| Glossary of terms A brief description is provided for each term.
Accounts Payable (Payables): Money owed to suppliers.
Accounts Receivable (Receivables): Money owed by customers.
Annuity Investment: that generates a stream of equal cash flows.
Arbitrage (risk arbitrage): Simultaneous purchase of a security and sale of another to generate a risk-free profit.
Arbitrage: A transaction that generates a risk-free profit.
Asset Allocation: The process of determining the optimal division of an investor's portfolio among different assets. Most frequently this refers to allocations between debt, equity, and cash. Asset Liability Management: A risk management technique for protecting an institution's capital. Assets: Anything that the firm owns.
Average Tax Rate: The rate calculated by dividing the total tax liability by the entity's taxable income. Also referred to as “Effective Tax Rate” (ETR)
B
Balance Sheet: A basic accounting statement that represents the financial position of a firm on a given date.
Bankers' Acceptance: A draft drawn on a specific bank by a seller of goods to obtain payment of goods that have been sold to a customer. The customer maintains an account with that specific bank.
Base currency: The currency in which the Forex risk is quantified.
Basis Point: .01 percent. Used to measure changes in yields of bonds. Always used in “floating rate of interest” as opposed to “fixed rate of interest”.
Beta: A relative (to a benchmark) measure of risk. Measures of an asset's non-diversifiable -- market-- risk. See also systematic risk.
Bid: The lowest price anyone wants to sell the security for at a given time. (See: Ask, and Bid-Ask Spread)
Bid-Ask Spread: The difference between the bid and the ask for a security at a given time.
Bill Debt: that has less than 1-year maturity at time of issue.
Bond Long-Term IOU: Whereby the holder (lender or buyer) is promised to receive fixed payments over a pre-specified time period. Corporate bonds are one of the available instruments that companies can resort to for their financing needs.
Bond Par Value: The face value that is to be returned to a bondholder at maturity.
Book Value: The depreciated value of a company's assets (original cost less accumulated depreciation) less the outstanding liabilities. This can be book value of equity shares, book value of fixed assets, book value of investments made by a business entity etc.
Broker: A person who facilitates transactions (buy and sell) in the secondary market.
Brokerage Commission: The amount of money your brokerage house would charge for a given transaction (buy/sell). This is how these firms make their living.
Buyback: When a firm repurchases its own stock from the public.
C
Call Provision: A provision that entitles the corporation to repurchase its bonds or preferred stock from their holders at stated prices over specified periods.
Callable Bond: A bond that may be terminated prior to maturity by its issuer.
Cap: A derivative instrument that is linked to interest rates.
Capital Asset: All property used in conducting a business other than assets held primarily for sale in the ordinary course of business or depreciable, and real property used in conducting a business.
Capital Asset Pricing Model (CAPM): An equation relating an asset's relative riskiness (beta) to its required return.
Capital Budgeting: The decision-making process with respect to investment in fixed-assets. It involves measuring the additional cash flows associated with investment proposals and evaluating the viability of those proposed investment.
Capital Gains or Loss: The profit or loss made when an asset is sold for more than the purchase price is a capital gain. If the sale price is less than the purchase price, this is a capital loss.
Capital Markets: Markets for long-term financial securities.
Capital Rationing: Shortage of funds that forces a company to choose between projects.
Capital Structure Mix of different securities issued by a company.
Capitalization: A company's amount of capital. Usually measured as the sum of a company's market value of equity and debt.
Cash Budget: A detailed plan of future cash flows. This budget is composed of four elements: cash receipts, cash disbursements, net change in cash for the period, and new financing needed.
CD (Certificate of Deposit): Receipts for funds deposited in bank or S&L for a fixed period. The funds earn a fixed interest rate.
Change: This shows the change in price of a security from the previous day's closing price.
Cheap: An asset is said to be cheap when it is worth (intrinsic value) more than its market value.
Closing Price (alternatively close) : The price at which the last trade took place on a given day in a particular security.
Collateral Assets: That is used as security for a loan.
Commercial Paper: Unsecured debt (IOU), issued by large corporations, with maturities (at time of issue) less than a year. They can be traded on OTC.
Commission: The broker's fee for purchasing or selling assets.
Common Shares: These are securities that represent equity ownership in a company. Common shares typically allow an investor to vote on such matters as the election of board of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Also referred to as “equity shares” or “equity”.
Compounding: A process whereby the value of an investment appreciates exponentially over time as interest is earned on interest. This is possible, as interest is not physically paid out to the investor during the holding period.
Consumer Price Index (CPI): The CPI measures the prices of consumer goods and services and is a measure of the pace of Indian inflation.
Conversion Ratio: The number of shares of common stock for which a convertible security can be exchanged. Convertible debentures, convertible bonds or convertible preference shares.
Convertible Bond: Bond that can be converted to equity at a pre-specified conversion ratio.
Corporation: A legal entity that functions separate and apart from its owners.
Correlated exposure: Exposure to a risk factor, taking into account the impact of correlated risk factors.
Correlation: A notion from probability.
Cost Budgets: Budgets prepared for every major expense category of the firm, such as administrative cost, financing cost, production cost, selling cost, and research and development.
Cost of Capital: The rate that must be earned by the company to satisfy all the firm's providers of capital. It is based on the opportunity cost of funds.
Coupon Interest Rate: The Interest to be annually paid by the issuer of a bond as a percent of per value, which is specified in the contractual agreement.
Covariance: A measure of co-movement between two variables.
Credit Enhancement: Any methodology that reduces the credit risk in a commercial or financial transaction. Commercial transaction – selling goods or services for money. Financial transaction – giving loans.
Credit Exposure: Exposure to possible default in a commercial transaction or a financial transaction.
Credit Risk: The risk that the other party in a business deal or transaction may fail to perform on its obligations.
Credit Scoring: A procedure for assigning scores to companies or individuals on the basis of the risk of default.
Credit Spread: A spread in prices or interest rates resulting from credit risk.
Cum dividend: With dividend – when you purchase a share it is just before declaration of dividend by the shares issuing company. Hence the price will be slightly higher as the seller requires compensation for loss of dividend.
Cum Rights: With rights – when you purchase a share it is just before declaration of Rights Issue. As a holder of equity shares, you have the option of purchasing the Rights Issue shares or sell off the rights. Hence the price will be higher than post-Rights Issue.
Current Asset: Asset that is expected to be turned into cash within a year.
Current Liability: Liability that is expected to be paid in less than a year.
D Date of Record: The date on which a shareholder must officially own shares in order to be entitled to a dividend.
DCF: Discounted Cash Flows
Debentures: Secured medium-term debt and debenture certificates are issued to the holders by the debt raising company.
Default Risk: Uncertainty of a firm's ability to meet its debt obligations on time and in full.
Depreciation: (1) Reduction in the book or market value of an asset.
(2) Portion of an investment that can be deducted from taxable income.
Discount Bond: A bond that sells at value below par value.
Discounting: The inverse of compounding. This process is used to determine the present value of a cash flow.
Diversifiable Risk: The components of an asset's risk that can be eliminated when the asset is combined in a well-diversified portfolio.
Diversification: A technique for managing risk where risk is divided among multiple, uncorrelated exposures.
Dividend: Distribution of wealth by firm to shareholders based on number of shares owned.
Dividend Yield Dividends per share divided by the price of the security.
E
Earnings Per Share (EPS): Company's earnings divided by the number of shares outstanding.
EBIT: A company's Earnings Before Interest and Taxes.
Exchange Rate Mechanism (ERM): Or the currency grid - is a system that limits currency fluctuations to a range of 15 percent in either direction.
Exchange Traded: Traded on an exchange, as opposed to being traded over the counter.
Ex-Dividend Date: The date that determines ownership of stock for the purpose of paying dividends. Owners purchasing shares on or after the ex-dividend date do not receive the dividends. Only owners before this date would be registered to receive the declared dividend. The date is set at four business days prior to the record date. Also see dividend.
Expected return: The average possible return for an investment
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Exposure: Sensitivity to a source of risk.
External Financing: Financing projects through new issues of securities; debt and/or equity.
Extra Dividend: Dividend that is not expected to be repeated.
F Face Value: Value of security shown on certificate. Also called par value, which is typically Re.1/- to Rs.100/- in the case of equity shares and Rs.100/- to Rs.1000/- in the case of bond or a debenture. Financial Assets: Securities that have a claim on assets of a borrower. Term used to denote the assets of a lender.
Financial Engineering: The design of financial portfolios to achieve specified goals.
Financial Intermediaries: Financial institutions, banks, NBFCs that assist the transfer of savings from economic agents with excess savings to those that need capital for investments.
Financial Investment: Investment in financial assets.
Financial Risk: Additional risk borne by shareholders because of a firm's use of debt.
Financial Risk Management: The process whereby an organization optimizes the manner in which it takes risks.
Firm Specific Risk Uncertainty in returns due to factors specific to the company. See diversifiable risk.
Fixed Costs (overhead): A cost that is fixed for a given period of time. It is not dependent on the amount of goods and services produced during the period. Fixed costs are to a large extent dependent upon fixed assets.
Floatation Cost: The underwriter's revenue associated with assisting a firm in issuing and marketing new securities.
Forward: An agreement to execute a transaction at some time in the future.
Forward Rate Agreement: A type of forward contract that is linked to interest rates.
FRA: Forward Rate Agreement
Free Cash Flow Value: The value of a firm based on the cash flow available for distributing to any of the providers of long-term capital to the firm. The free cash flows equal operating cash flow less any incremental investments made to support a firm's future growth.
Future: An agreement to execute a transaction at some time in the future.
Futures Contract: This is an agreement that allows an investor to buy or sell a commodity, like gold or wheat, or a financial instrument, like a currency, at some time in future. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying asset. These contracts trade on organized futures exchanges.
Futures Exchange: Traded contracts specifying a future date of delivery or receipt of a specific product or asset. The assets include agricultural products like, pork bellies and oranges; metal; and financial instruments and indices. They are used by firms to hedge against potentially unfavorable price changes, and by speculators who hope to benefit from betting on the direction or magnitude of change.
Futures Market: Where futures contracts are traded.
G
Growth: Stocks of companies that have an opportunity to invest in projects that earn more that the required rate of return.
H
Hedge: To take offsetting risks.
Hedging: The purchase or sale of a derivative security (such as options or futures) in order to reduce or eliminate risk associated with undesirable price changes of another security.
High-Yield Bond: A bond that pays a high yield due to significant credit risk.
Horizontal Integration: When firms in the same industry merge. Also referred to as horizontal merger.
Horizontal Merger: Merger between two companies that produce similar products. Also referred to as horizontal integration.
Hostile Takeover: A merger or acquisition in which management resists the group initiating the transaction.
Hurdle Rate: The minimum required return on a project.
Hypothecation: The posting of collateral security in the case of a loan
I
Income Stocks: Companies with high dividend yield or no NPV > 0 opportunities.
Indenture: The legal agreement between the firm issuing the bond and the bondholders, providing the specific terms of the loan agreement.
Index: A yardstick to measure change from a base year.
Index Funds: Mutual funds whose objective is to replicate the performance of an index. The most popular equity index is the BSE Sensex.
Inflation: A general increase in prices of goods and services.
Intermediaries: See Financial Intermediaries.
Internal Financing: Financing projects through retained earnings.
Investment Banks: Are firms that assist companies in initial sale of securities in primary market.
Investment-Grade Bonds: Bonds rated Baa or above.
IPO (Initial Public Offering): Securities are offered for the first time to the public.
J
Junk bond: A bond that pays a high yield due to significant credit risk.
Key factor: A risk factor that is used in estimating value at risk.
L
Legal Risk: Risk relating to legal uncertainties
Letter of Credit: Letter from a bank stating that it has established credit in the company's favor.
Leverage: Operating and financial. Operating – taking advantage of operating fixed costs remaining constant for some time and financial – use of debt financing to enhance EPS.
(LIBOR) London Inter-Bank Offered Rate: The lending rate among international banks in London. Typical example of Floating Rate of Interest
Limited Liability: Limitation of a shareholder's losses to the amount invested.
Liquidation Value: The amount that could be realized if an asset were sold independently of the going concern.
Liquidity: Refers to an investor's ability to convert an asset into cash. The faster the conversion the more liquid the asset. Illiquidity is a risk in that an investor might not be able to convert the asset to cash when most needed. Moreover, having to wait for the sale of an asset can pose an additional risk if the price of the asset decreases while waiting to liquidate.
Listing: When a company's stock trades on an official exchange.
Long Investors who go "long" own stock or another financial security. It is a term that means the opposite of "short." See short selling.
Long position: A position which entails ownership or effective ownership of an asset.
Long-term gain: A gain on the sale of a capital asset where the holding period was six months or more and the profit was subject to the long-term capital gains tax.
M
Margin Cash or securities set aside by an investor as evidence for ability to honor a financial commitment.
Marked-to-Market: An arrangement whereby the profits or losses on a futures contract are settled up each day.
Market Portfolio: A theoretical portfolio that comprises all risky assets available to investors.
Market risk: Risk from changes in market prices.
Market value: The value at which an asset trades, or would trade in the market.
Marketable Securities: Security investments that the firm can quickly convert into cash balances.
Maturity Date: The date on which the last payment on a bond is due.
Maturity Matching: The practice of financing long-term projects with long-term assets, while financing short-term projects with short-term financing.
Medium-term Note Debt: With a typical maturity of 1 to 10 years at the time of issue that is offered by a company..
Merger Acquisition: In which all assets and liabilities of a company are absorbed by the buyer to form a combined business entity.
MM: Short-hand notation for "millions."
Modern Portfolio Theory: A body of theory relating to how investors optimize portfolio selections.
Mortgage Backed Security: A security interest in a pool of mortgages.
N
NAV (Net Asset Value): The market value of a fund share, synonymous with a bid price. In the case of no-load funds, the NAV, market price, and offering price are all the same figure, which the public pays to buy shares; load fund market or offer prices are quoted after adding the sales charge to the net asset value. NAV is calculated by most funds after the close of the exchanges each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, then dividing the result (total net assets) by the total number of shares outstanding. The number of shares outstanding can vary each day depending on the number of purchases and redemptions
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Net Present Value (NPV): A project's net contribution to shareholders wealth, which is determined by the present value of a project's cash flows less initial investment.
Net Working Capital (NWC): Current assets minus current liabilities.
Nominal Interest: Rate Interest as expressed in money terms. See real interest rate
Normal Distribution: A type of probability distribution.
O
Odd Lot: Refers to buying stocks in a quantity that is not a multiple of 100.
Off-Balance-Sheet Financing: Financing that is not shows as a liability in a company's balance sheet.
Open Order: An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed.
Open-End Fund A mutual fund that stands ready to redeem stocks and issue new stock. Also see closed-end funds.
Operating Leverage: Capitalizing on fixed operating costs in a business enterprise
Operational Risk: Risk from mistakes or failures in operations.
Opportunity Cost of Capital: The expected return that is foregone by investing in a project rather than a financial security with comparable risk.
Overbought: Typically a reference to a security or the general market after it exhibits a sharp rise in prices.
Oversold: Opposite of overbought.
Over-valued: An asset whose market value is greater than its intrinsic (formula or theoretical) value.
P
P/E Ratio: Price to earnings ratio. The price of a share of stock divided by earnings per share of stock for a twelve-month period.
Payment Date: Date on which dividends are paid to registered owners.
Payout Ratio: Percent of earnings that is paid out as dividends.
PIBOR: Paris Inter-bank Offered Rate.
Policy Surrender: The early termination of an insurance product by the policyholder.
Portfolio: A combination of assets.
Portfolio Theory: A body of theory relating to how investors optimize portfolio selections.
Preferred Stock: Stock that takes priority over common stock in regard to dividend and liquidation. The dividend is usually fixed at time of issue.
Premium :(1) This generally refers to extra money an investor is willing to pay to buy something. (2) For a bond, a premium is the amount for which the security sells above its par value.
Prepayment: The payment of a debt prior to its being due.
Primary Instrument: A financial instrument whose value is not derived from that of another instrument, but instead is determined by the market.
Primary Market is where firms sell new financial assets typically with the assistance of an investment banker.
Prime Rate: The interest rate that banks charge their "best" clients, , i.e., those with the lowest possibility of default.
Principal: (1) Shareholders; (2) Amount of debt that must be paid at maturity.
Private Placement: A direct sale, by the issuing firm, of newly issued securities to a small group of investors.
Probability Distribution: A graph that shows the different possible outcomes of a single variable and the probability of getting the outcome.
Probability Distribution: A notion from probability.
Promissory Note (PN): Promise to pay.
Prospectus: Summary of the registration statement providing information to investors on an issue of securities.
Put Option :Option to sell an asset at a specified excise price on or before a specified exercise date. Also see call option.
Q
Quote: The highest bid to buy and the lowest offer to sell a security at a given time. (See: Ask, and Bid)
R
Rally: An increase in the price of a stock or the level of the market.
Rate Of Return: A measure of investment performance.
Rating: Agency Companies that rate the likelihood of a firm to default on its debt obligations.
Real Assets: Tangible assets include: plant and equipment; intangible include: technical expertise, trademarks & patents.
Real Interest Rate Interest: Rate that is adjusted for inflation.
Record Date: Date set by the company when dividends are declared. Owners who are registered on this date receive dividends. Also see ex-dividend date.
Regression Analysis: A statistical technique for fitting best line through data.
Regular Dividend: Dividend that is expected to be maintained at regular time intervals.
Reorganization: Financial restructuring of a firm under bankruptcy. Both the firm's assets and its financial structure are modified.
Repo (Repurchase Agreement) : Purchase of Treasury securities from a securities dealer with an agreement that the dealer will repurchase them at a specified price.
Repurchase Agreement: An agreement to sell and repurchase an asset.
Required Return: Minimum return required by investors to compensate them for assuming risk.
Residual Dividend: An approach to dividends that suggests a firm pay dividends if and only if acceptable investment opportunities for those funds are currently unavailable.
Retained Earnings: Earnings not paid out as dividends.
Return on Equity: The return on the equity shareholders’ funds = Paid up capital and reserves and surplus. Formula = {PAT (-) Preference share dividend}/Paid up capital + reserves and surplus.
Reverse Repo: An agreement to purchase and resell an asset.
Risk: Exposure to uncertainty.
Risk Factor: A random variable whose uncertainty represents a source of risk.
Risk Limit: A procedural tool for managing risk.
Risk Premium: Additional return, over the risk-free rate, to compensate investors for accepting (holding) risk.
Risk-Free-Rate: A theoretical interest rate at which an investment may earn interest without incurring any risk.
Risk Metrics: A free service offered by JP Morgan.
Round Lot :The purchase or sale of a quantity of stocks that is in multiples of 100, such as 200, 1,000, etc.
S
Salvage value: Scrap value of a plant or equipment.
Scenario: A possible set of future events.
Secondary Market: Where trading (exchange of ownership) of financial assets takes place.
Securities Lending: The lending of securities in exchange for a fee.
Securitization: The creation of security interests in an asset. (mostly financial asset)
Senior Debt: Debt that in the event of liquidation, must be repaid before subordinated debt receives any payment. Also see Junior Debt.
Sensitivity: Exposure to a risk factor.
Share: A unit of measuring ownership in a company (i.e., if a firm has 1,000 shares outstanding and if you own 100 of them, then you have a 10% claim on the firm's net income (NI) and assets).
Short Sale: Sale of an asset that the investor does not own or any sale that is completed by the delivery of a security borrowed by the seller. Short selling is a legitimate trading strategy. Short sellers assume the risk that they will be able to buy the stock at a more favorable price than the price at which they sold short.
Short Term Gain (Loss): The gain (loss) realized from the sale of securities or other capital assets held six months or less.
Simulation: Analysis based on determining the consequences of possible scenarios.
Specific Risk: Risk which is unique to a particular asset or liability.
Spin-Off: A newly created company that used to be part of a parent company. Parent company shareholders receive a pro rata ownership in the new company.
Spot: For immediate delivery.
Standard Deviation: A notion from probability.
Stock Split: An accounting transaction that increases the number of shares held by existing shareholders in proportion to the number of shares currently held.
Structured Note: A type of security.
Subordinated Debt (Junior debt) : Debt whose holders, in the event of liquidation, get paid only after senior debt is paid off in full. (Also see senior debt)
Syndicate: A group of investment bankers who together underwrite and market a new issue of securities or a large block of an outstanding issue.
Systematic Risk: Risk which is common to an entire class of assets or liabilities.
T
T-Bill (Treasury Bill): Debt issued by the RBI with maturity less than a year.
Term Structure of Interest Rates: See yield curve
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Tombstone: Advertisement listing the issuing firm, type of security, its issuing price, number of securities to be issued, and names of underwriters of a new issue.
Transaction Costs: The costs of transacting trades.
Tunnel A type of derivatives hedge.
U
Uncorrelated Exposure: Exposure to a risk factor, assuming that all other risk factors will remain constant.
Under pricing: Issue of securities below their market value.
Under-valued: An asset that is selling at a price below its intrinsic (theoretical or formula) value.
Underwriter (Investment Banker) Firm that buys an issue from a company and resells it to investors; a primary market activity.
Undiversifiable Risk: See Market Risk.
V
Value at Risk: A measure of market risk.
Variance: A measure of a variable's volatility relative to its average.
Venture Capital: Capital supplied to particularly high-risk projects, such as start-ups or to companies denied conventional financing.
Vertical Integration: Merger between a supplier and its customers. An example would be when an oil-refining firm acquires a firm that owns oil fields.
W
Warrant: A financial asset, issued by the firm, which gives its holder the right to purchase a fixed number of shares of common stock at a predetermined price. Also referred to as “equity warrants”
Working Capital. Current assets minus current liabilities.
X Y Z
Yield: A measure of a bond's potential return.
Yield Curve: A description of yields for multiple horizons.
Yield Curve: The return on debt securities with different maturities, for a level of default risk.
Yield to Maturity (YTM): The market interest rate on a bond. It is the yield an investor would receive in the bond is held to maturity.
Yield to Maturity (YTM): The rate of return the investor will earn if the bond is held to maturity.
YTM: See Yield to Maturity
Zero Coupon Bond: A bond that has no coupon payments. It pays only a single cash flow at maturity.
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Thank you for this valuable information about Technical Analysis
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