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Definition of Materiality
The proportional size of a financial misstatement. It can be construed as
A characterization of the magnitude of a financial statement item's effect on a
Abrams’ model to calculate discount rates as a function of the logarithm of the value of the firm.
Same as PV, but usually includes a subtraction for an initial cash outlay.
The second-largest stock exchange in the United States. It trades
The periodic rate times the number of periods in a year. For example, a 5%
The effective, or true, annual rate of return. The APY is the rate actually
Result of a transaction that increases earnings per common share (e.g. by decreasing the
line of credit granted by a bank to a customer.
A method developed by BARRA, a consulting firm in
The requirement that a claim holder voting against a plan of reorganization
General term for a document demanding payment.
Large and creditworthy company.
The tendency of stocks to perform differently at different times, including such anomalies as
The line defined by every combination of the risk-free asset and the market portfolio.
line depicting the operating activities and cash flows for a firm over a particular period.
Temporary investments of currently excess cash in short-term, high-quality
The market model applied to a single security. The slope of the line is a security's beta.
Changes in Financial Position
Sources of funds internally provided from operations that alter a company's
Chicago Mercantile Exchange (CME)
A not-for-profit corporation owned by its members. Its primary
The grouping of investors who have a preference that the firm follow a particular financing
Refers to the fact that the merger of two firms decreases the probability of default on
Committee, AIMR Performance Presentation Standards Implementation Committee
The Association for Investment Management and Research (AIMR)'s performance Presentation Standards Implementation
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity
Related: Unsystematic risk
Conditional sales contracts
Similar to equipment trust certificates except that the lender is either the
An annual statement filed by a life insurance company in each state where it does
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
financial planning conducted by a firm that encompasses preparation of both
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
In the balance of payments, counterpart items are analogous to unrequited transfers in the
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Demand line of credit
A bank line of credit that enables a customer to borrow on a daily or on-demand basis.
Depository Trust Company (DTC)
DTC is a user-owned securities depository which accepts deposits of
Result of a transaction that decreases earnings per common share.
Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
The product of modified duration and the initial price.
Dollar price of a bond
percentage of face value at which a bond is quoted.
The return realized on a portfolio for any evaluation period, including (1) the change in market
Similar to the reverse repurchase agreement - a simultaneous agreement to sell a security held in a
Dollar safety margin
The dollar equivalent of the safety cushion for a portfolio in a contingent immunization
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
Dupont system of financial control
Highlights the fact that return on assets (ROA) can be expressed in terms
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
The convexity of a bond calculated with cash flows that change with yields.
In an interest rate swap, the date the swap begins accruing interest.
The duration calculated using the approximate duration formula for a bond with an
Effective margin (EM)
Used with SAT performance measures, the amount equaling the net earned spread, or
A measure of the time value of money that fully reflects the effects of compounding.
The gross underwriting spread adjusted for the impact of the announcement of the common
Electronic data interchange (EDI)
The exchange of information electronically, directly from one firm's
lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.
This is an American dollar that has been deposited in a European bank or an U.S. bank branch
Eurobonds denominated in U.S.dollars.
European Monetary System (EMS)
An exchange arrangement formed in 1979 that involves the currencies
The marketplace in which shares, options and futures on stocks, bonds, commodities and indices
A nickname for the New York stock exchange. Also known as the Big Board. More than
Governmental restrictions on the purchase of foreign currencies by domestic citizens or
Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.
Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.
An offer by the firm to give one security, such as a bond or preferred stock, in exchange for
The price of one country's currency expressed in another country's currency.
Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
Security that grants the security holder the right to exchange the security for the
Offsetting exposures in one currency with exposures in the same or another currency,
Also called securities analysts and investment analysts, professionals who analyze
Claims on real assets.
The management of a firm's costs and expenses in order to control them in relation to
Events preceding and including bankruptcy, such as violation of loan contracts.
Financial distress costs
Legal and administrative costs of liquidation or reorganization. Also includes
Combining or dividing existing instruments to create new financial products.
A contract entered into now that provides for the delivery of a specified asset in exchange
Institutions that provide the market function of matching borrowers and lenders or
Long-term, non-cancelable lease.
Use of debt to increase the expected return on equity. financial leverage is measured by
Financial leverage clientele
A group of investors who have a preference for investing in firms that adhere to
Financial leverage ratios
Related: capitalization ratios.
An organized institutional structure or mechanism for creating and exchanging financial assets.
Objectives of a financial nature that the firm will strive to accomplish during the period
A financial blueprint for the financial future of a firm.
The process of evaluating the investing and financing options available to a firm. It
That portion of the media devoted to reporting financial news.
The result of dividing one financial statement item by another. Ratios help analysts interpret
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
decisions concerning the liabilities and stockholders' equity side of the firm's balance
Firm's net value of debt
Total firm value minus total firm debt.
See:diversifiable risk or unsystematic risk.
A theory that nominal interest rates in two or more countries should be equal to the required real
Conventional bonds for which the coupon rate is set as a fixed percentage of the par value.
A nonnegotiable debt security that can be redeemed at some fixed price or according to
A country's decision to tie the value of its currency to another country's currency, gold
Floating exchange rate
A country's decision to allow its currency value to freely change. The currency is not
Currency from another country.
Foreign exchange controls
Various forms of controls imposed by a government on the purchase/sale of
Foreign exchange dealer
A firm or individual that buys foreign exchange from one party and then sells it to
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Foreign exchange swap
An agreement to exchange stipulated amounts of one currency for another currency
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