Financial Glossary: D
Autor: Daniel Brandão de Castro | Publicado: 2009-02-14T00:53:00-02:00

DFifth letter of a NASDAQ stock symbol specifying that it is a new issue, such as the result of a reverse split. D/A See: Documents Against Acceptance DCF See: Discounted Cash Flows DSCR See: Debt-service coverage ratio DDM The ISO 4217 currency code for former East Germany Ostmark. DDM See: Discounted Dividend Model DE The two-character ISO 3166 country code for GERMANY. DEM The ISO 4217 currency code for Deutschemark. DEQ Abbreviation for the Incoterm "Delivered Ex Quay." DES Abbreviation for "Delivered Ex Ship." DISC See: Domestic International Sales Corporation DITM See: Deep in the money DJ The two-character ISO 3166 country code for DJIBOUTI. DJF The ISO 4217 currency code for Djibouti Franc. DK The two-character ISO 3166 country code for DENMARK. DKK The ISO 4217 currency code for Danish Krone. DM The two-character ISO 3166 country code for DOMINICA. DNR Order See: Do Not Reduce Order DO The two-character ISO 3166 country code for DOMINICAN REPUBLIC. DOP The ISO 4217 currency code for Dominican Republic Peso. DOT See: Designated Order Turnaround System DOTM See: Deep out of the money D/P Abbreviation for Documents Against Payment. DRP See: Dividend Reinvestment Plan DTC See: Depository Transfer Check DTC See: Depository Trust Company DTCC See: Depository Trust and Clearing Corporation DZ The two-character ISO 3166 country code for ALGERIA. DZD The ISO 4217 currency code for Algerian Dinar. Daily price limit The level within many commodity, futures, and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract. Daisy chain Manipulation of the market by traders to create the illusion of activevolume to attract investors. Date of issue Used in the context of bonds to refer to the date on which a bond is issued and when interest beings to accrue to the bondholder. Used in the context of stocks to refer to the date trading begins on a new stockissued to the public. Date of payment Date dividendchecks are mailed. Date of record Date on which holders of record in a firm's stock ledger are designated as the recipients of either dividends or stock rights. Dated date The date one uses to calculate accrued interest on various debt instruments, specifically bonds. Dates convention Treating cash flows as being received on exact dates-date 0, date 1, and so forth-as opposed to the end-of-year convention. Dating Credit extension beyond normal terms of a credit supplier. Dawn raid A term of British origin used to describe the purchase of all available shares of a target company at the market'sopen by a raider. A dawn raid is a surprise technique that allows the raider to gain a substantial share of the target company before the target company knows what is happening. Day around order A day order that supersedes (cancels and replaces) the previous order by altering its size or price limit. Day of deposit to day of withdrawal account A bank account that pays interest according to the number of days that the money is actually on deposit. Day loan A loan from a bank to a broker prior to the delivery of securities. Upon the delivery of the securities, a day loan becomes a regular brokercall loan for which securities serve as collateral. Day order In the context of general equities, request from a customer to either buy or sell stock, that, if not canceled or executed the day it is placed, expires automatically. All orders are day orders unless otherwise specified. Traders often make calls before the opening to check for renewals. Day trade Also known as a "daylight trade." The purchase and sale or the short sale and cover of the same security in a margin account on the same day. Day trading Establishing and liquidating the same position or positions within one day's trading. Days in receivables Average collection period. Days' sales in inventory ratio The average number of days' worth of sales that is held in inventory. Days' sales outstanding Average collection period. De facto Existing in actual fact although not by official recognition. Dead cat bounce A small upmove in a bearmarket. Deal flow In investment banking, the rate at which new deals are referred to a brokerage firm. Deal stock Stock subject to merger or acquisition, either publicly announced or rumored. Dealing desk (Trading desk) Personnel at an international bank who trade spot and forward foreign exchange. Dealer An entity that stands ready and willing to buy a security for its own account (at its bidprice) or sell from its own account (at its ask price). Individual or firm acting as a principal in a securitiestransaction. Principals are market makers in securities, and thus trade for their own account and risk. Antithesis of broker. See: Agency. Dealer loan Overnight, collateralizedloan from a money market bank made to a dealer financing his position by borrowing. Dealer market Where traders specializing in particular commoditiesbuy and sell assets for their own accounts. Dealer options Over-the-counteroptions, such as those offered by government and mortgage-backed securitiesdealers. Dealer's spread See: markdown; underwriting spread. Dear money British term for tight money. Death-backed bonds Bonds backed by loans of a policyholder against a life insurance policy. The policyholder will repay the loans while alive or with the benefits from the insurance policy upon death. Death play A stock strategy that buysstock on the belief that a key executive will die, the company will be dissolved, and shares will command a higher price at their private market value. Death Spiral Convertible Used by companies that are in such bad shape, that there is no other way to get financing. This instrument is similar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as toxic convertibles or floorless convertibles. Death Valley Curve In venture capital, refers to the period before a new company starts generating revenues, when it is difficult for the company to raise money. Debenture Any debtobligation backed strictly by the borrower's integrity, e.g. an unsecured bond. A debenture is documented in an indenture. Debenture bond An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt. Compare subordinated debenture bond and collateral trust bonds. Debenture stock A type of stock that makes fixed payments at scheduled intervals of time. Debenture stock differs from a debenture in that it has the status of equity, not debt, in liquidation. Debit An expense, or money paid out from an account. A debit transaction is one which the net cost is greater than the net sale proceeds. See also Credit. Debit balance The amount that is owed to a broker by a margin customer for loans the customer uses to buysecurities. Debit card A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occurring contemporaneously with the customer's purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment. Debit spread Applies to derivative products. Difference in the value of two options, when the value of the option bought exceeds the value of the one sold. One buys a "debit spread." Antithesis of a credit spread. Debt Money borrowed. Debt bomb A default on debt and obligations by a major financial_institution that disrupts the stability of the economic system. Debt capacity Ability to borrow. The amount a firm can borrow up to the point where the firm value no longer increases. Debt ceiling See: Debt limit Debt displacement The amount of borrowing that leasing displaces. Firms that do a lot of leasing are curtailed in their debt capacity. Debt/equity ratio Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholder equity. Debt-for-equity swap A swap agreement to exchange equity/returns for debt returns or the converse over a prearranged length of time. Debt instrument An asset requiring fixed dollar payments, such as a government or corporate bond. Debt leverage Amplification of the return earned on equity when an investment or firm is financed partially with borrowedmoney. Debt limit The maximum amount that a municipality can borrow. Debt limitation A bond covenant that restricts the firm's ability to incur additional indebtedness in some way. Debt market The market for tradingdebt instruments. Debt outstanding subject to limitation Obligations incurred by the Treasury subject to the statutory limit set by Congress. Until World War 1, a specific amount of debt was authorized for each separate security issue. Beginning with the Second Liberty Loan Act of 1917, the nature of the limitation was modified until, in 1941, it developed into an overall limit on the outstanding Federal debt. The statuatory limit may change from year to year. Debt ratio Total debt divided by total assets. Debt relief Reducing the principal and/or interest payments on Less developed country loans. Debt retirement The complete repayment of debt. See: Sinking fund. Debt securities IOUs created through loan-type transactions-commercial paper, bank CDs, bills, bonds, and other instruments. Debt service Interest payment plus repayments of principal to creditors (retirement of debt). Debt service coverage The ratio of cash flow available to the borrower to the annual interest and principal payments on a loan or other debt. Debt-service coverage ratio Earnings before interest and income taxes, divided by interest expense plus the quantity of principal repayments divided by one minus the tax rate. Debt service parity approach Payment alternatives that provide the firm with the exact same schedule of after-tax debt payments (including both interest and principal). Debt swap A set of transactions in which a firmbuys a country's dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity. Also called a debt-equity swap. Debtholder See: Bondholder Debtor Borrower of money. Debtor in possession A firm that continues to operate under the Chapter 11bankruptcy process. Debtor-in-possession financing New debt obtained by a firm during the Chapter 11bankruptcy process, Federal Bankruptcy Rule 4001 (c)(1). This financing is unique because it is secured, that is, it has priority over existing debt, equity and other claims. Decile rank Performance over time, rated on a scale of 1-10. 1 indicates that a mutual fund'sreturn is in the top 10% of funds being compared; while 3 means the return is in the top 30%. Decimal trading The quotation and trading of stock or bond prices in decimals, as opposed to the quotation of prices in fractions. Decimalization The quotation and trading of stock or bond prices in decimals, as opposed to fractions such as eighths. Decision Break-Point Analysis A type of sensitivity analysis that indicates the value at which a key variable will result in a negative NPV for an investment project. Decision tree Schematic way of representing alternative sequential decisions and the possible outcomes from these decisions. Declaration date The date on which a firm'sdirectors meet and announce the date and amount of the next dividend. Declaration The Board of Directors motion to authorize dividend payments. Dedicated capital Total par value (number of sharesissued, multiplied by the par value of each share). Also called dedicated value. Dedicating a portfolio Related: Cash flow matching Dedication strategy Refers to multiperiod cash-flow matching. Deductible An amount or period which must be deducted before an insurance payout or settlement is calculated. Deductible contribution Amount paid into an IRA, an employer-sponsored retirement plan, or other type of retirement plan for a particular tax year that is a deduction from income for tax purposes. Deduction An expense that is allowable as a reduction of gross taxable income by the IRS e.g., charity donations. Deductive reasoning Using known facts to draw a conclusion about a specific situation. Deed of trust See: Indenture Deep-discount bond A bondissued with a very low coupon or no coupon that sells at a price far below par value. A bond that has no coupon is called a zero-coupon bond. Deep in the money A call option with an exercise price substantially below the underlying stock's market price. Also put option with an exercise price substantially above the underlying stock's market price. Often substantially below is defined as more than one strike price below (for calls)/above (for puts) the current value of the underlying security. Deep out of the money A call option with an exercise price substantially above the market price. Also put option with an exercise price substantially below the underlying stock's market price. Often substantially below is defined as more than one strike price below (for calls)/above (for puts) the current value of the underlying security. Default The failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture. A breach of a covenant. In context of project financing, a technical default signals a project parameter is outside defined or agreed limits or a legal matter is not yet resolved. Default interest A higher interest rate payable after default. Default premium A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default. Often the premium is measured as the yield over and above a government bond yield of similar coupon and maturity. Default risk The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by commercial rating companies). Defeasance The setting aside by a borrower of cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offsetting cash or bonds are removed from the balance sheet. In securities trading, where a clearing house becomes counterparty to each side of a trade, after the trade has been agreed. This is necessary to facilitate netting, and reduce counterparty risk exposure. The term has become popular recently, because of the growth of central counterparty clearing services in European cash equities markets. Defensive securities Low-risk stocks or bonds that will provide a predictable and safe return on an investor'smoney. Deferred account A type of account that delays taxes on that account until some later date. An example is an IRA account. Deferred annuities Tax-advantaged life insurance products. Deferred annuitiesoffer deferral of taxes with the option of withdrawing one's funds in the form of a life annuity. Deferred call A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected. Deferred charge An expenditure treated as an asset that carries forward until it becomes pertinent to the business at hand, e.g., the underwriting fees on a corporate bond issue, which the corporation capitalizes as a deferred charge and then amortizes over the life of the bond issue. Deferred compensation An amount that has been earned but is not actually paid until a later date, typically through a payment plan, pension, or stock option plan. Deferred equity A common term for convertible bonds, which recognizes their equity component and the expectation that the bond will ultimately be converted into shares of common stock. Deferred futures The most distant months of a futures contract. Deferred interest bond A bond that pays interest at a later date, usually in one lump sum, effectively reinvesting interest earned over the life of the bond. See: Zero coupon bond. Deferred nominal life annuity A monthly fixed-dollar payment beginning at retirement age. It is nominal because the payment is fixed in a dollar amount at any particular time, up to and including retirement. Deferred payment annuity An annuity that stipulates payments be made to the annuitant at a later date, such as when the annuitant reaches a certain age. Deferred tax expense A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid. Deficiency The amount by which a project's cash flow is not adequate to meet debt service. Deficiency Agreement An agreement that calls on the sponsor or another party to provide the shortfall when cash flow, working capital, or revenues are below agreed levels or are insufficient to meet debt service. Deficiency letter Notification from the SEC to a prospective issuer of securities that revisions or additions need to be made to the preliminary prospectus. Deficit An excess of liabilities over assets, of losses over profits, or of expenditure over income. Deficit spending When government spending overwhelms government revenue resulting in government borrowing. Defined asset fund A unit investment trust consisting of a fixed portfolio of securities, including blue chips, REITs, or high-yielding stocks on a major exchange such as the NYSE or FTSE. Defined benefit plan A pension plan obliging the sponsor to make specified dollar payments to qualifying employees at retirement. The pension obligations are effectively the debt obligation of the plan sponsor. Related: Defined contribution plan Defined contribution plan A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan Defined event The definition applicable to the trigger of a loss in an insurance policy, particularly political risk insurance. Deflation Decline in the prices of goods and services. Antithesis of inflation. Deflator A statistical factor used to convert current dollar purchasing power into inflation-adjusted purchasing power. Enables the comparison of prices while accounting for inflation in two different time periods. Delayed issuance pool Refers to mortgage backed securities (MBS) that at the time of issuance were collateralized by seasoned loans originated prior to the MBS pool issue date. Delayed opening Postponement of the start of trading in a stock until correction of a gross imbalance in buy and sell orders. Such an imbalance is likely to follow on the heels of a significant event such as a takeover offer. See: Suspended trading. Delayed settlement/delivery In the context of general equities, transaction in which a contract is settled in excess of five full business days. Seller's option. See: Dividend play, settlement. Delinquency Failure to make a payment on a debt or obligation by the specified due date. Delisting Removal of a company's security from listing on an exchange because the firm has not abided by specific regulations. Deliver The sale of a futures or forward contract may require the seller to deliver the commodity during the delivery month, if the short position is not offset prior to that time. Deliverable bills The Treasury bills that fulfill a set of guidelines set forth by the exchange on which the bills are traded. Deliverable instrument The asset in a forward contract that will be delivered in the future at an agreed-upon price. Delivered at Frontier (DAF) Seller must supply the goods at his or her own risk and expense delivered to a named place (usually a border location) by a specified time. The buyer is responsible for the importation. This is normally is used with rail, truck, or multi-modal shipments. Delivered Duty Paid (DDP) Seller must supply the goods at his or her own risk and expense to a named place in the country of importation. The seller is responsible for importation, payment of duty, and on carriage to the location agreed upon with the buyer. Delivered Duty Unpaid (DDU) Seller fulfills the contractobligations when the goods have arrived at a named place in the importing country. The seller bears all the costs and risk except for import duties and other customs clearance costs. Delivered Ex Ship (DES) Seller fulfills the contractobligations when the goods have been made available to the buyer on board a ship at the named port of destination. The seller must bear all costs and risks associated in bringing the goods to the named port of destination. The buyer is responsible for all costs necessary to unload the goods and clear them through customs. Unloading costs are included the ocean freight charged by most ship lines. The DES is most often used for charter shipments. Delivered Ex Quay (DEQ) Seller fulfills the contractobligations to deliver when the goods are made available to the buyer at the wharf of the destination port. A DEQ can further specify "Duty Paid" or "Duty Unpaid." If "Duty Paid" is specified, the seller is responsible for all risks and costs, including duty, to the wharf of the destination port. If "Duty Unpaid" is specified, the buyer is to clear the goods and pay duty. Since unloading costs are included in the ocean freight charged by most ship lines. This is most often used for charter shipments. Delivery The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract. Delivery date Date by which a seller must fulfill the obligations of a forward or futures contract. Delivery notice The written notice given by the seller of its intention to make delivery against an open, shortfutures position on a particular date. Related: Notice day. Delivery options The options available to the seller of an interest ratefutures contract, including the quality option, the timing option, and the wild card option. Delivery options mean that the buyer is uncertain of which Treasury bond will be delivered or when it will be delivered. Delivery points Locations designated by futures exchanges at which the financial instrument or commodity covered by a futures contract may be delivered in fulfillment of such a contract. Delivery price The price fixed by the clearinghouse at which deliveries on futures are invoiced; also the price at which the futures contract is settled when deliveries are made. Delivery versus payment A in which the buyer's payment for securities is due at transaction the time of delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be made by bank wire, check, or direct credit to an account. Delphi technique Collection of independent opinions without group discussion by the analysts providing the opinions; used for various sorts of evaluations (such as country risk assessment). Dependent variable Term used in regression analysis to represent the element or condition that is dependent on values of one or more other independent variables. Delta The ratio of the change in price of an option to the change in price of the underlying asset. Also called the hedge ratio. Applies to derivative products. For a call option on a stock, a delta of 0.50 means that for every $1.00 that the stock goes up, the option price rises by $0.50. As options near expiration, in-the-money call option contracts approach a delta of 1.0, while in-the-moneyput options approach a delta of -1. See: hedge ratio, neutral hedge. Call deltas range from 0.00 to +1.00; put deltas range from 0.00 to -1.00. If the call delta is 0.69, the put delta is -0.31 (call delta minus 1 equals put delta; 0.69 -1 =-0.31). Delta cross-hedge A futures hedge that has both maturity and currency mismatches with an underlying exposure. Delta hedge A dynamic hedgingstrategy using options that calls for constant adjustment of the number of options used, as a function of the delta of the option. Delta neutral Describes value of a portfolio not affected by changes in the value of the asset on which the options are written. Delta Spread A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option. See also Ratio Spread and Delta. Demand deposits Checking accounts that pay no interest and from which funds can be withdrawn upon demand. Demand line of credit A bank line of credit that enables a customer to borrow on a daily or on-demand basis. Demand loan A loan which can be called by the lender at any time and carries no set maturity date. Demand master notes Short-termsecurities that are repayable immediately upon the holder's demand. Demand-pull inflation A theory of inflation or price increases resulting from so-called excess demand. Related: Cost-push inflation. Demand shock An event that affects the demand for goods and services in an economy. Denomination Corresponds to the face value of currencyunits, coins, and securities. An international transaction may be denominated in US dollars, for example, or in British pounds. Dependent Acceptance of a capital budgeting project contingent on the acceptance of another project. Deposit insurance See: FDIC: Federal Deposit Insurance Corporation Depositary An agent appointed for a Tender or Exchange Offer who accepts certificates from shareholders, processes them and assures that the appropriate cash or new securities are properly remitted to the tendering party. Depository institution A financial institution that obtains its funds mainly through deposits from the public. This includes commercial banks, savings and loan associations, savings banks and credit unions. Depository Institutions Deregulation and Monetary Control Act The 1980 federal legislation that ended the regulation of the banking industry. Depository preferred Device enabling an issuer to circumvent an arbitrary corporate limit on the number of preferred sharesissuable. Applies mainly to convertible securities. Depository receipt See: ADR American Depository Receipt Depository transfer check (DTC) Check made out directly by a local bank to a particular firm or person. Depository Trust Company (DTC) DTC is the world's largest central securities depository. It accepts deposits of over 2 million equity and debt securities issues (valued at $23 trillion) from over 65 countries for custody, executesbook-entrydeliveries (valued at over $116 trillion in 2000) records book-entry pledges of those securities, and processes related income distributions.. DTC is a member of the Federal Reserve System and is owned by The Depository Trust and Clearing Corporation (DTCC), which is in turn owned primarily by most of the major banks, broker-dealers, and exchanges on Wall Street. Depository Trust and Clearing Corporation (DTCC) The Depository Trust and Clearing Corporation (DTCC), through its subsidiaries, provides post-trade clearance, settlement, custody and information services for equities, corporate and municipal debt, money market instruments, American depositary receipts, exchange-traded funds, unitinvestment trusts, mutual funds, insurance products and other securities. The National Securities Clearing Corporation (NSCC) subsidiary, which acts as a central counterparty (CCP), provides trade guarantee, netting and risk management services for equity and debt transactions from all U.S. stock exchanges and markets. The Depository Trust Company(DTC) subsidiary has custody of and provides asset servicing for millions of securities issues of issuers from the U.S. and over 60 other countries. DTC serves as a major clearinghouse for institutional post-trade settlement. DTCC's two subsidiary businesses have Standard and Poors' highest rating: AAA. Depreciate To allocate the purchase cost of an asset over its life. Depreciated cost In terms of economics: The measure of capital consumption during production, e.g., machine and equipment wear. In terms of finance: The process of amortization of fixed assets (equipment) to spread the cost over the depreciable life of the assets. Depreciation A non-cash expense (also known as non-cash charge) that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets. To be clear, this is an accounting expense not a real expense that demands cash. The sum of depreciation expenses of prior years leads to the balance sheet item Accumulated Depreciation. Depreciation tax shield The value of the tax write-off on depreciation of plant and equipment. Depressed market Market in which supply overwhelms demand, leading to weak and lower prices. Depressed price In the context of stocks, stock whose market price is low in comparison to stocks in its sector. Depression Period when excess aggregate supply overwhelms aggregate demand, resulting in falling prices, unemployment problems, and economic contraction. Deregulation The reduction of government's role in controlling markets, which lead to freer markets, and presumably a more efficient marketplace. Derivative A financial contract whose value is based on, or "derived" from, a traditional security (such as a stock or bond), an asset (such as a commodity), or a market index. Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. Derivative markets Markets for derivative instruments. Derivative security A financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlyingasset. Descending tops A chart pattern which in which each successive peak in a security's price is lower than the preceding peak over a period of time. Antithesis of ascending tops. Descriptor A variable describing assets, used as an element of a risk index. For example, a volatility riskindex, distinguishing high volatility assets from low volatility assets, could consist of several descriptors based on short term volatility, long term volatility, systematic and residual volatility, etc. Design risk The risk associated with the impact on project cash flow from deficiencies in design or engineering. Also known as engineering risk. Designated order turnaround system (DOT) Computerized order entry system that allows orders to buy or sell large baskets of stock to be transmitted immediately to the specialist on the exchange, where execution will occur quickly, depending on the basket size. Also used for odd-lot transactions to occur at the prices and quantities available. See: AOS. Desk The New York Federal Reserve Bank's trading desk (or securities department) where all transactions of the Federal Reserve System are executed in the money market or the government securitiesmarket. Detachable warrant A warrant entitles the holder to buy a given number of shares of stock at a stipulated price. A detachable warrant is one that may be sold separately from the package it may have originally been issued with (usually a bond). Determinism Fully ordained in advance. A deterministic chaos system is one that gives random looking results, even though the results are generated from a system of equations. Deterministic models Liability-matching models that assume that the liability payments and the assetcash flows are known with certainty. Related: Stochastic models. Detrend To remove the general drift, tendency, or bent of a set of statistical data as related to time. Often accomplished by regressing a variable or a time index and perhaps the square of the time index and capturing the residuals. A stochastic detrend would be to subtract a moving-average (say for five years) from the value of the variable. Deutsche Börse Germany's major securities market, including the Frankfurt Stock Exchange. Deutsche Terminbörse (DTB) Formerly the German financial futures and options market. Merged with the Swiss Options and Financial Futures Exchange (SOFFEX) in 1998 to form EUREX, the European derivatives exchange. Deutsche Börse AG (DBAG) Deutsche Börse AG (DBAG) is the operating company for the German cash and derivatives markets. It has four subsidiaries: Deutsche Börse Clearing AG, Deutsche Börse Systems AG, Frankfurter Wertpapierbörse (FWB), and the derivatives market, EUREX Deutschland (formerly the Deutsche Terminbörse ). Devaluation A decrease in the spot price of a currency. Often initiated by a government announcement. Diagonal spread An optionsstrategy requiring a long and a short position in the same class of option at different strike prices and different expiration dates. For example, buying an XYZ April 50 call and selling an XYZ July 55 call. See: Calendar spread; vertical spread. Dialing and smiling See: Cold calling Dialing for dollars A term used to describe the practice of cold calling, but which has negative implications as it is frequently applied to salespeople selling speculative or fraudulent investments. Diamonds Units of interest in the diamonds trust, a unit investment trust that serves as an index to the Dow Jones Industrial Average in that its holdings consist of the 30 component stocks of the Dow. Diff Short version of Euro rate differential, which is a Chicago Mercantile Exchange Futurescontract that is founded on the interest ratespread between the U.S. dollar and the British pound, the German mark, or the Japanese yen. Difference check The difference in interest payments that is paid to a swapcounterparty to close out a deal. Difference from S&P A mutual fund'sreturnminus the change in the Standard & Poor's 500 index for the same time period. A notation of -5.00 means the fund return is 5 percentage points less than the gain in the S&P, while 0.00 means that the fund and the S&P have the same return. Differential A small charge added to the purchase price and subtracted from the selling price by the dealer for odd-lot quantities. Differential disclosure The practice of reporting conflicting or markedly different information in official corporate statements including annual and quarterly reports and 10-Ks and 10-Qs. Differential swap Swap between two LIBORrates of interest, e.g., yen LIBOR for dollar LIBOR Payments are in one currency. Diffusion process A conception of the way a stock'sprice changes that assumes that the price takes on all intermediate values. Digits deleted Designation on securities exchange tape meaning that because the tape has been delayed, some digits have been dropped (e.g., 26 1/2 becomes 6 1/2). Dilution Diminution in the proportion of income to which each share is entitled. Dilution protection Standard provision that changes the conversion ratio in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholder's potential equityposition. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value. Dilutive effect Result of a transaction that decreases earnings per common share (EPS). Dip Slight drop in securities prices after a sustained uptrend. Analysts often advise investors to buy on dips, meaning to buy when a price is momentarily weak. See: Correction, break, crash. Direct Claim A financial claim issued by a deficitunit to acquire funds for investment in real assets. Direct costs of financial distress Costs such as fees or penalties incurred as a result of bankruptcy or liquidation proceedings. Direct deposit A method of payment which electronically credits your checking or savings account. Direct deposit service A service that electronically transfers all or part of any recurring payment—including dividends, paychecks, pensions, and Social Security payments—directly to a shareholder's account. Direct estimate method A method of cash budgeting based on detailed estimates of cash receipts and cash disbursements category by category. Direct Exchange Rate The home currency price of one unit of a foreign currency. Discount Interest Interest at a beginning of the loan. For example if you take out a one-year loan of $100 at a discount interest rate of 10%, you would receive $90 at the outset. Direct investment The purchase of a controlling interest in a company or at least enough interest to have enough influence to direct the course of the company. Direct lease Contract in which a lessor purchases new equipment from the manufacturer and leases it to the lessee. Direct overhead A fraction of overhead costs devoted to the manufacturing sector of a firm to cover expenses such as rent and utilities. Direct paper Commercial paper sold directly by the issuer to investors. Direct participation program An investment program enabling investors to directly participate in the cash flow and tax benefits of the partnership invested in by the investor, typically a form of passive investment. Direct placement Selling a new issue not by offering it for sale publicly, but by placing it with one of several institutional investors. Also known as a private placement. Direct Purchase Plan A plan that enables interested first-time individual investors to purchase a company'sstock directly from the company or without the direct intervention of a broker. The administrator also ensures the safekeeping of the shares by registering them directly on the books of the company. Eliminates the need for shareholders to hold on to physical certificates. Direct quote For foreign exchange, the number of US dollars needed to buy one unit of a foreign currency. Direct Registration System A system, sometimes referred to as DRS, that allows electronic direct registration of securities in an investor's name on the books for the transfer agent or issuer, and allows shares to be transferred between a transfer agent and broker electronically. DRS provides investors with a different way of holding their securities in certificate or street form. Under DRS, investors can elect to have their securities registered directly on the issuer's records in book-entry form. An investor electing to hold a security in a DRS book-entry position will receive a statement from the issuer or its transfer agent verifying ownership of the security. The investor can subsequently transfer electronically the DRS book-entry position to their bank or broker/dealer. Direct rollover Movement of tax-deferred retirement plan money from one qualified plan or custodian to another. No immediate tax liabilities or penalties are incurred, but there is an IRS reporting requirement. Direct search market Buyers and sellers seek each other directly and transact directly. Direct stock-purchase programs Investors purchase securities directly from the issuer. Direct terms The price of a unit of foreign currency in domestic currency terms, such as $.9850/Euro for a US resident. See: Indirect terms. Director See: Board of directors. Director Exception A proxy or ballot that withholds its votes from one or more, but not all, individuals on the slate of nominated directors. Directors' Duties In the context of corporate governance, Directors' Duties refers to stated responsibilities of the company'sBoard of Directors. These provisions allow directors to consider constituencies other than shareholders when considering a merger. These constituencies may include, for example, employees, host communities, or suppliers. This provision provides boards of directors with legal basis for rejecting a takeover that would have been beneficial to shareholders. A majority of states have Directors Duties Laws. Directorship Used in the context of general equities. Stock status whereby a trader may not maintain positions in the security, due to an investment bank employee serving as a director on the corporation'sBoard of Directors done to avoid conflicts of interest; signified by a flashing "D" on Quotron. Contrast to restricted. Dirty float A system of floating exchange rates in which a government may intervene to change the direction of the value of the country's currency. Dirty price Bond price including accrued interest, i.e., the price paid by the bond buyer. Dirty stock A stock that fails to fulfill prerequisites to attain good delivery status. Disability income insurance An insurance policy that insures a worker in the event of an occupational mishap resulting in disability. Insurance benefits compensate the injured worker for lost pay. Disbursement float A decrease in book cash but no immediate change in bank cash, generated by checks written by the firm. Discharge of bankruptcy The termination of bankruptcy proceedings, resulting in cancellation of the debtor'sobligations. Discharge of lien An order terminating a lien on property. Disclaimer of opinion An auditor's statement that does not express any opinion regarding the company's financial condition. Disclosure A company's release of all information pertaining to the company's business activity, regardless of how that information may influence investors. Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. Discount Convertible: Difference between gross parity and a given convertible price. Most often invoked when a redemption is expected before the next coupon payment, making it liable for accrued interest. Antithesis of premium.General: Information that has already been taken into account and is built into a stock or market.Straight equity: Price lower than that of the last sale or inside market. Discount Arbitrage A riskless arbitrage in which a discount option is purchased and an opposite position is taken in the underlying security. The arbitrageur may either buy a call at a discount and simultaneously sell the underlying security (basic call arbitrage) or may buy a put at a discount and simultaneously buy the underlying security (basic put arbitrage). See also Discount. Discount bond Debt sold for less than its principal value. If a discount bond pays no coupon, it is called a zero coupon bond. Discount broker A brokerage house featuring relatively low commission rates in comparison to a full-service broker. Discount factor Present value of $1 received at a stated future date. Discount payment The difference between the face value and the price paid for a security. Discount period The period during which a customer can deduct the discount from the net amount of the bill when making payment. Discount rate The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings. In context of NPV or PV calculations, the discount rate is the annual percentage applied. In the context of project financing, the discount rate is often the all-in interest rate or the interest rate plus margin. Discount securities Non-interest-bearing money marketinstruments that are issued at a discount and redeemed at maturity for full face value, e.g., US Treasury bills. Discount window Facility provided by the Fed enabling member banks to borrow reserves against collateral in the form of government securities or other acceptable paper. Discount yield The yield or annual interest rate on a security sold to an investor at a discount. A bond that is sold at $4875 that matures to $5000 has a discount of $125. To calculate the discount yield: (discount divided by the face value of the security) multiplied by the (number of days in the year divided by the number of days to maturity). Discounted basis To sell a debt instrument below maturity value, so that the difference makes up all or part of the interest. Discounted cash flow (DCF) Future cash flows multiplied by discount factors to obtain present values. Discounted dividend model (DDM) A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends. Discounted payback The length of time needed to recoup the present value of an investment. Discounted payback period rule An investment decision rule in which cash flows are discounted at an interest rate and then one determines how long it takes for the sum of the discounted cash flows to equal the initial investment. Discounted in/by market Unannounced information that is widely accepted or anticipated, and hence is already taken into account in the pricing of the security/market (e.g., poor earnings). Discounting Calculating the present value of a future amount. Discounting is opposite to compounding. Discounting the news An adjustment of a stock's price as speculatorsbid the price up or down in anticipation of news about the company, whether good or bad. Discrepancy Any deviation from the conditions stipulated in a letters of credit. Discrepancies void letter of credit protection. Discrete compounding Compounding the time value of money for separate time intervals. Discrete random variable A random variable that can take only a certain specified set of individual possible values-for example, the positive integers 1, 2, 3, . . . For example, stock prices are discrete random variables, because they can only take on certain values, such as $10.00, $10.01 and $10.02 and not $10.005, since stocks have a minimum tick size of $0.01. By way of contrast, stock returns are continuous not discrete random variables, since a stock's return could be any number. Discrete variable Variable like 1, 2, 3. Bond ratings are examples of discrete classifications. Discretion Freedom given to the floor broker by an investor to use his judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order that gives the floor broker some distance from the stated limit price to use his judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held order. See also: Market Not Held Order. Discretionary account Account over which an individual or organization, other than the person in whose name the account is carried, exercisestrading authority or control. Discretionary cash flow Cash flow that is available after the funding of all positive net present value (NPV)capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiringdebt, and so on. Discretionary income The amount of income a consumer has available after purchasing essentials such as food and shelter. Discretionary order A type of buy order or sell order that gives the broker the freedom and power to make the execution at any time and price that is seen fit and reasonable, given the investor's goals. Discretionary Proposition A proposal on a proxy card that brokers can cast in favor of management if they have not yet heard from the beneficial holder ten days before the annual meeting. See: Ten-Day Rule Discretionary reserves Balance sheet accounts representing temporary accumulations of earnings from the current year or the recent past. Discretionary trust In the context of mutual funds, refers to a mutual fund or unit trust whose management decides on the best way to use the assets without restriction to a specific type of security. In the context of trusts, refers to a personal trust in which a trustee has the power of decision as to how much income or principal each beneficiary receives. Discriminate analysis A statistical process that links the probability of default to a specified set of financial ratios. Dishonor A refusal to pay. Disinflation A decrease in the rate of inflation. Disintermediation Withdrawal of funds from a financial_institution in order to invest them directly. Disinvestment A reduction in capital investment reflected by a decrease in capital goods and a company's decision not to replace depleted capital goods. Disorderly Market A characterization of market conditions whereby there is excessive volatility at a time when there is no news. The volatility is often caused by order imbalances. In some markets, shorts trying to cover can cause disorderly conditions. If disorderly conditions arise, sometimes trading is halted. Disposable income The amount of personal income an individual has after taxes and government fees, which can be spent on necessities, or non-essentials, or be saved. Distress sale The selling of assets under adverse conditions, e.g., an investor may have to sell securities to cover a margin call. Distressed securities A security of a firm that has declared or is about to declare bankruptcy. In the context of hedge funds, a style of management that focuses on securities of companies that have declared bankruptcy and may be undergoing reorganization. Investment holdings can include bonds as well as stock in these firms. Distributed New Treasury issues in dealers' hands are said to be distributed. Distributing syndicate A syndicate consisting of a number of brokerage firms or investment bankers that work together to sell and disperse a large lot of securities. Distribution Selling a large lot of a security in such a way that the security price is not heavily influenced. Distribution area An established price range in which a stock has been trading for a significant amount of time. See: Accumulation area. Distribution Cost Advantage A source of competitive advantage that depends on the efficient delivery of a product or service to customers. Distribution by coupon Classification of a portfolio'ssecurities according to coupon rate—the interest rate that an issuer promises to pay, expressed as an annual percentage of face value. Distribution by credit quality Classification of a portfolio'ssecurities according to credit rating. Distribution by issuer Classification of a portfolio's holdings by type of issuer or type of instrument. Distribution by maturity An indicator of interest raterisk. In general, the higher the concentration of longer-maturityissues, the more a portfolio'sshare price will fluctuate in response to changes in interest rates. Distribution period The few days between the Board of Directors'declaration of a stock dividend (declaration date) and the date of record, or the date an individual must own shares to be entitled to a dividend. Distribution plan A mutual fund's plan to charge distributioncosts such as advertising to the investors of the fund. Distribution schedule The frequency (monthly, quarterly, semiannually, or annually) of a mutual fund's scheduled distributions of dividends or capital gains. Distribution stock A small amount of a specific stock that forms part of a larger block of stock that is sold small amount by small amount so as not to disrupt the stock's market price. Distributions Payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute realized capital gains (if any) to shareholders at least once per year if they are not to be taxed by the fund itself. Some corporations offer Dividend Reinvestment Plans (DRP). Divergence When two or more averages or indexes fail to show confirming trends. Diversifiable risk Related: Unsystematic risk Diversification Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk. Diversified investment company An investment vehicle such as a mutual fund that invests in an assortment of securities. Divestiture A complete asset or investment disposal such as outright sale or liquidation. Dividend A portion of a company'sprofit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a shareyields the investor 5%. Dividend Discount Return The rate of return which equates the present value of future expected dividends with the current market price of a security. Dividend in arrears Accumulated dividends on cumulative preferred stock that are deemed payable to the current holder. Dividend capture See: Dividend rollover plan Dividend clawback An arrangement under which sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies. Dividend clientele A group of shareholders who prefer that the firm follow a particular dividend policy. Such a preference may be based on comparable tax situations. Dividend Disbursing Agent A commercial bank or financial_institution that disburses dividend to the securityholders. Usually a Transfer Agent is also the Dividend Disbursing Agent. Dividend Discount Model (DDM) A method to value the common stock of a company that is based on the present value of the expected future dividends. Dividend distribution See: Dividend income Dividend growth model An approach that assumes dividends grow at a constant rate in perpetuity. The value of the stock equals next year's dividends divided by the difference between the required rate of return and the assumed constant growth rate in dividends. Dividend income Distribution of earnings to shareholders that may be in the form of cash, stock, or property. Mutual fund dividends are paid out of income, usually on a quarterly basis, from interest generated by a fund's investments. Also known as a dividend distribution. Dividend limitation A bond convenant that restricts in some way the firm's ability to pay cash dividends. Dividend Order A letter or form signed by the shareholder instructing a corporation to issue and forward dividend and/or interest payments to a specific person or entity other than the registered owner, such as a bank or broker. Dividend payout ratio Percentage of earnings paid out as dividends. Dividend policy Standards by which a firm determines the amount of money it will pay as dividends. Dividend rate The fixed or floating rate paid on preferred stock based on par value. Dividend record S&P publication stating companies' payment histories and corporate policies. Dividend Reinvestment Plan (DRP) Plan which provides for automatic reinvestment of shareholderdividends in more shares of a company'sstock, often without commissions. Some plans provide for the purchase of additional shares at a discount to marketprice. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder. Dividend requirement The annual earnings minimum required for payment of dividends on a preferred stock. Dividend rights A shareholder's rights to receive per-share dividends identical to those other shareholders receive. Dividend rollover plan An investment strategy that entails the purchasing before and selling after of a stock right before its ex-dividend date in order to collect the dividends paid out by the stock and capture a tradeprofit. Dividend trade roll/play Used for listed equity securities. Method of buying and selling stocks around their ex-dividend dates so as to collect the dividend (which is 80% tax-exempt) offset by a fully-taxable capital loss. Predicated on the 80% current exemption that some corporations receive on dividend income. Dividend yield (Funds) Indicated yield represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased a year ago. Reflects effect of sales charges (at current rates), but not redemption charges. Dividend yield (Stocks) Indicated yield represents annual dividends divided by current stockprice. Dividends payable The declareddividend dollar amount that a company is obligated to pay. Dividends per share Dividend paid for the past 12 months divided by the number of common sharesoutstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term. Dividends-received deduction A corporate tax deduction on income allowed by company A that is in ownership of shares of company B and receives dividends on the shares of company B. Divisor Used in construction of stock indices. Suppose there 10 stocks in an index, each worth $10 and the index is at 100. Now suppose that one of the stocks must be replaced with another stock that is worth $20. If no adjustment is made to the divisor, the total value of the index would be110 after the swapping. yet there should be no increase in value because nothing has happened other than switching the two constituents. The solution is to change the divisor; in this case from 1.00 to 1.10. Note that the value of the index, 110/1.1, is now exactly 100 - which is where it was prior to the swap. Direct foreign investment (DFI) Investment in real assets (such as land, buildings, or plants) outside one's own country. Direct Loan Program Fixed-rate loans offered by the Ex-Im Bank directly to the foreign buyer to purchase US capital equipment and services. DM Deutsche marks, the former currency of Germany. Do Not Increase (DNI) A restriction that an investor places on a good til' canceled order to prevent an order increase in the case of a stock dividend or stock split. Do Not Reduce Order (DNR Order) Limit order to buy or to sell, or a stop limit order to sell that is not to be reduced by the amount of an ordinary cash dividend on the ex-dividend date. A "do not reduce order" applies only to ordinary cash dividends, and not stock dividends or rights. Doctrine of sovereign immunity Principle that a nation may not be tried in another country without its consent. Documentary Collection A service provided by banks to sellers in obtaining payments. This service is usually transacted by the seller's bank through the buyer's bank, with the latter presenting the shipping documents to the buyer in exchange for payment or for signing a promissory note like instrument called a time draft. Documentary collections Trade transactions handled on a draft basis. Documented discount notes Commercial paper backed by normal bank lines of credit plus a letter of credit from a bank stating that it will pay off the paper at maturity if the borrowerdefaults. Such paper is also referred to as L.O.C. paper. Also known as Bankers' Acceptances. Documents against acceptance Shipping documents held by the buyer's bank until the buyer has accepted (signed) the draft. Documents against payment Shipping documents that are released to the buyer once the buyer has paid for the draft. Dogs of the Dow The 10 stocks of the 30 on the Dow Jones Industrial Average with the most depressed prices and consequently the highest yields. The investorbuying these stocks speculates that they will bounce back over a one-year period. Dollar bears Traders who capitalize on a falling dollar by buying other foreign currencies directly. Dollar bonds Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with "US Dollar" bonds, a common term of reference in the Eurobond market. Dollar cost averaging See: Constant dollar plan Dollar drain The impact of importing from foreign countries more than exporting to them. The money required to finance the import purchases removes dollars from the importing nation. Dollar duration The product of modified duration and the initial price. Dollar price of a bond Percentage of face value at which a bond is quoted. Dollar return The return realized on a portfolio for any evaluation period, including (1) the change in market value of the portfolio and (2) any distributions made from the portfolio during that period. Dollar roll Similar to the reverse repurchase agreement-a simultaneous agreement to sell a security held in a portfolio with purchase of a similar security at a future date at an agreed-upon price. Dollar safety margin The dollar equivalent of the safety cushion for a portfolio in a contingent immunizationstrategy. Dollar shortage Results when a nation importing US goods cannot pay for them without the aid of the United States. Dollar-weighted rate of return Also called the internal rate of return; the interest rate that makes the present value of the cash flows from all the subperiods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio. Domestic bonds Bonds issued and traded within the internal market of a country and denominated in the currency of that country. Domestic corporation A corporation that is conducting business and is based in the country in which it is established, as opposed to a foreign corporation. Domestic International Sales Corporation (DISC) A U.S. corporation that receives a tax incentive for export activities. Domestic market A nation's internal market representing the mechanisms for issuing and tradingsecurities of entities domiciled within that nation. Compare external market and foreign market. Domestic series Nonmarketable interest and noninterest-bearing securitiesissued periodically by the Treasury to the Resolution Funding Corporation (RFC) for investment of funds authorized under section 21B of the Federal Home Loan Bank Act. Donor One who gives property or assets to someone else through the vehicle of a trust. Don't fight the tape Phrase advising not to trade against the markettrend. If stock prices are rising, do not sell. Don't know (DK, DKed) "Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party. Also, an unscrupulous claim made by one party denying that the trade had been agreed to and made after the trade goes adversely against that party. Double auction market Systems by which listed securities are bought and sold through brokers on the securities exchanges, as distinguished from the OTC market, where trades are negotiated. Unlike the conventional auction with one auctioneer and many buyers, double auction markets consist of many sellers and many buyers. Double auction system A market consisting of many sellers and many buyers, as opposed to a conventional auction with one market maker and many buyers. Double-barreled Describes backing of the principal and interest of a smaller municipal revenue bond by a larger municipal entity. Double bottom A term used in technical analysis to refer to the drop of a stock's price, a rebound, and then a drop back to the same level as the original drop. Double-declining-balance depreciation method (DDB) An accounting methodology in which the depreciation rate used is double the rate used under the straight-line method. In addition, the rate is applied to the full purchase cost of the asset, whereas under the straight-line method the rate is applied to the cost net of salvage value. Double-declining-balance depreciation Method of accelerated depreciation. Double dip Used for listed equity securities. Dividend roll in which the "dividend capturer" already owns the stockcum dividend. Also used when tax depreciation is accessed in two countries concurrently. Double-dip lease A cross-border lease in which the different rules of the lessor's and lessee's countries let both parties be treated as the owner of the leased equipment for tax purposes. Double-entry bookkeeping Accounting method that records each transaction as both a credit and a debit in different accounts. Double-tax agreement Agreement between two countries that taxes paid abroad can be offset against domestic taxes levied on foreign dividends. Double taxation Government taxation of the same money twice; specifically, earnings taxed first at the corporate level and then again as dividends at the stockholder level. Double top A term used in technical analysis to refer to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise. Double up A stockbuyingstrategy that doubles the risk when the price moves in the opposite direction from the direction the investor hoped for. For example, an investor with confidence in ABC buys 1000 shares at $100 and another 1000 shares when the price declines to $90. Double witching day The last trading day before expiry of options and futures on the same underlying asset, resulting in a variety of arbitragestrategies to close out positions. Doubling option A sinking fund provision that may allow repurchase of twice the required number of bonds at the sinking fund call price. Dovish Refers to the tone of language used to describe a situation and the associated implications for actions. For example, if the Federal Reserve bank refers to inflation in a dovish tone, it is unlikely that they would take agressive actions. Similarly, a CEO might use dovish language to describe an important event facing the firm. This indicates that the firm is unlikely to take strong actions. Dovish sometimes means conciliatory. Opposite of hawkish. Dow dividend theory See: Dogs of the Dow. Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest US companies are performing. There are hundreds of investmentindexes around the world for stocks, bonds, currencies, and commodities. Dow Theory Used in the context of general equities. Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows. Down round Refers to a round of venture capital financing that is raised at a lower firm valuation than the previous round. Down volume When a stock decreases in value on a particular day, the volume in that stock is considered down volume. Related: Up volume. Down-and-in option Barrier option (or knock-in option) that causes a plain-vanilla call or put option to come into existence if the underlying asset price falls to a predetermined price level (the barrier price). Down-and-out option Barrier option (or knock-out option) that initially is a plain vanilla option, but which ceases to exist if the underlying security falls to a predetermined level (the barrier price). Downgrade A negative change in ratings for a stock, or other rated security. Downside Protection Generally used in connection with covered call writing, this is the cushion against loss, in case of a price decline by the underlying security, that is afforded by the written call option. Alternatively, it may be expressed in terms of the distance the stock could fall before the total position becomes a loss (an amount equal to the option premium), or it can be expressed as percentage of the current stock price. Downside risk The risk that a security will decline in value including the implications of risk. Downsizing A company's reduction in the number of employees, number of bureaucratic levels, and overall size in an attempt to increase efficiency and profitability. Downstream The transfer of corporate activity from the larger parent to the smaller subsidiary. Downtick A trade in a particular stock at a price lower than the trade immediately preceding it. On U.S. stock exchanges, you cannot sell a stock short on a downtick. Downturn The transition point between a rising, expanding economy to a falling, contracting one. Draining reserves Federal Reserve System's course of action to tighten the money supply by (1) raising a bank's minimum reserve requirements, (2) selling bonds in the openmarket, (3) raising the rate at which banks borrow from the Fed, or (4) through draw-downs. Draft An unconventional order in writing-signed by a person, usually the exporter, and addressed to the importer-ordering the importer or the importer's agent to pay, on demand (sight draft) or at a fixed future date (time draft) the amount specified on the face of the draft. Draw a call In the context of general equities, provoking a customer indication/inquiry/order by calling them up or doing large amount of the volume in a stock. Drawback A tax or duty rebate on imported goods that are exported at a later date. Drawdown The state in which the borrower obtains some of the project financing, usually progressively according to construction expenditures plus IDC. Drawee The party who is directed to pay as specified in a draft. Drawer The party initiating a draft. Drayage A trucking company freight charge for the pick up or delivery of an ocean container. Dressing up a portfolio Money managers'strategy to make transactions for the sole purpose of making a portfolio look good to the investor near the end of a reporting period. See: Window dressing Drip feed The continual investment of capital in a small and growing company as the company needs it, rather than investing a lump sum at the company's inception. Drive-by VC A type of venture capitalist. In the usual model, the venture capitalist (VC) is involved in management and monitoring of the startup. A drive-by VC invests in a portfolio of startups and is often quick to exit. Drop Refers to over-the-counter trading. Remove from OTCtradinglist; hence, no longer making a market in a security. Drop, The In a dollar rolltransaction, the difference between the sale price of a mortgage-backed pass-through, and its repurchase price on a future date at a predetermined price. Drop-dead day The date on which a deadline is final, with no exceptions. Drop-dead fee A term of British origin referring to fee that must be paid if a deal falls through because of financing issues. Drop lock The fixing of the interest rate on a floating-rate note or preferred stock if it falls to a specified level. Dual banking Describes United States custom in which a bank is chartered by the state or federal government. Dual-currency issues Eurobonds that pay couponinterest in one currency but pay the principal in a different currency. Dual listing Listing of a security on more than one exchange, thus increasing the competition for bid and offerprices, the liquidity of the securities, and the length of time the stock can be traded daily (if listed on both the east and west coasts.) See: Listed security. Dual-purpose fund A closed-end fund consisting of two classes of shares. The two classes are preferred shares, on which shareholders receive all the dividends and interest from the portfolio, and common shares, on which shareholders receive all the capital gains. Dual syndicate equity offering An international equity placement that splits the offering into two branches - domestic and foreign - and each grantee is handled by a separate lead manager. Dual trading The custom of a trader on the commoditiesmarket to deal for its own account and the investor'saccount at the same time. Due bill An instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Occasionally used in the bill market. Due date Date on which a debt must be paid. Due diligence An internal audit of a target firm by an acquiring firm. Offers are often made contingent upon resolution of the due diligence process. Due diligence meeting Meeting legally required to be held by an underwriter to enable brokers to question a new issuer about an upcoming issue. Due-on-sale clause A mortgagecontract clause stipulating that the borrower pay off the full remaining principal on a mortgage if the mortgaged property is sold before the mortgage is paid off. Dumping Used in the context of general equities. Offering large amounts of stock with little or no concern for price or market effect. Duplicate Proxy A second proxy received on an account. If the second proxy bears a more recent date than the first proxy, and has a different voting pattern, the second proxy will override the first. Duplicative portfolio Mainly applies to derivative products. Basket of stocks that imitates the price movement of another set of securities (e.g., S&P 500 index). Dupont system of financial control Highlights the fact that return on assets (ROA) can be expressed in terms of the profit margin and asset turnover. Durable merchandise Goods that have a relatively lengthy life (television sets, radios, etc.). Duration drift Change in duration attributable to the passage of time. Duration A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates. Duration matching strategy An immunization technique that matches assetduration with the duration of the liabilities. Dutch auction Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions. Often used in risk arbitrage. Auction system in which the price of an item (stock) is gradually lowered until it meets a responsive bid (government T-bills) or offer (corporate repurchase) and is sold. In a corporate repurchase, a range of prices is set by the company within which shareholders are invited to tender their shares. The tender offer is open for a specific period of time (i.e., 20 days), and the quantity of stock to be purchased is stated as well, subject to proration if more shares are tendered than can be legally purchased under the stated terms (often an additional amount equal to 20% of outstanding shares can be purchased). The price paid is that at which the amount stated to be purchased can be sold. Compare to double auction system. Dutch Auction Preferred Stock A form of adjustable-ratepreferred stock in which the dividend is ascertained in a Dutch Auction process by corporate bidders every seven weeks. Duty A tax on imports, exports, or consumption goods. Dwarfs Fannie Maeissuedmortgage-backed securities pools that have an original maturity of 15 years. Dynamic For option strategies, describing analyses made during the course of changing security prices and during the passage of time. This is as opposed to an analysis made at expiration of the options used in the strategy. A dynamic break-even point is one that changes as time passes. A dynamic follow-up action is one that will change as either the security price changes or the option price changes or time passes. Dynamic asset allocation An asset allocation strategy in which the asset mix is quantitatively shifted in response to changing market conditions, as in a portfolio insurancestrategy, for example. Dynamic hedging A strategy that involves rebalancinghedgepositions as market conditions change; a strategy that seeks to insure the value of a portfolio using a syntheticput option. Dynamical Noise When the output of a dynamical system becomes corrupted with noise, and the noisy value is used as input during the next iteration. Also called System Noise. See: Observational Noise. Dynamical Systems A system of equations where the output of one equation is part of the input for another. A simple version of a dynamical system is linear simultaneous equations. Non-linear simultaneous equations are nonlinear dynamical systems.