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258 terms

Glossary

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A priori probability
A probability based on logical analysis rather than on observation or personal judgement
Abandonment Option
The ability to terminate a project at some future time if the financial results are disappointing
Abnormal return
The amount by which a security's actual return differs from its expected return given the security's risk and the market's return
absolute advantage
A country's ability to produce a good or service at a lower absolute cost than its trading partner
absolute frequency
The # of observatioins in a given interval (for grouped data)
accelerated book build
an offering of securities by an investment bank acting as principal that is accomplished in only 1 or 2 days
accelerated methods of depreciation
depreciation mehtods that allocate a relatively large proportion of the cost of an asset to the early years of the asset's useful life
account
with the accounting systems, a formal record of increases and decreases in a specific asset, liability, component of owners' equity, revenue, or expense
account format
a method of presentation of accounting transactions in which effects on assets appear at the left and effects on liabilities and equity appear at the right of a central dividing line; also known as T-account format
accounting (or explicit) costs
Payments to non-owner parties for services or resources they supply ot the firm
account loss
when accounting profit is negative
accounting profit (income before taxes or pretax income)
income as reported on the income statement, in accordance with prevailing accounting standards, before the provisions for income tax expense
accounting risk
the risk associated with accounting standards that vary from country to country or with any uncertainty about how certain transactions should be recorded
accounts payable (trade payables)
accounts that a business owes to its vendors for goods and services that were purchased from them but which have not yet been paid
accounts receivable turnover
ratio of sales on credit to the average balance in accounts receivable
accrual basis
method of accounting in which the ffect of transactions on financial condition and income are recorded when they occur, not when they are settled in cash
Accrued expenses (accrued liabilities)
liabilities related to expenses that have been incurred but not yet paid as of the end of an accounting preiod- an example of an accrued expense is rent that has been incurred but not yet paid, resulting in a liability "rent payable"
accrued interest
interest earned but not yet paid
accumulated benefit obligation
under US GAAP, a measue used in estimating a defined-benefit pension plan's liabilities, defined as "the actuarial present value of benefits(whether vested or non-vested) attributed by the pension benefit formula to employee service rendered before a specified date and based on employee service and compensation (if applicable) prior to that date
Acquisition
the purchase of some portion of one company by another; the purchase may be fore assets, a definable segment of another entity or the purchase of an entire company
Acquisition method
a method of accounting for a business combination where the acquirer is required to measue each identifiable asset and liability at fair value
Action lag
delay from policy decisions to implementation
Active factor risk
the contribution to active risk squared resulting from the portfolio's different-than-benchmark exposures relative to factors specified in the risk model
Active investment
an approach to investing in which the investor seeks to outperform a given benchmark
active return
return on portfoli minus return on portfolio's benchmark
active risk
standard deviation of active returns
activity ratios
ratios that measure how efficiently a company performs day-to-day tasks such as collections of receivables and management of inventory
Add-on interest
a procedure for determining the interest on a bond or loan in which the interest is added onto the face value of a contract
Adjusted R^2
measure of goodness-of-fit of a regression that is adjusted for degrees of freedom and does not automatically increase when another independent variable is added to a regression
Agency costs
costs associated with the conflict of interest present when a company is managed by non-owners. Agency costs result from the conflicts of interest between managers and equity owners
Alternative hypothesis
the hypothesis ACCEPTED when the null is rejected
alternative investment markets
market for investments other than traditional securities investments (i.e. tradictional common and preferred shares and fixed income). The term usually includes direct and indirect investments in real estate (including timberland and farmland) and commodies, hedge funds, private equity, etc
alternative trading system
A trading system that is not regulated as an exchange but math the buy and sell orders of its subscribers. Designed for people who trade in very large quantities
American depository receipt
A U.S. dollar-denominated security that trades like a common share on US exchanges
Amortizing and accreting swaps
a swap in which the notional principal changes according to a formula related to changes in the underlying
Analysis of variance (ANOVA)
The analysis of the total variability of a dataset into components representing different sources of variation; with reference to regression, ANOVA provides the inputs for an F-test of the significane of the regression as a whole
anticipation stock
excess inventoryheld in anticipation of increased demand, often because of seasonal patterns of demand
Antidilutive
with reference to a transaction or a security, one that would increase EPS or result in EPS higher than the company's basic EPS - antidilutive securities are not included in the calculation of diluted EPS
Arbitrage
1) The simultaneous purchase of an undervalued asset or portfolio and sale of an overvalued but equivalent asset or portfolio, in order to obtrain a riskless profit on the price differential. Taking advantage of a market inefficiency in a risk-free manner.
2) The condition in a financial market in which equivalent assets or combinations of assets sell for 2 different prices, creating an opportunity to profit at no risk with no commitment of money. In a well functioning market, few arbitrage opportunities are possible.
3) A risk free operation that earns an expected positive net profit but requires no net investment of money
Arbitrageurs
traders who engage in arbitrage
Arc elasticity
An elasticity based on 2 points, in contrast with (point) elasticity. Arc elasticity can look at the elasticity between 2 different prices (the percent change in quantity demanded divided by the percentage change in price between 2 points for price)
Arms index (TRIN)
A flow of funds indicator applied to a braod market index to measure the relative extent to which money is moving into or out of rising and declinging stocks
Arrears swap
A type of interest rate swap in which the floating payment is set at the end of the period and the interest is paid at that same time
Ascending price auction
an auction where the auctioneer calls out prices for a single item and buyers bid directly against each other, with each bid being higher than the previous one
Asian call option
A European-style option with a value at maturity equal to the difference between the stock price at maturity and the average stock price during the life of the option, or $0, whichever is greater
Ask size
The maximum quantity of an asset that pertains to a specific ask price from a trader. E.G. If the ask for a share is $30 for a size of 1,000 shares, the trader is offereing to sell at $30 up to 1,000 shares
Asset allocation
The process of determining how investment funds should be distributed among asset classes
Asset-based loan
a loan that is secured with company assets
Asset-based valuation models
Valuation based on estimates of the market value of a company's assets
Asset beta
The unlevered beta; reflects the business risk of the assets; the asset's systematic risk
Asset class
A group of assets that have similar characteristics, attributes, and risk/return relationships
Asset retirement obligations (ARO's)
The fair value of the costs to be incurred at the end of an asset's useful life. The fair value of the cost is determined on the basis of discounted cash flows
Assignment of accounts receivable
the use of accounts receivable as collateral for a loan
asymmetric information
the differential of information between corporate insiders and outsiders regarding the company's performance and prospects. Managers typically have more information about the company's performance and prospects than owners and creditors
Automated clearing house
an electronic payment network available to businesses, individuals and financial institutions in the US, US terriroties, and Canada
Automatic stabilizer
a countercyclical factor that automatically comes into play as an economy slows and unemployment rises
Autoregressive (AR) model
A time series regressed on its own past values, in which the independent variable is a lagged value of the dependent variable
Average product
Measures the productivity of inputs on average and is calculated by dividing total product by the total number of units for a given input that is used to generate that output
balance of payments
a double-entry bookkeeping system that summarizes a country's economic transactions with the rest of the world for a particular period of time, typically a calendar quarter or year
balance of trade deficit
when the domestic economy is spending more on foreign goods and services than foreign economies are spedning on domestic goods and services
balance sheet
AKA statement of financial position or statement of financial condition. The financial statement that shows the company's current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims), as a particular point in time (the date of the balance sheet)
balance-sheet-based accruals ratio
the difference between net operating assets at the end and the beginning of the period compared to the average net operating assets over the period
balance sheet based aggregate accruals
difference between net operating assets at the end and the beginning of the period
bargain purchase
when a company is acquired and the purchase price is less than the fair value of the net assets. The excess is never accounted for as negative goodwill
base rates
the reference rate on which a bank bases lending rates to all other customers
basis swap
1) an interest rate swap involving 2 floating rates
2) A swap in which both parties pay a floating rate
Basket of listed depository receipts
An exchange-trade fund (ETF) that represents a portfolio of depository receipts
Bayes formula
A method for updating probabilites based on new information
bear hug
a tactic used by acquirers to circumvent target management's objection to a proposed merger by submitting the proposal directly to the target company's board of directors
behind the market
said of prices specified in orders that are worse than the best current price; EG: for a limit buy order, a limit price below the best bid
bernoulli random variable
a variable having the outcomes 0 and 1
best bid
the highest bid in the market
best efforts offering
an offering of a security using an investment bank in which the investment bank, as agent for the issuer, promises to use its best efforts to sell the offering but does not guarantee that a specific amount will be sold
best offer
The lowest offer (ask price) in the market
binomial model
a model for pricing options in which the underlying price can move to only one of two possible new prices
binomial random variable
the number of successes in n Bernoulli trials for which the probabilty of success is constant for all trials and the trials are independent
block
orders to buy or sell that are too large for the liquidity ordinarily availble in dealer networks or stock exchanges
block brokers
a broker (agent) that provides brokerage services for large-size trades
bollinger bands
a price-based technical analysis indicator consisting of a moving average plus a higher line representing the moving average plus a set number of standard deviations from average price and a lower line that is a moving average minus the same number of standard deviations
bond-equivalent basis
a basis for stating an annual yield that annualizes a semiannual yield by doubling it
bond equivalent yield
the yield to maturity on a basis that ignores compounding
bond market vigilantes
bond market participants who might reduce their demand for long-term bonds, thus pushing up their yields
bonding costs
Costs borne by management to assure owners that they are working in the owners' best interest. EG. Implicit costs of non-compete agreements, so basically implicit costs
book building
investment bankers' process of compiling a "book" or list of indications of interest to buy part of an offering
bootstrapping earnings
an increase in a company's earnings that results as a consequence of the idiosyncrasies(distinctive features) of a merger transaction itself rather than because of resulting economic benefits of the combination
bottom up analysis
with reference to investment selection processes, an approach that involves selection from all securities within a specified investment universe. i.e., without prior narrowing of the universe on the basis of macroeconomic or overall market considerations
box spread
an option strategy that combines a bull spread with a bear spread. This produces a risk-free payoff of the difference in the exercise prices
break point
in the context of the WACC, a break point is the amount of capital at which the cost of one or more of the sources of capital changes, leading to a change in the WACC
breapup value
the value that can be achieved if a company's assets are divided and sold separately
breusch-pagan test
a test for conditional heteroskedasticity in the error term of a regression
broker-dealer
a financial intermediary that may function as a principal (dealer) or as an agent (broker) depedning on the type of trade
brokered market
a market in which brokers arrange trades among their clients
business risk
the risk associated with operating earnings. Operating earnings are uncertain because total revenues and many of the expenditures contributed to produce those revenues are uncertain
buy side firm
an investment management company or investor that uses the services of brokers or dealers. EG. The client of the sell side firms (are responsible for looking at research and recommending the stock whereas as sell-side does the research)
buyout fund
a fund that buys all the shares of a public company so that, in effect, the company becomes private
call market
a market where trades occur only at a particular time and place (i.e. when the market is called)
call money rate
the interest rate that buyers pay for their margin loan (basically the interest rate you pay for buying on margin)
candlestick chart
a price chart with 4 bits of data for each time interval. A candle indicates the opening and closing price for the interval. The body of the candle is shaded if the opening price was higher than the closing price. Vertical lines known as wicks or shadows extend from the top and bottom of the candle to indicate the high and low prices for the interval
capital budgeting
the allocation of funds to relatively long-range projects or investments
capital consumption allowance
1) a measure of the wear and tear (depreciation) of the capital stock that occurs in the production of goods and services
2) The percentage of the GDP which is due to depreciation. GDP minus capital consumption allowance equals net national product. The capital consumption allowance measures the amount of expenditure that a country needs to undertake to simply maintain, as opposed to grow, its productivity.
capital deepening investment
when the amount produced per worker increases
Capital Market expectations
an investor's expectations concerning the risk and return prospects of asset classes
capital rationing
a capital rationing environment assumes that the company has a fixed amount of funds to invest
capital stock
the accumulated amount of buildings, machinery, and equipment used to produce goods and services
capital structure
the mix of debt and equity that a company uses to finance its business; a company's specific mixture of long-term financing
capitalized inventory costs
costs of inventories including costs of purchase, costs of conversion, other costs to bring the inventories to their present location and condiditon, and the allocated portion of fixed production overhead costs
capped swap
a swap where the floating payments have an upper limit
captive finance subsidiary
a wholly owned subsidiary of a company that is established to provide financing of the sales of the parent company
carrying amount (book value)
amount at which an asset or liability is valued according to accounting principles
cheapest to deliver
a bond in which the amount received for delivering the bond is largest compared with the amount paid in the market for the bond
clearinghouse
an entity associated with a futures market that acts as middleman between the contracting parties and guarantees to each party the other will pay whatever they owe from a trade
clientele effect
the preference some investors have for shares that exhibit certain characteristics
closeout netting
netting the market values of all derivative contracts between 2 parties to determine one overall value owed by one party to another in the event of bankruptcy
coefficient of variation (CV)
the ratio of a set of observations standard deviation to the observations' mean value
conintegrated
describes two time series that have a long-term financial or economic relationship such that they do not diverge from each other without bound in the long run
common market
level of economic integration that incorporates all aspects of the customs union and extends it by allowing free movement of factors of production among members
company fundamental factors
factors related to the company's internal performance, such as factors relating to earnings growth, earnings variability, earnings, and earnings momentum
company share-related factors
valuation measures and other factors related to share price or the trading characteristics of the shares, such as earnings yield, dividend yield, and book-to-market value
comparative advantage
a country's ability to produce a good or service at a lower RELATIVE cost, or opportunity cost, than its trading partner
complete markets
markets where the variety of securities is so wide that and desired payoff in a future state-of-the-world is achievable
complete preferences
the assumption that a consumer is able to make a comparison between any two possible bundles of goods
compounding
the process of accumulating interest on interest
comprehensive income
the change in equity of a business enterprise during a period from nonowner sources; includes all changes in equity during a period except those resulting from investments by owners and distributions to owners; comprehensive income equals net income plus other comprehensive income
conditional heteroskedasticity
heteroskedasticity in the error variance that is correlated with the values of the independent variable(s) in the regression
conditional probability
the probabilty of an event given another event
conditional variances
the variance of one variable, given the outcome of another
conglomerate merger
a merger involving companies that are in unrelated businesses
consistency
is when the probability of estimates close to the value of the population parameter increases as sample size increases
consolidation
combining the results of operations of subsidiaries with the parent company to present financial statements as if they were a single economic unit. The asset, liabilities, revenues and expenses of the subsidiaries are combined with those of the parent company, eliminating intercompany transactions
conspicuous consumption
consumption of high status goods, such as a luxury automobile or a very expensive piece of jewelry
constant-cost industry
when firms in the industry experience no change in resource costs and output prices over the long run
constant maturity swap or CMT swap
a swap in which the floating rate is the rate on a security known as a constant maturity treasury or CMT security
Constant maturity treasury or CMT
A hypothetical US T-note with a constant maturity. A CMT exists for various yearis in the range of 2 to 10
constant returns to scale
having constant per-unit costs in the presence of increased production
constituent securities
with respect to an index, the individual securities within an index
consumer surplus
the difference between the amount a consumer is willing to pay for an item and the amount they actually paid
consumption bundle or consumption basket
a specific combination of the goods and services that a consumer wants to consume
contingent claims
derivatives in which the payoffs occur if a specific event occurs; generally referred to as options
continous time
time thought of as advancing in extremely small increments
continuous trading market
a market in which trades can be arranged and executed any time the market is open
contra account
an account that offsets another account
contractionary fiscal policy
a fiscal policy that has the objective to make the real economy contract
controlling interest
an investment where the investor exerts control over the investee, typically by having a greater than 50% ownership in the investee
convenience yield
the nonmonetary return offered by an asset when the asset is in short supply, often associated with assets with seasonal production processes
conventional cash flow
a conventional cash flow pattern is one with an initial outflow followed by a series of inflows
convergence
the tendency for differences in output per capita across countries to diminish over time; in technical analysis, a term that describes the case when an indicator moves in the same manner as the security being analyzed
conversion factor
an adjustment used to facilitate delivery on bond futures contracts in which any of a number of bonds with different characteristics are eligible for delivery
Convertible debt
debt with the added feature that the bond-holder has the option to exchange the debt for equity at prespecified terms
convertible preference shares
a type of equity security that entitles shareholders to convert their shares into a specified number of common shares
corporate governance
the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome the conflicts of interest inherent in the corporate form
cost averaging
the periodic investment of a fixed amount of money
cost of carry
the cost associated with holding some asset, including financing, storage, and insurance costs. Any yield received on the asset is treated as a negative carrying cost
cost of carry model
a model for pricing futures contracts in which the futures price is determined by adding the cost of carry to the spot price
cost structure
the mix of a company's variable and fixed costs
counterparty risk
the risk that the other party to a contract will fail to honor the terms of the contract
coupon rate
the interest rate promised in a contract; this is the rate used to calculate the periodic interest payments
Covariance
a measure of the co-movement (linear association) between 2 random variables
covariance matrix
a matrix or square array whose entries are covariances; also known as a variance-covariance matrix
covariance stationary
describes a time series when its expected value and variance are constant and finite in all periods and when its covariance with itself for a fixed number of periods in the past or future is constant and finite in all periods
covered call
an option strategy involving the holding of an asset and sale of a call on the asset
credit
with respect to double-entry accounting, a credit records increases in liability, owners' equity, and revenue accounts; with respect to borrowing, the willingness and ability of the borrower to make promised payments on the borrowing
credit derivatives
a contract where one party has the right to claim a payment from another party in the event that a specific credit event occurs over the life of the contract
credit-linked notes
fixed income securities in which the holder of the security has the right to withhold payment of the full amount due at maturity if a credit event occurs
credit risk or default risk
the risk of loss caused by a counter party's or debtor's failure to make a promised payment
credit scoring model
a statistical model used to classify borrowers according to creditworthiness
credit spread option
an option on the yield spread on a bond
Credit Var, Default Var, or Credit at Risk
a variation of VAR that reflects credit risk
cyclical companies
companies with sales and profits that regularly expand and contract with the business cycle or state of economy
daily settlement
marking to market
day order
an order that is good for the day on which it is submitted. If it has not been filled by the close of business, the order expires unfilled
day trader
a trader holding a position open somewhat longer than a scalper but closing all positions at the end of the day
dealers
a financial intermediary that acts as a principal in trades
dealing securities
securities held by banks or other financial intermediaries for trading purposes
debit
with respect to double-entry accounting, a debit records increases of asset and expense accounts or decreases in liability and owners' equity accounts
covenants
agreements between the borrower and its creditors
debt incurrence test
a financial covenant made in conjunction with existing debt that restricts a company's ability to incur additional debt at the same seniority based on one or more financial tests or conditions
debt rating approach
a method for estimating a company's before-tax cost of debt based upon the yield on comparably rated bonds for maturities that closely match that of the company's existing debt
debt with warrants
debt issued with warrants that give the bondholder the right to purchase equity at prespecified terms
decentralized risk managment
a system that allows individual units within an organization to manage risk. Decnetralization results in duplication of effort but has the advantage of having people closer to the risk be more directly invovled in its management
Deciles
quantiles that divide a distribution into 10 equal parts
defrees of freedom (df)
the number of independent observations used
delivery option
the feature of a futures contract giving the short the right to make decisions about what, when, and where to deliver
demand-pull
type of inflation in which increasing demand raises prices generally, which then are reflected in a business's costs as workers demand wage hikes to catch up with the rising cost of living
demand shock
a typically unexpected disturbance to demand, such as an unexpected interruption in trade or transportation
depository institutions
commercial banks, savings and loan banks, credit unions, and similar institution that raise funds from depositors and other investors and lend it to borrowers
depository receipt
a security that trades like an ordinary share on a local exchange and represents an economic interest in a foreign company
diff swaps
a swap where payments are based on the difference between interest rates in two countries but payments are made in only a single currency
diffuse prior
the assumption of equal prior probabilities
diffusion index
reflects the proportion of the index's components that are moving in a pattern consistent with the overall index
diminishing balance method
an accelerated deprecation method, i.e., one that allocates a relatively large proportion of the cost of an asset to the early years of the asset's useful life
direct debit program
an arrangement whereby a customer authorizes a debit to a demand account; typically used by companies to collect routine payments for services
direct financing lease
a type of finance lease, from a lessor perspective, where the present value of the lease payments (lease receivable) equals the carrying value of the leased asset. The revenues earned by the lessor financing in nature
dirty-surplus accounting
accounting in which some income items are reported as part of stockholders' equity rather than as gains and losses on the income statement; certain items of comprehensive income bypass the income statement and appear as direct adjustments to shareholders' equity
dirty-surplus items
direct adjustments to shareholders' equity that bypass the income statement
disbursement float
the amount of time between check issuance and a check's clearing back against the company's account
discrete time
time thought of as adancing in distinct finite increments
discriminant analysis
a multivariate classification technique used to discrimate between groups, such as companies that either will or will not become bankrupt during some time frame
discriminatory pricing rule
a pricing rule used in continuous markets in which the limit price of the order or quote that first arrived determines the trade price
dispersion
the variability around the central tendency
display size
the size of an order displayed to public view
divergence
in technical analysis, a term that describes the case when an indicator moves differently from the security being analyzed
domestic content provisions
stipulate that some percentage of the value added or components used in production should be of domestic origin
double bottoms
in technical analysis, a reveral pattern that is formed when the price reaches a low, rebounds, and then sells off back to the first low level; used to predict a change from a downtrend to an uptrend
double coincidence of wants
a prequisite to barter trades, in particular that both economic agents in the transaction want what the other is selling
double taxation
corporate earnings are taxed twice when paid out as dividends. First, corporate earnings are taxed regardless of whether they will be distributed as dividends or retained at the corporate level, and second, dividends are taxed again at the individual shareholder level
double top
in technical analysis, a reversal pattern that is formed when an uptrend reverses twice at roughly the same high price level; used to predict a change from an uptrend to a downtrend
double entry accounting
the accounting system of recording transactions in which every recorded transaction affects at least 2 accounts so as to keep the basic accounting equiation (assets = liabilities +owner's equity) in balance
down transition probability
the probability that an asset's value moves down in a model of asset price dynamics
downstream
a transaction between 2 affiliates, an investor company and an associate company such that the investor company records a profit on its income statement. An example is a sale of inventory by the investor company to the associate
DuPont analysis
an approach to decomsing return on investment, e.g. return on equity, as the product of other financial ratios
dynamic hedging
a strategy in which a position is hedged by making frequent adjustments to the quantity of the instrument used for heding in relation to the instrument being hedged.
Earnings at risk (EAR)
a variation of VAR that reflects the risk of a company's earnings instead of its market value
earnings expectation management
attempts by management to influence analysts' earnings forecasts
earnings managment activity
deliberate activity aimed at influencing reporting earnings numbers, often with the goal of placing management in a favorable light; the opportunistic use of accruals to manage earnings
economic costs
all the remuneration needed to keep a productive resource in its current employment or to acquire the resource for productive use; the sume of total accounting costs and implicit opportunity costs
economic exposure
the risk associated with changes in the relative attractiveness of products and servces offered for sale, arising out of the competitive effects of changes in exchange rates
economic order quantity-reorder point
an approach to managing inventory based on expected demand and the predictability of demand; the ordering point for new inventory is determined based on the costs of ordering and carrying investory, such that the total cost associated with investory is minimized
economic profit (abnormal or supernormal profit)
equal to accounting profit less the implicit opportunity costs not included in total accounting costs; the difference between total revenue(TR) and total cost (TC)
economic union
incorporates all aspects of a common market and in addition requires common economic institutions and coordination of economic policies among members
efficiency
in stats, a desirable property of estimators; an efficient estimator is the unbiased estimator with the smallest variance among unbiased estimators of the same parameter
elasticity
the percentage change in one variable for a percentage change in another variable; a measure of how sensitive one variable is to a change in the value of another variable
elasticity of supply
a measure of the sensitivity of quantity supplied to a change in price
enhanced derivatives products companies (EDPC)
a type of subsidiary engaged in derivatives transactions that is seperated from the parent company in order to have a higher credit rating than the parent company
enterprise risk management
a form of centralized risk managment that typically encompasses the management of a broad variety of risks, including insurance risk
Enterprise value
a measure of a company's total market value from which the value of cash and short-term investments have been subtracted
equity carve out
a form of restructuring that involves the creation of a new legal entity and the sale of equity in it to outsiders
equity forward
a contract calling for the purchase of an individual stock, a stock portfolio, or a stock index at a later date at an agreed-upon price
equity method
Equity method in accounting is the process of treating equity investments, usually 20-50%, in associate companies. The investor keeps such equities as an asset. The investor's proportional share of the associate company's net income increases the investment (and a net loss decreases the investment), and proportional payment of dividends decreases it. In the investor's income statement, the proportional share of the investee's net income or net loss is reported as a single-line item.

The ownership of more than 50% of voting stock creates a subsidiary. Its financial statements consolidate into the parent's. The ownership of less than 20% creates an investment position carried at historic book or fair market value (if available for sale or held for trading) in the investor's balance sheet.
equity swap
a swap transaction in which at least one cash flow is tied to the return to an equity portfolio position, often an equity index
error autocorrelation
the autocorrelation of the error term
Eurodollar
a dollar deposited outside the US
excess kurtosis
degree of peakedness (fatness of tails) in excess of the peakedness of the normal distribution
Exchange for physicals (EFP)
a permissible delivery procedure used by futures market participants, in which the long and short arrange a delivery procedure other than the normal procedures stipulated by the futures exchange
exchange ratio
the number of shares that target stockholders are to receive in exchange for each of their shares in the target company
experience curve
a curve that shows the direct cost per unit of good or service produced or delivered as a typically declining function of cumulative output
export subsidy
paid by the government to the firm when it exports a unit of a good that is being subsidized
exposure to foreign exchange risk
the risk of a change in value of an asset or liability denominated in a foreign currency due to a change in exchange rates
external growth
company growth that is achieved by buying resources externally (i.e. through mergers and acquisitions)
externality
an effect of a market transaction that is borne by parties other than those who transacted
fiat money
money that is not convertible into any other commodity
first-differencing
a transformation that subtracts the value of the time series in period t-1 from its value in period t
first-order serial correlation
correlation between adjacent observations in a time series
first price sealed bid auction
an auction in which envelopes containing bids are opened simultaneously and the item is sold to the highest bidder
fiscal multiplier
the ratio of a change in national income to a change in government spending
fixed price tender offer
offer made by a company to repurchase a specific number of shares at a fixed price that is typically at a premium to the current market price
fixed rate perpetual preferred stock
nonconvertible, noncallable preferred stock that has a fixed dividend rate and no maturity date
float
in the context of customer receipts, the amount of money that is in transit between payments made by customers and the funds that are usable by the company
float factor
an estimate of the average number of days it takes deposited checks to clear; average daily float divided by average daily deposit
floating-rate loan
a loan in which the interest rate is reset at least once after the starting date
floored swap
a swap in which the floating payments have a lower limit
floorlet
each component put option in a floor
flotation cost
fees charged to companies by investment bankers and other costs associated with raising new capital
Foreign currency reserves
holding by the central bank of non-domestic currency deposits and non-domestic bonds
Foreign currency transactions
transactions that are denominated in a currency other than a company's functional currency
Foreign direct investment
Direct investment by a firm in one country (the source country) in productive assets in a foreign country (the host country)
Foreign exchange gains (or losses)
Gains (or losses) that occur when the exchange rate changes between the investor's currency and the currency that foreign securities are denominated in
Foreign portfolio investment
shorter-term investment by individuals, firms, and institutional investors (e.g. pension funds) in foreign financial instruments such as foreign stocks and foreign government bonds
free cash flow hypothesis
the hypothesis that higher debt levels discipline managers by forcing them to make fixed debt service payments and by reducing the company's free cash flow