Definition of Euroclear

Euroclear

One of two principal clearing systems in the Eurobond market. It began operations in 1968, is
located in Brussels, and is managed by Morgan Guaranty Bank.

DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic compOnents.
This model consists of four compOnents: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate

Agency bank

A form of organization commonly used by foreign Banks to enter the U.S. market. An agency
Bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent Bank.

All or none

Requirement that nOne of an order be executed unless all of it can be executed at the specified price.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

At-the-money

An option is at-the-mOney if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-mOney.

Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.

Automated Clearing House (ACH)

A collection of 32 regional electronic interBank networks used to
process transactions electronically with a guaranteed One-day Bank collection float.

BAN (Bank anticipation notes)

Notes issued by states and municipalities to obtain interim financing for
projects that will eventually be funded long term through the sale of a bond issue.

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
yield , based on a 360-day year.

Bank draft

A draft addressed to a Bank.

Bank line

Line of credit granted by a Bank to a customer.

Bank wire

A computer message system linking major Banks. It is used not for effecting payments, but as a
mechanism to advise the receiving Bank of some action that has occurred, e.g. the payment by a customer of
funds into that Bank's account.

Banker's acceptance

A short-term credit investment created by a non-financial firm and guaranteed by a
Bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These
instruments have been a popular investment for mOney market funds. They are commonly used in
international transactions.

Bank for International Settlements (BIS)

An international Bank headquartered in Basel, Switzerland, which
serves as a forum for mOnetary cooperation among several European central Banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international Banking activity and promulgates rules concerning
international Bank regulation.

Bankruptcy

State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
the stockholders to the bondholders.

Bankruptcy cost view

The argument that expected indirect and direct Bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.

Bankruptcy view

The argument that expected Bankruptcy costs preclude firms from being financed entirely
with debt.

Bear market

Any market in which prices are in a declining trend.

Black market

An illegal market.

Brokered market

A market where an intermediary offers search services to buyers and sellers.

Bull market

Any market in which prices are in an upward trend.

Bulldog market

The foreign market in the United Kingdom.

Call money rate

Also called the broker loan rate , the interest rate that Banks charge brokers to finance
margin loans to investors. The broker charges the investor the call mOney rate plus a service charge.

Capital market

The market for trading long-term debt instruments (those that mature in more than One year).

Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, Bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

Cash flow from operations

A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net
income.

Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member Banks, nearly 450 participating Banks, and is One of the
clearing companies within the structure of the Association for Payment clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major Banks.

Clearing member

A member firm of a clearing house. Each clearing member must also be a member of the
exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of
a non-clearing member must be registered with, and eventually settled through, a clearing member.

Clearing house / Clearinghouse

An adjunct to a futures exchange through which transactions executed its floor are settled by a
process of matching purchases and sales. A clearing organization is also charged with the proper conduct of
delivery procedures and the adequate financing of the entire operation.

Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.

Common stock market

The market for trading equities, not including preferred stock.

Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.

Consortium banks

A merchant Banking subsidiary set up by several Banks that may or may not be of the
same nationality. Consortium Banks are common in the Euromarket and are active in loan syndication.

Convertible eurobond

A Eurobond that can be converted into another asset, often through exercise of
attached warrants.

Corner A Market

To purchase enough of the available supply of a commodity or stock in order to
manipulate its price.

Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.

Debt market

The market for trading debt instruments.

Derivative markets

markets for derivative instruments.

Direct search market

Buyers and sellers seek each other directly and transact directly.

Domestic market

Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.

Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

Efficient capital market

A market in which new information is very quickly reflected accurately in share
prices.

Efficient Market Hypothesis

In general the hypothesis states that all relevant information is fully and
immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium
rate of return. In other words, an investor should not expect to earn an abnormal return (above the market
return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis
exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all
publicly available information) and strong form (stock prices reflect all relevant information including insider
information).

Either-way market

In the interBank Eurodollar deposit market, an either-way market is One in which the bid
and offered rates are identical.

Eligible bankers' acceptances

In the BA market, an acceptance may be referred to as eligible because it is
acceptable by the Fed as collateral at the discount window and/or because the accepting Bank can sell it
without incurring a reserve requirement.

Emerging markets

The financial markets of developing economies.

Equilibrium market price of risk

The slope of the capital market line (CML). Since the CML represents the
return offered to compensate for a perceived level of risk, each point on the line is a balanced market
condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a
unit change in risk.

Equity market

Related:Stock market

Eurobank

A Bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.

Eurobond

A bond that is (1) underwritten by an international syndicate, (2) offered at issuance
simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single
country.

Eurocurrency market

The mOney market for borrowing and lending currencies that are held in the form of
deposits in Banks located outside the countries of the currencies issued as legal tender.

European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

Excess return on the market portfolio

The difference between the return on the market portfolio and the
riskless rate.

Export-Import Bank (Ex-Im Bank)

The U.S. federal government agency that extends trade credits to U.S.
companies to facilitate the financing of U.S. exports.

External market

Also referred to as the international market, the offshore market, or, more popularly, the
Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors
in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal
market

Fair market price

Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.

Federal Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal funds market

The market where Banks can borrow or lend reserves, allowing Banks temporarily
short of their required reserves to borrow reserves from Banks that have excess reserves.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-Ă -vis
member commercial Banks.

Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.

Fixed-income market

The market for trading bonds and preferred stock.

Foreign banking market

That portion of domestic Bank loans supplied to foreigners for use abroad.

Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.

Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.

Foreign market

Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.

Foreign market beta

A measure of foreign market risk that is derived from the capital asset pricing model.

Forward market

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

Fourth market

Direct trading in exchange-listed securities between investors without the use of a broker.

Funds From Operations (FFO)

Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is Funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.

Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.

Generally Accepted Accounting Principals (GAAP)

A technical accounting term that encompasses the
conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

Gray market

Purchases and sales of Eurobonds that occur before the issue price is finally set.

Hot money

MOney that moves across country borders in response to interest rate differences and that moves
away when the interest rate differential disappears.

Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.

Index and Option Market (IOM)

A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).

Intermarket sector

spread The spread between the interest rate offered in two sectors of the bond market for
issues of the same maturity.

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.

Internal market

The mechanisms for issuing and trading securities within a nation, including its domestic
market and foreign market.
Compare: external market.

Internally efficient market

Operationally efficient market.

International Bank for Reconstruction and Development - IBRD or World Bank

International Bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
economic priority.

International Banking Facility (IBF)

International Banking Facility. A branch that an American Bank
establishes in the United States to do Eurocurrency business.

International market

Related: See external market.

International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.

International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

In-the-money

A put option that has a strike price higher than the underlying futures price, or a call option
with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures
contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in-the-mOney
by $0.50 an ounce.
Related: put.

Intramarket sector spread

The spread between two issues of the same maturity within a market sector. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.

Inverted market

A futures market in which the nearer months are selling at price premiums to the more
distant months. Related: premium.

Investment bank

Financial intermediaries who perform a variety of services, including aiding in the sale of
securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and
institutional clients, and trading for their own accounts. Underwriters.

Joint clearing members

Firms that clear on more than One exchange.

Just-in-time inventory systems

systems that schedule materials/inventory to arrive exactly as they are
needed in the production process.

Law of one price

An economic rule stating that a given security must have the same price regardless of the
means by which One goes about creating that security. This implies that if the payoff of a security can be
synthetically created by a package of other securities, the price of the package and the price of the security
whose payoff it replicates must be equal.

Legal bankruptcy

A legal proceeding for liquidating or reorganizing a business.

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