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Definition of Absolute Advantage
The ability to produce a good or service with fewer resources than competitors. See also comparative advantage.
A country has a comparative advantage over another country in the production of good A if to produce a unit of A it forgoes more of the production of good B than would the other country when it produces a unit of good A. Its efficiency in the production of good A relative to its efficiency in the production of good B is greater than is the case for the other country. See also absolute advantage.
Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full
The net present value of the savings from a refunding.
The net present value of entering into a lease financing arrangement rather than
The difference in total post- and pre-merger market value minus the cost of the merger.
Goods may be returned to the seller by the purchaser without restrictions.
The strategies, skills, knowledge, resources or competencies that differentiate a business from its competitors.
Commonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
A method of analysis in which a firm is compared to others that have a desired
A budget that allocates funds in line with strategies.
an amount or percentage deducted from an equity interest to reflect lack of marketability.
model for calculating DLOM for minority interests r the discount rate
Schedule of depreciation rates allowed for tax purposes.
The ratio of net credit sales to average accounts receivable, a measure of how
IRS Rules used to allocate income on export sales to a foreign sales corporation.
Asian currency units (ACUs)
Dollar deposits held in Singapore or other Asian centers.
also called surplus management, the task of managing funds of a financial
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
The ratio of net sales to total assets.
Checks deposited by a company that have not yet been cleared.
Balance of payments
A statistical compilation formulated by a sovereign nation of all economic transactions
State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other
The risk that a firm will be unable to meet its debt obligations. also referred to as default or insolvency risk.
The argument that expected bankruptcy costs preclude firms from being financed entirely
Gives the lessee the option to purchase the asset at a price below fair market
Base probability of loss
The probability of not achieving a portfolio expected return.
Basic IRR rule
Accept the project if IRR is greater than the discount rate; reject the project is lower than the
Before-tax profit margin
The ratio of net income before taxes to net sales.
The requirement that a claim holder voting against a plan of reorganization
Large and creditworthy company.
Break-even lease payment
The lease payment at which a party to a prospective lease is indifferent between
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
Clearing House Automated Payments System (CHAPS)
A computerized clearing system for sterling funds
Clearing House Interbank Payments System (CHIPS)
An international wire transfer system for high-value
A transaction in which the purchaser's intention is to reduce or eliminate a short position in
Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained
Related: Unsystematic risk
Movement of cash from different lockbox locations into a single concentration
Contingent pension liability
Under ERISA, the firm is liable to the plan participants for up to 39% of the net
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
Covariance of a national economy's rate of return and the rate of return the world economy
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
A type of active international management that measures the contribution to performance
A bond's interest payments.
The purchase of a contract to offset a previously established short position.
Ratios used to test the adequacy of cash flows generated through earnings for purposes of
A short call option position in which the writer owns the number of shares of the underlying
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
A put option position in which the option writer also is short the corresponding stock or has
The return at which two alternative projects have the same net present value.
Cumulative probability distribution
A function that shows the probability that the random variable will
Date of payment
Date dividend checks are mailed.
Interest payment plus repayments of principal to creditors, that is, retirement of debt.
Debt service parity approach
An analysis wherein the alternatives under consideration will provide the firm
Debt-service coverage ratio
Earnings before interest and income taxes plus one-third rental charges, divided
Delivery versus payment
A transaction in which the buyer's payment for securities is due at the time of
Depository Trust Company (DTC)
DTC is a user-owned securities depository which accepts deposits of
Direct stock-purchase programs
The purchase by investors of securities directly from the issuer.
Discounted payback period rule
An investment decision Rule in which the cash flows are discounted at an
Doctrine of sovereign immunity
Doctrine that says a nation may not be tried in the courts of another country
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
Reflects the amount of wasted energy.
European Currency Unit (ECU)
An index of foreign exchange consisting of about 10 European currencies,
Related: pricing efficiency.
FHA prepayment experience
The percentage of loans in a pool of mortgages outstanding at the origination
Fixed asset turnover ratio
The ratio of sales to fixed assets.
Fixed-charge coverage ratio
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
Flat price (also clean price)
The quoted newspaper price of a bond that does not include accrued interest.
The requirement that all pool information, as specified under the PSA Uniform Practices, in a
Purchase or sale of forward foreign currency in order to offset a known future cash flow.
Full faith-and-credit obligations
The security pledges for larger municipal bond issuers, such as states and
Full coupon bond
A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.
also called dirty price, the price of a bond including accrued interest. Related: flat price.
See: financial lease.
also called rental lease. Lease in which the lessor promises to maintain and insure the
Fully diluted earnings per shares
Earnings per share expressed as if all outstanding convertible securities
Fully modified pass-throughs
Agency pass-throughs that guarantee the timely payment of both interest and
Future investment opportunities
The options to identify additional, more valuable investment opportunities
A delivery in which everything - endorsement, any necessary attached legal papers, etc. - is in
Good delivery and settlement procedures
Refers to PSA Uniform Practices such as cutoff times on delivery
Good 'til canceled
Sometimes simply called "GTC", it means an order to buy or sell stock that is good until
Excess of the purchase price over the fair market value of the net assets acquired under purchase
See: Government securities.
Government National Mortgage Association (Ginnie Mae)
A wholly owned U.S. government corporation
Government sponsored enterprises
Privately owned, publicly chartered entities, such as the Student Loan
Negotiable U.S. Treasury securities.
Graduated-payment mortgages (GPMs)
A type of stepped-payment loan in which the borrower's payments
Opportunity to invest in profitable projects.
A phase of development in which a company experiences rapid earnings growth as it produces
A corporation that owns enough voting stock in another firm to control management and
Organizations that furnish investment and other types of information, such as
The speed and accuracy with which prices reflect new information.
Loan made by one unit of a corporation to another unit of the same corporation.
Transaction carried out between two units of the same corporation.
Interest coverage ratio
The ratio of the earnings before interest and taxes to the annual interest expense. This
Interest coverage test
A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
Contractual debt payments based on the coupon rate of interest and the principal amount.
The ratio of annual sales to average inventory which measures the speed that inventory
Junior debt (subordinate debt)
Debt whose holders have a claim on the firm's assets only after senior
Lag response of prepayments
There is typically a lag of about three months between the time the weighted
A legal proceeding for liquidating or reorganizing a business.
Leveraged required return
The required return on an investment when the investment is financed partially by debt.
A financial obligation, or the cash outlay that must be made at a specific time to satisfy the
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