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Definition of Quantos
Currency options with a guaranteed exchange rate that enable buyers who like the asset, German
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
A merger or consolidation in which an acquirer purchases the selling firm's assets.
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
IRS rules used to allocate income on export sales to a foreign sales corporation.
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
The second-largest stock exchange in the United States. It trades
Swap in which the principal or national amount rises (falls) as interest rates
The periodic rate times the number of periods in a year. For example, a 5%
An alternative model to the capital asset pricing model developed by
Yield curve option-pricing models.
Arithmetic mean return.
Asian currency units (ACUs)
Dollar deposits held in Singapore or other Asian centers.
Any possession that has value in an exchange.
The ratio of total assets to stockholder equity.
Also called surplus management, the task of managing funds of a financial
Asset activity ratios
Ratios that measure how effectively the firm is managing its assets.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
A security that is collateralized by loans, leases, receivables, or installment contracts
Methods of financing in which lenders and equity investors look principally to the
Categories of assets, such as stocks, bonds, real estate and foreign securities.
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
Asset for asset swap
Creditors exchange the debt of one defaulting borrower for the debt of another
Asset pricing model
A model for determining the required rate of return on an asset.
A firm's investing in assets that are riskier than those that the debtholders expected.
Asset substitution problem
Arises when the stockholders substitute riskier assets for the firm's existing
An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
The ratio of net sales to total assets.
Asset pricing model
A model, such as the Capital asset pricing Model (CAPM), that determines the required
A firm's productive resources.
A common element of a financial plan that describes projected capital spending and the
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
The fee paid on the extension date if the buyer wishes to continue the option.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Contracts with trigger points that, when crossed, automatically generate buying or selling of
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
Packages that involve the exchange of more than two currencies against a base currency at
Benchmark interest rate
Also called the base interest rate, it is the minimum interest rate investors will
Bill of exchange
General term for a document demanding payment.
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
A currency that is not freely convertible to other currencies due to exchange controls.
bonds issued by emerging countries under a debt reduction plan.
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
A passive investment strategy with no active buying and selling of stocks from the
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
Chicago Mercantile Exchange (CME)
A not-for-profit corporation owned by its members. Its primary
Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on
A strategy in which a put and with the same strike price and expiration are either both
A fee paid to a commercial bank in return for its legal commitment to lend funds that have
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
bonds that can be converted into common stock at the option of the holder.
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
One of the three areas of the discipline of finance. It deals with the operation of the firm
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
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
Cost company arrangement
arrangement whereby the shareholders of a project receive output free of
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
The interest rate offered on an investment type insurance policy.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
The return at which two alternative projects have the same net present value.
Taking advantage of divergences in exchange rates in different money markets by
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
Value of cash, accounts receivable, inventories, marketable securities and other assets that
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
High-coupon bonds that sell at only at a moderate premium because they are callable at a
Custodial fees Fees
charged by an institution that holds securities in safekeeping for an investor.
Over-the-counter options, such as those offered by government and mortgage-backed
Refers to multi-period cash flow matching.
The options available to the seller of an interest rate futures contract, including the quality
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
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