Financial Terms Zero-one integer programming

# Definition of Zero-one integer programming

## Zero-one integer programming

An analytical method that can be used to determine the solution to a capital
rationing problem.

# Related Terms:

## economic components model

Abramsâ€™ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

## All or none

Requirement that none of an order be executed unless all of it can be executed at the specified price.

## All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

## At-the-money

An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

## Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

## Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

## European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

## Hot money

Money that moves across country borders in response to interest rate differences and that moves
away when the interest rate differential disappears.

## Integer programming

Variant of linear programming whereby the solution values must be integers.

## International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.

## International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

## In-the-money

A put option that has a strike price higher than the underlying futures price, or a call option
with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures
contract is trading at \$6 an ounce, a March call with a strike price of \$5.50 would be considered in-the-money
by \$0.50 an ounce.
Related: put.

## Law of one price

An economic rule stating that a given security must have the same price regardless of the
means by which one goes about creating that security. This implies that if the payoff of a security can be
synthetically created by a package of other securities, the price of the package and the price of the security
whose payoff it replicates must be equal.

## Linear programming

Technique for finding the maximum value of some equation subject to stated linear constraints.

## Mathematical programming

An operations research technique that solves problems in which an optimal
value is sought subject to specified constraints. Mathematical programming models include linear
programming, quadratic programming, and dynamic programming.

## Monetary gold

Gold held by governmental authorities as a financial asset.

## Monetary policy

Actions taken by the Board of Governors of the Federal Reserve System to influence the
money supply or interest rates.

## Monetary / non-monetary method

Under this translation method, monetary items (e.g. cash, accounts
payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g.
inventory, fixed assets, and long-term investments) are translated at historical rates.

## Money base

Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.

## Money center banks

Banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.

## Money management

Related: Investment management.

## Money manager

Related: Investment manager.

## Money market

Money markets are for borrowing and lending money for three years or less. The securities in
a money market can be U.S.government bonds, treasury bills and commercial paper from banks and
companies.

## Money market demand account

An account that pays interest based on short-term interest rates.

## Money market fund

A mutual fund that invests only in short term securities, such as bankers' acceptances,
commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at
\$1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection.

## Money market hedge

The use of borrowing and lending transactions in foreign currencies to lock in the
home currency value of a foreign currency transaction.

## Money market notes

Publicly traded issues that may be collateralized by mortgages and MBSs.

## Money purchase plan

A defined benefit contribution plan in which the participant contributes some part and
the firm contributes at the same or a different rate. Also called and individual account plan.

## Money rate of return

Annual money return as a percentage of asset value.

## Money supply

M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits.
M2: M1-B plus overnight repos, money market funds, savings, and small (less than \$100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.

## New money

In a Treasury auction, the amount by which the par value of the securities offered exceeds that of
those maturing.

## One man picture

The picture quoted by a broker is said to be a one-man picture if both the bid and offered
prices come from the same source.

## One-factor APT

A special case of the arbitrage pricing theory that is derived from the one-factor model by
using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a
single factor.

## One-way market

1) A market in which only one side, the bid or asked, is quoted or firm.
2) A market that is moving strongly in one direction.

## Out-of-the-money option

A call option is out-of-the-money if the strike price is greater than the market price
of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of
the underlying security.

## Phone switching

In mutual funds, the ability to transfer shares between funds in the same family by
telephone request. There may be a charge associated with these transfers. Phone switching is also possible
among different fund families if the funds are held in street name by a participating broker/dealer.

## Postponement option

The option of postponing a project without eliminating the possibility of undertaking it.

## Precautionary demand (for money)

The need to meet unexpected or extraordinary contingencies with a
buffer stock of cash.

## Risk prone

Willing to pay money to transfer risk from others.

## Seasoned datings

Extended credit for customers who order goods in periods other than peak seasons.

## Seasoned issue

Issue of a security for which there is an existing market. Related: Unseasoned issue.

## Seasoned new issue

A new issue of stock after the company's securities have previously been issued. A
seasoned new issue of common stock can be made by using a cash offer or a rights offer.

## SIMEX (Singapore International Monetary Exchange)

A leading futures and options exchange in Singapore.

## Speculative demand (for money)

The need for cash to take advantage of investment opportunities that may arise.

## Stand-alone principle

Investment principle that states a firm should accept or reject a project by comparing it
with securities in the same risk class.

## Target zone arrangement

A monetary system under which countries pledge to maintain their exchange rates
within a specific margin around agreed-upon, fixed central exchange rates.

## Time value of money

The idea that a dollar today is worth more than a dollar in the future, because the dollar
received today can earn interest up until the time the future dollar is received.

## Transaction demand (for money)

The need to accommodate a firm's expected cash transactions.

## Unseasoned issue

Issue of a security for which there is no existing market. See: seasoned issue.

## Zero coupon bond

Such a debt security pays an investor no interest. It is sold at a discount to its face price
and matures in one year or longer.

## Zero prepayment

assumption The assumption of payment of scheduled principal and interest with no payments.

## Zero uptick

Related: tick-test rules.

## Zero-balance account (ZBA)

A checking account in which zero balance is maintained by transfers of funds
from a master account in an amount only large enough to cover checks presented.

## Zero-beta portfolio

A portfolio constructed to represent the risk-free asset, that is, having a beta of zero.

## Zero-coupon bond

A bond in which no periodic coupon is paid over the life of the contract. Instead, both the
principal and the interest are paid at the maturity date.

## Zero-investment portfolio

A portfolio of zero net value established by buying and shorting component
securities, usually in the context of an arbitrage strategy.

## Zero-sum game

A type of game wherein one player can gain only at the expense of another player.

## Planning, programming and budgeting system (PPBS)

A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres.

## Zero-based budgeting

A method of budgeting that ignores historical budgetary allocations and identifies the costs that are necessary to implement agreed strategies.

## Money Market

A market that specializes in trading short-term, low-risk, very liquid
debt securities

## Zero-coupon Bond

A security that makes no interest payments; it is sold at a discount
at issue and then repaid at face value at maturity

## integer programming

a mathematical programming technique in which all solutions for variables must be restricted to whole numbers

## linear programming

a method of mathematical programming used to solve a problem that involves an objective function and multiple limiting factors or constraints long-term variable cost a cost that was traditionally viewed as a fixed cost

## mathematical programming

a variety of techniques used
to allocate limited resources among activities to achieve a
specific objective

## zero-base budgeting

a comprehensive budgeting process
that systematically considers the priorities and alternatives
for current and proposed activities in relation to organization
objectives; it requires the rejustification of ongoing activities

## Zero curve, zero-coupon yield curve

A yield curve for zero-coupon bonds;
zero rates versus maturity dates. Since the maturity and duration (Macaulay
duration) are identical for zeros, the zero curve is a pure depiction of supply/
demand conditions for loanable funds across a continuum of durations and
maturities. Also known as spot curve or spot yield curve.

## Zero-coupon bond, or Zero

A bond that, instead of carrying a coupon, is sold
at a discount from its face value, pays no interest during its life, and pays the
principal only at maturity.

## Dow Jones Industrial Average

Index of the investment performance of a portfolio of 30 â€śblue-chipâ€ť stocks.

## law of one price

Theory that prices of goods in all countries should be equal when translated to a common currency.

## money market

Market for short-term financial assets.

## zero-balance account

Regional bank account to which just enough funds are transferred daily to pay each dayâ€™s bills.

See money base.

## International Monetary Fund (IMF)

Organization originally established to manage the postwar fixed exchange rate system.

## Monetarism

School of economic thought stressing the importance of the money supply in the economy. Adherents believe that the economy is inherently stable, so that policy is best undertaken through adoption of a policy rule.

## Monetarist Rule

Proposal that the money supply be increased at a steady rate equal approximately to the real rate of growth of the economy. Contrast with discretionary policy.

## Monetary Aggregate

Any measure of the economy's money supply.

See money base.

## Monetary Policy

Actions taken by the central bank to change the supply of money and the interest rate and thereby affect economic activity.

## Monetizing the Debt

See printing money.

## Money

Any item that serves as a medium of exchange, a store of value, and a unit of account. See medium of exchange.

## Money Base

Cash plus deposits of the commercial banks with the central bank.

## Money Market

A financial market in which short-term (maturity of less than a year) debt instruments such as bonds are traded.

## Money Multiplier

Change in the money supply per change in the money base.

## Money Rate of Interest

See interest rate, nominal.

## Neutrality of Money

The doctrine that the money supply affects only the price level, with no long-run impact on real variables.

## Printing Money

Sale of bonds by the government to the central bank.

## 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.

## Real Money Supply

Money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.

## Zero-Coupon Bond

See discount bond.

## Component

Raw materials or subassemblies used to make either finished goods
or higher levels of subassembly.

## Zone picking

The practice of picking by area of the warehouse, rather than by
order, requiring an additional consolidation step from which picking by order
is completed.

## Fiat Money

Fiat Money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into this category.

## Money Laundering

This is the process by which "dirty money" generated by criminal activities is converted through legitimate businesses into assets that cannot be easily traced back to their illegal origins.

## Money Market

Financial market in which funds are borrowed or lent for short periods. (The money market is distinguished from the capital market, which is the market for long term funds.)

## money market fund

A type of mutual fund that invests primarily in short-term debt securities maturing in one year or less. These include treasury bills, bankersâ€™ acceptances, commercial paper, discount notes and guaranteed investment certficates.

## money order

A guaranteed form of payment in amounts up to and including \$5,000. You might request a money order in order to pay for tuition fees at a university or a college, or for a magazine subscription.