through making installment payments

over time. The term hire purchase originated in the U.K., and is similar to what are called "rent-to-own" arrangements in the United States. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid.

Leasing goods in this manner is a tactic commonly employed by businesses in order to enhance the appearance of earnings metrics. For instance, by leasing assets, it may be possible to keep the debt used to pay for the assets and the asset itself off the balance sheet, resulting in higher operational and return-on-asset figures. In the U.S., consumer rent-to-own arrangements are controversial because they can be used in a way which

attempts to circumvent proper accounting standards.

Holding period yield - The total return received from holding an asset or
portfolio of assets. Holding period return/yield is calculated as the sum of all income and capital growth divided by the value at the beginning of the period being measured.

Holding period return is a very basic way to measure how much return you have obtained on a particular investment. This calculation is on a per-dollar-invested basis, rather than a time basis, which makes it difficult to compare returns on different investments with different time frames. When making comparisons such as this, the annualized calculation shown above should be used.

Hot money - 1. Money that flows regularly between financial markets as investors
attempt to ensure they get the highest short-term interest rates possible. Hot money will flow from low interest rate yielding countries into higher interest rates countries by investors looking to make the highest return. These financial transfers could affect the exchange rate if the sum is high enough and can therefore impact the balance of payments. 2. Stolen money that is marked so as as to be traceable. 1. Banks usually attract "hot money" by offering relatively short-term certificates of deposit that have above-average interest rates. As soon as the institution reduces interest rates or another institution offers higher rates, investors with "hot money" withdraw their funds and move them to another institution with higher rates.

2. Hot money might have been involved in a robbery and tracked through dye marks on each bill or through recorded serial numbers.

Hypothecation - When a person pledges a mortgage as collateral for a loan, it

refers to the right that a banker has to liquidate goods if you fail to service a loan. The term also applies to securities in a margin account used as collateral for money loaned from a brokerage.

I
Implied repo rate - The rate of return that can be earned by simultaneously
selling a bond futures or forward contract and then buying an actual bond of equal amount in the cash market using borrowed money. The bond is held until it is delivered into the futures or forward contract and the loan is repaid. Explanation - The implied repo rate comes from the reverse repo market, which has similar gain/loss variables as the implied repo rate. All types of futures and forward contracts have an implied repo rate, not just bond contracts. For example, the price at which wheat can be simultaneous purchased in the cash market and sold in the futures market (minus storage, delivery and borrowing costs) is an implied repo rate. In the mortgage-backed securities TBA market, the implied repo rate is known as the dollar roll arbitrage.

Implied volatility - The estimated volatility of a security's price. In general, implied volatility
increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets. Explanation - In addition to known factors such as market price, interest rate, expiration date, and strike price, implied volatility is used in calculating an option's premium. IV can be derived from a model such as the BlackScholes Model.

Income bond - A type of debt security in which only the face value of the bond is promised to be
paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment. Explanation - The income bond is a somewhat rare financial instrument which generally serves a corporate purpose similar to that of preferred shares. It may be structured so that unpaid interest payments accumulate and become due upon maturity of the bond issue, but this is usually not the case; as such, it can be a useful tool to help a corporation avoid bankruptcy during times of poor financial health or ongoing reorganization.

Institutional investor A non-bank person or organization that trades securities in large

enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. Institutional investors face fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves. Explanation - Watching what the big money is buying can sometimes be a good indicator, as they (supposedly) know what they are doing. Some examples of institutional investors are pension funds and life insurance companies.

Interest rate collar - An investment strategy that uses derivatives to hedge an investor's
exposure to interest rate fluctuations. The investor purchases an interest rate ceiling for a premium, which is offset by selling an interest rate floor. This strategy protects the investor by capping the maximum interest rate paid at the collar's ceiling, but sacrifices the profitability of interest rate drops. Explanation - An interest rate collar can be an effective way of hedging interest rate risk associated with holding bonds. Since a bond's price falls when interest rates go up, the interest rate cap can guarantee a maximum decline in the bond's value. While interest rate floor does limit the potential appreciation of a bond given a decrease in rates, it provides upfront cash to help pay for the cost of the ceiling. Let's say an investor enters a collar by purchasing a ceiling with a rate of 10% and sells a floor at 8%. Whenever the interest rate is above 10%, the investor will receive a payment from whoever sold the ceiling. If the interest rate drops to 7%, which is under the floor, the investor must now make a payment to the party that bought the floor.

Interest rate floor - An over-the-counter investment instrument that protects the floor
buyer from losses resulting from a decrease in interest rates. The floor seller compensates the buyer with a payoff when the reference interest rate falls below the floor's strike rate. Explanation - For example, assume that an investor is securing a floating rate loan and is looking for protection against lost income that would arise if interest rates were to decline. Suppose the floor rate is 8% and that on a particular day, the rate on the investor's floating-rate loan of $1 million is 7%. The floor provides

a payoff of $10,000 (($1 million *.08) - ($1 million*.07)).

Interest rate parity - A theory in which the interest rate differential between two
countries is equal to the differential between the forward exchange rate and the spot exchange rate. Interest rate parity plays an essential role in foreign exchange markets, connecting interest rates, spot exchange rates and foreign exchange rates. Explanation - The relationship can be seen when you follow the two methods an investor may take to convert foreign currency into U.S. dollars. Option A would be to invest the foreign currency locally at the foreign risk-free rate for a specific time period. The investor would then simultaneously enter into a forward rate agreement to convert the proceeds from the investment into U.S. dollars, using a forward exchange rate, at the end of the investing period. Option B would be to convert the foreign currency to U.S. dollars at the spot exchange rate, then invest the dollars for the same amount of time as in option A, at the local (U.S.) risk-free rate. When no arbitrage opportunities exist, the cash flows from both options are equal.

Interest rate risk - The risk that an investment's value will change due to a change in the
absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. Such changes usually affect securities inversely and can be reduced by diversifying (investing in fixed-income securities with different durations) or hedging (e.g. through an interest rate swap). Explanation - Interest rate risk affects the value of bonds more directly than stocks, and it is a major risk to all bondholders. As interest rates rise, bond prices fall and vice versa. The rationale is that as interest rates increase, the opportunity cost of holding a bond decreases since investors are able to realize greater yields by switching to other investments that reflect the higher interest rate. For example, a 5% bond is worth more if interest rates decrease since the bondholder receives a fixed rate of return relative to the market, which is offering a lower rate of return as a result of the decrease in rates.

Intrinsic value - 1. The actual value of a company or an asset based on an underlying

perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value. 2. For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the underlying stock's price. In the case of both puts and calls, if the respective difference value is negative, the instrinsic value is given as zero. Explanation - 1. For example, value investors that follow fundamental analysis look at both qualitative (business model, governance, target market factors etc.) and quantitative (ratios, financial statement analysis, etc.) aspects of a business to see if the business is currently out of favor with the market and is really worth much more than its current valuation.

2. Intrinsic value in options is the in-the-money portion of the option's premium. For example, If a call options strike price is $15 and the underlying stock's market price is at $25, then the intrinsic value of the call option is $10. An option is usually never worth less than what an option holder can receive if the option is exercised.

Initial Public Offering (IPO) - When an unlisted company makes either a

fresh issue of securities or an offer for sale of its existing securities, or both, for the first time. IPO paves way for listing and trading of the securities.

Issued Shares - The number of authorized shares that is sold to and held by the shareholders
of a company, regardless of whether they are insiders, institutional investors or the general public. Also known as "issued stock". Issued shares include the stock that a company sells publicly in order to generate capital and the stock given to insiders as part of their compensation packages. Unlike shares that are held as treasury stock, shares that have been retired are not included in this figure. The amount of issued shares can be all or part of the total amount of authorized shares of a corporation. The total number of issued shares outstanding in a company is most often shown in the annual report.

Issuer - A legal entity that develops, registers and sells securities for the purpose of financing its
operations. Issuers may be domestic or foreign governments, corporations or investment trusts. Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions. The most common types of securities issued are common and preferred stocks, bonds, notes, debentures, bills and derivatives. Explanation - Say ABC Corp. sells common shares to the general public on the market in order to generate capital to finance its business operations. This means ABC Corp. is an issuer, and it's therefore required to file with regulators, such as the Securities and Exchange Commission, disclosing relevant financial information about the company. ABC must also meet any legal obligations or regulations in the jurisdiction where it issued the security. Writers of options are occasionally referred to as issuers of options because they also sell securities on a market.

Joint annuity - An insurance product that continues regular payments as long as one of the
annuitants is alive. A joint and survivor annuity must have two or more annuitants, and is often purchased by married couples who want to guarantee that a surviving spouse will receive regular income for life. Annuities are generally used to provide a steady income during retirement. Explanation - Different types of joint and survivor annuities are available. For example, a joint and one-half annuity would reduce the payments to one-half of the original payment amount following the death of the first annuitant; and a joint and two-thirds annuity would reduce the payments to two-thirds the initial payment amount. A joint and survivor annuity is often appropriate for married couples who want to make sure the surviving spouse will continue to receive payments for life. This differs from other annuity products where it would be possible for a surviving spouse to outlive income payments.

Joint clearing members

Joint tenants with rights of survivorship - A type of brokerage

account which is owned by at least two people, where all tenants have an equal right to the account's assets and are afforded survivorship rights in the event of the death of another account holder. Explanation - In this type of brokerage account, a surviving member will inherit the total value of the other member's share of account assets upon the death of that other member. All members of the account are afforded the power to conduct investment transactions within the account as well.

Joint venture - The cooperation of two or more individuals or businesses in which each agrees
to share profit, loss and control in a specific enterprise. Explanation - Forming a joint venture is a good way for companies to partner without having to merge. JVs are typically taxed as a partnership.

Junk bond - A bond rated 'BB' or lower because of its high default risk.
Also known as a "high-yield bond" or "speculative bond". Explanation - These are usually purchased for speculative purposes. Junk bonds typically offer interest rates three to four percentage points higher than safer government issues.

Kaizen - A philosophy that sees improvement in productivity as a gradual and methodical process.
Kaizen is a Japanese term meaning "change for the better". The concept of Kaizen encompasses a wide range of ideas: it involves making the work environment more efficient and effective by creating a team atmosphere, improving everyday procedures, ensuring employee satisfaction and making a job more fulfilling, less tiring and safer.

Keynesian Economics - An economic theory stating that active government

intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability. A supporter of Keynesian economics believes it is the government's job to smooth out the bumps in business cycles. Intervention would come in the form of government spending and tax breaks in order to stimulate the economy, and government spending cuts and tax hikes in good times, in order to curb inflation.

Knowledge Capital - An intangible asset that comprises the information and

skills of a company's employees, their experience with business processes, group work and on-the-job learning. Knowledge capital is not like the physical factors of production - land, labor and capital - in that it is based on skills that employees share with each other in order to improve efficiencies, rather than on physical items. Having employees with skills and access to knowledge capital puts a company at a comparative advantage to its competitors.

Knowledge Process Outsourcing (KPO) - A form of outsourcing in

which knowledge and information related work is carried out by workers in a different company or by a subsidiary of the same organization. This subsidiary may be in the same country or in an offshore location to save costs or other resources. Companies resort to knowledge process outsourcing when they have a shortage of skilled professionals and have the opportunity to hire skilled workers earning lower wages in another location for a lower overall cost.

Kurtosis - A statistical measure used to describe the distribution of observed data around the mean.
It is sometimes referred to as the "volatility of volatility." Explanation - Used generally in the statistical field, kurtosis describes trends in charts. A high kurtosis portrays a chart with fat tails and a low, even distribution, whereas a low kurtosis portrays a chart with skinny tails and a distribution concentrated toward the mean.

L
Letter of credit - A letter from a bank guaranteeing that a buyer's payment to a seller will be
received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

Explanation - Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.

Leveraged equity Liability funding strategy Liability transformation effect LIBOR Limit order - An order placed with a brokerage to buy or sell a set number of shares at a specified
price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled. Depending on the direction of the position, limit orders are sometimes referred to more specifically as a buy limit order, or a sell limit order. Explanation - Limit orders typically cost more than market orders. Despite this, limit orders are beneficial because when the trade goes through, investors get the specified purchase or sell price. Limit orders are especially useful on a low-volume or highly volatile stock.

Limit order book - A record of unexecuted limit orders maintained by the specialist.
Explanation - The specialist has the responsibility to guarantee that the top priority order is executed before other orders in the book, and before other orders at an equal or worse price held or submitted by other traders on the floor (floor brokers, market makers, etc).

Limited liability - A type of liability that does not exceed the amount invested in a
partnership or limited liability company. The limited liability feature is one of the biggest advantages of investing in publicly listed companies. While a shareholder can participate wholly in the growth of a company, his or her liability is restricted to the amount of the investment in the company, even if it subsequently goes bankrupt and racks up millions or billions in liabilities.

In a partnership, the limited partners have limited liability, while the general partner has unlimited liability. The limited liability feature protects the investor's or partner's personal assets from the risk of being seized to satisfy creditor claims in the event of the company's or partnership's insolvency. Explanation - In the context of a private company, incorporation can provide its owners with limited liability, since an incorporated company is treated as a separate and independent legal entity. Limited liability is especially desirable when dealing in industries that can be subject to massive losses, such as insurance. As an example, consider the misfortune that befell numerous Lloyd's Names, who are private individuals that agree to take on unlimited liabilities related to insurance risk in return for pocketing profits from insurance premiums. In the late 1990s, hundreds of these names had to declare bankruptcy in the face of catastrophic losses incurred on claims related to asbestosis. Contrast this with the losses incurred by shareholders in some of the biggest public companies to go bankrupt, such as Enron and Lehman Brothers. Although shareholders in these companies lost all of their investment in them, at least they were not held liable for the hundreds of billions of dollars owed by these companies to their creditors subsequent to their bankruptcies.

Liquidity - 1. The degree to which an asset or security can be bought or sold in the market without
affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets. 2. The ability to convert an asset to cash quickly. Also known as "marketability". There is no specific liquidity formula; however, liquidity is often calculated by using liquidity ratios. Explanation - 1. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment. 2. Examples of assets that are easily converted into cash include blue chip and money market securities.

Liquidity Adjustment Facility(LAF) - A tool used in monetary policy

that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.

Loan syndication - The process of involving several different lenders in providing various
portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too much for a single lender to provide, or may be outside the scope of a lender's risk exposure levels. Thus, multiple lenders will work together to provide the borrower with the capital needed, at an appropriate rate agreed upon by all the lenders. Explanation - Mainly used in extremely large loan situations, syndication allows any one lender to provide a large loan while maintaining a more prudent and manageable credit exposure, because the lender isn't the

only creditor. Loan syndication is common in mergers, acquisitions and buyouts, where borrowers often need very large sums of capital to complete a transaction, often more than a single lender is able or willing to provide.

M
M3 - The category of the money supply that includes M2 as well as all large time deposits, institutional
money-market funds, short-term repurchase agreements, along with other larger liquid assets. Explanation - This is the broadest measure of money; it is used by economists to estimate the entire supply of money within an economy.

Margin trading - The funds that remain in a margin trading accounts that are available to use
towards the purchase of a new position or the increase of an existing position. Traders and investors often take advantage of margin accounts that provide a leveraged amount of funds with which to trade or invest. Explanation - A margin account allows traders or investors the ability to purchase beyond the actual cash value of the account by utilizing leverage. For instance, a trader could have Rs.10,000 cash in a trading account and be able to trade a value of Rs.100,000 with a 10:1 leverage. The trading margin excess is the funding that is currently available to trade with. While margin allows traders and investors the opportunity to profit, caution must be used due to the potential to sustain catastrophic losses.

Market capitalization - The total dollar market value of all of a company's outstanding
shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures. Frequently referred to as "market cap." Explanation - If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share). Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.

The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are: Large Cap: $10 billion plus and include the companies with the largest market capitalization. Mid Cap: $2 billion to $10 billion Small Cap: Less than $2 billion

Market risk - The day-to-day potential for an investor to experience losses from fluctuations in
securities prices. This risk cannot be diversified away. Also referred to as "systematic risk." Explanation - The beta of a stock is a measure of how much market risk a stock faces.

Marketability/Liquidity risk - The risk stemming from the lack of marketability

of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. Usually reflected in a wide bid-ask spread or large price movements

Merchant banker - A bank that deals mostly in (but is not limited to) international finance,
long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public. Explanation - Their knowledge in international finances make merchant banks specialists in dealing with multinational corporations.

Micro credit - It is a term used to extend small loans to very poor people for selfemployment projects that generate income, allowing them to care for themselves and their families.

Micro finance - A type of banking service that is provided to unemployed or lowincome individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance. Explanation - Microfinancing is not a new concept. Small microcredit operations have existed since the mid 1700s. Although most modern microfinance institutions operate in developing countries, the rate of payment default for loans is surprisingly low - more than 90% of loans are repaid.

Like conventional banking operations, microfinance institutions must charge their lenders interests on loans. While these interest rates are generally lower than those offered by normal banks, some opponents of this concept condemn microfinance operations for making profits off of the poor. The World Bank estimates that there are more than 500 million people who have directly or indirectly benefited from microfinance-related operations.

N
Naked Put - A put option whose writer does not have a short position in the stock on which he or
she has written the put. Sometimes referred to as an "uncovered put." Naked puts are very risky since the writer can lose big if the underlying asset moves opposite to the desired direction. But, profits are huge if the underlying asset moves in the right direction.

NAV - A mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the
per-share dollar amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Explanation - In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual funds' buy and sell orders are processed at the NAV of the trade date. However, investors must wait until the following day to get the trade price. Mutual funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best gauge of mutual fund performance, which is best measured by annual total return. Because ETFs and closed-end funds trade like stocks, their shares trade at market value, which can be a dollar value above (trading at a premium) or below (trading at a discount) NAV.

NBFC - Non-banking financial companies, or NBFCs, are financial institutions that provide banking
services, but do not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still covered under banking regulations. Explanation - NBFCs do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activites. The number of non-banking financial companies has expanded greatly in the last several years as venture capital companies, retail and industrial companies have entered the lending business.

NFOs - A security offering in which investors may purchase units of a closed-end mutual fund. A new
fund offer occurs when a mutual fund is launched, allowing the firm to raise capital for purchasing securities. Explanation - A new fund offer is similar to an initial public offering. Both represent attempts to raise capital to further operations. New fund offers are often accompanied by aggressive marketing campaigns, created to entice investors to purchase units in the fund. However, unlike an initial public offering (IPO), the price paid for shares or units is often close to a fair value. This is because the net asset value of the mutual fund typically prevails. Because the future is less certain for companies engaging in an IPO, investors have a better chance to purchase undervalued shares.

Nontaxable Dividends - Dividends from a mutual fund or some other

regulated investment company that are not taxed. Taxes are not paid out because the fund invests in municipal and other tax exempt investments. The mutual fund must invest over 50% of its capital into tax exempt investments for the dividends to be classified as nontaxable.

'Nonprofit Organization' - A business entity that is granted tax-exempt

status by the Internal Revenue Service. Donations to a nonprofit organization are often tax deductible to the individuals and businesses making the contributions. Nonprofit organizations must disclose a great deal of financial and operating information to the public, so that donors can ensure their contributions are used effectively.

Notary - Also called a "notary public," this state-appointed official witnesses important document
signings and verifies the identities of the signers to help deter fraud and identity theft. A notarized document will contain the seal and signature of the notary who witnessed the signing and will have more legal weight than a document that is not notarized. Document signings where consumers are likely to need the services of a notary include real estate deeds, affidavits, wills, trusts and powers of attorney.

NPAs - A debt obligation where the borrower has not paid any previously agreed upon interest and
principal repayments to the designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments. Explanation - For example, a mortgage in default would be considered non-performing. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency.

NPV - The difference between the present value of cash inflows and the present value of cash outflows.
NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. Formula:

In addition to the formula, net present value can often be calculated using tables, and spreadsheets such as Microsoft Excel. Explanation - NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative. For example, if a retail clothing business wants to purchase an existing store, it would first estimate the future cash flows that store would generate, and then discount those cash flows into one lump-sum present value amount, say $565,000. If the owner of the store was willing to sell his business for less than $565,000, the purchasing company would likely accept the offer as it presents a positive NPV investment. Conversely, if the owner would not sell for less than $565,000, the purchaser would not buy the store, as the investment would present a negative NPV at that time and would, therefore, reduce the overall value of the clothing company.

O
Oligopoly - A situation in which a particular market is controlled by a small group of
firms. An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market. The

retail gas market is a good example of an oligopoly because a small number of firms control a large majority of the market.

Ombudsman - An official who investigates complaints (usually lodged by private citizens)

against businesses, financial institutions and/or the government. An ombudsman can be likened to a private investigator; although the decision is not typically binding, it does carry considerable weight with those who are sanctioned to uphold the rules and regulations pertaining to each specific case. When appointed, the ombudsman is typically paid via levies and case fees.

Open market operations - The buying and selling of government securities in

the open market in order to expand or contract the amount of money in the banking system by RBI. Open market operations are the principal tools of monetary policy.

Operating Cost - Expenses associated with administering a business on a day to day

basis. Operating costs include both fixed costs and variable costs. Fixed costs, such as overhead, remain the same regardless of the number of products produced; variable costs, such as materials, can vary according to how much product is produced.

Operating Profit - The profit earned from a firm's normal core business operations. This
value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. Calculated as:

Operating leverage

Operational Risk - A form of risk that summarizes the risks a company or firm
undertakes when it attempts to operate within a given field or industry. Operational risk is the risk that is not inherent in financial, systematic or market-wide risk. It is the risk remaining after determining financing and systematic risk, and includes risks resulting from breakdowns in internal procedures, people and systems.

Opportunity cost

1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. 2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%). The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages.

Option - A financial derivative that represents a contract sold by one party (option writer) to another
party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).

Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

P
Paid up capital The amount of capital "paid up" by investors during common or preferred stock issuances, including the par value of the shares themselves. Paid up capital represents the funds raised by the business from equity, and not from ongoing operations. Paid up capital is a company balance sheet entry listed under stockholder's equity, often shown alongside the balance sheet entry for additional paid-in capital. It may also be referred to as "contributed capital".

Palladium - A metal used in many types of manufacturing processes and is found in

electronics and industrial products. Palladium is an element found in the periodic table (atomic number 46), and is considered to be rare. The majority of the world's supply comes from mines located in the United States, Russia, South Africa and Canada.

Pareto Principle - A principle, named after economist Vilfredo Pareto, that

specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put

another way, 80% of consequences stem from 20% of the causes. Also referred to as the "Pareto rule" or the "80/20 rule".

Pegging - A method of stabilizing a country's currency by fixing its exchange rate to that of another
country. Most countries peg their exchange rate to that of the United States.

Pension Fund - A fund established by an employer to facilitate and organize the

investment of employees' retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement.

Per Capita - A Latin term that translates into "by head," basically meaning "average per person."
Per capita can take the place of saying "per person" in any number of statistical observances. In most cases the term is used in relation to economic data or reporting, but can also be used in most any other occurrence of population description.

Play - A slang term that describes the positive aspects of an investment decision. A play in investing is
the reason why an investor made his or her decision. "Playing the stock market" is a phrase used by beginner investors signifying that they have gained access, simulated or real, to the ups and downs of the stock market.

Portfolio - A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their
mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals.

Preference Shares - Company stock with dividends that are paid to

shareholders before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not have voting rights.

Price Skimming - A product pricing strategy by which a firm charges the highest initial price
that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment.

Therefore, the skimming strategy gets its name from skimming successive layers of "cream," or customer segments, as prices are lowered over time.

Promissory Note - A written, dated and signed two-party instrument containing

an unconditional promise by the maker to pay a definite sum of money to a payee on demand or at a specified future date. The only difference between a promissory note and a bill of exchange is that the maker of a note pays the payee personally, rather than ordering a third party to do so.

Product Life Cycle - The period of time over which an item is developed,
brought to market and eventually removed from the market. First, the idea for a product undergoes research and development. If the idea is determined to be feasible and potentially profitable, the product will be produced, marketed and rolled out. Assuming the product becomes successful, its production will grow until the product becomes widely available. Eventually, demand for the product will decline and it will become obsolete.

Purchasing Power Parity PPP - An economic theory that estimates the

amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power. For example, a chocolate bar that sells for Canadian $1.50 in a Canadian city should cost US$1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 USD/CDN. (Both chocolate bars cost US$1.00.)

Q
Quick Assets - Anything having commercial or exchange value that can easily be converted into
cash, or that is already in cash form. Quick assets are the highly liquid assets held by a company, including cash, marketable securities and accounts receivable. Quick assets are often calculated as current assets (cash + marketable securities + accounts receivable) minus inventories (since inventories are often a firm's least-liquid current assets). Quick assets are used by companies to calculate certain financial ratios that are used in decision making, including the quick ratio.

Quote Currency - The second currency quoted in a currency pair in forex. In a direct quote,
the quote currency is the foreign currency. In an indirect quote, the quote currency is the domestic currency.

Rally (stock market) - A period of sustained increases in the prices of stocks, bonds or
indexes. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will generally follow a period of flat or declining prices.

Ratio analysis - A tool used by individuals to conduct a quantitative analysis of information in a

company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

Rediscount - The act of discounting a short-term negotiable debt instrument for a second time.
Banks may rediscount these short-term debt securities to assist the movement of a market that has a high demand for loans. When there is low liquidity in the market, banks can generate cash by rediscounting shortterm securities.

REER

(real effective exchange rate) - The weighted average of a

country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index.

Refinance
1. 2. When a business or person revises a payment schedule for repaying debt. Replacing an older loan with a new loan offering better terms.

When a business refinances, it typically extends the maturity date. When individuals change their monthly payments or modify the rate of interest on their loans, it usually involves a penalty fee.

Reinvestment rate - The amount of interest that can be earned when money is
taken out of one fixed-income investment and put into another. The reinvestment rate is the amount of interest the investor could earn if s/he purchased a new bond, if the same investor is holding a callable bond that is called due because interest rates have declined. If the original bond paid 5% and the new bond pays 3%, the reinvestment rate is 3%. The possibility of such an interest-rate drop is called "reinvestment rate risk".

Repo rate - The rate of return that can be earned by simultaneously selling a bond
futures or forward contract and then buying an actual bond of equal amount in the cash market using borrowed money. The bond is held until it is delivered into the futures or forward contract and the loan is repaid.

Retained Earnings - The percentage of net earnings not paid out as dividends, but
retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet.

The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:

Return on Investment (ROI) - A performance measure used to evaluate the

efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. The return on investment formula:

In the above formula "gains from investment", refers to the proceeds obtained from selling the investment of interest. Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken.

Rupee cost averaging - The technique of buying a fixed rupee amount of a

particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. Also referred to as a "constant rupee plan". Eventually, the average cost per share of the security will become smaller and smaller. Rupee-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time.

For example, you decide to purchase Rs.100 worth of XYZ each month for three months. In January, XYZ is worth Rs.33, so you buy three shares. In February, XYZ is worth Rs.25, so you buy four additional shares this time. Finally, in March, XYZ is worth Rs.20, so you buy five shares. In total, you purchased 12 shares for an average price of approximately Rs.25 each.

It is known as Dollar Cost Averaging in the U.S. and pound cost averaging in the U.K.

S
Salvage value - The estimated value that an asset will realize upon its sale at the end of its
useful life.

Satisficing - A decision-making strategy that aims for a satisfactory or adequate result,

rather than the optimal solution. This is because aiming for the optimal solution may necessitate needless expenditure of time, energy and resources. The term "satisfice" was coined by American scientist and Noble-laureate Herbert Simon in 1956.

Security market line - A line that graphs the systematic, or market, risk versus return of
the whole market at a certain time and shows all risky marketable securities. Also refered to as the "characteristic line".

Seed Capital - The initial capital used to start a business. Seed capital often comes from the
company founders' personal assets or from friends and family. The amount of money is usually relatively small because the business is still in the idea or conceptual stage. Such a venture is generally at a pre-revenue stage and seed capital is needed for research & development, to cover initial operating expenses until a product or service can start generating revenue, and to attract the attention of venture capitalists.

Sharia - Islamic religious law that governs not only religious rituals, but aspects of dayto-day life in Islam. Sharia, literally translated, means "the way." There is extreme variation in how Sharia is interpreted and implemented among and within Muslim societies today. This is especially prevalent for its financial laws. Also known as "Shariah" or "Shari'a, Sharia-compliant finance is an area of modern finance that is growing among many banks and investment houses. This is due in part to investors eager to work with the Middle East as oil prices continue to increase. Western financial services firms are beginning to offer Shariah-compliant investment vehicles that neither pay interest, nor benefit from gambling. In late 2007, a Sharia index was launched on the Tokyo Stock Exchange. This index includes companies that comply with Sharia law. The companies included in this index are screened on a daily basis, and exclude non Sharia-compliant companies such as casinos, and alcohol and tobacco companies. In the West, Sharia-compliant investments are similar to socially responsible investments.

Short Selling - The selling of a security that the seller does not own, or any sale that is
completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

Sinking Fund - A means of repaying funds that were borrowed through a bond issue. The
issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.

SME (Small And Midsize Enterprises) - A business that maintains

revenues or a number of employees below a certain standard. Every country has its own definition of what is considered a small and medium-sized enterprise.

Snowball - A method of efficient debt repayment in which the debt holder

initially devotes only enough funds to cover the minimum payments on each debt, after which any remaining available funds from the debt repayment budget are spent on an additional payment to the debt bearing the highest interest rate. Once the debt with the highest interest rate is completely paid for, subsequent extra debt payments go toward the next highest interest-bearing debt. This process continues until all the debts are paid off.

Socialism - Socialism as an economy is based on a collectivist type of political

ideology and involves the running of businesses to benefit the common good of a vast majority of people rather than of a small upper class segment of society.

Solvency - The ability of a corporation to meet its long-term fixed expenses and to
accomplish long-term expansion and growth. The better a company's solvency, the better it is financially. When a company is insolvent, it means that it can no longer operate and is undergoing bankruptcy.

Sovereign risk - The risk that a foreign central bank will alter its foreign-exchange
regulations thereby significantly reducing or completely nulling the value of foreignexchange contracts.

Speculation - The act of trading in an asset, or conducting a financial transaction, that has a
significant risk of losing most or all of the initial outlay, in expectation of a substantial gain. With speculation, the risk of loss is more than offset by the possibility of a huge gain; otherwise, there would be very little motivation to speculate. While it is often confused with gambling, the key difference is that speculation is generally tantamount to taking a calculated risk and is not dependent on pure chance, whereas gambling depends on totally random outcomes or chance.

Spot Exchange Rate - The rate of a foreign-exchange contract for immediate delivery.
Also known as "benchmark rates", "straightforward rates" or "outright rates", spot rates represent the price that a buyer expects to pay for a foreign currency in another currency.

Stop order - An order to buy or sell a security when its price surpasses a particular point, thus
ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order. Also referred to as a "stop" and/or "stop-loss order."

Subsidy - A subsidy is a form of financial assistance paid to a business or economic

sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or to encourage it to hire more labor.

Sunk cost - A cost that has already been incurred and thus cannot be recovered. A
sunk cost differs from other, future costs that a business may face, such as inventory costs or R&D expenses, because it has already happened. Sunk costs are independent of any event that may occur in the future.

Survival Analysis - A branch of statistics which studies the amount of time that it takes
before a particular events, such as death, occurs. However, the same techniques can be used to study the time until any event. While a time-to-event study is theoretically simple to undertake, in practice there are a number of problems if the event being studied is relatively rare or takes a long time to occur. For instance, a study of death rates might be highly difficult to undertake if most subjects outlive the term of the study, or drop out of the study while it is in progress. Results from such analysis are used to help calculate insurance premiums.

Supply Chain - The network created amongst different companies producing, handling and/or
distributing a specific product. Specifically, the supply chain encompasses the steps it takes to get a good or service from the supplier to the customer. Supply chain management is a crucial process for many companies, and many companies strive to have the most optimized supply chain because it usually translates to lower costs for the company. Quite often, many people confuse the term logistics with supply chain. In general, logisitics refers to the distribution process within the company whereas the supply chain includes multiple companies such as suppliers, manufacturers, and the retailers.

SWOT Analysis - A tool that identifies the strengths, weaknesses, opportunities and threats of
an organization. Specifically, SWOT is a basic, straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats. The method of SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and

external issues (opportunities and threats). Once this is completed, SWOT analysis determines what may assist the firm in accomplishing its objectives, and what obstacles must be overcome or minimized to achieve desired results.

Synergy - The idea that the value and performance of two companies combined will
be greater than the sum of the separate individual parts. This term is used mostly in the context of mergers and acquisitions. For example, if Company A has an excellent product but lousy distribution whereas Company B has a great distribution system but poor products, the companies could create synergy with a merger.

Systematic risk - Interest rates, recession and wars all represent sources of systematic risk
because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged. Even a portfolio of well-diversified assets cannot escape all risk.

T
Tailgating - When a broker or advisor buys or sells a security for a client(s) and then
immediately makes the same transaction in his or her own account. This is not illegal like front running, but it is not looked upon favorably because the broker is mostly likely placing a trade for his or her own account based on what the client knows (like inside information)

Target Market - The consumers a company wants to sell its products and services to, and to
whom it directs its marketing efforts. Identifying the target market is an essential step in the development of a marketing plan. A target market can be separated from the market as a whole by geography, buying power and demographics, as well as by psychographics.

Tax haven - A country that offers foreign individuals and businesses little or no tax liability in a
politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. Individuals and businesses that do not reside a tax haven can take advantage of these countries' tax regimes to avoid paying taxes in their home countries. Tax havens do not require that an individual reside in or a business operate out of that country in order to benefit from its tax policies.

Taxable equivalent yield - The pretax yield that a taxable bond needs to possess for
its yield to be equal to that of a tax-free municipal bond. This calculation can be used to fairly compare the yield of a tax-free bond to that of a taxable bond in order to see which bond has a higher applicable yield.

Also known as "after-tax yield."

Technical analysis - A method of evaluating securities by analyzing statistics

generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Technical Rally - An upward movement in a security's price following a declining

trend. The movement is caused by technical as opposed to fundamental factors affecting sentiment.

Technical indicator - Any class of metrics whose value is derived from generic price
activity in a stock or asset. Technical indicators look to predict the future price levels, or simply the general price direction, of a security by looking at past patterns.

Tracking error - A divergence between the price behavior of a position or a portfolio and the
price behavior of a benchmark. This is often in the context of a hedge or mutual fund that did not work as effectively as intended, creating an unexpected profit or loss instead. Tracking errors are reported as a "standard deviation percentage" difference. This measure reports the difference between the return an investor receives and that of the benchmark he or she was attempting to imitate.

Trade deficit - An economic measure of a negative balance of trade in which a country's imports
exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.

Trailing EPS - The sum of a company's earnings per share for the previous four
quarters.

Transfer agent - A trust company, bank or similar financial institution assigned by a

corporation to maintain records of investors and account balances and transactions, to cancel and issue certificates, to process investor mailings and to deal with any associated problems (i.e. lost or stolen certificates).

Because publicly-traded companies, mutual funds and similar entities often have many investors who own a small portion of the organization, require accurate records and have rights regarding information provision, the role of the transfer agent is an important one. Some corporations choose to act as their own transfer agents, but most choose a third-party financial institution to fill the role.

Treasury bill - Treasury Bills (T-Bills) are short term, Rupee denominated obligations
issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They are thus useful in managing short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.

Treasury stock - The portion of shares that a company keeps in their own treasury. Treasury
stock may have come from a repurchase or buyback from shareholders; or it may have never been issued to the public in the first place. These shares don't pay dividends, have no voting rights, and should not be included in shares outstanding calculations.

Trend Analysis - An aspect of technical analysis that tries to predict the future movement of a
stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term.

Trust deed
1. A formal document which outlines the terms of a trust agreement. 2. A common way to structure real estate purchases, where the title to a property is held in trust until the loan for the property is paid.

Further Explanation: 1. A trust deed is often used when mutual funds are set up as a trust. Information that may be documented includes the powers of the trustee and any restrictions on investment vehicles. 2. Used to add security to a property purchase, the trustee does not get involved in the agreement unless there is a default on the loan, at which time the trustee would sell the property.

'Underwriter'
A company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer and sells them to investors via the underwriter's distribution network.

'Unsecured Debt'
A loan not backed by an underlying asset. Unsecured debt includes credit card debt, medical bills, utility bills and any other type of loan or credit that was extended without a collateral requirement. It presents a high risk for lenders since they may have to sue to get the money they're owed if the borrower doesn't repay the full amount owed. As a result of this high risk, unsecured debt tends to come with a high interest rate. Unsecured debt can be wiped out by bankruptcy, but taking this dramatic step makes it more difficult to obtain financing for the next seven to 10 years.

'Value Added'
The enhancement a company gives its product or service before offering the product to customers. Value added is used to describe instances where a firm takes a product that may be considered a homogeneous product, with few differences (if any) from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater sense of value.

'Variable Overhead'
The indirect costs of operating a business that fluctuate somewhat with the level of business activity, but are incurred even if business activity is minimal. While most overhead costs such as rent, salaries and insurance are typically fixed, overhead costs that increase with higher business activity and decrease with lower business activity are termed as variable overhead. These usually consist of indirect material, indirect labor and other costs that cannot be directly allocated to a specific product, such as expenses for utilities and equipment maintenance.

Venture Capital - Venture capital is money provided by an outside investor to finance

a new, growing, or troubled business. The venture capitalist provides the funding knowing that theres a significant risk associated with the companys future profits and cash flow. Capital is invested in exchange for an equity stake in the business rather than given as a loan, and the investor hopes the investment will yield a better-than-average return.

Venture Capitalist - An investor who either provides capital to startup ventures or

supports small companies that wish to expand but do not have access to public funding.

'Wealth Management'
A professional service which is the combination of financial/investment advice, accounting/tax services, and legal/estate planning for one fee. In general, wealth management is more than just investment advice, as it can encompass all parts of a person's financial life.

'White Collar'
A working class that is known for earning high average salaries and not performing manual labor at their jobs. White collar workers historically have been the "shirt and tie" set, defined by office jobs and not "getting their hands dirty" (or their white collar dress shirts). This class of worker stands in contrast to blue collar workers, who traditionally wore blue shirts and worked in plants, mills and factories.

Wholesale Price Index (WPI) - The Wholesale Price Index (WPI) is the
index used to measure the changes in the average price level of goods traded in wholesale market. A total of 435 commodity prices make up the index. It is available on a weekly basis. It is generally taken as an indicator of the inflation rate in the Indian economy. The Indian Wholesale Price Index (WPI) was first published in 1902, and was used by policy makers until it was replaced by the Producer Price Index (PPI) in 1978.

'Window Dressing'
A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings. Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for. Window dressing may make a fund appear more attractive, but you can't hide poor performance for long.

'Xenocurrency'
A currency that trades in markets outside of its domestic borders. The term "xenocurrency" is derived from the prefix "xeno," which literally means foreign or strange. The term "xenocurrency" is seldom used in markets, perhaps because of the somewhat negative connotation of the word "xeno." Xenophobia, for example, means an irrational fear or hatred of foreigners. "Foreign currency," therefore, is the preferred term when referring to a non-domestic currency.

'Xetra'
An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Brse, the Xetra platform offers increased flexibility for seeing order depth within the markets and offers

trading in stocks, funds, bonds, warrants and commodities contracts. The Xetra system was originally created for use on the Frankfurt Stock Exchange, but has expanded to be used by various stock exchanges throughout Europe. Xetra was one of the first global electronic trade systems, and has grown to account for more than 90% of all stock trades on the Frankfurt Exchange. In addition to opening up the German markets for increased foreign investment, it is currently being used by stock exchanges in Ireland, Vienna and Shanghai.