Definition of Term

Term

See term to maturity.

term

The period of time during which a financial contract – such as a GIC or a loan – is in force.

Term

The time period during which a policy is in force, or the time it takes for a policy to reach maturity.

Term

This is usually the duration of a loan.

Coefficient of determination

A measure of the goodness of fit of the relationship between the dependent and
independent variables in a regression analysis; for instance, the percentage of variation in the return of an
asset explained by the market portfolio return.

Deterministic models

Liability-matching models that assume that the liability payments and the asset cash
flows are known with certainty. Related: Compare stochastic models

Disintermediation

Withdrawal of funds from a financial institution in order to invest them directly.

Euro-medium term note (Euro-MTN)

A non-underwritten Euronote issued directly to the market. Euro-
MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are
under five years.

Financial intermediaries

Institutions that provide the market function of matching borrowers and lenders or
traders.

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.

Intermediate-term

Typically 1-10 years.

Intermediation

Investment through a financial institution. Related: disintermediation.

Liquidity theory of the term structure

A biased expectations theory that asserts that the implied forward
rates will not be a pure estimate of the market's expectations of future interest rates because they embody a
liquidity premium.

Long-term

In accounting information, one year or greater.

Long-term assets

Value of property, equipment and other capital assets minus the depreciation. This is an
entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect
the market value of the assets.

Long-term debt

An obligation having a maturity of more than one year from the date it was issued. Also
called funded debt.

Long-term debt/capitalization

Indicator of financial leverage. Shows long-term debt as a proportion of the
capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and
common stockholder equity.

Long-term debt ratio

The ratio of long-term debt to total capitalization.

Long-term financial plan

Financial plan covering two or more years of future operations.

Long-term liabilities

Amount owed for leases, bond repayment and other items due after 1 year.

Long-term debt to equity ratio

A capitalization ratio comparing long-term debt to shareholders' equity.

Medium-term note

A corporate debt instrument that is continuously offered to investors over a period of
time by an agent of the issuer. Investors can select from the following maturity bands: 9 months to 1 year,
more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.

Other long term liabilities

Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Short-term financial plan

A financial plan that covers the coming fiscal year.

Short-term investment services

Services that assist firms in making short-term investments.

Short-term solvency ratios

Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.

Short-term tax exempts

Short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.

Term bonds

Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is
payable at maturity. Related: serial bonds

Term Fed Funds

Fed Funds sold for a period of time longer than overnight.

Term life insurance

A contract that provides a death benefit but no cash build-up or investment component.
The premium remains constant only for a specified term of years, and the policy is usually renewable at the
end of each term.

Term loan

A bank loan, typically with a floating interest rate, for a specified amount that matures in between
one and ten years and requires a specified repayment schedule.

Term insurance

Provides a death benefit only, no build-up of cash value.

Term repo

A repurchase agreement with a term of more than one day.
term structure of interest rates
Relationship between interest rates on bonds of different maturities usually
depicted in the form of a graph often depicted as a yield curve. Harvey shows that inverted term structures
(long rates below short rates) have preceded every recession over the past 30 years.

Term to maturity

The time remaining on a bond's life, or the date on which the debt will cease to exist and
the borrower will have completely paid off the amount borrowed. See: Maturity.

Term premiums

Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Term trust

A closed-end fund that has a fixed termination or maturity date.

Terminal value

The value of a bond at maturity, typically its par value, or the value of an asset (or an entire
firm) on some specified future valuation date.

Terms of sale

Conditions on which a firm proposes to sell its goods services for cash or credit.

Terms of trade

The weighted average of a nation's export prices relative to its import prices.

LONG-TERM LIABILITIES

Bills that are payable in more than one year, such as a mortgage or bonds.

Long-term liabilities

Amounts owing after more than one year.

coefficient of determination

a measure of dispersion that
indicates the “goodness of fit” of the actual observations
to the least squares regression line; indicates what proportion
of the total variation in y is explained by the regression model

predetermined overhead rate

an estimated constant charge per unit of activity used to assign overhead cost to production or services of the period; it is calculated by dividing total budgeted annual overhead at a selected level of volume or activity by that selected measure of volume or activity; it is also the standard overhead application rate

Term structure

The relationship between the yields on fixed-interest
securities and their maturity dates. Expectation of changes in interest rates
affects term structure, as do liquidity preferences and hedging pressure. A
yield curve is one representation in the term structure.

Long-term debt

A debt for which payments will be required for a period of more than
one year into the future.

financial intermediary

Firm that raises money from many small investors and provides financing to businesses or other
organizations by investing in their securities.

terms of sale

Credit, discount, and payment terms offered on a sale.

Financial Intermediary

Any institution, such as a bank, that takes deposits from savers and loans them to borrowers.

Financial Intermediation

The process whereby financial intermediaries channel funds from lender/savers to borrower/spenders.

Intermediate Good

A good used in producing another good.

Term Deposit

An interest-earning bank deposit that cannot be withdrawn without penalty until a specific time.

Term to Maturity

Period of time from the present to the redemption date of a bond.

Term Structure of Interest Rates

Relationship among interest rates on bonds with different terms to maturity.

Terms of Trade

The quantity of imports that can be obtained for a unit of exports, measured by the ratio of an export price index to an import price index.

Termination Pay

Additional pay due to an employee whose employment is
being terminated, usually in accordance with a termination pay schedule contained
within the employee manual.

Term Life Insurance

A plan of insurance which covers the insured for only a certain period of time and not necessarily for his or her entire life. The policy pays a death benefit only if the insured dies during the term.

Yearly Renewable Term Insurance

Sometimes, simply called YRT, this is a form of term life insurance that may be renewed annually without evidence of insurability to a stated age.

Credit Terms

Conditions under which credit is extended by a lender to a borrower.

Flexible Term

Optional periods of time which the conditions of a contract will be carried out.

Intermediary

An independent third party that may act as a mediator during negotiations.

Long Term Debt

Liability due in a year or more.

Longer-Term Fixed Assets

Assets having a useful life greater than one year but the duration of the 'long term' will vary with the context in which the term is applied.

Repayment Terms

The length of time given a borrower by a lender to repay a debt and the frequency of principal payments which the borrower has to meet.

Term Loan

A secured loan made to business concerns for a specific period (normally three to ten years). It is repaid with interest, usually with periodical payments.

Term Sheet

A list of the major points of the proposed financing being offered by an investor.

Term Life

A product that provides life coverage for a specified duration typically not beyond the age of 75.

Terminal Illness Insurance (Credit Insurance)

Coverage that provides a lump-sum payment should you become terminally ill. The payment is made to your creditors to pay off your debt owing.

Terminate

Cease all legal obligations under a contract.

CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.

Abandonment option

The option of terminating an investment earlier than originally planned.

Accumulated Benefit Obligation (ABO)

An approximate measure of the liability of a plan in the event of a
termination at the date the calculation is performed. Related: projected benefit obligation.

Agency basis

A means of compensating the broker of a program trade solely on the basis of commission
established through bids submitted by various brokerage firms. agency incentive arrangement. A means of
compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.

Alpha equation

The alpha of a fund is determined as follows:
[ (sum of y) -((b)(sum of x)) ] / n
where:
n =number of observations (36 months)
b = beta of the fund
x = rate of return for the S&P 500
y = rate of return for the fund

Appraisal rights

A right of shareholders in a merger to demand the payment of a fair price for their shares, as
determined independently.

ARM

Adjustable rate mortgage. A mortgage that features predetermined adjustments of the loan interest rate
at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate
equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to perinterval
and to life-of-loan interest rate and/or payment rate caps.

Asset pricing model

A model for determining the required rate of return on an asset.

Asset pricing model

A model, such as the Capital Asset Pricing Model (CAPM), that determines the required
rate of return on a particular asset.

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.

Average

An arithmetic mean of selected stocks intended to represent the behavior of the market or some
component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the
current prices of the 30 DJIA's stocks, and divides the results by a predetermined number, the divisor.

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 discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

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.

Basis

Regarding a futures contract, the difference between the cash price and the futures price observed in the
market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to
determine capital gains or losses for tax purposes when the stock is sold.

Basis price

Price expressed in terms of yield to maturity or annual rate of return.

Benchmark

The performance of a predetermined set of securities, for comparison purposes. Such sets may be
based on published indexes or may be customized to suit an investment strategy.

Beta equation (Mutual Funds)

The beta of a fund is determined as follows:
[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
where: n = # of observations (36 months)
x = rate of return for the S&P 500 Index
y = rate of return for the fund

Beta equation (Stocks)

The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the stock

Big Bang

The term applied to the liberalization in 1986 of the London Stock Exchange in which trading was
automated with the use of computers.

Bill of exchange

General term for a document demanding payment.

Boilerplate

Standard terms and conditions.

Book profit

The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.

Bourse

A term of French origin used to refer to stock markets.

Bracket

A term signifying the extent an underwriter's commitment in a new issue, e.g., major bracket or
minor bracket.

Break-even payment rate

The prepayment rate of a MBS coupon that will produce the same CFY as that of
a predetermined benchmark MBS coupon. Used to identify for coupons higher than the benchmark coupon
the prepayment rate that will produce the same CFY as that of the benchmark coupon; and for coupons lower
than the benchmark coupon the lowest prepayment rate that will do so.

British clearers

The large clearing banks that dominate deposit taking and short-term lending in the domestic
sterling market.

Brokered market

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

Bullet loan

A bank term loan that calls for no amortization.

Business failure

A business that has terminated with a loss to creditors.

Buy-back

Another term for a repo.

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