Click on
the letter of the term you wish to look up in the glossary.
A
Accelerated depreciation: Accounting method that
allows a company to write
off an asset's
cost at a faster rate than the traditional method.
Accidental-death-and-dismemberment insurance: Type of
insurance that pays upon the
event of death or maiming in an accident but provides
no benefit in the event of illness or
illness-related death.
Accountant: A person who records and examines
individuals' or businesses' finances.
Accountant's opinion: Signed statement of opinion
from an accounting firm of a corporation's
financial statements. The auditor must follow
generally accepted accounting principles. The
opinion can be unqualified or qualified. A qualified
opinion calls attention to limitations of the
audit or unusual items in the statement.
Accounts payable: Money a company owes for
merchandise or services bought on credit.
Accounts receivable: Money owed to a company for
merchandise or services bought on
credit.
Accrual basis: Accounting method in which income and
expenses are accounted for as they
are earned or incurred, although they may not have
been received or paid yet.
Actual-cash-value coverage: Type of home insurance
policy that pays only the current,
depreciated value of furniture and other household
possessions when they are damaged or
destroyed.
Adjustable-rate mortgages (ARMs): Home mortgages with
interest rates that move
up and
down over time, based on changes in market interest
rates.
Adjusted gross income: A measure used to calculate
how much income is taxable by the
government. AGI is calculated with gross income from
taxable sources minus certain items,
such as payments to a Keogh plan or a deductible
Individual Retirement Account. AGI minus
deductions and personal exemptions is taxable income.
Affaersvaerlden General Index: Index that tracks
share prices on the Stockholm
Stock
Exchange. It measures the performance of "A shares,"
which entitle holders to full voting
rights.
Affiliate: An association between two companies when
one owns less than a majority stake
of the other, or when both are subsidiaries of a
third company. Or, generally, any association
between two companies that is short of a
parent-subsidiary tie.
Aggregate: A total amount.
Alimony: Type of payment from one former spouse to
another that is agreed to as part of a
divorce settlement. Alimony is tax-deductible for the
person who pays it and taxable income
for the person who receives it.
All-Ordinaries Index: Index of stocks on the
Australian stock market chosen on the basis of
market capitalization and volume.
Alternative minimum tax: Tax-law provision that
ensures that individuals and companies pay
some income tax, no matter how many deductions or
credits they claim. Under the AMT,
certain money not usually considered taxable income
-- sums usually deductible, or income
on tax-free bonds -- are treated as taxable.
American depositary receipts: Receipts held by an
American bank that represent shares in
a foreign company. Also called American depositary
shares. Abbreviated as ADRs.
American Stock Exchange: Third most active market in
the U.S., behind the New York
Stock Exchange and the Nasdaq Stock Market. The
exchange was founded in 1842 in New
York City. Most stocks traded on it are those of
small- to mid-sized companies. Also called
Amex, and the curb exchange.
American-style option: An option that may be
exercised at any time prior to expiration.
Amex Market Value Index: Stock index that measures
the performance
of more than 800
companies representing all major industry groups on
the American Stock Exchange.
Amortization: Accounting procedure that companies use
to write off intangible rights or
assets -- such as goodwill, patents or copyrights --
over the period of their existence.
Annual effective yield: Measure of the actual annual
return on an account after interest is
compounded.
Annual percentage rate: Interest rate borrowers pay
on a loan. Most of a loan's up-front fees
are factored into the APR.
Annual-renewable-term life: Term life insurance that
is renewed each year, with premiums
going up each time.
Annual report: Yearly report of a company's financial
state and organization prepared by
management for shareholders.
Annuity: Stream of payments that continue for the
recipient's life, or some
other period. Also,
a tax-deferred investment account sold by insurers,
banks, brokerage firms, and mutual fund
companies, and a common investment option in certain
retirement plans. With an "immediate"
annuity, the buyer hands over a lump sum and receives
payments that begin immediately. The
purchase is usually irrevocable, and payments are
usually fixed for life. With a "deferred"
annuity, the money remains in the annuity to
accumulate without being taxed until taken out,
usually years later. "Fixed annuities" provide a rate
of return that is fixed for a year or so but
that then can move up and down. "Variable annuities"
allow investors to allocate their money
among a basket of mutual fund-like "subaccounts"; the
return depends on the performance of
the funds selected.
Antitrust law: Any law that encourages competition by
limiting unfair business practices and
curbing monopolies' power.
Appreciate: An increase in an asset's value.
Arbitrage: Technique of buying and selling securities
to take advantage of small differences in
price.
Asked: Price that someone is willing to accept for a
security or an asset. In the stock market,
the ask portion of a stock quote is the lowest price
anyone is willing to accept for a security or
an asset at that time.
Asset allocation: Investment technique of dividing
investment money
into a variety of
instruments and markets.
Asset-management accounts: All-in-one accounts that
allow customers of brokerage firms to
buy and sell securities and store cash in one or more
money market mutual funds.
Asset-management accounts generally offer
check-writing privileges, credit or debit cards, and
automatic transfers from one account to another. They
often come with an annual fee of up to
$100.
Assets: Everything a company or individual owns or is
owed.
Asset-backed securities: Securities backed by loans
or accounts receivable.
For example,
an asset-backed bond is created when a securities
firm bundles some type of debt, like car
loans, and sells investors the right to receive the
payments that consumers make on those
loans.
At-the-money: An option with a strike price equal to
the current price of the instrument, such
as a stock, upon which the option was granted.
Auction market: Trading securities on a stock
exchange where buyers compete with other
buyers and sellers compete with other sellers for the
best stock price. Trading in individual
stocks is managed and kept orderly by a specialist.
Auditor's report: Independent accounting firm's
opinion on whether the company's financial
statements conform to generally accepted accounting
principles.
Averages: In the stock market, averages are
indicators that measure price changes in
representative stock prices. The most popular
indicator is the Dow Jones Industrial Average,
which measures the performance of 30 industrial
stocks.
Average annual yield: Meaure of the return on
investments of more than
one year. It is
calculated by adding each year's return on investment
and dividing that number by the number
of years invested.
B
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Balance of payments: A statement of a country's trade
and financial transactions with the
rest of the world over a period of time.
Balance of trade: The difference between a country's
imports and exports during a specific
time period.
Balance sheet: Financial statement that lists a
company's assets and liabilities as of a
specified date.
Balanced fund: Mutual fund that has three investment
objectives: conserve investors'
principal, pay steady income and promote
long-term growth of both principal and income.
Banker's acceptances: Form of financing used in
import/export transactions.
Bankruptcy: Legal process governed by the U.S.
bankruptcy code for people or companies
unable to meet financial obligations. The
bankruptcy code is divided into chapters that provide
different types of relief. Chapter 7 governs
liquidation rather than reorganization. Chapter 9
provides for municipal debt adjustments.
Chapter 11 provides for reorganization and repayment
for individuals, partnerships, and corporations
that are domiciled in the U.S. Chapter 12
governs reorganization and repayment for
farmers or closely-held farming corporations having
debt of no more than $1.5 million. Chapter 13
provides for individual debt adjustments and is
an alternative to liquidation under Chapter 7.
Barrier options: Variations of the standard financial
options. They are activated or cease to
exist once the price of the underlying security
has reached a specified level.
Basis point: Smallest measure used in quoting yields
on bonds and notes. One basis point is
0.01% of yield. For example, a bond's yield
that changed from 12.72% to 12.52% has moved
20 basis points.
Bear market: When security prices decline 15% or more.
Bearer stock: Stock certificates that aren't
registered in any name.
They are negotiable
without endorsement by any person.
Bel-20 Index: Index of 20 stocks on the Brussels
stock market.
Bellwether bond: For the U.S. market, it is the
30-year Treasury bond most recently offered
by the government. Its performance is a
benchmark for evaluating the bond market in general.
Also called the long bond.
Beneficiary: A person named to receive a benefit in a
will, life insurance policy, retirement
plan, or other financial arrangement upon death.
Beta: An estimate of an investment's volatility. The
lower the beta, the
less risky the
investment.
Bid: The price that someone is willing to pay for a
security or an asset. In the stock market,
the bid portion of a stock quote is the highest
price anyone is willing to pay for a security at
that time.
Big Board: Another name for the New York Stock
Exchange.
Bill of exchange: Signed, written order by one
business that instructs another business to
pay a third business a specific amount. Also
called a draft.
Block trade: Buying or selling 10,000 shares of stock
or $200,000 or
more worth of bonds.
Blue-chip stocks: Stocks of companies known for their
long-established record of earning
profits and paying dividends.
Bodily injury liability coverage: As part of an auto
policy, the liability insurance that pays if
someone is hurt or killed in an accident that
is the fault of the policy owner.
Bollinger bands: Method used by technical analysts,
who rely on studying
the historical
trading patterns of securities to predict their
future movements. Bollinger bands are fixed lines
above and below a security's average price. As
volatility increases, the bands widen.
Bombay Stock Exchange Sensitive Index: Index of
leading shares on the
Bombay Stock
Exchange.
Bond: Debt instrument that pays a set amount of
interest on a regular basis. The issuer
promises to repay the debt on time and in full.
Bonds are bought and sold on the market.
Bond Buyer Municipal Bond Index: An index based on 40
long-term municipal bonds that
is often used to tract the performance of
tax-free municipal bonds. The index is compiled by
The Bond Buyer, a trade publication that also
has several other closely watched municipal
bond indexes.
Bond rating (debt rating): An assessment of the
likelihood that investors will receive the
promised interest and principal payments on
time. Bond ratings are assigned by independent
agencies, such as Moody's Investors Service and
Standard & Poor's.
Book-to-bill ratio: A measure of sales trends of a
company or industry. A number above 1
indicates an expanding market, and a number
below 1 is a contracting market. For example,
a book-to-bill ratio of 1.03 means that for
every $100 of products shipped, $103 in new orders
was received.
Book value: The difference between a company's assets
and its liabilities, usually expressed
in per-share terms. It takes into account all
money invested in the company since its
founding, as well as retained earnings. It is
calculated by subtracting liabilities from assets
and dividing the result by the number of shares
outstanding. Comparing book value to share
price is one way to gauge if a company's stock
is undervalued or overvalued.
Bottom fishing: Buying stocks whose prices have
bottomed out or fallen to low levels.
Bottom line: Accounting term for the net profit or
loss.
Brady bonds: Securities issued by foreign governments
as part of a debt-restructuring
program initiated by former U.S. Treasury
Secretary Nicholas Brady.
Break the buck: When a money market fund's share
price falls below the $1-a-share value it
is intended to maintain, the fund is said to
"break the buck." Money funds are supposed to be
safe investments and easily convertible into
cash; thus the stable $1 share price. Cases of
breaking the buck have been rare.
Broker: A person who gives advice and handles orders
to buy or sell stocks, bonds,
commodities and options.
Brokerage firm: Financial-services firm that provide
the service of buying and selling
securities. Brokerage firms fall into two main
camps, full-service brokers and discount brokers.
Discount brokers charge far lower commissions
than full service brokers, and a growing
number of deep discounters charge especially
low commissions. But there is a trade-off. If
you use a discount broker, you will get little
or no investment advice, so you must be willing to
make your own buy and sell decisions. A
full-service broker, on the other hand, will help you
pick investments and devise a financial plan.
Bull market: A time period when security prices
increase.
Bundesbank: Germany's central bank.
Business productivity: The Labor Department's monthly
measurement of output or
production per hour of work.
BVL Index: Index of shares listed on the Lisbon Stock
Exchange.
C
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CAC 40: Index of 40 stocks on the Paris Bourse, or
stock market. The stocks in the index are
the most active shares from the industrial,
financial, consumer, construction and capital goods
sectors.
Cafeteria plan: Flexible-benefit plan offered by many
employers that gives workers a certain
number of credits and a menu of benefit options
on which to spend them. The list may include
medical coverage, life insurance, disability
coverage, vacation days, and dental care.
Employees who do not want a particular benefit
can spend more on another, or receive the
difference in cash.
Call: Issuer's right to redeem a bond or preferred
share before it matures.
Call option: Agreement that gives an investor the
right but not the
obligation to buy a stock,
bond, commodity or other instrument at a
specified price within a specific time period.
Call risk: The risk that an issuer may redeem a
security sooner than expected.
Callable bond: A bond that can be redeemed by the
issuer before it matures.
Capacity utilization: The Federal Reserve's measure
of U.S. industries
production as a
percentage of total production capacity.
Capital asset: An asset held for more than a year
that isn't bought or
sold in the normal
course of business. Capital assets generally
include fixed assets, such as land, buildings,
equipment and furniture.
Capital gain: Difference between the
purchase price and the sale price of an asset when the
asset was sold for more than it was bought.
Capital loss: Difference between the purchase price
and the sale price
of an asset when the
asset was sold for less than it was bought.
Cash flow: Net income after depreciation and other
noncash charges
are included.
Cash market: The trading of securities according to
their current -- or spot -- price. That is in
contrast to trading in a security for future
delivery.
Cash on cash return: A measure, often used in the
real-estate business for the return on an
investment. Calculated by the cash flow divided
by the equity in an investment.
Cash-value life: Life insurance coverage that
incorporates a tax-deferred
savings component
in addition to providing a certain death
benefit. Types include whole life, universal life, and
variable life.
CBS All Share Index: Index of shares traded on the
Amsterdam Stock
Exchange.
Certified Financial Planner (CFP): The best-known
financial planning designation, given to
qualifying planners by the CFP Board of
Standards, of Denver.
Charitable lead trust: A trust that pays a charity
income from a donated
asset for a set
number of years, after which time the principal
goes to the donor's beneficiaries with reduced
estate or gift taxes.
Charitable remainder trust: A trust that allows
people leave assets to a
charity and receive
a tax break but still retain income for life.
This works best for people with a large appreciated
asset, which, if sold, would generate large
capital-gains taxes.
Chartered Financial Consultant (ChFC): Financial
planning designation given to qualifying
planners by the American College, of Bryn Mawr,
Penn.
Chartered Life Underwriter (CLU): A professional
designation given to qualifying life
insurance agents by the American College, of
Bryn Mawr, Penn.
Chicago Board of Trade: A commodity-trading market.
Abbreviated as CBOT.
Chicago Board Options Exchange: An exchange set up by
the Chicago Board of Trade to
trade stock options. Abbreviated as CBOE.
Child support: Money paid by one former spouse to
another to cover the cost of raising
children. These payments are neither
tax-deductible for the person who pays them nor taxable
income for the one who receives them.
Churning: Excessive trading in a customer's brokerage
account, done to generate increased
commission income. Churning is a securities law
violation. In the stock market, it refers to a
period of heavy trading activity but few
sustained price trends and little overall movement in
stock market indexes.
Circuit breakers: Measures used by some major stock
and commodities exchanges to
restrict trading temporarily when markets rise
or fall too far and/or too fast.
Closed-end fund: Type of fund that issues a set
number of shares and typically trades on a
stock exchange.
Closely held: Companies in which stock and voting
control are concentrated in the hands of
a few investors, although the companies' shares
may be traded to a limited extent.
Closing costs: A variety of costs paid in conjunction
with purchasing
a home or taking on a
new mortgage. Closing costs often include
points, which typically are a form of additional
interest. Other closing costs may include
property taxes, title insurance, transfer tax, and
attorneys' fees.
Closing price: The last trading price of a stock when
the market closes.
COBRA: The Consolidated Omnibus Budget Reconciliation
Act of 1985 provides people the
right to buy continuing health insurance
through their former employers for a minimum of 18
months. COBRA offers up to 36 months of
continuing coverage for those people insured
through a spouse's work plan who lose that
coverage due to divorce, separation, or death of
the spouse.
Collateral: Stock or other property that borrowers
are obliged to turn over to
lenders if they
are unable to repay a loan.
Collateralized Mortgage Obligations: Mortgage-backed
securities that are carved into an
array of bonds of varying maturity, coupon and
risk. Abbreviated as CMO.
Collision coverage: The part of an auto insurance
policy that covers damage to your car in
an accident.
Commercial bank: A bank owned by shareholders that
accepts deposits, makes
commercial and industrial loans, and provides
other banking services for the public. Also
called a full-service bank.
Commercial paper: Unsecured short-term promissory
notes used by companies
to obtain
cash. They are sold through dealers in the open
market or directly to investors.
Commodities: Bulk goods such as grains, metals,
livestock, oil, cotton, coffee,
sugar and
cocoa. They can either be sold on the spot
market for immediate delivery or on the
commodities exchanges for later delivery. Trade
on the exchanges is in the form of futures
contracts.
Common stock: Represents part ownership of a company.
Holders of common stock have
voting rights but no guarantee of dividend
payments.
Community property: Property and income that is
accumulated by a husband
or wife, or
jointly as a couple, during a marriage; as a
consequence, they are owned in common by both.
Composite trading: Total amount of trading across all
markets in a share
that is listed on the
New York Stock Exchange or American Stock
Exchange. This includes transactions on those
exchanges, the five regional exchanges and on
the Nasdaq Stock Market.
Compounding: Financial advisors love to talk about
the magic of compounding. What magic?
If your investments make 10% a year for five
years, you earn not 50% but 61.1%. Here is the
reason: as time goes on, you make money not
only on your original investment but also on
your accumulated gains from earlier years.
Comprehensive coverage: The part of an auto insurance
policy that pays if a
car is stolen
or vandalized or otherwise damaged by something
other than a collision.
Comptroller of the Currency: A Treasury Department
official, appointed by
the president
and confirmed by the Senate, who is responsible
for chartering, examining, supervising and
liquidating national banks.
Conservation easement: A restriction placed on real
estate that limits or prohibits
development and, thus, lowers the property's
value. Conservation easements are often used to
lower estate taxes on family real estate, thus
allowing family members to retain ownership of
the family farm or beach retreat when they
might otherwise be forced to sell to cover the tax
bill.
Construction spending: The Commerce Department's
monthly measure of construction
spending.
Consumer Comfort Index: A measure of consumers'
feelings about their finances and the
economy as a whole. The numbers are calculated
through a weekly survey by Money
magazine and ABC News.
Consumer credit: Money loaned to individuals, usually
on an unsecured basis, requiring
monthly repayment. Bank loans, credit cards and
installment credit are examples of
consumer credit.
Consumer price index: A gauge of inflation that
measures changes in the
prices of
consumer goods. The index is based on a list
of specific goods and services purchased in
urban areas. It is released monthly by the
Labor Department. Abbreviated as CPI.
Convertible bond: A bond that investors may exchange
for stock on some future date under
certain conditions.
Corporate bonds: Bonds issued by corporations.
Corporation: A business entity treated as a person in
the eyes of the law. It is able to own
property, incur debts, sue, and be sued.
Correction: A reverse movement, usually downward, in
the price of an individual stock, bond,
commodity, index, or the stock market as a
whole.
Cost basis: In accounting, the valuation of an asset
that includes
the cost of the asset and
factors in items like depreciation, capital
gains and dividends.
Cost of living: Level of prices of goods and services
required for
a reasonable standard of
living.
Cost-push inflation: A sustained rise in prices
caused by businesses passing on increases
in costs, especially labor costs, to purchasers.
Council of Economic Advisers: Presidential advisers
who recommend economic measures
and help prepare an annual economic report to
Congress.
Coupon: The interest rate specified on a bond when it
is originally issued.
Covered: An investment strategy in which the seller
owns the underlying security.
Cram down: A maneuver in bankruptcy negotiations in
which a reorganization plan is forced
upon creditors with the least influence.
Credit ratings: Formal evaluation of a government
body's or company's
credit history and
ability to repay its debts.
Credit-shelter or bypass trust: A trust that allows a
married person -- who can leave
everything to his or her spouse tax free -- to
preserve the exemption that allows $600,000 in
every estate to pass to nonspouses free of
federal estate taxes. By putting money into such a
trust, you in effect "bypass" your spouse's
estate while still giving him or her access to the
assets.
Cumulative voting: A method of voting for corporate
directors. Each share
has as many
votes as there are directors to be elected, and
holders may distribute these votes as they
wish.
"Curbs In": An indication that trading curbs have
been installed on the New York Stock
Exchange.
Currency: Money that circulates in an economy. Also
refers to a country's official unit of
exchange.
Current account balance: One of the components of a
country's balance
of payments, The
current account balance covers the imports and
exports of goods and services.
Current ratio: A measure of a company's liquidity, or
its ability to pay its short-term debts.
Calculated by dividing current assets by
current liabilities.
Current yield: A measure of an investor's return on a
bond. Calculated
by dividing the coupon
rate by the purchase price, then multiplying
by $1,000.
CUSIP number: An identification number for
securities. Cusip is an acronym for Committee
on Uniform Securities Identifying Procedures.
Cyclical stocks: Shares that tend to rise during an
upturn in the economy and fall during a
downturn.
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DAX: Index of 30 major German stocks.
Day order: An investor's order to buy or sell stock
that will be canceled by the end of the day
if not filled.
Debenture: A certificate issued by a corporation that
states the amount of a
loan, the interest
to be paid and the time for repayment. It is
backed only by the corporation's reputation and
good word, not by collateral.
Debt: Securities such as bonds, notes, mortgages and
other forms of paper that indicate the
intent to repay an amount owed.
Deductible: Under an insurance policy, the amount of
loss or expense that you
must
shoulder yourself before the insuranc company
begins paying.
Default: Failure to pay principal or interest on a
financial obligation. It
can also refer to a
breach or nonperformance of the terms of a debt
instrument.
Defensive securities: Stocks with investment returns
that do not tend to
decline as much as
the market in general in times when stock
prices are falling. Those include companies with
earnings that tend to grow despite the business
cycle, such as food and drug firms, or
companies that pay relatively high dividends
like utilities.
Defined-benefit plan: A traditional pension plan,
which pays retirees a fixed
monthly check
based on their age, salary, and length of
service.
Deflation: A decline in the general price level of
goods and services that results in increased
purchasing power of money. The opposite of
inflation.
Delta: A measure of the relationship between an
option price and its underlying futures
contract or stock price.
Demand-pull inflation: A general increase in prices
that occurs when demand exceeds
supply.
Depreciation: A decline in value. In accounting, a
reduction of earnings to write off the cost of
an asset over its estimated useful life.
Depression: A severe downturn in an economy that is
marked by falling prices,
reduced
purchasing power, and high unemployment.
Derivative: A complex investment whose value is
derived from or linked to some
underlying
financial asset, such as stocks, bonds,
currencies or mortgages. Derivatives may be listed on
exchanges or traded privately over-the-counter.
For example, derivatives may be futures,
options, or mortgage-backed securities.
Derivative suit: A shareholder's suit made on behalf
of the company or mutual fund and its
shareholders. If damages are awarded, they are
paid to the company or mutual fund.
Originally, derivative suits were a way for
shareholders to challenge the actions of a
self-interested or entrenched board that
allowed mismanagement of a company.
Devaluation: The government's reduction of the value
of its currency in relation to the
currency of other counties. When a nation
devalues its currency, the goods it imports become
more expensive, while its exports become less
expensive abroad and thus more competitive.
DIF score: A rating, arrived at with a secret
formula, used by the
Internal Revenue Service to
help figure out which returns to select for
audits. DIF stands for "discriminant function."
Dip: A slight decline in securities prices followed
by a rise.
Disability insurance: Insurance that can replace part
of your income if illness or injury leaves
you unable to work for an extended period.
Disability-waiver-of-premium rider: In life
insurance, an added policy provision that
continues coverage, without requiring premium
payments, if the policyholder becomes
disabled.
Disclaimer trust: A trust designed for couples who do
not yet have enough
assets to need a
credit-shelter trust. A disclaimer trust allows
the surviving spouse to disclaim up to $600,000
of the estate and have those assets put into
a credit-shelter trust.
Discount: In general, the amount by which one
security price is less than another. In
financing, it is the interest withheld when a
note, draft, or bill is purchased.
Discount brokers: Brokers who charge lower
commissions than full-service brokers. Investors
often give up the benefits of stock-picking
advice, updates on news affecting their investments
and research services normally provided by
full-service brokers.
Discount rate: The interest rate charged by the
Federal Reserve on loans to banks and other
financial institutions. This rate influences
the rates these financial institutions then charge to
their customers.
Disinflation: A slowdown in the rate of price
increases. Disinflation occurs during a recession,
when sales drop and retailers are unable to
pass higher prices along to consumers.
Disintermediation: The movement of funds from
low-yielding accounts like savings accounts
into higher yielding investments like debt
securities.
Disposable income: The income that a person retains
after taxes. Disposable income can be
saved or used to purchase goods and services.
Diversification: When you diversify, you spread your
money among a slew of different
securities, thereby avoiding the risk that your
portfolio will be badly bloodied because a singel
security or a particular market sector turns
sour.
Dividends: A portion of a company's income paid to
shareholders as a return on their
investment.
Dividend yield: A company's annual dividend expressed
as a percentage of its current stock
price.
Dodge construction-contracts index: A monthly report
on the value of
new construction
contracts. The index, adjusted to reflect
seasonal variations in construction contracting,
gauges total monthly and year-to-date dollar
volume in the U.S. in three categories:
nonresidential, residential and nonbuilding.
It is issued by F.W. Dodge, a unit of McGraw-Hill
Cos.
Dollar-cost averaging: A strategy to invest fixed
amounts of money in securities at regular
intervals, regardless of the markets' movements.
Dow Jones averages: There are four Dow Jones averages
that track price changes in various
sectors. The Dow Jones Industrial Average
tracks the price changes of the stock of 30
industrial companies. The Dow Jones
Transportation Average monitors the price changes of
the stocks of 20 airlines, railroads and
trucking companies. The Dow Jones Utility Average
measures the performance of the stock of 15
gas, electric and power companies. The Dow
Jones 65 Composite Average monitors the stock
of all 65 companies that make up the other
three averages.
Dow Jones Equity Market Index: Index that measures
price changes in more than 100 U.S.
industry groups. The stocks in the index
represent about 80% of U.S. market capitalization
and trade on the New York Stock Exchange, the
American Stock Exchange and the Nasdaq
Stock Market. The equity-market index is
market-capitalization weighted, which means that a
stock's influence on the index is proportionate
to its size in the market.
Dow Jones Global Indexes: Some 2,700 companies'
stocks in 29 countries world-wide are
tracked by geographic region and by 120
industry groups. Collectively, they represent more
than 80% of the equity capital on stock markets
around the world. All of the indexes are
weighted by market capitalization, which is the
product of price times shares outstanding.
Thus, each country carries a weight
proportionate to the relative value of its equities to all
those in the world. The U.S. market is the
world's biggest, and the U.S. component of the
global indexes has the most stocks, more than
700.
Dow Jones Industrial Average: Often referred to as
the Dow, it is
the best known and most
widely reported indicator of the stock market's
performance. The Dow tracks the price
changes of 30 significant industrial stocks
traded on the New York Stock Exchange. Their
combined market value is equal to roughly 20%
of the market value of all stocks listed on the
New York Stock Exchange. Abbreviated as DJIA.
Dow Jones World Stock Index: An index that measures
the performance of more than
2,000 companies world-wide that represent more
than 80% of the equity capital on 25 stock
markets.
Downtick: A sale of a listed security that occurs at
a lower price than the
previous
transaction.
Draft: A signed, written order by one party that
instructs another party
to pay a third party a
specific amount. It also may be called a bill
of exchange.
Durable goods orders: Monthly survey of the backlog
in orders for durable goods that is
compiled by the Commerce Department. Durable
goods are products expected to last more
than three years.
Durable power of attorney: This document allows
someone to conduct your personal and
financial affairs even if you become legally
incompetent. A power of attorney expires upon the
giver's death.
Duration: A calculation measuring the expected life
of a fixed-income security. It estimates
the time required to collect a fixed-income
security's payments of the principal and interest.
Dutch auction: A procedure for buying and selling
securities named for a system used for
flower auctions in Holland. A seller seeks bids
within a specified price range, usually for a
large block of stock or bonds. After evaluating
the range of bid prices received, the seller
accepts the lowest price that will allow it to
dispose of the entire block.
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Earnings: Income after a company's taxes and all
other expenses have been paid. Also
called profit or net income.
Earnings per share: A portion of the company's
earnings allocated to each share
outstanding. Calculated by dividing the number
of outstanding shares into earnings.
Earnings yield: A company's per-share earnings
expressed as a percentage of its stock
price. This provides a yardstick for comparing
stocks with bonds, as well as with other stocks.
EBIT: Earnings before interest and taxes. The figures
are often used gauge the financial
performance of companies with high levels of
debt and interest expenses.
Economic indicators: Key statistics used to analyze
business conditions
and make
forecasts.
Emerging markets: Financial markets in nations that
are developing market-based
economies and have become popular with U.S.
investors, such as China and Peru.
Employee Stock Ownership Plan: A program encouraging
employees to buy stock in their
company and thereby have a greater stake in its
financial performance. Abbreviated as ESOP.
Endorsement: In some forms of insurance, a provision
added to a policy to add to or alter the
coverage.
Entitlements: Government benefits such as Social
Security and Medicare that must
be paid
to anyone meeting specific eligibility
requirements.
Equity: In property, it is the difference between the
property's current market value and the
claims against the property. In securities
markets, it is the part of a company's net worth that
belongs to shareholders.
Erisa: Acronym for the Employee Retirement Income
Security Act, a law governing most
private pension and benefit plans.
Escalator clause: A clause in a contract providing
for increases in costs such as labor
expenses and materials.
Estate taxes: Taxes levied by the federal and state
governments on the transfer of your
assets after you die. Uncle Sam levies estate
taxes on the world-wide assets of both U.S.
citizens and U.S. residents.
Eurobonds: Bonds issued by a borrower outside its own
country. The bonds are
denominated
in a currency foreign to the borrower or the
purchaser or both.
Eurocurrency: A deposit in a bank outside the
depositor's country of origin. Most deposits
are U.S. dollar deposits, although nearly all
major Western currencies are represented.
Eurodollars: Dollar-denominated deposits in banks
outside the U.S.
Euroloans: Loans of dollar-denominated deposits in
banks outside the U.S. and
of other
deposits in banks outside the depositors'
countries of origin.
Euromarkets: A general term for the Eurobond and
Euroloan markets.
European Currency Unit: A monetary unit created in
1979 by nine European nations to
promote currency stability in the European
Union. The European Currency Unit consists of
weighted amounts of the national currencies of
members of the European Monetary System.
The value of the European Currency Unit in
relation to other currencies is published daily in
newspapers. Also called the ECU.
European Monetary System: An exchange-rate system
adopted by European Union
members in an effort to move toward a unified
European currency.
European-style option: An option that may be
exercised only on its expiration
date.
European Union: An intergovernmental organization of
12 Western European nations created
under the Maastricht treaty of December 1991
with its own institutional structures and
decision-making framework. Before the
Maastricht treaty went into effect in November 1993,
the organization was known as the European
Community or the Common Market. Its
members are Belgium, Denmark, France, Germany,
Greece, Italy, Luxembourg, the
Netherlands, Portugal, Spain and the United
Kingdom. Its council of ministers and the
European Commission are based in Brussels,
Belgium, and its parliament is based in
Strasbourg, France. Also called the EU.
Exchange: A centralized place for trading securities
and commodities, usually involving an
auction process.
Ex-dividend: A period of time immediately before a
dividend is paid, during which new
investors in the stock are not entitled to
receive the dividend. A stock's price is revised lower
to reflect the dividend value on the first day
of this period. On that day, a stock is said to "go
ex-dividend."
Executor: The person named in a will to handle the
settlement of the estate.
Existing home sales: National Association of
Realtors' monthly report on the number of
sales of homes that are not newly constructed.
Exotic option: Any of a wide variety of options with
unusual underlying assets or terms. For
example, rainbow options depend on the amount
by which one asset outperforms another.
Expense ratio: This figure tells you how much a
mutual fund charges each year as a
percentage of total fund assets. A fund with
a 1.55% expense ratio, for instance, levies $1.55
for every $100 it has under management.
Included in this figure are the fund's management
fee, shareholder servicing costs, and any
annual 12b-1 fee. A 12b-1 fee, which is named after
the applicable Securities and Exchange
Commission regulation, is levied to pay for the cost of
attracting new investors to the fund. The fee
may be used to buy advertising or to compensate
brokers who sell the fund.
Expiration date: The date after which an option may
no longer be exercised.
Export-Import Bank of the U.S.: An independent bank
originally chartered by
the U.S.
government that finances, insures and
guarantees certain aspects of trade, and encourages
international trade with the U.S. The bank is
financed by the Treasury Department.
Exports: Goods and services one country produces and
sells to others.
Extension risk: For mortgage-backed securities, the
risk that rising interest rates may slow
down mortgage prepayment. Because investors'
money is tied up in the securities they may
miss the opportunity to earn a higher rate of
interest on a different investment.
Extraordinary items: Expenses or sources of revenue
that do not occur on a regular basis,
such as a loss due to a fire or the revenue
from the sale of a subsidiary.
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f.o.b.: The practice of the buyer paying all delivery
costs for an item. An abbreviation for free
on board.
Face value: The monetary value of a bond printed on
its face. Face
value and market value
often differ.
Factors: Companies that buy accounts receivable,
which are debts for merchandise or
services bought on credit. Factors assume the
job of collecting the money due.
Fair Value: A mathematical relationship between the
futures and the
S&P 500 index.
Farm Credit System: The government-sponsored
enterprise that finances farm loans by
selling bonds and notes.
Federal debt: The total amount the federal government
owes because of
past deficits.
Federal deficit: The amount of money the federal
government owes because it spent more
than it received in revenue for the past year.
Federal funds rate: The interest rate banks charge on
overnight loans
to banks that need
more cash to meet bank reserve requirements.
The Federal Reserve sets the interest rate.
Federal Home Loan Bank System: A network of regional
Federal Home Loan
Banks that
provides loans to savings banks, savings and
loans and other institutions that are important
providers of mortgage loans.
Federal Home Loan Mortgage Corp.: A government
sponsored enterprise that buys
residential mortgages from financial
institutions and repackages them to sell as investment
securities. Its shares are traded on the New
York Stock Exchange. Also called Freddie Mac.
Federal National Mortgage Association: A
government-sponsored enterprise that buys
mortgages from the Federal Housing
Administration and other financial institutions and
packages them as investment securities. Its
purpose is to improve liquidity in the secondary
market for such mortgages. Its shares are
traded on the New York Stock Exchange. Also
called Fannie Mae.
Federal Open Market Committee: The policy-making arm
of the Federal Reserve Board. It
sets monetary policy to meet the Fed's
objectives of regulating the money supply and credit.
The FOMC's chief tool is the purchase and sale
of government securities, which increase or
decrease the money supply, respectively. It
also sets key interest rates, such as the discount
rate.
Federal Reserve: The central bank of the U.S. that
sets monetary policy. The Federal
Reserve oversees money supply, interest rates
and credit with the goal of keeping the U.S.
economy and currency stable. Governed by a
seven-member board, the system includes 12
regional Federal Reserve Banks, 25 branches,
and all national and state banks that are part of
the system. Also called the Fed.
Financial Accounting Standards Board: The primary
rule-making body for accountants.
Financial planner: A type of financial adviser,
ideally with broad knowledge of all areas of
personal finance. But no particular training
or credentials are required and many incompetents
and even some outright crooks call themselves
planners. Fee-only planners are paid solely by
their clients -- that is, they do not receive
sales commissions or compensation from other
sources. Fee-plus-commission planners charge
fees for advice and other services, and also
receive commissions on the sale of investment
and insurance products.
Fiscal year: The 12-month period that a corporation
or government uses for bookkeeping
purposes.
Flexible spending account: An employee benefit
offered by many companies that allows
employees to have pretax dollars withheld from
their salaries to pay for unreimbursed medical
expenses and dependent-care expenses, such as
babysitting or elder care.
Float: In securities, the number of outstanding
shares in a corporation available for trading by
the public. Also, the time between the deposit
of a check in a bank and the check's payment.
Floater: An insurance policy that covers specific
items of personal property, such as jewelry.
Floating an issue: Offering stocks or bonds to the
public for the first
time. It can be an initial
public offering or an offering of issues by
companies that are already public.
Force majeure: A condition that permits a company to
depart from the
strict terms of a
contract because of an event or effect that
can't be reasonably anticipated or controlled.
Foreign exchange: Money instruments used to make
payments between countries.
Foreign exchange market: Market in which foreign
currencies are bought
and sold and
exchange rates between currencies are
determined.
Forward exchange rate: A currency exchange contract
that traders have
agreed upon for a
future date. The forward rate is usually for
one, two, three or six months and referred to as
30-day forward, 60-day forward, etc.
Forward trading: Trade, usually at the current pri | 
