300 Important Financial Terms

Since we are learning the 300th technical word commonly used in
financial markets today, i have attached the document containing all
300 terms and their definitions.


Definition of 'Soft Loan'

A loan with no interest or a below-market rate of interest, or loans
made by multinational development banks (such as the Asian Development
fund), affiliates of the World Bank and government agencies to
developing countries that would be unable to borrow at the market
rate. Soft loans are loans that have lenient terms, such as extended
grace periods in which only interest or service charges are due, and
interest holidays. Soft loans typically offer longer amortization
schedules (in some cases up to 50 years) and lower interest rates than
conventional bank loans.

Also knows as "soft financing" or "concessional funding."

Investopedia explains 'Soft Loan'

For example, Ethiopia received a soft loan from the Chinese
government, in September 2012. The Chinese government announced a
grant and soft loan package totaling US$23 million to support
Ethiopian development activities. The loan is part of China's plan to
support Ethiopia and to promote the development of trade between
Ethiopia and China. In another example, the Chinese government
extended a $2 billion soft loan to Angola in March 2004. The loan was
made in exchange for its commitment to provide a continuous supply of
crude oil to China.

                                            
terms used in share markets :
1. Definition of 'U-Shaped Recovery'
A type of economic recession and recovery that resembles a "U" shape
in charting. Specifically, a U-shaped recovery represents the shape of
the chart of certain economic measures, such as employment, GDP and
industrial output. A U-shaped recovery involves a gradual decline in
these metrics followed by a gradual rise back to its previous peak.
Compared to a V-shaped recovery, the U-shaped recovery takes longer to
reach levels seen prior to the start of the recession.

Investopedia Says
Investopedia explains 'U-Shaped Recovery'
There are countless other shapes a recession and recovery chart could
take, including V-shaped, W-shaped, L-shaped and J-shaped. Each shape
represents the general shape of the chart of the economic metrics that
gauge the health of the economy.
 
2. Definition of 'Labor Theory Of Value '
An economic theory that stipulates that the value of a good or service
is dependent upon the labor used in its production. The theory was
first proposed by Adam Smith (1723-1790), the founder of modern
economics, and was an important concept in the philosophical ideals of
Karl Marx. The labor theory of value suggests that goods which take
the same amount of time to produce should cost the same.
Investopedia Says
Investopedia explains 'Labor Theory Of Value '
Opponents of the labor theory of value purport that it is not labor
that determines the price of a good or service; rather, it is simply a
function of supply and demand for a given good or service that
determines its price. According to the theory, if the cost of
purchasing something is greater than the amount that the purchaser
values the time it would take to produce the good, then he will make
it himself rather than buy it.
3. Definition of 'Pain Trade'
The tendency of markets to deliver the maximum amount of punishment to
the most investors from time to time. A pain trade occurs when a
popular asset class or widely followed investing strategy takes an
unexpected turn that catches most investors flat-footed. Under this
definition, a sudden reversal in a niche sector or strategy would not
qualify as a pain trade, since not many investors are likely to be in
it. Pain trades sorely test the resolve of even the best traders and
investors, since they must face the dilemma of whether to hold on in
the hope that the trade will eventually work out, or take their losses
before the situation worsens.
Investopedia Says
Investopedia explains 'Pain Trade'

The periodic peaks and valleys in equity indices over the years
provide a perfect example of pain trades at work. Consider the dot-com
boom and bust of the late 1990s/early 2000s. As the Nasdaq soared over
this period and reached a record high in March 2000, technology stocks
accounted for a disproportionate part of portfolios held by most
investors and mutual funds. The subsequent collapse in technology
stocks and the Nasdaq led to a recession in the U.S. and a global bear
market, wiping out trillions of dollars in market capitalization and
household wealth. The pain trade here was being long technology
stocks, as the subsequent collapse in the sector reverberated around
the world and had an impact on the broad economy.
In 2008, the pain trade was being long equities in general. The U.S.
and many major global equity indices had reached record highs in the
fourth quarter of 2007, despite a simmering credit crisis that was
rapidly coming to a boil. The collapse of global equity markets in
2008 made this the biggest pain trade by far in terms of the number of
people affected and the amount of wealth destroyed. More than $35
trillion, or 60% of global market capitalization, was wiped out within
18 months, while the global economy suffered its deepest recession and
biggest financial crisis since the Great Depression of the 1930s. In
the U.S., plunging housing and stock prices led to the greatest
destruction of household wealth in history, even as the recession
threw millions of people out of work.
The strong recovery in global markets from 2009 onward proves that
even pain trades can turn to gain over a period of time, with the Dow
Jones Industrial Average and S&P 500 reaching new highs by 2013.
However, rising yields in 2013 made the bond market the new pain trade
for numerous investors in that year.
4. Definition of 'Salad Oil Scandal'
One of the worst corporate scandals of its time. It occurred when
Allied Crude Vegetable Oil Company discovered that banks would make
loans secured by its salad oil inventory.
When the ships full of salad oil would arrive in the docks, inspectors
would test it and confirm that the ship was full of salad oil.
However, the company didn't remind anyone that oil floats on water.
They had filled salad oil tanks with water and put a few feet of oil
on top, fooling everyone. The company would even transfer oil to
different tanks while taking inspectors out to lunch. In 1963, the
scam was busted and over $175 million worth of salad oil was missing.
Investopedia Says
Investopedia explains 'Salad Oil Scandal'
Commodities trader and company founder Anthony De Angelis was
convicted of fraud and conspiracy in the scandal and served seven
years in prison. American Express took one of the biggest hits from
the scandal, losing nearly $58 million and experiencing a 50% drop in
AMEX stock as a result.
5. Definition of 'Kakaku Yusen'
The system of pricing that is used by the Tokyo Stock Exchange. Under
the Kakaku Yusen system, a lower-priced trade is given priority over a
higher-priced trade for a sell order. Conversely, higher-priced trades
take precedence over lower-priced trades for buy orders.
Investopedia Says
Investopedia explains 'Kakaku Yusen'
The Kakaku Yusen system serves as a tiebreaker for trades that are
received or placed at the same time. This system is complementary to
the exchange's other tiebreaker mechanism, which gives priority to an
earlier-placed trade when two trades come in at the same price. The
Kakaku Yusen system is opposite of how trades are filled on American
exchanges.
6. Definition of 'Bear Tack'
A decline in the price of a stock, sector or market that may be a
harbinger of a bearish trend. A bear tack suggests that the asset or
market could be in for a significant price correction. However, it
does not mean that the asset or market will slump into an official
bear market, which is defined as a price decline of 20% or more. The
term “tack” is derived from the lexicon of sailing, and means a
maneuver in which a sailboat turns its bow to put the wind on the
opposite side of the vessel. Likewise, bear tack has come to mean a
change in the price movement of an asset or market to lower levels.
Investopedia Says
Investopedia explains 'Bear Tack'
A bear tack may indicate a short-lived, temporary price decline or a
longer-lasting price plunge. Just as a sailboat may have to change
tack several times to stay on course as the wind shifts, investors
need to position their portfolios to navigate choppy markets and stay
on track to meet their investment portfolio goals.
A bear tack should be especially heeded when it comes after a
prolonged advance period, since it may signal a big shift in investor
sentiment. This is particularly true if the economic environment has
been deteriorating, in the case of financial markets, or fundamentals
have been worsening, in the case of sectors or stocks.
For example, investors who heeded the bear tack after the S&P 500 and
Dow Jones Industrial Average hit record highs in October 2007 would
have saved themselves a packet, since these equity indexes
subsequently proceeded to lose more than half their value over the
next 18 months. The global credit crisis was just unfolding in October
2007, and although few could have predicted the scale of the carnage
that followed, heeding the warning signs of the bear tack – evidenced
by the 5% slide in the indices within two weeks of reaching their
highs – would have been a prudent course of action in retrospect.
Likewise, for a stock, a bear tack may be a decline on an earnings
miss after it has recently set a new record high. The earnings miss
may indicate that profit expectations have been ratcheted too high and
further misses may be in store.
Reaction to a bear tack depends on whether the investor follows an
active or passive investing style. While the active investor may take
proactive steps such as taking profits on certain positions and/or
initiating hedges to mitigate downside risk, the passive investor may
prefer to ride out the decline as a normal part of the market cycle.
7. Definition of 'Darvas Box Theory'
A trading strategy that was developed in 1956 by former ballroom
dancer Nicolas Darvas. Darvas' trading technique involved buying into
stocks that were trading at new 52-week highs with correspondingly
high volumes.
A Darvas box is created when the price of a stock rises above the
previous 52-week high, but then falls back to a price not far from
that high. If the price falls too much, it can be a signal of a false
breakout, otherwise the lower price is used as the bottom of the box
and the high as the top.
Investopedia Says
Investopedia explains 'Darvas Box Theory'
In 1956, Darvas was able to turn an investment of $10,000 into $2
million over an 18-month period. While traveling for his dancing,
Darvas would obtain copies of The Wall Street Journal and Barron's,
but he would only look at the stock prices to make his decisions. It
has been said that Darvas was less happy about the profits that he
made than he was about the ease and peace of mind that he got from
implementing his system.
Skeptics of Darvas' technique attribute his success to the fact that
he was trading in a very bullish market. They also say that returns
comparable to the ones he saw can't be attained if this technique is
used in a bear market.
8. Definition of 'Baby Boomer Age Wave Theory '
An economic theory popularized by economist and writer Harry Dent, who
concludes that the U.S. and other European markets will peak between
2008 and 2012. This is based on Dent's finding that a human's consumer
spending habits peak by age 50; therefore, as the baby boomer
generation reaches this age, the economy may be approaching a peak in
consumer spending and in the markets.
Investopedia Says
Investopedia explains 'Baby Boomer Age Wave Theory '
Because American soldiers returned from WWII earlier than European
soldiers, the theory concludes that markets in the U.S. will peak
around 2008, while European markets will peak around 2012.
Assuming that the theory's predictions are accurate, some expect this
to have wide-ranging implications. In addition, when baby boomers
retire, this could cause spikes in unemployment and decreases in the
housing market as aging baby boomers spend less. Others believe that
the influx of immigration will help stave off these effects in the
United States.
9. Definition of 'Cabinet Crowd'
Members of the NYSE who typically trade in inactive bonds. The cabinet
crowd is made up of a relatively small group of traders and investors
who deal in inactive fixed-income securities. These bonds are inactive
due to the fact that they are not actively traded and, thus, are
deemed more illiquid, causing bid-ask spreads to be much wider than
active or more liquid bonds.
Also known as the "inactive bond crowd" or "book crowd."
Investopedia Says
Investopedia explains 'Cabinet Crowd'
The name cabinet crowd arises from the fact that historically these
members would typically enter limit orders for transacting these
bonds, which were kept in "cabinets" adjacent to the bond trading
floor until the limit prices were attained. Once these limit prices
were reached, the orders would then be removed from said cabinets and
executed.
10. Definition of 'Eating Someone's Lunch'
The act of an aggressive competition that results in one company
taking portions of another company's market share. Market share is the
percentage of an industry or market's total sales that is achieved by
one company during a specified time period. A more aggressive company
"eats the lunch" of another company when it take some of its
competitor's market share. This can be achieved through the release of
a better or newer product, aggressive pricing or marketing strategies
or other competitive advantages. When these strategies result in one
company having a bigger market share for a particular product or
service, the company enjoying the larger market share is said to be
eating someone's lunch.
Investopedia Says
Investopedia explains 'Eating Someone's Lunch'
Eating someone's lunch generally refers to defeating or outwitting an
opponent. In the business world, it describes situations where one
company outperforms another and earns a larger market share. Eating
someone's lunch is considered a necessary component of a competitive
market, and may help bring better pricing and services to consumers as
companies compete for larger market shares. A company may eat
someone's lunch at one point in time, only to have their own lunch
eaten during a subsequent time as competitors fight back for market
share.
11. Definition of 'Fallen Angel'
1. A bond that was once investment grade but has since been reduced to
junk bond status.
2. A stock that has fallen substantially from its all time highs.
Investopedia Says
Investopedia explains 'Fallen Angel'
There is a fine line between fallen angels that are value stocks and
those that are headed straight towards bankruptcy.
12. Definition of 'Gaming Industry ETF'
A sector exchange-traded fund that invests solely in gaming companies,
so as to generate investment returns that correspond to those of an
underlying gaming index. A gaming ETF consists of a wide range of
stocks, from casino operators and manufacturers of gaming systems to
companies that accept bets on sporting events. A gaming ETF may be
vulnerable to economic downturns.
Investopedia Says
Investopedia explains 'Gaming Industry ETF'
A gaming ETF may hold stocks of international gaming companies, in
addition to those of domestic companies. It is yet another example of
a niche ETF. U.S. companies that would be included in a gaming ETF are
well-known casino resort operators.
By owning an ETF, you get the diversification of an index fund as well
as the ability to sell short, buy on margin and purchase as little as
one share. Another advantage is that the expense ratios for most ETFs
are lower than those of the average mutual fund. When buying and
selling ETFs, you have to pay the same commission to your broker that
you'd pay on any regular order.
13. Definition of 'Lady Macbeth Strategy'
A corporate-takeover strategy with which a third party poses as a
white knight to gain trust, but then turns around and joins with
unfriendly bidders.
Investopedia Says
Investopedia explains 'Lady Macbeth Strategy'
Lady Macbeth, one of Shakespeare's most frightful and ambitious
characters, devises a cunning plan for her husband, the Scottish
general, to kill Duncan, the King of Scotland. The success of Lady
Macbeth's scheme lies in her deceptive ability to appear noble and
virtuous, and thereby secure Duncan's trust in the Macbeths' false
loyalty.
13. Definition of 'K-Percent Rule'
A theory of macroeconomic money-supply growth first postulated by
Nobel Prize-winning economist Milton Friedman. The theory states that
the best way to control inflation over the long term is to have
central banking authorities automatically grow the money supply by a
set amount (the "k" variable) each year, regardless of the cyclical
state of the economy.
The k-percent rule proposes to set the growth variable at a rate equal
to the growth of real GDP each year. This would typically be in the
range of 2-4%, based on averages seen in the United States.
Investopedia Says
Investopedia explains 'K-Percent Rule'
Milton Friedman is the godfather of monetarism, a branch of economics
that singles out monetary growth and related policies as the most
important driver of future inflation. While the U.S. Federal Reserve
Board is well-versed on the k-percent rule's merits, in practice most
advanced economies do in fact base their monetary growth decisions on
the state of the broad economy.
When the economy is cyclically weak, the Federal Reserve and others
may look to grow the money supply by more than what the k-percent rule
would suggest. Conversely, when the economy is performing well, most
central banking authorities will seek to constrain money-supply
growth.
14. Definition of 'Jointly and Severally'
1. A legal term describing a partnership in which individual decisions
are bound to all parties involved and thus undivided.
2. A term used in underwriting syndicates to refer to the distinct
responsibility of individual companies to sell a certain portion of
unsold new issue.
Investopedia Says
Investopedia explains 'Jointly and Severally'
1. When an investor authorizes power of attorney to two separate
lawyers jointly and severally, both lawyers can make binding decisions
without the approval of the other lawyer.
2. For example, an underwriter who has jointly and severally agreed to
a 30% stake in the sale of a new issue must sell 30% of any remaining
unsold portion, even if that underwriter has already sold more than
this amount in the initial sale. All members of the syndicate are
responsible for any leftover shares.
15. Definition of 'Icarus Factor'
The term Icarus factor describes a situation where managers or
executives initiate an overly ambitious project which then fails.
Fueled by excitement for the project, the executives are unable to
reign in their misguided enthusiasm before it is too late to avoid the
failure.
Investopedia Says
Investopedia explains 'Icarus Factor'
In Greek mythology, Icarus and his father, Daedalus, were imprisoned
in Crete by King Minos. Daedalus created two sets of wings made from
wax and feathers. He and his son were to use them to escape by flying.
Daedalus warned his son not to fly too close to the sun. Icarus was
overcome with the excitement of flying and disregarded his father's
warning. He flew higher and higher, approaching the sun. As the wax
melted and the feathers fell, so too did Icarus fall to his death in
what is now called the Icarian Sea, near Icaria, an island southwest
of Samos.
The Icarus factor is most often seen when companies plow into
businesses that work on different models from their existing lines. As
they spend more and more money to try and catch up to companies
already dominant in those fields, they use up the cash reserves built
up by their core business - sometimes this drain can be fatal.
16. Definition of 'Hanging Man'
A bearish candlestick pattern that forms at the end of an uptrend. It
is created when there is a significant sell-off near the market open,
but buyers are able to push this stock back up so that it closes at or
near the opening price. Generally the large sell-off is seen as an
early indication that the bulls (buyers) are losing control and demand
for the asset is waning.
Hanging Man
Investopedia Says
Investopedia explains 'Hanging Man'
This formation does not mean that the bulls have definitively lost
control, but it may be an early sign that the momentum is decreasing
and the direction of the asset may be getting ready to change. The
reliability of this signal is drastically improved when the price of
the asset decreases the day after the signal. Hanging man formations
can be more easily identified in intraday charts than daily charts and
are a very popular formation used by day traders.
If this pattern is found at the end of a downtrend, it is known as a "hammer".
17. Definition of 'Narrow Moat'
A slight competitive advantage that one company enjoys over competing
firms operating in the same or similar type of industry. A narrow moat
is still an advantage for a company, but it is one that only provides
a limited amount of economic benefit and will typically last for only
a relatively short period of time before competition marginalizes its
importance.
Investopedia Says
Investopedia explains 'Narrow Moat'
The phrase "economic moat" was coined by legendary investor Warren
Buffett. This phrase has since been refined to differentiate between
"wide moats" and "narrow moats". Wide economic moats offer substantial
economic benefits and are expected to endure for a prolonged period of
time, while narrow moats offer more modest economic benefits and
typically last for a shorter period of time.
18. Definition of 'Razor-Razorblade Model'
A business tactic involving the sale of dependent goods for different
prices - one good is sold at a discount, while the second dependent
good is sold at a considerably higher price.
Investopedia Says
Investopedia explains 'Razor-Razorblade Model'
If you've ever purchased razors and their replacement blades, you know
this business method well. The razors are practically free, but the
replacement blades are extremely expensive.
The video game industry is another user of this pricing strategy. They
sell the game consoles at a relatively low price, recouping the lost
profits on the high-priced games.
19. Definition of 'Sandbag'
A tactic used to hide or limit expectations of a company's or
individual's strength in order to produce greater than anticipated
results. Sandbagging, in business, is most often seen when company
managers temper the expectations of superiors or shareholders by
giving guidance below what they know will be achieved. Once the better
than expected results are presented, the firm looks all the better.
Investopedia Says
Investopedia explains 'Sandbag'
Let's imagine for example that Orange Inc had gained a reputation in
the late 2000s for sandbagging quarterly expectations leading up to
earnings season. Analysts and pundits alike would be confident that
quarterly numbers would be strong. However, when results were released
they would be markedly higher than most expected, thus leading to a
surge in share value, which may be a more favorable outcome in terms
of press coverage.
20. Definition of 'Quasi-Public Corporation'
A type of corporation in the private sector that is backed by a branch
of government that has a public mandate to provide a given service.
Most quasi-public corporations began as government agencies, but have
since become separate entities. It is not uncommon to see the shares
of this type of corporation trade on major stock exchanges, which
allows individual investors to gain exposure to the company's profit.
Investopedia Says
Investopedia explains 'Quasi-Public Corporation'
For example, the Federal National Mortgage Association (Fannie Mae) is
regarded as a quasi-public corporation because it operates as an
independent corporation. This company operates under a congressional
charter that aims to increase the availability and affordability of
homeownership, but is not treated as any part of the government.
Contrary to popular opinion, employees of quasi-public corporations do
not work for the government.
21. Definition of 'Palisades Water Index'
A stock market index that gauges the performance of global water
industry companies. These companies encompass such subsectors as water
utilities, pump and filter manufacturers, and irrigation equipment.
The index was created in order to capitalize on the growing public
awareness of water provision and treatment.
Investopedia Says
Investopedia explains 'Palisades Water Index'
As of December 31, 2003, the index was set at 1,000. In order to find
out where it is now, look for ticker symbol ZWI. The index is a
modified, equal weighted dollar index and trades on the AMEX.
22. Definition of 'Ultra Vires Acts'
Any act that lies beyond the authority of a corporation to perform.
Ultra Vires acts fall outside the powers that are specifically listed
in a corporate charter or state law. They can also be any action that
is specifically prohibited by the corporate charter.
Investopedia Says
Investopedia explains 'Ultra Vires Acts'
Ultra Vires acts can also be defined as any excessive use of corporate
power that has been granted. These acts cannot be legally defended in
court. They will, in fact, leave the corporation vulnerable to
lawsuits by employees or other parties.
23. Definition of 'Tape Is Late'
A situation on the trading floor where trading volume is so heavy that
the real-time ticker quotes are delayed by a minute or two. When the
tape is late some price or volume digits will be deleted.
Investopedia Says
Investopedia explains 'Tape Is Late'
The term comes from years ago when the "tape" was actually paper and
the printer couldn't keep up with trading activity. In the modern
stock market this isn't as much of an issue because data is generally
delivered electronically.
24. Definition of 'Xenocurrency'
A currency that trades in markets outside of its domestic borders. The
term "xenocurrency" is derived from the prefix "xeno," which literally
means foreign or strange.
Investopedia Says
Investopedia explains 'Xenocurrency'
An example of a xenocurrency would be the euro traded in the United
States, or the Japanese yen traded in Europe. The term "xenocurrency"
is seldom used in markets, perhaps because of the somewhat negative
connotation of the word "xeno." Xenophobia, for example, means an
irrational fear or hatred of foreigners. "Foreign currency,"
therefore, is the preferred term when referring to a non-domestic
currency.
25. Definition of 'Wall Of Worry'
The financial markets' periodic tendency to surmount a host of
negative factors and keep ascending. Wall of worry is generally used
in connection with the stock markets, referring to their resilience
when running into a temporary stumbling block, rather than a permanent
impediment to a market advance.
Investopedia Says
Investopedia explains 'Wall Of Worry'
While a "wall of worry" may sometimes consist of a single economic,
political or geopolitical issue significant enough to affect consumer
and investor sentiment, it more commonly comprises concerns on
numerous fronts. The markets' ability to climb a wall of worry
reflects investor confidence that these issues will be resolved at
some point. However, market direction once the wall of worry has been
surmounted is impossible to ascertain, and depends on the stage of the
economic cycle at which it occurs.
For example, the markets' ability to climb the wall of worry is most
clearly discernible at the end of major bear trends, which means that
the markets may continue to advance once the wall has been surmounted.
However, a continued advance is much less certain if the wall of worry
forms near a major market peak, in which case a subsequent decline is
more likely.
26. Definition of 'Veblen Good'
Goods that are perceived to be exclusive as long as prices remain high
or increase. Veblen goods get their name from economist Thorstein
Veblen, who was one of the first to look into and write about
conspicuous consumption and the concept of seeking status through
consumption.
Veblen goods are often referred to as "status symbols".
Investopedia Says
Investopedia explains 'Veblen Good'
High-status items such as luxury cars, expensive shoes or pricey
watches remain appealing to certain consumers as long as prices remain
high or increase. A decrease in the price of a Veblen good could cause
it to become less exclusive, which may reduce consumers' fondness for
it.
27. Definition of 'Yellow Knight'
A company that was once making a takeover attempt but ends up
discussing a merger with the target company. Yellow knights have
various reasons for backing out of the takeover attempt, but
frequently are attributable to the target company's ability to fend
off takeover. The "yellow" in "yellow knight" may refer to the color's
association with cowardice. Since a yellow knight backs down from a
takeover attempt and retreats to merger discussions, a yellow knight
may be viewed as weak.
Investopedia Says
Investopedia explains 'Yellow Knight'
In mergers and acquisitions (M&A), various colored knights are used to
identify the nature of a takeover or potential takeover. A black
knight is a company that makes a hostile takeover offer for the target
company. A white knight makes a friendly takeover offer to a target
company that is being faced with a hostile takeover. A gray knight
(sometimes spelled grey knight) is a second unsolicited bidder in a
corporate takeover.
28. Definition of 'Binary Option'
A type of option in which the payoff is structured to be either a
fixed amount of compensation if the option expires in the money, or
nothing at all if the option expires out of the money.
These types of options are different from plain vanilla options
Also sometimes referred to as "all-or-nothing options" or "digital options".
Investopedia Says
Investopedia explains 'Binary Option'
For example, suppose you were interested in buying binary call options
for common shares of ABC company with a strike price of $50 per share
and a specified binary payoff of $500. If the stock is trading above
$50 when the expiration date is reached, you would receive the $500
payoff for your option contract. However, if the stock is trading
below $50 per share at the expiration date, you receive nothing.
29. Definition of 'Vanilla Option'
A financial instrument that gives the holder the right, but not the
obligation, to buy or sell an underlying asset at a predetermined
price, within a given time frame. A vanilla option is a normal call or
put option that has standardized terms and no special or unusual
features. It is generally traded on an exchange such as the Chicago
Board Options Exchange.
Investopedia Says
Investopedia explains 'Vanilla Option'
Individual and institutional investors can take advantage of the
versatility of options to design an investment that best meets their
need to hedge or speculate on the price movement of an asset. If a
vanilla option is not the right fit, they can explore exotic options
such as barrier options, Asian options and digital options. Exotic
options have more complex features and are generally traded over the
counter.
30. Definition of 'Balanced ANOVA'
A statistical test used to determine whether or not different groups
have different means. An ANOVA analysis is typically applied to a set
of data in which sample sizes are kept equal for each treatment
combination.
Balanced ANOVA tests are often done with computer softwares due to the
complexity of mathematical calculations. It does not work well in
experiments in which missing or extra observations are present.
Investopedia Says
Investopedia explains 'Balanced ANOVA'
ANOVA is used to test the differences between means for statistical
significance. A one-way ANOVA test checks for significance for one
factor only, while a two-way ANOVA test analyzes the effects of two
factors simultaneously. Two-way ANOVA tests are the most useful when
the replicate examples are equal, or "balanced."
31. Definition of 'Zeta Model'
A mathematical formula developed in the 1960s by NYU Professor Edward
Altman that attempts to express the chances of a public company going
bankrupt within a two-year time period. The number produced by the
model is referred to as the company's Z-score, which is a reasonably
accurate predictor of future bankruptcy. The model is specified as:
Zeta Model
Where:
Z = Score
A = Working Capital/Total Assets
B = Retained Earnings/Total Assets
C = Earnings Before Interest & Tax/Total Assets
D = Market Value of Equity/Total Liabilities
E = Sales/Total Assets
Investopedia Says
Investopedia explains 'Zeta Model'
The zeta model returns a single number, the z-score, to represent the
likelihood of a company going bankrupt in the next two years. The
lower the z-score, the more likely a company is to go bankrupt. A
z-score lower than 1.8 indicates that bankruptcy is likely, while
scores greater than 3.0 indicate bankruptcy is unlikely to occur in
the next two years. Companies that have a z-score between 1.8 and 3.0
are in the gray area, bankruptcy is not easily predicted one way or
the other.
32. Definition of 'Altman Z-Score'
The output of a credit-strength test that gauges a publicly traded
manufacturing company's likelihood of bankruptcy. The Altman Z-score,
is based on five financial ratios that can be calculated from data
found on a company's annual 10K report. The Altman Z-score is
calculated as follows:
Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where:
A = Working Capital/Total Assets
B = Retained Earnings/Total Assets
C = Earnings Before Interest & Tax/Total Assets
D = Market Value of Equity/Total Liabilities
E = Sales/Total Assets
A score below 1.8 means the company is probably headed for bankruptcy,
while companies with scores above 3.0 are not likely to go bankrupt.
The lower/higher the score, the lower/higher the likelihood of
bankruptcy.
Investopedia Says
Investopedia explains 'Altman Z-Score'
NYU Stern Finance Professor, Edward Altman, developed the Altman
Z-score formula in 1967. In 2012, he released an updated version
called the Altman Z-score Plus, that can be used to evaluate both
public and private companies, both manufacturing and nonmanufacturing
companies and both U.S. and non-U.S. companies. Investors can use
Altman Z-scores to help determine whether they should buy or sell a
particular stock if they're concerned about the underlying company's
financial strength. The Altman Z-score Plus can be used to evaluate
corporate credit risk.
33. Definition of 'Featherbedding'
Term used to describe the practice of a labor union requiring an
employer to hire more workers than necessary for a particular task.
Investopedia Says
Investopedia explains 'Featherbedding'
Featherbedding has developed over time as unions respond to workers
being laid off because of technological change. These lay-offs have
caused unions to seek some way to retain workers, even though there
may be little work for them to perform.
34. Definition of 'Calamity Call'
A call feature of a Collateralized Mortgage Obligation (CMO) designed
primarily to reduce the issuer's reinvestment risk. If the cash flow
generated by the underlying collateral is not enough to support the
scheduled principal and interest payments, then the issuer is required
to retire a portion of the CMO issue.
Also known as a "clean-up call."
Investopedia Says
Investopedia explains 'Calamity Call'
A Calamity Call is only one type of protection used in CMOs. Other
types of protection include overcollateralization and pool insurance.
In addition to protecting against reinvestment risk, Calamity Calls
can be used to protect against default losses. They can be used in
CMOs structured from second lien mortgages, where there is more
limited protection against default losses. This is in contrast to
overcollateralization which may be enough to provide sufficient
protection to underlying pools of conventional fixed-rate mortgages.
35. Definition of 'Dead Hand Provision'
A stipulation on a defense mechanism (or poison pill) used by
companies in order to protect against a merger or takeover by another
company. The dead hand provision prevents the removal of the poison
pill, a strategy used to discourage a hostile takeover, even if
shareholders of the target company favor the takeover.
Investopedia Says
Investopedia explains 'Dead Hand Provision'
A dead hand provision states that only the original directors who put
the provision into place can dismantle the pill, so any new directors
are prevented from interfering.
36. Definition of 'Echo Bubble'
A post-bubble rally that becomes another, smaller bubble. The echo
bubble usually occurs in the sector in which the preceding bubble was
most prominent, but the echo is less dramatic.
Investopedia Says
Investopedia explains 'Echo Bubble'
People point to the rally that occurred after the market crash of 1929
as an example of an echo bubble. Just like its more prominent
predecessor, the smaller echo bubble eventually burst. Also, after the
technology bubble that occurred at the turn of the 21st century - one
of the biggest bubbles of all time - people believed that another echo
bubble was on the way.
37. Definition of 'Half Commission Man'
A half commission man is an individual who introduces clients to stock
brokers or other market professionals in exchange for an agreed upon
percentage of any commissions earned as a result of the new client.
Although a stock broker must share some of his or her commissions, the
theory is that the broker will come out ahead due to an increase in
the number or quality of clients.
Investopedia Says
Investopedia explains 'Half Commission Man'
A half commission man can either work for a specific stock broker or
be a freelancer. They earn money by establishing relationships between
stock brokers and clients. Any commissions that the stock broker earns
from the client will be shared at a specified rate (usually half) with
the half commission man.
38. Definition of 'Gazelle Company'
A high-growth company that is increasing its revenues by at least 20%
annually for four years or more, starting from a revenue base of at
least $1 million. This growth pace means that the company has
effectively doubled its revenues over a four-year period. As gazelle
companies are characterized by their rapid growth pace, rather than
their absolute size, they can range in size from small companies to
very large enterprises.

Investopedia Says
Investopedia explains 'Gazelle Company'
David Birch's identification of gazelle companies followed from his
1979 report titled "The Job Generation Process," wherein he identified
small companies as the biggest creators of new jobs in the economy.
Birch estimated that gazelles accounted for only 4% of all U.S.
companies, but accounted for 70% of all new jobs. Birch noted that the
growth pace of gazelle companies far outpaced that of the Fortune 500
"elephants" and Main Street "mice."
39. Definition of 'In The Penalty Box'
A phrase referring to a company whose stock has plummeted with no
rebound in sight. A company in the penalty box is often one that has
received some bad news, ensuring the future lethargy of its stock. An
example of this is a drug company with a key drug that doesn't get FDA
approval. These types of companies will often stay in the penalty box
for a long period of time.
Investopedia Says
Investopedia explains 'In The Penalty Box'
The term "penalty box" comes from the sport of hockey. In hockey, when
a player commits a rules infraction, he or she is put in the penalty
box near the player's bench. For a designated period of time,
typically two minutes, a player is out of action and his or her team
must play shorthanded. As a result, most teams go on the defensive and
aim only to stay even (prevent the opposition from scoring versus
scoring themselves).
40. Definition of 'Jarrow Turnbull Model'
One of the first reduced-form models for pricing credit risk.
Developed by Robert Jarrow and Stuart Turnbull, the model utilizes
multi-factor and dynamic analysis of interest rates to calculate the
probability of default. Reduced-form models are one of two approaches
to credit risk modeling, the other being structural.
Investopedia Says
Investopedia explains 'Jarrow Turnbull Model'
Structural models assume that the modeler - like a company's managers
- has complete knowledge of its assets and liabilities, leading to a
predictable default time. Reduced-form models assume that the modeler
- like the market - has incomplete knowledge about the company's
condition, leading to an inaccessible default time. Jarrow concludes
that for pricing and hedging, reduced-form models are the preferred
methodology.
41. Definition of 'Kagi Chart'
A type of chart developed by the Japanese in the 1870s that uses a
series of vertical lines to illustrate general levels of supply and
demand for certain assets. Thick lines are drawn when the price of the
underlying asset breaks above the previous high price and is
interpreted as an increase in demand for the asset. Thin lines are
used to represent increased supply when the price falls below the
previous low.
Kagi Chart
Investopedia Says
Investopedia explains 'Kagi Chart'
An entry signal is triggered when the vertical line changes from thin
to thick and is not reversed until the thick line changes back to
thin.
One important note about these charts is that they are independent of
time and only change direction once a predefined reversal amount is
reached.
42. Definition of 'Laffer Curve'
Invented by Arthur Laffer, this curve shows the relationship between
tax rates and tax revenue collected by governments. The chart below
shows the Laffer Curve:
Laffer Curve
The curve suggests that, as taxes increase from low levels, tax
revenue collected by the government also increases. It also shows that
tax rates increasing after a certain point (T*) would cause people not
to work as hard or not at all, thereby reducing tax revenue.
Eventually, if tax rates reached 100% (the far right of the curve),
then all people would choose not to work because everything they
earned would go to the government.
Investopedia Says
Investopedia explains 'Laffer Curve'
Governments would like to be at point T*, because it is the point at
which the government collects maximum amount of tax revenue while
people continue to work hard.
43. Definition of 'Macaroni Defense'
An approach taken by a company that does not want to be taken over.
The company issues a large number of bonds with the condition they
must be redeemed at a high price if the company is taken over.
Investopedia Says
Investopedia explains 'Macaroni Defense'
Why is it called Macaroni Defense? Because if a company is in danger,
the redemption price of the bonds expands like Macaroni in a pot!
44. Definition of 'Nano Cap'
Small public companies with a market capitalization below $50 million.
Investors looking to invest in nano-cap companies should be aware that
these small firms are often associated with a very high risk of
failure. Conversely, nano-cap stocks are often referred to as "penny
stocks," which are quite popular with novice investors who have a
large appetite for risk.
Investopedia Says
Investopedia explains 'Nano Cap'
This is as small as you can get. Nano caps are very risky because they
are such small companies. Keep in mind that classifications such as
"large cap" or "small cap" are only approximations that change over
time. Also, the exact definition of the various sizes of market cap
can vary between brokerage houses.
Definition of 'Small Cap'
Refers to stocks with a relatively small market capitalization. The
definition of small cap can vary among brokerages, but generally it is
a company with a market capitalization of between $300 million and $2
billion.
Investopedia Says
Investopedia explains 'Small Cap'
One of the biggest advantages of investing in small-cap stocks is the
opportunity to beat institutional investors. Because mutual funds have
restrictions that limit them from buying large portions of any one
issuer's outstanding shares, some mutual funds would not be able to
give the small cap a meaningful position in the fund. To overcome
these limitations, the fund would usually have to file with the SEC,
which means tipping its hand and inflating the previously attractive
price.
Keep in mind that classifications such as "large cap" or "small cap"
are only approximations that change over time. Also, the exact
definition can vary between brokerage houses.
Definition of 'Large Cap - Big Cap'
A term used by the investment community to refer to companies with a
market capitalization value of more than $10 billion. Large cap is an
abbreviation of the term "large market capitalization". Market
capitalization is calculated by multiplying the number of a company's
shares outstanding by its stock price per share.
Investopedia Says
Investopedia explains 'Large Cap - Big Cap'
Large cap companies are the big Kahunas of the financial world.
Examples include Wal-Mart, Microsoft and General Electric.
Keep in mind that the dollar amounts used for the classifications
"large cap", mid cap", or "small cap" are only approximations that
change over time. Among market participants, their exact definitions
can vary.
45. Definition of 'Ocean Bill Of Lading'
A document required for the transportation of goods overseas. An ocean
bill of lading serves as both the carrier's receipt to the shipper and
as a collection document. The document specifies the details of the
goods being transported, such as quantity, type and destination.
Investopedia Says
Investopedia explains 'Ocean Bill Of Lading'
A non-negotiable ocean bill of lading allows the buyer to receive the
goods upon showing identification. If the bill is deemed negotiable,
then the buyer will be required to pay the shipper for the products
and meet any of the seller's other conditions.
An ocean bill of lading allows the shipper to move goods across
international waters. If the goods are to be initially shipped over
land, an additional document, known as an "inland bill of lading",
will be required. The inland bill only allows the materials to reach
the shore, while the ocean bill allows them to be transported
overseas.
46. Definition of 'Uberrimae Fidei Contract'
A legal agreement requiring the highest standard good faith.
"Uberrimae fidei" or "uberrima fides" is Latin for "utmost good
faith." Insurance contracts are the most common type of uberrimae
fidei contract. Because the insurance company agrees to share the risk
of loss with the policyholder, it is imperative that the policyholder
act in good faith by fully disclosing all information that affects the
insurance company's level of risk. Full disclosure allows the insurer
to protect itself by charging the policyholder a premium that
accurately reflects the level of risk it is undertaking or even
refusing to issue a policy if the risk is too high.
Investopedia Says
Investopedia explains 'Uberrimae Fidei Contract'
Because the insurance applicant often has more information about the
risk that is being insured against than the insurer does, the
principle of uberrimae fidei is used in an attempt to eliminate moral
hazard. For example, someone applying for health insurance knows more
about their eating habits, exercise patterns, family medical history
and personal medical history than the potential insurer does. In order
to determine how risky the applicant is, the insurer requires him or
her to honestly answer a medical questionnaire and submit to a review
of medical records before being approved for a policy. If the
policyholder is later found to not have acted in utmost good faith at
the time of application, his policy and benefits can be rescinded.
47. Definition of 'Tailgating'
When a broker or advisor buys or sells a security for a client(s) and
then immediately makes the same transaction in his or her own account.
Investopedia Says
Investopedia explains 'Tailgating'
This is not illegal like front running, but it is not looked upon
favorably because the broker is mostly likely placing a trade for his
or her own account based on what the client knows (like inside
information).
48. Definition of 'Wage Push Inflation'
A general increase in the cost of goods that is preceded by and
results from an increase in wages. In order to maintain corporate
profits after an increase in wages, employers must increase the prices
they charge for the goods and services they provide. The overall
increased cost of goods and services has a negative effect on the wage
increase, and eventually, higher wages will be again needed to
compensate for the increased prices for consumer goods.
Investopedia Says
Investopedia explains 'Wage Push Inflation'
Wage push inflation is an inflationary spiral that occurs when wages
are increased and business must, in order to pay the higher wages,
charge more for their products and/or services. The wage increase,
then, is not as helpful to employees since the cost of goods has also
risen. If prices remain increased, workers will eventually require
another wage increase to compensate for the cost of living increase.
49. Definition of 'Valoren Number'
An identification number assigned to financial instruments in
Switzerland. These numbers are similar to the CUSIP numbers that are
used in Canada and the U.S. A typical valoren number is between six to
nine digits in length.
Investopedia Says
Investopedia explains 'Valoren Number'
Market data firms and other financial institutions throughout Europe
typically refer to Swiss companies and/or store trade data on these
companies using valoren numbers as a means of security identification.
50. Definition of 'Saitori'
A member of the Tokyo Stock Exchange who facilitates the trading of
securities by matching buy and sell orders. Their role is to make the
market as orderly and efficient as possible.
Investopedia Says
Investopedia explains 'Saitori'
The saitori are similar to specialists on the NYSE; however,
specialists are not allowed to trade for their own account or for the
general public. They trade for the members of the NYSE.
51. Definition of 'X-Mark Signature'
An X-mark made by a person in lieu of a signature. Due to illiteracy
or disability, a person may be unable to append a full signature to a
document as attestation that he or she has reviewed and approved its
contents. In order to be legally valid, the X-mark signature must be
witnessed.
Investopedia Says
Investopedia explains 'X-Mark Signature'
Due to the obvious potential for fraud, doubts may arise about the
validity and enforceability of documents signed with X-mark
signatures. In some U.S. states, for example, the law requires courts
to invalidate wills signed with an X unless the testator was
physically or mentally incapable of signing his or her full name.
52. Definition of 'Yield Variance'
The difference between actual output and standard output of a
production or manufacturing process, based on standard inputs of
materials and labor. The yield variance is valued at standard cost.
Yield variance is generally unfavorable, i.e., actual output is less
than standard or expected output, and only rarely favorable.
Investopedia Says
Investopedia explains 'Yield Variance'
For example, if 1,000 units of a product is the standard output based
on 1,000 kilograms of materials in an 8-hour production unit, and the
actual output is 990 units, there is an unfavorable yield variance of
10 units. If the standard cost is $25 per unit, the unfavorable yield
variance would be $250.
53. Definition of 'Backward Integration'
A form of vertical integration that involves the purchase of
suppliers. Companies will pursue backward integration when it will
result in improved efficiency and cost savings. For example, backward
integration might cut transportation costs, improve profit margins and
make the firm more competitive.
By way of contrast, forward integration is a type of vertical
integration that involves the purchase or control of distributors.
Investopedia Says
Investopedia explains 'Backward Integration'
An example of backward integration would be if a bakery business
bought a wheat processor and a wheat farm.

Vertical integration is not inherently good. For many firms, it is
more efficient and cost effective to rely on independent distributors
and suppliers. For example, backward integration would be undesirable
if a supplier could achieve greater economies of scale and provide
inputs at a lower cost as an independent business, than if the
manufacturer were also the supplier.
An example of forward integration would be if the bakery sold its
goods itself at local farmers markets or owned a chain of retail
stores, through which it could sell its goods. If the bakery did not
own a wheat farm, a wheat processor or a retail outlet, it would not
be vertically integrated at all.
54. Definition of 'Christmas Tree'
An options trading strategy that is generally achieved by purchasing
one call option and selling two other call options at different strike
prices. When drawn structurally, the strike price of the long option
is located below the two successively higher written calls and loosely
resembles a Christmas tree.
Investopedia Says
Investopedia explains 'Christmas Tree'
This strategy is used when an investor believes a stock is going to
make a move higher. It is a variation of the ratio spread, so a
significant upward move in the stock price will result in a very large
loss due to the extra short call. The staggered strike prices for the
written calls in the Christmas tree strategy reduce the amount of loss
incurred when the share price rises more than expected, unlike the
ratio spread, where the call options have the same strike.
55. Definition of 'Gambler's Fallacy'
When an individual erroneously believes that the onset of a certain
random event is less likely to happen following an event or a series
of events. This line of thinking is incorrect because past events do
not change the probability that certain events will occur in the
future.
Investopedia Says
Investopedia explains 'Gambler's Fallacy'
For example, consider a series of 20 coin flips that have all landed
with the "heads" side up. Under the gambler's fallacy, a person might
predict that the next coin flip is more likely to land with the
"tails" side up.
This line of thinking represents an inaccurate understanding of
probability because the likelihood of a fair coin turning up heads is
always 50%. Each coin flip is an independent event, which means that
any and all previous flips have no bearing on future flips.
This can be extended to investing as some investors believe that they
should liquidate a position after it has gone up in a series of
subsequent trading session because they don't believe that the
position is likely to continue going up.
56. Definition of 'Ichimoku Cloud'
A chart used in technical analysis that shows support and resistance,
and momentum and trend directions for a security or investment. It is
designed to provide relevant information at a glance using moving
averages (tenkan-sen and kijun-sen) to show bullish and bearish
crossover points. The "clouds" (kumo, in Japanese) are formed between
spans of the average of the tenkan-sen and kijun-sen plotted six
months ahead (senkou span B), and of the midpoint of the 52-week high
and low (senkou span B) plotted six months ahead.

Investopedia Says
Investopedia explains 'Ichimoku Cloud'
The ichimoku cloud was developed by Goichi Hosoda, a Japanese
journalist, and published in the late 1960s. It provides more data
points than the standard candlestick chart.
The overall trend is up when prices are above the cloud, down when
prices are below the cloud and flat when they are in the cloud itself.
When senkou span A is rising above senkou span B the trend is stronger
upward, and is typically colored green. When senkou span B rises above
senkou span A, the trend is stronger downward and is denoted with a
red-colored cloud.
57. Definition of 'Kaizen'
A philosophy that sees improvement in productivity as a gradual and
methodical process. Kaizen is a Japanese term meaning "change for the
better". The concept of Kaizen encompasses a wide range of ideas: it
involves making the work environment more efficient and effective by
creating a team atmosphere, improving everyday procedures, ensuring
employee satisfaction and making a job more fulfilling, less tiring
and safer.
Investopedia Says
Investopedia explains 'Kaizen'
Some of the key objectives of the Kaizen philosophy include the
elimination of waste, quality control, just-in-time delivery,
standardized work and the use of efficient equipment.
An example of the Kaizen philosophy in action is the Toyota production
system, in which suggestions for improvement are encouraged and
rewarded, and the production line is stopped when a malfunction
occurs.
58. Definition of 'Naked Call'
An options strategy in which an investor writes (sells) call options
on the open market without owning the underlying security. This stands
in contrast to a covered call strategy, where the investor owns the
security shares that are eligible to be exercised under the options
contract.
This strategy is sometimes referred to as an "uncovered call" or a
"short call".
Investopedia Says
Investopedia explains 'Naked Call'
A naked call strategy is inherently risky, as there is limited upside
potential and (theoretically) unlimited downside potential should the
stock rise above the exercise price of the options that have been
sold.
As a result of the risk involved, only experienced investors who
strongly believe that the price of the underlying stock will fall or
remain flat should undertake this advanced strategy. The margin
requirements are often very high for this strategy as well due to the
propensity for open-ended losses, and the investor may be forced to
purchase shares on the open market prior to expiration if margin
thresholds are breached. The upside to the strategy is that the
investor could receive income in the form of premiums without putting
up a lot of initial capital.
59. Definition of 'L-Shaped Recovery'
A type of economic recession and recovery that resembles an "L" shape
in charting. An L-shaped recovery represents the shape of the chart of
certain economic measures, such as employment, GDP and industrial
output. An L-shaped recovery involves a sharp decline in these metrics
followed by a long period of flat or stagnant growth.
Investopedia Says
Investopedia explains 'L-Shaped Recovery'
Many refer to the 1990s-era in Japan as a classic example of an
L-shaped recession, where there was an economy that essentially
flatlined for a decade. There are countless other shapes a recession
and recovery chart can take, including V-shaped, W-shaped, U-shaped
and J-shaped. Each shape represents the general shape of the chart of
the economic metrics that gauge the health of the economy.
60. Definition of 'Maastricht Treaty'
A treaty that is responsible for the creation of the European Union,
signed in Maastricht, a city in the Netherlands. The Maastricht Treaty
was signed on February 7, 1992, by the leaders of 12 member nations,
and it reflected the serious intentions of all countries to create a
common economic and monetary union.
Also known as the Treaty on European Union.
Investopedia Says
Investopedia explains 'Maastricht Treaty'
The Maastricht Treaty aimed at unifying policies of defense, currency
and citizenship among all member nations. The treaty required voters
in each country to approve the European Union, which proved to be a
hotly debated topic in many areas. The agreement took effect on
November 1, 1993, with the creation of the European Union and has
since been amended by other treaties.
61. Definition of 'Objective Probability'
The probability that an event will occur based an analysis in which
each measure is based on a recorded observation, rather than a
subjective estimate. Objective probabilities are a more accurate way
to determine probabilities than observations based on subjective
measures, such as personal estimates.
Investopedia Says
Investopedia explains 'Objective Probability'
For example, one could determine the objective probability that a coin
will land "heads" up by flipping it 100 times and recording each
observation. When performing any statistical analysis, it is important
for each observation to be an independent event that has not been
subject to manipulation. The less biased each observation is, the less
biased the end probability will be.
62. Definition of 'Paid In Capital'
The amount of capital "paid in" by investors during common or
preferred stock issuances, including the par value of the shares
themselves. Paid in capital represents the funds raised by the
business from equity, and not from ongoing operations.
Paid in capital is a company balance sheet entry listed under
stockholder's equity, often shown alongside the balance sheet entry
for additional paid-in capital. It may also be referred to as
"contributed capital".
Investopedia Says
Investopedia explains 'Paid In Capital'
Paid in capital can be compared to additional paid in capital, and the
difference between the two values will equal the premium paid by
investors over and above the par value of the shares. Preferred shares
will sometimes have par values that are more than marginal, but most
common shares today have par values of just a few pennies. Because of
this, "additional paid in capital" tends to be representative of the
total paid-in capital figure, and is sometimes shown by itself on the
balance sheet.
63. Definition of 'Reputational Risk'
A threat or danger to the good name or standing of a business or
entity. Reputational risk can occur through a number of ways: directly
as the result of the actions of the company itself; indirectly due to
the actions of an employee or employees; or tangentially through other
peripheral parties, such as joint venture partners or suppliers. In
addition to having good governance practices and transparency,
companies also need to be socially responsible and environmentally
conscious to avoid reputational risk.
Also known as "reputation risk."
Investopedia Says
Investopedia explains 'Reputational Risk'

Reputational risk is a hidden danger that can pose a threat to the
survival of the biggest and best-run companies. It can often wipe out
millions or billions of dollars in market capitalization or lost
revenues and can occasionally result in a change at the uppermost
levels of management.
The biggest problem with reputational risk is that it can literally
erupt out of nowhere. Reputational risk can also arise from the
actions of errant employees, such as the massive trading losses
disclosed by some of the world's biggest financial institutions from
time to time. In an increasingly globalized environment, reputational
risk can arise even in a peripheral region.
In some instances, reputational risk can be mitigated through prompt
damage control measures, which is essential in this age of instant
communication and social media networks. In other instances, this risk
can be more insidious and last for years. For example, Canadian energy
companies that are extracting oil from the Alberta tar sands have been
increasingly targeted by activists because of the perceived damage to
the environment caused by their oil-extraction activities.
64. Definition of 'Takeover Artist'
An investor or company whose primary goal is to identify companies
that are attractive to buy and that can be turned around to make a
profit. A takeover artist will usually use a lot of debt (leverage) to
make the purchase, and restructure the company for resale or add the
company to an existing group of companies.
Investopedia Says
Investopedia explains 'Takeover Artist'
Takeover artists are also sometimes referred to as corporate raiders.
Frequently, the reason for a takeover is to remove entrenched
management that the corporate raider believes is incompetent. For
example, in the 1980s, Carl Icahn (a well-known takeover artist),
launched a takeover of Trans World Airlines and turned the company
from an unprofitable company to a profitable one in a few short years.
He took the company from a loss of $193 million in 1985 to a profit of
$106 million in 1987, and $250 million the next year. However, it was
short-lived, as Trans World Airlines posted a $298 million loss in
1989.
65. Definition of 'Sidecar Investment'
An investment strategy in which one investor allows a second investor
to control where and how to invest the capital. The sidecar investment
will usually be used when one of the parties lacks the ability or
confidence to invest for themselves. The strategy will place trust in
someone else's ability to gain profits.
Investopedia Says
Investopedia explains 'Sidecar Investment'
The word "sidecar" refers to a motorcycle sidecar; the person riding
in the sidecar must place his or her trust in the driver's skills.
This differs from coattail investing, where one investor mimics the
moves of another.
For example, suppose there are two individuals - Fred, who is
experienced in trading stock, and Barney, who has a background in real
estate. They decide to work together in a sidecar investing strategy.
In this case, Fred would give Barney money to invest in real estate on
his behalf and Barney would give Fred money to invest in stocks. This
setup allows both Fred and Barney to diversify their portfolios and
benefit from one another's expertise.
67. Definition of 'Wal-Mart Effect'
The economic impact felt by local businesses when a large firm such as
Wal-Mart opens a location in the area. The Wal-Mart effect usually
manifests itself by forcing smaller retail firms out of business and
reducing wages for competitors' employees. Many local businesses
oppose the introduction of Wal-Marts into their territories for this
reason.
Investopedia Says
Investopedia explains 'Wal-Mart Effect'
The Wal-Mart effect is not all bad; it can also curb inflation and
help to keep employee productivity at an optimum level. The chain of
stores can save consumers billions of dollars, but may also reduce
wages and competition in an area.
68. Definition of 'XD'
A symbol used to signify that a security is trading ex-dividend. XD is
an alphabetic qualifier that acts as shorthand to tell investors key
information about a specific security in a stock quote. Sometimes "X"
alone is used to indicate that the stock is trading ex-dividend.
Qualifiers can vary depending on where the stock is quoted, because
different news services that supply stock quotes may use different
qualifiers.
Investopedia Says
Investopedia explains 'XD'
A dividend is a distribution of part of a company's earnings to the
company's shareholders. When a stock is trading ex-dividend, the
current stockholder has received a recent dividend payment and whoever
purchases the stock will not receive the dividend. The stock's price
should be lower as a result. There are quite a few qualifiers that
relate to dividends; "j," indicates that the stock paid a dividend
earlier in the year, but currently does not carry a dividend.
69. Definition of 'Unemployment Insurance'
A source of income for workers who have lost their jobs through no
fault of their own. Workers who quit or are fired are generally not
eligible for unemployment insurance. Workers who are self-employed are
also not eligible to receive unemployment insurance and must provide
their own rainy-day funds to cover times when no work is available.
Investopedia Says
Investopedia explains 'Unemployment Insurance'
Unemployment is paid to workers by state governments from a fund of
unemployment taxes collected from employers. Unemployment insurance
often only pays workers about half of what they were earning at their
previous job to help encourage them to seek re-employment. The former
employee often must continually prove that he or she has been actively
searching for a job as a condition of continuing to receive
unemployment insurance.
70. Definition of 'Versioning'
A business practice in which a company produces different models of
the same product, and then charges different prices for each model.
Versioning a product gives the consumer the option of purchasing a
higher valued model for more money or a lower valued model for less
money. In this way, the business is attempting to attract higher
prices based on the value a customer perceives.
Also known as "quality discrimination".
Investopedia Says
Investopedia explains 'Versioning'
This is usually done when a product has large fixed costs of
production and small variable costs. For example, in software
packages, features are added or taken away to give different versions
and price points. Having different options will accommodate different
utilities of the consumers. It is based on the willingness to pay of
the customer; a higher willingness to pay will result in the purchase
of the higher quality product, and a lower willingness to pay will
result in the purchase of the lower quality product.
71. Definition of 'Yellow Sheets'
A United States bulletin that provides updated bid and ask prices as
well as other information on over-the-counter (OTC) corporate bonds
(also called "corporate"). Companies issue corporate bonds to raise
money for capital expenditures, operations and acquisitions. Similar
to the Pink Sheets that track non-exchange-traded OTC micro-cap
stocks, the yellow sheets are a key source of information for
investors who follow OTC bonds or fixed income securities. The yellow
sheets also provide a list of brokerages that make a market in the
particular bonds. Today's investors can still receive hard copies of
the yellow sheets. However, the information is also available in
electronic form.
Investopedia Says
Investopedia explains 'Yellow Sheets'
The National Quotation Bureau (NQB), established in 1913 to provide
investors with information regarding OTC stocks and bonds, for decades
published pink sheets and yellow sheets (named for the color of the
paper on which each was printed). Stock quotes appeared on the Pink
Sheets, and bond quotes were published on the yellow sheets. The NQB
has since changed its name to Pink Sheets LLC and most recently to OTC
Markets Group, Inc. The U.S. Securities and Exchange Commission (SEC)
considers OTC Markets Group, Inc. to be a non-exclusive securities
information provider, and not a stock exchange.
72. Definition of 'Brand Piracy'
When a product is named similarly to a well-known brand so that
consumers may mistake it for the actual brand-name. Brand piracy is
common among products that can easily be replicated. The copies often
have logos that resemble the design of the genuine product, be it
layout, symbols, color or font. Oftentimes, this is done on purpose by
a company to mislead consumers and gain some market share.
Investopedia Says
Investopedia explains 'Brand Piracy'
Commonly known as "knock offs," these products are an infringement of
trademark laws and are considered a form of brand piracy. Many cases
of brand piracy have occurred throughout China and India, where
several law suits have been filed. Companies spend years and millions
of dollars building and vigorously protecting their brand names.
73. Definition of 'All-In-One Mortgage'
A mortgage loan that combines the features of a checking account, a
home equity loan and a mortgage in order allow depositors to reduce
the amount of interest paid on their mortgages. Any deposits made into
the savings account portion of the all-in-one mortgage are put toward
paying the mortgage, but instant liquidity can still be achieved,
because cash can be withdrawn in the form of a home equity loan.
Investopedia Says
Investopedia explains 'All-In-One Mortgage'
The all-in-one mortgage attempts to to mimic the structure of an
offset mortgage. While this type of mortgage can help homeowners
reduce interest expenses, only individuals who can stick to a budget
should use an all-in-one mortgage. For those who lack the discipline
to stick to a budget, this arrangement can escalate debt if they draw
too much equity out of their homes.
74. Definition of 'Zero Uptick'
A transaction executed at the same price as the trade immediately
preceding it, but at a price higher than the transaction before that.
For example, if shares are bought and sold at $47, followed by $48 and
$48, the last trade at $48 is considered to be a zero uptick. This
distinction can be important for short sellers trying to avoid
shorting an ascending stock. Also known as a zero-plus tick.
Investopedia Says
Investopedia explains 'Zero Uptick'
The technique of shorting on a zero uptick is not applicable to all
investment markets, due to various rules and regulations prohibiting
or restricting such transactions. The forex market, which has limited
restrictions on shorting, is among the markets in which the technique
is more popular.
75. Definition of 'Clean Your Skirts'
A slang phrase used in the equity market to refer to a trader's
obligation to make calls and check possible prior obligations related
to a security transaction. Prior obligations may include confirming
certain transaction details, such as limit prices or conditional
events.
Investopedia Says
Investopedia explains 'Clean Your Skirts'
Most larger transactions, like those executed by financial
institutions, require that traders clean their skirts. Before a trader
is able to fill such an order, he or she will usually confirm the
order is still executable; this will confirm that the trade is within
the price limit and meets all of the client's conditions for an
appropriate quantity.
76. Definition of 'Expunge'
An action that destroys any record of an AUTEX indication. Expunging
an indication will permanently remove an trace of a trader's
advertisement for a block order.
Investopedia Says
Investopedia explains 'Expunge'
Canceling an AUTEX indication will prevent the notice from being
displayed. Once removed, the indication still remains on the
historical records. This may not be desirable for some traders, who
want no permanent record of their desire to buy or sell a large volume
of stock. Expunging the indication will remove it from the display and
prevent it from being stored in historical data.
77. Definition of 'Dragon Bond'
A fixed income security issued by a firm in an Asian nation, other
than Japan, which is denominated in a foreign currency, usually U.S.
dollars. The purpose of a dragon bond is to attract funds from a
larger market of foreign investors. A secondary reason for issuing
dragon bonds is so the bond is denominated in a more stable currency.
Investopedia Says
Investopedia explains 'Dragon Bond'
Bonds denominated in foreign currencies are aimed at specific markets
where investors are usually willing to lend money on more favorable
terms than may be available to them domestically. Because of their
international nature, dragon bonds can be complicated instruments when
considering international taxation and regulatory compliance issues.
78. Definition of 'Fracking'
A slang term for hydraulic fracturing. Fracking refers to the
procedure of creating fractures in rocks and rock formations by
injecting fluid into cracks to force them further open. The larger
fissures allow more oil and gas to flow out of the formation and into
the wellbore, from where it can be extracted.
Fracking has resulted in many oil and gas wells attaining a state of
economic viability, due to the level of extraction that can be
reached.
Investopedia Says
Investopedia explains 'Fracking'
Petroleum engineers have used fracking as a means of increasing well
production since the late 1940s. Fractures can also exist naturally in
formations, and both natural and man-made fractures can be widened by
fracking. As a result, more oil and gas can be extracted from a given
area of land.
79. Definition of 'Gross Sales'
A measure of overall sales that isn't adjusted for customer discounts
or returns, calculated simply by adding all sales invoices, and not
including operating expenses, cost of goods sold, payment of taxes, or
any other charge.
Investopedia Says
Investopedia explains 'Gross Sales'
Gross sales is usually an important measure for those companies in the
consumer retail industry. It measures the amount of product that a
company sells relative to its competitors, and can also reflect
consumer spending habits.
80. Definition of 'Hysteresis'
From the Greek term meaning "a coming short, a deficiency."
Hysteresis, a term coined by Sir James Alfred Ewing, a Scottish
physicist and engineer (1855-1935), refers to systems, organisms and
fields that have memory. In other words, the consequences of an input
are experienced with a certain lag time, or delay. One example is seen
with iron: iron maintains some magnetization after it has been exposed
to and removed from a magnetic field.
Investopedia Says
Investopedia explains 'Hysteresis'
In economics, hysteresis arises when a single disturbance affects the
course of the economy. An example of hysteresis in economics is the
delayed effects of unemployment. As unemployment increases, more
people adjust to a lower standard of living. As they become accustomed
to the lower standard of living, people may not be as determined to
achieve the previously desired higher living standard. In addition, as
more people become unemployed, it becomes more socially acceptable to
be or remain unemployed. After the labor market returns to normal,
some unemployed people may be disinterested in returning to the work
force.
81. Definition of 'Loonie'
Colloquial term that refers to the $1 Canadian coin, and also to the
Canadian dollar in forex markets. The loonie derives its name from the
picture of a solitary loon on one side of the coin.
Investopedia Says
Investopedia explains 'Loonie'
The loonie was introduced in 1987 as a cost-saving measure to replace
dollar bills. The 11-sided coin is made of aureate bronze, and was
designed by noted wildlife artist Robert-Ralph Carmichael. The
widespread acceptance of the $1 loonie led to the introduction of the
$2 "toonie" in September 1995.
The loonie is among the top 10 most widely traded currencies in forex
markets. Thanks to Canada's burgeoning exports of energy and
commodities, the loonie was among the best-performing currencies
against the U.S. dollar in the first decade of the new millennium.
82. Definition of 'Knowledge Economy'
A system of consumption and production that is based on intellectual
capital. The knowledge economy commonly makes up a large share of all
economic activity in developed countries. In a knowledge economy, a
significant part of a company's value may consist of intangible
assets, such as the value of its workers' knowledge (intellectual
capital). However, generally accepted accounting principles do not
allow companies to include these assets on balance sheets.
Investopedia Says
Investopedia explains 'Knowledge Economy'
Lesser-developed countries tend to have agriculture or agriculture and
manufacturing-based economies, while developing countries tend to have
manufacturing or manufacturing and service-based economies, and
developed countries tend to have service-based economies.

Most countries' economies will consist of each of these three major
categories of economic activity, but in differing proportions relative
to the wealth of that country. Examples of knowledge economy
activities include research, technical support and consulting.
83. Definition of 'Junk Fees'
Nebulous charges assessed at the closing of a mortgage that go to the
originator or lender. These fees are hidden in the mortgage documents
and are usually assessed as raw dollars rather than "points" or a
percentage of the loan. Junk fees may or may not pay for an actual
service to the borrower, but they typically are not known to the
borrower prior to signing. Some common fees that may be considered
junk fees include settlement fees, sign-up fees, underwriting fees,
funding fees, translation fees and messenger fees.
Also known as "padding fees" or "garbage fees".
Investopedia Says
Investopedia explains 'Junk Fees'
The idea behind junk fees is that at the end of the mortgage signing
process, the borrower is already committed to signing the loan and
will not walk away from the table. Junk fees, however, may not
necessarily be noted in the good faith estimate the borrower receives
a few days prior to closing.
Most junk fees are nominal compared to mortgage points and other major
closing costs.
84. Definition of 'Mr. Copper'
Otherwise known as Yasuo Hamanaka, Mr. Copper was a trader in the
copper market who lost over $2.5 Billion for his employer, Sumitomo
Corp. (in Japan). The losses amassed from unauthorized trading in
secret accounts between 1985 and 1996.
Investopedia Says
Investopedia explains 'Mr. Copper'
He was also referred to as "Mr. 5%" because at one point he controlled
5% of the world copper market. Hamanaka's scandalous activities
represent the greatest unauthorized trading loss in history.
85. Definition of 'Nonresident Alien'
A non-U.S. citizen who doesn't pass the green card test or the
substantial presence test. If a non-citizen currently has a green card
or has had a green card in the past calender year, he or she would
pass the green card test and would be classified as a resident alien.
If the individual has resided in the U.S. for more than 31 days in the
current year and has resided in the U.S. for more than 183 days over a
three-year period, including the current year, he or she would pass
the substantial presence test and also be classified as a resident
alien.
Investopedia Says
Investopedia explains 'Nonresident Alien'
Resident aliens are taxed on all earned income as if they were U.S.
citizens, but a nonresident alien is not taxed in the same way. For a
nonresident alien, only income that is generated from U.S. sources,
excluding certain investments such as stocks, is subject to taxation.
For example, if you live in England and own a company that operates in
the U.S., but you have not been to the U.S. for five years and don't
have a green card (a non-resident alien), the income generated by the
business will be subject to U.S. tax. Dividends are taxed at 30% for
every non-resident alien, while capital gains are not subject to U.S.
tax.
86. Definition of 'Ovoboby'
A condition in which a market is considered to be overbought, overly
bullish, overvalued and is experiencing upward pressure on Treasury
yields. If the market falls into this condition, it is thought to be a
warning sign to investors of potential near-term market downturns
along with the potential for longer term negatives.
Investopedia Says
Investopedia explains 'Ovoboby'
This term was coined by John Hussman, a fund manager and market
researcher, to reflect certain market conditions. The market is
considered to be overbought when the S&P 500 is at a four-year high
and is also trading 5% higher than the levels of the index six months
ago. The market is considered to be overly bullish when the bullish
sentiment of advisors within the Advisors Sentiment Index, created by
Investors Intelligence, is above 53%. The market is considered to be
overvalued when the price/peak earnings of the S&P 500 are above 18.
The yields in the market are considered to be facing upward pressure
when the yield on a three-month Treasury is higher than it was six
months earlier.
87. Definition of 'Isoquant Curve'
A graph of all possible combinations of inputs that result in the
production of a given level of output. Used in the study of
microeconomics to measure the influence of inputs on the level of
production or output that can be achieved.
Isoquant Curve
Investopedia Says
Investopedia explains 'Isoquant Curve'
In Latin, "iso" means equal and "quant" refers to quantity. This
translates to "equal quantity". The isoquant curve helps firms to
adjust their inputs to maximize output and profits. At some point, the
returns of adding another worker or piece of equipment will start to
hurt output.
88. Definition of 'Private Sector'
The part of the economy that is not state controlled, and is run by
individuals and companies for profit. The private sector encompasses
all for-profit businesses that are not owned or operated by the
government. Companies and corporations that are government run are
part of what is known as the public sector, while charities and other
nonprofit organizations are part of the voluntary sector.
Investopedia Says
Investopedia explains 'Private Sector'
In most free-market economies, the private sector is the sector where
most jobs are held. This differs from countries where the government
exerts considerable power over the economy, like in the People's
Republic of China. The Bureau of Labor Statistics tracks and reports
both private and public unemployments rates for the U.S.
89. Definition of 'Quote Stuffing'
A tactic of quickly entering and withdrawing large orders in an
attempt to flood the market with quotes that competitors have to
process, thus causing them to lose their competitive edge in high
frequency trading. This tactic is made possible by high-frequency
trading programs that can execute market actions with incredible
speed. Only market makers and other large players in the market are
capable of executing these tactics, since they require a direct link
to the exchange in order to be effective.
Investopedia Says
Investopedia explains 'Quote Stuffing'
The U.S. Securities and Exchange Commission is investigating the
extent to which high frequency trading should be allowed in U.S.
markets. The May 6, 2010 "flash crash" brought greater scrutiny to
these tactics, even though regulators later concluded that they were
not the cause of the pricing anomalies.
90. Definition of 'Random Walk Theory'
The theory that stock price changes have the same distribution and are
independent of each other, so the past movement or trend of a stock
price or market cannot be used to predict its future movement.
Investopedia Says
Investopedia explains 'Random Walk Theory'
In short, this is the idea that stocks take a random and unpredictable
path. A follower of the random walk theory believes it's impossible to
outperform the market without assuming additional risk. Critics of the
theory, however, contend that stocks do maintain price trends over
time - in other words, that it is possible to outperform the market by
carefully selecting entry and exit points for equity investments.
This theory raised a lot of eyebrows in 1973 when author Burton
Malkiel wrote "A Random Walk Down Wall Street", which remains on the
top-seller list for finance books.
91. Definition of 'Service Sector'

The portion of the economy that produces intangible goods. According
to the U.S. Census Bureau, the service sector primarily consists of
truck transportation, messenger services and warehousing; information
sector services; securities, commodities and other financial
investment services; rental and leasing services; professional,
scientific and technical services; administrative and support
services; waste management and remediation; health care and social
assistance; and arts, entertainment and recreation services.
 Individuals employed in this sector produce services rather than
products. Examples of service sector jobs include housekeeping,
psychotherapy, tax preparation, guided tours, nursing and teaching. By
contrast, individuals employed in the industrial/manufacturing sector
might produce goods such as cars, clothing and toys.

Investopedia Says
Investopedia explains 'Service Sector'

Countries with primarily service-based economies are considered to be
more advanced than countries with primarily industrial or agricultural
economies. Examples of countries with a heavy emphasis on the service
sector include the United States, Australia, Japan and the United
Kingdom. In the U.S., the Institute for Supply Management's (ISM)
monthly index provides a measure of the general state of business in
the non-manufacturing sector. Because approximately two-thirds of U.S.
economic activity resides in the service sector, the index is
considered a measure of the country's overall economic health.
92. Definition of 'Undercast'

A forecasting error that occurs when estimating items such as future
cash flows, performance levels or production. Undercasting produces an
estimation that is below the realized value.
Investopedia Says
Investopedia explains 'Undercast'

There are a number of factors that may lead to undercasting values.
The primary reason for undercasting involves using the wrong inputs.
For example, when estimating the net income of a company for next
year, you may undercast the amount if you overestimate costs or
underestimate sales. You may have expected sales to be $5 million and
costs to be $3 million. This forecasts a net income of $2 million. If
actual net income was $2.5 million, you would have undercast the
income by $500,000.
93. Definition of 'Vandalism Endorsement'

An optional type of coverage that can be added to a basic hazard or
property and casualty insurance policy to provide remuneration to the
policy holder if his or her property is intentionally damaged by
criminals. Vandalism endorsement is designed to protect the property
owner and/or tenant against perils such as graffiti and damage caused
by forced entry. Buildings that are unoccupied for long periods of
time, such as vacant commercial properties and schools, are more
susceptible to vandalism and more likely to need this coverage.
Investopedia Says
Investopedia explains 'Vandalism Endorsement'

Some types of insurance coverages are expensive for both the
policyholder and the insurance company, and because policyholders have
different coverage needs it is common for a basic policy to be
supplemented by various endorsements (also called riders) that provide
the specific coverage the policyholder needs. Each endorsement
requires the policyholder to pay an additional premium. Other examples
of property coverage that are unlikely to be included in a basic
policy but can be purchased as endorsements include glass insurance
and sprinkler damage insurance.
94. Definition of 'Walras' Law'

An economics law that suggests that the existence of excess supply in
one market must be matched by excess demand in another market so that
it balances out. So when examining a specific market, if all other
markets are in equilibrium, Walras' Law asserts that the examined
market is also in equilibrium. Keynesian economics, by contrast,
assumes that it is possible for just one market to be out of balance
without a "matching" imbalance elsewhere.
Investopedia Says
Investopedia explains 'Walras' Law'

Walras' law is named after French neoclassical economist Léon Walras,
who created general equilibrium theory and founded the Lausanne School
of economics. Walras' famous insights can be found in the book
Elements of Pure Economics, published in 1874.
95. Definition of 'Xetra'

An all-electronic trading system based in Frankfurt, Germany. Launched
in 1997 and operated by the Deutsche Börse, the Xetra platform offers
increased flexibility for seeing order depth within the markets and
offers trading in stocks, funds, bonds, warrants and commodities
contracts.
The Xetra system was originally created for use on the Frankfurt Stock
Exchange, but has expanded to be used by various stock exchanges
throughout Europe.


Investopedia Says
Investopedia explains 'Xetra'

Xetra was one of the first global electronic trade systems, and has
grown to account for more than 90% of all stock trades on the
Frankfurt Exchange. In addition to opening up the German markets for
increased foreign investment, it is currently being used by stock
exchanges in Ireland, Vienna and Shanghai.
96. Definition of 'Young And Wealthy But Normal - YAWN'
A class of self-made millionaires that live relatively modest lives.
Instead of spending wealth on gaining luxurious items and living
expensive lifestyles, these individuals prefer to make contributions
to charitable causes and spend time with their families.
Investopedia Says
Investopedia explains 'Young And Wealthy But Normal - YAWN'
The concept of social responsibility may have contributed to the
emergence of this new class of wealthy individuals. All in all, these
individuals can be a great benefit for society because they
redistribute a vast amount of wealth for social good. However, it may
be difficult to become a YAWN because it can be very tempting for
wealthy young people to be drawn to more extravagant lifestyles.
97. Definition of 'Zvi Griliches'
A celebrated Harvard University empirical economist. Born in Lithuania
in 1930, Griliches, who was Jewish, was sent to a concentration camp
during World War II. He and his sister were liberated by the American
army, but his parents both died in concentration camps. He went on to
teach himself English, serve in the Israeli army and earn a Ph.D. in
economics from the University of Chicago. He taught economics at the
University of Chicago from 1957 to 1969, then joined Harvard, where he
taught for thirty years until his death in 1999. In 1965, he won the
John Bates Clark Medal.
Investopedia Says
Investopedia explains 'Zvi Griliches'
Griliches was one of the first economists to describe how the creation
of new technology was an economic phenomenon, which he did in his
dissertation, Hybrid Corn: An Exploration in the Economics of
Technological Change. His major areas of research included
technological change, economic growth, productivity and econometrics,
among others. Griliches also served as an advisor to the federal
government and to many private institutions, including the Brookings
Institution and the World Bank.
98. Definition of '80-20 Rule'
A rule of thumb that states that 80% of outcomes can be attributed to
20% of the causes for a given event. In business, the 80-20 rule is
used to help managers identify problems and determine which operating
factors are most important and should receive the most attention based
on an efficient use of resources. Resources should be allocated to
addressing the input factors have the most effect on a company's final
results.
Also known as the "Pareto principle", the "principle of factor
sparsity" and the "law of the vital few."
Investopedia Says
Investopedia explains '80-20 Rule'
The 80-20 rule was developed by Joseph Juran, a 20th century figure in
the study of management techniques and principles. The 80-20 rule has
been applied to a number of different facets of business.
An example of the 80-20 rule in economics would be that 80% of a
country's wealth is controlled by 20% of the population, although this
can be explained by the Gini index.
99. Definition of 'Buydown'
A mortgage-financing technique with which the buyer attempts to obtain
a lower interest rate for at least the first few years of the
mortgage, but possibly its entire life. The builder or seller or the
property usually provides payments to the mortgage-lending
institution, which, in turn, lowers the buyer's monthly interest rate
and therefore monthly payment. The home seller, however, increases the
purchase price of the home to compensate for the costs of the buydown
agreement.
Investopedia Says
Investopedia explains 'Buydown'
Buydowns are easy to understand if you consider them a mortgage
subsidy made to the homebuyer on behalf of the seller. Typically, the
seller contributes funds to an escrow account that subsidizes the loan
during the first years, resulting in a lower monthly payment for the
homebuyer. This lower payment allows the homebuyer to qualify more
easily for the mortgage.
Most buydowns last for a period of one to five years, and the mortgage
payments increase once the buydown expires.
100. Definition of 'Archangel'
An angel investor who has invested in a number of ventures that have
achieved fame and fortune as commercial successes. An angel investor
with this degree of success may also be referred to as a "super
angel."
The term may also refer to an external advisor hired by a group of
angel investors to perform due diligence and provide advice on
business opportunities that are being considered by the group.
Investopedia Says
Investopedia explains 'Archangel'
Angel investors are high net worth individuals who deploy their own
funds to provide startup capital to promising early stage ventures.
Silicon Valley, where many of the world's biggest technology companies
got their start, is home to numerous archangels. While most angels are
active and hands-on investors, they may sometimes need the services of
an archangel (external advisor) in areas such as legal and business
development.
101. Definition of 'Commodity Pool'
A private investment structure that combines investor contributions to
be used in the futures and commodities trading markets. The commodity
pool, or fund, is used as a single entity to gain leverage in trading,
in the hopes of maximizing profit potential. The title "commodity
pool" is a legal term as set forth by the National Futures Association
(NFA). Commodity pools in the United States are regulated by the
Commodity Futures Trading Commission (CFTC) and the National Futures
Association, rather than by the Securities and Exchange Commission,
which regulates other market activity.
Also called "managed futures funds."
Investopedia Says
Investopedia explains 'Commodity Pool'
Commodity pools are similar to mutual funds in that the investors'
assets are pooled in order to make trades that would not be possible
for each individual investor. The investor's risk is limited to the
amount of his or her contribution to the commodity pool. Many hedge
funds - private pools of activity managed capital - are commodity
pools, and are registered with the Commodity Futures Trading
Commission as commodity pools and Commodity Trading Advisors (CTAs).
102. Definition of 'Dry Hole'
A business venture that ends up being a loss. The buzz word "dry hole"
was originally used in oil exploration to describe a well where no
significant reserves of oil were found. This term is now often used to
describe any fruitless commercial initiative.
Investopedia Says
Investopedia explains 'Dry Hole'
Newer businesses often run at a net loss for the first few years
(while acquiring one-time expenses such as equipment and buildings)
before becoming profitable; however, these are not usually referred to
as dry holes. A dry hole is typically thought to never be able to
produce a profit.
103. Definition of 'Exculpatory Clause'
A contract provision that relieves one party of liability if damages
are caused during the execution of the contract. The party that issues
the exculpatory clause is typically the one seeking to be relieved of
the potential liability. For example, a venue may print an exculpatory
clause on tickets it sells for a concert indicating that it is not
responsible for personal injury caused by employees or others during
the show.
Investopedia Says
Investopedia explains 'Exculpatory Clause'
While exculpatory clauses are typically upheld, they can be challenged
and overturned in court. The court can determine that the clause is
unreasonable if both parties in the contract do not have equal
bargaining power or if the clause eliminates liability for negligence.
104. Definition of 'Fair Market Value'
The price that a given property or asset would fetch in the
marketplace, subject to the following conditions:
1. Prospective buyers and sellers are reasonably knowledgeable about
the asset; they are behaving in their own best interests and are free
of undue pressure to trade.
2. A reasonable time period is given for the transaction to be completed.
Given these conditions, an asset's fair market value should represent
an accurate valuation or assessment of its worth.
Investopedia Says
Investopedia explains 'Fair Market Value'
Fair market values are widely used across many areas of commerce. For
example, municipal property taxes are often assessed based on the fair
market value of the owner's property. Depending upon how many years
the owner has owned the home, the difference between the purchase
price and the residence's fair market value can be substantial.
Fair market values are often used in the insurance industry as well.
For example, when an insurance claim is made as a result of a car
accident, the insurance company covering the damage to the owner's
vehicle will usually cover damages up to the fair market value of the
automobile.
105. Definition of 'Gantt Chart'
A Gantt chart is a visual representation of a project schedule. A type
of bar chart, a Gantt charts show the start and finish dates of the
different required elements of a project. Henry Laurence Gantt, an
American mechanical engineer, is recognized for developing the Gantt
chart.
Investopedia Says
Investopedia explains 'Gantt Chart'
Gantt charts are useful in planning how long a project should take and
helping to sequence the events by laying them out in the order in
which the tasks need to be completed.
Typically, tasks are shown on the vertical axis, and the project time
span is represented on the horizontal axis. Each task has a
corresponding bar that shows the time span required for that task. The
bar can be filled in to show the percentage of the task that has been
completed. Gantt charts also indicate dependencies, those tasks that
are dependent upon other tasks. Today there are many software
applications available for creating Gantt charts, as well as functions
in popular programs such a Microsoft Excel.
106. Definition of 'Habendum Clause'
A section in a real estate contract that transfers ownership of a
property with no restrictions. The new owner has absolute ownership of
the property and has the right to sell it, bequeath it to an heir, and
so on. Because the clause begins with the phrase, "To have and to
hold," the habendum clause is sometimes called the "to have and to
hold clause."
Investopedia Says
Investopedia explains 'Habendum Clause'
The type of property title transferred using a habendum clause is
called "fee simple absolute." A fee simple absolute grants complete
ownership of a property, subject to government laws and powers.
107. Definition of 'Laissez Faire'
An economic theory from the 18th century that is strongly opposed to
any government intervention in business affairs.
Sometimes referred to as "let it be economics."
Investopedia Says
Investopedia explains 'Laissez Faire'
People who support a laissez faire system are against minimum wages,
duties, and any other trade restrictions.
Laissez faire is French for "leave alone."
108. Definition of 'JMD'
The currency abbreviation or the currency symbol for the Jamacian
dollar (JMD), the currency for Jamaica. The currency is made up of 100
cents and is often presented with the symbol (J$) or (JA$). The
Jamaican dollar was also formerly used in the Cayman Islands.
Investopedia Says
Investopedia explains 'JMD'
The Jamaican dollar was first seen replacing the Jamaican pound in
1969. Both coins and notes were issued, but its value has fallen
substantially since then, reaching new lows early in 2009. Many bills
have been replaced by coins, and a $1000 note began circulating in
2000.
109. Definition of 'Kairi Relative Index'
A technical indicator used to spot relationships in trending markets.
The Kairi Relative Index was created long ago in Japan by an unknown
founder and bears resemblance to the Relative Strength Index.
Investopedia Says
Investopedia explains 'Kairi Relative Index'
The Kairi Relative Index is considered an oscillator as well as a
leading indicator. The Index calculates a deviation of the current
price from its simple moving average as a percentage of the moving
average. By recognizing trending markets that are overextended,
traders hope to capitalize on the downside.
110. Definition of 'Macromarketing'
The effect that marketing policies and strategies have on the economy
and society as a whole. Specifically, macromarketing refers to how
product, price, place and promotion strategies - the four P's of
marketing - create demand for goods and services, and thus influence
what is produced and sold in an economy.
Investopedia Says
Investopedia explains 'Macromarketing'
Over the centuries, businesses have become more adept at reaching
potential consumers through an expanding set of mediums. Marketing,
therefore, has become a part of the daily life of a consumer, since
consumers are exposed to advertisements for products and services
wherever they turn. Because marketing affects what consumers do, it in
turn affects how individuals and businesses interact with the
environment as a whole.
111. Definition of 'Narrow Moat'
A slight competitive advantage that one company enjoys over competing
firms operating in the same or similar type of industry. A narrow moat
is still an advantage for a company, but it is one that only provides
a limited amount of economic benefit and will typically last for only
a relatively short period of time before competition marginalizes its
importance.
Investopedia Says
Investopedia explains 'Narrow Moat'
The phrase "economic moat" was coined by legendary investor Warren
Buffett. This phrase has since been refined to differentiate between
"wide moats" and "narrow moats". Wide economic moats offer substantial
economic benefits and are expected to endure for a prolonged period of
time, while narrow moats offer more modest economic benefits and
typically last for a shorter period of time.
112. Definition of 'Obligor'
A person or entity who is legally, or contractually, obliged to
provide some benefit or payment to another. In the financial context,
the term obligor refers to a bond issuer, who is contractually bound
to make all principal repayments and interest payments on outstanding
debt. The recipient of the benefit or payment is known as the obligee.
An obligor is also referred to as a "debtor."
Investopedia Says
Investopedia explains 'Obligor'
As bond issues are contractual obligations, issuers have very little
leeway in terms of deferring principal repayments or interest
payments. Any delay in payment or non-payment of interest could be
interpreted as a default for the bond issuer, an event that could have
massive repercussions and long-term ramifications for the continuing
viability of the business. As a result, most bond issuers take their
debt obligations very seriously. With that said, defaults by
over-leveraged issuers do occur from time to time.
113. Definition of 'Pain Trade'
The tendency of markets to deliver the maximum amount of punishment to
the most investors from time to time. A pain trade occurs when a
popular asset class or widely followed investing strategy takes an
unexpected turn that catches most investors flat-footed. Under this
definition, a sudden reversal in a niche sector or strategy would not
qualify as a pain trade, since not many investors are likely to be in
it. Pain trades sorely test the resolve of even the best traders and
investors, since they must face the dilemma of whether to hold on in
the hope that the trade will eventually work out, or take their losses
before the situation worsens.
Investopedia Says
Investopedia explains 'Pain Trade'

The periodic peaks and valleys in equity indices over the years
provide a perfect example of pain trades at work. Consider the dot-com
boom and bust of the late 1990s/early 2000s. As the Nasdaq soared over
this period and reached a record high in March 2000, technology stocks
accounted for a disproportionate part of portfolios held by most
investors and mutual funds. The subsequent collapse in technology
stocks and the Nasdaq led to a recession in the U.S. and a global bear
market, wiping out trillions of dollars in market capitalization and
household wealth. The pain trade here was being long technology
stocks, as the subsequent collapse in the sector reverberated around
the world and had an impact on the broad economy.
In 2008, the pain trade was being long equities in general. The U.S.
and many major global equity indices had reached record highs in the
fourth quarter of 2007, despite a simmering credit crisis.
114. Definition of 'Radner Equilibrium'
A theory suggesting that if economic decision makers have unlimited
computational capacity for choice among strategies, then even in the
face of uncertainty about the economic environment, an optimal
allocation of resources based on competitive equilibrium can be
achieved. Radner Equilibrium was introduced by American economist Roy
Radner in 1968, and explores the condition of competitive equilibrium
under uncertainty.
Investopedia Says
Investopedia explains 'Radner Equilibrium'
The theory also states that in such a world there would be no role for
money and liquidity. And the introduction of information (such as the
introduction of spot markets and futures markets) about the behavior
of other decision makers introduces externalities among the sets of
actions available to them. This generates a demand for liquidity,
which also arises from computational limitations. The theory notes
that uncertainty about the environment greatly complicates a decision
problem, thereby indirectly contributing to the demand for liquidity.
115. Definition of 'Salary Freeze'
The action of a company suspending salary increases for a period of
time. By freezing salary increases for a given period, management is
hoping that the company will be able to produce better bottom line
results by keeping fixed costs controlled. The downside of a salary
freeze for a company is that employee morale will typically take a hit
and the firm may end up losing valuable employees due to compensation
issues.
Investopedia Says
Investopedia explains 'Salary Freeze'
A salary freeze typically occurs when a company is experiencing
financial difficulties. It may choose to freeze salaries temporarily
in order to minimize layoffs. Once the company is in a better
financial position, the salary freeze would likely be lifted.
116. Definition of 'Quadruple Witching'
The expiration date of various stock index futures, stock index
options, stock options and single stock futures. All stock options
contracts expire on the third Friday of each month and once every
quarter - on the third Friday of March, June, September and December -
all four asset classes expire on the same day. Because futures and
options investors must close out of their positions on those days,
they often witness increased trading volume.
Investopedia Says
Investopedia explains 'Quadruple Witching'
The term "witching" comes from the fact that in the past, the
expiration of futures and options contracts occurred not only on the
same day, but at the same time. This often resulted in a period of
greater-than-normal market volatility, which became known as the
"witching hour." Due to this increased volatility and frenzied market
activity, many investors approach the markets differently on witching
days.
117. Definition of 'XDIS'
A symbol used specifically upon the consolidated tape to indicate a
security that is trading ex-distribution or without the right to
receive the next distribution. XDIS is derived from the term
ex-distribution.
Investopedia Says
Investopedia explains 'XDIS'
Typically, a stock's price will depreciate immediately after its
distribution is paid. For the purpose of providing timely and accurate
information, the consolidated tape will indicate this occurrence by
adding the letters "XDIS" immediately after the stock's symbol.
For example, ABC XDIS 15 or ABC/XDIS would indicate that company ABC
is trading ex-distribution at $15. A temporary suffix, such as XDIS,
represents a temporary change to the underlying security because of
current market conditions. The typical format for including the suffix
is the security's symbol (such as stock ABC), followed by a forward
slash (indicating a temporary change) and then the suffix (XDIS).
A security that is trading XDIS entitles a seller (a previous owner),
rather than the buyer, to receive the last declared distribution prior
to the sale.
118. Definition of 'T. Boone Pickens'
One of America's foremost oil and gas entrepreneurs, T. Boone Pickens
chairs the BP Capital Management Hedge Fund. He is one of the richest
men in the world, with a net worth in the billions. He became well
known for his successful business takeover tactics in the 1980s.
Investopedia Says
Investopedia explains 'T. Boone Pickens'
T. Boone Pickens was born on May 22, 1928, and graduated from Oklahoma
State University with a geology degree in 1951. He founded the BP
management fund in 1997, and runs two hedge funds: Capital Commodity
and Capital Equity, both of which invest primarily in oil and gas. He
was a major financial support of President George W. Bush.
119. Definition of 'U.S. Treasury'
Created in 1798, the United States Department of the Treasury is the
government (Cabinet) department responsible for issuing all Treasury
bonds, notes and bills. Some of the government branches operating
under the U.S. Treasury umbrella include the IRS, U.S. Mint, Bureau of
the Public Debt, and the Alcohol and Tobacco Tax Bureau.
Investopedia Says
Investopedia explains 'U.S. Treasury'
Generally speaking, the U.S. Treasury is responsible for the revenue
of the U.S. government, but here are some other key functions:
- Printing of bills, postage, Federal Reserve notes, and minting of coins
- Collection of taxes and enforcement of tax laws (through the IRS)
- Management of all government accounts and debt issues
- Overseeing U.S. banks.
120. Definition of 'Valuation Period'
The time between the end of the business day of the first business day
and the end of the business day of the second business day. The
valuation period refers to variable annuities. Annuities are financial
products that provide an income source in retirement. Variable
annuities are annuity products that provide annuity payouts based on
the current value of the annuity's investments.
Investopedia Says
Investopedia explains 'Valuation Period'
The contract value of a variable annuity depends on the performance of
the investments. The owner of the annuity can choose the investment
vehicles and allocate certain percentages or amounts towards various
investment products. A variable annuity offers the potential for
greater earnings (and larger payouts) but at the same time involves
more risk than other annuity products such as fixed deferred
annuities.
121. Definition of 'Watered Stock'
Stock that is issued with a value much greater than the value of the
issuing company's assets. Watered stock can be caused by excessive
stock dividends, overvalued assets and/or large operating losses.
Investopedia Says
Investopedia explains 'Watered Stock'
Assets can be overvalued for several reasons, including inflated
accounting values or excessive issue of stock (through a dividend or
employee stock-option program). This term is thought to originate from
ranchers who would feed their cattle large amounts of water before
market day to make them heavier, fetching a price higher than their
worth.
122. Definition of 'Yield Elbow'
The point on the yield curve indicating the year in which the
economy's highest interest rates occur. The yield elbow is the peak of
the yield curve, signifying where the highest interest rates occurred.
The yield curve is the graphical relationship between the yield and
maturity of bonds with different maturities and equal credit quality.
Yield curves play an important role in the pricing of bonds, and are
referenced by investors and analysts to identify opportunities for
realizing high rates of return on certain investments. The yield elbow
typically occurs when there are concerns about current or future
inflation, and can correspond to low prices for bonds.
Investopedia Says
Investopedia explains 'Yield Elbow'
Three main types of yield curves exist, including normal, inverted and
flat. A normal curve is one where longer maturity bonds have a greater
yield compared with shorter-term bonds because of the risks associated
with time. An inverted yield curve indicates an interest rate
environment where the shorter-term yields are higher than the
longer-term yields - a possible indicator of an upcoming recession. A
flat yield curve happens when the shorter- and longer-term yields are
close, indicating a potential economic transition. On any type of
curve, the yield elbow is the highest point.
123. Definition of 'Zaraba method'
A method of matching orders that involves using an auction-like
process to trade securities. The orders are organized by both their
prices and the time that they were taken. As soon as an order for a
security is delivered, it is compared and matched with orders already
in the order book. When a bid comes in that matches the price
requested by another order, the two orders are executed and taken out
of the order book.
Investopedia Says
Investopedia explains 'Zaraba method'
The zaraba method is most often associated with the Japanese stock
exchanges. Typically, the zaraba method is used during normal trading
sessions, whereas a different order matching method, which is called
the itayose method, is used to determine the opening and closing
prices for each morning and afternoon trading session.
124. Definition of '"Just Say No" Defense'
A strategy used by corporations to discourage hostile takeovers in
which board members reject a takeover bid outright. The legality of a
just say no defense may depend on whether the target company has a
long-term strategy that it is pursuing, which can include a merger
with a firm other than the one making the takeover bid, or if the
takeover bid simply undervalues the company.
Investopedia Says
Investopedia explains '"Just Say No" Defense'
A just say no defense isn't necessarily in the best interest of
shareholders, since board members can employ it even if an offer is
made at a significant premium to the current share price.The case of
Paramount Communications vs. Time, Inc. helped establish the just say
no defense as a viable anti-takeover strategy. In the case, Time, Inc.
was set to merge with Warner Communications, but received a bid from
Paramount that its board rejected because there was a long-term plan.
125. Definition of 'Abnormal Spoilage'
The waste or wrecking of inventory beyond what is expected in normal
business processes. Abnormal spoilage can be the result of broken
machinery or from inefficient operations, and is considered to be at
least partially preventable. In accounting, abnormal spoilage is
recorded as a separate item: loss from abnormal spoilage.
Investopedia Says
Investopedia explains 'Abnormal Spoilage'
Material spoilage is often discovered during the inspection andquality
control process. In job costing, spoilage can be assigned to specific
jobs or units, or can be assigned to all jobs associated with
production as part of the overall.
126. Definition of 'Backdating'
Dating any document by a date earlier than the one on which the
document was originally drawn up. Under most circumstances, backdating
is seen as fraudulent and illegal, although there are some situations
in which backdating can be used in a legal and beneficial way, such as
backdating a claim for a past period.
Investopedia Says
Investopedia explains 'Backdating'
Sometimes certain claims (such as insurance claims) can be backdated
if the could not be completed at an earlier date, although there must
be good reason for neglecting to claim in advance. If your backdated
claim is approved, you will be able to receive benefits from a certain
date in the past.
127. Definition of 'Cabinet Crowd'
Members of the NYSE who typically trade in inactive bonds. The cabinet
crowd is made up of a relatively small group of traders and investors
who deal in inactive fixed-income securities. These bonds are inactive
due to the fact that they are not actively traded and, thus, are
deemed more illiquid, causing bid-ask spreads to be much wider than
active or more liquid bonds. Also known as the "inactive bond crowd"
or "book crowd."
Investopedia Says
Investopedia explains 'Cabinet Crowd'
The name cabinet crowd arises from the fact that historically these
members would typically enter limit orders for transacting these
bonds, which were kept in "cabinets" adjacent to the bond trading
floor until the limit prices were attained. Once these limit prices
were reached, the orders would then be removed from said cabinets and
executed.
128. Definition of 'Dangling Debit'
A debit entry with no offsetting credit entry. Dangling debit occurs
when a company purchases goodwill or services to create a debit. When
adding the journal entry to financial statements a corresponding
credit balance is not reported and cannot be written off. Dangling
debit can be received when a company is acquired but is not recorded
on the balance sheet.
Investopedia Says
Investopedia explains 'Dangling Debit'
When a company purchases goodwill, the company will receive a debit
entry on its financial statements, but no entry is entered on the
credit side and therefore a dangling debit is created. When a company
uses dangling debit in their financial statements, it is offset by
affecting the equity of the company by being listed as deductions or
negative reserves.
129. Definition of 'Facilitating Payment'
A financial payment that may constitute a bribe and that is made with
the intention of expediting an administrative process. A facilitating
payment is a payment made to a public or government official that acts
as incentive for the official to complete some action or process
expeditiously, to the benefit of the party making the payment.In
general, a facilitating payment is made to smooth the progress of a
service to which the payer is legally entitled, without making such a
payment. In some countries, these payments are considered normal,
whereas in other countries, facilitating payments are prohibited by
law and considered bribes. Also called facilitation payments.
Investopedia Says
Investopedia explains 'Facilitating Payment'
Generally, facilitating payments are demanded by low-level, low-income
officials in exchange for providing a service to which the payer is
entitled even without the payment. Certain countries do not consider
facilitating payments bribes as long as such payment is not made to
earn or maintain business, or to create an unfair or improper
advantage over another business. Such countries may believe these
payments are simply a part of the cost of doing business. In other
countries, including the United Kingdom and Germany, facilitating
payments made abroad are considered bribes and are prohibited.An
example of a facilitating payment may be illustrated in the following
scenario. Assume a business required a particular license or permit in
order to operate. The company is entitled to the license or permit
because it has met all the requirements. The business is otherwise
poised to open its doors for business, but is legally bound to wait
until the license or permit has been issued. The company may make a
facilitating payment to an official who can help expedite the
licensing or permitting process. In many countries, this payment would
be acceptable as long as it does not involve a payment made to a
foreign entity. In other countries, this would still be considered a
bribe (and thus illegal).The United Nations Convention against
Corruption (UNCAC) prohibits facilitation payments. The legal status
of facilitating payments varies by country. The Business
Anti-Corruption Portal maintains information regarding different
countries' profiles regarding corruption, bribes and facilitating
payments.
130. Definition of 'Ease Of Movement'
A technical momentum indicator that is used to illustrate the
relationship between the rate of an asset's price change and its
volume. This indicator attempts to identify the amount of volume
required to move prices. Generally a value greater than zero is an
indication that the stock is being accumulated (bought) and negative
values are used to signal increased selling pressure.A high positive
value appears when prices move upward on low volume. Strong negative
numbers indicate that price is moving downward on low volume.
Ease Of Movement
Investopedia Says
Investopedia explains 'Ease Of Movement'
A moving average of the indicator can be added to act as a trigger
line, which is similar to other indicators like the MACD. Transaction
signals can be generated when the indicator crosses over a 9-day
moving average, but are generally made when the indicator crosses over
the zero line. Traders use the smoothed version of this indicator in
an attempt to eliminate false signals.
131. Definition of 'Gamma'
The rate of change for delta with respect to the underlying asset's
price. Gamma is an important measure of the convexity of a
derivative's value, in relation to the underlying. In a delta-hedge
strategy, gamma is sought to be reduced in order to maintain a hedge
over a wider price range. A consequence of reducing gamma, however, is
that alpha too will be reduced.
Investopedia Says
Investopedia explains 'Gamma'
Mathematically, gamma is the first derivative of delta and is used
when trying to gauge the price movement of an option, relative to the
amount it is in or out of the money. When the option being measured is
deep in or out of the money, gamma is small. When the option is near
or at the money, gamma is at its largest. Gamma calculations are most
accurate for small changes in the price of the underlying asset.
132. Definition of 'Katie Couric Clause'
A slang term for a controversial proposed clause from a Securities and
Exchange Commission (SEC) rule (formally known as the Executive
Compensation and Related Party Disclosure). This clause, if
implemented, would require publicly-traded companies to disclose not
only the salaries of their top five executives, but also those of top
earning non-executives, including actors, directors and TV news
anchors.The term refers to former "Today Show" host Katie Couric, who
became CBS's highest paid newscaster in April 2006, with a reported
salary of US $15 million over five years. As of July 26, 2006 the SEC
decided not to implement this specific clause, but did agree that
rules regarding highly compensated non-executives merit a subsequent
look.
Investopedia Says
Investopedia explains 'Katie Couric Clause'
Many major media companies, such as CBS, NBC and the Walt Disney Co.,
opposed the SEC's controversial proposal. Media giants are often
reluctant to disclose detailed compensation information, which might
invade the privacy of its employees and also expose proprietary
information that may make it easier for key employees to be
headhunted. While the employees in question would not have to be
named, many believe that it would not be hard to attach a name to the
details.Current SEC rules demand that salaries of the top five
executives in publicly-traded companies to be disclosed. If this new
rule is adopted, companies would have to disclose the overall
compensation of up to three non-executive employees whose total
compensation exceeds that of any of its top five managers. Supporters
of this proposal say this rule would create greater transparency and
give investors increased access to information, which should make for
better-informed decisions.
133. Definition of 'Iceberg Order'
A large single order that has been divided into smaller lots, usually
through the use of an automated program, for the purpose of hiding the
actual order quantity.
Investopedia Says
Investopedia explains 'Iceberg Order'
When large participants, such as institutional investors, need to buy
and sell large amounts of securities for their portfolios, they can
divide their large orders into smaller parts so that the public sees
only a small portion of the order at a time - just as the 'tip of the
iceberg' is the only visible portion of a huge mass of ice. By hiding
its large size, the iceberg order reduces the price movements caused
by substantial changes in a stock's supply and demand.
134. Definition of 'Major Fraud Act Of 1988'
A piece of legislation passed during the Reagan administration that
modified and strengthened previous fraud legislation. Among the many
changes, the Major Fraud Act of 1988 increased the maximum penalties
for fraud, added protection for employees who assist the prosecution
of fraud cases and introduced mandatory annual reports on fraud
investigations by the attorney general.
Investopedia Says
Investopedia explains 'Major Fraud Act Of 1988'
The timing of the Major Fraud Act makes it seem like a reaction to the
securities fraud cases of the late '80s and early '90s. However, much
of the legislation targeted government contractors' persistent cost
overruns and suspect bidding practices. The increase of penalties to
$1 million for a single count and $10 million for multiple counts may
not have significantly deterred this type of fraud, but it did
increase the amount the government was able to claw back through the
courts.
135. Definition of 'Lady Godiva Accounting Principles - LGAP'
A theoretical set of accounting principles under which corporations
would have to fully disclose all information, including that which
often doesn't get reported to investors under generally accepted
accounting principles (GAAP). These principles include disclosure of
the following:-all off-balance sheet items-how new goodwill accounting
rules (introduced in 2002) impact earnings per share (EPS) -the impact
on EPS of stock options issued in lieu of salaries -how pension
expenses are accounted for
Investopedia Says
Investopedia explains 'Lady Godiva Accounting Principles - LGAP'
This buzzword was coined by financial analyst Rick Wayman after the
Enron bankruptcy. According to legend, Lady Godiva was a woman who
rode a horse naked through Coventry, England, in the 11th century in
order to get her husband, the Lord of Coventry, to lift the heavy
taxes on his people. The idea of LGAP is that just as the Lady
provided "full disclosure" to help her fellow citizens, corporations
must do the same thing with their financial disclosures to maintain
their credibility with investors.
136. Definition of 'International Monetary Fund - IMF'
An international organization created for the purpose of: 1. Promoting
global monetary and exchange stability.2. Facilitating the expansion
and balanced growth of international trade.3. Assisting in the
establishment of a multilateral system of payments for current
transactions.
Investopedia Says
Investopedia explains 'International Monetary Fund - IMF'
The IMF plays three major roles in the global monetary system. The
Fund surveys and monitors economic and financial developments, lends
funds to countries with balance-of-payment difficulties, and provides
technical assistance and training for countries requesting it.
137. Definition of 'Exchange-Traded Binary Options'
Exchange-traded binary options, regulated by the CFTC, let you
speculate on the price of some of the most heavily traded forex,
commodities and stock indices markets with short-term hourly, daily or
weekly expirations.  The all-or-nothing trade (hence the term binary)
is a derivative, meaning you don't actually buy or sell the asset
itself.  Binary options have a fixed payout, so you know your
potential profit--or loss--ahead of time.   Exchange-traded binary
options have transparent pricing and no counter-party risk, unlike
those traded over-the-counter.
Investopedia Says
Investopedia explains 'Exchange-Traded Binary Options'
Binary options trading is simply making a true or false prediction
about the direction of a market and main benefits include short-term
expirations, straight-forward risk/reward profiles, defined risk and
low collateral required to trade. Binary option contracts always
settle between 0 and 100 at expiration but traders can liquidate the
contract at any point before expiration limiting losses or locking in
gains.
138. Definition of 'Bitcoin'
Bitcoin is a digital currency created in 2009. It follows the ideas
set out in a white paper by the mysterious Satoshi Nakamoto, whose
true identity has yet to be verified. Bitcoin offers the promise of
lower transaction fees than traditional online payment mechanisms and
is operated by a decentralized authority, unlike government issued
currencies.There are no physical Bitcoins, only balances associated
with public and private keys. These balances are kept on a public
ledger, along with all Bitcoin transactions, that is verified by a
massive amount of computing power.
Investopedia Says
Investopedia explains 'Bitcoin'
Bitcoin balances are kept using public and private "keys," which are
long strings of numbers and letters linked through the mathematical
encryption algorithm that was used to create them. The public key
(comparable to a bank account number) serves as the address which is
published to the world and to which others may send Bitcoin. The
private key (comparable to an ATM PIN) is meant to be a guarded
secret, and only used to authorize Bitcoin transmissions.In March
2014, the IRS stated that all virtual currencies, including Bitcoin,
would be taxed as property rather than currency. Gains or losses from
Bitcoin held as capital will be realized as capital gains or losses,
while Bitcoin held as inventory will incur ordinary gains or losses.
The independent individuals and companies who own the governing
computing power and participate in the network, also known as
"miners," are motivated by mining rewards (the release of new Bitcoin)
and transaction fees paid in Bitcoin. These miners can be thought of
as the decentralized authority enforcing the credibility of the
Bitcoin network. New Bitcoin is being released to the miners at a
fixed, but periodically declining rate, such that the total supply of
Bitcoin approaches 21 million. One bitcoin is divisible to eight
decimal places (100 millionth of one bitcoin), and this smallest unit
is referred to as a Satoshi. If necessary, and if the participating
miners accept the change, Bitcoin could eventually be made divisible
to even more decimal places.Style notes: According to the official
Bitcoin Foundation, the word "Bitcoin" is capitalized in the context
of referring to the entity or concept, whereas "bitcoin" is written in
the lower case when referring to a quantity of the currency (e.g. "I
traded 20 bitcoin"). The currency can be abbreviated to BTC or, less
frequently, XBT. The plural form of the word can be either "bitcoin"
or "bitcoins."
139. Definition of 'Trade Sanction'
A trade penalty imposed by one nation onto one or more other nations.
Sanctions can be unilateral, imposed by only one country on one other
country, or multilateral, imposed by one or more countries on a number
of different countries. Often allies will impose multilateral
sanctions on their foes.
Investopedia Says
Investopedia explains 'Trade Sanction'
Import tariffs, licensing costs and administrative hurdles are often
enforced, making it more difficult if not impossible for the nation(s)
bearing the sanction to trade with the nation imposing it. An example
of a trade sanction is the set of stringent penalties the United
States' imposed against Cuba from 1963 to 2000. In the year 2000 some
of the sanctions were repealed, specifically those on medical and
agriculture goods.
140. Definition of 'Bank Run'
A situation that occurs when a large number of bank or other financial
institution's customers withdraw their deposits simultaneously due to
concerns about the bank's solvency. As more people withdraw their
funds, the probability of default increases, thereby prompting more
people to withdraw their deposits. In extreme cases, the bank's
reserves may not be sufficient to cover the withdrawals. A bank run is
typically the result of panic, rather than a true insolvency on the
part of the bank; however, the bank does risk default as more and more
individuals withdraw funds - what began as panic can turn into a true
default situation. Also called a "run."
Investopedia Says
Investopedia explains 'Bank Run'
Because banks typically keep only a small percentage of deposits as
cash on hand, they must increase cash to meet depositors' withdrawal
demands. One method a bank uses to quickly increase cash on hand is to
sell off its assets, sometimes at significantly lower prices than if
it did not have to sell quickly. Losses on selling the assets at lower
prices can cause a bank to become insolvent. A "bank panic" occurs
when multiple banks endure runs at the same time. In the United
States, the Federal Deposit Insurance Corporation (FDIC) is the agency
that insures banking deposits. It was established by Congress in 1933
in response to the many bank failures that happened in the 1920s. Its
mission is to maintain stability and public confidence in the U.S.
financial system.
141. Definition of 'Flat Tax'
A system that applies the same tax rate to every taxpayer regardless
of income bracket. A flat tax applies the same tax rate to all
taxpayers, with no deductions or exemptions allowed. Supporters of a
flat tax system propose that it would give taxpayers incentive to earn
more because they would not be penalized with a higher tax bracket. In
addition, supporters argue that a flat tax system is fairer because it
imposed the tax on all taxpayers regardless of income.
Investopedia Says
Investopedia explains 'Flat Tax'
In the United States, a progressive-rate tax system is used. In 2010,
for example, people who earned up to $8,375 fell into the 10% tax
bracket; people who earned greater than $373,650 fell into the 35% tax
bracket. In a progressive tax system, individuals who make more money
are taxed at a higher rate. Many of the countries that have imposed a
flat tax rate system on individuals and businesses, including Estonia,
Lithuania and Latvia, have experienced economic growth since adopting
flat tax rate policies.
142. Definition of 'Product Recall'
The process of retrieving defective goods from consumers and providing
those consumers with compensation. Recalls often occur as a result of
safety concerns over a manufacturing defect in a product that may harm
its user.
Investopedia Says
Investopedia explains 'Product Recall'
While the process behind a recall can vary depending on local laws,
there are some general steps that occur. For example, if a pet food
manufacturer releases a batch of product that may poison animals, the
company will publicly announce the dangers of the food and request
that its customers return the product to the firm, or simply discard
it. Customers will usually be given a full refund or replacement. A
public relations campaign is often created to handle the publicity
surrounding the event.Recalls may negatively affect a company's stock.
Concerns grow over the company's capabilities when a dangerous product
is released, and customers may turn away from purchasing its goods,
leading to a decrease in sales.
143. Definition of 'High-Frequency Trading - HFT'
A program trading platform that uses powerful computers to transact a
large number of orders at very fast speeds. High-frequency trading
uses complex algorithms to analyze multiple markets and execute orders
based on market conditions. Typically, the traders with the fastest
execution speeds will be more profitable than traders with slower
execution speeds. As of 2009, it is estimated more than 50% of
exchange volume comes from high-frequency trading orders.
Investopedia Says
Investopedia explains 'High-Frequency Trading - HFT'
High-frequency trading became most popular when exchanges began to
offer incentives for companies to add liquidity to the market. For
instance, the New York Stock Exchange has a group of liquidity
providers called supplemental liquidly providers (SLPs), which attempt
to add competition and liquidity for existing quotes on the exchange.
As an incentive to the firm, the NYSE pays a fee or rebate for
providing said liquidity. As of 2009, the SLP rebate was $0.0015.
Multiply that by millions of transactions per day and you can see
where part of the profits for high frequency trading comes from.The
SLP was introduced following the collapse of Lehman Brothers in 2008,
when liquidity was a major concern for investors.
144. Definition of 'Rally'
A period of sustained increases in the prices of stocks, bonds or
indexes. This type of price movement can happen during either a bull
or a bear market, when it is known as either a bull market rally or a
bear market rally, respectively. However, a rally will generally
follow a period of flat or declining prices.
Investopedia Says
Investopedia explains 'Rally'
A rally is caused by a large amount of money entering the market,
bidding up the prices. The length or magnitude of a rally depends on
the depth of buyers along with the amount of selling pressure they
face. For example, if there is a large pool of buyers but few
investors willing to sell, there is likely to be a large rally. If,
however, the same large pool of buyers is matched by a similar amount
of sellers, the rally is likely to be short and the price movement
minimal.
145. Definition of 'Imputed Value'
The value of an item for which actual values are not available.
Imputed values are a logical or implicit value for an item, or time
set, wherein a "true" value has yet to be ascertained. It would be a
best guess estimate, in order to accurately estimate a larger set of
values or series of data points. Also known as "estimated imputation."
Investopedia Says
Investopedia explains 'Imputed Value'
Imputed values can be used in a variety of situations, such as
estimating opportunity cost of un-invested money, or estimating wages
for obscure positions. Additionally, data points in time series data
may require estimations, in order to complete a full range of figures.
So long as the imputed values are fair estimates, there are typically
no issues with their use.
146. Definition of 'Capital Expenditure - CAPEX'
Funds used by a company to acquire or upgrade physical assets such as
property, industrial buildings or equipment. This type of outlay is
made by companies to maintain or increase the scope of their
operations. These expenditures can include everything from repairing a
roof to building a brand new factory.
Investopedia Says
Investopedia explains 'Capital Expenditure - CAPEX'
The amount of capital expenditures a company is likely to have depends
on the industry it occupies. Some of the most capital intensive
industries include oil, telecom and utilities.In terms of accounting,
an expense is considered to be a capital expenditure when the asset is
a newly purchased capital asset or an investment that improves the
useful life of an existing capital asset. If an expense is a capital
expenditure, it needs to be capitalized; this requires the company to
spread the cost of the expenditure over the useful life of the asset.
If, however, the expense is one that maintains the asset at its
current condition, the cost is deducted fully in the year of the
expense.
147. Definition of 'Hedge Ratio'
1. A ratio comparing the value of a position protected via a hedge
with the size of the entire position itself.2. A ratio comparing the
value of futures contracts purchased or sold to the value of the cash
commodity being hedged.
Investopedia Says
Investopedia explains 'Hedge Ratio'
1. Say you are holding $10,000 in foreign equity, which exposes you to
currency risk. If you hedge $5,000 worth of the equity with a currency
position, your hedge ratio is 0.5 (50 / 100). This means that 50% of
your equity position is sheltered from exchange raterisk. 2. The hedge
ratio is important for investors in futures contracts, as it will help
to identify and minimize basis risk.
148. Definition of 'Maritime Law'
A body of laws, conventions and treaties that governs
internationalprivate business or other matters involving ships,
shipping or crimes occurring on open water. Laws between nations
governing such things as national versus international waters are
considered public international law and are known as the Law of the
Seas. Also known as "admiralty law".
Investopedia Says
Investopedia explains 'Maritime Law'
In most developed nations, maritime law is governed by a separate code
and is a separate jurisdiction from national laws. The United Nations,
through the International Maritime Organization, has issued numerous
conventions that can be enforced by the navies and coast guards that
have signed the treaty outlining these rules. Maritime law governs
many of the insurance claims relating to ships and cargo, civil
matters between shipowners, seamen and passengers, and piracy.
149. Definition of 'Lending Freeze'
A period of time when banks either do not have excess money to loan or
implement strict rules regarding loan qualification so that less
lending is approved. This is a protective measure by the banks to
ensure that they do not run out of capital or expose themselves to
increased risk. The result is that borrowers have less access to
loans, and therefore are unable to secure a mortgage, an automobile
loan or business loans, which can negatively impact hiring and
expansion.
Investopedia Says
Investopedia explains 'Lending Freeze'
Lending freezes occur when banks need to protect against further
losses. Banks may not halt lending altogether, but will become more
selective when it comes to handing out loans. The credit crisis of
2007-2008 forced companies to make difficult choices; without access
to loans, many corporations were forced to make large-scale layoffs,
while individuals had very little chance to secure credit.
150. Definition of 'Kiting'
1. The act of misrepresenting the value of a financial instrument for
the purpose of extending credit obligations or increasing financial
leverage. 2. A fraudulent act involving the alteration or issuance of
a check or draft with insufficient funds.
Investopedia Says
Investopedia explains 'Kiting'
1. Kiting generally occurs when securities firms fail to deliver
securities of buy and sell transactions in a timely manner (before the
three-day settlement period). The firm failing to receive the
securities is required to purchase the shortage on the open market and
charge the delinquent firm any associated fees. The delinquent firm is
practicing the fraudulent act of kiting if it fails to purchase the
securities on the open market and maintains a short position, delays
delivery or takes part in transactions contrary to SEC regulations
regarding the proper settlement of trades. 2. In the past, clearing
checks between banks took extended periods of time. Individuals used
to take advantage of this delay and wrote "bad" checks to deposit
funds before the checks were cashed. Banks have tried to cut down on
kited checks by placing holds on deposited funds and charging for
returned checks. Both of these kiting practices are considered
illegal.
151. Definition of 'IPO ETF'
An exchange-traded fund that focuses on stocks that have recently held
an initial public offering (IPO). The underlying indexes tracked by
IPO ETFs vary from one fund manager to another, but index IPO ETFs are
usually passively managed and contain equities that have recently been
offered to the public. By investing in an IPO ETF, investors hope to
gain exposure to IPOs during their initial introduction to the market,
while diversifying their investment across a pool of IPOs from varying
sectors and industries.
Investopedia Says
Investopedia explains 'IPO ETF'
The main appeal behind IPO ETFs is that investors want to be in "on
the ground floor" of an up-and-coming company, and take advantage of
the potential upside growth in the share price. IPOs, however, are not
guaranteed to be successful holdings and may even decrease in value in
the weeks and months following the initial offering. In addition,
expenses and fees associated with ETFs can eat away at earnings
accrued by these specialty ETFs.
152. Definition of 'Momentum Investing'
An investment strategy that aims to capitalize on the continuance of
existing trends in the market. The momentum investor believes that
large increases in the price of a security will be followed by
additional gains and vice versa for declining values.
Investopedia Says
Investopedia explains 'Momentum Investing'
This strategy looks to capture gains by riding "hot" stocks and
selling "cold" ones. To participate in momentum investing, a trader
will take a long position in an asset, which has shown an upward
trending price, or short sell a security that has been in a downtrend.
The basic idea is that once a trend is established, it is more likely
to continue in that direction than to move against the trend.
153. Definition of 'Tech Street'
A term used in the financial markets and the press to refer to the
technology sector. Companies like Intel, Microsoft, Apple and Dell are
all considered to be part of Tech Street.
Investopedia Says
Investopedia explains 'Tech Street'
While reading the financial news, you may see a headline along the
lines of "Bloodbath on Tech Street," referring to a large sell-off in
the tech sector. Such terms are often used in the financial industry
as metonyms or shorthand for specific stock exchanges and industry
sectors. For example, the terms "Wall Street," "Bay Street" and "Dalal
Street" refer to the stock exchanges in the U.S., Canada and India,
respectively.
154. Definition of 'Valuation'
The process of determining the current worth of an asset or company.
There are many techniques that can be used to determine value, some
are subjective and others are objective.
Investopedia Says
Investopedia explains 'Valuation'
For example, an analyst valuing a company may look at the company's
management, the composition of its capital structure, prospect of
future earnings, and market value of assets.
Judging the contributions of a company's management would be more of a
subjective valuation technique, while calculating intrinsic value
based on future earnings would be an objective technique.
155. Private Equity A Trendsetter For Stocks
By Stephanie Loiacono on July 06, 2013
private-equity utm_source=term...
A A A
Filed Under: Private Equity, Venture Capital
Fashion mavens will be happy to know that the stock market creates -
and reuses - fads too. Like the rise and fall of hemlines, the total
available domestic stock in the market expands and contracts in
cycles. This typically stems from companies that are public and are
being taken private and vice versa, due to inefficiencies in how
capital is allocated.
Although the terms "private equity" and "venture capital" are often
used interchangeably, venture capital is actually just one category of
private equity. In this article, we'll show you how private equity
sets the trend for stocks everywhere.
Private Equity Funding for Different Risks
Like each one of us, a company experiences a life cycle - that is,
different stages of growth - which requires capital in varying amounts
and from different sources. The stages of a company's life can be
plotted on a "risk continuum." Typically, a very young company with no
revenue and no earnings is highly risky from a funding point of view.
This sort of business usually can't afford to borrow, so capital must
be obtained from friends and family, or individual "angel investors."
As a company matures and becomes profitable, however, its risk profile
diminishes. By the time a company is well established, it can usually
fund operations inexpensively with a mix of debt and equity
securities.
Private equity comes into play at different points along the risk
continuum. Private investors can include institutions (pension funds,
university endowments, insurance companies, etc.) or individuals (high
net worth families, friends and relatives). Private equity also refers
to leveraged buyouts (LBOs), mezzanine debt, private placement loans,
distressed debt and funds of funds. These types of financing solutions
come in various shapes and sizes; however, most are structured as
limited partnerships.
Venture Capital for the Next "Big Thing"
When a company is just being launched and has little more than a great
new idea, loans from friends and family or sometimes government grants
are the typical funding sources available. Venture capital only enters
the picture when the company has finally created its product or
service, and is ready to bring it to market. Venture capitalists are
sophisticated investors who are always on the look-out for the next
"big thing," or the newest product that will be all the rage for
consumers. Some of the largest and most successful companies - such as
Dell Corp., Intel Corp., Apple Computer Corp. and many others - began
as venture-funded operations.
Structured as private partnerships and usually with institutional
money, venture capitalists generally provide all equity financing,
with a minority stake in a start-up or early expansion company.
Sometimes a venture capitalist will take a seat on the board of
directors for its portfolio companies, ensuring an active role in
guiding the company along. Venture capitalists look to hit big early
on, and exit investments within five to seven years. The majority of
venture-backed investments will fail; however, the few shining stars
will return 10 to 50 times, or more, of the value of the original
investment.
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LBOs and Mezzanines for Mature Financing
Other private equity strategies like LBOs or mezzanine financing are
usually tapped when a company is more mature. These methods of
financing usually involve some mix of debt and equity, and deals may
be backed by the cash flows and assets of the portfolio company
itself, or those of the company being acquired in a transaction.
Unlike venture capital, other private equity strategies usually
involve taking a majority shareholder position. Because target
companies are more established and have achieved profitability, the
risk involved is far lower. Consequently, fewer of these investments
fail.
Leveraged Buyouts
An LBO is one of the most common types of private equity financing. In
an LBO transaction, a company receives a loan from a private equity
firm to fund the acquisition of a division or another company. The
loan is usually secured by the cash flows or the assets of the company
being acquired. After a company is acquired in an LBO, it is sometimes
broken up and sold in pieces, and the cash generated is used to pay
down the high leverage of the transaction. This breakup strategy was
much more popular during the 1980s than it is in the new millennium.
Because companies now are more expensive, most LBO deals focus more on
buying companies and creating value-added from their assets, rather
than busting up the companies to sell off their parts.
Mezzanine Financing
Mezzanine debt is a private loan, usually provided by a commercial
bank or a mezzanine venture capital firm. Mezzanine transactions often
involve a mix of debt and equity in the form of a subordinated loan or
warrants, common stock or preferred stock. By not taking a 100% equity
position, a mezzanine debt firm can reduce its risk thanks to the
capital preservation and current income features of debt.
Private Equity and the Individual Investor
Private capital is illiquid and usually involves high amounts of
leverage, which is a risky combination for the individual investor.
There are limited ways, therefore, for a retail investor to play
safely in the private equity markets. To participate in private equity
or venture capital partnerships, an investor must be "accredited." For
example, an accredited investor enjoys net worth, either individually
or jointly, in excess of $1 million.
For investors who are less well-off, there is the option of
exchange-traded funds (ETFs) - the PowerShares Listed Private Equity
ETF, in particular. This ETF is designed to replicate the Red Rocks
Capital Listed Private Equity Index, which includes more than 30
publicly traded companies that invest directly in private equity.
Unlike straight private equity investments, the PowerShares ETF
provides liquidity and transparency. Moreover, proceeds can be
reinvested back into the ETF, which is rarely possible in a pure
private equity investment.
Even if you can't participate directly, the power of private equity in
the market can boost stock prices by reducing the total domestic stock
available - which may be good for the overall value of your portfolio.
The Bottom Line
Venture capital is just one form of private equity funding that's
available to companies at various stages of their life cycles.
Moreover, private equity and public equity take turns in cycles over
time as the key engine driving capital market valuations higher.
Investors should be able to recognize these cycles and understand the
impact on their portfolios.
156. Definition of 'Economic Forecasting'
The process of attempting to predict the future condition of the
economy. This involves the use of statistical models utilizing
variables sometimes called indicators. Some of the most well-known
economic indicators include inflation and interest rates, GDP
growth/decline, retail sales and unemployment rates.
Investopedia Says
Investopedia explains 'Economic Forecasting'
While economic forecasting is not an exact science, it remains an
important decision-making tool for businesses and governments as they
formulate financial policy and strategy.
157. Definition of 'Chicago Mercantile Exchange - CME'
The world's second-largest exchange for futures and options on futures
and the largest in the U.S. Trading involves mostly futures on
interest rates, currency, equities, stock indices and a small amount
on agricultural products.
Investopedia Says
Investopedia explains 'Chicago Mercantile Exchange - CME'
Founded in 1898 as a not-for-profit corporation, the CME was called
the Chicago Butter and Egg Board until 1919. In November 2000, CME
became the first U.S. financial exchange to demutualize and become a
shareholder-owned corporation.
The trading of futures and options on futures provides a way to
protect against and profit from price changes in financial instruments
and physical commodities.
158. Definition of 'Securitization'
The process through which an issuer creates a financial instrument by
combining other financial assets and then marketing different tiers of
the repackaged instruments to investors. The process can encompass any
type of financial asset and promotes liquidity in the marketplace.
Investopedia Says
Investopedia explains 'Securitization'
Mortgage-backed securities are a perfect example of securitization. By
combining mortgages into one large pool, the issuer can divide the
large pool into smaller pieces based on each individual mortgage's
inherent risk of default and then sell those smaller pieces to
investors.
The process creates liquidity by enabling smaller investors to
purchase shares in a larger asset pool. Using the mortgage-backed
security example, individual retail investors are able to purchase
portions of a mortgage as a type of bond. Without the securitization
of mortgages, retail investors may not be able to afford to buy into a
large pool of mortgages.
159. Definition of 'Payday Loan'
A type of short-term borrowing where an individual borrows a small
amount at a very high rate of interest. The borrower typically writes
a post-dated personal check in the amount they wish to borrow plus a
fee in exchange for cash. The lender holds onto the check and cashes
it on the agreed upon date, usually the borrower's next payday. These
loans are also called cash advance loans or check advance loans.
Investopedia Says
Investopedia explains 'Payday Loan'
Although the federal Truth in Lending Act requires payday lenders to
disclose their finance charges, these establishments have gotten a bad
reputation for their predatory lending practices. Most borrowers using
payday loans have bad credit and low incomes. They may not have access
to credit cards and are forced to use the service of a payday loan
company. Even if the borrower feels the fee may be fair ($17.50 per
$100 for seven days), that translates into a rate of more than 900% on
an annualized basis. Most loans are for 30 days or less and can be
rolled over for additional finance charges. Loan amounts are usually
from $100 to $1,500.
160. Definition of 'Trading Session'
A period of time consisting of one day of business in a financial
market, from the opening bell to the closing bell. Within the time
frame of the trading session, all orders for the day must be placed,
and buyers and sellers both participate in setting current market
prices.
Investopedia Says
Investopedia explains 'Trading Session'
The investor's concept of the trading session has broadened in the
past decade as after-hours markets, ECN exchanges and other
technologies have entered the marketplace. This increased access to
the markets and information can overwhelm an individual investor with
news, but long-term investors know that tuning out the day-to-day
noise of the stock market is a key element of success.
161. Definition of 'Activist Investor '
An individual or group that purchases large numbers of a public
company's shares and/or tries to obtain seats on the company's board
with the goal of effecting a major change in the company. A company
can become a target for activist investors if it is mismanaged, has
excessive costs, could be run more profitably as a private company or
has another problem that the activist investor believes it can fix to
make the company more valuable.
Investopedia Says
Investopedia explains 'Activist Investor '
Private equity firms, hedge funds and wealthy individuals are types of
entities that might decide to act as activist investors. One
well-known activist investor is Carl Icahn. He has attempted to make
major changes at Yahoo!, Blockbuster, Time Warner and RJR Nabisco,
among other companies. Other big-name activist investors include Kirk
Kerkorian, Bill Ackman, Eddie Lampert and Nelson Peltz.
One indication that a company may have become a target for activist
investors is the filing of SEC Form 13D, which must be filed when an
investor purchases 5% or more of a company's shares.
162. Definition of 'Earnings Call'
A conference call between the management of a public company,
analysts, investors and the media to discuss the financial results
during a given reporting period such as a quarter or a fiscal year. An
earnings call is usually preceded by an earnings report, which
contains summary information on financial performance for the period.
Investopedia Says
Investopedia explains 'Earnings Call'
The term "earnings call" is a combination of a company's report of
"earnings" - i.e. its net income or earnings per share - and the
conference call to discuss results.
The term "earnings call" is generally taken to mean a periodic call
wherein management discusses financial performance for a period,
regardless of whether the company actually has earnings or not. The
vast majority of listed companies host earnings calls to discuss their
financial results, although small companies with minimal investor
interest may be the exception to the rule. Many companies provide a
phone recording or presentation of the earnings call on their
corporate websites for a number of weeks after the actual call, making
it possible for investors who could not log-in to the call to access
this information.
163. Definition of 'Closed-End Fund'
A closed-end fund is a publicly traded investment company that raises
a fixed amount of capital through an initial public offering (IPO).
The fund is then structured, listed and traded like a stock on a stock
exchange.
Also known as a "closed-end investment" or "closed-end mutual fund."
Investopedia Says
Investopedia explains 'Closed-End Fund'
Despite the name similarities, a closed-end fund has little in common
with a conventional mutual fund, which is technically known as an
open-end fund.
The former raises a prescribed amount of capital only once through an
IPO by issuing a fixed number of shares, which are purchased by
investors in the closed-end fund as stock. Unlike regular stocks,
closed-end fund stock represents an interest in a specialized
portfolio of securities that is actively managed by an investment
advisor and which typically concentrates on a specific industry,
geographic market, or sector. The stock prices of a closed-end fund
fluctuate according to market forces (supply and demand) as well as
the changing values of the securities in the fund's holdings.
164. Definition of 'Legal Monopoly'
A company that is operating as a monopoly under a government mandate.
A legal monopoly offers a specific product or service at a regulated
price and can either be independently run and government regulated, or
government run and regulated.
Also known as a "statutory monopoly".
Investopedia Says
Investopedia explains 'Legal Monopoly'
A legal monopoly is set up in the beginning as a perceived best option
for both government and its citizens. For example, AT&T operated as a
legal monopoly until 1982 because it was deemed vital to have cheap
and reliable service for everyone. Railroads and airlines have also
been operated as legal monopolies at different periods in history. In
most cases, capitalism has won out over legal monopolies as technology
and the economy have become more advanced..
166. Definition of 'Laggard'
A stock or security that is underperforming. A laggard will have
lower-than-average returns compared to the market. A laggard is the
opposite of a leader.
Investopedia explains 'Laggard'
In most cases, a laggard refers to a stock. The term can also,
however, describe a company or individual that has been
underperforming. It is often used to describe good vs. bad, as in
"leaders vs. laggards". Investors want to avoid laggards, because they
achieve less-than-desired rates of return.
167. <HTML><META HTTP-EQUIV="content-type" CONTENT="text/html;charset=utf-8">
Definition of 'Earnings Per Share - EPS'<BR><BR>The portion of a company's
profit allocated to each outstanding share<BR>of common stock. Earnings per
share serves as an indicator of a<BR>company's profitability.<BR><BR>Calculated
as:<BR><BR><BR><BR><BR>Earnings Per Share (EPS)<BR>When calculating, it is more
accurate to use a weighted average number<BR>of shares outstanding over the
reporting term, because the number of<BR>shares outstanding can change over
time. However, data sources<BR>sometimes simplify the calculation by using the
number of shares<BR>outstanding at the end of the period.<BR><BR>Diluted EPS
expands on basic EPS by including the shares of<BR>convertibles or warrants
outstanding in the outstanding shares number.<BR>Investopedia explains 'Earnings
Per Share - EPS'<BR><BR>Earnings per share is generally considered to be the
single most<BR>important variable in determining a share's price. It is also a
major<BR>component used to calculate the price-to-earnings valuation
ratio.<BR><BR>For example, assume that a company has a net income of $25
million. If<BR>the company pays out $1 million in preferred dividends and has
10<BR>million shares for half of the year and 15 million shares for the<BR>other
half, the EPS would be $1.92 (24/12.5). First, the $1 million is<BR>deducted
from the net income to get $24 million, then a weighted<BR>average is taken to
find the number of shares outstanding (0.5 x 10M+<BR>0.5 x 15M =
12.5M).<BR><BR>An important aspect of EPS that's often ignored is the capital
that is<BR>required to generate the earnings (net income) in the calculation.
Two<BR>companies could generate the same EPS number, but one could do so
with<BR>less equity (investment) - that company would be more efficient
at<BR>using its capital to generate income and, all other things being<BR>equal,
would be a "better" company. Investors also need to be aware of<BR>earnings
manipulation that will affect the quality of the earnings<BR>number. It is
important not to rely on any one financial measure, but<BR>to use it in
conjunction with statement analysis and other measures.<BR><BR>For more on EPS
read The 5 Different Types Of Earnings Per Share (EPS)<BR>and How To Evaluate
The Quality Of EPS<BR>
168. Definition of 'Wealth Tax'
It is a tax based on the market value of assets that are owned. These
assets include, but are not limited to, cash, bank deposits, shares,
fixed assets, private cars, assessed value of real property, pension
plans, money funds, owner occupied housing and trusts. An ad valorem
tax on real estate and an intangible tax on financial assets are both
examples of a wealth tax. Although many developed countries choose to
tax wealth, the United States has generally favored taxing income.
Investopedia explains 'Wealth Tax'
Wealth tax is imposed on the wealth possessed by individuals in a
country. The tax is on a person's net worth which is assets minus
liabilities. Not all countries have this type of tax; Austria,
Denmark, Germany, Sweden, Spain, Finland, Iceland and Luxenberg have
abolished it in recent years. The United States doesn't impose wealth
tax but requires income and property taxes.
169. Definition of 'Data Mining'
A process used by companies to turn raw data into useful information.
By using software to look for patterns in large batches of data,
businesses can learn more about their customers and develop more
effective marketing strategies as well as increase sales and decrease
costs. Data mining depends on effective data collection and
warehousing as well as computer processing.

Investopedia explains 'Data Mining'
Grocery stores are well-known users of data mining techniques. Many
supermarkets offer free loyalty cards to customers that give them
access to reduced prices not available to non-members. The cards make
it easy for stores to track who is buying what, when they are buying
it, and at what price. The stores can then use this data, after
analyzing it, for multiple purposes, such as offering customers
coupons that are targeted to their buying habits and deciding when to
put items on sale and when to sell them at full price.

Data mining can be a cause for concern when only selected information,
which is not representative of the overall sample group, is used to
prove a certain hypothesis.
170. Definition of 'Fiscal Neutrality '
Fiscal neutrality occurs when taxes and government spending are
neutral, with neither having an effect on demand. Fiscal neutrality
creates a condition where demand is neither stimulated nor diminished
by taxation and government spending.
Investopedia explains 'Fiscal Neutrality '
A balanced budget is an example of fiscal neutrality, where government
spending is covered almost exactly by tax revenue - in other words,
where tax revenue is equal to government spending. A situation where
spending exceeds the revenue generated from taxes is called a fiscal
deficit and requires the government to borrow money to cover the
shortfall. When tax revenues exceed spending, a fiscal surplus
results, and the excess money can be invested for future use.
171. Definition of 'Unsecured Debt'
A loan not backed by an underlying asset. Unsecured debt includes
credit card debt, medical bills, utility bills and any other type of
loan or credit that was extended without a collateral requirement. It
presents a high risk for lenders since they may have to sue to get the
money they're owed if the borrower doesn't repay the full amount owed.
As a result of this high risk, unsecured debt tends to come with a
high interest rate. Unsecured debt can be wiped out by bankruptcy, but
taking this dramatic step makes it more difficult to obtain financing
for the next seven to 10 years.
Investopedia explains 'Unsecured Debt'
Secured debt, on the other hand, is backed by an asset, also known as
collateral. Under the terms of a secured loan, the lender can seize
the collateral used to guarantee the loan if the borrower defaults.
Examples of secured debt include mortgages, which are secured by
houses, and auto loans, which are secured by cars. Because the
borrower has more to lose by defaulting on a secured loan and the
lender has something to gain, this type of loan will have a lower
interest rate than an unsecured loan.
172. Definition of 'Majority Shareholder'
A person or entity that owns more than 50% of a company's outstanding
shares. The majority shareholder is often the founder of the company,
or in the case of long-established businesses, the founder's
descendants. By virtue of controlling more than half of the voting
interests in the company, the majority shareholder has a very
significant influence in the business operations and strategic
direction of the company.
Investopedia explains 'Majority Shareholder'
Majority shareholders differ in their approach to how the company is
managed. While some continue to be heavily involved in the daily
operations of the company, others may prefer to take a hands-off
approach and leave the management of the company to the executives and
managers.

Majority shareholders who wish to exit their business, or dilute their
position, may make overtures to their competition or private equity
firms, with the objective of getting a good price for their stake.
Since the majority shareholder usually has an iron grip on the
fortunes of the company, a hostile bid for it is generally out of the
question.
173. Definition of 'Nadex'
Nadex stands for the North American Derivatives Exchange, a regulated
Chicago-based exchange where retail traders can buy and sell binary
options directly on the exchange without a broker. Nadex, which is
subject to oversight by the Commodity Futures Trading Commission,
offers binary option contracts and spreads in equity indexes,
commodities, forex and economic events.
Investopedia Says
Investopedia explains 'Nadex'
Nadex is the first and largest regulated U.S. exchange for binary
options, which are simple yes/no trades with limited downside risk.
Unlike OTC derivatives, there is no counter-party credit risk. Nadex
clears and guarantees all trades done on the exchange. Pricing is
transparent and all positions are fully collateralized at all times.
Member funds are held in segregated U.S. bank accounts.
174. Definition of '529 Plan'
A plan that allows for the prepayment of qualified higher education
expenses at eligible educational institutions.
Also known as a "qualified tuition program," or more fully as a
"section 529 plan."
Investopedia Says
Investopedia explains '529 Plan'
The prepayment may be in the form of a contribution to an account
established specifically for paying higher educational expenses. There
is no income restriction for individuals who want to contribute to a
529 plan; however, because contributions cannot exceed the amount that
sufficiently covers the expenses of the beneficiary's qualified higher
education, individuals should take care not to over-fund the 529 plan.
175. Definition of 'Leverage'
1. The use of various financial instruments or borrowed capital, such
as margin, to increase the potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with
significantly more debt than equity is considered to be highly
leveraged.
Leverage is most commonly used in real estate transactions through the
use of mortgages to purchase a home.
Investopedia Says
Investopedia explains 'Leverage'
1. Leverage can be created through options, futures, margin and other
financial instruments. For example, say you have $1,000 to invest.
This amount could be invested in 10 shares of Microsoft stock, but to
increase leverage, you could invest the $1,000 in five options
contracts. You would then control 500 shares instead of just 10.
2. Most companies use debt to finance operations. By doing so, a
company increases its leverage because it can invest in business
operations without increasing its equity. For example, if a company
formed with an investment of $5 million from investors, the equity in
the company is $5 million - this is the money the company uses to
operate. If the company uses debt financing by borrowing $20 million,
the company now has $25 million to invest in business operations and
more opportunity to increase value for shareholders.
Leverage helps both the investor and the firm to invest or operate.
However, it comes with greater risk. If an investor uses leverage to
make an investment and the investment moves against the investor, his
or her loss is much greater than it would've been if the investment
had not been leveraged - leverage magnifies both gains and losses. In
the business world, a company can use leverage to try to generate
shareholder wealth, but if it fails to do so, the interest expense and
credit risk of default destroys shareholder value.
176. Definition of 'Accelerative Endowment'
An option in a whole life insurance policy to use accumulated
dividends to convert the policy into an endowment policy prior to its
normal maturity date. An endowment policy provides for a lump sum
payment to the insured after a certain period.
Investopedia Says
Investopedia explains 'Accelerative Endowment'
An accelerative endowment is a form of an accelerated option that
allows policyholders to access the value of their life insurance
policies prior to death. The lump sum received can be invested any way
you want or it can be used to buy an annuity policy to generate some
fixed income.
177. Definition of 'Incentive Fee'
A fee paid to a fund manager by investors. Incentive fees are
typically dependent upon the manager's performance over a given period
and are usually taken in relation to a benchmark index. For instance,
a fund manager may receive an incentive fee if his or her fund
outperforms the S&P 500 Index over a calendar year, and may increase
as the level of outperformance grows.
Investopedia Says
Investopedia explains 'Incentive Fee'
Incentive fees are usually in place to tie a manager's compensation to
their level of performance, more specifically their level of financial
return. However, such fees can sometime lead to increased levels of
risk taking, as managers attempt to increase incentive levels through
riskier ventures than outlined in a fund's prospectus.
178. Definition of 'Actuarial Age'
An individual's life expectancy based on calculations and statistical
modeling. Actuaries use mathematical and statistical computations to
predict a person's life expectancy, or his or her actuarial age, to
assist insurance companies with pricing, forecasting and planning. For
instance, knowing a person's actuarial age will help determine the
most appropriate payments from an annuity.
Investopedia Says
Investopedia explains 'Actuarial Age'
A person's actuarial age is the age to which mathematical and
statistical modeling indicate a person will live. The actuarial age
reflects factors such as health and serious medical conditions.
Actuaries assess risk for insurance companies and use computerized
predictive modeling to project probable outcomes for a wide variety of
circumstances.
179. Definition of 'Codicil'
An addendum of any kind to a will. Codicils can alter, change, add to
or subtract from the provisions in the will. They can be used to keep
a will and testament current and up to date.
Investopedia Says
Investopedia explains 'Codicil'
Codicils must be created by the original creator of the will. They are
separate documents in and of themselves and can effect either minor or
major changes in the will. All codicils must meet the same legal
administrative requirements as the original will and testament, and
they must each affirm that the original will is valid except for the
changes outlined inside.
180. Definition of 'Divergence'
When the price of an asset and an indicator, index or other related
asset move in opposite directions. In technical analysis, traders make
transaction decisions by identifying situations of divergence, where
the price of a stock and a set of relevant indicators, such as the
money flow index (MFI), are moving in opposite directions.

Divergence
Investopedia Says
Investopedia explains 'Divergence'
In technical analysis, divergence is considered either positive or
negative, both of which are signals of major shifts in the direction
of the price. Positive divergence occurs when the price of a security
makes a new low while the indicator starts to climb upward. Negative
divergence happens when the price of the security makes a new high,
but the indicator fails to do the same and instead closes lower than
the previous high.
181. Definition of 'Blue Chip'
A nationally recognized, well-established and financially sound
company. Blue chips generally sell high-quality, widely accepted
products and services. Blue chip companies are known to weather
downturns and operate profitably in the face of adverse economic
conditions, which helps to contribute to their long record of stable
and reliable growth.
Investopedia Says
Investopedia explains 'Blue Chip'
The name "blue chip" came about because in the game of poker the blue
chips have the highest value.
Blue chip stocks are seen as a less volatile investment than owning
shares in companies without blue chip status because blue chips have
an institutional status in the economy. Investors may buy blue chip
companies to provide steady growth in their portfolios. The stock
price of a blue chip usually closely follows the S&P 500.
182. Definition of 'Earnings Multiplier'
An adjustment made to a company's P/E ratio that takes into account
current interest rates. The earnings multiplier is used to discount
future earnings, and allows investors to compare expected growth to an
amount of money invested over the same period at current rates.
Investopedia Says
Investopedia explains 'Earnings Multiplier'
The earnings multiplier is similar to a discounted cash flow in that
future earnings are rolled back to determine how much they are worth
in today's dollars. Investors use the earnings multiplier to figure
out how much a company is worth, today, based on how it is expected to
grow in the future.
183. Definition of 'Corporate Bond'
A debt security issued by a corporation and sold to investors. The
backing for the bond is usually the payment ability of the company,
which is typically money to be earned from future operations. In some
cases, the company's physical assets may be used as collateral for
bonds.
Corporate bonds are considered higher risk than government bonds. As a
result, interest rates are almost always higher, even for top-flight
credit quality companies.
Investopedia Says
Investopedia explains 'Corporate Bond'
Corporate bonds are issued in blocks of $1,000 in par value, and
almost all have a standard coupon payment structure. Corporate bonds
may also have call provisions to allow for early prepayment if
prevailing rates change.
Corporate bonds, i.e. debt financing, are a major source of capital
for many businesses along with equity and bank loans/lines of credit.
Generally speaking, a company needs to have some consistent earnings
potential to be able to offer debt securities to the public at a
favorable coupon rate. The higher a company's perceived credit
quality, the easier it becomes to issue debt at low rates and issue
higher amounts of debt.
Most corporate bonds are taxable with terms of more than one year.
Corporate debt that matures in less than one year is typically called
"commercial paper".
184. Definition of 'Take-Out Lender'
A type of financial institution that provides a long-term mortgage on
property. This mortgage will replace interim financing, such as a
construction loan. Take-out lenders are normally large financial
conglomerates, such as insurance or investment companies.
Investopedia Says
Investopedia explains 'Take-Out Lender'
Take-out lenders replace short-term lenders such as banks or savings
and loans. These entities usually view the properties for which they
provide mortgages as investments. They expect them to provide capital
gains when they are sold, in addition to receiving the mortgage
payments.
185. Definition of 'Asset Allocation'
An investment strategy that aims to balance risk and reward by
apportioning a portfolio's assets according to an individual's goals,
risk tolerance and investment horizon.
The three main asset classes - equities, fixed-income, and cash and
equivalents - have different levels of risk and return, so each will
behave differently over time.
Investopedia Says
Investopedia explains 'Asset Allocation'
There is no simple formula that can find the right asset allocation
for every individual. However, the consensus among most financial
professionals is that asset allocation is one of the most important
decisions that investors make. In other words, your selection of
individual securities is secondary to the way you allocate your
investment in stocks, bonds, and cash and equivalents, which will be
the principal determinants of your investment results.
Asset-allocation mutual funds, also known as life-cycle, or
target-date, funds, are an attempt to provide investors with portfolio
structures that address an investor's age, risk appetite and
investment objectives with an appropriate apportionment of asset
classes. However, critics of this approach point out that arriving at
a standardized solution for allocating portfolio assets is problematic
because individual investors require individual solutions.
186. Definition of 'Sandwich Generation'
The generation of middle-aged individuals who are pressured to support
both aging parents and growing children. The sandwich generation is
named so because
they are effectively "sandwiched" between the obligation to care for
their aging parents - who may be ill, unable to perform various tasks
or in need of
financial support - and children, who require financial, physical and
emotional support. The trends of increasing lifespans and having
children at an older
age have contributed to the sandwich generation phenomenon.
Investopedia Says
Investopedia explains 'Sandwich Generation'
A 2005 Pew Center study estimated that one in eight Americans between
the ages of 40 and 60 are simultaneously providing some financial
assistance to both
a child and a parent. The obligations placed on the sandwich
generation demand considerable time and money. With the added
pressures of managing one's
own career and personal issues, as well as the need to contribute to
one's own retirement, the individuals of the sandwich generation are
under significant
stress. In some cases, these baby boomers are having to postpone their
own retirements because of the added financial obligations. Also, some
members of
the sandwich generation are further overextended by caring for their
grandchildren.
187. Definition of 'Wholly Owned Subsidiary'

A company whose common stock is 100% owned by another company, called
the parent company. A company can become a wholly owned subsidiary
through acquisition by the parent company or spin off from the parent
company. In contrast, a regular subsidiary is 51 to 99% owned by the
parent company. One situation in which a parent company might find it
helpful to establish a subsidiary company is if it wants to operate in
a foreign market. This arrangement is common among high-tech companies
who want to retain complete control and ownership of their technology.


Investopedia explains 'Wholly Owned Subsidiary'

Wholly owned subsidiaries allow the parent company to retain the
greatest amount of control, but also leave the parent with all the
costs and risks of full ownership. When a lesser number of costs and
risks are desirable, or when it is not possible to obtain complete or
majority control, the parent company might introduce an affiliate,
associate or associate company in which it would own a minority stake.
188. Definition of 'Post-9/11 GI Bill'

A United States law that provides benefits to military veterans who
have taken part in active duty service after September 11, 2001. To be
eligible for the Post-9/11 G.I. Bill, an applicant must have served
for at least 90 days and still be on active duty, or been honorably
discharged or discharged for a disability related to serving. It was
passed into law in 2008.
Investopedia explains 'Post-9/11 GI Bill'

This legislation, along with the original G.I. Bill (1944) and
Montgomery G.I. Bill (1984), represent a continued effort by the U.S.
government to provide benefits to veterans returning from duty. The
original G.I. Bill was created in response to the failure of the U.S.
government to provide benefits to veterans of WWI, the lack of which
resulted in protests during the Great Depression.
The Post-9/11 G.I. bill provides funding for training, as well as
tuition assistance to veterans. The Bill provides up to three years of
benefits and can be used by a veteran up to 15 years after qualifying.
An update to the Bill, The Post-9/11 Veterans Education Assistance
Improvements Act of 2010, expanded eligibility to members of the
National Guard and Active Guard.
189. Definition of 'Chandelier Bid'

A bid that is announced by an auctioneer during an auction that has not been signaled by a participant, but has rather been fabricated by the auctioneer in order to create the appearance of greater demand for the item at auction.

Investopedia explains 'Chandelier Bid'

Chandelier bids are so named because the auctioneer announcing the bids may point to the ceiling or other areas of the room rather than at actual bidders. This gives the illusion that bids are being made.
Chandelier bids are not illegal, but can be frowned upon by bidders who don’t like the idea of competing against imaginary competitors. They are most likely to be used when the seller has placed a reserve price on the item, with the auctioneer having leeway at increasing the “bid” until the reserve price is reached.
190.
Definition of 'Halted Issue'

A planned security offering that does not go forward as planned. A halted issue can relate to an initial public offering (IPO) that will no longer occur, or to a bond issue that has been canceled, along with any other form of security offering that does not go on as originally expected. While an issue may be halted for any variety of reasons, a halted issue is often the result of an unexpected event that the market perceives as negative for the issuer.
Investopedia explains 'Halted Issue'

For example, a company that plans to issue a corporate bond at a given coupon may have to halt the issue if a situation arises where its bond rating is reduced, causing interest in the bond to fall dramatically, to the point where the bond issue is no longer feasible. When an IPO is halted, the firm may find that the capital markets are not looking kindly on other recent IPOs within its industry and choose to halt the issue at that time.
191.
Definition of 'USDA Streamlined Refinancing'

A mortgage-refinancing option offered by the United States Department of Agriculture (USDA). USDA streamlined refinancing is available to homeowners who purchased their home using a Section 502 loan, which is a loan available to low-income individuals and households in rural areas. The refinancing option is available in all U.S. states and territories.
Investopedia explains 'USDA Streamlined Refinancing'

USDA streamlined refinancing is for a fixed-rate loan with a 30-year term. The interest rate must be lower than the interest rate of the loan being refinanced. The USDA does not require an appraisal on a streamline refinance, but does require a credit report to be available.
The property being refinanced must be the borrower’s primary residence, but does not have to be located in a currently eligible rural area. Homeowners do not qualify if they are refinancing a loan offered by the FHA, VA, Fannie Mae or Freddie Mac.
The phrase “streamline refinance” refers to the reduced amount of paperwork and underwriting that the lenders must work with.
192.
Definition of 'Fractional Gift'
A gift that provides a fractional interest in an artwork today, while providing the rest of the interest over a period of time. A fractional gift may allow the donor to still display the work at a non-museum location for a period of time, possibly by alternating time periods with its display at the museum.
Investopedia explains 'Fractional Gift'
A fractional gift may be given by a donor who wants to ultimately provide a piece of art to a museum, but who is not ready to fully part with the item presently. The donor will still be able to enjoy a charitable income tax deduction, though the percentage deduction is open to more stringent regulations. Because the Internal Revenue Service discourages fractional gifts, the donor is able to take the less of two values when deducting: 1) an amount based off of the work’s value when the installments began, or 2) the fair market value at a subsequent installment. This means that the donor doesn’t get a larger deduction if the work appreciates in value, and doesn’t get the original value if the work depreciates in value.
Fractional gifts are most likely to be used by donors who are less concerned with obtaining tax deductions from the donation.
193.
Definition of 'Mean-Variance Analysis'

The process of weighing risk (variance) against expected return. By looking at the expected return and variance of an asset, investors attempt to make more efficient investment choices- seeking the lowest variance for a given expected return, or seeking the highest expected return for a given variance level.
Mean variance analysis is a component of modern portfolio theory, which assumes investors make rational decisions, and that for increased risk they expect a higher return.
Investopedia explains 'Mean-Variance Analysis'

There are two major factors in mean variance analysis: variance and expected return.

•Variance represents how spread out the data set numbers are, such as the variability in daily or weekly returns of an individual security.
•The expected return is a subjective probability assessment on the return of the stock.
If two investments have the same expected return, but one has a lower variance, the one with the lower variance is the better choice.
By combining stocks with different variances and expected returns in a portfolio (diversification), the variance and expected return of the portfolio can be altered as the price moves of one stock may be offset by the price moves of another in the portfolio.
194.
Definition of 'Retirement Money Market Account'
A money market account that an individual holds within a retirement account such as an IRA. In a retirement money market account, deposits are placed in low-risk investments like certificates of deposit, Treasury bills and short-term commercial paper. The account pays a relatively low rate of interest, slightly higher than a savings account, but provides liquidity and stability. For the account holder, it operates much like a checking or savings account.
Investopedia explains 'Retirement Money Market Account'

A retirement money market account may be held within a Roth IRA, traditional IRA, rollover IRA, 401(k) or other retirement account. Unlike a regular money market account, a retirement money market account is governed by a retirement plan agreement. For example, the account holder may not be able to withdraw money from the account without paying a penalty until he or she has reached a minimum age, such as 59.5. As a benefit, however, the account balance may be allowed to grow tax free.

A retirement money market account is a conservative investment that may be used as part of a diversification strategy within an overall retirement portfolio. Its value will remain stable regardless of what the stock or bond markets are doing. And unlike stocks and bonds, money market account balances held at a bank are FDIC insured up to $250,000 per depositor, per institution.

A retirement money market account may also be used to store the proceeds of stock and bond sales as the account holder gets older and seeks more conservative holdings. In addition, money market accounts often have check-writing privileges, making it easy for retirees to withdraw retirement account funds as needed.

While these accounts may pay a higher rate of interest than a generic savings account, a major drawback of retirement money market accounts is that they may not earn enough interest to outpace inflation, meaning that the account holder’s balance is effectively shrinking each year in terms of its purchasing power. 
195.
Definition of 'Share Draft'
A type of draft used in credit unions as a way to access funds in individual accounts. Share draft accounts at credit unions are the equivalent of personal checking accounts at banks. Likewise, share drafts are the equivalent of bank checks. Shares represent partial ownership in a credit union, and credit union members (shareholders) write drafts (checks) as a way to access the value of their partial ownership (shares).
Investopedia explains 'Share Draft'
A credit union functions differently than a conventional bank; in a credit union, every member is also a partial owner. Because credit unions are cooperatively owned, members do not make deposits, but rather purchase shares. Shares do not earn interest, but instead earn dividends. What's more, share draft accounts usually carry neither monthly fees nor minimum balance requirements, unlike many bank checking accounts.
196.
Definition of 'European Central Bank - ECB'
The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed in Germany in June 1998 and works with the other national banks of each of the EU members to formulate monetary policy that helps maintain price stability in the European Union.
Investopedia explains 'European Central Bank - ECB'
The European Central Bank has been responsible for the monetary policy of the European Union since January 1, 1999, when the euro currency was adopted by the EU members. The responsibilities of the ECB are to formulate monetary policy, conduct foreign exchange, hold currency reserves and authorize the issuance of bank notes, among many other things.
197.
Definition of 'Underwriter'

A company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer and sells them to investors via the underwriter's distribution network.

Investopedia explains 'Underwriter'

Underwriters generally receive underwriting fees from their issuing clients, but they also usually earn profits when selling the underwritten shares to investors. However, underwriters assume the responsibility of distributing a securities issue to the public. If they can't sell all of the securities at the specified offering price, they may be forced to sell the securities for less than they paid for them, or retain the securities themselves.
 198. Definition of 'Fat Finger Error'

A human error caused by pressing the wrong key when using a computer to input data. Fat finger errors are often harmless but can sometimes have significant consequences for example, if the wrong number is entered in performing a mathematical calculation.

Investopedia explains 'Fat Finger Error'

In the aftermath of the May 6, 2010, "flash crash" that caused a significant, rapid and unexpected drop in the Dow, one possible early explanation was fat finger error. The idea was that a trader had entered an order incorrectly, placing the order in the billions rather than the millions. In reality, such trading errors are unlikely because of safeguards implemented by brokerages and exchanges.
199.
Definition of 'Dark Pool Liquidity'

The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is represented by block trades facilitated away from the central exchanges.
Also referred to as the "upstairs market," "dark liquidity" or "dark pool."

Investopedia explains 'Dark Pool Liquidity'

The dark pool gets its name because details of these trades are concealed from the public, clouding the transactions like murky water. Some traders that use a strategy based on liquidity feel that dark pool liquidity should be publicized, in order to make trading more "fair" for all parties involved.
200. Definition of 'Modified Book Value'

An asset-based method of determining how much a business is worth by adjusting the value of its assets and liabilities according to their fair market value. This technique also includes the value of all of the business's intangible assets and liabilities, such as goodwill and pending litigation.

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Investopedia explains 'Modified Book Value'

Liquidation value and replacement value are two other asset-based valuation methods. Businesses are also commonly valued using market multiple methods, capitalization rates, excess earnings or discounted cash flow. Companies that specialize in business valuation can be hired to determine a business's value for a number of purposes, including a merger or acquisition, shareholder transaction, estate planning and financial reporting.
201. Definition of 'Golden Parachute'

Substantial benefits given to a top executive (or top executives) in the event that the company is taken over by another firm and the executive is terminated as a result of the merger or takeover. Golden parachutes are contracts given to key executives and can be used as a type of antitakeover measure taken by a firm to discourage an unwanted takeover attempt. Benefits include items such as stock options, cash bonuses, generous severance pay or any combination of these benefits.
Also known as "change-in-control benefits."

Investopedia explains 'Golden Parachute'

Golden parachute clauses can be used to define the lucrative benefits that an employee would receive in the event he or she is terminated; however, the term often relates to terminations that result from a takeover or merger. The use of golden parachutes is controversial. Supporters believe that golden parachutes make it easier to hire and retain top executives, particularly in merger-prone industries.
In addition, proponents believe that these lucrative benefits packages allow executives to remain objective if the company is involved in a takeover or merger, and that they can discourage takeovers because of the costs associated with the golden parachute contracts.
Opponents of golden parachutes argue that executives are already well-compensated and should not be rewarded for being terminated. Opponents may further argue that executives have an inherent fiduciary responsibility to act in the best interest of the company, and, therefore, should not need additional financial incentive to remain objective and to act in the manner that best benefits the company. In addition, many people who disagree with golden parachutes cite that the associated costs are miniscule when compared to the takeover costs and, as a result, can have little to no impact on the outcome of the takeover attempt.

202.
Definition of 'Growing-Equity Mortgage'

A fixed rate mortgage on which the monthly payments increase over time according to a set schedule. The interest rate on the loan does not change, and there is never any negative amortization. In other words, the first payment is a fully amortizing payment. As the payments increase, the additional amount above and beyond what would be a fully amortizing payment is applied directly to the remaining balance of the mortgage, shortening the life of the mortgage and increasing interest savings.

Investopedia explains 'Growing-Equity Mortgage'

Don't confuse a growing-equity mortgage with a graduated payment mortgage. A graduated payment mortgage also has a fixed interest rate and payments that increase at set intervals, but a graduated payment mortgage has negative amortization. In other words, unlike a growing-equity mortgage, the initial payments on a graduated payment mortgage are set below what a fully amortizing payment would be (they're actually set below what an interest only payment would be). This creates negative amortization, not interest savings.
203.
Definition of 'Debt-Service Coverage Ratio - DSCR'

In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.
In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts.
In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.
In general, it is calculated by:
 


Investopedia explains 'Debt-Service Coverage Ratio - DSCR'

A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.
204.
Definition of 'Incremental Capital Output Ratio - ICOR'

A metric that assesses the marginal amount of investment capital necessary for an entity to generate the next unit of production. Overall, a higher ICOR value is not preferred because it indicates that the entity's production is inefficient. The measure is used predominantly in determining a country's level of production efficiency.
ICOR is calculated as:


Investopedia explains 'Incremental Capital Output Ratio - ICOR'

For example, suppose that Country X has an ICOR of 10. This implies that $10 worth of capital investment is necessary to generate $1 of extra production. Furthermore, if country X's ICOR was 12 last year, this implies that Country X has become more efficient in its use of capital.
Some critics of ICOR have suggested that its uses are restricted as there is a limit to how efficient countries can become as their processes become increasingly advanced. For example, a developing country can theoretically increase its GDP by a greater margin with a set amount of resources than its developed counterpart can. This is because the developed country is already operating with the highest level of technology and infrastructure. Any further improvements would have to come from more costly research and development.
205.
Definition of 'Market Index'

An aggregate value produced by combining several stocks or other investment vehicles together and expressing their total values against a base value from a specific date. Market indexes are intended to represent an entire stock market and thus track the market's changes over time.

Investopedia explains 'Market Index'

Index values are useful for investors to track changes in market values over long periods of time. For example, the widely used Standard and Poor's 500 Index is computed by combining 500 large-cap U.S. stocks together into one index value. Investors can track changes in the index's value over time and use it as a benchmark against which to compare their own portfolio returns.
206.
Definition of 'Profitability Ratios'

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.


Investopedia explains 'Profitability Ratios'

Some examples of profitability ratios are profit margin, return on assets and return on equity. It is important to note that a little bit of background knowledge is necessary in order to make relevant comparisons when analyzing these ratios.
For instance, some industries experience seasonality in their operations. The retail industry, for example, typically experiences higher revenues and earnings for the Christmas season. Therefore, it would not be too useful to compare a retailer's fourth-quarter profit margin with its first-quarter profit margin. On the other hand, comparing a retailer's fourth-quarter profit margin with the profit margin from the same period a year before would be far more informative.
Profitability ratios are the most popular metrics used in financial analysis. Read the short guide on Profitability Indicator Ratios: Introduction.
207.
Definition of 'Pass-Through Rate'

The rate on a securitized asset pool - such as a mortgage-backed security (MBS) - that is "passed-through" to investors once management fees and guarantee fees have been paid to the securitizing corporation. The pass-through rate (also known as the coupon rate for the MBS) will eebe lower than the interest rate on the individual securities within the offering.
Investopedia explains 'Pass-Through Rate'

For example, suppose that an agency takes two million dollars' worth of mortgage loans, each of which pays 6% interest, and turns them into a 5.5% mortgage-backed security. The 5.5% reflects the pass-through rate, and the agency takes the remaining 0.5% as a cut of the proceeds.
The largest issuers of securitized assets are the Sallie Mae, Fannie Mae and Freddie Mac corporations. While these companies are for-profit business, their guarantees are backed by the U.S. government, giving them high credit ratings.
208.
Definition of 'Trade Volume Index - TVI'
A technical indicator that measures the amount of money flowing in and out of an asset. Unlike many technical indicators, the TVI is generally created using intraday price data. The underlying assumption of this indicator is that there is buying pressure when the price trades near the asking price and selling pressure when it trades near the bid.
Investopedia explains 'Trade Volume Index - TVI'
This indicator is very similar to the on-balance volume indicator except that it focuses on the volume attributed to every trade rather than the closing volume that is attributable to all trades. This indicator is primarily used by day traders to identify whether a security is being accumulated (bought) or distributed (sold).
209. Definition of 'Heath-Jarrow-Morton Model - HJM Model'
A model that applies forward rates to an existing term structure of interest rates to determine appropriate prices for securities that are sensitive to changes in interest rates.
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Investopedia explains 'Heath-Jarrow-Morton Model - HJM Model'
The HJM model is very theoretical and is used at the most advanced levels of financial analysis. It is used mainly by arbitrageurs seeking arbitrage opportunities.
210. Definition of 'Calendar Effect'
A collection of assorted theories that assert that certain days, months or times of year are subject to above-average price changes in market indexes and can therefore represent good or bad times to invest. Some theories that fall under the calendar effect include the Monday effect, the October effect, the Halloween effect and the January effect.
Investopedia explains 'Calendar Effect'
Most of the evidence for these effects is anecdotal, although there is a slight statistical case to be made for some of them, which is more than enough to encourage some investors to place their faith in them.
Proponents of the October effect, one of the most popular theories, argue that October is when some of the greatest crashes in stock market history, including 1929's Black Tuesday and Thursday and the 1987 stock market crash, occurred. While statistical evidence doesn't support the phenomenon that stocks trade lower in October, the psychological expectations of the October effect still exist.
211. Definition of 'Gulf Tiger'
A colloquial term for the glittering city and emirate of Dubai in the Middle East nation of the United Arab Emirates (UAE). Dubai staked its claim as a tiger economy following several years of double-digit economic growth from the mid-1990s onwards. While oil exports formed the initial foundation for the economy, over the decades, Dubai has diversified into other areas of economic activity such as real estate, construction, trade and financial services.
Also known as Arab Gulf Tiger.
Investopedia explains 'Gulf Tiger'
Dubai is one of the most cosmopolitan cities in the region, with the largest population and second-largest land area of the seven emirates in the UAE. It is located south of the Persian Gulf on the Arabian Peninsula. In the first decade of the 21st century, Dubai's building boom led to the construction of some of the world's tallest buildings and biggest projects, including the Burj Khalifa - the world's tallest building - and the Palm Islands. Dubai's bustling Port Jebel Ali is the world's largest man-made harbor and the biggest port in the Middle East. Dubai was severely affected by the economic downturn in the aftermath of the 2008 global credit crisis, as a result of which several major projects ground to a halt.
212.
Definition of 'Conditional Order'
A type of order that will be submitted or canceled if set criteria are met, which are defined by the trader/investor entering the order. This allows for a greater customization of the order to meet the specific needs of the investor.
Investopedia explains 'Conditional Order'
For example, say an investor enters a limit order to buy shares at $45, but only once the shares have first reached $50 (confirming a breakout). The limit order at $45 will be submitted to the brokerage firm only once the shares have reached the $50 price. Conditional orders allow traders to enter into a trade without having to constantly monitor the market, allowing them to be as fast as the market.
213.
Definition of 'War Risk Insurance'
A policy that provides financial protection against losses sustained from occurrences such as invasion, insurrection, revolution, military coup and terrorism. Auto, homeowners, renters, commercial property and life insurance policies often have act-of-war exclusions, meaning that they will not pay for losses caused by war-related events. Because war risk may be specifically excluded from a basic insurance policy, it is sometimes possible to purchase a separate war risk insurance policy.
Investopedia explains 'War Risk Insurance'
War risk insurance makes the most sense for entities that are particularly exposed to the possibility of sudden and violent political upheavals. For example, companies operating in politically unstable parts of the world are exposed to an elevated risk of loss from acts of war. War risk insurance can cover perils such as kidnapping and ransom, emergency evacuation, worker injury, long-term disability and loss or damage of property and cargo. Some war insurance policies also cover acts of terrorism, but others consider terrorism and war to be two separate categories of peril.
214.
Definition of 'Sovereign Wealth Fund - SWF'
Pools of money derived from a country's reserves, which are set aside for investment purposes that will benefit the country's economy and citizens. The funding for a sovereign wealth fund (SWF) comes from central bank reserves that accumulate as a result of budget and trade surpluses, and even from revenue generated from the exports of natural resources. The types of acceptable investments included in each SWF vary from country to country; countries with liquidity concerns limit investments to only very liquid public debt instruments.
Investopedia explains 'Sovereign Wealth Fund - SWF'
Some countries have created SWFs to diversify their revenue streams. For example, the United Arab Emirates (UAE) relies on oil exports for its wealth. Therefore, it devotes a portion of its reserves to an SWF that invests in other types of assets that can act as a shield against oil-related risk.
The amount of money in these SWF is substantial. As of May 2007, the UAE's fund was worth more than $875 billion. The estimated value of all SWFs is pegged at $2.5 trillion.
215.
Definition of 'Tapering'
A gradual winding down of central bank activities used to improve the conditions for economic growth. Tapering activities is primarily aimed at interest rates and investor expectations of what those rates will be in the future. These can include conventional central bank activities, such as adjusting the discount rate or reserve requirements, or more unconventional ones, such as quantitative easing (QE).
Investopedia explains 'Tapering'
Central banks can employ a variety of policies to improve growth, and they must balance short-term improvements in the economy with longer-term market expectations. If the central bank tapers its activities too quickly, it may send the economy into a recession. If it does not taper its activities, it may lead to high inflation.
Tapering is best known in the context of the Federal Reserve's quantitative easing program. In reaction to the 2007 financial crisis, the Federal Reserve began to purchase assets with long maturities to lower long-term interest rates. This activity was undertaken to entice financial institutions to lend money, and it began when the Federal Reserve purchased mortgage-backed securities. In 2013, Ben Bernanke commented that the Federal Reserve would lower the amount of assets purchased by the Fed each month if economic conditions, such as inflation and unemployment, were favorable.
Being open with investors regarding future bank activities helps set market expectations. This is why central banks typically employ a gradual taper rather than an abrupt halt to loosen monetary policies. Central banks reduce market uncertainty by outlining their approach to tapering, and under what conditions that tapering will either continue or discontinue.
216.
Definition of 'Unit Investment Trust - UIT'
An investment company that offers a fixed, unmanaged portfolio, generally of stocks and bonds, as redeemable "units" to investors for a specific period of time. It is designed to provide capital appreciation and/or dividend income.
Unit investment trusts are one of three types of investment companies; the other two are mutual funds and closed-end funds
Investopedia explains 'Unit Investment Trust - UIT'
Each unit typically costs $1,000 and is sold to investors by brokers. UITs can be resold in the secondary market. A UIT may be either a regulated investment corporation (RIC) or a grantor trust. The former is a corporation in which the investors are joint owners; the latter grants investors proportional ownership in the UIT's underlying securities.
217.
Definition of 'Yield To Worst - YTW'
The lowest potential yield that can be received on a bond without the issuer actually defaulting. The yield to worst is calculated by making worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call or sinking fund, are used by the issuer. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios.
Investopedia explains 'Yield To Worst - YTW'
Yield to worst is calculated on all possible call dates. It is assumed that prepayment occurs if the bond has call or put provisions and the issuer can offer a lower coupon rate based on current market rates. If market rates are higher than the current yield of a bond, the yield to worst calculation will assume no prepayments are made, and yield to worst will equal the yield to maturity. The assumption is made that prevailing rates are static when making the calculation. The yield to worst will be the lowest of yield to maturity or yield to call (if the bond has prepayment provisions); yield to worst may be the same as yield to maturity but never higher.
218.
Definition of 'Commodity'
1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.
2. Any good exchanged during commerce, which includes goods traded on a commodity exchange.
Investopedia explains 'Commodity'
1. The basic idea is that there is little differentiation between a commodity coming from one producer and the same commodity from another producer - a barrel of oil is basically the same product, regardless of the producer. Compare this to, say, electronics, where the quality and features of a given product will be completely different depending on the producer. Some traditional examples of commodities include grains, gold, beef, oil and natural gas. More recently, the definition has expanded to include financial products such as foreign currencies and indexes. Technological advances have also led to new types of commodities being exchanged in the marketplace: for example, cell phone minutes and bandwidth.
2. The sale and purchase of commodities is usually carried out through futures contracts on exchanges that standardize the quantity and minimum quality of the commodity being traded. For example, the Chicago Board of Trade stipulates that one wheat contract is for 5,000 bushels and also states what grades of wheat (e.g. No. 2 Northern Spring) can be used to satisfy the contract.
219.
Definition of 'Volumetric Production Payment - VPP'
A type of structured investment that involves the owner of an oil and gas interest selling a specific volume production in that field or property. The investor receives a stated monthly quota – often in raw output, which is then marketed by the VPP buyer – or a specified percentage of the monthly production achieved at the given property.
A VPP deal is typically set to expire after a certain length of time or after a specified aggregate total volume of the commodity has been delivered. A VPP interest is considered a non-operating asset, akin to a royalty-payment system. If the producer can't meet the supply quota for a given month (or whatever schedule is used), the unmet portion will be made up for in the next cycle, and so on until the buyer is made financially whole.
Buyers could include investment banks, hedge funds, energy companies and insurance companies.
Investopedia explains 'Volumetric Production Payment - VPP'
The buyer does not have to contribute any time or capital to the actual production of the end product. However, many investors in these types of interests will hedge their expected receivables (the volumes laid out in the contract) via the derivatives market to protect against commodity risk or otherwise lock in the expected profits.
A VPP deal allows the seller to retain full ownership of the property while monetizing some of their capital investment. This ability to "cash out" some of the value of an oil field, for example, allows the seller to invest in capital upgrades, pay down debt or repurchase shares.
The VPP investor will typically perform strong due diligence both initially and on an ongoing basis, having inspections done of the site while constantly analyzing production reports to ensure that the contract's terms are being met.
220.
Definition of 'Interest Rate Reduction Refinance Loan (IRRRL)'
A mortgage refinancing program offered by the U.S. Department of Veterans Affairs (VA) to homeowners with VA loans. The VA Interest Rate Reduction Refinance Loan (IRRRL) is a VA-loan-to-VA-loan process, designed to allow homeowners to refinance a fixed loan at a lower interest rate or to convert an adjustable rate mortgage (ARM) into a fixed rate mortgage.
Investopedia explains 'Interest Rate Reduction Refinance Loan (IRRRL)'
Because only VA loans can be refinanced through the IRRRL program, the proceeds from the refinance cannot be used to pay for any non-VA mortgage. Borrowers can forgo up-front fees by rolling the processing costs into the loan amount or by accepting a higher interest rate. The property the mortgage covers does not have to be appraised in order to apply.
If the homeowner has a second mortgage that is not a VA loan, the VA loan being refinanced must be the first mortgage. This requires the homeowner to subordinate the lien. While there is no cap on the amount a homeowner can borrow, lenders will consider the liability limits that the VA is able to assume when determining the final amount they are willing to lend. Veterans are typically entitled up to $36,000.
221.
Definition of 'Treasury Note'
A marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes can be bought either directly from the U.S. government or through a bank.
When buying Treasury notes from the government, you can either put in a competitive or noncompetitive bid. With a competitive bid, you specify the yield you want; however, this does not mean that your bid will be approved. With a noncompetitive bid, you accept whatever yield is determined at auction.
Investopedia explains 'Treasury Note'
Treasury notes are extremely popular investments as there is a large secondary market that adds to their liquidity. Interest payments on the notes are made every six months until maturity. The income for interest payments is not taxable on a municipal or state level but is federally taxed.
222.
Definition of 'Amortized Bond'
A financial certificate that has been reduced in value for records on accounting statements. An amortized bond is one that is treated as an asset, with the discount amount being amortized to interest expense over the life of the bond. If a bond is issued at a discount - that is, offered for sale below its par (face value) - the discount must be treated either as an expense or it can be amortized as an asset.
Investopedia explains 'Amortized Bond'
Amortization is an accounting method that gradually and systematically reduces the cost value of a limited life, intangible asset. Treating a bond as an amortized asset is an accounting method in the handling of bonds. Amortizing allows bond issuers to treat the bond discount as an asset over
223.
Definition of 'Bargain Purchase Option'
An option in a lease agreement that allows the lessee to purchase the leased asset at the end of the lease period at a price substantially below its fair market value. The bargain purchase option is one of four criteria, any one of which, if satisfied, would require the lease to be classified as a capital or financing lease that must be disclosed on the lessee's balance sheet. The objective of this classification is to prevent "off-balance sheet" financing by the lessee.
Investopedia explains 'Bargain Purchase Option'
For example, assume that the value of an asset at the end of the lease period is estimated at $100,000, but the lease agreement has an option that enables the lessee to purchase it for $70,000. This would be considered as a bargain purchase option and would require the lessee to treat the lease as a capital lease.
There are significant differences in the accounting treatment of the leased asset and lease payments for capital leases and operating leases.
224. Definition of 'Monetary Policy'
The actions of a central bank, currency board or other regulatory
committee that determine the size and rate of growth of the money
supply, which in turn affects interest rates. Monetary policy is
maintained through actions such as increasing the interest rate, or
changing the amount of money banks need to keep in the vault (bank
reserves).
Investopedia explains 'Monetary Policy'
In the United States, the Federal Reserve is in charge of monetary
policy. Monetary policy is one of the ways that the U.S. government
attempts to control the economy. If the money supply grows too fast,
the rate of inflation will increase; if the growth of the money supply
is slowed too much, then economic growth may also slow. In general,
the U.S. sets inflation targets that are meant to maintain a steady
inflation of 2% to 3%.
225. Definition of 'Texas Ratio'
A ratio developed by Gerald Cassidy and other analysts at RDC Capital Markets to measure the credit problems of particular banks or regions of banks. The Texas ratio takes the amount of a bank's non-performing assets and loans, as well as loans delinquent for more than 90 days, and divides this number by the firm's tangible capital equity plus its loan loss reserve. A ratio of more than 100 (or 1:1) is considered a warning sign.
Investopedia explains 'Texas Ratio'
The Texas ratio was developed as an early warning system to identify potential problem banks. It was originally applied to banks in Texas in the 1980s and proved useful for New England banks in the early 1990s. This ratio can be useful when an asset held on a bank's balance sheet is falling in value, such as with oil reserves or mortgage assets.
226. Definition of 'Weak Shorts'
Traders or investors who hold a short position in a stock or other financial asset who will close it out at the first indication of price strength. Weak shorts are typically investors with limited financial capacity, which may preclude them from taking on too much risk on a single short position. A weak short will generally have a tight stop-loss order in place on the short position to cap the loss on the short trade in case it goes against the trader. Weak shorts are conceptually similar to weak longs, but the latter employ long positions.
Investopedia explains 'Weak Shorts'
Weak shorts are more likely to be carried out by retail traders rather than institutional investors, since their financial capacity is limited. That said, even institutional investors may find themselves in the weak-shorts camp if they are financially stretched and cannot afford to commit more capital to a trade.
The presence of weak shorts may intensify volatility in a stock or other asset. This is because they will be inclined to exit their short positions if the stock shows signs of strengthening. Such short covering may drive up the stock price rapidly, which may force other traders with short positions to close them for fear of being caught in a short squeeze.
Subsequently, if the stock begins to weaken and again looks vulnerable, the weak shorts may reinstate their short positions. Weak shorts may be constrained by the availability of capital, but may still have a high degree of conviction in their short idea. Heavy shorting activity would aggravate the stock’s weakness, driving its price down quickly. This trading pattern thus leads to heightened stock volatility.
Traders often look for stocks with heavy short interest, which is used as a contrarian indicator to identify stocks that may be poised to move up on a short squeeze. Stocks that are heavily shorted primarily by retail investors – i.e. weak shorts – may be better short-squeeze candidates than those where the short positions are mainly held by institutions with deep pockets, such as hedge funds. While short interest for a stock is provided on a consolidated basis and is not categorized as retail or institutional, one way to identify retail short interest is by using trading software that shows major holders of the stock and block trades. A stock with (a) minimal institutional holdings, (b) few block trades and (c) significant short interest is likely to be one with a disproportionate number of weak shorts.
227. Definition of 'Variable Universal Life Insurance - VUL'
A form of cash-value life insurance that offers both a death benefit and an investment feature. The premium amount for variable universal life insurance (VUL) is flexible and may be changed by the consumer as needed, though these changes can result in a change in the coverage amount. The investment feature usually includes "sub-accounts," which function very similar to mutual funds and can provide exposure to stocks and bonds. This exposure offers the possibility of an increased rate of return over a normal universal life or permanent insurance policy.
Investopedia explains 'Variable Universal Life Insurance - VUL'
While variable universal life insurance offers increased flexibility and growth potential over a traditional cash-value whole life insurance policy, investors should be sure to compare this type of policy against a "buy term and invest the rest" strategy. Particular attention should be paid to the management fees of the variable investment options, as well as to whether or not an individual even needs life insurance coverage beyond a specific point in the future.
228.
Definition of 'Through Fund'
A type of target-date retirement fund whose asset allocation includes higher risk and potentially higher return investments "through" the fund’s target date and beyond. A "through" fund might make sense for individuals who only need to sell a small percentage of their investments each year to meet their retirement living expenses and who want to continue investing during their retirement years.

Investopedia explains 'Through Fund'
The farther away a fund’s target date is, the more stocks it will usually hold relative to bonds. A "through" fund takes more risk, for longer, than a "to" fund. Both reach conservative positions at the target date, but through funds invest less conservatively. This gives them the potential for greater returns – and also greater losses – from the beginning. In addition, their strategy means that a through fund will contain assets that can grow beyond the target date, enabling you to continue to build assets during your retirement. By doing this, a through fund also lowers the risk of outliving your retirement savings.
Before choosing a specific target-date fund for your retirement savings, research its glide path (how it progressively becomes more conservative) to learn how the fund’s asset allocation will change over time. Also determine whether it is a "through" fund or a "to" fund.
A through target-date 2045 fund might have a glide path that results in an asset allocation of 60% stocks and 40% bonds and short-term funds in 2045. The percentage of stocks would decrease gradually during your retirement years, while the percentage of bonds and short-term funds would increase. But even at the target date, there would be both stocks and bonds/short-term funds in your through fund and this pattern would continue during retirement.
Through funds are meant to be held past their target dates, while to funds are likely to work best for you if they are cashed out and/or reinvested at their target date.
229.
Definition of 'Direct Consolidation Loan'
A loan that combines two or more federal education loans into a single loan. A Direct Consolidation Loan allows the borrower to make a single monthly payment. The loan is facilitated by the U.S. Department of Education and does not require borrowers to pay an application fee.
Investopedia explains 'Direct Consolidation Loan'
A Direct Consolidation Loan allows borrowers to lower the number of loan payments they have to make each month, combining them into a single payment. Most federal loans are eligible for consolidation, but private loans are not eligible. Borrowers can consolidate once they complete school, leave school or fall below half-time student status.
Before considering a Direct Consolidation Loan, it is important to consider any benefits associated with the original loans, such as interest rate discounts and rebates. Once the loans are rolled into a new loan, those benefits are lost. Additionally, if the new loan increases the repayment period, the borrower may wind up paying more interest.
230. Definition of 'Leveraged Benefits '
The use – by a business owner or professional practitioner – of their company’s receivables or current income to secure a loan whose proceeds then indirectly fund a retirement plan. In a leveraged benefit program, also called a leveraged planning program, the participant purchases a large guaranteed annuity (such as an equity-indexed annuity) or a large cash-value life insurance policy (such as a single premium indexed universal life policy) that helps provide secure retirement income that falls outside ERISA regulations and matches the high income of the participant’s working years. The plan can be established through a financial planner or specialized insurance agency.
Investopedia explains 'Leveraged Benefits '
Since business owners and professional practitioners (such as lawyers, doctors, independent consultants and accountants) often have high expenses and/or minimal income in their early years, they may not be able to make significant contributions to their retirement accounts until later in their working lives. By that time, it is not possible to make high-enough contributions and/or to earn high-enough returns in the remaining working years to fund a sufficient retirement income. Leveraged benefit programs allow the owner of an established business with strong cash flow to fund a large retirement portfolio worth hundreds of thousands – or millions – of dollars over just a few years to make up for their small initial retirement contributions.
To establish a leveraged benefit program, the small business owner or professional practitioner (the participant) applies for a loan, using both the business’s financial statements and his/her personal financial statements to help the bank determine how much it is willing to lend. The bank lends the participant funds as a lump sum or a series of payments over several years. The participant uses the loan proceeds to purchase a guaranteed annuity or a cash-value life insurance policy, which often becomes the loan collateral; the participant’s receivables or income, or even personal assets, may also serve as collateral. The participant repays the loan over five to 10 years, according to the loan terms. When the loan is fully repaid, the bank releases its claim to the collateral.
The loan that funds the leveraged benefit plan usually charges simple interest, but the proceeds are used in a way that earns compound returns. In addition, the loan interest is often a tax-deductible business expense. Thus, the interest cost is significantly less than what the annuity or life insurance plan earns. In addition, the programs are typically structured to provide protection from downside loss in the market.
231. 
Definition of 'Mortgage Modification'
A permanent change in a homeowner’s home loan terms that makes the monthly loan payments affordable. The goal of mortgage modification is to prevent foreclosure. Mortgage modification can benefit homeowners by preventing them from losing their home and can benefit lenders by avoiding  the costly foreclosure process.
Investopedia explains 'Mortgage Modification'
To apply for a mortgage modification, a homeowner must complete an application package documenting income, assets, expenses and financial hardship.
The biggest mortgage modification program in the United States is the Home Affordable Refinance Program, created in 2009 by the federal government in response to the nation's housing crisis. This program helps homeowners who are struggling to pay their Freddie Mac or Fannie Mae-backed mortgage apply for mortgage modification with their loan servicer. These are borrowers who cannot do a traditional refinance to improve their loan terms because their home value has declined below the mortgage balance.
A similar program called the Home Affordable Modification Program helps borrowers with Federal Housing Administration-backed mortgages. Borrowers can also apply for a mortgage modification outside these federal programs. A nonprofit housing counselor can help with the process.
While a mortgage modification generally means less income for the bank because of a reduction in the mortgage’s principal amount, interest rate or both, this loss may be less than what the bank would experience by foreclosing on the borrower and reselling the property. Mortgage modification can turn a less-than-ideal situation into a win-win.
Still, foreclosure was much more common than mortgage modification during the housing crisis because banks claimed they lacked the resources to handle the large number of modification requests. This meant many homeowners who probably would have qualified for mortgage modification were not able to get into a modification program and, instead, lost their homes to foreclosure.
232.
Definition of 'Direct Bidder'
An entity that purchases Treasury securities at auction for a house account rather than on behalf of another party. Direct bidders include primary dealers, non-primary dealers, hedge funds, pension funds, mutual funds, insurers, banks, governments and individuals.
Investopedia explains 'Direct Bidder'
The Treasury Department has permitted direct bidding on securities, both competitively and non-competitively, since auctions first came into use. Competitive bids require the direct bidder to specify the desired return, with the amount of securities won at auction depending on the highest competitive discount rate. A noncompetitive bid does not require the bidder to indicate a desired return. The Treasury accepts all noncompetitive bids, and then competitive bids in order of increasing yield.
After an auction has ended, the Treasury Department announces the dollar amount of securities purchased by primary dealers and other direct bidders, as well as indirect bidders. This information includes the amount purchased by each group.
If organizations shift from bidding through primary dealers, referred to as indirect bidding, to bidding directly themselves, it can be more difficult for other primary dealers to gauge the level of interest in securities auctions.
233.
Definition of 'Jensen's Measure'
A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as "Jensen's alpha."
Investopedia explains 'Jensen's Measure'
If the definition above makes your head spin, don't worry: you aren't alone! This is a very technical term that has its roots in financial theory.
The basic idea is that to analyze the performance of an investment manager you must look not only at the overall return of a portfolio, but also at the risk of that portfolio. For example, if there are two mutual funds that both have a 12% return, a rational investor will want the fund that is less risky. Jensen's measure is one of the ways to help determine if a portfolio is earning the proper return for its level of risk. If the value is positive, then the portfolio is earning excess returns. In other words, a positive value for Jensen's alpha means a fund manager has "beat the market" with his or her stock picking skills.
234.
Definition of 'Baked In The Cake'
Projections, expectations and other news items that are already reflected in a security’s price. As a phrase, "baked in the cake" is used to indicate that something has already been taken into account, and that an investor just learning of the news is unlikely to be at an advantage by acting on it.

Investopedia explains 'Baked In The Cake'
Investors who try to profit from breaking news must answer a difficult question: How many other investors have already acted on the news? This fundamental issue is related to insider trading and asymmetric information. In order to profit from breaking news, an investor has to be one of the first to hear of it. Once a critical number of investors have traded on an earnings estimate, for example, the news will be considered baked in the cake.
Investors should be careful when it comes to what news they trade on, and where that news is coming from. The advent of the Internet has increased the availability of information, but the source and veracity of the information found on the Internet is difficult to ascertain. For example, if an investor is told material, non-public information by an employee of a company, trading that company’s shares may lead to an investigation by the SEC.
235.
Definition of 'Tortoise Rally'
A slow-and-steady appreciation of financial market prices over time. A tortoise rally contrasts with more volatile rallies where prices rise and fall quickly while maintaining a general upward trend.
Investopedia explains 'Tortoise Rally'
Long-term retail investors generally enjoy the steady gains produced by a tortoise rally. However, active traders and hedge funds can become frustrated by the lack of quick drops and rises that allow these players to capitalize on their superior information and market access. For them, volatility creates opportunities to buy underpriced securities for the long haul or to create short-term trading profits.
236. Definition of 'Okun's Law'
The relationship between an economy's unemployment rate and its gross
national product (GNP). Twentieth-century economist Arthur Okun
developed this idea, which states that when unemployment falls by 1%,
GNP rises by 3%. However, the law only holds true for the U.S.
economy, and only applies when the unemployment rate falls between
3-7.5%. Other version of Okun's Law focus on a relationship between
unemployment and GDP, whereby a percentage increase in unemployment
causes a 2% fall in GDP.
Investopedia explains 'Okun's Law'
The percentage by which GNP changes when unemployment changes by 1% is
called the "Okun coefficient". Industrialized nations with labor
markets that are less flexible than those of the United States, such
as France and Germany, tend to have higher Okun coefficients. In those
countries, the same percentage change in GNP has a smaller effect on
the unemployment rate than it does in the United States.
237. Definition of 'Distressed Sale'
When property, stocks or other assets are sold in an urgent manner,
often at a loss. Distressed sales often occur at a loss because funds
tied up in the asset are needed within a short period of time. The
funds from these assets are most often used to pay for debts, medical
expenses or other emergencies.

Investopedia explains 'Distressed Sale'
Mortgage borrowers who can no longer pay for their mortgaged property,
may opt to sell their property in order to pay the mortgage. Examples
of situations where distressed sales occur include divorce,
foreclosures and relocations.
238.
Definition of 'Retail Sales'
An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country. In the U.S., the retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce. The report covers the previous month, and is released about two weeks after the month-end. Comparisons are made against historical data; year-over-year comparisons are the most-reported metric because they account for the seasonality of consumer-based retail.
Investopedia explains 'Retail Sales'
The retail sales report captures in-store sales as well as catalog and other out-of-store sales. The report also breaks down sales figures into groups such as food and beverages, clothing, and autos. The results are often presented two ways: with and without auto sales being counted, because their high sticker price can add extra volatility to the data.
Retail sales figures are vital to stock investors as a whole, and especially to those who invest in retail companies directly. They are also are a big component of total gross domestic product (GDP) in the United States, so any extended drop-offs in retail spending can trigger a recession by lowering tax receipts and forcing companies to reduce head counts.
As far as broad economic indicators go, the retail sales report is one of the most timely, providing data that is only a few weeks old. Individual retail companies often give their own sales figures around the same time per month, and their stocks can be very volatile around this time as investors process the data.
239.
Definition of 'Class Action'
An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
Investopedia explains 'Class Action'
This is often done when shareholders launch a lawsuit, mainly because it would be too expensive for each individual shareholder to launch their own law suit.
240.
Definition of 'Master Limited Partnership - MLP'
A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.

Investopedia explains 'Master Limited Partnership - MLP'
One of the most crucial criteria that must be met in order for a partnership to be legally classified as an MLP is that the partnership must derive most (~90%) of its cash flows from real estate, natural resources and commodities.
The advantage of an MLP is that it combines the tax benefits of a limited partnership (the partnership does not pay taxes from the profit - the money is only taxed when unitholders receive distributions) with the liquidity of a publicly traded company.
241. Definition of 'Gilt-Edged Switching'
The selling and repurchasing of certain high-grade stocks or bonds to
capture profits. Gilt-edged switching involves gilt-edged security,
which can be high-grade stock or bond issued by a financially stable
company such as the Blue Chip companies or by certain governments.
They are considered to be low-risk investments because they are backed
by strong, established entities. Gilt-edged securities are generally
inversely linked to interest rates, and therefore experience price
fluctuations.
Investopedia explains 'Gilt-Edged Switching'
Gilt-edged switching is utilized by governments like those of the
United Kingdom, South Africa and Ireland. An example of a Gilt-edged
switching selling one bond in favor of another one. Higher-yielding
bonds may increase the potential for profit. Gilt-edged switching may
also involve selling one bond at a discount in order to purchase a
more favorably yielding instrument.
242.
Definition of 'Marginal Analysis'
An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions.
Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.

Investopedia explains 'Marginal Analysis'
For example, if you already exercise five times a week and are thinking about adding a sixth day, you would use marginal analysis to determine whether the benefits of the sixth day, such as additional calories burned, endurance gained and muscle built, would be worth the costs of the sixth day, such as giving up sleeping in on Saturdays, having less energy to do your other weekend activities, and increasing your risk of injury.
243.
Definition of 'Treasury Inflation Protected Securities - TIPS'
A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. TIPS can be purchased directly from the government through the TreasuryDirect system in $100 increments with a minimum investment of $100 and are available with 5-, 10-, and 30-year maturities.
Investopedia explains 'Treasury Inflation Protected Securities - TIPS'
Because a TIPS bond's semiannual inflation adjustments are considered taxable income by the IRS even though investors don't see that money until they sell the bond or it reaches maturity, some investors prefer to get TIPS through a TIPS mutual fund or only hold them in tax-deferred retirement accounts to avoid tax complications.
Purchasing TIPS directly, however, allows investors to avoid the management fees associated with mutual funds. TIPS are also valuable because they are exempt from state and local income taxes.
244.
Definition of 'Family Limited Partnership - FLP'
A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
Investopedia explains 'Family Limited Partnership - FLP'
An FLP is different from a conventional trust, as family members actually own a share in a business. Shares can be gifted to family members over years, thus taking advantage of gift tax exemptions on an annual basis. The assets held in an FLP impact the level of estate tax savings that can be realized by using an FLP. In general, the more illiquid and complex the asset mix, the more difficult the FLP is to evaluate, and the larger the potential for estate tax savings.
245.
Definition of 'Yield Burning'
The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
Investopedia explains 'Yield Burning'
Yield burning is attempted in order to reduce the amount of tax that is incurred on fixed-income investments. However, this practice violates federal tax laws. It is not legally possible for an investor to earn a given yield on a fixed-income investment and use yield-burning activities to evade the full extent of the tax obligations incurred on that investment.
246.
Definition of 'Aggregate Risk'
The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Investopedia explains 'Aggregate Risk'
Banks and financial institutions closely monitor aggregate risk in order to minimize their exposure to adverse financial developments - such as a credit crunch or even insolvency - arising at a counterparty or client. This is achieved through position limits that stipulate the maximum dollar amount of open transactions that can be entered into for spot and forward currency contracts at any point in time.
Aggregate risk limits will generally be larger for long-standing counterparties and clients with sound credit ratings, and will be lower for clients who are either new or have lower credit ratings.
247.
Definition of 'Organic Growth'
The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
Investopedia explains 'Organic Growth'
Organic growth represents the true growth for the core of the company. It is a good indicator of how well management has used its internal resources to expand profits. Organic growth also identifies whether managers have used their skills to improve the business.
248.
Definition of 'Joint Venture - JV'
A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests.
Investopedia explains 'Joint Venture - JV'
Although JVs represent a great way to pool capital and expertise and reduce the exposure of risk to all involved, they do present some unique challenges as well. For instance, if party A comes up with an idea that allows the JV to flourish, what cut of the profits does party A get? Does the party simply receive a cut based on the original investment pool or is there recognition of the party's contribution above and beyond the initial stake? For this and other reasons, it is estimated that nearly half of all JVs last less than four years and end in animosity.
249.
Definition of 'Oil Reserves'
An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
Reserves are calculated based on a proven/probably basis.
Investopedia explains 'Oil Reserves'
Saudi Arabia, Kuwait, Iran, Iraq, Venezuela, Russia, Mexico and Canada are some of the world leaders in oil reserves. Canada has over 150 billion barrels of oil reserves, a large portion of which is concentrated in the Alberta oil sands. If the rate of technological improvement exceeds the rate of extraction, national oil reserves will increase.
250.
Definition of 'Market Capitalization'
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
Frequently referred to as "market cap."
Investopedia explains 'Market Capitalization'
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are:
Large Cap: $10 billion plus and include the companies with the largest market capitalization.
Mid Cap: $2 billion to $10 billion
Small Cap: Less than $2 billion
In order to make an investment decision, you may need to factor in the market cap of some investments. Read Understanding Small- And Big-Cap Stocks.
251.
Definition of 'Federal Reserve Note'
The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand. This term is often confused with Federal Reserve Bank Notes, which were issued and redeemable only by each individual member bank, but phased out in the mid-1930s.
Investopedia explains 'Federal Reserve Note'
Prior to 1971, any Federal Reserve Note issued was theoretically backed by an equivalent amount of gold held by the U.S. Treasury. However, under President Nixon, the gold standard was officially abandoned creating a fiat currency. In other words, Federal Reserve Notes were no longer backed by hard assets. Rather, Federal Reserve Notes were now backed solely by the government's declaration that such paper money was legal tender in the United States.
252.
Definition of 'Benchmark Bond'
A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".

Investopedia explains 'Benchmark Bond'
More specifically, the benchmark is the latest issue within a given maturity. For a comparison to be appropriate and useful, the benchmark and the bond being measured against it should have a comparable liquidity, issue size and coupon.
253.
Definition of 'Gross Debt Service Ratio - GDS'
A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment about whether a potential borrower is already in too much debt. Receiving a ratio of less than 30% means that the potential borrower has an acceptable level of debt.
Calculated as:
Gross Debt Service Ratio (GDS)

Investopedia explains 'Gross Debt Service Ratio - GDS'
For example, Jack and Jill, two law students, have a monthly mortgage payment of $1,000 (annual payment of $12,000), property taxes of $3,000 and a gross family income of $45,000. This would give a GDS of 33 %. Based on the benchmark of 30%, Jack and Jill appear to be carrying an unacceptable amount of debt.
Keep in mind that this ratio is only a very rough benchmark. The acceptance of a loan application is not solely determined by this ratio. Since this is a very simple ratio, there are a lot of subsequent factors that lenders consider. For example, even though Jack and Jill's GDS is above the benchmark, a lender may still lend to Jack and Jill because of their future earning potential as lawyers. When combined with other personal information, GDS can be a good way for lenders to screen borrowers.
254.
Definition of 'Headline Inflation'
The raw inflation figure as reported through the Consumer Price Index (CPI) that is released monthly by the Bureau of Labor Statistics. The CPI calculates the cost to purchase a fixed basket of goods as a way of determining how much inflation is occurring in the broad economy. The CPI uses a base year and indexes current year prices based on the base year's values.
The headline figure is not adjusted for seasonality or for the often volatile elements of food and energy prices, which are removed in the Core CPI. Headline inflation will usually be quoted on an annualized basis, meaning that a monthly headline figure of 4\% inflation equates to a monthly rate that, if repeated for 12 months, would create 4\% inflation for the year. Comparisons of headline inflation are typically made on a year-over-year basis.
Also known as "top-line inflation".
Investopedia explains 'Headline Inflation'
Inflation is a great threat to long-term investors because it erodes the value of future dollars. Inflation can stifle economic growth and cause a rise in prevailing interest rates.
While headline inflation tends to get the most attention in the media, core inflation is often considered the more valuable metric to follow. Core inflation removes the CPI components that can exhibit large amounts of volatility month to month, which can cause unwanted distortion to the headline figure. Both headline and core results are followed closely by investors, and are also used by economists and central banking figures to set economic growth forecasts and monetary policy.
255.
Definition of 'Income From Operations - IFO'
The profit realized from a business' own operations. Income from operations is generated from running the primary business and excludes income from other sources. For example, this would exclude income generated from selling the property of a manufacturing company.
Investopedia explains 'Income From Operations - IFO'
This is the same as operating income. By only looking at the profit generated in normal business operations it makes it easier to understand the potential future profitability of the company. For example if a car company spends $100,000 building and selling cars then sells them for $110,000, it has $10,000 income from operation. Because this is income generated only from normal operations, an investor could assume that similar income will be generated every year as long as operations continue.
256.
Definition of 'Divergence'
When the price of an asset and an indicator, index or other related asset move in opposite directions. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators, such as the money flow index (MFI), are moving in opposite directions.
Divergence
Investopedia explains 'Divergence'
In technical analysis, divergence is considered either positive or negative, both of which are signals of major shifts in the direction of the price. Positive divergence occurs when the price of a security makes a new low while the indicator starts to climb upward. Negative divergence happens when the price of the security makes a new high, but the indicator fails to do the same and instead closes lower than the previous high.
257.
Definition of 'Parity Price'
When the price of an asset is directly linked to another price. Examples of parity price are:
1. Convertibles - the price at which a convertible security equals the value of the underlying stock.
2. Options - when an option is trading at its intrinsic value ("trading at parity").
3. International parity - official rates for a currency in terms of other pegged currencies, typically the U.S. dollar.
Investopedia explains 'Parity Price'
Parity price is commonly used in the context of convertible securities and often referred to as "conversion parity price" or "market conversion price". It is the price an investor effectively pays to exchange or convert a convertible security into common stock and is equal to the price of the convertible security divided by the conversion ratio (the number of shares that the convertible can be converted into). Conversely, in the case of common stock, it is calculated by dividing market value by the conversion ratio.
In agricultural commodities, you can think of parity price as the purchasing power of a particular commodity relative to a farmer's expenses such as wages, interest on debt, equipment, taxes and so forth. The Agricultural Adjustment Act of 1938 states that the parity price formula is "average prices received by farmers for agricultural commodities during the last 10 years and is designed to gradually adjust relative parity prices of specific commodities". If the parity price for a commodity is not sufficient enough for a farm operator to support his or her family and operate the business then the government could step in and support prices through direct purchases, or the issuance of non-recourse loans to farmers.
258.
Definition of 'Qualified Retirement Plan'
A type of retirement plan established by an employer for the benefit of the company’s employees. Qualified retirement plans give employers a tax break for the contributions they make for their employees. Qualified plans that allow employees to defer a portion of their salaries into the plan also reduce employees’ present income-tax liability by reducing taxable income. Qualified retirement plans help employers attract and retain good employees.
Investopedia explains 'Qualified Retirement Plan'
Qualified plans come in two types: defined benefit and defined contribution. Defined benefit plans give employees a guaranteed payout and place the risk on the employer to save and invest properly to meet plan liabilities. A traditional pension is an example of a defined benefit plan. Under defined contribution plans, the amount employees receive in retirement depends on how well they save and invest on their own behalf during their working years. A 401(k) plan is an example of a defined contribution plan.
Qualified plans only allow certain types of investments, which vary by plan but typically include publicly traded securities, real estate, mutual funds and money market funds. They also specify when distributions can be made, typically when the employee reaches the plan’s defined retirement age, when the employee becomes disabled, when the plan is terminated and not replaced by another qualified plan, or when the employee dies (in which case the beneficiary receives the distributions).
Workers may take distributions from qualified plans before one of these triggering events occurs, but they will be subject to taxes and penalties that might make it unwise to take an early distribution. Some plans also allow employees to borrow from the plan under strict rules about how the loan must be repaid. For example, they may require that the loan be repaid within a certain number of years, that the worker pay interest (which goes back into the plan) on the loan and that the loan be repaid immediately if the employee leaves the job to which the qualified retirement plan is tied.
259.
Definition of 'Interlocking Directorates'
A common business practice where a member of a company's board of directors also serves on another company's board or within another company's management. Under antitrust legislation, interlocking directorates are not illegal as long as the corporations involved do not compete with each other.
Investopedia explains 'Interlocking Directorates'
Interlocking directorates were outlawed in specific instances where it gave a few board members control over an entire industry and allowed them to synchronize pricing changes, labor negotiations and so on. This does not prevent a board director from Company A from serving on the board of a Company B, which is a client of Company A.
Although there are still many opportunities for collusion through interlocking directorates, recent trends in corporate governance have shifted much more power to the CEO. Due to this shift, many CEOs have been able to appoint and dismiss board members as they please, as opposed to being influenced by them.
260.
Definition of 'Grantor Retained Annuity Trust - GRAT'
An estate planning technique that minimizes the tax liability existing when intergenerational transfers of estate assets occur. Under these plans, an irrevocable trust is created for a certain term or period of time. The individual establishing the trust pays a tax when the trust is established. Assets are placed under the trust and then an annuity is paid out every year. When the trust expires the beneficiary receives the assets tax free.
Investopedia explains 'Grantor Retained Annuity Trust - GRAT'
Under these plans, the annuity payments come from interest earned on the assets underlying the trust or as a percentage of the total value of the assets. If the individual who establishes the trust dies before the trust expires the assets become part of the taxable estate of the individual, and the beneficiary receives nothing.
261.
Definition of 'False Signal'
In technical analysis, a false signal refers to an indication of future price movements which gives an inaccurate picture of the economic reality. False signals may arise due to a number of factors, including timing lags, irregularities in data sources, smoothing methods or even the algorithm by which the indicator is calculated.

Investopedia explains 'False Signal'
It is important for technicians to have a thorough understanding of the technical indicators they are using so that they are better able to detect false signals when they arise. Also, many technicians prefer to use a mix of technical indicators to function as a checking mechanism. Since trading on false signals can be extremely costly, trades are only placed when there is a consensus of technical indicators showing a future price movement.
262.
Definition of 'Bad Bank'
A bank set up to buy the bad loans of a bank with significant nonperforming assets at market price. By transferring the bad assets of an institution to the bad bank, the banks clear their balance sheet of toxic assets but would be forced to take write downs. Shareholders and bondholders stand to lose money from this solution (but not depositors). Banks that become insolvent as a result of the process can be recapitalized, nationalized or liquidated.
Investopedia explains 'Bad Bank'
A well-known example of a bad bank was Grant Street National Bank, which was created in 1988 to house the bad assets of Mellon Bank. The financial crisis of 2008 revived interest in the bad bank solution, as managers at some of the world's largest institutions contemplated segregating their nonperforming assets into bad banks.
Federal Reserve Bank Chairman Ben Bernanke proposed the idea of using a government-run bad bank in the recession following the subprime mortgage meltdown in order to clean up private banks with high levels of problematic assets and allow them to start lending again. An alternate strategy considered was a guaranteed insurance plan that would keep the toxic assets on the banks' books but eliminate the banks' risk and pass the risk on to taxpayers.
263.
Definition of 'Signaling Approach'
The idea that insiders have information not available to the market. Moves made by insiders can signal information to outsiders and change the stock price.
Investopedia explains 'Signaling Approach'
The thinking goes that if a high level executive, such as a CEO, is selling, he or she is probably doing so for a reason that you, as the public, don't know yet, so you should get out also. The same is true for the opposite. If an insider is buying stocks in his or her company, it signals outsiders to also buy based on the idea that the insider knows more than he or she is letting on to the public.
264.
Definition of 'Rounding Bottom'
A chart pattern used in technical analysis, which is identified by a series of price movements that, when graphed, form the shape of a "U". Rounding bottoms are found at the end of extended downward trends and signify a reversal in long-term price movements. This pattern's time frame can vary from several weeks to several months and is deemed by many traders as a rare occurrence.
The chart below illustrates a rounding bottom.
Rounding Bottom
Investopedia explains 'Rounding Bottom'
A rounding bottoms look similar to the cup and handle pattern, but does not experience the temporary downward trend of the "handle" portion. The initial declining slope of a rounding bottom indicates an excess of supply, which forces the stock price down. The transfer to an upward trend occurs when buyers enter the market at a low price, which increases demand for the stock. Once the rounding bottom is complete, the stock breaks out and will continue in its new upward trend.
265.
Definition of 'Balanced Investment Strategy'
A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
Investopedia explains 'Balanced Investment Strategy'
Although the balanced investment strategy aims to balance risk and return it does carry more risk than those strategies aiming at capital preservation or current income. In other words, the balanced investment strategy is a somewhat aggressive strategy, and is suitable for those investors with a longer time horizon (generally over five years), and have some risk tolerance.
266.
Definition of 'Negative Carry'
A situation in which the cost of holding a security exceeds the yield earned. A negative carry situation is typically undesirable because it means the investor is losing money. An investor might, however, achieve a positive after-tax yield on a negative carry trade if the investment comes with tax advantages, as might be the case with a bond whose interest payments were nontaxable.
Investopedia explains 'Negative Carry'
A negative carry would occur if an investor borrowed $1,000 at 12.5% and used the $1,000 to purchase a bond yielding 9.5%. The bond's coupons would not cover the interest owing, so the investor would end up paying 3% to make the investment.
267.
Definition of 'Centralized Market'
A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
Investopedia explains 'Centralized Market'
The New York Stock Exchange is considered a centralized market because orders are routed to the exchange and are then matched with an offsetting order. On the other hand, the foreign exchange market is not deemed to be centralized because there is no one location where currencies are traded and it is possible for traders to find competing rates from various dealers from around the world.
268.
DEFINITION
A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price.

The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget. The supply curve is set by firms attempting to maximize profits, given their costs of production and the level of demand for their product. To maximize profits, the pricing model is based around producing a quantity of goods at which total revenue minus total costs is at its greatest.

INVESTOPEDIA EXPLAINS
In general, the balance of power within the market determines who is more successful in setting prices. For example, a monopolist, such as a utility company, has a great deal of power to set prices at the most advantageous point for the firm. On the other hand, in a perfectly competitive market, such as farming, firms have little choice but to accept the prevailing market price if they wish to sell their goods.
269.
Definition of 'Accelerated Share Repurchase - ASR'
A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company. The shares are returned to the client through purchases in the open market, often purchased over a period that can range from one day to several months.
Investopedia explains 'Accelerated Share Repurchase - ASR'
Accelerated share repurchases allow corporations to transfer the risk of the stock buyback to the investment bank in return for a premium. The corporation is therefore able to immediately transfer a predetermined amount of money to the investment bank in return for its shares of stock. ASRs are often used to buy shares back at a faster pace and reduce the amount of shares outstanding right away.
270.
Definition of 'Genuine Progress Indicator - GPI'
A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others). The GPI nets the positive and negative results of economic growth to examine whether or not it has benefited people overall.
Investopedia explains 'Genuine Progress Indicator - GPI'
The GPI metric was developed out of the theories of green economics (which sees the economic market as a piece within a ecosystem). Proponents of the GPI see it as a better measure of the sustainability of an economy when compared to the GDP measure. Since 1995 the GPI indicator has grown in stature and is used in Canada and the United States. However, both these countries still report their economic information in GDP to remain in line with the more widespread practice.
271.
Definition of 'Quanto Swap'
A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates.
This is also referred to as a differential or "diff" swap.
Investopedia explains 'Quanto Swap'
Though they deal with two different currencies, payments are settled in the same currency. For example, a typical quanto swap would involve a U.S. investor paying six-month LIBOR in U.S. dollars (for a US$1 million loan), and receive payments in U.S. dollars at the six-month EURIBOR + 75 basis points.
Fixed-for-floating quanto swaps allow an investor to minimize foreign exchange risk. This is achieved by fixing both the exchange rate and interest rate at the same time. Floating-for-floating swaps have slightly higher risk, since each party is exposed to the spread between each country's currency interest rate.
272.
DEFINITION
A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters. The qualifier will follow the ticker symbol and be preceded by a space or hyphen.

INVESTOPEDIA EXPLAINS
Warrants are issued by the same company that issued the stock and can be traded with that stock or separately. A stock trading with warrants attached uses the qualifier "ww." A warrant gives the holder the right, but not the obligation, to purchase additional stock from, or sell stock back to, the issuer at a predetermined price within a specific time frame, usually a few years. A stock that is trading ex-warrant previously had a warrant attached but no longer does. The stock's price should be lower as a result.
273.
Definition of 'Pension Risk Transfer'
When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits. Companies transfer pension risk to avoid earnings volatility – they no longer have to pay for unfounded pension obligations – and to free themselves to concentrate on their core businesses.
Investopedia explains 'Pension Risk Transfer'
The total annual cost of a pension plan can be hard to predict due to variables in investment returns, interest rates and the longevity of participants. Large companies had been holdouts to the national trend of transferring pension planning responsibility to employees, but that began to change in 2012, when a range of Fortune 500 players sought to transfer pension risk. This included Ford Motor Co. (F) , Sears, Roebuck & Co., J.C. Penney Co. Inc. (JCP) and PepsiCo Inc. (PEP) – which offered former employees an optional lump-sum payment; and General Motors Co. (GM) and Verizon Communications Inc. (VZ) – which purchased annuities for retirees. (See also: risk shifting and transfer of risk.)
274.
Re-fracking is the practice of returning to older shale oil and gas wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight deposits – where the shale produces low yields – to expand their productivity and extend their life.
Investopedia explains 'Re-fracking'
Wells sunk as little as three years ago and fracked until yields fell too low to be worthwhile are now being re-fracked. One technique is sealing up larger cracks in the well's shale with small plastic balls so that new proppant can find its way into tighter cracks with the help of a higher well pressure. With wells costing many millions of dollars to drill and complete, it makes sense to return to see if new technology can extend their life.
275.
Definition of 'TIMP (acronym)'
'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
Investopedia explains 'TIMP (acronym)'
TIMP was coined by Bob Turner, the chief investment officer of Turner Investment Partners. TIMP nations have very good growth prospects, he believes, due to favorable demographics, political stability, liquid stock markets, well-established legal and financial systems, and diverse industrial bases. Proximity to large economies, such as the United States, the Eurozone and China, is also factored in..
276.
Definition of 'Degree Of Financial Leverage - DFL'
A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT), and can be mathematically represented as follows:
The ratio shows that the higher the degree of financial leverage, the more volatile is EPS. Since interest is a fixed expense, leverage magnifies returns and EPS, which is good when operating income is rising, but it can be a problem during tough economic times when operating income is under pressure.
Investopedia explains 'Degree Of Financial Leverage - DFL'
Consider the following example to illustrate the concept. Assume hypothetical company BigBox has operating income or EBIT of $100 million in Year 1, with interest expense of $10 million, and has 100 million shares outstanding. (For the sake of clarity, let’s ignore the effect of taxes for the moment.)
EPS for BigBox in Year 1 would therefore be:
This means that for every 1% change in EBIT or operating income, EPS would change by 1.11%.
Now assume that BigBox has a 20% increase in operating income in Year 2. Note that interest expense remains unchanged at $10 million in Year 2 as well. EPS for BigBox in Year 2 would therefore be:
In this instance, EPS has increased from 90 cents in Year 1 to $1.10 in Year 2, which represents a change of 22.2%.
This could also be obtained from the DFL number = 1.11 x 20% (EBIT change) = 22.2%.
If EBIT had decreased instead to $70 million in Year 2, what would have been the impact on EPS? EPS would have declined by 33.3% (i.e. DFL of 1.11 x -30% change in EBIT). This can be easily verified, since EPS in this case would have been 60 cents, which represents a 33.3% decline.
DFL therefore is invaluable in helping a company assess the amount of debt or financial leverage it should opt for in its capital structure. If operating income is relatively stable, then earnings and EPS would be stable as well, and the company can afford to take on a significant amount of debt. However, if the company operates in a sector where operating income is quite volatile, it may be prudent to limit debt to easily manageable levels.
277.
Definition of 'Leased Bank Guarantee'
A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years. The issuing bank will send the guarantee to the borrower's main bank, and the issuing bank then becomes a backer for debts incurred by the borrower, up to the guaranteed amount.
Investopedia explains 'Leased Bank Guarantee'
Leased bank guarantees tend to be very expensive; fees can run as high as 15% of the guarantee amount every year. The fee is usually made up of an initial setup fee and an annual fee, both of which will be a percentage of the dollar amount to be "guaranteed", or covered by the issuing bank in the event that the company can't promptly pay its debts.
This option for financial backing is typically only used by smaller enterprises that are desperate to expand operations or fund a specific project; they will have typically exhausted other opportunities to raise financing or obtain a letter of credit from their own bank.
Many top worldwide banks will lease bank guarantees, usually with a minimum amount of $5 million to $10 million, all the way up to $10 billion and more.
277.
Definition of 'Jeff Bezos'
Self-made billionaire Jeff Bezos is the founder of online retail giant Amazon.com. Born in 1964 in Albuquerque, New Mexico, Bezos was raised by his mother and stepfather. One of his earliest entrepreneurial ventures was a children’s education camp that he ran as a teenager with his girlfriend one summer.
Investopedia explains 'Jeff Bezos'
Bezos earned his Bachelor’s degree in electrical engineering and computer science from Princeton in 1986. After graduation, he became one of the first employees at Fitel, which manufactures optical fibers. He later joined Bankers Trust, then left to join a hedge fund where he quickly became senior vice president.
Bezos left the hedge fund in 1994 because he saw the Internet taking off and decided to become part of it. He founded Amazon.com in Seattle that year as an online bookseller. He located the company in Seattle in part because Washington’s small population meant few customers would have to pay sales tax on their purchases since companies did not have to charge sales tax in states where they lacked a physical presence.
The company went public in 1997, and started selling CDs in 1998. Time magazine named him person of the year in 1999. Amazon continued expanding to sell electronics, housewares, apparel and more. It released the Kindle in 2007, the Kindle Fire in 2011, and the Kindle Fire HD in 2012 to directly compete with Apple’s iPad at a significantly lower price point.
Carnegie Mellon University awarded him an honorary doctorate in 2008. Bezos is also the owner of Seattle-based Blue Origin, a space exploration company, and bought the Washington Post in 2013. Forbes places him at No. 20 on its list of the world’s billionaires as of 2014, with an estimated net worth of $30.6 billion.
He married wife Mackenzie in 1993, and they have four children.
278.
Definition of 'Maintenance Margin'
The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account. Keep in mind that this level is a minimum, and many brokerages have higher maintenance requirements of 30-40%.
Also referred to as "minimum maintenance" or "maintenance requirement."
Investopedia explains 'Maintenance Margin'
As governed by the Federal Reserve's Regulation T, when a trader buys on margin, key levels must be maintained throughout the life of the trade. First off, a broker cannot extend any credit to accounts with less than $2,000 in cash (or securities). Second, the initial margin of 50% is required for a trade to be entered. Finally, the maintenance margin says that an equity level of at least 25% must be maintained. The investor will be hit with a margin call if the value of securities falls below the maintenance margin.
279.
Definition of 'National Best Bid and Offer - NBBO'
The best (lowest) available ask price and the best (highest) available bid price to investors when they buy and sell securities. National Best Bid and Offer is the bid and ask price the average person will see. The Securities and Exchange Commission’s Regulation NMS requires that brokers must guarantee customers this price.
Investopedia explains 'National Best Bid and Offer - NBBO'
The NBBO is updated throughout the day to show the highest and lowest offers for a security among all exchanges and market makers. The lowest ask price and the highest bid price displayed in the NBBO do not have to come from the same exchange. The best bid and ask prices from a single exchange or market maker are simply called “best bid and offer.” Traders who want to execute orders larger than those available through the NBBO will want to know the other potential bid and ask prices at which they could execute their orders. They can find these in an exchange or market maker’s “depth of book” data. Day traders usually use level 2 market-maker screens to see all the bids and offers for a particular stock.
The Consolidated Quotation System gives the NBBO for securities listed on the New York Stock Exchange, while the Unlisted Trading Privileges Quote Data Feed gives the NBBO for securities listed on the Nasdaq. A shortcoming of the NBBO system is that the data may not be sufficiently up to date, so investors may not get the prices they were anticipating when their trades are actually executed. This problem is mainly of concern to high-frequency traders, whose trading strategies may fail if their orders aren’t executed at a precise desired price. Another NBBO shortcoming is that Regulation NMS is difficult to enforce, because the fast pace of trading and the lack of recorded NBBO prices make it difficult to prove whether an investor received the NBBO price on a trade.
280.
Definition of 'Ascending Triangle'
A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs. Traders enter into long positions when the price of the asset breaks above the top resistance. The chart below is an example of an ascending triangle:
Ascending Triangle
Investopedia explains 'Ascending Triangle'
An ascending triangle is generally considered to be a continuation pattern, meaning that it is usually found amid a period of consolidation within an uptrend. Once the breakout occurs, buyers will aggressively send the price of the asset higher, usually on high volume. The most common price target is generally set to be equal to the entry price plus the vertical height of the triangle.
An ascending triangle is the bullish counterpart of a descending triangle.
281.
Definition of 'Stop-Loss Order'
An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security. Although most investors associate a stop-loss order only with a long position, it can also be used for a short position, in which case the security would be bought if it trades above a defined price. A stop-loss order takes the emotion out of trading decisions and can be especially handy when one is on vacation or cannot watch his/her position. However, execution is not guaranteed, particularly in situations where trading in the stock is halted or gaps down (or up) in price. Also known as a “stop order” or “stop-market order.”
Investopedia explains 'Stop-Loss Order'

With a stop-loss order for a long position, a market order to sell is triggered when the stock trades below a certain price, and it will be sold at the next available price. This type of order works well if the stock or market is declining in an orderly manner, but not if the decline is disorderly or sharp.
For example, if you own shares of ABC Co., which is currently trading at $50, and want to hedge against a big decline, you could enter a stop-loss order to sell your ABC holdings at $48. This type of stop-loss order is also called a sell-stop order. If ABC trades below $48, your stop-loss order is triggered and converts into a market order to sell ABC at the next available price. If the next price if $47.90, your ABC shares would be sold at $47.90.
But what if ABC closes at $48.50 one day, and then reports weak quarterly earnings after market close? If the stock gaps down, and opens at $44.90 the next day, your stop-loss order would be automatically triggered and your shares sold at the next available price, say $45. In this case, your stop-loss order did not work out as you expected, since your loss on ABC is 10% rather than the 4% you had expected when you placed the stop-loss order.
This is a major drawback of stop-loss orders, and is a reason why experienced investors use stop-limit orders instead of stop-market orders. Stop-limit orders seek to sell the stock at a specified limit price – rather than the market price – once a specified price level is breached. Although stop-limit orders will also not work if the stock is halted down or has a price gap, the risk of the long position being sold at a significantly lower price than the specified stop price is lower than with a stop-market order.
Note that these orders can also be used to protect unrealized gains, although in this case it would be more accurate to refer to them as stop orders rather than stop-loss orders.
Go deeper by reading our article on The Stop-Loss Order - Make Sure You Use It.
282.
Definition of 'Economic Derivative'
A relatively new form of derivative contract (the first ones were traded in 2002) that is based on the future value of some national economic indicator, such as non-farm payrolls, the purchasing manager's index, retail sales levels and the gross domestic product. Most of these economic derivatives are in the form of binary or "digital" options, whereby the only payout options are full payout (in the money) or nothing at all (out of the money). Other types of contracts currently traded include capped vanilla options and forwards.
Economic derivatives have become attractive for their ability to mitigate some of the market and basis risks found in standard investment vehicles.
Investopedia explains 'Economic Derivative'
For example, a binary option trading on the GDP would pay its face value if, when the official GDP release is made (the exercise date), the GDP value falls within a specific range (strike range). If the GDP figure is outside of this range, the option expires worthless.
By looking at the implied probabilities of different outcomes, economists and investors can compare economic derivatives to Wall Street estimates and look for discrepancies between the two estimations. As might be expected, the market-driven process seen in derivatives pricing has shown itself to be the more consistently accurate predictor of future indicator release values.
283.
Definition of 'Spoofing'
A type of deception where an intruder attempts to gain unauthorized access to a user's system or information via pretending to be the user. In email spoofing (or phishing), the user receives an email that appears to be from a legitimate source but actually it is sent by someone else. The main purpose is to trick the user into releasing sensitive information such as passwords, so that the malicious spoofer can continue to pretend to be the user and use his or her accounts.
Investopedia explains 'Spoofing'
Any email that claims it requires your password or any personal information could be a trick. To protect yourself from hackers you use can routers and firewalls that block out anything suspicious. Always be cautious when giving away information on the internet and make sure that you only download files from a trusted source.
284.
Definition of 'Identity Fraud Reimbursement Program'
A financial product that offers reimbursment for the costs associated with having been a victim of identity theft. These costs may include getting affidavits notarized for police and financial institutions, postage for sending certified mail to police and financial institutions, lost earnings resulting from time spent recovering one's identity, and legal fees.

Investopedia explains 'Identity Fraud Reimbursement Program'
In addition to providing monetary compensation, these programs often provide a wealth of information to victims on the steps they need to take to resolve the matter and clear up their credit reports. These programs tend to provide reimbursement ranging from $10,000 to $25,000 and can usually be purchased individually for around $25 to $50 annually. They may also be offered as an employee benefit or as an add-on product to other types of insurance. Some homeowners' insurance companies include this protection in their standard policies.
285.
Definition of 'Cash-And-Carry Trade'
A trading strategy in which an investor holds a long position in a security or commodity while simultaneously holding a short position in a futures contract on the same security or commodity. In a cash-and-carry trade, the security is held until the contract delivery date, and is used to cover the short position’s obligation.
Investopedia explains 'Cash-And-Carry Trade'
By selling a futures contract, the investor has taken a short position, and knows how much will be made on the delivery date and the cost of the security because of the cash-and-carry trade’s long position component. For example, in the case of a bond, the investor receives the coupon payments from the long position plus any investment income earned by investing the coupons, as well as the pre-determined future price at the future delivery date.
Investors use this strategy when the cost of buying a security or commodity today is less than how much the security or commodity can be sold for in the future. The general strategy when seeking to gain arbitrage profits through a cash-and-carry trade has several steps. The investor must first purchase a security or commodity. He or she then sells a futures contract for the security or commodity, and then carries that futures contract until it expires. Upon expiration, the investor delivers the commodity or security.
286.
Definition of 'Amplitude'
The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).

Investopedia explains 'Amplitude'
Amplitude is calculated often in technical analysis. For example, it is the amount of retracement in a price and also the width of a channel in a range-bound market.
Chart pattern analysis says that after a retracement, price will continue to move at least a distance equal to the retracement's amplitude.
287.
Definition of 'Liquid Asset'
An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market.
Investopedia explains 'Liquid Asset'
For an asset to be liquid it needs an established market with enough participants to absorb the selling without materially impacting the price of the asset. There also needs to be a relative ease in the transfer of ownership and the movement of the asset. Liquid assets include most stocks, money market instruments and government bonds. The foreign exchange market is deemed to be the most liquid market in the world because trillions of dollars exchange hands each day, making it impossible for any one individual to influence the exchange rate.
288.
Definition of 'Stop-Limit Order'
An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.
Investopedia explains 'Stop-Limit Order'
The primary benefit of a stop-limit order is that the trader has precise control over when the order should be filled. The downside, as with all limit orders, is that the trade is not guaranteed to be executed if the stock/commodity does not reach the stop price.
A stop order is an order that becomes executable once a set price has been reached and is then filled at the current market price. A limit order is one that is at a certain price or better. By combining the two orders, the investor has much greater precision in executing the trade. Because a stop order is filled at the market price after the stop price has been hit, it's possible that you could get a really bad fill in fast-moving markets.
For example, let's assume that ABC Inc. is trading at $40 and an investor wants to buy the stock once it begins to show some serious upward momentum. The investor has put in a stop-limit order to buy with the stop price at $45 and the limit price at $46. If the price of ABC Inc. moves above $45 stop price, the order is activated and turns into a limit order. As long as the order can be filled under $46 (the limit price), then the trade will be filled. If the stock gaps above $46, the order will not be filled.
289.
Definition of 'Budget Deficit'
A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term "national debt” is used.
The opposite of a budget deficit is a budget surplus, and when inflows equal outflows, the budget is said to be balanced.
Investopedia explains 'Budget Deficit'

In the early 20th century, few industrialized countries had large fiscal deficits. This changed during the First World War, a time in which governments borrowed heavily and depleted financial reserves. Industrialized countries reduced these deficits until the 1960s and 1970s despite years of steady economic growth.
Budget deficits as a percentage of GDP may decrease in times of economic prosperity, as increased tax revenue, lower unemployment and economic growth reduce the need for government programs such as unemployment insurance. If investors expect higher inflation rates, which would reduce the real value of debt, they are likely to require higher interest rates on future loans to governments.
Countries can counter budget deficits by promoting economic growth, reducing government spending and increasing taxes. By reducing onerous regulations and simplifying tax regimes, a country can improve business confidence, thereby prompting improved economic conditions while increasing treasury inflows from taxes. Reducing government expenditures, including on social programs and defense, and reforming entitlement programs, such as state pensions, can result in less borrowing.
290.
Definition of 'Floating Exchange Rate'
A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies. Thus, floating exchange rates change freely and are determined by trading in the forex market. This is in contrast to a "fixed exchange rate" regime.
Investopedia explains 'Floating Exchange Rate'
In some instances, if a currency value moves in any one direction at a rapid and sustained rate, central banks intervene by buying and selling its own currency reserves (i.e. Federal Reserve in the U.S.) in the foreign-exchange market in order to stabilize the local currency. However, central banks are reluctant to intervene, unless absolutely necessary, in a floating regime.
291.
Definition of 'Underwriting'
1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt).
2. The process of issuing insurance policies.
Investopedia explains 'Underwriting'
The word "underwriter" is said to have come from the practice of having each risk-taker write his or her name under the total amount of risk that he or she was willing to accept at a specified premium. In a way, this is still true today, as new issues are usually brought to market by an underwriting syndicate in which each firm takes the responsibility (and risk) of selling its specific allotment.
292.
Definition of 'Futures'
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.
Futures can be used either to hedge or to speculate on the price movement of the underlying asset. For example, a producer of corn could use futures to lock in a certain price and reduce risk (hedge). On the other hand, anybody could speculate on the price movement of corn by going long or short using futures.
Investopedia explains 'Futures'
The primary difference between options and futures is that options give the holder the right to buy or sell the underlying asset at expiration, while the holder of a futures contract is obligated to fulfill the terms of his/her contract.
In real life, the actual delivery rate of the underlying goods specified in futures contracts is very low. This is a result of the fact that the hedging or speculating benefits of the contracts can be had largely without actually holding the contract until expiry and delivering the good(s). For example, if you were long in a futures contract, you could go short in the same type of contract to offset your position. This serves to exit your position, much like selling a stock in the equity markets would close a trade.
293.
DEFINITION OF 'HARVEST STRATEGY'
A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by additional investment would not warrant the expense. A harvest strategy is employed when a line of business is considered to be a cash cow, meaning that the brand is mature and is unlikely to grow if more investment is added. The company will instead siphon off the revenue that the cash cow brings in until the brand is no longer profitable.
INVESTOPEDIA EXPLAINS 'HARVEST STRATEGY'
Firms generally use profits from mature brands to increase funding for more promising lines of business. For example, a telecommunications company may take profits from its land line business to supplement research and development for its wireless communications business if growth and profits in the wireless business are more likely. Advances in technology and changes in consumer behavior dictate which brands become cash cows.
294.
Definition of 'Takeover'
When an acquiring company makes a bid for a target company. If the takeover goes through, the acquiring company becomes responsible for all of the target company’s operations, holdings and debt. When the target is a publicly traded company, the acquiring company will make an offer for all of the target’s outstanding shares.
Investopedia explains 'Takeover'
A welcome takeover generally goes smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can be quite unpleasant. The acquiring firm can use unfavorable tactics such as a dawn raid (where it buys a substantial stake in the target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening). The target firm’s management and board of directors may strongly resist takeover attempts through tactics such as a poison pill, which lets the target’s shareholders purchase more shares at a discount in order to dilute the acquirer’s holdings and make a takeover more expensive.
A takeover is virtually the same as an acquisition, except that “takeover” has a negative connotation, indicating the target does not wish to be purchased. Why would one company want to buy another company against that company’s will? The bidder might be seeking to increase its market share or to achieve economies of scale that will help it reduce its costs and thereby increase its profits. Companies that make attractive takeover targets include those that have a unique niche in a particular product or service, small companies with viable products or services but insufficient financing, a similar company in close geographic proximity where combining forces could improve efficiency and otherwise viable companies that are paying too much for debt that could be refinanced at a lower cost if a larger company with better credit took over.
295.
Definition of 'Odious Debt'
Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated. In practice, countries often end up repaying it to uphold their ability to borrow at favorable interest rates.
Investopedia explains 'Odious Debt'
Legal scholars have identified regimes associated with odious debt in Nicaragua, the Philippines, Haiti, South Africa, Congo, Niger, Croatia and other countries whose rulers have looted national funds for their personal accounts or used the money to restrict liberties and inflict violence on their own citizens. In the European debt crisis of the early 2010s, some critics called Greek's debt odious.
296.
Definition of 'Debit Spread'
Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
Investopedia explains 'Debit Spread'
For example, assume that there is a investor holding a call option who sells it for $2.50. Immediately following this sale, the investor buys another call option on the same underlying security for $2.65. The debit spread is $0.15, which results in a loss of $15 ($0.15 * 100).
Although there is an initial loss on the transaction, the investor is betting that there will be a significant change in the price of the underlying security, making the purchased option more valuable in the future.
297.
Definition of 'Effective Annual Interest Rate'
An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
Effective Annual Interest Rate
Investopedia explains 'Effective Annual Interest Rate'
Consider a stated annual rate of 10%. Compounded yearly, this rate will turn $1000 into $1100. However, if compounding occurs monthly, $1000 would grow to $1104.70 by the end of the year, rendering an effective annual interest rate of 10.47%. Basically the effective annual rate is the annual rate of interest that accounts for the effect of compounding.
298.
Definition of 'Market Segmentation'
A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another. Generally three criteria can be used to identify different market segments:
1) Homogeneity (common needs within segment)
2) Distinction (unique from other groups)
3) Reaction (similar response to market)
Investopedia explains 'Market Segmentation'
For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners will respond to very different advertisements.
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DEFINITION OF 'PASSIVE ETF'
One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific benchmark, such as a SPDR. Unlike actively managed ETFs, passive ETFs are not managed by a fund manager on a daily basis.
INVESTOPEDIA EXPLAINS 'PASSIVE ETF'
Passive ETFs are similar to unit investment trusts (UITs) in that their portfolios are reset at regular intervals. They do not generate internal capital gains like actively-managed funds. However, they differ from UITs in that they can be bought and sold on an intraday basis. Passive ETFs will typically have much lower fees than those associated with their actively-managed counterparts.
300. Definition of 'Soft Loan'
A loan with no interest or a below-market rate of interest, or loans made by multinational development banks (such as the Asian Development fund), affiliates of the World Bank and government agencies to developing countries that would be unable to borrow at the market rate. Soft loans are loans that have lenient terms, such as extended grace periods in which only interest or service charges are due, and interest holidays. Soft loans typically offer longer amortization schedules (in some cases up to 50 years) and lower interest rates than conventional bank loans.
Also knows as "soft financing" or "concessional funding."
Investopedia explains 'Soft Loan'
For example, Ethiopia received a soft loan from the Chinese government, in September 2012. The Chinese government announced a grant and soft loan package totaling US$23 million to support Ethiopian development activities. The loan is part of China's plan to support Ethiopia and to promote the development of trade between Ethiopia and China. In another example, the Chinese government extended a $2 billion soft loan to Angola in March 2004. The loan was made in exchange for its commitment to provide a continuous supply of crude oil to China.
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