|Economies of scale
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Definition of Economies of scale
Economies of scale
The decrease in the marginal cost of production as a plant's scale of operations increases.
Scope economies exist whenever the same investment can support multiple profitable
A bank that offers to pay different rates of interest on CDs of varying rates is said to "post a scale."
Describes a project that is in the same risk class as the whole firm.
When a trader or investor gradually takes a position in a security or market over time.
A scale in which equal proportions are shown as equal distances so that, for example, a doubling from 2 to 4 is represented by one inch, as is a doubling from 4 to 8.
See logarithmic scale.
Well, frankly, accrual is not a good descriptive
A change in the scope of the entities included in a set of, typically, consolidated financial statements.
the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.
Schedule of depreciation rates allowed for tax purposes.
Money owed to suppliers.
The accumulated coupon interest earned but not yet paid to the seller of a bond by the
A form of organization commonly used by foreign banks to enter the U.S. market. An agency
The argument that specifies that the various agency costs create a complex environment in
The incremental costs of having an agent make decisions for a principal.
Total costs, explicit and implicit.
Amortizing interest rate swap
Swap in which the principal or national amount rises (falls) as interest rates
Average cost of capital
A firm's required payout to the bondholders and to the stockholders expressed as a
Balance of payments
A statistical compilation formulated by a sovereign nation of all economic transactions
BAN (Bank anticipation notes)
Notes issued by states and municipalities to obtain interim financing for
Bank collection float
The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.
Bank discount basis
A convention used for quoting bids and offers for treasury bills in terms of annualized
A draft addressed to a bank.
Line of credit granted by a bank to a customer.
A computer message system linking major banks. It is used not for effecting payments, but as a
A short-term credit investment created by a non-financial firm and guaranteed by a
Bank for International Settlements (BIS)
An international bank headquartered in Basel, Switzerland, which
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
Base interest rate
Related: Benchmark interest rate.
Benchmark interest rate
also called the base interest rate, it is the minimum interest rate investors will
The requirement that a claim holder voting against a plan of reorganization
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
interest that is not immediately expensed, but rather is considered as an asset and is then
costs that increase with increases in the level of investment in current assets.
Cash flow after interest and taxes
Net income plus depreciation.
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
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
also called horizon matching, a variation of multiperiod immunization and cash
A strategy in which a put and with the same strike price and expiration are either both
Demand for payment.
Short-term unsecured promissory notes issued by a corporation. The maturity of
The risk that a foreign debtor will be unable to pay its debts because of business events,
interest paid on previously earned interest as well as on the principal.
A merchant banking subsidiary set up by several banks that may or may not be of the
Contingent deferred sales charge (CDSC)
The formal name for the load of a back-end load fund.
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Related: Net financing cost
Cost of funds
interest rate associated with borrowing money.
Cost of lease financing
A lease's internal rate of return.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
The net present value of an investment divided by the investment's initial cost. also called
A bond's interest payments.
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
Customary payout ratios
A range of payout ratios that is typical based on an analysis of comparable firms.
Date of payment
Date dividend checks are mailed.
Delivery versus payment
A transaction in which the buyer's payment for securities is due at the time of
Devaluation A decrease in the spot price of the currency
The practice of reporting conflicting or markedly different information in official
Swap between two LIBO rates of interest, e.g. yen LIBOR for dollar LIBOR. payments are
Commercial paper sold directly by the issuer to investors.
Discounted payback period rule
An investment decision rule in which the cash flows are discounted at an
Dividend payout ratio
Percentage of earnings paid out as dividends.
Dividend reinvestment plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
Eligible bankers' acceptances
In the BA market, an acceptance may be referred to as eligible because it is
Equilibrium rate of interest
The interest rate that clears the market. also called the market-clearing interest
Equivalent annual cost
The equivalent cost per year of owning an asset over its entire life.
CDs issued by a U.S. bank branch or foreign bank located outside the U.S. Almost all Euro CDs
A bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.
Short-term notes with maturities up to 360 days that are issued by companies in
Ex post return
Related: Holding period return
The difference between the execution price of a security and the price that would have
Expected return on investment
The return one can expect to earn on an investment. See: capital asset
Export-Import Bank (Ex-Im Bank)
The U.S. federal government agency that extends trade credits to U.S.
Feasible target payout ratios
payout ratios that are consistent with the availability of excess funds to make
Federal Financing Bank
A federal institution that lends to a wide array of federal credit agencies funds it
Federal Home Loan Banks
The institutions that regulate and lend to savings and loan associations. The
FHA prepayment experience
The percentage of loans in a pool of mortgages outstanding at the origination
Financial distress costs
Legal and administrative costs of liquidation or reorganization. also includes
A cost that is fixed in total for a given period of time and for given production levels.
In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a
Flat price (also clean price)
The quoted newspaper price of a bond that does not include accrued interest.
In an interest rate swap, the counterparty who pays a rate based on a reference rate,
Foreign banking market
That portion of domestic bank loans supplied to foreigners for use abroad.
Foreign direct investment (FDI)
The acquisition abroad of physical assets such as plant and equipment, with
Annualized percentage difference between spot and forward rates.
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)
costs, both implied and direct, associated with a transaction. Such costs include time, effort,
See: financial lease.
Funds From Operations (FFO)
Used by real estate and other investment trusts to define the cash flow from
Future investment opportunities
The options to identify additional, more valuable investment opportunities
Futures contract multiple
A constant, set by an exchange, which when multiplied by the futures price gives
Graduated-payment mortgages (GPMs)
A type of stepped-payment loan in which the borrower's payments
interest earned before taxes are deducted.
Compound annual growth rate for the number of full fiscal years shown. If there is a negative
Guaranteed investment contract (GIC)
A pure investment product in which a life company agrees, for a
Warrant that allows the user to purchase a bond only by surrendering an existing bond
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