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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Cash equivalent

A short-term security that is sufficiently liquid that it may be considered the financial
equivalent of cash.

Delta hedge

A dynamic hedging strategy using options with continuous adjustment of the number of options
used, as a function of the delta of the option.

Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

Fallout risk

A type of mortgage pipeline risk that is generally created when the terms of the loan to be
originated are set at the same time as the sale terms are set. The risk is that either of the two parties, borrower
or investor, fails to close and the loan "falls out" of the pipeline.

Investor

The owner of a financial asset.

Limitation on liens

A bond covenant that restricts in some way a firm's ability to grant liens on its assets.

Relative strength

A stock's price movement over the past year as compared to a market index (the S&P 500).
Value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a
value above 1.0 means the stock shows relative strength over the 1-year period. Equation for Relative
Strength: [current stock price/year-ago stock price] [current S&P 500/year-ago S&P 500]

Strip, strap

Variants of a straddle. A strip is two puts and one call on a stock, a strap is two calls and one put
on a stock. In both cases, the puts and calls have the same strike price and expiration date.

payback period

the time it takes an investor to recoup an
original investment through cash flows from a project

segment margin

the excess of revenues over direct variable expenses and avoidable fixed expenses for a particular segment

Short rate

The annualized one-period interest rate.

floating-rate security

Security paying dividends or interest that vary with short-term interest rates.

Regressive Tax

A tax in which the poor pay a larger percentage of income than the rich. Contrast with progressive tax.

Redeemable Preferred Stock

A preferred stock issue that must be redeemed by the issuing enterprise or is redeemable at the option of the investor. Considered a debt security for accountingpurposes.

Term

The time period during which a policy is in force, or the time it takes for a policy to reach maturity.