Financial Glossary: C
Autor: Daniel Brandão de Castro | Publicado: 2009-02-14T00:54:00-02:00

CFifth letter of a Nasdaq stock descriptor specifying that issue is exempt from Nasdaq listing requirements for a temporary period. CA The two-character ISO 3166 country code for CANADA. CAD The ISO 4217 currency code for Canada Dollar. CADS See Cash Available for Debt Service. CAGR See: Compound Annual Growth Rate CAMPS See: Cumulative Auction Market Preferred Stocks Capex See: Capital expenditures CAPM See: Capital asset pricing model CAPS See: Convertible adjustable preferred stock CARs See: Certificates of Automobile Receivables CARDs See: Certificates of Amortized Revolving Debt CATS See: Certificate of Accrual on Treasury Securities (CATS) CAX The ISO 4217 currency code for Canadian Cent. CBD See: Cash In Advance. CBO See: Collateralized Bond Obligation. CBOE See: Chicago Board Options Exchange CC The two-character ISO 3166 country code for COCOS (KEELING) ISLANDS. CD See: Certificate of deposit CD The two-character ISO 3166 country code for CONGO, THE DEMOCRATIC REPUBLIC OF. CDN See: Canadian Dealing Network CDO See: Collateralized Debt Obligation. CEC See: Commodities Exchange Center CF The two-character ISO 3166 country code for CENTRAL AFRICAN REPUBLIC. CFAT Cash flow after taxes. CFAT See: Cash flow after taxes CFC See: Controlled foreign corporation CFR See: Cost and Freight CFTC See: Commodity Futures Trading Commission CG The two-character ISO 3166 country code for The Congo. CH The two-character ISO 3166 country code for SWITZERLAND. CHAP See: Clearing House Automated Payments System CHESS See: Clearing House Electronic Subregister System CHF The ISO 4217 currency code for Swiss Franc. CHIPS See: Clearing House Interbank Payments System CI The two-character ISO 3166 country code for COTE D'IVOIRE. CIF See: Cost Insurance and Freight CK The two-character ISO 3166 country code for COOK ISLANDS. CL The two-character ISO 3166 country code for CHILE. CLF The ISO 4217 currency code for Chile Unidades de Fomento. CLO See: Collateralized Loan Obligation. CLP The ISO 4217 currency code for Chilean Peso. CM The two-character ISO 3166 country code for CAMEROON. CMBS See: Commercial Mortgage Backed Securities CME See: Chicago Mercantile Exchange CML See: Capital market line CMO See: Collateralized mortgage obligation CMTA See: Clearing Member Trade Agreement CN The two-character ISO 3166 country code for CHINA. CNY The ISO 4217 currency code for Chinese Renminbi (Yuan). CO The two-character ISO 3166 country code for COLOMBIA. COP The ISO 4217 currency code for Colombian Peso. CDC See: Commonwealth Development Corp CPT See: Carriage Paid To CR The two-character ISO 3166 country code for COSTA RICA. CRB See: Commodity Research Bureau. CRC The ISO 4217 currency code for Costa Rican Colon. CTA See: Cumulative Translation Adjustment. Also refers to Commodity Trading Advisor. CU The two-character ISO 3166 country code for CUBA. CUP The ISO 4217 currency code for Cuban Peso. CUSIP See: Committee on Uniform Securities Identification Procedures CV The two-character ISO 3166 country code for CAPE VERDE. CVE The ISO 4217 currency code for Cape Verde Islands Escudo. CX The two-character ISO 3166 country code for CHRISTMAS ISLAND. CY The two-character ISO 3166 country code for CYPRUS. CYP The ISO 4217 currency code for Cyprus Pound. CZ The two-character ISO 3166 country code for CZECH REPUBLIC. CZK The ISO 4217 currency code for Czech Republic Koruna. Cabinet crowd NYSE members who tradebonds with a low daily traded volume. See: Automated Bond System. Cabinet security A stock or bond listed on a major exchange with low daily tradedvolume. Cable Exchange rate between British pound sterling and the U.S. dollar. CAC 40 index A broad-basedindex of common stocks composed of 40 of the 100 largest companies listed on the forward segment of the official list of the Paris Bourse. Cage A section of a brokerage firm used for receiving and disbursing funds. Calendar List of new issues scheduled to come to market shortly. Calendar effect Describes the tendency of stocks to perform differently at different times. For example, a number of researchers have documented that historically, returns tend to be higher in January compared to other months (especially February). Others have documented returns patterns across days of the week and within the day. Some of these patterns are found in volume and volatility as well as returns. Calendar spread Applies to derivative products. A strategy in which there is a simultaneous purchase and sale of options of the same class at the same strike prices, but with different expiration date. Calendar Straddle or Combination See Calendar Spread. Call An option that gives the holder the right to buy the underlying asset. Call date A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price. Call feature Part of the indenture agreement between the bond issuer and buyer describing the schedule and price of redemptions prior to maturity. Call loan A loan repayable on demand. Sometimes used as a synonym for broker loan or broker overnight loan. Call loan rate See: Call money rate Call money rate Also called the broker loan rate , the interest rate that banks charge brokers to financemarginloans to investors. The broker charges the investor the call money rate plus a service charge. Call option An optioncontract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlyingstock at the given strike price, on or before the expiration date of the contract. Call an option To exercise a call option. Call premium Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date. Call price The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date. Call protection A feature of some callablebonds that establishes an initial period when the bonds may not be called. Call provision An embedded option granting a bondissuer the right to buy back all or part of an issue prior to maturity. Call risk The combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Call swaption A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating-rate payer. Callability Feature of a security that allows the issuer to redeem the security prior to maturity by calling it in, or forcing the holder to sell it back. Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. Bonds are usually called when interest rates fall so significantly that the issuer can save money by issuing new bonds at lower rates. Called away Convertible: Redeemed before maturity.Option: Call or put optionexercised against the stockholder.Sale: Delivery required on a short sale. Cumulative Auction Market Preferred Stocks (CAMPS) Stands for Cumulative Auction Market Preferred Stocks, Oppenheimer & Company's Dutch Auction preferred stock product. Canadian agencies Agency banks established by Canadian Banks in the U.S. Canadian Dealing Network (CDN) The organized OTC market of Canada. Formerly known as the Canadian Over-the-Counter Automated Trading System (COATS), the CDN became a subsidiary of the Toronto Stock Exchange in 1991. "Can get $xxx" Refers to over-the-counter trading. "I have a buyer who will pay $xxx for the stock". Usually a standard markdown from $xxx is applied to this price in bidding the seller for its stock. Antithesis of cost me. Cancel To void an order to buy or sell from (1) the floor, or (2) the trader/salesperson's scope. In Autex, the indication still remains on record as having once been placed unless it is expunged. Canceled Certificates Before the issuance of a new certificate, the old certificate is presented to the Transfer Agent and is canceled. "Cannot compete" In the context of general equities, cannot accommodate customers at that price level (i.e., compete with other market makers), often because there is no natural opposite side of the trade. "Cannot complete" In the context of general equities, inability to finish an order on a principal or agency basis, given prevailing price instructions and/or market conditions. Cap An upper limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM). Also, an OTC derivatives contract consisting of a series of European interest rate call options; used to protect an issuer of floating-rate debt from interest rate increases. Each individual call option within the cap is called a caplet. Opposite of a floor. Capacity Creditgrantors' measurement of a person's ability to repay loans. Capacity utilization rate The percentage of the economy's total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion. Capital Moneyinvested in a firm. Capital account Net result of public and private international investment and lending activities. Capital allocation decision Allocation of invested funds between risk-free assets and the riskyportfolio. Capital appreciation See: Capital growth Capital appreciation fund See: Aggressive growth fund Capital asset A long-termasset, such as land or a building, not purchased or sold in the normal course of business. Capital asset pricing model (CAPM) An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of riskysecurities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium multiplied by the asset's systematic risk. Theory was invented by William Sharpe (1964) and John Lintner (1965). The early work of Jack Treynor is was also instrumental in the development of this model. Capital budget A firm's planned capital expenditures. Capital budgeting The process of choosing the firm'slong-termassets. Capital Builder Account (CBA) A Merrill Lynch brokerage account that allows investors to access the loan value of his or her eligible securities to buy or sell securities. Excess cash in a CBA can be invested in a money market fund or an insuredmoney market deposit account without losing access to the money. Capital expenditures Amount used during a particular period to acquire or improve long-termassets such as property, plant, or equipment. Capital flight The transfer of capital abroad in response to fears of political risk. Capital formation Expansion of capital or capital goods through savings, which leads to economic growth. Capital gain When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their netcost, or original basis. If a stock is sold below cost, the difference is a capital loss. Capital gains distribution A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders. Capital gains tax The tax levied on profits from the sale of capital assets. A long-termcapital gain, which is achieved once an asset is held for at least 12 months, is taxed at a maximum rate of 20% (taxpayers in 28% tax bracket) and 10% (taxpayers in 15% tax bracket). Assets held for less than 12 months are taxed at regular income tax levels, and, since January 1, 2000, assets held for at least five years are taxed at 18% and 8%. Capital gains yield The price change portion of a stock's return. Capital goods Goods used by firms to produce other goods, e.g., office buildings, machinery, equipment. Capital growth The increase in an asset'smarket price. Also called capital appreciation. Capital infusion Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. In the context of venture capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash. Capital-intensive Used to describe industries that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive. Capital International Indexes Market indexes maintained by Morgan Stanley that track major stock markets worldwide. Capital investment See: Capital expenditure. Capital lease A leaseobligation that has to be capitalized on the balance sheet. Capital loss The difference between the netcost of a security and the sales price, if the security is sold at a loss. Also used in a more general context to refer to the market for stocks, bonds, derivatives and other investments. Capital market Traditionally, this has referred to the market for trading long-termdebt instruments (those that mature in more than one year). That is, the market where capital is raised. More recently, capital markets is used in a more general context to refer to the market for stocks, bonds, derivatives and other investments. Capital market efficiency The degree to which the present asset price accurately reflects current information in the market place. See: Efficient market hypothesis. Capital market imperfections view The view that issuingdebt is generally valuable, but that the firm's optimal choice of capital structure involves various other views of capital structure ( net corporate/personal tax, agencycost, bankruptcy cost, and pecking order), that result from considerations of asymmetric information, asymmetric taxes, and transaction costs. Capital market line (CML) The line defined by every combination of the risk-free asset and the market portfolio. The line represents the risk premium you earn for taking on extra risk. Defined by the capital asset pricing model. Capital rationing Placing limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on the entire capital budget or parts of it. Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. Capital shares One of two types of shares in a dual-purpose investmentcompany, which entitle the holder to the appreciation or depreciation in the value of a portfolio, as well as the gains from trading in the portfolio. Antithesis of income shares. Capital stock Stock authorized by a firm'scharter and having par value, stated value, or no par value. The number and the value of issued shares are usually shown, together with the number of shares authorized, in the capital accounts section of the balance sheet. See: Common stock. Capital structure The makeup of the liabilities and stockholders'equity side of the balance sheet, especially the ratio of debt to equity and the mixture of short and longmaturities. Capital surplus Amounts of directly contributed equitycapital in excess of the par value. Capital turnover Calculated by dividing annual sales by average stockholderequity (net worth). The ratio indicates how much a company could grow its current capital investment level. Low capital turnover generally corresponds to high profit margins. Capitalization The debt and/or equity mix that funds a firm'sassets. Capitalization method A method of constructing a replicating portfolio in which the manager purchases a number of the most highly capitalized names in the stockindex in proportion to their capitalization. Capitalization rate The interest rate used to calculate the present value of a number of future payments. Capitalization ratios Also called financial leverage ratios, these ratios compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow. Capitalization table A table showing the capitalization of a firm, which typically includes the amount of capital obtained from each source - long-termdebt and common equity - and the respective capitalization ratios. Capitalization-Weighted Index A stock index which is computed by adding the capitalization (float times price) of each individual stock in the index, and then dividing by the divisor. The stocks with the largest market values have the heaviest weighting in the index. See also Float, Divisor. Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. Capped-Style Option A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the Option's cap price. Captive finance company A company, usually a subsidiary that is wholly owned, whose main function is financing consumer purchases from the parent company. Caput An exotic option. It represents a call option on a put option. That is, you purchase the option to buy a put option at a particular price on or before the expiration date. Car A loose quantity term sometimes used to describe the amount of a commodityunderlying one commoditycontract; e.g., "a car of bellies." Derived from the fact that quantities of the product specified in a contract once corresponded closely to the capacity of a railroad car. Caracas Stock Exchange Originally established in 1947 and merged with a competitor in 1974 to become the only securities exchange of Venezuela. Cargo Goods being transported. Carriage and Insurance Paid To (CIP) Seller is responsible for the payment of freight to carry goods to a named overseas destination. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. The risk of loss or damage is transferred from the seller to the buyer once the goods are delivered into the carrier's custody. This term may be used for any mode of transport. Carriage Paid To (CPT) Seller is responsible for the payment of freight to carry goods to a named overseas destination. The risk of loss or damage is transferred from the seller to the buyer when the goods have been delivered into the carrier's custody. This term may be used for any mode of transport. Carrot equity British slang for an equityinvestment with the added benefit of an opportunity to purchase more equity if the company reaches certain financial goals. Carry Related: Net financing cost. Carry Trade A trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose(and long-term bond prices fell as a result), the carry trade could become unprofitable. Indeed, if this occured, there could be a number of investors trying to unwind the carry trade, which would involve selling the long-term bonds. It is possible that this could exacerbate the increase in long-term interest rates, i.e. push the rates even higher. Related: Currency Carry Trade. Carryforwards Tax losses allowed to be applied to offset future income in some specified number of future years. Carrying charge The fee a broker charges for carryingsecurities on credit, such as on a margin account. Also, any component of a futures basis, such as storage costs, interest charges or insurance costs on the underlying interest. Carrying costs Costs that increase with increases in the level of investment in current assets. Carrying value Book value. Cartel A group of businesses or nations that act together as a single producer to obtain marketcontrol and to influence prices in their favor by limiting production of a product. The United States has laws prohibiting cartels. Carve out Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only offers a minority share to the equity market. Also known as equity carve out. Cash The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and banker's acceptances. Cash equivalents on balance sheets include securities that mature within 90 days (e.g., notes). Cash account A brokerage account that settles transactions on a cash-rather than credit-basis. Cash Available for Debt Service Ratio of cash assets to debt service (interest plus nearby principal). Used in evaluating the risk of a project or firm. The higher the ratio the less likely the firm or project will fail to meet its debt obligations. Cash asset ratio Cash and marketable securities divided by current liabilities. See: Liquidity ratios. Cashed-Based Refering to an option or future that is settled in cash when exercised or assigned. No physical entity, either stock or commodity, is received or delivered. Cash basis Refers to the accounting method that recognizes revenues and expenses when cash is actually received or paid out. Cash and equivalents The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as bonds and Banker's Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days. Cash budget A forecasted summary of a firm's expected cash inflows and cash outflows as well as its expected cash and loan balances. Cash & carry Applies to derivative products. Combination of a long position in a stock/index/commodity and short position in the underlyingfutures, which entails a cost of carry on the long position. Also known as cash and carry arbitrage. Cash commodity The actual physical commodity, as distinguished from a futures contract. Cash conversion cycle The length of time between a firm'spurchase of inventory and the receipt of cash from accounts receivable. Cash cow A company that pays out most of its earnings per share to stockholders as dividends. Or, a company or division of a company that generates a steady and significant amount of free cash flow. Cash cycle In general, the time between cash disbursement and cash collection. In networking capital management, it can be thought of as the operating cycle less the accounts payable payment period. Cash deficiency agreement An agreement to investcash in a project to the extent required to cover any cash deficiency the project may experience. Cash delivery The provision of some futures contracts that requires not delivery of underlying assets but settlement according to the cash value of the asset. Cash discount An incentive offered to purchasers of a firm's product for payment within a specified time period, such as ten days. Cash dividend A dividend paid in cash to a company'sshareholders. The amount is normally based on profitability and is taxable as income. A cashdistribution may include capital gains and return of capital in addition to the dividend. Cash earnings A firm'scash revenues less cash expenses, which excludes the costs of depreciation. Cash-equivalent items Examples include Treasury bills and Banker's Acceptances. Cash flow In investments, cash flow represents earnings before depreciation, amortization, and non-cash charges. Sometimes called cash earnings. Cash flow from operations (called funds from operations by real estate and other investment trusts) is important because it indicates the ability to pay dividends. Cash flow after interest and taxes Net income plus depreciation. Cash flow break-even point The point below which the firm will need either to obtain additional financing or to liquidate some of its assets to meet its fixed costs. Cash flow per common share Cash flow from operations minus preferred stockdividends, divided by the number of common sharesoutstanding. Cash flow coverage ratio The number of times that financial obligations (for interest, principal payments, preferred stockdividends, and rental payments) are covered by earnings before interest, taxes, rental payments, and depreciation. Cash flow matching Also called dedicating a portfolio, this is an alternative to multiperiod immunization that calls for the manager to match the maturity of each element in the liability stream, working backward from the last liability to assure all required cash flows. Cash flow from operations A firm'snetcash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuingsecurities), calculated as the sum of net income plus noncash expenses that are deducted in calculating net income. Cash flow time line Line depicting the operating activities and cash flows for a firm over a particular period. Cash in Advance A payment term meaning the buyer pays the seller before shipment is effected. Cash In Lieu (CIL) In a typical exchange offer, "old" shares of the target company are exchanged for "new shares". Cash investments Short-termdebt instruments—such as commercial paper, banker's acceptances, and Treasury bills—that mature in less than one year. Also known as money marketinstruments or cash reserves. Cash management Refers to the efficient management of cash in a business in order to put the cash to work more quickly and to keep the cash in applications that produce income, such as the use of lock boxes for payments. Cash management bill Very short-maturity bills that the Treasury occasionally sells because its cash balances are down and it needs money for a few days. Cash markets Also called spot markets, these are markets that involve the immediate delivery of a security or instrument. Related: Derivative markets. Cash offer Often used in risk arbitrage. Proposal, either hostile or friendly, to acquire a target company through the payment of cash for the stock of the target. Compare to exchange offer. Cash-on-cash return A method used to find the return on investments when there is no activesecondary market. The yield is determined by dividing the annual cash income by the total investment. See: Current yield or yield to maturity. Cash on delivery (COD) In the context of securities, this refers to the practice of institutional investors paying the full purchase price for securities in cash. Cash-out Laws These laws enable shareholders to sell their stakes to a "controlling" shareholder at a price based on the highest price of recently acquired shares. This works something like Fair-Price provisions extended to nontakeover situations. A few states have these laws. Cash plus convertible Convertible bond that requires cash payment upon conversion. Cash position The percentage of a mutual fund'sassetsinvested in short-term reserves, such as US Treasury bills or other money marketinstruments. Cash price Applies to derivative products. See: Spot price. Cash ratio The proportion of a firm'sassets held as cash. Cash reserves See: Cash investments Cash sale/settlement Transaction in which a contract is settled on the same day as the trade date, or the next day if the trade occurs after 2:30 p.m. EST and the parties agree to this procedure. Often occurs because a party is strapped for cash and cannot wait until the regular three-business daysettlement. See: Settlement date. Cash Settlement The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock. Cash settlement contracts Futures contracts such as stock index futures that settle for cash and do not involve delivery of the underlying. Cash-surrender value The amount an insurance company will pay if the policyholdertenders or cashes in a whole life insurance policy. Cash transaction A transaction in which exchange is immediate in the form of cash, unlike a forward contract (which calls for future delivery of an asset at an agreed-upon price). Cashbook An accounting book that is composed of cash receipts plus disbursements. This balance is posted to the cash account in the ledger. Cashier's check A check drawn directly on a customer's account, making the bank the primary obligor, and assuring firm that the amount will be paid. Cashout Occurs when a firm runs out of cash and cannot readily sell marketable securities. Casualty-insurance Insurance protecting a firm or homeowner against loss of property, damage, and other liabilities. Casualty loss A financial loss caused by damage, destruction, or loss of property as a result of an unexpected or unusual event. Catastrophe call Early redemption of a municipal revenue bond because a catastrophe has destroyed the project that provided the revenue source backing the bond. Cats and dogs Speculative stocks with short histories of sales, earnings, and dividend payments. Caveat emptor, caveat subscriptor Latin expressions for "buyer beware" and "seller beware," which warn of overly risky, inadequately protectedmarkets. Cease-and-desist order An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts. Cede & Co. Nominee name for The Depository Trust Company, a large clearing house that holds shares in its name for banks, brokers and institutions in order to expedite the sale and transfer of stock. CEDEL A centralized clearing system for Eurobonds. Ceiling The highest price, interest rate, or other numerical factor allowable in a financial transaction. Central bank A country's main bank whose responsibilities include the issue of currency, the administration of monetary policy, open market operations, and engaging in transactions designed to facilitate healthy business interactions. See: Federal Reserve System. Central bank intervention The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements. Central Limit Theorem The Law of Large Numbers states that as a sample of independent, identically distributed random numbers approaches infinity, its probability density function approaches the normal distribution. See: Normal Distribution. Centralized cash flow management Provision of consolidated cash management decisions to all MNCunits from one location, usually at the parent's headquarters. Cents per share The amount of a mutual fund'sdividend or capital gains distributions that a shareholder will receive for each share owned. Checkwriting Free checkwriting privileges offered with non retirement accounts for select mutual funds. Certainty equivalent An amount that would be accepted today (risk free) in lieu of a chance to receive a possibly higher, but uncertain, amount. Certainty Equivalent Return The certain (zero risk) return an investor would trade for a given (larger) return with an associated risk. For example, a particular investor might trade an uncertain expected 4% activereturn with 6% risk, for a certain active return of 1.5%. Used as a way to incorporate individual investor risk tolerances into financial decisions. Certificate A formal document used to record a fact and used as proof of the fact, such as stock certificates, that evidence ownership of stock in a corporation. Certificate of Accrual on Treasury Securities (CATS) Refers to a zero-coupon US Treasuryissue that is sold at a deep discount from the face value and pays no couponinterest during its lifetime, but returns the full face value at maturity. Certificate of deposit (CD) Also called a time deposit this is a certificateissued by a bank or thrift that indicates a specified sum of money has been deposited. A CD has a maturity date and a specified interest rate, and can be issued in any denomination. The duration can be up to five years. Certificate of Origin A document certifying the country of origin for goods sold internationally. Certificates of Amortized Revolving Debt (CARD) Pass-through securities backed by credit card receivables. Certificates of Automobile Receivables (CAR) Pass-through securities backed by automobile loan receivables. Certificateless municipals Municipal bonds with one certificate which is valid for the entire issue, and having no individual certificates, easing transactions. See: Book-entry securities. Certified check A bank guaranteedcheck for which funds are immediately withdrawn, and for which the bank is legally liable. Certified Financial Planner (CFP) A person who has passed examinations accredited by the Certified Financial Planner Board of Standards, showing that the person is able to manage a client's banking, estate, insurance, investment, and tax affairs. Certified financial statements Financial statements that include an accountant's opinion. Certified Public Accountant (CPA) An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state. Chair of the board Highest-ranking member of a Board of Directors, who presides over its meetings and who is often the most powerful officer of a corporation. Chaos A deterministic non-linear dynamic system that can produce random looking results. A chaotic system must have a fractal dimension, and exhibit sensitive dependence on initial conditions. See: Fractal Dimension, Lyapunov Exponent, Strange Attractor. Chapter 7 Proceedings Provisions of the Bankruptcy Reform Act under which the debtorfirm'sassets are liquidated by a court because reorganization would fail to establish a profitable business. Chapter 11 Proceedings Provisions of the Bankruptcy Reform Act under which the debtorfirm is reorganized by a court because the estimated value of the reorganized firm exceeds the expected proceeds from its liquidation. Changes in financial position Sources and uses of funds provided from operations that alter a company'scash flowposition: depreciation, deferred taxes, other sources, and capital expenditures. Characteristic line The market model applied to a single security; a regression of security returns on the benchmark return. The slope of the regression line is a security's beta. Characteristic portfolio A portfolio which efficiently represents a particular asset characteristic. For a given characteristic, it is the minimum risk portfolio, with portfolio characteristic equal to 1. For example, the characteristic portfolio of assetbetas is the benchmark. It is the minimum risk beta = 1 portfolio. Charge The document evidencing mortgagesecurity required by Crown Law (law derived from English law). A Fixed Charge refers to a defined set of assets and is usually registered. A Floating Charge refers to other assets which change from time to time (ie. cash, inventory, etc.), which become a Fixed Charge after a default. Charge off See: Bad debt Charitable remainder trust An irrevocable trust that pays income to a designated person or persons until the grantor's death, when the income is passed on to a designated charity. A charitable lead trust by contrast allows the charity to receive income during the grantor's life, and the remaining income to pass to designated family members upon the grantor's death. Charter See: Articles of incorporation Charter Amendment Limitations These provisions limit shareholders' ability to amend the governing documents of the corporation. This might take the form of a supermajority vote requirement for charter or bylaw amendments, total elimination of the ability of shareholders to amend the bylaws, or the ability of directors beyond the provisions of state law to amend the bylaws without shareholder approval. Chartered Financial Analyst (CFA) An experienced financial analyst who has passed examinations in economics, financial accounting, portfolio management, security analysis, and standards of conduct given by the Institute of Chartered Financial Analysts. Chartists A technical analyst who charts the patterns of stocks, bonds, and commodities to find trends in patterns of trading used to advise clients. Related: Technical analysts. Chasing the market Purchasing a security at a higher price than expected because prices are rapidly climbing, or selling a security at a lower level when prices are quickly falling. Chastity bonds Bondsredeemable at par value in the case of a takeover. Chatter See: Whipsawed Chattel Mortgage A loan agreement that grants to the lender a lien on property other than real estate. Chattel is personal or movable property. Cheapest to deliver issue The acceptable Treasury security with the highest implied repo rate; the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date. Check A bill of exchange representing a draft on a bank from deposited funds that pays a certain sum of money to a certain person or party. Check clearing The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system. Checking the market Searching for bid and offer prices from market makers to find the best deal. Chicago Board Options Exchange (CBOE) A securities exchange created in the early 1970s for the public trading of standardized optioncontracts. Primary place for the trading of stockoptions,foreign currency options, and index options (S&P 100, 500, and OTC 250 index) Chicago Board of Trade (CBOT) The second largest futures exchange in the US, and a pioneer in the development of financial futures and options. Chicago Mercantile Exchange (CME) Chicago Mercantile Exchange (CME) is the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. Founded in 1898 as a not-for-profitcorporation, in November 2000 CME became the first U.S. financial exchange to demutualize and become a shareholder-owned corporation. Its futures and options on futurestrade on CME's trading floors, on its GLOBEX electronic trading platform and through privately negotiated transactions. CME has four major product areas based on interest rates (including Eurodollar futures, the world's most actively traded futures contract), stock indexes (such as the (S&P 500 and Nasdaq-100 futures), foreign exchange and commodities. Chicago Stock Exchange (CHX) A major exchangetrading only stocks, with 90% of trades taking place on an automated execution system, called MAX. Chief Executive Officer (CEO) A title held often by the Chairperson of the Board, or the president. The person principally responsible for the activities of a company. Chief Financial Officer (CFO) The officer of a firm responsible for handling the financial affairs of a company. Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. Chinese hedge Applies mainly to convertible securities. Trading hedge in which one is short the convertible and long the underlying common, in the hope that the convertible's premium will fall. Antithesis of set-up. Chinese wall Communication barrier between financiers at a firm (investment bankers) and traders. This barrier is erected to prevent the sharing of inside information that bankers are likely to have. Choice market Applies mainly to international equities. Locked market in London terminology. Churning Excessive trading of a client's account in order to increase the broker'scommissions. Cincinnati Stock Exchange (CSE) Stock exchange based in Cincinnati that is the only fully automated stock exchange in the US. It has no tradingfloor, but handles all members'transactions using computers. Circle Underwriters, actual or potential, often seek out and "circle" investor interest in a new issue before final pricing. The customer circled has basically made a commitment to purchase the issue if it is available at an agreed-upon price. If the actual price is other than that stipulated, the customer supposedly has first offer at the actual price. Circuit breakers Measures instituted by exchanges to stop trading temporarily when the market has fallen by a certain percentage in a specified period. They are intended to prevent a market free fall by permitting buy and sell orders to rebalance. Circus swap A fixed-rate currency swap against floating US dollar LIBOR payments. An acronym that stands for Combined Interest Rate and CUrrency Swap. Citizen bonds Certificateless municipals that can be registered on stock exchanges and are listed in newspapers. City code on takeovers and mergers See: Dawn raid Claim dilution A decrease in the likelihood that one or more of a firm'sclaimants will be fully repaid, including time value of money considerations. Claimant A party to an explicit or implicit contract. Class In the case of derivative products, options of the same type-put or call-with the same underlying security. See: Series. In general, refers to a category of assets such as: domestic equity, fixed income, etc. Class A/Class B shares See: Classified stock Class action A legal complaint filed by a lawyer or group of lawyers for a group of petitioners with an identical grievance, often with an award proportionate to the number of shareholders involved. Class of Options Option contracts of the same type (call or put) and Style (American, European or Capped) that cover the same underlying security. Classified Board Also known as Staggered Board: is one in which the directors are placed into different classes and serve overlapping terms. Since only part of the board can be replaced each year, an outsider who gains control of a corporation may have to wait a few years before being able to gain control of the board. This slow replacement makes a classified board an effective delays of takeovers. Sometimes known as a delay provision. Classified stock The division of stock into more than one class of common stock, usually called Class A and Class B. The specific features of each class, which are set out in the charter and bylaws, usually give certain advantages to the Class A shares, such as increased voting power. Claused Bill of Lading A bill of lading with a notation that indicates damage or shortage. Also called foul bill of lading and are the opposite of clean bills of lading. Clawback The ability to recover prior project cash flow that may have been distributed or paid away as dividends to sponsors. Clawback A dividend clawback is an arrangement whereby the equity owners commit to use dividends they have received in the past to finance the cash needs of the project or corporation in the future. Clawback has a more general definition. For example, premiums paid on an insurance policy may be refunded (or clawed back) if the policy is cancelled in a certain time frame. Such an arrangement is specified in the contract and referred to as a clawback provision. Clean In the context of general equities, block trade that matches buy or sell orders/interests, sparing the block trader any inventoryrisk (no net position and hence none available for additional customers). Natural. Antithesis of open. Clean Bill of Lading A bill of lading bearing no findings of damage or shortage. Clean opinion An auditor's opinion reflecting an unqualified acceptance of a company'sfinancial statements. Clean price Bond price excluding accrued interest. Clean Report of Findings A report issued by an inspection firm, indicating that price has been verified, that the goods have been inspected prior to shipment, and that both conform to buyer specifications. Clean up In the context of general equities, purchase/sale of all the remaining supply of stock, or the last piece of a block, in a trade-leaving a net zero position. "Clean your skirts" In the context of general equities, i.e. "make all your obligatedcalls" check with all prior obligations in a security. Often preceded by "subject to." Clear To settle a trade by the seller delivering securities and the buyer delivering funds in the proper form. A trade that does not clear is said to fail. Comparison of the details of a transaction between broker/dealers prior to settlement; final exchange of securities for cash on delivery. Clear a position To eliminate a long or short position, leaving no ownership or obligation. Clear title Title to ownership that is untainted by any claims on the property or disputed interests, and therefore available for sale. This is usually checked through a title search by a title company. Clearing corporations Organizations that are affiliated with exchanges and are used to complete securities transactions by taking care of validation, delivery, and settlement. Clearing House Automated Payments System (CHAPS) A computerized clearing system for sterling funds that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the clearing companies within the structure of the Association for Payment Clearing Services (APACS). Clearing House Electronic Subregister System (CHESS) CHESS is the automatic transfer and settlement system for the majority of Australian Stock Exchange (ASX) listed securities. Clearing house funds Funds from the Federal Reserve System, requiring three days to clear, that are passed to and from banks. Clearing House Interbank Payments System (CHIPS) An international wire transfer system for high-value payments operated by a group of major banks. Clearinghouse An adjunct to a futures exchange through which transactionsexecuted on its floor where trades are settled by a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate financing of the entire operation. Clearing member A member firm of a clearing house. Each clearing member must also be a member of the exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of a non-clearing member must be registered with, and eventually settled through, a clearing member. Clearing Member Trade Agreement (CMTA) An agreement that allows a client to executederivativetrades through different brokers yet consolidate positions for clearing purposes at one brokerage firm. Clientele effect Describes the tendency of funds or investments to be followed by groups of investors who have similar preferences for a firm which follows a particular financing policy, such as the amount of leverage it uses. Clone fund A new fund set up in a fund family to emulate another successful fund. Close The close is the period at the end of the trading session. Sometimes used to refer to closing price. Related: Opening. Close a position In the context of general equities, eliminate an investment from one's portfolio, by either selling a long position or covering a short position. Close-end credit An agreement in which advancedcredit plus any finance charges are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements. Close market An market in which there is a narrow spread between bid and offer prices, due to a high volume of trading and many competing market makers. Closed corporation A corporation whose shares are owned by just a few people, having no public market. Closed-end management company An investment company that issues a fixed number of shares of the mutual fund that it manages, and does not create new shares if demand increases. Antithesis of an open-end management company. Closed-end fund An investment company that issues shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Related: Open-end fund. Closed-end management company An investment company that has only a set number of shares of the mutual fund that it manages, and does not create new shares if demand increases. Antithesis of an open-end management company. Closed-end mortgage Mortgage against which no additional debt may be issued. Closed fund A mutual fund that is no longer issuingshares, mainly because it has grown too large. Closed out Position that is liquidated when the client does not meet a margin call or cover a short sale. Closely held A corporation whose voting stock is owned by only a few shareholders. Closely held company A company who has a small group of controllingshareholders. In contrast, a widely-held firm has many shareholders. It is difficult or impossible to wage a proxy battle for any closely-held firm. Closing costs All the expenses involved in transferring ownership of real estate. Closing price Price of the last transaction of a particular stock completed during a day's trading session on an exchange. Closing purchase A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock, or in a given series of options. Closing quote The last bid and offer prices of a particular stock at the close of a day's trading session on an exchange. Closing range Also known as the range. The high and low prices, or bids and offers, recorded during the period designated as the official close. Related: Settlement price. Closing sale A transaction in which the seller's intention is to reduce or eliminate a long position in a stock, or a given series of options. Closing tick The net of the number of stocks whose closing prices are higher than their previous trades ( uptick) against the number of stocks whose closing prices were lower than their previous trades (downtick). A positive closing tick indicates "buying at the close", or a bullishmarket; a negative closing tick indicates "selling at the close," or a bearishmarket. See: TRIN. Closing transaction Applies to derivative products. Buy or sell transaction that eliminates an existing position (selling a long option or buying back a short option). Antithesis of opening transaction. Closing TRIN See: TRIN Cloud on title Any claim or encumbrance, usually discovered in a title search, that may impair the title to a property, and make its validity questionable. See: bad title. Club A group of underwriters who do not need to proceed to form a syndicate. Cluster analysis A statistical technique that identifies clusters of stocks whose returns are highly correlated within each cluster and relatively uncorrelated across clusters. Cluster analysis has identified groupings such as growth, cyclical, stable, and energy stocks. CMO REIT A very risky type of Real Estate Investment Trustinvesting in the residual cash flows of Collateralized Mortgage Obligation (CMOs). CMO cash flows are derived from the difference between the rates paid by the mortgageloan holders and the lower, shorter-term rates paid to CMO investors. Co-financing A type of financing in which the different lenders agree to fund under the same documentation and security packages but may have different interest rates, repayment profiles, and terms. Co-manager A second-tier Participant, ranked by size of participation. Co-agent An institution appointed by the issuer as co-transfer agent accepts and transfers certificates and sends daily activity journals to the primary record-keeping agent. A co-agent does not maintain security holder records, but is used to facilitate the transfer of stock in a geographic region not easily accessible to the issuer or its principal transfer agent. Coattail investing A riskytrading practice of making trades similar to those of other successful investors, usually institutional investors. COD transaction See: Delivery versus payment Code of procedure The guide of the National Association of Securities Dealers used to adjudicate complaints filed against NASD members. Coefficient of determination A measure of the goodness of fit of the relationship between the dependent and independent variables in a regression analysis; for instance, the percentage of variation in the return of an asset explained by the market portfolio return. Also known as R-square. Coefficient of Variation A measure of investment risk that defines risk as the standard deviation per unit of expected return. Coface The French Export Credit Agency. Coffee, Sugar & Cocoa Exchange (CS&CE) The New York-based commodity exchange trading futures and options. The CS&CE shares the trading floor at the Commodities Exchange Center. Cofinancing agreements Joint participation of the World Bank and other agencies or lenders in providing funds to developing countries. Coherent Market Hypothesis A hypothesis that the probability density function of the market may be determined by a combination of group sentiment and fundamental bias. Depending on combinations of these two factors, the market can be in one of four states: random walk, unstable transition, chaos, or coherence. Coincident indicators Economic indicators that give an indication of the current status of the economy. Coinsurance effect Refers to the fact that the merger of two firms lessens the probability of default on either firm's debt. Cold-calling Calling potential new customers in the hope of selling stocks, bonds or other financial products and receiving commissions. Collar Refers to the ceiling and floor of the price fluctuation of an underlying asset. A collar is usually set up with options, swaps, or by other agreements. In corporate finance, the collar strategy of buying puts and selling calls is often used to mitigate the risk of a concentrated position in (sometimes) restricted stock. When the restricted owner can't sell the stock, but needs to diversify the risk, a collar transaction is one of the few tools available. Many corporate executives who receive chunks of their compensation in restricted stock need to employ this strategy to mitigate the diversification risk in their overall portfolio. Collateral In the context of project financing, additional security pledged to support the project financing. Collateral trust bonds A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds, or other financial asset as security. Compare mortgage bond. Collateralized Bond Obligation (CBO) Investment-grade bonds backed by a collection of junk bonds with different levels of risk, called tiers, that are determined by the quality of junk bond involved. CBOs backed by highly riskyjunk bonds receive higher interest rates than other CBOs. Collateralized Debt Obligation (CDO) A general inclusive term which covers Collateralized Bond Obligations, Collateralized Loan Obligations, and Collateralized Mortgage Obligations, Collateralized loan obligation (CLO) A security backed by a pool of commercial or personal loans , structured so that there are several classes of bondholders with varying maturities, called tranches. Similar in structure to Collateralized Mortgage Obligations. Collateralized mortgage obligation (CMO) A security backed by a pool of pass-through rates , structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus. Related: mortgage pass-through security. Collecting Bank A bank that assists in obtaining payment in accordance with draft payment terms. Collection The presentation of a negotiable instrument for payment, or the conversion of any accounts receivable into cash. Collection float The period between the time is a check is deposited in an account and the time funds are made available. Collection fractions The percentage of a given month's salescollected during the month of sale and each month following the month of sale. Collection period See: Collection ratio Collection policy Procedures a firm follows in attempting to collectaccounts receivables. Collection ratio The ratio of a company'saccounts receivable to its average daily sales, which gives the average number of days it takes the company to convert receivables into cash. Collective wisdom The combination of all the individual opinions about a stock's or security's value. Colombo Stock Exchange Established in 1984, the only public stock exchange of Sri Lanka. COLT (Continuous on-line trading system) Computerized OTC traders assistance system that provides for trade entry and position monitoring, among other functions. Comanager A bank that ranks just below a lead manager in a syndicatedEurocredit or international bond issue. Comanagers may assist the lead manager bank in the pricing and issue of the instrument. Combination Applies to derivative products. Arrangement of options involving two long or two short positions with different expiration dates or strike (exercise) prices. See: Straddle. Combination annuity See: Hybrid annuity Combination bond A bond backed by the government unit issuing it as well as by revenue from the project that is to be financed by the bond. Combination order See: Alternative order Combination matching Also called horizon-matching, a variation of multiperiod immunization and cash flow-matching in which a portfolio is created that is always duration-matched and also cash-matched in the first few years. Combination strategy A strategy in which a put and call with different strike prices and the same expiration are either both bought or both sold. Related: Straddle Combined financial statement A financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must reconcile investment and capital accounts. Come in In the context of general equities, a fall in price. Come out of the trade In the context of general equities, trader'sposition in a security that results from executing a trade (or the expectations thereof). Antithesis of going into the trade. Comeout In the context of general equities, the opening. Antithesis of the close. COMEX A division of the New York Mercantile Exchange (NYMEX). Formerly known as the Commodity Exchange, COMEX is the leading US market for metals futures and options trading. Comfort letter A letter from an independent auditor included in a preliminary prospectus stating that, while a full audit has not been undertaken, the auditor has done a 'review' sufficient to assure that financial statement information in the preliminary prospectus is correctly prepared to the best of the auditor's knowledge. The auditor in effect states that, had a full audit been done, they are comfortable that the audited financial statements would not be materially different from the ones presented in the preliminary prospectus. Commercial bank Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and business. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities. Commercial draft Demand for payment. Commercial hedgers Companies that take futurespositions in commodities so that they can guarantee prices at which they will buy raw materials or sell their products. Commercial invoice Bill for merchandise sold. Commercial letters of credit Trade-related agreement that a certain amount of bank funds is available to an entity. Commercial loan A short-termloan, typically 90 days, used by a company to finance seasonal working capital needs. Commercial Mortgage Backed Securities Similar to MBS but backed by loans secured with commercial rather than residential property. Commercial property includes multi-family, retail, office, etc., They are not standardized so there are a lot of details associated with structure, credit enhancement, diversification, etc., that need to be understood when valuing these instruments. Commercial paper Short-term promissory notes either unsecured or backed by assets such as loans or mortgages issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less. They are usually sold, like Treasury bills, at a discount. Commercial property Real estate that produces some sort of income-producing property. Commercial risk The risk that a debtor will be unable to pay its debts because of business events, such as bankruptcy. Commingling In the context of securities, this involves mixing customer-owned securities with brokerage firm-owned securities. This process is referred to as rehypothecation, which is the use of customers' collateral to secure their loans. This is legal with customer consent, although some securities and collateral must be kept separately. Commission The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or their dollar value. In 1975, deregulation led to the establishment of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock. Also known as a round-turn. Commissions are known as round-turn only in futures trading, since the commission is assessed only after liquidation of the position. Commission broker A broker on the floor of an exchange who acts as agent for a particular brokerage house and buys and sells stocks for the brokerage house on a commission basis. Commission house A firm that buys and sells futures contracts for customer accounts. Related: futures commission merchant, omnibus account. Commission-only compensation Payment to a financial advisers of only commissions on investmentspurchased when the client implements the recommended financial plan. Commitment Describes a trader'sobligation to accept or make delivery on a futures contract. Related: Open interest. Committee on Uniform Securities Identification Procedures (CUSIP) Committee that assigns identifying numbers and codes for all securities. These "CUSIP" numbers and symbols are used when recording all buy or sell orders. Commodities Exchange Center (CEC) The location of five New York futures exchanges: Commodity Exchange, Inc. (COMEX); the New York Mercantile Exchange (NYMEX); New York Cotton Exchange, Coffee, Sugar & Cocoa Exchange (CS&CE), and New York Futures Exchange (NYFE). Commodity A commodity is food, metal, or another fixed physical substance that investorsbuy or sell, usually via futures contracts. Commodity-backed bond A bond with interest payments tied to the price of an underlyingcommodity. Commodity Bundle One unit of the collection of the complete set of goods produced and sold in the world market. Commodity Channel Index An index used in technical analysis. High values mean a potential future correction (downward movement in underlying asset) and low values potentially forecast a rally. Details in Donald Lambert's October 1980 article in Commodities Magazine. Commodity futures contract An agreement to buy a specific amount of a commodity at a specified price on a particular date in the future, allowing a producer to guarantee the price of a product or raw material used in production. Commodity Futures Trading Commission (CFTC) An agency created by the US Congress in 1974 to regulate exchange trading in futures. Commodity indices Indices measuring the price and performance of physical commodities, often by the price of futures contracts for the commodities that are listed on commodityexchanges. Commodity paper A loan or advance secured by commodities. Commodity Research Bureau Produces a popular price index of 17 commodities which is often used to track inflationarytrends in the economy. Commodity Trading Advisor An investment manager that focuses on long and short trading in the futures markets. The trades are often intraday trades. Sometimes referred to as Managed Futures. Common-base-year analysis The representing of accounting information over multiple years as percentages of amounts in an initial year. Common code A nine-digit identification code issued jointly by CEDEL and Euroclear. As of January 1991 common codes replaced the earlier separate CEDEL and Euroclear codes. Common factor An element of return that influences many assets. According to multiple factor risk models, the factors determine correlations between asset returns. Common factors include size (often measured by market capitalization), valuation measures such as price to book value ratio and dividend yield, industries and risk indices. Common market An agreement between two or more countries that permits the free movement of capital and labor as well as goods and services. Common shares In general, a publiccorporation has two types of shares, common and preferred. The common shares usually entitle the shareholders to vote at shareholders meetings. The common shares have a discretionary dividend. Common-size analysis The representing of balance sheet items as percentages of assets and of income statement items as percentages of sales. Common-size statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of analyzing trends and changing relationship among financial statement items. For example, all items in each year's income statement could be presented as a percentage of netsales. Common stock Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Units of ownership of a publiccorporation with junior status to the claims of secured/unsecured creditors, bondholders and preferred shareholders in the event of liquidation. Common stock equivalent A convertible security that is traded like an equityissue because the optioned common stock is trading above the conversion price. Common stock fund A mutual fundinvesting only in common stock. Common stock market The market for trading equities, not including preferred stock. Common stock/other equity Value of outstandingcommon shares at par, plus accumulatedretained earnings. Also called shareholders' equity. Common stock ratios Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity ( book value per share) of a firm. Commonwealth Development Corp A British development finance institute. Comnmunity Bank A smaller bank that is regulated by the Office of the Comptroller of Currency (OCC).Currently, there is no official definition of Community Bank, i.e. in terms of asset size. Community Reinvestment Act (CRA) Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations. Companion bonds A class of a Collateralized Mortgage Obligation (CMO) whose principal is paid off first when the underlyingmortgages are prepaid due to falling interest rates. When interest rates rise, there will be lower prepayments of the principal; companion bonds therefore absorb most of the prepayment risk of a CMO. Company A proprietorship, partnership, corporation, or other form of enterprise that engages in business. Company doctor An executive, usually appointed from outside, brought in to turn a company around and make it profitable. Company-specific risk Related: Unsystematic risk Comparative advantage Theory suggesting that specialization by countries can increase worldwide production. Comparative credit analysis Comparing a firm to others that have a desired target debt rating in order to deduce an appropriate financial ratio target. Comparative statements Financial statements for different periods, that allow the comparison of figures to illustrate trends in a company's performance. Comparison Short for "comparison ticket," a memorandum between two brokers that confirms the details of a transaction to be carried out. Comparison universe A group of money managers of similar investment style used to assess relative performance of a portfolio manager. Compensation trade The form of countertrade in which an incoming investment is repaid from the revenues generated by that investment. Compensating balance An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided. Compensation Arrangement under which the delivery of goods to a party is paid for by buying back a certain amount of the product from the recipient of the goods. Compensatory Financing Facility (CFF) Entity that attempts to reduce the impact of export instability on country economies. Competence Sufficient ability or fitness for one's needs. The necessary abilities to be qualified to achieve a certain goal or complete a project. Competition Intra- or intermarket rivalry between or among businesses trying to obtain a larger piece of the same market share. Competition ahead Often used in risk arbitrage. Situation whereby another OTC market maker has transacted with investment bank at the stated market level before the bid/offer has been made. Competitive bidders One of two categories of bidders on Treasury securities: competitive and noncompetitive. Competitive bidders are usually financial institutions. Competitive bidding A securitiesoffering process in which securities firms submit competing bids to the issuer for the securities the issuer wishes to sell. Competitive offering An offering of securities through competitive bidding. Complementary Financing A type of financing in which different lenders agree to fund under similar yet parallel documentation and a pro rata security package. Complete In the context of general equities, to fill an order. Complete capital market A market in which there is a distinctive marketable security for each and every possible outcome. Complete portfolio The entire portfolio, including risky and risk-free assets. Completion In the context of project financing, occurs after a Completion Test, when the project's cash flows become the primary method of repayment. Prior to completion, the primary source of repayment is usually from the sponsors or from the turnkey contractor. Completion bonding Insurance that a construction contract will be completed successfully. Completion risk The risk that a project will not be brought into operation successfully or be able to pass its completion test. Completion test A test of the project's ability to perform as planned and generate the expected cash flows. After the completion test, the project can move from recourse to project financing. Completion undertaking An undertaking either (1) to complete a project so that it meets certain specified performance criteria on or before a certain specified date, or (2) to repay project debt if the completion test cannot be met. Complexity Theory The theory that processes with a large number of seemingly independent agents can spontaneously organize themselves into a coherent system. Compliance department A department in all organized stock exchanges to ensure that all companies, traders, and brokerage firms comply with Securities and Exchange Commission and exchange rules and regulations. Composite tape See: Tape Composition Voluntary arrangement to restructure a firm'sdebt, under which payment is reduced. Compound Annual Growth Rate Annual return calculated based on each year's previous balances where each previous balance includes both the original principal and all interest accrued from prior years. Best defined by example. If you invest $100 today and make 5% in the first year and reinvest ($105) and make 8% in the second year, the compound annualgrowth rate is 6.489%. The calculation is $100x1.05x1.08=$113.4 which is what you end up with at the end of year two. The average return is [square root(113.4/100) -1]= 0.06489 or 6.489%. Note 1. If we had three compounding periods we would take the cubic root (power of 1/3). Note 2. If we had invested at exactly 6.489 in both periods, we get $100x1.06489x1.06489=$113.4. Note 3. The example is directed to a return - but CAGR could be applied to earnings growth, GDP growth, etc. Compound Annual Return See: Compound Annual Growth Rate Compound growth rate See: Compound Annual Growth Rate Compound interest Interest paid on previously earned interest as well as on the principal. Compound option Option on an option. Compounding The process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period. Compounding frequency The number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4. Compounding period The length of the time period that elapses before interestcompounds (a quarter in the case of quarterly compounding). Comprehensive due diligence investigation The investigation of a firm's business in conjunction with a securitiesoffering to determine whether the firm's business and financial situation and its prospects are adequately disclosed in the prospectus for the offering. Comprehensive Income Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events from non-owner sources. It includes all non-owner changes in equity (in contrast to net income which does not include some changes in equity). Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. For fiscal years beginning after December 15, 1997, SFAS 130 requires the disclosure of both net income and a more 'comprehensive' measure of income which includes four items recorded as owners' equity under previous FASB pronouncements: adjustments to unrealized gains and losses on available-for-sale marketable securities (SFAS 115), foreign currency translation adjustments (SFAS 52), minimum required pension liability adjustments (SFAS 87), and changes in the market values of certain futures contracts qualifying as hedges (SFAS 80). Comptroller The corporate manager responsible for the firm's accounting activities. Sometimes referred to as the contoller (which means the same thing). Comptroller of the Currency A government official, appointed by the President of the United States, who keeps control over all national banks, and receives reports from the banks at least quarterly, to be published in newspapers. Computerized market timing system A computer system that compiles large amounts of trading data in search of patterns and trends to make buy and sell recommendations. Concave Property that a curve is below a straight line connecting two end points. If the curve falls above the straight line, it is called convex. Concentration account A single centralized account into which funds collected at regional locations (lockboxes) are transferred. Concentration Banks A small number of large banks a firm contracts with to periodically collect the firm's deposit balances from a group of smaller banks. Concentration services Movement of cash from different lockbox locations into a single concentration account from which disbursements and investments are made. Concession The per-share or per- bondcompensation of a selling group for participating in a corporate underwriting. Concession agreement An understanding between a company and the host government that specifies the rules under which the company can operate locally. Conditional call Applies mainly to convertible securities. Circumstances under which a company can effect an earlier call, usually stated as percentage of a stock'strading price during a particular period, such as 140% of the exercise price during a 40-day trading span. Conditional call options A protective guarantee that, in the event a high yield bond is called, the issuingcorporation will replace the bond with a non callable bond of the same life and terms as the bond that is being called. Conditional sales contracts Similar to equipment trust certificates, except that the lender is either the equipment manufacturer or a bank or finance company to which the manufacturer has sold the conditional sales contract. Condor Applies to derivative products. Optionstrategy consisting of both puts and calls at different strike prices to capitalize on a narrow range of volatility. The payoff diagram takes the shape of a bird. Conduit theory A theory that because investmentcompanies are merely conduits for capital gains, dividends, and interest, which are in fact passed through to shareholders, the investmentcompany should not be taxed at the corporate level. Confidence indicator A measure of investors' faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign. Confidence letter Statement by an investment bank that it is highly confident that the financing for its client/acquirer'stakeover can and will be obtained. Often used in risk arbitrage. Confidence level In risk analysis, the degree of assurance that a specified failure rate is not exceeded. "Confirm me out" Used for listed equity securities. "Go to the floor and check with the specialist or floor broker that my previously activeorder has been canceled and was not executed". One does not have to honor any trade reported after being given a "firm out". Confirmation The written statement that follows any "trade" in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc. Confirmed Letter of Credit A letter of credit which a bank other than the bank that opened it agrees to honor as though they had themselves issued it. This additional confirmation is in addition to the obligation of the bank which issued the letter of credit. Confirming Bank The bank which has confirmed a letter of credit opened by another bank. Conflict between bondholders and stockholders Bondholders and stockholders may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective covenants in bond documents work to resolve these conflicts. Conforming loans Mortgageloans that meet the qualifications of Freddie Mac or Fannie Mae, which are bought from lenders and issued as pass-through securities. Conglomerate A firm engaged in two or more unrelated businesses. Conglomerate merger A merger involving two or more firms that are in unrelated businesses. Consensus forecast The mean of all financial analysts' forecasts for a company. Consignee The party named in the bill of lading to whom delivery is promised and/or title is passed. Consignment Transfer of goods to a seller while title to the merchandise is retained by the owner. Consol A government bond with no maturity . Popular in Great Britain. The formula for valuing these bonds is simple. The consol payment divided by yield to maturity is the price of the bond. Consolidated financial statement A financial statement that shows all the assets, liabilities, and operating accounts of a parent company and its subsidiaries. Consolidated mortgage bond A bond that covers several units of property, sometimes refinancingmortgages on the properties. Consolidated tape Used for listed equity securities. Combined ticker tapes of the NYSE and the curb. Network A covers the NYSE-listed securities and is used to identify the originating market. Network B does the same for AMEX-listed securities and also reports on securities listed on regional stock exchanges. See: tape. Consolidated tax return A tax return combining the reports of affiliated companies, that are at least 80% owned by a parent company. Consolidation The combining of two or more firms to form an entirely new entity. Consolidation loan A loan that is used to combine and finance payments on other loans. Consortium A group of companies that cooperate and share resources in order to achieve a common objective. Consortium banks A merchant bankingsubsidiary set up by several banks that may or may not be of the same nationality. Consortium banks are common in the Euromarket and are active in loansyndication. Constant dollar Condition in which inflation or escalation is not applicable. Prices and costs are deescalated or reescalated to a single point in time. Constant-dollar plan Method of purchasing securities by investing a fixed amount of money at set intervals. The investorbuys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost. Constant-growth model Also called the Gordon-Shapiro model, an application of the dividend discount model that assumes (1) a fixed growth rate for future dividends, and (2) a single discount rate. Constant ratio plan Maintaining a predetermined ratio between stock and fixed income investments through regular adjustments of distribution of funds into different investments. See: formula investing. Constant yield method Allocation of annual interest on a zero-coupon security for income tax use. Construction loan A short-termloan to finance building costs. Constructive receipt The date a taxpayer receives dividends or other income, for use in the determination of taxes. Consular Invoice A document prepared by the shipper and certified in the country of origin by a consul of the country of importation. It shows the transaction details and origin of the goods. Consumer Advisory Council (CAC) A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice. Consumer credit Credit a firm grants to consumers for the purchase of goods or services. Also called retail credit. Consumer Credit Protection Act of 1968 Federal legislation establishing rules for the disclosure of the terms of a loan to protectborrowers. See: Truth in lending. Consumer debenture An investmentnoteissued directly to the public by a financial institution. Consumer durables Consumer products that are expected to last three years or more, such as an automobile or a home appliance. Consumer finance company See: Finance company Consumer goods Goods not used in production but bought for personal or household use such as food, clothing, and entertainment. Consumer interest Interest paid on consumer loans; e.g., interest on credit cards and retailpurchases. Consumer Price Index (CPI) The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of US inflation. The US Department of Labor publishes the CPI every month. Consumption tax See: Value-added tax Contagion Excess correlation of delivering or bondreturns. For example, under usual conditions we might observe a certain level of correlation of market returns. A period of contagion would be associated with much higher-than-expected correlation. Some examples are the conjectured contagion in East Asian markets beginning in July 1997 when the Thai currency devalued and the impact across many emerging markets of the Russian default. Contagion is difficult to identify because you need some sort of measure of the expected correlation. It is complicated because correlations are known to change through time, for example, see Erb, Harvey and Viskanta's article in the 1994 Financial Analysts Journal. In periods of negative returns, correlations (and volatility) are known to increase, so what might appear to be excessive may not be contagion. Contango A market condition in which futures prices are higher in the distant delivery months. Contingency An additional amount or percentage added to any cash flow item (ie. Capex). Care is needed to ensure it is either to be spent or to remain as a cushion. Contingency graph A plot of the net profit to a speculator in currency options under various exchange rate scenarios. Contingency order In the context of general equities, order to buy one security, if the trader can sell another, usually given that certain price limits or conditions reach a certain level. Swap, switch order. Contingent In context of liabilities, those liabilities that do not yet appear on the balance sheet (ie. guarantees, supports, lawsuit settlements). For support or recourse, the trigger may occur at any time in the future. Contingent claim A claim that can be made only if one or more specified outcomes occur. Contingent conversion trigger Used in the context of convertible instruments. The price of the stock must exceed the trigger price before the bond holder can convert to common stock at a pre-established conversion price. The trigger price exceeds the conversion price. In addition, after a certain number of years, the convertible instrument usually specifies that both the conversion price and the contingent conversion trigger will increase every year by, for example, a rate equal to LIBOR. Contingent deferred sales charge (CDSC) The formal name for the load of a back-end load fund. Contingent immunization An arrangement in which the money manager pursues an activebondportfoliostrategy until an adverse investment experience drives the then-available potential return down to the safety net level. When that point is reached, the money manager is obligated to pursue an immunization strategy to lock in the safety-net level return. Contingent order An order which can be executed only if another event occurs; i.e. "sell Oct 45 call 7-1/4 with stock 52 or lower". Contingent pension liability Under ERISA, a firm is liable to its pension plan participants for up to 39% of the net worth of the firm. Contingent Voting Power Enables preferredstockholders to vote when the company fails to satisfy the agreement between itself and the preferred stockholders. Continuous compounding The process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned constantly, and at each instant, the interest that accrues immediately begins earning interest on itself. Continuous net settlement (CNS) Method of securities clearing and settlement using a clearing house, which matches transactions to securities available, resulting in one net receive or deliver position at the end of the day. Continuous random variable A random value that can take any fractional value within specified ranges, as contrasted with a discrete variable. Contra broker The broker on the buy side of a sell order or the sell side of a buy order. Contract A term of reference describing a unit of trading for a financial or commodityfuture. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange. Contract month The month in which futures contracts may be satisfied by making or accepting a delivery. Contractual Claim An amount that by legal agreement must be paid periodically to the buyer of a security; contractual claim may also specify the time at which the principal must be repaid and other details. Contractual Intermediary Holder of an indirect claim through a legal agreement that specifies that the individual must make periodic, fixed payments to the intermediary in exchange for the right to receive payments from the intermediary in the future. Contractual plan A plan in which fixed dollar amounts of mutual fundshares are purchased through periodic investments, usually featuring some sort of additional incentive for the fixed period payments. Contramarket stock In the context of general equities, stock that tends to go against the trend of the market as a whole, such as a commodities-related stock or one in an industry out of favor with investors in a bull market. Contrarian An investment style that leads one to buyassets that have performed poorly and sell assets that have performed well. There are two possible reasons this strategy might work. The first is a mean-reversion argument; that is, if the asset has deviated from its usual level, it should eventually return to that usual level. The second reason has to do with overreaction. Investors might have overreacted to bad news sending the asset price lower than it should be. Contrarian investing Ignoring markettrends by buyingsecurities that the investor considers undervalued and out of favor with other investors. Contributed capital See: Paid-in capital Contribution Money placed in an individual retirement account (IRA), an employer-sponsored retirement plan, or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account. Contribution margin The difference between variable revenue and variable cost. Control 50% of the outstanding votes plus one vote. Control Limits The upper and lower limits on the acceptable level of cash that minimizes the sum of the opportunity cost of excessive cash and the cost of marketable security transactions. Control parameters In a nonlinear dynamic system, the coefficient of the order parameter; the determinant of the influence of the order parameter on the total system. See: Order Parameter. Control person See: Affiliated person Control-share Acquisition Laws See Supermajority. Control stock The shares owned by the controllingshareholders of a corporation. Sometimes refers to stock that has voting rights rather than stock that carries no voting rights. In a situation where all stock has voting rights, it sometimes refers to the shareholdings of one investors or a group of investors that effectively control the firm. Controlled commodities Commodities regulated by the Commodities Exchange Act of 1936 in order to prevent fraud and manipulation in commoditiesfuturesmarkets. Controlled disbursement A service that provides for a single presentation of checks each day (typically in the early part of the day). Controlled foreign corporation (CFC) A foreign corporation whose voting stock is more than 50% owned by US stockholders, each of whom owns at least 10% of the voting power. Controller The corporate manager responsible for the firm's accounting activities. Sometimes referred to as the comptroller (which means the same thing). Convenience yield The extra advantage that firms derive from holding the commodity rather than a futureposition. Convention statement An annual statement filed by a life insurancecompany in each state where it does business in compliance with that state's regulations. The statement and supporting documents show, among other things, the assets, liabilities, and surplus of the reporting company. Conventional mortgage A loan based on the credit of the borrower and on the collateral for the mortgage. Conventional option An optioncontract arranged on the tradingfloor and traded regularly. The opposite of exotic option. Conventional pass-throughs Also called private-label pass-throughs, any mortgage pass-through security not guaranteed by government agencies. Compare agency pass-throughs. Conventional project A project with a negative initial cash flow (cash outflow), which is expected to be followed by one or more future positive cash flows (cash inflows). Convertible A financialinstrument that can be exchanged for another security or equity interest at a pre-agreed time and exchange ratio. Convertible Arbitrage In the context of hedge funds, a style of management that involves the simultaneous purchase of a convertible bond and the short sale of shares of the underlying stock. Interest rate risk may or may not be hedged. Convergence The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is usually higher because of time value. But as the contract nears expiration, and time value decreases, the futures price and the cash price converge. Conversion In the context of securities, refers to the exchange of a convertible security such as a bond into stock. In the context of mutual funds, refers to the free exchange of mutual fundshares from one fund to another in a single family.Conversion factors Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasuryissue against the Treasury Bondfutures contract. Conversion feature Specification of the right to transform a particular investment to another form of investment, such as switching between mutual funds or converting preferred stock or bonds to common stock. Conversion parity See: Market conversion price Conversion parity price Related: Market conversion price Conversion parity/value Applies mainly to convertible securities. Common stock price at which a convertible bond can become exchangeable for common shares of equal value; value of a convertible bond based solely on the market value of the underlyingequity. Par value plus conversion ratio. See bond value, investment value, parity. Conversion Period The time period during which an investor can exchange a convertible security for common stock. Conversion premium The extent by which the conversion price of a convertible security exceeds the prevailing common stock price at the time the convertible security is issued. In general usage, the conversion premium is the amount by which the convertible security trades above its conversted value. For example, if a $1,000 par bond is trading at $1,100, it is convertible into 50 shares, and the shares are trading at $21, the converted value is 50 X 20.50 = $1,025, and the conversion premium is $75. Conversion price Applies mainly to convertible securities. Dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock, as specified when the convertible is issued. Conversion ratio Applies mainly to convertible securities. Relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred stock when a conversion takes place. It is determined at the time of issue and is expressed either as a ratio or as a conversion price from which the ratio can be figured by dividing the par value of the convertible by the conversion price. Conversion value The value of a convertible security if it is converted immediately. Also called parity value or converted value. Converted put See Synthetic Put. Convertibility The ability to exchange a currency without government restrictions or controls. Convertible adjustable preferred stock (Caps) The interest rate on caps is adjustable and is pegged to Treasurysecurity rates. They can be exchanged at par value for common stock or cash after the next period's dividend rates are revealed. Convertible arbitrage A practice, usually of buying a convertible bond and shorting a percentage of the equivalent underlyingcommon shares, to create a positive cash flowposition (with expected returns above the riskless rate) in a static environment and benefit from capital appreciation should the convertible's premium rise. This form of investing is far from riskless and requires constant monitoring. See: Chinese hedge and setup Convertible bond General debtobligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestatedconversion price. Convertible eurobond A eurobond that can be converted into another asset, often through exercise of attached warrants. Convertible exchangeable preferred stock Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock. Convertible 100 Goldman Sachs index of the 100 convertibles of greatest institutional importance. Weighted by issue size, it measures the performance of its components against that of their underlyingcommon stock and against other broad marketindexes as well. Convertible preferred stock Preferred stock that can be converted into common stock at the option of the holder. See also: participating convertible preferred stock. Convertible price The contractually specified price per share at which a convertible security can be converted into shares of common stock. Convertible security A security that can be converted into common stock at the option of the securityholder; includes convertible bonds and convertible preferred stock. Convex Curved, as in the shape of the outside of a circle. Usually referring to the price/required yield relationship for option-free bonds. Convexity Property that a curve is above a straight line connecting two end points. If the curve falls below the straight line, it is called concave. Cook the books To deliberately falsify the financial statements of a company. This is an illegal practice. Cooling-off period The period of time between the filing of a preliminary prospectus with the Securities and Exchange Commission and the actual public offering of the securities. Cooperative An organization owned by its members. Examples are agriculture cooperatives that assist farmers in selling their products more efficiently and apartment buildings owned by the residents who have full control of the property. Copenhagen Stock Exchange The only securitiesexchange in Denmark. It features electronic trading of stocks, bonds, futures, and options. Core capital The capital required of a thrift institution, which must be at least 2% of assets to meet the rules of the Federal Home Loan Bank. Core competence Primary area of expertise. Narrowly defined fields or tasks at which a company or business excels. Primary areas of specialty. Cornering the market Purchasing a security or commodity in such volume as to achieve control over its price. An illegal practice. C Corporation A corporation that elects to be taxed as a corporation. The C corporation pays federal and state income taxes on earnings. When the earnings are distributed to the shareholders as dividends, this income is subject to another round of taxation (shareholder's income). Essentially, the C corporations' earnings are taxed twice. In contrast, the S corporation's earnings are taxed only once. Corporate acquisition The acquisition of one firm by another firm. Corporate bonds Debtobligationsissued by corporations. Corporate charter A legal document creating a corporation. Corporate equivalent yield A comparison of the after-tax yield of government bonds selling at a discount and corporate bonds selling at par. Corporate finance One of the three areas of the discipline of finance. It deals with the operation of the firm (both the investment decision and the financing decision) from the firm's point of view. Corporate financial management The application of financial principles within a corporation to create and maintain value through decision-making and proper resource management. Corporate financial planning Financial planning conducted by a firm that encompasses preparation of both long-and short-termfinancial plans. Corporate financing committee A committee of the NASD that reviews underwriters'SEC-required documents to ensure that proposed markups are fair and in the publicinterest. Corporate income fund (CIF) A unit investment trust featuring a fixed portfolio of high-gradesecurities and other investments, usually with monthly distribution of income. Corporate processing float The time that elapses between receipt of payment from a customer and the deposit of the customer's check in the firm's bank account; the time required to process customer payments. Corporate repurchase Activebuying by a corporation of its own stock in the marketplace. Reasons for repurchase include putting idle cash to use, raising EPS, creating support for a stock price, increasing internal control (shark repellant), or stock for ESOP or pension plans. Repurchase is subject to rules, such as that buying must be on a zero minus or a minus tick, after the opening and before 3:30 p.m. Corporate tax view The argument that double (corporate and individual) taxation of equity returns makes debt a cheaper financing method. Corporate taxable equivalent Rate of return required on a par bond to produce the same after-tax yield to maturity that the quoted premium or discount bond would generate. Corporate Trust The function of servicing and maintaining records for debt securities issued by a corporation. Corporation A legal entity that is separate and distinct from its owners. A corporation is allowed to own assets, incur liabilities, and sell securities, among other things. Corpus See: Principal Correction Reverse movement, usually downward, in the price of an individual stock, bond, commodity, or index. If prices have been rising on the market as a whole, and then fall dramatically, this is known as a correction within an upward trend. Antithesis of a technical rally. See: Dip, break. Correlation Statistical measure of the degree to which the movements of two variables (stock/option/convertible prices or returns) are related. See: Correlation coefficient. Correlation coefficient A standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the product of the standard deviations of two variables. Correlation Dimension An estimate of the Fractal Dimension which measures the probability that two points chosen at random will be within a certain distance of each other, and examines how this probability changes as the distance is increased. White noise will fill its space since its components are uncorrelated, and its correlation dimension is equal to whatever dimension it is placed in. A dependent system will be held together by its correlations and retain its dimension whatever embedding dimension it is placed in, as long as it is greater than its fractal dimension. Correlation Integral The probability that two points are within a certain distance from one another. Used in the calculation of the correlation dimension. Correspondent A financial organization that performs services (acts as an intermediary) in a market for another organization that does not have access to that market. Correspondent bank Bank that accepts deposits of, and performs services for, another bank (called a respondent bank); in most cases, the two banks are in different cities. Cosigner A term referring to a person, other than the principal borrower, who signs for a loan. The cosigner(s) assumes equal liability for the loan. Cost The opposite of revenue. An expense that reflects the price of purchasing goods, services and financial instruments. A cash cost means that cash is given up today to the purchase. Also, the purchase price of an investment, which is compared to the sale proceeds to determine capital gain or loss. Cost accounting A branch of accounting that provides information to help the management of a firm evaluate production costs and efficiency. Cost and Freight (CFR) Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. This should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel. Cost basis The original price of an asset, used to determine capital gains. Cost-benefit ratio The net present value of an investment divided by the investment's initial cost. Also called the profitability index. Cost of capital The required return for a capital budgeting project. Cost of carry Out-of-pocket costs incurred while an investor has an investment position. Examples include interest on long positions in margin account, dividend lost on short margin positions, and incidental expenses. Related: Net financing cost. Cost-of-carry market Applies to derivative products. Futures contractstrade in a "cost-of-carry market" where the underlyingcommodity can be stored, insured, and converted into the future easily and inexpensively. Arbitrageurs, because of the ease of switching from the spot commodity to futures, will keep these markets in line with prevailing interest rates. Cost company arrangement Arrangement whereby the shareholders of a project receive output free of charge but agree to pay all operating and financing charges of the project. Cost of equity The required rate of return for an investment of 100% equity. Cost of funds Interest rate associated with borrowingmoney. Cost of goods sold The total cost of buyingraw materials, and paying for all the factors that go into producing finished goods. Cost of lease financing A lease'sinternal rate of return. Cost of limited partner capital The discount rate that equates the after-tax inflows with outflows for capital raised from limited partners. Cost Insurance and Freight (CIF) Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. This term should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel. "Cost me" Refers to over-the-counter trading. "The price I must pay to obtain the securities you wish to buy is [$]". Usually, a standard markup is then applied for resale to this buyer. Antithesis of can get. Cost-plus contract A contract in which the selling price is based on the total cost of production plus a fixed percentage or fixed amount. Cost-push inflation Inflation caused by rising prices, usually from increased raw material or labor costs that push up the costs of production. Related: Demand-pull inflation. Cost records The records maintained by an investor of the prices at which securitiestransactions are made, so that capital gains can be computed. Cost Recovery Period The number of years it takes to fully depreciate a capital asset. This time period is based on classification of the depreciable life of an asset. Council of Economic Advisers A group of economists appointed by the President of the United States to provide economic counsel and help prepare the president's budget presentation to Congress. Countercyclical stocks Stocks whose price tends to rise when the economy is in recession or the market is bearish, and vice versa. Counterpart items In the balance of payments, counterpart items are analogous to unrequited transfers in the current account. They arise through the double-entry system in balance of payments accounting and refer to adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs, and revaluation of the various components of total reserves. Counterparties The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. Counterparty The other participant, including intermediaries, in a swap or contract. Counterparty risk The risk that the other party to an agreement will default. In an options contract, the risk to the optionbuyer that the option writer will not buy or sell the underlying as agreed. Counterpurchase Exchange of goods between two parties under two distinct contracts expressed in monetary terms. Countertrade See: barter Country allocations The percentages of a fund's net assetsdistributed to securities of various countries. These percentages serve as an indicator of a fund's diversification and its vulnerability to fluctuations in foreign financial markets or currencyexchange rates. Country beta Covariance of a national economy's rate of return and the rate of return of the world economy divided by the variance of the world economy. Country diversification Investment of a global or international portfolio'sassets in securities of various countries. Country economic risk Developments in a national economy that can affect the outcome of an international financial transaction. Country financial risk Centers around the ability of a national economy to generate enough foreign exchange to meet payments of interest and principal on its foreign debt. Country risk The general level of political, financial, and economic uncertainty in a country which impacts the value of the country's bonds and equities. See:Sovereign risk. Country selection A type of active international management that measures the contribution to performance attributable to investing in the better-performing stock markets of the world. Coupon The contractual interest obligation a bond or debenture issuer covenants to pay to its debtholders. Coupon bond A bond featuring coupons that must be presented to the issuer in order to receive interest payments. Coupon-equivalent rate See: Equivalent bond yield Coupon equivalent yield True interestcost expressed on the basis of a 365-day year. Coupon pass Canvassing by the desk of primary dealers to determine the inventory and maturities of their Treasury securities. The desk then decides whether to buy or sell certain issues (coupons) in order to add or withdraw reserves. Coupon payments A bond'sinterest payments. Coupon rate In bonds, notes, or other fixed income securities, the stated percentage rate of interest, usually paid twice a year. Covariance A statistical measure of the degree to which random variables move together. A positive covariance implies that one variable is above (below) its mean value when the other variable is above (below) its mean value. Covenant An agreed action to be undertaken (Positive) or not done (Negative). A breach of a covenant is a default. Cover The amount above UNITY of a debt service ratio. Coverage See: Fixed-charge coverage Coverage initiated Usually refers to the fact that analysts begin following a particular security. This usually happens when there is enough trading in it to warrant attention by the investment community. Coverage ratios Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and leaseobligations, including the interest coverage ratio and the fixed-charge coverage ratio. Covered A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put. Covered call A shortcall optionposition in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it. Covered call writing strategy A strategy that involves writing a call option on securities that the investor owns. See: Covered or hedge option strategies. Covered foreign currency loan A loandenominated in a currency other than that of the borrower's home country, for which repayment terms are prearranged through the use of a forward currency contract. Covered interest arbitrage Occurs when a portfolio managerinvests dollars in an instrumentdenominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars. Covered Interest Rate Parity The principle that the yields from interest-bearing foreign and domestic investments should be equal when the currencymarket is used to predetermine the domestic currency payoff from a foreign investment. Covered or hedge option strategies Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective putbuying. Related: Naked strategies Covered option Optionposition that is offset by an equal and opposite position in the underlying security. Antithesis of naked option. Covered position Use of an option in a tradingstrategy in the underlyingasset which is already owned. Covered put A put optionposition in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise price of the option. This limits the option writer'srisk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option. Covered straddle An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actually, this is not a "covered" strategy because assignment on the short put would require purchase of stock on margin. This method is also known as a covered combination. Covered straddle write The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position. Covered writer An investor who writes options only on stock that he or she owns, so that option premiums may be collected. Covering Using forward currency contracts to predetermine the domestic currency amount of an expected future foreign receipt or payment. Also, the buying back ('covering') of a short position. CPI A measure of inflation. See: Consumer Price Index. Cramdown The ability of the bankruptcy court to confirm a plan of reorganization over the objections of some classes of creditors. Cram-down deal A merger in which stockholders are forced to accept undesirable terms, such as junk bonds instead of cash or equity, due to the absence of any better alternatives. Crash Dramatic loss in market value. The last great crash was in 1929. Some refer to October 1987 as a crash but the market return for the entire year of 1987 was positive. Crawling peg An automatic system for revising the exchange rate. It involves establishing a par value around which the rate can vary up to a given percent. The par value is revised regularly according to a formula determined by the authorities. Credible signal A signal that provides accurate information; a signal that can distinguish among senders. Credit Moneyloaned. Credit analysis Evaluating information on companies and bondissues in order to estimate the ability of the issuer to live up to its future contractualobligations. Related: Default risk. Credit balance The surplus in a cashaccount with a broker after purchases have been paid for, plus the extra cash from the sale of securities. Credit bureau An agency that researches the credit history of consumers so that creditors can make decisions about granting of loans. Credit card Any card, plate or coupon book that may be used repeatedly to borrowmoney or buy goods and services on credit. Credit enhancement The purchase of the financialguarantee of a large insurance company to raise funds. In the context of project financing, the issuance of a guarantee or additional collateral to reinforce the credit strength of a project financing. Also, the reduction of counterparty risk on a swap transaction through such measures as bilateral netting. Credit history A record of how a person has borrowed and repaid debt. Credit insurance Insurance against abnormal losses due to unpaid accounts receivable. Credit linked security A note whose cash flow depends upon a credit event or credit measure of a referenced entity or asset such as default, credit spread, or rating change. The manager would purchase such a note to hedge against possible down grades, or loandefaults that would guarantee payment into the portfolio of the manager even if moneys on referenced assets are reduced. Credit period The length of time for which a firm's customer is granted credit. Credit Policy Delay The period between the sale of goods for a credit and the payment for those goods. This lag is determined largely by the selling firm's credit policy. Credit Rating Agencies Firms that compile information on and issuepubliccredit ratings for a large number of companies. Credit Standards The guidelines a company follows to determine whether a credit applicant is creditworthy. Credit Terms The conditions under which credit will be extended to a customer. The components of credit terms are: cash discount, credit period, net period. Creditworthiness The condition in which the risk of default on a debtobligation by that entity is deemed low. Credit quality A measure of a bondissuer's ability to repay interest and principal in a timely manner. Rating agencies assign letter designations such as AAA, AA, and so forth. The lower the rating, the higher the probability of default. Credit rating An evaluation of an individual's or company's ability to repay obligations or its likelihood of not defaulting See: Creditworthiness. Credit risk The risk that an issuer of debt securities or a borrower may default on its obligations, or that the payment may not be made on a negotiable instrument. Related: Default risk. Credit scoring A statistical technique that combines several financial characteristics to form a single score to represent a customer's creditworthiness. Credit spread Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a "credit spread." Antithesis of a debit spread Related: Quality spread. Credit union A not-for-profit institution that is operated as a cooperative and offers financial services such as low-interestloans to its members. Credit watch A warning by a bond ratingfirm indicating that a company'scredit rating may change after the current review is concluded. Crediting rate The interest rate offered on an investment type insurance policy. Creditor Lender of money. Creditor's committee A group representing firms that have claims on a company facing bankruptcy or extreme financial difficulty. Creditworthiness Eligibility of an individual or firm to borrowmoney. Creeping expropriation The act of a government squeezing a project by taxes, regulation, access, or changes in law. Creeping tender offer The process by which a group attempting to circumvent certain provisions of the Williams Act gradually acquires shares of a target company in the open market. CREST CREST is CrestCo's real-time settlement system for UK and Irish shares and other corporate securities. CrestCo has provided settlement systems for government bonds and money market instruments in the UK since 1990. Crisp Sets The fuzzy set term for traditional set theory. That is, an object either belongs to a set, or does not. Critical Levels Values of control parameters where the nature of a nonlinear dynamic system changes. The system can bifurcate, or make the transition from stable to turbulent behavior. An example is the straw that breaks the camel's back. Cross Securitiestransaction in which the same broker acts as agent for both sides of the trade; a legal practice only if the broker first offers the securities publicly at a price higher than the bid. Cross-border factoring Concluding a transaction by a network of factors across borders. The exporter's factor can contact correspondent factors in other countries to handle the collection of accounts receivable. Cross-border risk Describes the volatility of returns on international investments caused by events associated with a particular country as opposed to events associated solely with a particular economic or financial agent. Cross-Collateral An agreement among project participants to poolcollateral, to allow recourse to each other's collateral. Cross-default A provision under which default on one debtobligation triggers default on another debt obligation. Cross hedging Applies to derivative products. Hedging with a futures contract that is different from the underlying being hedged. Use of a hedging instrument different from the security being hedged. Hedging instruments are usually selected to have the highest price correlation to the underlying. Cross-holdings The holding by one corporation of shares in another firm. One needs to allow for cross-holdings when aggregatingcapitalizations of firms. Ignoring cross-holdings leads to double-counting. Cross rates The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency. Foreign exchange rate between two currencies other than the US dollar, the currency in which most exchanges are usually quoted. Cross-sectional analysis Assessment of relationships among a cross-section of firms, countries, or some other variable at one particular time. Cross-Sectional Ratio Analysis A method of analysis that compares a firm's ratios with some chosen industrybenchmark. The benchmark usually chosen is the average ratio value for all firms in an industry for the time period under study. Cross-sectional approach A statistical methodology applied to a set of firms at a particular time. Cross-share holdings Often used in risk arbitrage. Corporations' or governments' equity share ownership in another corporation's shares. Cross-border bonds Bonds that firmsissue in the international market. Crossed market In the context of general equities, happens when the inside market consists of a highest bidprice that is higher than the lowest offer price. See: Overlap the market. Crossed trade The prohibited practice of offsettingbuy and sell orders without recording the trade on the exchange, thus not allowing other traders to take advantage of a more favorable price. Crossover rate The return at which two alternative projects have the same net present value. Crowd trading Used for listed equity securities. Group of exchange members with a defined area of function tending to congregate around a trading post pending execution of orders. Includes specialists, floor traders, odd-lotdealers, and other brokers as well as smaller groups with specialized functions. See: Priority. Crowding out Heavy federal borrowing that drives interest rates up and prevents businesses and consumers from borrowing when they would like to. Crown jewel A particularly profitable or otherwise particularly valuable corporate unit or asset of a firm. Often used in risk arbitrage. The most desirable entities within a diversified corporation as measured by asset value, earning power, and business prospects; in takeover attempts, these entities typically are the main objective of the acquirer and may be sold by a takeover target to make the rest of the company less attractive. See: Scorched earth policy. Crown Law A law derived from English law (ie. England, Ireland, Canada, PNG, Australia, Hong Kong, Singapore, India, Malaysia). Cum dividend With dividend; said of a stock whose buyer is eligible to receive a declared dividend. Stocks are usually "cum dividend" for trades made on or before the third trading day preceding the record date, when the register of eligible holders is closed for that dividend period. Antithesis of ex-dividend. Cum rights With rights. Cumulative abnormal return (CAR) Sum of the differences between the expected return on a stock (systematic risk multiplied by the realized market return) and the actual return often used to evaluate the impact of news on a stock price. Cumulative dividend feature A requirement that any missed preferred or preference stockdividends be paid in full before any dividend payment on common shares is made. Cumulative preferred stock Preferred stock whose dividendsaccrue, should the issuer not make timely dividend payments. Related: Non-cumulative preferred stock. Cumulative probability distribution A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on. Cumulative total return The actual performance of a fund over a particular period. Cumulative Translation Adjustment (CTA) account An entry in a translated balance sheet in which gains and/or losses from translation have been accumulated over a period of years. The C.T.A. account is required under the FASB No. 52 rule. Cumulative voting A system of voting for directors of a corporation in which shareholder's total number of votes is equal to the number of shares held times the number of candidates. The Curb Another name for the American Stock Exchange (AMEX). Cure To make good a default. Currency Money. Currency appreciation An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency. Currency arbitrage Taking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market. Currency basket The value of a portfolio of specific amounts of individual currencies, used as the basis for setting the market value of another currency. It is also referred to as a currency cocktail. Currency Board Entity charged with maintaining the value of a local currency with respect to some other specified currency. Currency call option Contract that gives the holder the right to purchase a specific currency at a specified price (exchange rate) within a specific period of time. Currency Carry Trade A carry trade where you borrow and pay interest in order to buy something else that has higher interest. For currencies, it might be that you borrow in Yen (where the interest rate might be low) and use the proceeds to purchase U.S. dollar long term debt. While the trade might produce a positive return, it is risky in two dimensions. First, U.S. rates could increase diminishing the value of the bond you purchased. Second, the exchange rate could take an unfavorable move effectively increasing your borrowing costs. Related: Carry Trade. Currency depreciation A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency. Currency devaluation A deliberate downward adjustment in the official exchange rates established, or pegged, by a government against a specified standard, such as another currency or gold. Currency diversification Using more than one currency as an investing or financingstrategy. Exposure to a diversified currency portfolio typically entails less exchange rate risk than if all the portfolio exposure were in a single foreign currency. Currency Exchange Risk Uncertainty about the rate at which revenues or costs denominated in one currency can be converted into another currency. Currency futures contract Contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date. Currency future A financial future contract for the delivery of a specified foreign currency. Currency hedge Applies mainly to international equities. Hedging technique to guard against foreign exchange fluctuations (i.e., short Euro l00 mm when holding a long position of Euro l00 mm in stocks). Currency in circulation Paper money, coins, and demand deposits that constitute all the money circulating in the economy. Currency no longer issued Old and new series gold and silver certificates, Federal Reserve notes, national banknotes, and 1890 Series Treasury notes. Currency put option Contract that gives the holder the right to sell a particular currency at a specified price (exchange rate) within a specified period of time. Currency option An option to buy or sell a foreign currency. Currency overvaluation Applies mainly to international equities: (1) consideration that a currency is overvalued if private demand for the currency at the going exchange rate is less than total private supply (i.e., central banks are buying up the difference, supporting the value of the currency through foreign exchange intervention); (2) currency value exceeding purchasing power parity. Currency revaluation A deliberate upward adjustment in the official exchange rate established, or pegged, by government against a specified standard, such as another currency or gold. Currency risk Related: Exchange rate risk Currency selection Asset allocation in which the investor chooses among investmentsdenominated in different currencies. Currency swap An agreement to swap a series of specified payment obligationsdenominated in one currency for a series of specified payment obligations denominated in a different currency. Usually fixed for fixed. Current account Net flow of goods, services, and unilateral transactions (gifts) between countries. Current account balance The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities. Current assets Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year. Current coupon A bond selling at or close to par, that is, a bond with a coupon close to the yields currently offered on new bonds of a similar maturity and credit risk. Current Coupon Bond Bonds on which the coupon is set approximately equal to the bonds'yield to maturity at the time of their issuance. Current-coupon issues Related: Benchmark issues Current dollar Refers to the use of actual or real prices and costs. Escalation or inflation effects are included. Current income Regular series of cash flows that is routinely received from investments in the form of dividends, interest, and other income sources. Current income bonds Bonds paying semiannual interest to holders. Interest is not included in the accrued discount. Current issue In Treasury securities, the most recently auctionedissue. Trading is more active in current issues than in off-the-run issues. Also known as on-the-run issue. Current liabilities Amount owed for salaries, interest, accounts payable and other debts due within 1 year. Current market value The value of a client's portfolio at today's market price, as listed in a brokerage statement. Current maturity Current time to maturity on an outstandingdebt instrument. Current/noncurrent method The translation of all of a foreign subsidiary'scurrent assets and liabilities into home currency at the current exchange rate while noncurrent assets and liabilities are translated at the historical exchange rate; that is, the rate in effect at the time the asset was acquired or the liability incurred. Current order In the context of periodic repayment schedules, the next periodic principal repayment. Current production rate The highest interest rate permissible on current Government National Mortgage Association,mortgage-backed securities. Current rate method The translation of all foreign currencybalance sheet and income statement items at the current exchange rate. Current ratio Indicator of short-term debt-paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company. Currency risk sharing An agreement by the parties to a transaction to share the currency risk associated with the transaction. The arrangement involves a customized hedgecontract embedded in the underlying transaction. Current yield For bonds or notes, the coupon rate divided by the market price of the bond. Cushion In the context of project financing, the extra amount of netcash flow remaining after expected debt service. Cushion bonds High-coupon bonds trading at a premium that tend to fall in price much less than comparable bonds when interest rates rise (hence the cushion effect), because of their high coupons. Cushion theory The theory that a stock with many short positions taken in it will rise, because these positions must be covered by the stock. CUSIP number Unique number given to a security to distinguish it from other stocks and registered bonds. See: Committee on Uniform Securities Identification Procedures. Custodial fees Fees charged by an institution that holds securities in safekeeping for an investor. Custodian Either (1) a bank, agent, trust company, or other organization responsible for safeguarding financial assets, or (2) the individual who oversees the mutual fundassets of a minor's custodial account. Custodian bank Applies mainly to international equities. Bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client. See: Depository Trust Company (DTC) Customary payout ratios A range of payout ratios that is typical according to an analysis of comparable firms. "Customer picking prices" Customer is firm on price and has set the price at which to transact. Customer's loan consent Agreement signed by a margin customer that allows a broker to borrowmargin securities up to the level of the customer's debit balance to help cover other customers' short positions. Customers' net debit balance The total amount of credit given by NYSEmember firms to finance customers purchasing securities. Customized benchmarks A benchmark that is designed to meet a client's requirements and long-term objectives. Customs Broker An individual or firm licensed by customs authorities to enter and clear imported goods through customs. The broker represents the importer in dealings with the customs authorities. Customs union An agreement by two or more countries to erect a common external tariff and to abolish restrictions on trade among members. Cut Off Date The date prescribed in the unclaimed property law in most states for determining the items of property that must be turned over to the state. See: Escheat. Cutoff point The lowest rate of return acceptable on investments. Cycles A full orbital period. Cyclical stock Stock that tends to rise quickly when the economy turns up and fall quickly when the economy turns down. Examples are housing, automobiles, and paper. Cyclical unemployment Unemployment caused by a low level of aggregate demand associated with recession in the business cycle.