Mark Berch:General obligation bonds

Riskless transaction
A transaction that is guaranteed a profit, such as the arbitrage of a temporary differential between commodity prices in two different markets. The evaluation of whether dealer markups and markdowns in OTCtransactions are reasonable. According to NASD, markups or markdowns should not exceed 5%.

Asked to bid/offer
Used in context of general equities. Usually a seller (buyer) looking to aggressively sell (buy) stock, usually asking for a capital commitment from an investment bank.

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

Mark Berch:General obligation bonds
Municipalsecurities secured by the issuer’s pledge of its full faith, credit, and taxing power.

Weighted average life
See: Average life

Tax and loan account
An account at a private bank, held in the name of the district Federal Reserve Bank, which holds operating cash for the business of the US Treasury. Mark Berch

Material Adverse Change or Effect
Many mergers and acquisitions contracts include a material adverse change clause that allows a company to renegotiate or walk away from a deal if the other company or its subsidiaries announces a significant event that may negatively affect its stock price or operations. See also materiality.

Mark Berch:Call price

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

Qualitative research
Traditional analysis of firm-specific prospects for future earnings. It may be based on data collected by the analysts, there is no formal quantitative framework used to generate projections.

Personal trust
An interest in an asset held by a trustee for the benefit of another person.

Mark Berch:Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.

Forward rate agreement (FRA)
Agreement to borrow or lend at a specified future date at an interest rate that is fixed today.

Net parity
Antithesis of gross parity.
Convertibles: Price of a convertible security including accrued interest.
International: Price of international security including commissions, fees, stamp duty, and other transactioncosts, translated into U.S. dollar amounts. Mark Berch

Carve out
Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only offers a minority share to the equity market. Also known as equity carve out.

Mark Berch:Correlation Dimension

Split stock
(1) Purchases or sales shared with others. (2) Division of the outstandingshares of a corporation into a large number of shares. Ordinarily, splits must be proposed by directors and approved by shareholders.

Underwriting income
For an insurance company, the difference between the premiums earned and the costs of settling claims.

Period-certain annuity
An annuity that provides guaranteed payments to an annuitant for a specified period of time.

Mark Berch:Maximum return criterion (MRC)
Standard that one choose the asset with the highest return.

Equilibrium rate of interest
The interest rate that clears the market. Also called the trade-clearing interest rate.

Speculative-grade bond
Bond rated Ba or lower by Moody’s, or BB or lower by S&P, or an unrated bond. Mark Berch

Tax free acquisition
A merger or consolidation in which (1) the acquirer’stax basis on each asset whose ownership is transferred in the transaction is generally the same as the acquiree’s, and (2) each seller who receives only stock does not have to pay any tax on the gain realized until the shares are sold.

Mark Berch:Volume counting

Investment adviser
A person or an organization that makes the day-to-day decisions regarding a portfolio’sinvestments. Also called a portfolio manager.

Bond anticipation note (BAN)
A short-termdebt instrument issued by a state or municipality to borrow against the proceeds of an upcoming bondissue.

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

Mark Berch:Volume counting
The SEC dictates how volume is counted. Thus, volume is counted in the same manner on all markets based on the above reporting structure. Any time money changes hands (or any time capital is risked), it must be counted as a trade. Examples: 1) One registered market participant on Nasdaq buys 100 shares into inventory from another registered market participant or from one of its clients. In either case, it is counted as 100 shares. 2) One member firm on the NYSE or Amex buys 100 shares from another member firm. The Specialist matches the order between the two firms and it is counted as 100 shares. 3)The Specialist sells 100 shares from his inventory to a member firm on the NYSE. It is counted as 100 shares. 4) A Market Maker receives an order to buy 100 shares from it’s client. It does not have 100 shares in its inventory. It must go buy 100 shares from someone else. It then sells these 100 shares to the client. Thus, there are two trades in this example for a total of 200 shares.

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

Investment product line (IPL)
The line of required returns for investment projects as a function of beta (nondiversifiable risk). Mark Berch

Debt outstanding subject to limitation
Obligations incurred by the Treasury subject to the statutory limit set by Congress. Until World War 1, a specific amount of debt was authorized for each separate security issue. Beginning with the Second Liberty Loan Act of 1917, the nature of the limitation was modified until, in 1941, it developed into an overall limit on the outstanding Federal debt. The statuatory limit may change from year to year.

Mark Berch:Bad debt

Constant-dollar plan
Method of purchasing securities by investing a fixed amount of money at set intervals. The investorbuys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost.

Positive yield curve
When long-term debtinterest rates are higher than short-term debt rates (because of the increased risk involved with long-term debtsecurity).

Calendar effect
Describes the tendency of stocks to perform differently at different times. For example, a number of researchers have documented that historically, returns tend to be higher in January compared to other months (especially February). Others have documented returns patterns across days of the week and within the day. Some of these patterns are found in volume and volatility as well as returns.

Mark Berch:Bad debt
A debt that is written off and deemed uncollectible.

Asymmetric taxes
When participants in a transaction have different net tax rates.

Modigliani and Miller Proposition II
A proposition by Modigliani and Miller which states that the cost of equity is a linear function of the firm’sdebt/equity-ratio. Mark Berch

Osaka Securities Exchange (OSE)
Established after World War II, one of the three major securities markets in Japan.

Mark Berch:Bearer form

Euro lines
Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.

Initial margin requirement
When buying securities on margin, the proportion of the total market value of the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the Board of Governors of the Federal Reserve the responsibility to set initial margin requirements, but individual brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by the exchange.

Creditor
Lender of money.

Mark Berch:Bearer form
Describes issue form of security not registered on the issuingcorporation’s books, and therefore payable to its bearer. See also: Bearer bond; coupon bond.

Edge Act corporation
Corporationchartered by the Federal Reserve to engage in international banking. The Board of Governors acts on applications to establish Edge Act corporations and also examines the corporations and their subsidiaries. Named after Senator Walter Edge of New Jersey, who sponsored the original legislation to permit formation of such organizations. See also: agreement corporation.

Investment strategy committee
A committee within a brokerage firm that conducts research and makes recommendations on the firm’s statedinvestment strategy. Mark Berch

Total capitalization
The total long-termdebt and all types of equity of a company that constitutes its capital structure.

Mark Berch:Security selection

Staggered board of directors
Occurs when a portion of directors are elected periodically, instead of all at once. Board terms are often staggered in order to thwart unfriendly takeover attempts, since potential acquirers would have to wait longer before they could take control of a company’s board through the normal voting procedure.

B
Fifth letter of a Nasdaq stock descriptor specifying that issue is the Class B shares of the company.

Projected benefit obligation (PBO)
A measure of a pension plan’sliability at the calculation date assuming that the plan is ongoing and will not terminate in the foreseeable future. Related: Accumulated benefit obligation.

Mark Berch:Security selection
See: Security selection decision

Book profit
The cumulative book income plus any gain or loss on disposition of assets.

US Treasury bill
US government debt with a maturity of less than a year. Mark Berch

Events of default
Contractually specified events that allow lenders to demand immediate repayment of a debt.

Mark Berch:Mid cap

Single European Act
Act intended to eliminate barriers on trade and capital flows between and among European countries.

Election Period
The period of time during which the holder can elect to extend and extendible bond, or to retract a retractable bond.

First preferred stock
A type of preferred stock that has priority over other preferred issues and common stock when claiming dividends and assets.

Mark Berch:Mid cap
A stock with a capitalization usually between $1 billion and $5 billion.

Cartel
A group of businesses or nations that act together as a single producer to obtain marketcontrol and to influence prices in their favor by limiting production of a product. The United States has laws prohibiting cartels.

Member bank
A national- or state-chartered bank that is a member of the Federal Reserve System. Mark Berch

Big uglies
Unpopular stocks.

Mark Berch:Dishonor

Domestic corporation
A corporation that is conducting business and is based in the country in which it is established, as opposed to a foreign corporation.

Standard & Poor’s SmallCap 600 Index
A small-capitalization benchmarkindex made up of 600 domestic stocks chosen for market size, liquidity, and industry group representation.

Cashier’s check
A check drawn directly on a customer’s account, making the bank the primary obligor, and assuring firm that the amount will be paid.

Mark Berch:Dishonor
A refusal to pay.

Car
A loose quantity term sometimes used to describe the amount of a commodityunderlying one commoditycontract; e.g., “a car of bellies.” Derived from the fact that quantities of the product specified in a contract once corresponded closely to the capacity of a railroad car.

Intrinsic value
The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which an option is in-the-money. For call options, this is the difference between the stock price, if that difference is a positive number, or zero otherwise. For put options it is the difference between the striking price and the stock price, if that difference is positive, and zero otherwise. See also: In-the-Money, Time Value Premium, Parity. Mark Berch

Transactions costs
The time, effort, and money necessary, including such things as commission fees and the cost of physically moving the asset from seller to buyer. Transcationscosts should also include the bid/ask spread as well as price impact costs (for example a large sell order could lower the price). Related: Round-trip transactions costs, information costs, search costs.

Mark Berch:Sources and applications of funds statement

Net present value (NPV)
The present value of the expected future cash flows minus the cost.

Limited payment policy
Life insurance providing full life protection but requiring premiums for only part of the customer’s lifetime.

Annual rate of return
There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY) includes the effect of compoundinginterest.

Mark Berch:Sources and applications of funds statement
See: Statement of cash flows

Cost basis
The original price of an asset, used to determine capital gains.

Workout period
Realignment of a temporarily misaligned yield relationship that sometimes occurs in fixed income markets. Mark Berch

Registered check
A check issued and guaranteed by a bank for a customer who provides funds for payment of the check.