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A | B | C | D | E | F | G - L | M-N | O-P | W - Z
A
Accruals
Accounting basis that brings income and expenses into account in the accounting period to which they relate.
Ask (or offer) price
The price at which a trader or market maker is willing to sell currency, securities, derivative contracts or other instruments.
Asset Swap
A swap that enables the investor to alter the characteristics of an investment, such as its interest rate characteristics or denominated currency. An example is the combination of a bond paying fixed rate interest and a fixed/floating interest rate swap to create a synthetic floating rate investment.
Assign
To transfer an asset, such as a bond, share or option, to another person.
B
Bad and doubtful debts
Debts proved or estimated to be wholly or party irrecoverable, and either written off by the lender (in the case of debt which is wholly bad) or written down in the lender's books to their realisable value.
Bear market
A falling market.
BIMBO
This is the combination of existing and new management.
Bid price
The price at which a market maker or trader is willing to but a financial instrument or other asset. The opposite of ask price, or offer price.
Bond
A negotiable written instrument evidencing a debt. Under the terms of contract, the issuer is obliged among other things, to pay the holder a fixed principal amount on a specified future date, and often to also make periodic payments of interest. Companies, governments, or local authorities or other public bodies usually issue bonds.
Broker
An individual or firm that, in return for a fee, brings potential buyers and sellers into contact with each other.
Bull market
A rising, strong market
C
Call option
An option giving the holder the right, but not the obligation, to buy the underlying subject matter at a pre-agreed price on or before a specified future date.
Cash flow hedge
A hedge of the exposure to variability in cash flows that is attributable either to a particular risk associated with an asset or liability or a highly probable future transaction, and could affect profit or loss.
Cash settlement
The settlement between the parties to a derivative contract (or other financial product) of their mutual rights and obligations by means of payments of a cash sum by one party to the other, or the exchange of cash sums.
Close out
When a futures or options position has been closed out, the person has no further interest in the market. Closing out a position is usually affected by entering into a transaction opposite to that by which the posit6ion was opened. Thus someone who has sold futures contracts will close out the position by buying an equal number of the same contracts, and vice versa.
Constant rate of return
The result of an arithmetical calculation which takes the total yield that a lender receives from a loan and works out what percentage of the outstanding capital they would receive each year if that yield accrued in equal amounts from year to year.
D
Debenture
A term applicable to any certificate that an amount of money is owed by a specified person. In the UK, it often refers to a loan secured on the assets of the company; however, the term may be used interchangeably with "bond".
Debt/equity swap
Exchange of debt for equity, often part of a company reconstruction or takeover.
E
Economic accruals
A method used by accountants to allocate the yield from a loan relationship to accounting periods in such a way as to give a constant rate of return.
Effective interest method
A method of calculating the amortised cost of a financial asset or financial liability, and of allocating the interest income or expense over the relevant period.
Entity
Any business operation that draws up accounts. The term includes not only UK and foreign companies, but also such things as joint ventures, limited liability partnerships, branches of companies and partnerships and similar associations set up under the laws of overseas countries.
Equity
The residual interest in the assets of an entity after deducting all liabilities; equivalent to shareholders' funds or reserves.
Equity Derivative
A future, option or swap whose underlying asset is, or whose underlying assets include, a specific share or shares, or a share index.
Equity instrument
A contract that evidences a residual interest in the assets of an entity after deducting all its liabilities.
F
Financial Services Authority (FSA)
Body responsible for regulating banking, Insurance and financial services in the UK.
Fixed rate loan
A loan paying interest at a fixed rate for the duration of the loan.
Forecast transaction
An uncommitted but anticipated future transaction.
G H I J K L
Gearing
The ratio of the debt in a company's balance sheet to its equity. This is sometimes expressed as the ratio of the debt to the balance sheet total i.e. the sum of the debt and equity.
Hedge fund
Funds which accept capital from rich individuals and institutions and trade it aggressively in the market. They may take positions that are many times larger than their capital. Investment in hedge funds is therefore high risk.
Hedging
Refers to designating a derivative (or, for hedges of foreign currency risk only, a non-derivative financial instrument) as a complete or partial offset in profit and loss to the change in fair value or cash flows of a hedged item.
Liquidity
The market in a financial asset is said to be liquid if it is possible to buy or sell a large number of units in a short period without significantly affecting the price of the asset.
M
M&A
Mergers & Acquisitions.
Macro hedging
A technique whereby financial instruments with similar risks are grouped together and the risks of the portfolio as a whole are hedged.
Market discount
The difference between the market price of a bond or other tradable debt security and its (higher) nominal value. If the market value of the bond is higher than its nominal value, it trades at market premium.
MBI
Management buy-in. This is the acquisition of a business by and individual or team.
MBO
Management buy-out. This is when existing management acquire the business for which they currently work.
Mezzanine finance
Partway between debt and equity, it has characteristics of debt but may carry a right to shares.
O P
Off balance sheet
An asset, liability or commitment, which is not reflected in a company's balance sheet, is said to be off balance sheet. The term is often applied to the contingent liabilities created when a company writes options or enters into swaps.
P/E
Price earnings ratio. This is an estimate of how many years worth of earnings it would take to acquire a company.
Perpetual debt
Debt that has no maturity date. Interest coupons are paid forever (in theory). Such debt represents a very considerable credit risk to the investor, and would therefore be expected to carry a high rate of interest.
Present value
The current value of a future cash flow. Money receivable immediately can be invested at interest and earn more money; it is therefore worth more than the same sum receivable at a future date. A future cash flow must therefore be discounted at an appropriate interest rate to arrive at its present value.
W X Y Z
Waiver
Forgoing repayment of a loan, or other amount legally due to you (such as dividend).
Yield
The rate of return (taking into account both interest and capital appreciation) on a bond or similar investment, usually expressed as an annual rate.
Yield curve
A graph plotting the yield from bonds of differing maturities (for example, UK gilts of differing maturities) against the maturity. The "normal" yield curve is upward sloping, reflecting the fact that investors will usually expect a higher rate of return if they tie up their money for longer periods, since the real value of the money is being eroded by inflation.