IFSC Code

IFSC Code

IFSC code is the acronym that stands for Indian Financial System Code. In the Structured Financial Messaging System (SFMS),it is being used as the addressing code in user-to-user message transmission. The Payment System Applications such as RTGS, CFMS and NEFT developed by the Reserve Bank of India use these codes. Without the IFSC code the fund transfers through RTGS is not possible. Some times to add a beneficiary in net banking we require IFSC code. IFSC code is a unique digit identifying the branch names of the different banks.

Cost Push Inflation

Cost Push Inflation

Cost-push inflation, also called "supply shock inflation," is caused by a drop in aggregate supply (potential output). This may be due to natural disasters, or increased prices of inputs. For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost-push inflation. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. 1973 Oil crisis is a typical example of cost push inflation where the OPEC countries controlled the oil outflow from their reserves(oil embargo) there by pushing the oil prices of the European countries which in turn had led to inflation.

Hyperinflation

Hyperinflation

Hyperinflation is inflation that is very high or "out of control". While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases rapidly as the functional or internal currency, as opposed to a foreign currency, loses its real value very quickly, normally at an accelerating rate. Typical example is Zimbabwe which devalues its currency consistently i.e printing more and more money there by pushing its economy in a hyperinflation state where Zimbabwe dollars are no longer preferred by the sellers who prefer south African rand or American dollar.

Agflation

Agflation

Agflation, a term coined in the late first decade of the 21st century, describes generalized inflation led by rises in Agricultural commodity prices. In the United States, agricultural prices are not generally factored into core inflation figures. The term describes a situation in which "external" (i.e. Agricultural) price rises drive up core inflation rates. Agflation is not applicable to countries like India where agriculture is the mainstay of the economy.

Deflation

Deflation

A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Inflation reduces the real value of money over time; conversely, deflation increases the real value of money – the currency of a national or regional economy. This allows one to buy more goods with the same amount of money over time.

Inflation

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Inflation is a indicator of the purchasing power of money and an indicator of the developing society. For example inflation in Sweden is around -0.3 (est) while the inflation in India is around 9.7 (est) which explains the developed country and the developing country tag associated with the aforementioned names.

Vertical Equity

Vertical Equity

The principle that people with different incomes should pay different rates of tax. A method of collecting income tax in which the taxes paid increase with the amount of earned income. The driving principle behind vertical equity is the notion that those who are more able to pay taxes should contribute more than those who are not.

Activity Ratio

Activity Ratio

An indicator of how rapidly a firm converts various accounts into cash or sales. In general, the sooner management can convert assets into sales or cash, the more effectively the firm is being run. Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios.

Intaxification

Intaxification

The feeling of satisfaction and joy that a tax refund creates in a person. This feeling is somewhat misguided because the tax is only refunded because the person paid too much tax during the previous year.

Revenue Ruling

Revenue Ruling

A decree issued by the IRS that essentially has the force of law. A revenue ruling outlines the IRS's interpretation of the tax laws and is binding on all IRS employees. Revenue rulings are published in the Cumulative Bulletin and are issued only from the National Office of the IRS.

Return On Equity - ROE

Return On Equity - ROE

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder's Equity Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares. Also known as "return on net worth" (RONW).

Hybrid Annuity

Hybrid Annuity

A form of repurchase agreement in which an investor sells a mortgage-backed security during one period and repurchases it in a subsequent period. While the investor gives up access to the principal and interest on the loan that is sold, the proceeds from the sale of the security could be reinvested and then used to repurchase the security later. The investor hopes that the difference between the original price and the repurchase price ("the drop") is high. A large difference between the original price and the repurchase price results in the security being considered "on special".

Junk Fees

Junk Fees

Nebulous charges assessed at the closing of a mortgage that go to the originator or lender. These fees are hidden in the mortgage documents and are usually assessed as raw dollars rather than "points" or a percentage of the loan. Junk fees may or may not pay for an actual service to the borrower, but they typically are not known to the borrower prior to signing. Some common fees that may be considered junk fees include settlement fees, sign-up fees, underwriting fees, funding fees, translation fees and messenger fees.

Debenture

Debenture

An unsecured debt backed only by the company, not by any collateral. Although there are no pledges of specific assets, debenture holders are still considered creditors if bankruptcy occurs. Debentures are usually used by governments and large companies. They can be a great tool to raise funds and still leave specific assets free to be used for financing in the future.

Preemptive Right

Preemptive Right

A privilege extended to select shareholders of a corporation that will give them the right to purchase additional shares in the company before the general public has the opportunity in the event there is a seasoned offering. A preemptive right is written in the contract between the purchaser and the company, but does not function like a put option.

Pick-Up Tax

Pick-Up Tax

A tax imposed by state authorities based on the estate tax credit the U.S. federal government allows on the federal estate tax return. As this tax is imposed at the state level, the amounts owing vary state to state. And because estates are taxed at the federal level only when the minimum federal estate threshold has been surpassed, state pick-up taxes are not always applied.

Grey Wave

Grey Wave

An investment or company thought to be profitable in the long-term or very long-term. The investor should not plan for an immediate or even short-term positive return, but rather only when s/he is much older and has grey hair. Grey wave is related to one of the most critical investing concepts - time horizon. Before making investment decisions an investor needs to take into careful consideration when s/he will need to either withdraw the principal or begin drawing down on the dividends and return. The longer the time horizon the more room an investor has for potential mistakes, to adjust to market swings and to benefit from compounding interest.

Gilt Fund

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. Gilts originated in Britain. Gilt funds differ from bond funds because bond funds invest in corporate bonds, government securities, and money market instruments. Gilt funds stick to high quality-low risk debt, mainly government securities. t stores credit card number and shipping details. This wallet initiates the data encryption in a SET transaction.

Electronic Wallet

Electronic Wallet (E-Wallet)

Software, residing as a plug-in in the Web browser, that enables a cardholder to conduct online transactions, manage payment receipts and store digital certificates. Digital wallet stores credit card number and shipping details. This wallet initiates the data encryption in a SET transaction.

Bond Fund

Bond Fund

A fund invested primarily in bonds and other debt instruments. The exact type of debt the fund invests in will depend on its focus, but investments may include government, corporate, municipal and convertible bonds, along with other debt securities like mortgage-backed securities. For investors interested in bonds, a Morningstar bond style box can be used to sort out the investing options available for bond funds. Investors should note that U.S. government bonds are considered to be of the highest credit quality and are not subject to ratings.

Ultra-Short Bond Fund

Ultra-Short Bond Fund

A type of bond fund that invests only in fixed-income instruments with very short-term maturities. An ultra-short bond fund will ideally invest in instruments with maturities around one year. This investing strategy tends to offer higher yields than money market instruments, with less price fluctuations than a typical short-term fund. Ultra-short bond funds offer investors greater protection against interest rate risk than longer term bond investments. Since these funds have very low durations, increases in the rate of interest will affect their value less than a medium or long-term bond fund. While this strategy offers more protection against rising interest rates, they usually carry more risk than most money market instruments. While certificates of deposits follow regulated investment guidelines, an ultra-short bond fund has no more regulation than a standard fixed-income fund.

Hybrid Fund

Hybrid Fund

A category of mutual fund that is characterized by portfolio that is made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed. Morningstar separates hybrid funds into domestic hybrid and international hybrid categories. In the hybrid category, balanced funds tend to stick to a relatively fixed allocation of stocks and bonds. Actively managed asset allocation funds tend to have portfolios with a mix of stocks and bonds that responds to market conditions as perceived by the fund manager. Passively managed asset allocation, life-cycle and target-date funds generally have a stock-bond mix that changes over a lifetime, moving progressively from aggressive to more conservative structures.

Balanced Fund

Balanced Fund

A fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a mutual fund invests into each asset class usually must remain within a set minimum and maximum.

Trade Deficit

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. Economic theory dictates that a trade deficit is not necessarily a bad situation because it often corrects itself over time. However, a deficit has been reported and growing in the United States for the past few decades, which has some economists worried. This means that large amounts of the U.S. dollar are being held by foreign nations, which may decide to sell at any time. A large increase in dollar sales can drive the value of the currency down, making it more costly to purchase imports.

Current Face

Current Face

The current par value of a mortgage-backed security (MBS). Current face is determined by multiplying the current pool factor by the mortgage-backed security's original face value. A mortgage-backed security's current face represents the outstanding principal balance (or its outstanding face value) of the mortgage's underlying the security. If the MBS pays interest and principal on payment dates, the current face will decline after each payment is made.

Mismatch Risk

Mismatch Risk

A category of risk that refers to the possibility that a swap dealer will be unable to find a suitable counterparty for a swap transaction for which it is acting as an intermediary. The risk that an investor has chosen investments that are not suitable for his or her circumstances. A number of different factors can make it difficult for a swap bank to find a counterparty for a swap transaction. For example, wanting to participate in a swap with a very large notional principal may limit the number of available counterparties. A mismatch between investment type and investment horizon can be a source of mismatch risk. For example, mismatch risk would exist in a situation where an investor with a short investment horizon (such as one who is near retirement) invests heavily in speculative hi-tech stock. Typically, investors with short investment horizons should focus on less speculative investments such as fixed income securities and blue chip equities.

Hard Currency

Hard Currency

A currency in which investors have confidence, such as that of an economically and politically stable country. Hard currencies serve as means of payment settlements because they do not suffer from sharp exchange rate fluctuations. Large, international transactions are often settled in one hard currency or other. The market to buy and sell hard currencies is especially liquid, even by the standards of foreign exchange trading. The price of a hard currency often remains stable in the short-term. Examples of hard currencies include the U.S. dollar, the British pound, the euro, and the Japanese yen.

Stock Cycle

Stock Cycle

The evolution of a stock's price from an early uptrend to a price high and eventually to a downtrend. The stock cycle is a buy-and-sell cycle that occurs over several years and has four stages: accumulation, markup, distribution, markdown. The stock cycle has expansion and contraction periods, much like the economic cycle. It can be used for portfolio management allocation, allowing for more investment during the accumulation and markup phases and less investment during the distribution and markdown phases.

Trade Trigger

Trade Trigger

Any type of event that triggers a securities trade. A trade trigger is usually a market condition, such as a rise or fall in the price of an index or security. Trade triggers are used to automate certain types of trades, such as selling shares of a stock when the price reaches a certain level. Day traders often use trade triggers in order to avoid having to constantly monitor market conditions. Trade triggers are automatic, thus freeing the trader to focus on other tasks. Most online brokers and day trading programs both teach and offer this strategy to investors.

Bank Rate

Bank Rate

The rate of interest charged by the Reserve Bank of India (RBI) on financial accommodation extended to banks and FINANCIAL INSTITUTIONS. The support is provided in the form of a bills rediscounting facility and advances or REFINANCE against specified ASSETS (e.g. TREASURY BILLS and DATED SECURITIES) or PROMISSORY NOTES. The intent behind changing the Bank Rate at certain junctures is to raise or lower the cost of funds that banks obtain from the RBI. This, in turn, would alter the structure of banks' interest rates and thereby serve to curb or encourage the use of credit. However, the Bank Rate is a relatively passive instrument of credit control. In the wake of the East Asian currency crisis, the RBI used the Bank Rate in conjunction with the CASH RESERVE RATIO and other measures to stabilize the exchange rate of the Rupee. In recent times, it has been RBI's endeavor to make the Bank Rae and effective signaling device as well as a reference rate. However, since frequent changes in the Bank Rate may be undesirable, the short-term REPOS interest rate seems to be a useful supplement in influencing the flow and cost of funds in the short term.

Balance of Payments

Balance of Payments

A statement that contains details of all the economic transactions of a country with the rest of the world, for a given time period, usually one year. The statement has two parts: the Current Account and the Capital Account. The 'Current Account' gives a record of a country's: (a) Trade Balance which shows the difference of exports and imports of physical goods such as machinery, textiles, chemicals and tea, (b) 'Invisibles' that comprise services (rendered and received) such as transportation and insurance and certain other flows, notably private transfers by individuals. When imports of goods exceed exports, it is referred to as a 'Trade Deficit'. However, the overall current account position depends on both the trade balance and the performance of 'Invisibles'. The 'Capital Account' contains details of the inward and outward flows of capital and international grants and loans. Examples of such flows are external assistance, foreign (direct and PORTFOLIO) investments, subscription to Global Depository Receipts or EUROCONVERTIBLE BONDS and deposits of non-residents. Inflows on the capital account are helpful in financing a current account DEFICIT. Any gap that remains is covered by drawing on exchange or gold reserves, or by credit from the International Monetary Fund. Depending on the nature of imports, a deficit on the current account indicates an excess of investment over domestic saving in an economy. So long as this deficit is kept in check (evaluated as a percentage of the CROSS DOMESTIC PRODUCT), the DEBT SERVICE RATIO would remain within manageable limits. A challenge posed to India some years ago was the upward pressure on the Rupee's exchange rate in the wake of large capital account inflows. So, to maintain the competitiveness of India's exports, the Reserve Bank of India (RBI) resorted to purchases of foreign exchange. However, this has also caused money supply to increase, and the RBI has had to 'sterilize' such monetization by raising the CASH RESERVE RATIO or by engaging in OPEN MARKET OPERATIONS.

At-the-Money

At-the-Money

The term relates to trading in listed OPTIONS. An option is said to be trading "at-the-money" when the STRIKING PRICE and the market price of the underlying share are equal.

Asset Management Company (AMC)

Asset Management Company (AMC)

A company set up for floating and managing schemes of a MUTUAL FUND. An AMC earns fees by acting as the PORTFOLIO manager of a fund. The AMC is appointed by the Board of Trustees, which oversees its activities. Thus, a mutual fund is generally established as a trust by a SPONSOR, which could be a registered company, bank or FINANCIAL INSTITUTION. Also, a custodian and a registrar are appointed to ensure safe keeping of the fund's securities and to deal with investors' applications, correspondence, etc.

Arbitrage

Arbitrage

The simultaneous purchase and sale transactions in a security or a commodity, undertaken in different markets to profit from price differences. For example, an arbitrageur may find that the share of The Tata Iron and Steel Company (TISCO) is trading at a lower price, at the Vadodara Stock Exchange compared to the exchange at Bombay. Hence, he may simultaneously purchase TISCO stock in Vadodara at, say Rs.250, and sell in Bombay at a higher price, say Rs.256, making a profit of Rs.6 per share less expenses.

Torpedo Stock

Torpedo Stock

A stock that has fallen substantially in value and that looks like it will continue to fall in value in the foreseeable future. This name refers to this type of stock's similarity to a battleship after it has been struck by a torpedo: it goes down fast and continues to sink until hits the bottom. A change in a business's underlying fundamentals can turn a company's stock into a torpedo stock. For example, investors see earnings as a good indicator of a business' success, as even a gradual rate of earnings growth indicates that a business is doing well. However, quarter after quarter of declining earnings with no end in sight can be enough to cause investors to "jump ship" as a stock's price starts to plummet.

Capitulation

Capitulation

When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling. After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.

Selling Away

Selling Away

When a broker solicits you to purchase securities not held or offered by the brokerage firm. As a general rule, such activities are a violation of securities regulations. Typically, when a broker is "selling away," the investments are in the form of private placements or other non-public investments.

Gold Certificate

Gold Certificate

A certificate of ownership that gold investors hold instead of storing the actual gold bullion. Gold certificates allow investors to buy and sell the security without the hassles associated with the transfer of actual physical gold.

Gold Option

Gold Option

Right to buy or sell any amount of gold bullion in the future if a specific price is reached, and is therefore not an obligation on the part of the investor to either buy or sell the gold.

Money Market Securities

Money Market Securities

Money Market Securities is generally used to represent the market for securities maturing within one year. These include short-term CDs, repurchase agreements, commercial paper (low-risk corporate issues), among others. These are low risk, short-term securities that have yields similar to Treasuries.

Split-Funded Annuity

Split-Funded Annuity

A type of annuity that uses a portion of the principal to fund immediate monthly payments and then saves the remaining portion to fund a deferred annuity. The two funding methods let the annuity holder receive dependable income and simultaneously save for future needs. Using a split-funded annuity means that individuals do not have to wait for the annuity to reach the payout phase, because the stream of income begins immediately. At the same time, the annuity's remaining balance compounds tax deferred.

Unitranche Debt

Unitranche Debt

A type of debt that combines senior and subordinated debt into one debt instrument; it is usually used to facilitate a leveraged buyout. The borrower would pay one interest rate to one lender, and the rate would usually fall between the rate for senior debt and subordinated notes. The unitranche debt instrument was created to simplify debt structure and accelerate the acquisition process. Unitranche lending has its detractors because the loan is often split between secured and unsecured instruments. The interest rate benefit of a secured debt instrument is at least partially obscured by the increased risk attached to the unsecured portion of the instrument.

Put Warrant

Put Warrant

A security which grants the holder the right to sell the underlying security at a specified price. This is somewhat uncommon, since warrants usually grant the holder the right to buy a security at a particular price.

Put Option

Put Option

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date. When an individual purchases a put, they expect the underlying asset will decline in price. They would then profit by either selling the put options at a profit, or by exercising the option. If an individual writes a put contract, they are estimating the stock will not decline below the exercise price, and will not fall significantly below the exercise price.

Put Ratio Backspread

Put Ratio Backspread

An investment strategy that combines options to create a spread which has limited loss potential and a mixed profit potential. It's created by combining long and short puts in a ratio such as 2:1 or 3:1.

Backspread

Backspread

A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either all call options or all put options.

Canary Call

Canary Call

A step-up bond that cannot be called after completing its first-step period. The issuer of the bond reserves the option to call back the bond until the first step is reached. A canary call may only be exercised on predetermined dates. The canary call is similar to a Bermuda option, as it must be called on specific dates. If the issuer of the bond chooses not to call before the canary call expires, the bond will remain a standard step-up bond, where the coupon rate will increase with each step-up period.

Companion Bond

Companion Bond

A class of tranche found in a planned amortization class (PAC) bond that is responsible for protecting the PAC tranche from both contraction and extension risk. The companion bond is designed to absorb excess principal payments during times of high prepayment speeds and defer receiving principal payments during times of low prepayment speeds. More specifically, in situations of high prepayment speeds, the companion bond takes as much of the excess prepayments from the PAC tranche as possible and uses them to repay its own principal amount. Once its portion of the principal is completely paid off, all excess principle payments go back to the PAC bond. Conversely, in situations of low prepayment speeds, the companion bond defers the reception of any payments. The principal payments then go toward paying off the PAC bond. As long as the prepayment speed stays within the designated upper and lower PAC collars, the companion bond will be able to operate as designed.

Planned Amortization Class (PAC) Tranche

Planned Amortization Class (PAC) Tranche

A class of tranche in a planned amortization class (PAC) bond that receives a primary payment schedule. As long as the actual prepayment rate is between a designated range of prepayment speeds, the life of the PAC tranche will remain relatively stable. This tranche of the PAC bond receives some measure of protection against prepayment risk. The measure of prepayment risk protection, which includes both contraction and extension risk, is limited by the size of the companion bond and the speed of prepayment. If the speed of repayment is too slow (below the lower PAC collar), the life of the PAC tranche is extended; if the speed of repayment is too fast (above of the upper PAC collar), the life of the PAC tranche is shortened.

Deferred Payment Option

Deferred Payment Option Deferred Payment Option An option with all the characteristics of an American vanilla option, with one exception: payment is deferred until the original expiration date. The option can be exercised at any time; however, payment is deferred until the original expiration date of the option. These options are considered long term options, with expiration dates at least one year away.

An option with all the characteristics of an American vanilla option, with one exception: payment is deferred until the original expiration date. The option can be exercised at any time; however, payment is deferred until the original expiration date of the option. These options are considered long term options, with expiration dates at least one year away.

VIX Option

VIX Option

A type of non-equity option that uses the CBOE Volatility Index as the underlying asset. This is the first exchange-traded option that gives individual investors the ability to trade market volatility. Trading VIX options can be a useful tool for investors wanting to hedge their portfolios against sudden market declines, as well as to speculate on future moves in volatility. A trader who believes that market volatility will increase now has the ability to profit on this outlook by purchasing VIX call options. Sharp increases in volatility generally coincide with a falling market, so this type of option can be used as a natural hedge rather than using index options. For advanced option traders, it is possible to incorporate many different advanced strategies - such as bull call spreads, butterfly spreads, etc. - by using VIX options.

Front Fee

Front fee

Amount paid for initiating a compound or split-fee option contract. While all option contracts require a fee (the option premium) to be paid up-front to the seller, only compound or split-fee options require another amount (the back fee) for exercising them.

Funded Debt

Funded Debt

A company's debt, such as bonds, long-term notes payables or debentures that will mature in more than one year or one business cycle. This type of debt is classified as funded debt because it is funded by interest payments made by the borrowing firm over the term of the loan. Funded debt is one form of financing a company can use to finance its long-term capital projects, such as the addition of a new product line or the expansion of operations. The firm may also use short-term financing to fund its long-term operations. This exposes the firm to a higher degree of interest rate and refinancing risk, but allows for more flexibility in its financing.

Auction Market Preferred Stock (AMPS)

Auction Market Preferred Stock (AMPS)

A type of preferred stock which has its dividend rate reset by Dutch auction. The interest rate on the stock generally has a ceiling, and the dividend rate is often reset every forty-nine days. It is a type of floating-rate investment. The auction market preferred stock can be a beneficial investment for larger investors. The auction process will most likely reveal the current market yield for less-risky asset classes, such as preferred stock, and will self-adjust for the effects of alternative investments and inflation.

Unissued Stock

Unissued Stock

Stock that a publicly-traded company's charter permits the company to issue, but which the board of directors has not elected to issue. A company may keep unissued stock from public trade to reduce its earnings per share, which can increase the share price. Having unissued stock also gives the company flexibility to issue more shares if it so chooses.

Restricted Stock

Restricted stock

A stock of a company that is not fully transferable until certain conditions have been met. Upon satisfaction of those conditions, the stock becomes transferable by the person holding the award. Restricted stock (also known as letter stock or restricted securities) must be traded in compliance with special SEC regulations.

Stock Jobbing

Stock Jobbing

The buying and selling of securities with the intent of generating quick profits. While most investors seek value through long-term investments, stock jobbing takes on a more speculative short-term tone.

Stub Stock

Stub

Stock in a company that is over-leveraged as a result of recapitalization. Stub stock is very speculative and risky. Stub stock's advantage over junk bonds is that it has unlimited potential if the company turns things around.

Leveraged Recapitalization

Leveraged Recapitalization

A strategy where a company takes on significant additional debt with the purpose of either paying a large dividend or repurchasing shares. The result is a far more financially leveraged company. This is often used in risk arbitrage. It is also a form of shark repellent.

Employee Stock Purchase Plan - ESPP

Employee Stock Purchase Plan - ESPP

A company-run program in which participating employees can purchase company shares at a discounted price. Employees contribute to the plan through payroll deductions, which build up between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of the participating employees. The amount of the discount depends on the specific plan but can be as much as 15% lower than the market price. Depending when you sell the shares, the disposition will be classified as either qualified or not qualified. If the position is sold two years after the offering date and at least one year after the purchase date, the shares will fall under a qualified disposition. If the shares are sold within two years of the offering date or one year after the purchase date the disposition will not be qualified. These positions will have different tax implications.

Statutory Stock Option

Statutory Stock Option

A Statutory stock option is also known as incentive stock options. This type of employee stock option gives participants an additional tax advantage that unqualified or non-statutory stock options do not. Statutory stock options require a plan document that clearly outlines how many options are to be given to which employees, and those employees must exercise their options within 10 years of receiving them. Furthermore, the option exercise price cannot be less than the market price of the stock at the time the option was granted. Statutory stock options cannot be sold until at least a year after the exercise date and two years after the date the option was granted. The taxation of statutory stock options can be somewhat complicated. Exercise of statutory stock options will not result in immediate declarable taxable income to the employee. Capital gains tax is then paid on the difference between the exercise and sale price. This type of option is also considered one of the preference items for the alternative minimum tax.

Employee Stock Option - ESO

Employee Stock Option - ESO

A stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no put component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option. EThe idea behind stock options is to align incentives between the employees and shareholders of a company. Shareholders want to see the stock appreciate, so rewarding employees when the stock goes up ensures, in theory, that everyone is striving for the same goals. Critics point out, however, that there is a big difference between an option and the ownership of the underlying stock. If the stock goes down, the holder of an option would lose the opportunity for a bonus, but wouldn't feel the same pain as the owner of the stock. This is especially true with employee stock options because they are often granted without any cash outlay from the employee. Another problem with employee stock options is the debate over how to value them and the extent to which they are an expense on the income statement. This is an ongoing issue in the U.S. and most countries in the developed world.

Exempt Transaction

Exempt Transaction

A type of securities transaction where a business does not need to file registrations with any regulatory bodies, provided the number of securities involved is relatively minor compared to the scope of the issuer's operations and that no new securities are being issued. Exempt transactions cut down the amount of paperwork needed for relatively minor transactions. For example, it would be a big hassle to perform a filing with the SEC every time a non-executive employee wanted to sell back some of the company's common shares he or she purchased as part of an employee stock purchase plan.

Accelerated Share Repurchase - ASR

Accelerated Share Repurchase - ASR

A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company. The shares are returned to the client through purchases in the open market, often purchased over a period that can range from one day to several months. Accelerated share repurchases allow corporations to transfer the risk of the stock buyback to the investment bank in return for a premium. The corporation is therefore able to immediately transfer a predetermined amount of money to the investment bank in return for its shares of stock. ASRs are often used to buy shares back at a faster pace and reduce the amount of shares outstanding right away.

Core Earnings defined by S&P

Core Earnings defined by S&P

The Standard and Poor's revised version of the measurement of core earnings, which excludes any gains related to pension activities, net revenues from the sale of assets, impairment of goodwill charges, prior-year charge and provision reversals, and settlements related to litigation or insurance claims. Expenses related to employee stock option grants, pensions, restructuring of present operations or any merger and acquisition costs, R&D purchases, write-downs of depreciable or amortizable operating assets, and unrealized gains/losses from hedging activities are all included in the core earnings. This is a new standard created by S&P with the assistance from the financial and investment community. These core earnings provide for transparency and consistency, as well as a more stringent definition of a company's core earnings, clearly setting out exactly what can and cannot be considered earnings and expenses.

Core Deposits

Core Deposits

The deposits made in a bank's natural demographic market. Banks count on core deposits as a stable source of funds for their lending base. Core deposits offer many advantages to banks, such as predictable costs and a measurement of the degree of customer loyalty. In addition to the advantages mentioned above, core deposits are generally less vulnerable to changes in short-term interest rates than core deposits or money market accounts. Core deposits also encompass small denomination time deposits, as well as checking accounts. Banks can increase their core deposits with local marketing and customer incentives.

Share Repurchase

Share Repurchase

A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. Because a share repurchase reduces the number of shares outstanding (i.e. supply), it increases earnings per share and tends to elevate the market value of the remaining shares.

Variable Coupon Renewable Note - VCR

Variable Coupon Renewable Note - VCR

A renewable fixed income security with variable coupon rates that are periodically reset. Usually the coupon is set on a weekly basis at a fixed spread over the T-bill rate.

Bond Market Association (BMA) Swap

Bond Market Association (BMA) Swap

A type of swap arrangement in which two parties agree to exchange interest rates on debt obligations, where the floating rate is based on the bond market association's swap index. One of the parties involved will swap a fixed interest rate for a floating rate, while the other party will swap a floating rate for a fixed rate. The benefits to two parties entering into a interest rate swap arrangement can be significant. Often, each of the two firms involved has a comparative advantage in its fixed or variable interest rate. Consequently, for budgeting or forecasting reasons, a company may wish to enter into a loan with a fixed or variable interest rate in which it does not have a comparative advantage.

Variable Rate Demand Note - VRDN

Variable Rate Demand Note - VRDN

A debt instrument that represents borrowed funds that are payable on demand and accrue interest based on a prevailing money market rate, such as the prime rate. The interest rate applicable to the borrowed funds is specified from the outset of the debt, and is typically equal to the specified money market rate plus an extra margin. Because money market interest rates, such as the bank prime rate, are variable over time, the interest rate applicable to this type of demand note is variable as well. Every time the prevailing money market rate changes, a variable rate demand note's interest rate is adjusted accordingly. As the name implies, these debt instruments are payable on demand. This means that the lender of the funds can request repayment of the entire debt amount at its discretion, and the funds must be repaid once the demand has been made.

Variable-Rate Certificate Of Deposit

Variable-Rate Certificate Of Deposit

certificate of deposit (CD) with a variable interest rate. The rate can be determined by a number of mediums, such as the prime rate, consumer price index, treasury bills or a market index. The amount paid out is usually based on a percentage difference between the beginning index and the final index. A certificate of deposit is generally considered to be one of the safer ways to invest your money. It is the perfect choice for the conservative investor, or to diversify the risk of your portfolio. When looking to step up the risk just a little bit, considering a variable rate CD may be a good place to start.

Uninsured Certificate Of Deposit

Uninsured Certificate Of Deposit

A certificate of deposit (CD) which is not insured against losses. Due to the lack of insurance, these CDs yield a higher interest rate, as the purchaser assumes all of the risk. In the event that the financial institution that issued the CD goes bankrupt, the purchaser loses the investment. Most certificates of deposit are insured twice over. Once, by the Federal Deposit Insurance Corporation (FDIC), and also by the National Credit Union Association (NCUA). These institutions would take care of the investment in the event that the lending financial institution was incapable.

Inflation-Protected Annuity - IPA

Inflation-Protected Annuity - IPA

An annuity investment that guarantees a real rate of return at or above inflation. The real rate of return is the nominal return, less the inflation rate, thus protecting annuitants and beneficiary investors from inflation. Inflation-protected annuities are becoming more popular with annuity investors who are worried about the risk of inflation decreasing the purchasing power of their money as they age.

Corporate Inflation-Linked Securities

Corporate Inflation-Linked Securities

Corporate debt financing securities that offer their holders protection against fluctuations in the rate of inflation as measured by the consumer price index (CPI). The yields of these securities adjust monthly with respect to the current rate of inflation. Although they are not as common as conventional debt instruments, inflation-protected corporate debt can provide an investor with a balanced risk exposure: these securities pose all of the normal risks associated with regular corporate debt securities - such as default risk - but they remove the possibility of inflationary changes eroding their real returns.

Zero Basis Risk Swap - ZEBRA

Zero Basis Risk Swap - ZEBRA

A swap agreement between a municipality and a financial intermediary. The municipality pays a fixed rate of interest to the financial intermediary and receives a floating rate of interest in return. The floating rate received is equal to the floating rate on the outstanding floating rate debt initially issued by the municipality to the public.

Structured Investment Products - SIPS

Structured Investment Products - SIPS

A type of investment specifically designed to meet an investor's financial needs by customizing the product mix to adhere to the investor's risk tolerance. SIPs are generally created by varying the amount of exposure to risky investments and often include the use of various derivatives. A structured investment will vary depending on the risk tolerance of the investor. SIPs typically involve various exposures to fixed income markets and various derivatives. Conservative investors will have a higher exposure to the fixed income markets, while risk averse investors will have a higher exposure to equities and derivatives.

Dividend Rollover Plan

Dividend Rollover Plan

An investment strategy in which a dividend-paying stock is purchased right before the ex-dividend date, which gives the purchaser the right to the divided, with the position being sold off shortly after the ex-dividend date. The sole intention of this practice is to reap the value of the dividends while breaking even on the shares. Ideally, this strategy is designed to maximize short-term return on shares while minimizing risk. Proponents of dividend rollover planning argue that immediate returns on investments are made while reducing risk. However, opponents of the strategy believe that the expected dividend value is already incorporated into the stock before the ex-dividend date because the market anticipates the dividend payout.

Treasury DRIP

Treasury DRIP

A dividend reinvestment plan that uses dividends to purchase more shares directly from the company's treasury stock. Oftentimes, because the company is issuing the shares, it will offer the shareholder a small discount on the share price; this discount typically ranges from 2-4%. The other common type of dividend reinvestment plan is the market DRIP. In a market drip, a company uses its cash dividends to purchase shares on the open market, rather than from its treasury. Using a DRIP can help companies to develop investor loyalty and a stable shareholder base. The advantages to shareholders include convenience and a lack of commission charges on acquiring new shares through a DRIP program.

Gypsy Swap

Gypsy Swap

An exchange of restricted shares for freely exchangeable shares between two separate parties. This generally occurs when companies exchange restricted treasury shares with stockholders in order to liquidate a position.

Corporate Inflation-Linked Securities

Corporate Inflation-Linked Securities

Corporate debt financing securities that offer their holders protection against fluctuations in the rate of inflation as measured by the consumer price index (CPI). The yields of these securities adjust monthly with respect to the current rate of inflation. Although they are not as common as conventional debt instruments, inflation-protected corporate debt can provide an investor with a balanced risk exposure: these securities pose all of the normal risks associated with regular corporate debt securities - such as default risk - but they remove the possibility of inflationary changes eroding their real returns.

Estimated Current Return

Estimated Current Return

The estimated return for a unit investment trust over the short term. The estimated current return is calculated by taking the estimated annual interest income from the securities of the portfolio and dividing by the maximum public offering price, net of the maximum sales charge for the trust. This measure is less exact than the estimated long-term return and is more susceptible to interest rate risk during the life of the portfolio.

Distribution Reinvestment

Distribution Reinvestment

A process whereby the distribution from a limited partnership, real estate investment trust (REIT) or other pooled investment is automatically reinvested into common units or shares in a fund, often at a discount to the current market price. Investors can set up distribution reinvestment plans with the partnership itself, or with a broker through which the units are held. Also known as a DRIP, but not to be confused with dividend reinvestment plans (also called DRIPs), which are found in many large-cap stocks and mutual funds. Most distributions are done quarterly, but some may occur on a monthly basis. Investors who participate in these programs also generally have commissions and other fees waived, making it an advantageous and affordable way to grow their investment. Meanwhile, the financial managers have a stable way to grow assets with current investors.

Taxable Preferred Securites

Taxable Preferred Securites

A type of preferred equity security that does not qualify for the dividends-received deduction for corporations of typical preferred securities, defined in Section 243 of the Internal Revenue Service (IRS) Code. Taxable preferred securities are usually junior level liabilities, and the coupons tied to them can either be fixed or variable, and for indefinite or specific maturities. As with regular preferred stocks, these securities trade like bonds with regular denominations of $25 par and $1,000 par. The dividends paid are treated as regular income instead of dividends to the investor, but receive favorable tax treatment for the issuing company. Also known as "hybrid preferred securities".

Treasury Inflation Protected Securities - TIPS

Treasury Inflation Protected Securities - TIPS

A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. TIPS can be purchased directly from the government through the Treasury Direct system in $100 increments with a minimum investment of $100 and are available with 5-, 10-, and 20-year maturities.

Triple Net Lease

Triple Net Lease

A lease agreement that designates the lessee (the tenant) as being solely responsible for all of the costs relating to the asset being leased in addition to the rent fee applied under the lease. The structure of this type of lease requires the lessee to pay for net real estate taxes on the leased asset, net building insurance and net common area maintenance. The lessee has to pay the net amount of three types of costs, which how this term got its name. Because the tenant is covering these costs (which would otherwise be the responsibility of the property owner), the rent charged in the triple net lease is generally lower than the rent charged in a standard lease agreement.

Closed-End Lease

Closed-End Lease

A rental agreement that puts no obligation on the lessee (the person making periodic lease payments) to purchase the leased asset at the end of the agreement. Since the lessee has no obligation to purchase the leased asset upon lease expiration, that person does not have to worry about whether the asset will depreciate more than expected throughout the course of the lease. Thus, it is argued that the closed-end leases are better for the average person.

Leveraged Lease

Leveraged Lease

A lease agreement wherein the lessor, by borrowing funds from a lending institution, finances the purchase of the asset being leased. The lessor pays the lending institution back by way of the lease payments received from the lessee. Under the loan agreement, the debtor has rights to the asset and the lease payments if the lessor defaults.

Single Stock Future - SSF

Single Stock Future - SSF

A futures contract with an underlying of one particular stock, usually in batches of 100. No transmission of share rights or dividends occur. Behaving exactly like a futures contract, an SSFs give investors increased capabilities to leverage themselves within the market. Additionally, these products, unlike most options, can be traded on margin.

Subprime Credit Card

Subprime Credit Card

A type of credit card issued to people with substandard credit scores or limited credit histories. These cards will typically carry much higher interest rates than credit cards granted to prime borrowers; they also come with extra fees and lower credit limits. Subprime credit cards are issued by both major issuers and smaller financial institutions that focus only on subprime lending.

Limit-On-Close Order

Limit-On-Close Order

A type of limit order to buy or sell shares near the market close only if the closing price is trading better than the limit price. This order is an expansion of the market-on-close order, adding to it a limit condition, which places a maximum on the entry price and minimum on the selling price. Say a trader believes that, because of increased volume, the best price he or she will receive is at the market close - the trader might then enter a market-on-close order. But if the trader does not want to face an unpredictable entry price, he or she will enter a limit-on-close order. For example, if the trader entered a buy limit-on-close order for 100 shares of ABC at $52.50 and the shares at the end of the day traded at $50, the order would be executed. If, on the other hand, the price rose to $54 right at the end of the day, the order would not be filled.

Market-With-Protection Order

Market-With-Protection Order

A type of market order that is canceled and re-submitted as a limit order if the price of the asset moves dramatically after the investor places the order. The limit on the limit order is placed at around the current market price as determined by a broker. This type of order adds a protective measure, helping the investor ensure his or her market order will not be completed at a price that is far off from the market price at the time of the order.

Subprime Credit Card

Subprime Credit Card

A type of credit card issued to people with substandard credit scores or limited credit histories. These cards will typically carry much higher interest rates than credit cards granted to prime borrowers; they also come with extra fees and lower credit limits. Subprime credit cards are issued by both major issuers and smaller financial institutions that focus only on subprime lending.