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Definition of trade-off theory
Debt levels are chosen to balance interest tax shields against the costs of financial distress.
The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of
An alternative model to the capital asset pricing model developed by
The difference between exports and imports of goods.
Net flow of goods (exports minus imports) between countries.
See balance of merchandise trade.
Related: Program trades.
A large trading order, defined on the New York Stock Exchange as an order that consists of
Security prices sometimes move wildly above their true values.
The exchange of goods for other goods rather than for cash; barter.
theory that expected spot exchange rate equals the forward rate.
1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
A member who generally trades only for his own account, for an account controlled by him or
A transaction in which the settlement will occur on a specified date in the future at a price
The absence of any government restrictions, such as tariffs or quotas, on imports or exports.
trades in which an investor believes he or she possesses pertinent
trades that are the result of either a reallocation of wealth or an implementation of an
Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward
Local expectations theory
A form of the pure expectations theory which suggests that the returns on bonds
Market segmentation theory or preferred habitat theory
A biased expectations theory that asserts that the
Modern portfolio theory
Principles underlying the analysis and evaluation of rational portfolio choices
Normal backwardation theory
Holds that the futures price will be bid down to a level below the expected
North American Free Trade Agreement (NAFTA)
an agreement among Canada, Mexico, and the United States establishing the North American Free trade Zone, with a resulting reduction in trade barriers
pecking order theory
Firms prefer to issue debt rather than equity if internal finance is insufficient.
Prices after the decision to trade.
Prices occurring before or at the decision to trade.
Preferred habitat theory
A biased expectations theory that believes the term structure reflects the
Also called basket trades, orders requiring the execution of trades in a large number of
Publicly traded assets
Assets that can be traded in a public market, such as the stock market.
Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected
Quantity Theory of Money
theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.
random walk theory
Security prices change randomly, with no predictable trends or patterns.
Real Business Cycle Theory
Belief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy.
A member of the exchange who executes frequent trades for his or her own account.
Entering the opposite side of a currently held futures position to close out the position.
The purchase and sale of a foreign currency, commodity, or other item for immediate delivery.
Static theory of capital structure
theory that the firm's capital structure is determined by a trade-off of the
Terms of trade
The weighted average of a nation's export prices relative to its import prices.
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.
theory of constraints (TOC)
a method of analyzing the bottlenecks
A verbal (or electronic) transaction involving one party buying a security from another party. Once a
Written demand that has been accepted by an industrial company to pay a given sum at a future date.
Credit granted by a firm to another firm for the purchase of goods or services.
In an interest rate swap, the date that the counterparties commit to the swap. Also, the date on
Deficit on the balance of merchandise trade.
A draft addressed to a commercial enterprise. See:draft.
A firm which deals in actual commodities.
A term used for channel stuffing in the domestic tobacco industry.
Trade on top of
trade at a narrow or no spread in basis points relative to some other bond yield, usually
Persons who take positions in securities and their derivatives with the objective of making profits.
World Trade Organization (WTO)
the arbiter of global trade that was created in 1995 under the General Agreement on Tariffs and trade; each signatory country has one
theory that says a country's trade deficit will initially worsen after its currency depreciates because
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