Definition of Differential disclosure

Differential disclosure

The practice of reporting conflicting or markedly different information in official
corporate statements including annual and quarterly reports and the 10-Ks and 10-Qs.

Differential swap

Swap between two LIBO rates of interest, e.g. yen LIBOR for dollar LIBOR. Payments are
in one currency.

Forward differential

Annualized percentage difference between spot and forward rates.

Tax differential view ( of dividend policy)

The view that shareholders prefer capital gains over dividends,
and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

differential cost

a cost that differs in amount among the alternatives being considered

Disclosure

Additional information attached to a company’s financial statements, usually
as explanation for activities whose related transactions have influenced the
financial statements.

Interest Rate Differential

The interest rate on our financial assets minus the interest rate on a foreign country's financial assets.

Amortizing interest rate swap

swap in which the principal or national amount rises (falls) as interest rates
rise (decline).

Asset for asset swap

Creditors exchange the debt of one defaulting borrower for the debt of another
defaulting borrower.

Asset swap

An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
provide a better match with its iabilities.

Call swaption

A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
writer therefore becomes the fixed-rate receiver/floating rate payer.

Circus swap

A fixed rate currency swap against floating U.S. dollar LIBOR payments.

Currency swap

An agreement to swap a series of specified payment obligations denominated in one currency
for a series of specified payment obligations denominated in a different currency.

Debt swap

A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank
debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local
equity.

Equity swap

A swap in which the cash flows that are exchanged are based on the total return on some stock
market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate swap.

Extension swap

Extending maturity through a swap, e.g. selling a 2-year note and buying one with a slightly
longer current maturity.

Foreign exchange swap

An agreement to exchange stipulated amounts of one currency for another currency
at one or more future dates.

Forward contract

A cash market transaction in which delivery of the commodity is deferred until after the
contract has been made. It is not standardized and is not traded on organized exchanges. Although the
delivery is made in the future, the price is determined at the initial trade date.

Forward cover

Purchase or sale of forward foreign currency in order to offset a known future cash flow.

Forward delivery

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon on the trade date.

Forward discount

A currency trades at a forward discount when its forward price is lower than its spot price.

Forward exchange rate

Exchange rate fixed today for exchanging currency at some future date.

Forward Fed funds

Fed funds traded for future delivery.

Forward forward contract

In Eurocurrencies, a contract under which a deposit of fixed maturity is agreed to
at a fixed price for future delivery.

Forward interest rate

Interest rate fixed today on a loan to be made at some future date.

Forward looking multiple

A truncated expression for a P/E ratio that is based on forward (expected)
earnings rather than on trailing earnings.

Forward market

A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.

Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.

Forward rate

A projection of future interest rates calculated from either the spot rates or the yield curve.

Forward rate agreement (FRA)

Agreement to borrow or lend at a specified future date at an interest rate
that is fixed today.

Forward sale

A method for hedging price risk which involves an agreement between a lender and an investor
to sell particular kinds of loans at a specified price and future time.

Forward trade

A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon the trade date.

Interest rate swap

A binding agreement between counterparties to exchange periodic interest payments on
some predetermined dollar principal, which is called the notional principal amount. For example, one party
will pay fixed and receive variable.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

Liability swap

An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so
as to provide a better match with its assets.

Pure yield pickup swap

Moving to higher yield bonds.

Put swaption

A financial tool in which the buyer has the right, or option, to enter into a swap as a floatingrate
payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.

Quanto swap

See: differential swap.

Range forward

A forward exchange rate contract that places upper and lower bounds on the cost of foreign exchange.

Rate anticipation swaps

An exchange of bonds in a portfolio for new bonds that will achieve the target
portfolio duration, based on the investor's assumptions about future changes in interest rates.

Substitution swap

A swap in which a money manager exchanges one bond for another bond that is similar in
terms of coupon, maturity, and credit quality, but offers a higher yield.

Swap

An arrangement whereby two companies lend to each other on different terms, e.g. in different
currencies, and/or at different interest rates, fixed or floating.

Swap assignment

Related: swap sale.

Swap buy-back

The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

Swap optio

See: swaption.
Related: Quality option.

Swap rate

The difference between spot and forward rates expressed in points, e.g., $0.0001 per pound sterling.

Swap reversal

An interest rate swap designed to end a counterparty's role in another interest rate swap,
accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.

Swap sale

Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate
swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Swaption

Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate
swap agreement by some specified date in the future. The swaption agreement will specify whether the buyer
of the swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the swaption becomes the
counterparty to the swap if the buyer exercises.

Tax swap

swapping two similar bonds to receive a tax benefit.

Feedforward

The process of determining prospectively whether strategies are likely to achieve the target
results that are consistent with organizational goals.

Swap

An exchange of cash flows between two counterparties. The
counterparties may exchange flows in different currencies
(currency swap) or exchange floating interest rate payments for
fixed rate payments (interest rate swap).

Forward rate

The future interest rate of a bond inferred from the term
structure, especially from the yield curve of zero-coupon bonds, calculated from
the growth factor of an investment in a zero held until maturity.

Swap

A contract between two parties to exchange cash flows in the future
according to some formula.

Swaption

A swap option; an option on an interest-rate swap. The option gives
the holder the right to enter into a contracted interest-rate swap at a specified
future date. See swap.

Loss carryforward

The offsetting of a current year loss against the reported taxable
income for future years.

forward contract

Agreement to buy or sell an asset in the future at an agreed price.

forward rate of exchange

Exchange rate for a forward transaction.

swap

Arrangement by two counterparties to exchange one stream of cash flows for another.

Forward Exchange Market

A market in which foreign exchange can be bought or sold for delivery (and payment) at some specified future date but at a price agreed upon now.

Forward buying

The purchase of items exceeding the quantity levels indicated
by current manufacturing requirements.

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