Most of the terms are drawn from
Campbell R Harvey's Hypertextual Finance Glossary.
J Paul Sticht Professor of International Business,
Fuqua School of Business, Duke University.

A

Acquisition
When a firm buys another firm.

Alternative investment
A category of assets designed to generate absolute returns, independent of market direction.

American-style option
An option contract that can be exercised at any time between the date of purchase and the expiration date.

Assets
A firm’s productive resources.

Asset allocation
An investment technique that diversifies a portfolio among different types of assets such as cash equivalents, stock, fixed income investments, precious metals, real estate and collectibles.

Asset mix
See asset allocation

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.

B

Bear market
Any market in which prices exhibit a declining trend. For a prolonged period usually falling by 20% or more.

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

Bermudan options
These are halfway between American and European, in that they allow expiry on some days but not others.

Black list
A list of persons or organizations under suspicion, or considered untrustworthy, disloyal etc., especially one compiled by a government or an organisation.

Blue chip stocks
Common stock of well-known companies with a history of growth and dividend payments.

Bond
Bonds are debt and are issued for a period of more than one year. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.

Bond fund
A mutual fund, which invests in bonds, typically with the intent of providing stable income, in excess of cash, with minimal capital risk. Bond funds depending on the purpose can invest in a variety of bonds including government- and municipal-bonds, corporate bonds and emerging market bonds.

Bond issues
An obligation written under seal. For example, the obligation may be to make good if a third party defaults (performance bond), or betrays a trust (fidelity bond) or an obligation to pay interest and principal as specified. The latter type of bond is a debt instrument which may be secured by a mortgage or a pool or mortgages.

Bottom-up approach to investment
The search for outstanding performance of individual stocks before considering the impact of economic trends.

Bull market
Any market in which prices are in an upward trend.

Buy
To purchase an asset.

C

Call option
An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

Capital issues
Increases in the number of outstanding shares.

Capital guarantee products
Products which have the capital guaranteed for the maturity of the product.

Class
In the case of derivative products, options of the same type - put or call - with the same underlying security.

Closed-end fund
An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over-the-counter that may trade above or below its net asset value.

Collective funds
Collective funds are investment vehicles that commingle the assets of multiple clients to cost-efficiently invest in a diversified portfolio of stocks, bonds, or other securities.

Collective investments
A collective investment is a fund which takes money from a number of private investors and pools it together. A professional fund manager will then use his (or her) skill to make investments which will increase the value of the funds under management. Unit trusts and Investment Trusts are examples of collective or pooled investments.

Commodity
A commodity is food, metal, or another fixed physical substance that investors buy or sell, usually via futures contracts.

Common shares
In general, a public corporation has two types of shares, common and preferred. The common shares usually entitle the shareholders to vote at shareholders meetings. The common shares have a discretionary dividend.

Common stock
Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company’s profits via dividend payments or the capital appreciation of the security. Units of ownership of a public corporation with junior status to the claims of secured/unsecured creditors, bondholders and preferred shareholders in the event of liquidation.

Contract
A term of reference describing a unit of trading for a financial or commodity future. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange.

Conversion price
Applies mainly to convertible securities. Dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock, as specified when the convertible is issued.

Convertible bond
General debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.

Convertibility options
The right to convert a particular holding to another form or holding.

Corporate bonds
Debt obligations issued by corporations.

Corporation
A legal entity that is separate and distinct from its owners. A corporation is allowed to own assets, incur liabilities, and sell securities, among other things.

Currency swap
An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency.

D

Debt
Money borrowed.

Debt offerings
The general name for bonds, notes, mortgages and other forms of paper evidencing amounts owed and payable on specified dates or on demand.

Delta
The ratio of the change in price of a call option to the change in price of the underlying stock. Also called the hedge ratio. Applies to derivative products. Measure of the relationship between an option price and the underlying futures contract of stock price.

Derivative
A financial contract whose value is based on, or “derived” from, a traditional security (such as a stock or bond), an asset (such as a commodity), or a market index.

Dividend
A portion of a company’s profit paid to common and preferred shareholders.

E

Earnings
Net income for the company during a period.

Emerging markets
The financial markets of developing economies.

Equity
Ownership interest in a firm. Equity is also shorthand for stock market investments.

Equity fund
A mutual fund, which invests primarily in equities, usually common stocks.

Equity investments
Ownership interest possessed by shareholders in a corporation.

Equity transactions
A sale or purchase of common shares in the underlying company.

European option
Option that may be exercised only at the expiration date.

Exercise
To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.

Expansion
Phase of the business cycle as it climbs from a trough towards a peak.

Expiration
The time an option contract lapses.

Expiration date
The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised.

F

Fixed income products
Products which promise regular income over their lifetime, most commonly set to a fixed or floating underlying rate.

Flotation
Creating capital through the issue of new stocks or bonds.

Foreign exchange
Currency of another country.

Fund
A portfolio’s securities, cash, and other holdings.

Futures contract
A legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon today by the buyer and seller. Futures contracts are standardised according to the quality, quantity, and delivery time and location for each commodity. A futures contract differs from an option because an option is the right to buy or sell, while a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.

Futures price
The price at which parties to a futures contract agree to transact upon the settlement date.

G

Gamma
The ratio of a change in the option delta to a small change in the price of the asset on which the option is written.

Gearing
Financial leverage.

Government bond
See: Government securities

Government bond funds
Government Bond funds invest in a spread of government bonds with the objective of providing investors with returns, in excess of cash, with minimal capital risk.

Government securities
These are instruments issued by the government which commonly have a maturity of anything from a few weeks up to 30 years. This is the safest form of investment in a domestic currency, and it is considered virtually risk free, because the government can always print its own money to redeem the issue.

H

Hedge
A transaction that reduces the risk of an investment.

Hedge fund
A fund that may employ a variety of techniques to enhance returns, such as both buying and shorting stocks according to a valuation model.

Hedge ratio (delta)
For options, ratio between the change in an option’s theoretical value and the change in price of the underlying stock at a given point in time. For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible.

Hedging
A strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts. A hedge can help lock in profits. Its purpose is to reduce the volatility of a portfolio by reducing the risk of loss.

I

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. Antithesis of out-of-the-money.

Index
Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month.

Initial Market Capitalisation
The value of a corporation as determined by the initial offering price of its issued and outstanding stock.

Initial public offering (IPO)
A company’s first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. IPOs by investment companies (closed-end funds) usually include underwriting fees that represent a load to buyers.

Interest
The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption.

Investment
The creation of more money through the use of capital.

Investment advisor
A regulated consultant offering investment advice and execution services.

Investment strategy
The strategy a person follows to correctly invest funds to target a certain return or risk profile.

Investment trust
A closed-end fund. These funds have a fixed number of shares that are traded on the secondary markets, like corporate stock. The market price may exceed the net asset value per share, in which case shares are selling at a premium. When the market price falls below the (NAV)/share, shares are selling at a discount. Many closed-end funds are of a specialized nature; the portfolio represents a particular industry or, country.

Issue
A particular financial asset.

Issued Share Capital
Shares of a corporation authorised in the company’s prospectus which have been issued and are outstanding. These shares represent capital invested by the firm’s shareholders and owners and may be all or only a portion of the number of shares authorised.

Issuer
An entity that puts a financial asset in the marketplace.

J

Joint venture
An agreement between two or more firms to undertake the same business strategy and plan of action.

K

L

Leverage
The use of debt financing, or property of rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage compared to the underlying stock because a given price change in the stock may result in a greater increase or decrease in the value of the option.

Leveraged buyout (LBO)
A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds.

Liability
A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation.

Listed company
A company whose shares trade on an authorised public stock exchange.

M

Management Buy In (MBI)
The purchase of a large, and often controlling, interest in a company by an investor group who wishes to retain existing management.

Management buyout (MBO)
Leveraged buyout whereby the acquiring group is led by the firm's management.

Market
Usually refers to the equity market. "The market went down today" means that the value of the stock market dropped that day.

Market capitalisation
The value of a corporation as determined by its current market price, i.e, number of shares x market price.

Market index
Market measure that consists of weighted values of the components that make up certain list of companies. A stock market tracks the performance of certain stocks by weighting them according to their prices and the number of outstanding shares by a particular formula.

Market prices
The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.

Market value
(1) The price at which a security is trading and could presumably be purchased or sold. (2) What investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.

Mathematical modeling
The modeling of products to achieve fair value pricing.

Merger
(1) Acquisition in which all assets and liabilities are absorbed by the buyer. (2) More generally, any combination of two companies. The firm's activity in this respect is sometimes called M&A (Merger and Acquisition)

Municipal bond
Represents borrowing by state or local governments to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.

Mutual fund
Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when they buy or sell shares. No-load funds impose no sales charge. Related: Open-end fund, closed-end fund.

N

Net asset value (NAV)
The value of a fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed-end fund, the market price may vary significantly from the net asset value.

O

Offer
Indicates a willingness to sell at a given price.

Open-ended investment companies (OEICS)
An investment vehicle which has a mandate for purchasing a portfolio of securities, such as corporate, municipal or government bonds, common stock and preferred stock. However, it can issue new units or share on demand and can redeem them at any time at the prevailing market price. It is possible that the issue of new shares may be stopped if the fund becomes too large.

Open-end fund
Used in the context of general equities. Mutual fund that continually creates new shares on demand. Mutual fund shareholders buy the funds at net asset value and may redeem them at any time at the prevailing market prices. Antithesis of closed-end fund.

Options
Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date.

Option price
Also called the option premium; the price of the options contract pays for the right to buy or sell a security at a specified price in the future.

Options contract
A contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date).

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. That is, you have the right to purchase a security at a price higher than the market price, which is not valuable. A put option is out-of -the-money if the strike price is lower than the market price of the underlying security.

Over-the-counter (OTC)
A decentralised market where geographically dispersed dealers are linked by telephones and computer screens. The market is for securities not listed on a stock or bond exchange.

P

Par value
Also called the maturity value or face value; the amount that an issuer agrees to pay at the maturity date.

Portfolio
A collection of investments, real and/or financial.

Preferred stock
A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a C£ amount or as a percentage of par value. This stock does not usually carry voting rights. Preferred stock has characteristics of both common stock and dept.

Primary market
Where a newly issued security is first offered. All subsequent trading of this security occurs in the secondary market.

Privately Placed Debt
Money one party is obliged to pay to another in accordance with an express or implied agreement.

Profit
Revenue minus cost. The amount one makes on a transaction.

Public company
A company with shares outstanding owned by the public which is not necessarily listed on an exchange.

Purchase and sale
A method of securities distribution in which a firm purchases securities from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.

Put
An option granting the right to sell the underlying futures contract. Opposite of a call.

Put option
This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.

Q

Quasi-equity
Unsecured debt and equity in ranking for payment in the event of default. It may carry an option or some other claim to a stake in equity.

R

Real estate
A piece of land and whatever physical property is on it.

Return
The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.

Rights offering
Issuance to shareholders that allows them to purchase additional shares, usually at a discount to market price. Holdings of shareholders who do not exercise rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed-end funds, which cannot otherwise issue additional common stock.

Risk
Often defined as the standard deviation of the return on total investment. Degree of uncertainty of return on an asset.

Risk profile
The slope of a line graphed according to the value of an underlying asset on the x-axis and the value of a position exposed to risk in the underlying asset on the y-axis. Also used with changes in value.

S

Sales charge
The fee charged by a mutual fund at purchase of shares, usually payable as a commission to a marketing agent, such as a financial adviser, who is thus compensated for assistance to a purchaser. It represents the difference, if any, between the share purchase price and the share net asset value.

Seasoned issue
Issue of a security for which there is an existing market.

Secondary issue
(1) Procedure for selling blocks of seasoned issues of stocks.
(2) More generally, sale of already issued stock.

Secondary market
The market in which securities are traded after they are initially offered in the primary market. Most trading occurs in the secondary market.

Security
Piece of paper that proves ownership of stocks, bonds, and other investments.

Security selection
See: Security selection decision

Security selection decision
Choosing the particular stocks or bonds or other investment instruments to include in a portfolio.

Series
Options: All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price. Stocks: shares that have common characteristics, such as rights to ownership and voting dividends, or par value.

Shareholder
Person or entity that owns shares or equity in a corporation.

Shareholders’ agreement
A contract between the shareholders of the company regulating their mutual obligation and rights regarding the running of the company, corporate governance, sale of shares etc.

Shares
Certificates or book entries representing ownership in a corporation or similar entity.

Share capital
The number of shares outstanding.

Sharpe ratio
A measure of a portfolio’s excess return relative to the total variability of the portfolio.

Short selling
Establishing a market position by selling a security one does not own in anticipation of the price of that security falling.

Standard deviation
The square root of the variance. A measure of dispersion of a set of data from its mean.

Stock
Ownership of a corporation indicated by shares, which represent a piece of the corporation’s assets and earnings.

Stock exchanges
Formal organisations, approved and regulated by the Securities and Exchange Commission (SEC), that are made up of members who use the facilities to exchange certain common stocks.

Strategic alliances
A collaboration between two or more companies designed to achieve some corporate objective. This may include international licensing agreements, management contracts or joint ventures.

Strike price
The stated price per share for which underlying stockmay be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.

Structured finance products
Usually a derivative that is based on an underlying instrument. This has a payout to the holder based on the price movement of the underlying asset.

Swap
An arrangement in which two entities lend to each other on different terms, e.g., in different currencies, and/or at different interest rates, fixed or floating.

T

Technical analysis
Security analysis that seeks to detect and interpret patterns in past security prices.

Top-down approach
A method of security selection that starts with asset allocation and works systematically through sector and industry allocation to individual security selection.

Total assets
Total commercial or exchange value that is owned by a business.

Trade
An oral (or electronic) transaction involving one party buying a security from another party. Once a trade is consummated, it is considered “done” or final. Settlement occurs 1-5 business days later.

Trend
The general direction of the market.

U

Underlying
What supports the security or instrument that parties agree to exchange in a derivative contract.

Underlying asset
The security or property or loan agreement that an option gives the option holder the right to buy or to sell.

Underlying security
For options, the security that is subject to purchase or sold upon exercise of an option contract.

Underwrite
To guarantee, as to guarantee the issuer of securities a specified price by entering into a purchase and sale agreement. To bring securities to market.

Underwriter
A firm, usually an investment bank, that buys an issue of securities from a company and resells it to investors. In general, a party that guarantees the proceeds to the firm from a security sale, thereby in effect taking ownership of the securities.

Unit trust
An investment vehicle which purchases a fixed portfolio of securities, such as corporate, municipal or government bonds, common stock, preferred stock, etc.

V

Valuation
Determination of the value of a company’s stock based on earnings and the market value of assets.

Vanilla issue
A security issue that has no unusual features.

Vanilla options
An option that is straight-forward, the simplest type of option, a call or put, known as vanilla because of the ubiquity of that flavour.

Variable
An element in a model.

Volatility
A measure of risk based on the standard deviation of the asset return. Volatility is a variable that appears in option pricing formulas, where it denotes the volatility of the underlying asset return from now to the expiration of the option. There are volatility indexes. Such as a scale of 1-9; a higher rating means higher risk.

W

Warrant
A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market price. Warrants are traded as securities whose price reflects the value of the underlying stock. Corporations often bundle warrants with another class of security to enhance the marketability of the other class. Warrants are like call options, but with much longer time spans - sometimes years. And, warrants are offered by corporations, while exchange-traded call options are not issued by firms.

X

Y

Z