Financial-Investment-Banking Jargons Part-1

• Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.
• Ask Price: The lowest price at which a dealer is willing to sell a given security.
• Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases, and other assets. Most ABS are backed by auto loans and credit cards - these issues are very similar to mortgage-backed securities.
• At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument.
• Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points.
• Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.
• Bid-ask Spread: The difference between a dealer’s bid and ask price.
• Bid Price: The highest price offered by a dealer to purchase a given security.
• Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. They are issued by large and well-established firms that have impeccable financial credentials.
• Bond: Publicly traded long-term debt securities, issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.
• Book Value: The amount of stockholders’ equity in a firm equals the amount of the firm’s assets minus the firm’s liabilities and preferred stock. /p>
• Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities.
• Brokerage Fee: The commission charged by a broker.
• Bull Markets: Favorable markets associated with rising prices and investor optimism.
• Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date.
• Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity.
• Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original purchase price.
• Capital Markets: The market in which long-term securities such as stocks and bonds are bought and sold.
• Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified period, and premature withdrawals incur interest penalties.
• Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done between investors in the open market. The share prices are determined by market prices instead of their net asset value.
• Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.
• Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings.
• Common Stock: Equity investment representing ownership in a corporation; each share represents a fractional ownership interest in the firm.
• Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next.
• Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.
• Controlling Shareholder: Any person who is, or group of persons who together are, entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or who is or are in a position to control the composition of a majority of the board of directors of the issuer.
• Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is the specified value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.
• Corporate Bond: Long-term debt issued by private corporations.
• Coupon: The feature on a bond that defines the amount of annual interest income.
• Coupon Frequency: The number of coupon payments per year.
• Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. It is the bond’s interest payment per dollar of par value.
• Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.
• Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors.
• Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves.
• Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.
• Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable, or in the name of the bank’s nominee; plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services.
• Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest in a timely manner.
• Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy (sell) the shares of a listed company at a specified price.
• Derivative Instrument: Financial instrument whose value depends on the value of another asset.
• Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.
• Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to increase returns or be exposed to less risk.
• Duration: A measure of bond price volatility, it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments.
• Earnings: The total profits of a company after taxation and interest.
• Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated on a per share basis.
• Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).
• Equity: Ownership of the company in the form of shares of common stock.
• Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire new shares in that company at a specified price and for a specified period of time.
• Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or the period of time between the announcement of the dividend and the payment (usually two days before the record date). For transactions during the ex-dividend period, the seller will receive the dividend, not the buyer. Ex-dividend status is usually indicated in newspapers with an (x) next to the stock’s or unit trust’s name.
• Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument. Interest is calculated on face/nominal value.
• Fixed-income Securities: Investment vehicles that offer a fixed periodic return.
• Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date.
• Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.
• Fundamental Analysis: Research to predict stock value that focuses on such determinants as earnings and dividends prospects, expectations for future interest rates and risk evaluation of the firm.
• Future Value: The amount to which a current deposit will grow over a period of time when it is placed in an account paying compound interest.
• Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will grow over a period of time when it is placed in an account paying compound interest.
• Futures Contract: A commitment to deliver a certain amount of some specified item at some specified date in the future.