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Definition of Sterilization
Central bank action offsetting money supply changes automatically generated by a balance of payments surplus or deficit under a fixed exchange rate system.
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.
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.
Any depreciation method that produces larger deductions for depreciation in the
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
money after-tax rate of return minus the inflation rate.
A form of organization commonly used by foreign banks to enter the U.S. market. An agency
The discount rate that reflects only the business risks of a project and abstracts from the
An arrangement whereby a security issue is canceled if the underwriter is unable
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%
Arithmetic mean return.
An option is at-the-money if the strike price of the option is equal to the market price of 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.
Balance of payments
A statistical compilation formulated by a sovereign nation of all economic transactions
Balance of trade
Net flow of goods (exports minus imports) between countries.
Also called the statement of financial condition, it is a summary of the assets, liabilities, and
Balance sheet exposure
Balance sheet identity
Total Assets = Total Liabilities + Total Stockholders' Equity
An investment company that invests in stocks and bonds. The same as a balanced mutual fund.
Balanced mutual fund
This is a fund that buys common stock, preferred stock and bonds. The same as a
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
A strategy in which the maturities of the securities included in the portfolio are concentrated
Base interest rate
Related: Benchmark interest rate.
In a balance of payments, the basic balance is the net balance of the combination of the current
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
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.
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.
The amount by which government spending exceeds government revenues.
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
Amounts of directly contributed equity capital in excess of the par value.
A transaction where exchange is immediate, as contrasted to a forward contract, which
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
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
The percentage of a given month's sales collected during the month of sale and each
A strategy in which a put and with the same strike price and expiration are either both
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity
An excess balance that is left in a bank to provide indirect compensation for loans
An undertaking either (1) to complete a project such that it meets certain specified
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
A merchant banking subsidiary set up by several banks that may or may not be of the
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
A bond's interest payments.
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.
Current rate method
under this currency translation method, all foreign currency balance-sheet and income
Refers to multi-period cash flow matching.
An excess of liabilities over assets, of losses over profits, or of expenditure over income.
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
The fixed or floating rate paid on preferred stock based on par value.
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
Method of accelerated depreciation.
Dupont system of financial control
Highlights the fact that return on assets (ROA) can be expressed in terms
For any entity, the difference between the market value of all its assets and the market
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
A measure of the time value of money that fully reflects the effects of compounding.
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
A bank that regularly accepts foreign currency denominated deposits and makes foreign currency loans.
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
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