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Definition of quality

Quality Image 1


all the characteristics of a product or service that
make it able to meet the stated or implied needs of the
buyer; it relates to both performance and value; the pride
of workmanship; it is conformance to requirements

Related Terms:

accepted quality level (AQL)

the maximum limit for the number of defects or errors in a process

Cost of quality

The difference between the actual costs of production, selling and service and the costs that would be incurred if there were no failures during production or usage of products or services.

Flight to quality

The tendency of investors to move towards safer, government bonds during periods of high
economic uncertainty.

process quality yield

the proportion of good units that resulted from the activities expended

quality assurance

the process of determining that product
or service quality conforms to designated specifications
usually through an inspection process

quality audit

a review of product design activities (although
not for individual products), manufacturing processes and controls, quality documentation and records, and management philosophy

quality control

the implementation of all practices and policies
designed to eliminate poor quality and variability in the
production or service process; it places the primary responsibility
for quality at the source of the product or service

Quality Image 2

Quality option

Also called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury
note futures contract. Related: cheapest to deliver issue

Quality spread

Also called credit spread, the spread between Treasury securities and non-Treasury securities
that are identical in all respects except for quality rating. For instance, the difference between yields on
Treasuries and those on single A-rated industrial bonds.

total quality management (TQM)

a structural system for creating organization-wide participation in planning and implementing a continuous improvement process that exceeds
the expectations of the customer/client; the application
of quality principles to all company endeavors; it is also known as total quality control

activity-based budgeting (ABB)

planning approach applying activity drivers to estimate the levels and costs of activities necessary to provide the budgeted quantity and
quality of production

appraisal cost

a quality control cost incurred for monitoring
or inspection; compensates for mistakes not eliminated
through prevention activities

bill of materials

a document that contains information about
the product materials components and their specifications
(including quality and quantities needed)


A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.

Cash-equivalent items

Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and Banker's Acceptances.

continuous improvement

an ongoing process of enhancing employee task performance, level of product quality, and level of company service through eliminating nonvalue-added activities to reduce lead time, making products
(performing services) with zero defects, reducing
product costs on an ongoing basis, and simplifying products
and processes

Quality Image 3

Credit spread

Related:quality spread

critical success factors (CSF)

any item (such as quality, customer
service, efficiency, cost control, or responsiveness
to change) so important that, without it, the organization
would cease to exist

defective unit

a unit that has been rejected at a control inspection
point for failure to meet appropriate standards of
quality or designated product specifications; can be economically
reworked and sold through normal distribution channels

Delivery options

The options available to the seller of an interest rate futures contract, including the quality
option, the timing option, and the wild card option. Delivery options make the buyer uncertain of which
Treasury Bond will be delivered or when it will be delivered.

differentiation strategy

a technique for avoiding competition by distinguishing a product or service from that of competitors through adding sufficient value (including quality and/or features) that customers are willing to pay
a higher price than that charged by competitors

engineering change order (ECO)

a business mandate that changes the way in which a product is manufactured or a
service is performed by modifying the design, parts,
process, or even quality of the product or service

failure cost

a quality control cost associated with goods or
services that have been found not to conform or perform
to the required standards as well as all related costs (such
as that of the complaint department); it may be internal or

inspection time

the time taken to perform quality control activities

ISO 9000

a comprehensive series of international quality standards
that define the various design, material procurement,
production, quality-control, and delivery requirements and
procedures necessary to produce quality products and services


the Japanese word for continuous improvement
kaizen costing
a costing technique to reflect continuous efforts
to reduce product costs, improve product quality,
and/or improve the production process after manufacturing
activities have begun

Panel on Audit Effectiveness

A special committee of the Public Oversight Board that was created
to perform a comprehensive review and evaluation of the way independent audits of financial
statements of publicly traded companies are performed. The panel found generally that the
quality of audits is fundamentally sound. The panel did recommend the expansion of audit steps
designed to detect fraud.

Quality Image 4

prevention cost

a cost incurred to improve quality by preventing
defects from occurring


An evaluation of credit quality Moody's, S&P, and Fitch Investors Service give to companies used by
investors and analysts.


Refers to a product that does not meet a company’s minimum quality standards,
but which is then repaired in order to meet those standards.

spoiled unit

a unit that is rejected at a control inspection
point for failure to meet appropriate standards of quality
or designated product specifications; it cannot be economically
reworked to be brought up to standard

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 optio

See: Swaption.
Related: quality option.

Yield curve

The graphical depiction of the relationship between the yield on bonds of the same credit quality
but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of
the yield curve (short-term rates greater than long term rates) have preceded the last five U.S. recessions. The
yield curve can accurately forecast the turning points of the business cycle.







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