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Definition of Divergence
When two or more averages or indices fail to show confirming trends.
Taking advantage of divergences in exchange rates in different money markets by
An investment/trading strategy that exploits divergences between actual and theoretical
The simultaneous buying and selling of a security at two different prices in two different markets,
The purchase of securities on one market for immediate resale on
Transactions designed to make a sure profit from inconsistent prices.
Yield curve option-pricing models.
An alternative model to the capital asset pricing model developed by
People who search for and exploit arbitrage opportunities.
Also known as a trading index (TRIN)= (number of advancing issues)/ (number of declining
Dollar deposits held in Singapore or other Asian centers.
A currency that is not freely convertible to other currencies due to exchange controls.
Designing a portfolio so that its performance will match the performance of some bond index.
Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
The CPI, as it is called, measures the prices of consumer goods and services and is a
An index calculated by tracking the cost of a typical bundle of consumer goods and services over time. It is commonly used to measure inflation.
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
The value of a portfolio of specific amounts of individual currencies, used as the basis for
A financial future contract for the delivery of a specified foreign currency.
An option to buy or sell a foreign currency.
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Asset allocation in which the investor chooses among investments denominated in
An agreement to swap a series of specified payment obligations denominated in one currency
Devaluation A decrease in the spot price of the currency
Eurobonds that pay coupon interest in one currency but pay the principal in a different
The European, Australian, and Far East stock index, computed by Morgan Stanley.
Also called indexing plus, an indexing strategy whose objective is to exceed or replicate
A short-term fixed rate time deposit denominated in a currency other than the local
The money market for borrowing and lending currencies that are held in the form of
European Currency Unit (ECU)
An index of foreign exchange consisting of about 10 European currencies,
Foreign currency option
An option that conveys the right to buy or sell a specified amount of foreign
Foreign currency translation
The process of restating foreign currency accounts of subsidiaries into the
A freely convertible currency that is not expected to depreciate in value in the foreseeable future.
A series of numbers measuring percentage changes over time from a base period. The index number for the base period is by convention set equal to 100.
An index is a statistical measure of a market based on the performance of a sample of securities in that market. For example, the S&P/TSX Composite index reflects the performance of the most actively traded stocks on The Toronto Stock Exchange.
Index and Option Market (IOM)
A division of the CME established in 1982 for trading stock index
Investment fund designed to match the returns on a stockmarket index.
Mutual funds that aim to track the performance of a specific stock or bond index. This process is also referred to as indexing and passive management.
A model of stock returns using a market index such as the S&P 500 to represent common or
A call or put option based on a stock market index.
Index Portfolio Rebalancing Service (IPRS)
index Portfolio Rebalancing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing volatility. Several portfolios are available, each with its own strategic balance of index Funds. IPRS maintains your personal asset allocation by monitoring and rebalancing your portfolio semi-annually.
A stock index option issued by either a corporate or sovereign entity as part of a security
The adjustment of benefits to compensate for the effects of inflation.
Bond whose payments are linked to an index, e.g. the consumer price index.
A passive instrument strategy consisting of the construction of a portfolio of stocks designed to
An index that uses the capital asset pricing model to determine whether a money manager
Measure of the investment performance of the overall market.
Market value-weighted index
An index of a group of securities computed by calculating a weighted average
Such a clause on a Euro loan permits the borrower to switch from one currency to
Give the borrower the possibility of drawing a loan in different currencies.
Optimization approach to indexing
An approach to indexing which seeks to Optimize some objective, such
present value index
see profitability index
A measure of the price level calculated by comparing the cost of a bundle of goods and services in a given year with its cost in a base year. See also index.
The present value of the future cash flows divided by the initial investment. Also called
See cash value added.
A method for determining the profitability of an investment. It is
Ratio of net present value to initial investment.
profitability index (Pl)
a ratio that compares the present value of net cash flows to the present value of the net investment
Pure index fund
A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.
The currency in which the parent firm prepares its own financial statements; that is, U.S.
A foreign currency held by a central bank or monetary authority for the purposes of
A currency, frequently the U.S. dollar, that is used by other countries to denominate the assets they hold as international reserves.
Speculation on perceived mispriced securities, usually in connection with merger and
Risk controlled arbitrage
A self-funding, self-hedged series of transactions that generally utilize mortgage
Categories of risk used to calculate fundamental beta, including (1) market variability, (2)
The simultaneous purchase and sale of the same asset to yield a profit.
Single index model
A model of stock returns that decomposes influences on returns into a systematic factor,
Related: market model
A currency that is expected to drop in value relative to other currencies.
Standard & Poor’s Composite Index
index of the investment performance of a portfolio of 500 large stocks. Also called the
Stock index option
An option in which the underlying is a common stock index.
Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index
Stratified sampling approach to indexing
An approach in which the index is divided into cells, each
Stratified sampling bond indexing
A method of bond indexing that divides the index into cells, each cell
For a stock index option, the index value at which the buyer of the option can buy or sell the
Structured arbitrage transaction
A self-funding, self-hedged series of transactions that usually utilize
A measure of the excess return per unit of risk, where excess return is defined as the
Striking offsetting deals among three markets simultaneously to obtain an arbitrage profit.
Virtual currency option
A new option contract introduced by the PHLX in 1994 that is settled in US$ rather
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