- Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date. Accrued interest on bonds must be added to their purchase price.
- 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
- 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.
