Financial Terms Main Page

This site contains comprehensive definitions for a wide range of terms that cover topics such as financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit...

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Dollar duration

The product of modified duration and the initial price.

Efficient Market Hypothesis

In general the hypothesis states that all relevant information is fully and
immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium
rate of return. In other words, an investor should not expect to earn an abnormal return (above the market
return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis
exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all
publicly available information) and strong form (stock prices reflect all relevant information including insider
information).

Equity claim

Also called a residual claim, a claim to a share of earnings after debt obligation have been
satisfied.

Factor model

A way of decomposing the factors that influence a security's rate of return into common and
firm-specific influences.

Perfectly competitive financial markets

Markets in which no trader has the power to change the price of
goods or services. Perfect capital markets are characterized by the following conditions: 1) trading is costless,
and access to the financial markets is free, 2) information about borrowing and lending opportunities is freely
available, 3) there are many traders, and no single trader can have a significant impact on market prices.

Standstill agreements

Contracts where the bidding firm in a takeover attempt agrees to limit its holdings
another firm.

Total dollar return

The dollar return on a nondollar investment, which includes the sum of any
dividend/interest income, capital gains or losses, and currency gains or losses on the investment.
See also: total return.

Accounting system

A set of accounts that summarize the transactions of a business that have been recorded on source documents.

Debt

Borrowings from financiers.

economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory

life cycle costing

the accumulation of costs for activities that
occur over the entire life cycle of a product from inception
to abandonment by the manufacturer and consumer

Short sale, short position

The sale of a security or financial instrument not
owned, in anticipation of a price decline and making a profit by purchasing the
instrument later at a lower price, and then delivering the instrument to
complete the sale. See Long position.

Minimum Wage

An hourly wage rate set by the federal government below
which actual hourly wages cannot fall. This rate can be increased by state governments.

Salvage Value

The value of a capital asset at end of a specified period. It is the current market price of an asset being considered for replacement in capital budgeting.

compounding

When an asset generates earnings that are then reinvested and generate their own earnings.