Annuity: Even stream of payments over a given period of time.
Annuity plans: Plans provided by insurance companies that offer a predetermined amount of retirement income to individuals.
Appreciate: Increase in the value of an asset.
Arbitrage activity: In the securities industry, the purchasing of undervalued shares and the resale of these shares for a higher profit.
Ask: Price at which a seller is willing to sell.
Basis: Difference between the price movement of a futures contract and the price movement of the underlying security.
Bearer bonds: Bonds that require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.
Beta: Sensitivity of an asset's returns to market returns; measured as the covariance between asset returns and market returns divided by the variance of market returns.
Bid: Price a purchaser is willing to pay for a specific security.
Bond: Debt obligation with long-term maturities issued by governments or corporations.
Bond price elasticity: Sensitivity of bond prices to changes in the required rate of return.
Bridge loan: Funds provided as temporary financing until other sources of long-term funds can be obtained; commonly provided by securities firms to firms experiencing leveraged buyouts.
Broker: Person or company that executes securities transactions between two parties.
Call option: Contract that grants the owner the right to purchase a specified financial instrument for a specified price within a specified period of time.
Call premium: Difference between a bond's call price and its par value.
Capital appreciation funds: Mutual funds made up of stocks of companies that have potential for very high growth.
Certificate of deposit (CD): Deposit offered by depository institutions that specifies maturity, deposit amount, and interest rate.
Closed-end investment funds: Mutual funds that do not repurchase the shares they sell.
Commercial paper: Short-term securities (usually unsecured) issued by well-known creditworthy firms.
Commission brokers: Brokers who execute orders for their customers.
Common stock: Certificate representing partial ownership of a corporation.
Convertibility clause: Provision that allows investors to convert a bond into a specified number of common stock shares.
Convertible bonds: Bonds that can be converted into a specified number of the firm's common stock.
Corporate bonds: Bonds issued by corporations in need of long-term funds.
Covered call: Sale of a call option to partially cover against the possible decline in the price of a stock that is being held.
Currency futures contract: Standardized contract that specifies an amount of a particular currency to be exchanged on a specified date and at a specified exchange rate.
Currency put option: Contract that grants the owner the right to sell a specified currency for a specified price, within a specified period of time.
Currency swap: An agreement that allows the periodic swap of one currency for another at specified exchange rates; it essentially represents a series of forward contracts.
Depreciate: Decrease in the value of an asset.
Discount bonds: Bonds that sell below their par value.
Discount rate: Interest rate charged on loans provided by the Federal Reserve to depository institutions.
Duration: Measurement of the life of a bond on a present value basis.
Effective yield: Yield on foreign money market securities adjusted for the exchange rate.
Equity securities: Securities such as common stock and preferred stock that represent ownership in a business.
Exercise price (or strike price): Price at which the investment that underlies a contract can be purchased or sold.
Federal funds rate: Interest rate charged on loans between depository institutions.
Federal Reserve: Central bank of the United States.
Federal Reserve district bank: A regional government bank that facilitates operations within the banking system by clearing checks, replacing old currency, providing loans to banks, and conducting research; there are twelve Federal Reserve district banks.
Financial market: Market in which financial assets (or securities) such as stocks and bonds are traded.
Floor brokers: Individuals who facilitate the trading of stocks on the New York and American Stock Exchanges by executing transactions for their clients.
Flotation costs: Costs of placing securities.
Full-service brokerage firms: Brokerage firms that provide complete information and advice about securities, in addition to executing transactions.
Futures contract: Standardized contract allowing one to purchase or sell a specified amount of a specified instrument (such as a security or currency) for a specified price and at a specified future point in time.
Growth fund: Mutual funds containing stocks of firms that are expected to grow at a higher than average rate. Growth funds are typically right for investors who are willing to accept a moderate degree of risk.
Income fund: Mutual funds composed of bonds that offer periodic coupon payments.
Initial margin: A margin deposit established by a customer with a brokerage firm before a transaction can be executed.
Initial public offering (IPO): A first-time offering of shares by a specific firm to the public.
International mutual fund: Portfolio of international stocks created and managed by a financial institution; individuals can invest in international stocks by purchasing shares of an international mutual fund.
In the money: Describes a call option whose premium is above the exercise price or a put option whose premium is below the exercise price.
Junk bond: Corporate bonds that are perceived to have a high degree of risk.
Limit order: Requests by customers to purchase or sell securities at a specified price or better.
Liquidity: Ability to sell assets easily without loss of value.
Load fund: Mutual funds that have a sales charge imposed by brokerage firms that sell the funds.
Maintenance margin: A margin requirement that reduces the risk that participants will later default on their obligations.
Margin call: Call from a broker to participants in futures contracts (or other investments) informing them that they must increase their margin.
Margin requirements: The proportion of invested funds that can be borrowed versus paid in cash; set by the Federal Reserve.
Market orders: Requests by customers to purchase or sell securities at the market price existing when the order reaches the exchange floor.
Money market account: Deposit account that pays interest and may allow checking privileges.
Municipal bonds: Debt securities issued by state and local governments, which can usually be classified as either general obligation bonds or revenue bonds.
Mutual fund: An investment company that sells shares representing an interest in a portfolio of securities.
No-load fund: Mutual funds that do not have a sales charge.
Option premium: Price paid for an option contract.
Out of the money: Describes a call option whose premium is below the exercise price or a put option whose premium is above the exercise price.
Preferred stock: Certificate representing partial ownership of a corporation, without significant voting rights. Preferred stocks may provide dividends but normally do not.
Prime rate: Interest rate charged on loans by banks to their most creditworthy customers.
Prospectus: A pamphlet that discloses relevant financial data on the firm and provisions applicable to the security.
Put option: Contract that grants the owner the right to sell a specified financial instrument for a specified price within a specified period of time.
Secondary stock offering: A new stock offering by a firm that already has stock outstanding.
Securities and Exchange Commission (SEC): Agency that regulates the issuance of securities disclosure rules for issuers, the exchanges, and participating brokerage firms.
Short selling: The sale of securities that are borrowed, with the intent of buying those securities to repay what was borrowed.
Standard & Poor 500 Index: Index of stocks of 500 large firms.
Stock index futures: Financial futures contracts on stock indexes.
Stop-loss order: Order of a sale of a specific security when the price reaches a specified minimum.
Strike price (exercise price): Price at which an option can be exercised.
Treasury bills: Securities issued by the U.S. Treasury.
Writer: The seller of an option contract.
Zero-coupon bonds: Bonds that have no coupon payments.