Financial Glossary: A
Autor: Daniel Brandão de Castro | Publicado: 2009-02-14T00:57:00-02:00

A Fifth letter of a Nasdaq stock symbol specifying Class A shares. AAII See: American Association of Individual Investors ABO See: Accumulated Benefit Obligation ABS See: Automated Bond System ACAT See: Automated Customer Account Transfer ACES See: Advance Computerized Execution System ACH See: Automated Clearing House ACRS See: Accelerated cost recovery system ACU See: Asian currency units AD The two-character ISO 3166 country code for ANDORRA. ADB See: Adjusted Debit Balance ADB See: Asian Development Bank ADR See: American Depositary Receipt ADS See: American Depositary Share AE The two-character ISO 3166 country code for UNITED ARAB EMIRATES. AED The ISO 4217 currency code for United Arab Emirates Dirham. AEX See: Amsterdam Exchange AFA The ISO 4217 currency code for Afghan Afghani. AF The two-character ISO 3166 country code for AFGHANISTAN. AFM See: Amman Financial Market AG The two-character ISO 3166 country code for ANTIGUA AND BARBUDAAG. AI The two-character ISO 3166 country code for ANGUILLAAI. AIBD Association of International Bond Dealers AL The two-character ISO 3166 country code for ALBANIA. ALL The ISO 4217 currency code for Albanian Lek. ALT Alternative Trading System. This term is defined under section 301 of the U.S. Securities Act. AM The two-character ISO 3166 country code for ARMENIA. AMD The ISO 4217 currency code for Armenian Dram. AMEX See: American Stock Exchange AMPS See: Auction Market Preferred Stock AN The two-character ISO 3166 country code for NETHERLANDS ANTILLES. ANG The ISO 4217 currency code for Netherlands Antilles Guilder. AO The two-character ISO 3166 country code for ANGOLA. AON See: All or none order AOR The ISO 4217 currency code for Angolan Reajustado Kwanza. AOS See: Automated Order System APR See: Annual Percentage Rate APT See: Arbitrage Pricing Theory APT See: Automated Pit Trading APV See: Adjusted Present Value APY See: Annual Percentage Yield AR See: Auto-Regressive ARCH See: Auto-Regressive Conditional Heteroskedasticity AQ The two-character ISO 3166 country code for ANTARCTICA. AR The two-character ISO 3166 country code for ARGENTINA. ARS The ISO 4217 currency code for Argentinian Peso. ARM See: Adjustable-rate mortgage ARPS See: Adjustable-rate preferred stock ARPS See: Auction rate preferred stock ARR See: Average rate of return AS The two-character ISO 3166 country code for AMERICAN SAMOA. ASE See: Athens Stock Exchange. ASX See: Australian Stock Exchange AT The two-character ISO 3166 country code for AUSTRIA. ATP See: Arbitrage Trading Program ATS The ISO 4217 currency code for Austrian Schilling. AU The two-character ISO 3166 country code for AUSTRALIA. AUD The ISO 4217 currency code for Australian Dollar currency. AW The two-character ISO 3166 country code for ARUBA. AWG The ISO 4217 currency code for Aruban Guilder. AZ The two-character ISO 3166 country code for AZERBAIJAN. AZM The ISO 4217 currency code for Azerbaijani Manat. AAA+ Bank Refers to banks that are rated AAA by IBCA, Moodys Investor Service and Standard & Poors. Abandonment Controlling party giving up rights to property voluntarily. Abandonment option The option of terminating an investment earlier than originally planned. ABC agreement A contract between an employee and a brokerage firm outlining the rights of the firm purchasing an NYSE membership for that employee. Ability to pay Refers to the borrower's ability to make interest and principal payments on debts. See: Fixed charge coverage ratio. In context of municipal bonds, refers to the issuer's present and future ability to create sufficient tax revenue to fulfill its contractual obligations, accounting for municipal income and property values. In context of taxation, notion that tax rates should be determined according to income or wealth. Abnormal returns The component of the return that is not due to systematic influences (market-wide influences). In other words, the abnormal returns is the difference between the actual return and that is expected to result from market movements (normal return). Related: excess returns. Above par See: Par. Absolute advantage A person, company or country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another person, company or country. Absolute form of purchasing power parity A theory that prices of products of two different countries should be equal when measured by a common currency. Also called the "law of one price." Absolute Physical Life The period of use after which an asset has deteriorated to such an extent that it can no longer be used. Absolute priority Rule in bankruptcy proceedings requiring senior creditors to be paid in full before junior creditors receive any payment. Absorbed Used in context of general equities. Securities are "absorbed" as long as there are correspondingorders to buy and sell. The market has reached the absorption point when further assimilation is impossible without an adjustment in price. See: Sell the book. Abusive tax shelter A limited partnership that the IRS judges to be claiming tax deductions illegally. Accelerated cost recovery system (ACRS) Schedule of depreciation rates allowed for tax purposes. Acceleration clause A contract stating that the unpaid balance becomes due and payable if specific actions transpire, such as failure to make interests payments on time. Accelerated depreciation Any depreciation method that produces larger deductions for depreciation in the early years of an asset's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example. Acceptance Contractual agreement instigated when the drawee of a time draft "accepts" the draft by writing the word "accepted" thereon. The drawee assumes responsibility as the acceptor and for payment at maturity. See: Letter of credit and banker's acceptance. Accommodative monetary policy Federal Reserve System policy to increase the amount of money available to banks for lending. See: Monetary policy. Account In the context of bookkeeping, refers to the ledger pages upon which various assets, liabilities, income, and expenses are represented. In the context of investment banking, refers to the status of securities sold and owned or the relationship between parties to an underwriting syndicate. In the context of securities, the relationship between a client and a broker/dealerfirm allowing the firm's employee to be the client's buying and selling agent. See: Account executive; account statement.Account Ad Valorem Duty An imported merchandise tax expressed as a percentage. Account balance Creditsminus debits at the end of a reporting period. Account executive The brokerage firm employee who handles stockorders for clients. See: Broker. Account Party Party who applies to open a bank for the issuance of a letter of credit. Account reconciliation The reviewing and adjusting of the balance in a personal checkbook to match your bank statement. Account statement In the context of banking, refers to a summary of all balances. In the context of securities, a summary of all transactions and positions (long and short) between a broker/dealer and a client. See also: Option agreement.Accountant's opinion A signed statement from an independent public accountant after examination of a firm's records and accounts. The opinion may be unqualified or qualified. See: Qualified opinion. Accounting earnings Earnings of a firm as reported on its income statement. Accounting exposure The change in the value of a firm's foreign currency-denominated accounts due to a change in exchange rates. Accounting insolvency Total liabilities exceed total assets. A firm with a negative net worth is insolvent on the books. Accounting liquidity The ease and quickness with which assets can be converted to cash. Accounts payable Money owed to suppliers. Accounts receivable Money owed by customers. Accounts receivable financing A short-termfinancing method in which accounts receivable are collateral for cash advances. See: Factoring. Accounts receivable turnover The ratio of netcreditsales to averageaccounts receivable, which is a measure of how quickly customers pay their bills. Accredited investor Refers to an individual whose net worth, or joint net worth with a spouse, exceeds $1,000,000; or whose individual income exceeded $200,000 or whose joint income with a spouse exceeded $300,000 in each of the 2 most recent years and can be expected to meet that income in the current year. More details of the definitions for investors other that individuals are found in Regulation D of the Securities and Exchange Commission. Accreting Swap) An interest rate swap in which the notional principal amount increases over time, for example as with a construction loan provided in tranches as each stage of the project is completed. Accretion (of a discount) In portfolio accounting, a straight-line accumulation of capital gains on a discount bond in anticipation of receipt of par at maturity. Accrual Accounting Convention An accounting system that tries to match the recognition of revenues earned with the expenses incurred in generating those revenues. It ignores the timing of the cash flows associated with revenues and expenses. Accrual basis In the context of accounting, practice in which expenses and income are accounted for as they are earned or incurred, whether or not they have been received or paid. Antithesis of cash basis accounting. Accrual bond A bond on which interest accrues but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity. Accrued benefits The pension benefits earned by an employee according to the years of the employee's service. Accrued discount Interest that accumulates on savings bonds from the date of purchase until the date of redemption or final maturity, whichever comes first. Series A, B, C, D, E, EE, F, I, and J are discount or accrual bonds, meaning principal and interest are paid when the bonds are redeemed. Series G, H, HH, and K are income bonds, and the semiannual interest paid to their holders is not included in accrued discount. Accrued interest Applies mainly to convertible securities. Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bond's price plus "accrued interest," calculated by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder receives $40 in coupon payments per bond semiannually and sells the bond one-quarter of the way into the coupon period, the buyer pays the seller $10 as the latter's proportion of interest earned.) Accrued market discount The rise in the market value of a discount bond as it approaches maturity (when it is redeemable at par) and not because of falling marketinterest rates. Accumulate Broker/analyst recommendation that could mean slightly different things depending on the broker/analyst. In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security that might skyrocket. A buy recommendation, but not an urgent buy. Accumulated Benefit Obligation (ABO) An approximate measure of the liability of a pension plan in the event of a termination at the date the calculation is performed. Related: Projected benefit obligation. Accumulated dividend A dividend that has reached its due date, but is not paid out. See: Cumulative preferred stock. Accumulated profits tax A tax on earnings retained in a firm as a way for the principals to defer personal income taxes. Accumulation In the context of corporate finance, refers to profits that are added to the capital base of the company rather than paid out as dividends. See: Accumulated profits tax. In the context of investments, refers to the purchase by an institutional broker of a large number of shares over a period of time in order to avoid pushing the price of that share up. In the context of mutual funds, refers to the regular investing of a fixed amount while reinvesting dividends and capital gains. Accumulation area A range within which a buyer accumulatesshares of a stock. See: On-balance volume and distribution area. Acid test ratio Also called the quick ratio, the ratio of current assetsminusinventories, accruals, and prepaid items to current liabilities. Acquired surplus The surplus acquired when a company is purchased in a pooling of interests combination, i.e. the net worth not considered to be capital stock. Acquiree A firm that is being acquired. Acquirer A firm or individual that is purchasing another firm or asset. Acquisition When a firm buys another firm. Acquisition cost Refers to the price (including the closing costs) to purchase another company or property. In the context of investments, refers to price plus brokerage commissions, of a security, or the sales charge applied to load funds. See: Tax basis. Acquisition of assets A merger or consolidation in which an acquirerpurchases the selling firm's assets. Acquisition of stock A merger or consolidation in which an acquirerpurchases the acquiree'sstock. Across the board Movement or trend in the stock market that causes all stocks in all sectors to move in the same direction. Acting in concert Investors working together and performing identical actions to attain the same investment goal. Act of state doctrine This doctrine says that a nation is sovereign within its own borders, and its domestic actions may not be questioned in the courts of another nation. Active A market in which there is frequent trading. Active account Refers to a brokerage account in which many transactions occur. Brokerage firms may levy a fee if an account generates an inadequate level of activity. Active bond crowd Refers to members of the bond department of the NYSE who trade the most bonds. Antithesis of cabinet crowd. Active box Securities that are held in safekeeping and are available as collateral for securing brokers'loans or customers' marginpositions. Active fund management An investment approach that purposely shifts funds either between asset classes (asset allocation) or between individual securities (security selection). Active income Income from an active business as opposed to passiveinvestment income according to the U.S. tax code. Active Management The pursuit of investmentreturns in excess of a specified benchmark. Active portfolio strategy A strategy that uses available information and forecasting techniques to seek better performance than a buy and holdportfolio. Related: Passive portfolio strategy. Active Return Return relative to a benchmark. If a portfolio'sreturn is 5%, and the benchmark's return is 3%, then the portfolio's active return is 2%. Active Risk The risk (annualizedstandard deviation) of the activereturn. Also called the tracking error. Actual market Used in context of general equities. Firm market. Antithesis of Subject market. Actuals The physical commoditiesunderlying a futures contract. Cash commodity, physical asset. A-D Advance-Decline, or measurement of the number of issuestrading above their previous closing prices less the number trading below their previous closing prices over a particular period. As a technical measure of marketbreadth, the steepness of the AD line indicates whether a strong bull or bear market is under way. Ad valorem tax A type of tax calculated based on percentage of gross or stated value. For example, VAT. Additional bonds test A test for ensuring that bondissuers can meet the debt service requirements of issuing any new additional bonds. Additional hedge A protection against fallout risk in the mortgage pipeline. Adequacy of coverage A test that measures the extent to which the value of an asset is protected from potential loss either through insurance or hedging. Adjustable rate Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limits the adjustment. Adjustable-rate mortgage (ARM) A mortgage that features predetermined adjustments of the loaninterest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loaninterest rate and/or payment rate caps. Adjustable-rate preferred stock (ARPS) Publicly tradedissues that may be collateralized by mortgages and MBS Adjusted balance method Method of calculating finance charges that uses the account balance remaining after adjusting for all transactions posted during the given billing period as its basis. Related: Average daily balance method, previous balance method, past due balance method. Adjusted basis Price from which to calculate and derive capital gains or losses upon sale of an asset. Account actions such as any stock splits that have occurred since the initial purchase must be accounted for. Adjusted debit balance (ADB) The account balance for a margin account that is calculated by combining the balance owed to a broker with any outstanding balance in the special miscellaneous account, and any paper profits on short accounts. Adjusted exercise price Term used in options on Ginnie Mae (Government National Mortgage Association) contracts. The final exercise price of the option accounts for the coupon rates carried on Ginnie Maemortgages. For example, if the standard GNMA mortgage has an 9% yield, the price of GNMA pools with 13% mortgages in them is altered so that the investor receives the same yield. Adjusted gross income (AGI) Gross income less allowable adjustments, which is the income on which an individual is taxed by the federal government. Adjusted present value (APV) The net present value analysis of an asset if financed solely by equity (present value of unlevered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leveraged buyout. Adjustment bond A bondissued in exchange for outstanding bonds when a corporation facing bankruptcy is recapitalized. Administrative pricing rules IRS rules used to allocate income on export sales to a foreign sales corporation. Advance Increase in the market price of stocks, bonds, commodities, or other assets. Advance commitment A promise to sell an asset before the seller has lined up purchase of the asset. This seller can offsetrisk by purchasing a futures contract to fix the sales price approximately. Advance Computerized Execution System (ACES) Refers to the Advance Computerized Execution System, run by Nasdaq. ACES automates trades between order entry and market makerfirms that have established trading relationships with each other. Securities are designated as specified for automatic execution. Advance funded pension plan A pension plan in which funds are set aside in advance of the date of retirement. Advance refunding In the context of municipal bonds, refers to the sale of new bonds (the refundingissue) before the first call date of old bonds (the issue to be refunded). The refunding issue usually specifies a rate lower than the issue to be refunded, and the proceeds are invested, usually in governmentsecurities, until the higher-rate bonds become callable. See: Refunding escrow deposits. Advancement Money or property given to a person by the deceased before death and intended as an advance against the beneficiary's share in the will. Adverse opinion An independent auditor's opinion expressing that a firm'sfinancial statements do not reflect the company'sposition accurately. See also: Qualified opinion. Adverse selection Refers to a situation in which sellers have relevant information that buyers lack (or vice versa) about some aspect of product quality. Advising bank Corresponding bank in the beneficiary's country to which an issuing bank sends a letter of credit. Advisory letter A newsletter offering financial advice to its readers. Affidavit of Loss A sworn statement describing the particulars and circumstances of the loss of securities. This affidavit is required before a Bond of Indemnity can be issued and the securities replaced. Affiliate Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company. Affiliated corporation A corporation that is an affiliate to the parent company. Affiliated person An individual who possesses enough influence and control in a corporation as to be able to alter the actions of the corporation. Affirmative covenant A bond covenant that specifies certain actions the firm must take. Affirmative obligation A New York Stock Exchange rule that governs the behavior of specialists. Affirmative obligation is the mandate of the specialists to step in and act as either the buyer or the seller when public investor orders exist do not match up naturally. Also known as positive_obligation. Related: negative_obligation. Affordability index An index that measures the financial ability of consumers to purchase a home. After acquired clause A contractual clause in a mortgage agreement stating that any additional mortgageable property attained by the borrower after the mortgage is signed will be regarded as additional security for the obligation addressed in the mortgage. After-hours dealing or trading Securitiestrading after regular trading hours on organized exchanges. Aftermarket See: Secondary market. After-tax basis The comparisonbasis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond. After-tax profit margin The ratio of net income to net sales. After-tax real rate of return The after-tax rate of return minus the inflation rate. Against the box See: Selling short against the box. Aged fail An account between two broker/dealers that remains intact 30 days after the settlement date. The receiving firm must adjust its capital as it can no longer treat this account as an asset. Agencies See: Federal agency securities. Agency In context of general equities, buying or selling for the account and risk of a customer. Generally, an agent, or broker, acts as intermediary between buyer and seller, taking no financial risk personally or as a firm, and charging a commission for the service. The broker represents a customer buyer/seller to a customer seller/buyer and does not act as principal for the firm's own trading account. Antithesis of principal. See: Dealer. Agency bank A form of organization commonly used by foreign banks to enter the US market. An agency bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank. It is also the financial_institution that issuesADRs to the general market. Agency basis A means of compensating the broker of a program trade solely on the basis of commission established through bids submitted by various brokerage firms. Agency cost view The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debtfinancing. Agency costs The incremental costs of having an agent make decisions for a principal. Agency incentive arrangement A means of compensating the broker of a program trade using benchmarkprices for issues to be traded in determining commissions or fees. Agency pass-throughs Mortgage pass-through securities whose principal and interest payments are guaranteed by government agencies, such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae). Agency problem Conflicts of interest among stockholders, bondholders, and managers. Agency securities Securitiesissued by federally related institutions and U.S. government-sponsored entities. Such agencies were created to reduce borrowingcosts for certain sectors of the economy, such as agriculture. Agency theory The analysis of principal-agent relationships, in which one person, an agent, acts on behalf of another person, a principal. Agent A party appointed to act on behalf of a principal entity or person. In context of project financing, refers to the bank in charge of administering the project financing. Aggregate exercise price The exercise price multiplied by the number of shares in a put or callcontract. The option premium is excluded in the aggregate exercise price. In the case of options traded on debt instruments, the aggregate exercise price is the exercise price of the underlying security multiplied by its face value. Aggregation Process in corporate financial planning whereby the smaller investment proposals of each of the firm's operational units are aggregated and effectively treated as a whole. Aggressive Growth Hedge Fund In the context of hedge funds, a style of management that focuses primarily on equities that are expected to have strong earnings growth. Aggressive growth mutual fund A mutual fund designed for maximum capital appreciation that places its money in companies with high growth rates. Aggressively Used in context of general equities. For a customer it means working to buy or sell one's stock, with an emphasis on execution over price. For a trader it means acting in a way that puts the firm'scapital at higher risk through paying a higher price, selling cheaper, or making a larger short sale or purchase than the trader would under normal circumstances. Aging schedule A table of accounts receivable broken down into age categories (such as 0-30 days, 30-60 days, and 60-90 days), which is used to determine if customer payments are keeping close to schedule. Agreement among underwriters A contract among participating members of a syndicate that defines the members' proportionate liability, which is usually limited to and based on the participants' level of involvement. The contract outlines the payment schedule on the settlement date. Compare: Underwriting agreement. Agreement corporation Corporationchartered by a state to engage in international banking: so named because the corporation enters into an "agreement" with the Fed's Board of Governors that it will limit its activities to those permitted by an Edge Act Corporation. Ahead of itself In context of general equities, refers to equities that are overbought or oversold on a fundamental basis. Ahead of you Used for listed equity securities. At the same price but entered ahead of your order/interest, usually referring to the specialist's book. See: Behind,matched orders,priority,stock ahead. AIMR Performance Presentation Standards Implementation Committee The Association for Investment Management and Research (AIMR) Performance Presentation Standards Implementation Committee is charged with the responsibility to interpret, revise, and update the AIMR Performance Presentation Standards (AIMR-PPS(TM) for portfolio performance presentations. Air Freight Consolidator An air freight carrier that does not own or operate its own aircraft but ships its cargo with actual equipment operating carriers. Consolidators issue house air waybills to their customers and receive master air waybills from the actual carriers. Air pocket stock A stock whose price drops precipitously, often on the unexpected news of poor results. Alien corporation A company incorporated under the laws of a foreign country regardless of where the company conducts its operations. All equity rate The discount rate that reflects only the business risks of a project, distinct from the effects of financing. All in Refers to an issuer'sinterest rate after accounting for commissions and various related expenses. All-in-rate Rate used in charging customers for accepting banker's acceptances, consisting of the discount interest rate plus the commission. All Ordinaries Index The major stock price index in Australia. The capitalization weighted index is made up of the largest 500 companies as measured by market capitalization that are listed on the Australian Stock Exchange. The index was developed with a base value of 500 as of 1979. All or none order (AON) Used in context of general equities. A limited price order that is to be executed in its entirety or not at all (no partial transaction), and thus is testing the strength/conviction of the counterparty. Unlike an FOK order, an AON order is not to be treated as cancelled if not executed as soon as it is represented in the trading crowd, but instead remains alive until executed or cancelled. The making of "all or none" bids or offers in stocks is prohibited, and the making of "all or none" bids or offers in bonds is subject to the restrictions of Rule 61. AON orders are not shown on the specialist's book because they cannot be traded in pieces. Antithesis of any-part-of order. See: FOK order. All-in cost Total costs, explicit and implicit. All-or-none underwriting An arrangement whereby a securityissue is cancelled if the underwriter is unable to resell the entire issue. All Risk Insurance Marine cargo insurance which covers most perils except strikes, riots, civil unrest, capture, war, seizure, civil war, piracy, loss of market, and inherent vice. Allied member A partner or stockholder of a firm that is a member of the NYSE, the partner or stockholder is not personally a member of the NYSE. Alligator spread The term used to describe a spread in the optionsmarket that generates such a large commission that the client is unlikely to make a profit even if the markets move as the investoranticipated. Allocation-of-income rules US tax provisions that define how income and deductions are to be allocated between domestic source and foreign source income. Allocational efficiency The effectiveness with which a market channels capital toward its most productive uses. Allotment The number of securities assigned to each of the participants in an underwriting syndicate. Alpha Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund'sexcess return on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 25%, and the short-terminterest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The expected excess return given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen Index. Related: Risk-adjusted return. Alpha equation Regression usually run over 36-60 months of data: Return-Treasury bill= alpha + beta (S&P 500 - Treasury bill) + error. The alpha is the intercept. Note that the benchmark does not necessarily have to be the S&P 500. A mutual fund specializing in international investment might be benchmarked to a broader world market index, such as the MSCI World Index. Alphabet stock Categories of common stock of a corporation associated with a particular subsidiary resulting from acquisitions and restructuring. The various alphabetical categories have different voting rights and pay dividends tied to the operating performance of the particular divisions. See also: Tracking stocks. Alternative investments Usually refers to investments in hedge funds. Many hedge funds pursue strategies that are uncommon relative to mutual funds. Examples of alternative investment strategies are: long--short equity, event driven, statistical arbitrage, fixed income arbitrage, convertible arbritage, short bias, global macro, and equity market neutral. May also refer to the high frequency style of commodity trading advisors who often employ technical and quantitative tools for intraday investments Alternative Minimum Tax (AMT) A federal tax aimed at ensuring that wealthy individuals, estates, trusts, and corporations pay a minimal level income tax. For individuals, the AMT is calculated by adding adjusted gross income to tax preference items. Alternative mortgage instruments Variations of mortgageinstruments such as adjustable-rate and variable-rate mortgages, graduated-payment mortgages, reverse-annuity mortgages, and several seldom-used variations. Alternative order Used in context of general equities. Order giving a broker a choice between two courses of action, either to buy or sell, never both. Execution of one course automatically eliminates the other. An example is a combination buy limit/ buy stop order, where the buy limit is below the current market and the buy stop is above. If the order is for one unit of trading, when one part of the order is executed on the occurrence of one alternative, the order on the other alternative is to be treated as cancelled. If the order is for an amount of more than one unit of trading, the number of units executed determines the amount of the alternative order to be treated as cancelled. Sometimes known as One Cancels the Other. Also see: Either-or order. American Association of Individual Investors (AAII) A not-for-profit organization to educate individual investors about stocks, bonds, mutual funds, and other financial instruments. American Depositary Receipt (ADR) Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR. "Unsponsored" ADRs do not receive such assistance. ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares, adjusted for the SDR/ordinary ratio essentially equal. American depository shares (ADS) are a similar form of certification. American Depositary Receipt Fees Fees associated with the creating or releasing of ADRs from ordinary shares, charged by the commercial banks with correspondent banks in the international sites. American Depositary Receipt Ratio The number of ordinary shares into which an ADR can be converted. American Depositary Share (ADS) Foreign stock issued in the US and registered in the ADR system. American option An option that may be exercised at any time up to and including the expiration date. Related: European option American shares Securitiescertificatesissued in the US by a transfer agent acting on behalf of the foreign issuer. The certificates represent claims to foreign equities. American Stock Exchange (AMEX) Stock exchange with the third highest volume of trading in the US. Located at 86 Trinity Place in downtown Manhattan. The bulk of trading on AMEX consists of index options (computer technology index, institutional index, major market index) and shares of small to medium-sized companies are predominant. Recently merged with Nasdaq See: Curb. American-style option An optioncontract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded equity options are American style. Amman Financial Market (AFM) Established in 1976, the AFM is the only stock exchange in Jordan. Amman Stock Exchange The only agency authorized as a formal market for tradingsecurities in Jordan. Amortization The repayment of a loan by installments. Amortization factor The pool factor implied by the scheduled amortization assuming no prepayments. Amortizing interest rate swap Swap in which the principal or notional amount declines over time. Amount outstanding and in circulation All currency issued by the Bureau of the Mint and intended as a medium of exchange. Coins sold by the Bureau of the Mint at premium prices are not included; uncirculated coin sets sold at face value plus handling charge are included. Amsterdam Exchange (AEX) Exchange that comprises the AEX-Effectenbeurs, the AEX-Optiebeurs (formerly the European Options Exchange or EOE) and the AEX-Agrarische Termijnmarkt. AEX-Data Services is the operating company responsible for the dissemination of data from the Amsterdam Exchange via its integrated Mercury 2000 system. AMTEL Used in context of general equities. In-house message system entered and displayed through Quotron A page. Analyst Employee of a brokerage or fund management house who studies companies and makes buy-and-sell recommendations on stocks of these companies. Most specialize in a specific industry. And interest An indication that the buyer will receive accrued interest in addition to the price quoted for a bond. Andean Pact A regional trade pact that includes Venezuela, Colombia, Ecuador, Peru, and Bolivia. Angel An investment-grade bond. Antithesis to fallen angel. In the context of venture capital, the first investor. Angels Individuals providing venture capital. Ankle biter Stock issued with a market capitalization of less than $500 million. Announcement date Date on which particular news concerning a given company is announced to the public. Used in event studies, which researchers use to evaluate the economic impact of events of interest. Annual basis The technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. The process is known as annualizing. Annual effective yield See: Annual percentage yield. Annual exclusion A tax rule allowing the deduction of certain income from taxation. Annual fund operating expenses For investmentcompanies, the management fee and "other expenses," including the expenses for maintaining shareholder records, providing shareholders with financial statements, and providing custodial and accounting services. For 12b-1 funds, selling and marketingcosts are also included. Annual meeting Meeting of stockholders held once a year at which the managers of a companyreport to the stockholders on the year's results. Annual percentage rate (APR) The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an APR of 20%. Annual percentage yield (APY) The effective, or true annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate, raising it to the number of periods in a year and then subtracting one. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1). Annual rate of return There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY) includes the effect of compoundinginterest. Annual renewable term insurance See: Term insurance. Annual report Yearly record of a publicly heldcompany'sfinancial condition. It includes a description of the firm's operations, as well as balance sheet, income statement, and cash flow statement information. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K. Annualized gain If stock X appreciates 1.5% in one month, the annualizedgain for that stock over a twelve month period is (12 x 1.5%) = 18%. Compounded over the 12 month period, the gain is (1.015)^12 -1 = 19.6%. Annualized holding-period return The annual rate of return that when compoundedt times generates the same t-period holding return as actually occurred from period 1 to period t. Annualizing See: Annual basis. Annuitant An individual who receives benefits from an annuity. Annuitize To commence a series of payments from the capital that has accumulated in an annuity. The payments may be a fixed amount, for a fixed period of time, or for a lifetime. Annuity A regular periodic payment made by an insurance company to a policyholder for a specified period of time. Annuity certain An annuity that pays a specific amount on a monthly basis for a set amount of time. Annuity due An annuity with n payments, where the first payment is made at time t = 0, and the last payment is made at time t = n - 1. Annuity factor Present value of $1 paid for each of t periods. Annuity in arrears An annuity with a first payment one full period hence, rather than immediately. Annuity starting date The date when an annuitant starts receiving payments from an annuity. Anticipated holding period The period of time an individual expects to hold an asset. Anticipation Paying what is owed before it is due (usually to save interest charges). Antidilutive effect Result of a transaction that increases earnings per common share (e.g., by decreasing the number of sharesoutstanding). Anti-Persistence In R/S Analysis, an anti-persistent time series reverses itself more often than a random series would. If the system had been up in the previous period, it is more likely that it will be down in the next period and vice versa. Also called pink noise, or 1/f noise. See: Persistence, R/S Analysis, Hurst Exponent, Joseph Effect, Noah Effect. Antigreenmail Greenmail refers to the agreement between a large shareholder and a company in which the shareholder agrees to sell his stock back to the company, usually at a premium, in exchange for the promise not to seek control of the company for a specified period of time. Antigreenmail provisions prevent such arrangements unless the same repurchaseoffer is made to all shareholders or approved by shareholder vote. There are some states that have antigreenmail laws. Antitrust laws Legislation established by the federal government to prevent the formation of monopolies and to regulate trade. Any-interest-date A call provision in a municipal bondindenture that establishes the right of redemption for the issuer on any interest payment due date. Any-or-all bid Often used in risk arbitrage. Takeoverbid in which the acquireroffers to pay a set price for all outstanding shares of the target company, or any part thereof; contrasts with two-tier bid. Any-part-of order In context of general equities, order to buy or sell a quantity of stock in pieces if necessary. Antithesis of an all-or-none order (AON). Appraisal ratio The signal-to-noise ratio of an analyst'sforecasts. The ratio of alpha to residualstandard deviation. Appraisal rights A right of shareholders in a merger to demand the payment of a fair price for their shares, as determined independently. Appreciation Increase in the value of an asset. Appropriation request Formal request for funds for capital investment project. Approved list A list of equities and other investments that a financial institution or mutual fund is allowed to invest in. See: Legal list. APS Auction Preferred Stock. A type of Dutch Auction Preferred Stock (Goldman Sachs product). Arbitrage The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactionscosts. Arbitrage bonds Municipalityissuedbonds issued intended to gain an interest rate advantage by refunding a higher-rate bond in ahead of their call date. Lower-rate refunding issue proceeds are invested in Treasuries until the first call date of the higher-rate issue. Arbitrage-free option-pricing models Yield curve option-pricing models. Arbitrage Pricing Theory (APT) An alternative model to the capital asset pricing model developed by Stephen Ross and based purely on arbitrage arguments. The APT implies that there are multiple risk factors that need to be taken into account when calculating risk-adjusted performance or alpha. Arbitrage Trading Program (ATP) See: Program trading. Arbitrageur One who profits from the differences in price when the same, or extremely similar, security, currency, or commodity is traded on two or more markets. The arbitrageur profits by simultaneously purchasing and selling these securities to take advantage of pricing differentials (spreads) created by market conditions. See: Risk arbitrage,convertible arbitrage,index arbitrage, and international arbitrage. Are you open? Used in context of general equities. "Can a new customer still participate on opposing side of the trade from that which the first customer initiated?", Inquiring as to whether any portion of that trade is still available See: Open. Arithmetic average (mean) rate of return Arithmetic mean return. Arithmetic mean return An average of the subperiod returns, calculated by summing the subperiod returns and dividing by the number of subperiods. Arizona Stock Exchange A single price auction exchange for equity trading that allows anonymous buyers and sellers to trade at low transactioncosts. Arm's length price The price at which a willing buyer and a willing unrelated seller would freely agree to transact or a trade between related parties that is conducted as if they were unrelated, so that there is no conflict of interest in the transaction. Arms index Also known as a TRading INdex (TRIN). The index is usually calculated as the number of advancing issues divided by the number of declining issues. This, in turn, is divided by the advancing volume divided by the declining volume. If there is considerably more advancing volume relative to declining volume this will tend to reduce the index (i.e. increase the denominator). Hence, a value less than 1.0 is bullish while values greater than 1.0 indicate bearish demand. The index often is smoothed with a simple moving average. Around us Used in context of general equities. See: Away from you. Arranger The senior tier of a syndication. This implies the entity that agreed and negotiated the project financing structure. Also refers to the bank or underwriter entitled to syndicate the loan or bondissue. Also known as the lead underwriter. Arrearage In the context of investments, refers to the amount by which interest on bonds or dividends on cumulative preferred stock is due and unpaid. Articles of incorporation Legal document establishing a corporation and its structure and purpose. Artificial currency A currency substitute, e.g., special drawing rights (SDRs). Artificial Intelligence The creation of models that mimic thought processes. See: Neural Networks, Fuzzy Logic, and Genetic Algorithms. Ascending tops A chart pattern that depicts that each peak in a security's price over a period of time is higher than the preceding peak. Antithesis of descending tops. Asia-Pacific Economic Cooperation Pact (APEC) A loose economic affiliation of Southeast Asian and Far Eastern nations. The most prominent members are China, Japan, and Korea. Asian Currency Units (ACU) Dollar deposits held in Singapore or other Asian centers. Asian Development Bank A financial_institution established in 1966 to reduce poverty in the Asia-Pacific region. The bank is headquartered in Manila, Philippines and consists of 61 member countries. Asian dollar market Asian banks that collect deposits and make loansdenominated in US dollars. Asian option Option based on the average price of the underlying assets during the life of the option. Ask This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buyshares of stock; also called the offer price. Asked price In context of general equities, price at which a security or commodity is offered for sale on an exchange or in the OTCMarket. Asked to bid/offer Used in context of general equities. Usually a seller (buyer) looking to aggressively sell (buy) stock, usually asking for a capital commitment from an investment bank. Aspirin Australian Stock Price Riskless Indexed Notes. Zero-coupon four-year bonds repayable at face value plus the percentage increase by which the Australian stock index of all ordinaries (common stocks) rises above a predefined level during the given period. Assay Metal purity test to confirm that the metal meets the standards for trading on a commodities exchange (commodities exchange center). Assessed valuation The value assigned to property by a municipality for the purpose of tax assessment. Such an assessed valuation is important to investors in municipal bonds that are backed by property taxes. Asset Any possession that has value in an exchange. Asset activity ratios Ratios that measure how effectively the firm is managing its assets. Asset allocation decision The decision regarding how an institution's funds should be distributed among the major classes of assets in which it may invest. Asset allocation mutual fund A mutual fund that rotates among stocks, bonds, and money marketsecurities to maximize return on investment and minimize risk. Asset-backed security A security that is collateralized by loans,leases, receivables, or installmentcontracts on personal property, not real estate. Asset-based financing Methods of financing in which lenders and equity investors look principally to the cash flow from a particular asset or set of assets for a return on, and the return of, their financing. Asset classes Categories of assets, such as stocks, bonds, real estate, and foreign securities. Asset-coverage test A bond indenture restriction that permits additional borrowing if the ratio of assets to debt does not fall below a specified minimum. Asset Depreciation Range System A range of depreciable lives the IRS allows for particular classes of assets. Asset/equity ratio The ratio of total assets to stockholder equity. Asset for asset swap Creditors exchange the debt of one defaultingborrower for the debt of another defaulting borrower. Asset/liability management The task of managing the funds of a financial institution to accomplish two goals: (1) to earn an adequate return on funds invested and (2) to maintain a comfortable surplus of assets beyond liabilities. Also called surplus management. Asset management account Account at a brokerage house, bank, or savings institution that integrates banking services and brokerage features. Asset play A company with assets that are not believed to be accurately reflected in its stock price, making it an attractive buy or play. Asset pricing model A model for determining the required or expected rate of return on an asset. Related: Capital asset pricing model and arbitrage pricing theory. Asset stripper A corporate raider (company A) that takes over a target company (company B) in order to sell large assets of company B to repay debt. Company A calculates that the net, selling off the assets and paying off the debt, will leave the raider with assets that are worth more than what it paid for company B. Asset substitution Occurs when a firm invests in assets that are riskier than those that the debtholders expected. Asset substitution problem Arises when the stockholders substitute riskierassets for the firm's existing assets and expropriate value from the debtholders. Asset swap An interest rate swap used to alter the cash flow characteristics of an institution's assets in order to provide a better match with its liabilities. Asset turnover The ratio of net sales to total assets. Asset value The net market value of a corporation'sassets on a per-share basis, not the market value of the shares. A company is undervalued in the market when asset value exceeds market value. Assets A firm's productive resources. Assets-in-place Property in which a firm has already invested. Assets requirements A common element of a financial plan that describes projected capital spending and the proposed uses of net working capital. Assignment The receipt of an exercise notice by an optionswriter that requires the writer to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price. Assignment of proceeds Arrangement that allows the original beneficiary of a letter of credit to pledge or turn over proceeds to another, typically end supplier. Assimilation The public absorption of a new issue of stocks once the stock has been completely sold by underwriter. See: Absorbed. Association of Southeast Asian Nations (ASEAN) A loose economic and geopolitical affiliation that includes Singapore, Brunei, Malaysia, Thailand, the Philippines, Indonesia, and Vietnam. Future members are likely to include Burma, Laos, and Cambodia. Assumed interest rate Rate of interest used by an insurancecompany to calculate the payout on an annuitycontract. Assumption Becoming responsible for the liabilities of another party. ASX Derivatives and Options Market (ASXD) Options markettrading options on more than 50 of Australia's and New Zealand's leading companies. Asymmetric information Information that is known to some people but not to other people. Asymmetric taxes When participants in a transaction have different net tax rates. Asymmetric volatility Phenomenon that volatility is higher in down markets than in up markets. Asymmetry A lack of equivalence between two things, such as the unequal tax treatment of interest expense and dividend payments. "At"/"for" Used in context of general equities. Paramount terms used to differentiate an offering. Stock is offered at; stock is bid for. In an offering, the trading syntax followed is "Quantity-at-Price"; in a bid, the syntax followed is "Price-for-Quantity." Athens Stock Exchange Greece's only major securities market. Greek language only. At par A price equal to nominal or face value of a security. See: Par. At risk The exposure to the danger of economic loss. Frequently used in the context of claiming tax deductions. For example, a person can claim a tax deduction in a limited partnership if the taxpayer can show it is at risk of never realizing a profit and of losing its initial investment. See: Value at risk. At the bell In context of general equities, at the opening or close of the market. See: MOC Order. At the close order In the context of securities, an all or nonemarket order that is to be executed at the closing price of the security on the exchange. If the execution cannot be made under this condition, the order is to be treated as cancelled. In the context of futures and options, refers to a contract that is to be executed on some exchanges during the closing period, a period in which there is a range of prices. At the figure In context of general equities, at the whole integer price (excluding the fraction) closest to the side of the market (bid/ask) being discussed. At the full. At the full Used in context of general equities. At the figure. At the market See: Market order. At-the-money An option is at the money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at the money. At the opening order In context of general equities, market order or limited price order that is to be executed at the opening (and corresponding price) of the stock or not at all, and any such order or portion thereof not so executed is to be treated as cancelled. Attractor In non-linear dynamic series, an attractor defines the equilibrium level of the system. See: Point Attractor, Limit Cycle, and Strange Attractor. Attribute bias The tendency of stocks preferred by the dividend discount model to share certain equity attributes such as low price-earnings ratios, high dividend yield, high book value ratio, or membership in a particular industry sector. Athens Stock Exchange (ASE) Greece's principal stock exchange. Auction Market Preferred Stock (AMPS) A type of Dutch Auction Preferred Stock (A Merrill Lynch product). Auction markets Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange. Auction rate preferred stock (ARPS) Floating rate preferred stock, whose dividend is adjusted every seven weeks through a Dutch auction. Audit An examination of a company's accounting records and books conducted by an outside professional in order to determine whether the company is maintaining records according to generally accepted accounting principles. See: accountant's opinion. Audit trail Resolves the validity of an accounting entry by a step-by-step record by which accounting data can be traced to their source. Auditor's certificate See: Accountant's opinion. Auditor's report A section of an annual report that includes the auditor's opinion about the veracity of the financial statements. Aunt Millie An unsophisticated investor. Australian Stock Exchange (ASX) Australia's major securities market, formed when the six state stock exchanges (Adelaide, Brisbane, Hobart, Melbourne, Perth, and Sydney stock exchanges) were merged in 1987. Autarky Absence of a cross-border trade in models of international trade. Autex Video communication network through which brokerage houses alert institutional investors of their desire to transact block business (a purchase or sale) in a given security. Indications transmit small, medium, and large sizes only, with occasional limits mentioned. Supers are messages with specific size and price included. Both "indications" and "supers" can be only seen by customers (institutional subscribers to Autex). Trade recaps, advertised block trades entered by the dealer/subscribers, are also displayed, but can be seen by both institutions and dealers. See: Expunge, size. Authentication In the context of bonds, refers to the validation of a bond certificate. Authority bond A bond issued by a government agency or a corporation created to manage a revenue-producing public enterprise. The difference between an authority bond and a municipal bond is that margin protections may be incorporated in the authority bond contract as well as in the legislation that enables the authority. Authorized shares Number of shares authorized for issuance by a firm's corporate charter. Autocorrelation The correlation of a variable with itself over successive time intervals. Sometimes called serial correlation. Automated bond system (ABS) The computerized system that records bids and offers for inactively tradedbonds until they are cancelled or executed on the NYSE. Automated Clearing House (ACH) A collection of 32 regional electronic interbank networks used to process transactions electronically with a guaranteed one-day bank collection float. Automated Customer Account Transfer (ACAT) For transfers of securities from a non-equity trading account to your equity trading account with your broker. Automated Export System Electronic filing of Shippers Export Declaration (SEDs) with US Customs prior to departure. Automated Order System (AOS) Investment bank computerized order entry system that sends single order entries to DOT (Odd-Lot) or to investment banks floor brokers on the exchange. See: Round lot, GTC orders. Automated Pit Trading (APT) Introduced in 1989, APT is the LIFFE screen-based trading system that replicates the open outcry method of trading on screen. APT is used to extend the trading day for the major futures contracts as well as to provide a daytime trading environment for non-floor trading products. Automated teller machine (ATM) Computer-controlled terminal located on the premises of financial institutions or elsewhere, though which customers may make deposits, withdrawals or other transactions as they would through a bank teller. Other terms sometimes used to describe such terminals are customer-bank communications terminal (CBCT) and remote service unit (RSU). Groups of banks sometimes share ATMs. Sometimes called Automated Banking Machines. Automatic Data Processing (ADP) A private company that acts as an intermediary to perform proxy services for several banks and brokers. Distributes proxy material to beneficial owners, tabulates the returned proxies, and provides the Corporation or its tabulator compiled reports of the tabulation results. ADP also distributes quarterlyreports and other corporate information to the beneficial owners. Automatic exercise A protection procedure whereby the Options Clearing Corporation attempts to protect the holder of an expiring in-the-money option by automatically exercising the option on behalf of the holder. Automatic extension An automatic extension of time granted to a taxpayer to file a tax return. Automatic funds transfer A transfer of funds from one account or investment vehicle to another using electronic or telecommunications technology. Automatic investment program A program in which an investor can invest or withdraw funds automatically. A mutual fund, for example, automatically withdraws a pre determined specified amount from the investor's bank account on a regular basis. Automatic reinvestment See: Constant dollar plan. Automatic stay The restricting of liabilityholders from collection efforts related to collateral seizure. Automatically imposed when a firm files for bankruptcy under Chapter 11. Automatic transfer service (ATS) account A depositor's saving account from which funds may be transferred automatically to the same depositor's checking account to cover a check written or to maintain a minimum balance. Automatic withdrawal A mutual fund that gives shareholders the right to receive a fixed payment from dividends on a quarterly or monthly basis. Autoquote Autoquote indicative prices are generated for many of the financialoptions contractstraded at LIFFE using standard mathematical models as derived by Black and Scholes and Cox, Ross, Rubinstein. Autoquote calculates prices for all series by processing variables captured in real-time from other systems and trading members each time the underlying price changes. Autoquotes indicate where a series may trade, given the current level of the underlyinginstrument. Autoregressive Using past data or variable of interest to predict future values of the same variable. Auto-Regressive (AR) Process A stationary stochastic process where the current value of the time series is related to the past p values, where p is any integer, is called an AR(p) process. When the current value is related to the previous two values, it is an AR(2) process. An AR(1) process has an infinite memory. Autoregressive Conditional Heteroskedasticity (ARCH) A nonlinear stochastic process, where the variance is time-varying, and a function of the past variance. ARCH processes have frequency distributions which have high peaks at the mean and fat-tails, much like fractal distributions. The ARCH model was invented by Robert Engle. The Generalized ARCH (GARCH) model is the most widely used and was pioneered by Tim Bollerslev. See: Fractal Distributions. Availability The period in which the project financing is available for drawdown. Availability float Checks deposited by a company that have not yet been cleared. Available cash flow Total cash sources less total cash uses before payment of debt service. Available on the way in In context of general equities, stock is available to new customer as trade initiated by another customer is about to be consummated (on the exchangefloor). Usually said to an inquiring salesperson. See: Open. Aval Term meaning inseparable from the financialinstrument. This gives a guarantee and is abstracted from the performance of the underlying trade contract: Article 31 of the 1930 Geneva Convention of the Bills Of Exchange states that the aval can be written on the bill itself or on an allonge. US Banks are prohibited from avalizing drafts. Avalizor An institution or person who gives the aval. Average An arithmetic mean return of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA stocks, and divides the results by a predetermined number, the divisor. Average accounting return The average project earnings after taxes and depreciation divided by the averagebook value of the investment during its life. Average (across-day) measures An estimation of price that uses the average or representative price of a large number of trades. Average age of accounts receivable The weighted-average age of all the firm's outstanding invoices. Average collection period, or days' receivables The ratio of accounts receivables to sales, or the total amount of credit extended per dollar of daily sales (average AR/sales 365). Average cost In the context of investing, refers to the averagecost of shares or stock bought at different prices over time. Average cost of capital A firm's required payout to bondholders and stockholders expressed as a percentage of capitalcontributed to the firm. Average cost of capital is computed by dividing the total required cost of capital by the total amount of contributed capital. Average daily balance A method for calculating interest in which the balance owed each day by a customer is divided by the number of days. See also: Adjusted balance method and previous balance method. Average discount rate Purchaserstender their competitive bids on a discount rate basis. The weighted, or adjusted mean of all bids accepted in Treasury bill auctions. Average down A strategy used by investors to reduce the average cost of shares, in which the investorpurchases more shares with a fixed amount of capital as the price of the shares decreases. The investor receives more shares per dollar and decreases the average price per share. Average equity A customer's average daily balance in a trading account at a brokerage firm. Average life Also referred to as the weighted-average life (WAL). The average number of years that each dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal paydowns. Average maturity The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average maturity. Average rate of return (ARR) The ratio of the average cash inflow to the amount invested. Average tax rate Taxes as a fraction of income; total taxes divided by total taxable income. Average up A strategy used by investors to lower the overall cost of shares by buying as many shares with a given amount of capital in an increasing market. Buying $1000 worth of shares at $30, $35, $40, and $45, for instance, will make the average cost of the sharesx $36.65, lower than the average price of $37.50. Averaging See: Constant dollar plan. Avoided cost In context of project financing, the capital and expense that would have to be spent if the project did not proceed. Away A trade, quote, or market that does not originate with the dealer in question, e.g., "the bid is 98-10 away from me." Away from the market In context of general equities, out of line with the inside market at this time, such as when a bid on a limit order is lower or the offer price is higher than the current market price for the security; held by the specialist for later execution unless FOK. Antithesis of in-line. Away from us Used in context of general equities, to characterize role of a competing broker/dealer. Trading away from us signifies that stock is bought and/or sold with institutions using other tradingfirms. Away from you Used for listed equity securities. See: Outside of you. Axe to grind Used in context of general equities. Involvement in a security, whether through a position, order, or inquiry.