1. Bulge bracket: The firms in an underwriting syndicate who were responsible for placing
the largest amounts of the issue with investors. Since these firms are the most responsible
for a security's successful issuance, their names appear first in the advertisement
conveying the details of the security issue, called the tombstone.
Asked price: The lowest price that any investor or dealer has declared that he/she will sell a
given security or commodity for. For over-the-counter stocks, the ask is the best quoted
price at which a Market Maker is willing to sell a stock. For mutual funds, the ask is the net
asset value plus any sales charges. also called or asking price or offering price or ask.
Basket: A group of several securities created for the purpose of simultaneous buying and
selling. Baskets often play a role in index arbitrage, program trading and hedging.
A collection of consumer goods and services that are tracked in the process of calculating
a consumer price index. also called market basket.
Analyst: An employee of a bank, brokerage, advisor, or mutual fund who
studies companies and makes buy and sell recommendations, often specializing in
a single sector or industry. Analysts use a wide variety of techniques for researching and
making recommendations. The reports and recommendations they publish are often used
by traders, mutual fund managers, portfolio managers and investors in their decision
making processes. also calledfinancial analyst or securities analyst.
Short call option: A stock option strategy in which an investor sells a call on shares that
are either currently owned (covered call) or not yet owned (naked call). The two types of
short calls carry different risks. For a naked call, the breakeven point is
the premium received plus the strike price. For a covered call, the breakeven point is
the strike price minus the premium.
Affordability index: A measure of the financial ability of U.S. families to buy a house. 100
means that families earning the nationalmedian income have just
the amount of money needed to qualify for a mortgage on a median-priced home; higher
than 100 means they have more than enough and lower than 100 means they have less
than enough.
Market breadth: The fraction of the overall market that is participating in the market's up
or down move. Looking at this parameter allows investors to reduce the impact of the large
cap stocks which influence market indices the most, and instead examine price trends of a
diverse range of stocks. This parameter is important in the context of technical analysis, as
a measure of market sentiment. Market breadth is also used to refer to the number of
independently issued price forecasts for a certain number of stocks (less common). also
called breadth.

2. Banking book: An accounting book that includes all securities that are not actively
traded by the institution, that are meant to beheld until they mature. These securities are
accounted for in a different way than those in the trading book, which are traded on
the market and valued by the performance of the market.
Shareholder loan: A loan made to a company from an
individual shareholder or partnership that exchanges money for interestpayments. The loan
can be secured by the shares (an equity loan) or through a debenture. This type of loan
ranks below commercial loans if it is not secured by collateral, making it subordinated debt.
A shareholder loan is often associated with S Corporations.
Withholding: An amount of an employee's income that an employer sends directly to
the federal, state, or local tax authority as partial payment of that individual's tax liability for
the year. When a person starts a new job, he/she is required tofill out a W-4 form on which
he/she can indicate his/her filing status and the number of allowances he/she is claiming.
Inflation risk: The possibility that the value of assets or income will decrease
as inflation shrinks the purchasing power of acurrency. Inflation causes money to decrease
in value at some rate, and does so whether the money is invested or not.
Electronic communication network: Electronic Communication Network. An
electronic system that brings buyers and sellers together for the
electronic execution of trades. It disseminates information to interested parties about
the orders entered into the network and allows these orders to be executed. Electronic
Communications Networks (ECNs) represent orders in NASDAQ stocks; they
internally match buy and sell orders or represent the highest bid prices and lowest askprices
on the open market. The benefits an investor gets from trading with an ECN include after-
hours trading, avoiding market makers (and their spreads), and anonymity (which is often
important for large trades).
457 plan: A tax-exempt deferred compensation program made available to employees of
state and federal governmentsand agencies. A 457 plan is similar to a 401(k) plan, except
there are never employer matching contributions and the IRS does not consider it
a qualified retirement plan. Participants can defer some of their annual income (up to an
annual limit), and contributions and earnings are tax-
deferred until withdrawal. Distributions start at retirement age but participants can
also take distributions if they change jobs or in certain emergencies. Participants can
choose to take distributions as a lump sum, annual installments or as an annuity.
Distributions are subject toordinary income taxes and the amounts cannot be transferred
into an IRA.

3. Currency convertibility: The ability to exchange money for gold or other currencies.
Some governments which do not have large reservesof hard currency foreign reserves try
to restrict currency convertibility, since they are not in a position to handle large
currency market operations to support their currency when necessary
Cash less exercise: A method of converting options into stock that requires no
initial cash payment to cover the strike price. Essentially,
a broker briefly loans enough money to exercise the options, and a portion of the stock
is soldimmediately after exercise in order to repay the broker. In this respect it is
essentially buying on margin. The broker is willing to enter this arrangement when that
broker feels that the option holder will honor his/hercommitment and
quickly sell his/her stocks to settle the debt to the broker.
Covered arbitrage: Arbitrage involving investments denominated in
different currencies, using forward cover to reduce or eliminatecurrency risk.
Broad base index: An index whose purpose is to reveal the performance of the
entire market, such as the S&P 500, Wilshire 5000,AMEX Major Market
Index or Value Line Composite Index. Different broad-base indices have different
approaches to ensuring that the index captures the entire breadth of market activity. The
Wilshire 5000 takes the most all-inclusive approach by including all the stocks listed on
the New York Stock Exchange and almost all the stocks listed on
the NASDAQ and American Stock Exchange. The S&P 500 includes 500 companies that
are together considered a good indicator for the US stock market, based on
the industries the companies operate in, theirpositions within the industry, and their market
capitalizations. The S&P 500 is a market-weighted index, so only 10% if its components
make up about 75% of its value. The Value Line Composite Index takes an in between
approach by tracking 1700 issues. The Value Line Composite is thought to be a better
indicator of speculative stocks than of more stable stocks.
Effective duration: The duration for a bond with an embedded option when
the value is calculated to include the expected change incash flow caused by
the option as interest rates change. This measures the responsiveness of
a bond's price tointerest rate changes, and illustrates the fact that the embedded option will
also affect the bond's price.
Exotic option: A category of options which includes complicated components and
complex payoffs. Its payoff or other keyvalues often depend on outside factors which vary
over time, such as exchange rate. Because of their complexity, exotic options are often
traded over the counter rather than through an exchange. Asian-style options are one type
of exotic options. opposite of plain vanilla option.

4. NASD: NASD. Merged with the NYSE Regulation, Inc. in 2007 to form
the organization now known as the Financial Industry Regulatory Authority (FINRA).
EQUITY: Ownership interest in a corporation in the form of common stock or preferred
stock. It also refers to total assets minus total liabilities, in which case it is also referred to
as shareholder's equity or net worth or book value. In real estate, it is the difference
between what a property is worth and what the owner owes against that property (i.e. the
difference between the house value and the remaining mortgage or loan payments on a
house). In the context of a futures trading account, it is the value of the securities in the
account, assuming that the account is liquidated at the going price. In the context of
a brokerage account, it is the net value of the account, i.e. the value of securities in the
account less any margin requirements.
Capital net worth: Total assets minus total liabilities of an individual or company.
For a public company, the excess of assets overliabilities consist of retained
earnings, common stock and additional paid-in surplus; here also called owner's
equity or shareholders' equity or net assets. For an individual, the excess of assets over
liabilities is most likely to come from savings and any additional contributions to income that
they have received. Some economists saynet worth is not very useful, since financial
statements value most assets and liabilities at historical cost, which is usually not a
good indicator of true value. also called capital net worth
Married filling separately: A tax filing status indicating that a married couple
is filing two separate tax returns, one for each individual. Married couples have the option of
filing jointly or separately. Although filing jointly often results in less taxes, filing separately is
sometimes preferable when one partner has significant medical expenses, casualty losses,
or miscellaneous itemized deductions
Forward outright rate: The forward rate of a foreign exchange contract, often expressed
as U.S. dollars per foreign currency.
Contract for difference: CFD. A contract between two people that mirrors the situation
of trading a security, without actually buying or selling the security. The two parties make a
contract that the seller will pay the buyer the difference in price after a certain period of time
if the designated security's price increases, and the buyer will in return pay the seller the
difference in price if the security's price decreases. CFDs are traded in over the counter
markets in many countries, although they are not allowed in the United States.
Health maintenance organisation: HMO. A form of health
insurance combining a range of coverages in a group basis. A group of doctors and other

5. medical professionals offer care through the HMO for a flat monthly rate with
no deductibles. However, only visits to professionals within the HMO network are covered
by the policy. All visits, prescriptions and other care must be cleared by the HMO in order to
be covered. A primary physician within the HMO handles referrals
Red herring: Same as preliminary prospectus. Its name comes from the warning, printed
in red, that information in the document is still being reviewed by the SEC and
is subject to change.
Saw buck: Slang term for the U.S. ten dollar paper currency. The slang is
derived from the Roman numeral for ten, "X". The "X" looks like the shape of a sawbuck, a
device used to hold wood in place for sawing it into pieces.
Fed: The 7-member Board of Governors that oversees Federal Reserve Banks,
establishes monetary policy (interest rates, credit, etc.), and monitors the economic health
of the country. Its members are appointed by the Presidentsubject to Senate confirmation,
and serve 14-year terms. also called the Federal Reserve Board.
Knock out option: An option that becomes worthless in the event
that the underlying commodity or currency crosses a certain price level.
Adjustable rate: Any interest rate that changes on a periodic basis. The change is
usually tied to movement of an outsideindicator, such as the prime interest rate. Movement
above or below certain levels is often prevented by a predetermined floor and ceiling for a
given rate. For example, you might see a rate set at "prime plus 2%". This means that the
rate on the loan will always be 2% higher than the prime rate, which changes regularly
to take intoaccount changes in the inflation rate. For an individual taking out a loan
when rates are low, a fixed rate loanwould allow him or her to "lock in" the low rates and not
be concerned with fluctuations. On the other hand, ifinterest rates were historically high at
the time of the loan, he or she would benefit from a floating rate loan, because as the prime
rate fell to historically normal levels, the rate on the loan would decrease
Securities analyst: Global Depositary Receipt. A negotiable certificate held in
the bank of one country representing a specific number of shares of a stock traded on
an exchange of another country. American Depositary Receipts make it easier for
individuals to invest in foreign companies, due to the widespread availability
of price information, lowertransaction costs, and timely dividend distributions. also
called European Depositary Receipt.

6. Synthetic put: A transaction involving the purchase of a call option on a stock that
has already been shorted. This enables theholder to protect against an increase in
the price of the underlying stock. If the stock price decreases, the call is not exercised and
the investor profits minus the premium. If the stock price increases, the call is exercised and
the investor breaks even minus the premium and short interest.
Permitted currency: A minor foreign currency that is allowed to be converted into
a major currency, such the U.S. dollar
Adjusted debit balance: Value used to determine a margin account's position, as
required by Regulation T. This is the amount acustomer owes a broker,
minus profits on short sales and balances in a special miscellaneous account. If the
adjusted debit balance is very small, the customer can withdraw cash or securities from
a margin account.
U.S. Government Agency Security
A security, usually a bond, issued by a U.S. government-sponsored agency.
The offerings of these agencies are backed by the government, but not guaranteed by the
government since the agencies are private entities. Such agencies have been set up
in order to allow certain groups of people to access low cost financing e.g. students and
home buyers. Some prominent issuers of agency securities are Student Loan Marketing
Association (Sallie Mae), Federal National Mortgage Association (Fannie Mae) and Federal
Home Loan Mortgage Corporation(Freddie Mac). Agency securities are
usually exempt from state and local taxes, but not federal tax. also calledagency security.
Gift tax: A graduated tax assessed against a person who gives money or an asset to
another person without receiving fair compensation. A significant amount of each gift is tax-
free. There are no exclusion limits on gifts given to a spouse unless the spouse is not a U.S.
citizen. The recipient of the gift does not report income except when the gift is
a property or stock. The recipient still has to pay taxes if he or she makes a profit from the
gift.
Overnight limit: The maximum amount of currency positions that can be carried over
from one trading day to another. The overnight limit is set by the Central
Bank regulation the financial institution where the positions are held.

7. -stapled security
A security which is comprised of two parts that cannot be separated from one another. The
two parts of a stapledsecurity are a unit of a trust and a share of a company. The resulting
security is influenced by both parts, and must be treated as one unit at all times, such as
when buying or selling the security.
-repatriation
Capital flow from a foreign country to the country of origin. This usually refers to
returning returns on a foreign investment in the case of a corporation, or transferring
foreign earnings home in the case of an individual.
- wash sale
Stock approved by the Federal Reserve and an investor's broker as being suitable for
providing collateral for margin debt. Depositing marginable stocks (or any other
marginable securities) in a margin account is an effective way for an investor to
reduce financing charges. However, the criteria to ensure that securities are suitable as
collateral for margin debt can be quite strict. The Federal Reserve has a minimum set
of standards for marginable stock, but a broker can choose to set stricter standards.
-participation certificate
Financing in which an individual buys a share of the lease revenues of an agreement made
by a municipal or governmental entity, rather than the bond being secured by those
revenues. This form of financing can be used by the municipal or government entity to
circumvent restrictions that might exist on the amount of debt they might be able to take on.
As of now, the only agencies to issue or guarantee such certificates are Freddie
Mac, Fannie Mae, Ginnie Mae and Sallie Mae.
- bear raid
A trader's attempt to force down the price of a particular security by heavy selling or short
selling. In the case of short selling, the trader then makes a profit by buying
the stock cheaply to cover the short position. Bear raids are often carried out by large
groups of traders together, since an individual trader might not have a large enoughtrade to
influence market price significantly. This practice is not allowed under SEC regulations.

8. -odd-lot theory
A technical analysis theory based on using odd-lot trading behavior as a contrary indicator,
under the assumption that odd lots are traded primarily by small investors who are
on average less experienced than institutional investors. The theory has declined in
popularity as historical data has failed to support it.
-U.S. Treasury Securities
Negotiable U.S. Government debt obligations, backed by its full faith and
credit. Exempt from state and localtaxes. U.S. Treasury Securities are issued by the U.S.
government in order to pay for government projects. Themoney paid out for a Treasury
bond is essentially a loan to the government. As with any loan, repayment ofprincipal is
accompanied by a specified interest rate. These bonds are guaranteed by the "full faith and
credit" of the U.S. government, meaning that they are extremely low risk (since the
government can simply print money to pay back the loan). Additionally, interest earned on
U.S. Treasury Securities is exempt from state and local taxes.Federal taxes, however, are
still due on the earned interest. The government sells U.S. Treasury Securities byauction in
the primary market, but they are marketable securities and therefore can be purchased
through abroker in the very active secondary market. A broker will charge a fee for such
a transaction, but the governmentcharges no fee to participate in auctions. Prices on the
secondary market and at auction are determined byinterest rates. U.S. Treasury Securities
issued today are not callable, so they will continue to accrue interest until the maturity date.
One possible downside to U.S. Treasury Securities is that if interest rates increase during
the term of the bond, the money invested will be earning less interest than it could earn
elsewhere. Accordingly, theresale value of the bond will decrease as well. Because there is
almost no risk of default by the government, thereturn on Treasury bonds is relatively low,
and a high inflation rate can erase most of the gains by reducing thevalue of the principal
and interest payments. There are three types of securities issued by the U.S. Treasury
(bonds, bills, and notes), which are distinguished by the amount of time from the
initial sale of the bond tomaturity. also called Treasuries.
-active account
A brokerage account in which there are many transactions. Often, brokerages will charge a
certain flat fee on accounts that are not very active. For a brokerage, this is a chance to
generate revenues from accounts that would otherwise not be generating revenues.
-circular flow of income
A model that indicates how money moves throughout an economy,
between businesses and individuals.Investors spend their income by
consuming goods and services from businesses, paying taxes and investing in the stock

9. market. Businesses use the money spent by individuals while consuming and the money
raised from selling stock to pay for capital to run their business, purchase material to
manufacture products and to payemployees. All expenditures from individuals become the
income of the businesses, and the expenditures of the businesses become the income of
the individuals
- market maker
A brokerage or bank that maintains a firm bid and ask price in a
given security by standing ready, willing, and able to buy or sell at publicly quoted prices
(called making a market). These firms display bid and offer prices for specific numbers of
specific securities, and if these prices are met, they will immediately buy for or sell from their
own accounts. Market makers are very important for maintaining liquidity and efficiency for
the particular securities that they make markets in. At most firms, there is a strict separation
of the market-making side and the brokerage side, since otherwise there might be
an incentive for brokers to recommend securities simply because the firm makes a market
in that security.
-watermark
An image on paper currency designed to differentiate officially sanctioned bills from
counterfeit bills.
-corporate spread duration
The price sensitivity of a corporate bond to a 100 basis point change in
its spread over LIBOR. Because a change in the option-adjusted spread affects
the amount of cash flows received by the option holder.
A corporatebond option investor maintaining a long position has to decide if the option
should be executed because changesin the market price of the bond alters the return on
the investment. For example, if the spread between the corporate bond option
and Treasuries narrows, the price of the bond may rise to the point at which the
optionissuer could initiate the call.
-basis swap
A specific type of interest rate swap, where the interest rates exchanged are based on
different money marketsor currencies.
-quantity demanded
The amount of goods which would be demanded at a particular price. If non-
price factors that could influencedemand are removed, then the higher the price of a good

10. the lower the quantity of that good will be demanded. It is the inverse of the law of supply,
and is directly related to the law of demand.
-production possibility frontier
PPF. A curve that compares the trade offs between two goods produced by
an economy in order to demonstrate the efficient use of resources. Points along the curve
are considered efficient and obtainable, and show the maximum amount of one good that
can be produced in relation to another. Points within the curve are considered obtainable
but inefficient. Points outside the curve are considered impossible to obtain. A classic
example considers an economy that can produce either guns or butter, and shows how a
government ct
an spend a finite amount of resources on guns (defense), butter (non-defense) or
a combination of the two.
-Federal Open Market Committee
FOMC. A 12-member committee which sets credit and interest rate policies for the Federal
Reserve System. This committee consists of 7 members of the Board of Governors, and 5
of the 12 . This group, headed by the Chairman of the Federal Reserve Board, sets interest
rates either directly (by changing the discount rate) or through the use of open market
operations (by buying and selling government securities which affects the federal funds
rate). The discount rate is the rate at which the Federal Reserve Bank charges member
banks for overnight loans. The Fed actually controls this rate directly, but it tends to have
little impact on the activities of banks because these funds are available elsewhere. This
rate is set during the FOMC meetings by the regional banks and the Federal Reserve
Board. The federal funds rate is the interest rate at which banks loan excess reserves to
each other. While the Fed can't directly affect this rate, it effectively controls it through the
way it buys and sells Treasuries to banks. There are 8 scheduled FOMC meetings during
the course of each year. However, when circumstances dictate, the Fed can make inter-
meeting rate changes.
-direct quote
A foreign exchange rate of one currency, usually the domestic currency, per unit of a
different currency. In termsof U.S. dollars, a direct quote is the number of a foreign currency
that one dollar could buy. For example, a direct quote for the Euro could be US$1.50 = 1
Euro.
-back-to-back loans

11. An arrangement in which two companies in different countries borrow each
other's currency for a given period of time, in order reduce foreign exchange risk for both of
them. also called parallel loans.
-accumulation
Buying over a period of time. For example, this might be done by an institutional investor to
avoid making a singlesubstantial purchase that might drive up the market price, or by
a retail investor who wants to reduce risk bydollar cost averaging.
Retaining profits within a company, as opposed to paying them out as dividends.
More generally, any buying.
-contingent order
An order which is to be executed only if another order is executed first. An example of
a contingent order would be to sell one specific security if another specific security has been
bought. Brokers often do not like to work with these orders, given the uncertainty and extra
work involved.
-money market account
A savings account which shares some of the characteristics of a money market fund. Like
other savings accounts, money market accounts are insured by
the Federal government. Money market accounts offer many of the
same services as checking accounts although transactions may be somewhat more limited.
These accounts are usually managed by banks or brokerages, and can be a convenient
place to store money that is to be used for upcoming investments or has been received
from the sale of recent investments. They are very safeand highly liquid investments, but
offer a lower interest rate than most other investments.

12. -Form 10-Q
Unaudited document required by the SEC for all U.S. public companies, reporting
the financial results for thequarter and noting any significant changes or events in the
quarter. The Form 10-Q contains financial statements, a discussion from the management,
and a list of "material events" that have occurred with thecompany (such as a stock
split or acquisition). also called quarterly report.
-ISO
Incentive Stock Option. A type of employee stock option which provides tax advantages for
the employer that anon-qualified stock option does not, but which is subject to more
stringent requirements. For ISOs, no income taxis due when the options are granted or
when they're exercised. Instead, the tax is deferred until the holder sellsthe stock, at which
time he/she is taxed for his/her entire gain. As long the sale is at least two years after the
options were granted and at least one year after they were exercised, they'll be taxed at the
lower, long-termcapital gains rate; otherwise, the sale is considered a "disqualifying
disposition", and they'll be taxed as if they were nonqualified options (the gain at exercise is
taxed as ordinary income, and any subsequent appreciation is taxed as capital gains). ISOs
may not be granted at a discount to the current stock price, and they are not transferable,
except through a will. also called qualified stock option.
International Organization for Standardization. The world's largest standards developer. A
non-governmentalorganization established in 1946, consisting of a network of 156
countries' national standards institutes with one member representing each country. The
organization is managed by a general secretariate in Geneva, Switzerland.
-total return index
An index that calculates the performance of a group of stocks assuming that
all dividends and distributions are reinvested. Examples include the S&P 500, the Russell
2000, and the Wilshire 5000. This method is usually considered a more accurate measure
of actual performance than if dividends and distributions were ignored.
-automatic exercise
The procedure that prevents in-the-money equity options from expiring and
becoming worthless. In this procedure, the clearing firm will exercise certain kinds
of options that are in the money without instruction from the option holder, thus
allowing option holders who may not be monitoring an option to still capture a profit. Not all
options are subject to automatic exercise. Certain options (known as "capped-style
options") become subject to automatic exercise if the price of the underlier hits a certain
price (known as the "cap value"), regardless of when the price is achieved (this is only
possible in the case of an American-style option). Other options will be subject to automatic
exercise just before expiration and at no other time. In such cases, the trigger for automatic

13. exercise is either when the option is in the money, or when it is in the money by a
certain amount.
-margin lending
A program though lending institutions that allows an individual to borrow money for the
purposes of investing it. The amount of credit loaned is based upon the amount
of assets held by the borrower, which are pledged ascollateral on the loan. This program is
often used by individuals who want to invest more than they currently are investing, and are
willing to take on the risk of this type of loan.
Term of the Day - collar
The lowest rate acceptable to a buyer of bonds, or the lowest price acceptable to
the issuer of an underwriting, or the lowest rate possible for an adjustable rate.
The index level at which a circuit breaker is triggered.
A combination of put options and call options that can limit, but not eliminate, the risk that
their value will decrease.
Term of the Day - revocation
The act of recalling or terminating a previously granted power of attorney. The power of
attorney document may state a specific date when the power will terminate. In most cases,
the power of attorney automatically expiresupon the death or incapacity of the person who
granted the power. The person granting the power may alsorevoke the power at
his/her discretion, but if the power of attorney had been set as irrevocable at the time that
thecontract was drawn up, such a revocation may constitute breach of contract. While
revocation of power of attorney becomes effective the moment the person who was given
that power of attorney receives notice, third parties who deal with the attorney must be
separately notified of the fact that the power of attorney has been revoked.
Term of the Day - extended broad money
One measure of the money supply that includes M2, plus large time
deposits, repos of maturity greater than one day at commercial banks, and
institutional money market accounts. also called M3.
Term of the Day - normal distribution
A probability distribution shaped like a bell, often found in statistical samples.
The distribution of the curve implies that for a large population of independent random
numbers, the majority of the population often cluster near a central value, and
the frequency of higher and lower values taper off smoothly.

14. Term of the Day - invest
To engage in any activity in which money is put at risk for the purpose of making a profit,
and which is characterized by some or most of the following (in approximately
descending order of importance): sufficientresearch has been conducted; the odds are
favorable; the behavior is risk-averse; a systematic approach is being taken; emotions such
as greed and fear play no role; the activity is ongoing and done as part of a long-termplan;
the activity is not motivated solely by entertainment or compulsion; ownership of something
tangible is involved; a net positive economic effect results.
-currency trading
The act of buying and selling world currencies. Currency trading is most often engaged in
by banks and otherinstitutions, for the purposes of international trade. Individual
investors may engage in currency trading as well, attempting to benefit from variations in
the exchange rates of the currencies.
-SIMPLE 401(k) Plan
A retirement plan sponsored by employers which is attractive for employers because it
avoids some of the administrative fees and paperwork of plans such as a 401(k) plan.
Employers benefit from the tax-deductiblecontributions made to the plan,
and employees may elect to have salary deferrals in order to contribute to the plan. The
employer has the option of matching a certain portion of the employee's deferrals or making
non-elective contributions to all eligible employees (an annual limit applies in both cases). A
minimum compensation eligibility requirement exists for employees who want to join this
plan, and employees cannot establish any otherqualified retirement plans at the same time.
-net interest income
NII. A financial measure for banks, calculated by the amount of money the bank receives
from interest on assets(commercial loans, personal mortgages, etc) minus the amount of
money the bank pays out for interest onliabilities (personal bank accounts, etc). Although
usually calculated for banks, this figure can also be calculated for other corporations, simply
by subtracting the amount of interest paid on liabilities from the amount of interest earned
from assets.
-media buy
The buying of advertising space from a company operating media properties. The cost of a
media buy varies depending on the specific media property on which the buyer wants to
advertise, the size of the advertising campaign, the specific times at which the
advertisements are to be displayed, and other specific features of the advertising campaign.

15. -net income multiplier
The price of an asset (usually current price) divided by the net income it generates in a
given period of time. Usually refers to rental property, for which the time period over which
this multiple is considered is generally a month. It is a useful measure for judging how
effective an asset is at generating income, compared to its market price.
-previous balance method
A technique for calculating finance charges on a credit
card account that takes the outstanding balance at the end of the previous billing period and
applies the interest rate to that total. Charges in the current billing period are not
included. Interest charges are usually higher under this method than under other methods,
such as adjusted balance, and average daily balance methods.
-impairment charge
A specific reduction on a company's balance sheet that adjusts the value of a
company's goodwill. Due toaccounting rules, a company must monitor and test the value of
its goodwill, to determine if it is overvalued. If it is, the company
must issue an impairment charge on its balance sheet, to take into account the reduced
value of the goodwill.
-dutch disease
The deindustrialization of a nation's economy that occurs when the discovery of a
natural resource raises thevalue of that nation's currency, making
manufactured goods less competitive with other nations, increasingimports and
decreasing exports. The term originated in Holland after the discovery of North Sea gas.
-Coverdell Education Savings Account
ESA. An investment vehicle designed to help parents fund their child's education. The
Coverdell EducationSavings Account has replaced the Education IRA. Contributions to
the account are taxed, but earnings used topay education expenses are not. The account is
transferable among family members. However, there are several restrictions attached to this
account. The entire account has to be disbursed before the beneficiary's 30th birthday, and
any withdrawals after this date or for expenses that do not qualify under the act will
be subject toincome taxes and a penalty.
-open-ended investment company
OEIC. A type of company that allows investors to
collectively pool together money to invest in various opportunities. As money is
invested, shares are created. When a shareholder requests to sell shares, that money is

16. then redeemed. The value of a share varies with the value of the OEIC's net portfolio value
(NPV). It is most often used in the United Kingdom. In the United States it is referred to as
an open-ended mutual fund.
-ISM manufacturing index
A monthly index released by the Institute of Supply Management which tracks
the amount of manufacturingactivity that occurred in the previous month. This data is
considered a very important and trusted economicmeasure. If the index has a value below
50, due to a decrease in activity, it tends to indicate an economicrecession, especially if
the trend continues over several months. A value substantially above 50 likely indicates a
time of economic growth. The values for the index can be between 0 and 100.
-broad money
One measure of the money supply that includes M1, plus savings and small time
deposits, overnight repos atcommercial banks, and non-institutional money market
accounts. This is a key economic indicator used toforecast inflation, since it is not as narrow
as M1 and still relatively easy to track. All the components of M2 are very liquid, and the
non-cash components can be converted into cash very easily.
-overhead ratio
Operating expenses divided by the sum of taxable equivalent net interest income and
other operating income. This ratio shows the proportion of expenses, in relation to
total income, that cannot be allocated directly to production of the good
or service. Operating expenses include items such as office rent, maintenance of
machinery, depreciation costs, etc. In general, companies want to minimize these costs
since it is difficult to quantify the revenues generated by undertaking these costs.
-incontestability clause
A provision in a life insurance policy that prevents the insurer from
revoking coverage because of alleged misstatements by the insured after a
specified period, usually about two years. Of course, this is not a license to commit fraud,
and the discovery of fraud will lead the company to contest any claims and possibly pursue
criminal charges.
-Basel II
A document written in 2004 by the Basel Committee on Banking Supervision, which makes
more detailedrecommendations for banks, building on its previous document, Basel I. Basel
II includes recommendations on three main areas: risks, supervisory review,
and market discipline. Many countries and banks are planning on implementing the
guidelines set out in Basel II, although it may take as long as the year 2015
for fullimplementation.

17. -ABC agreement
An agreement between a brokerage firm and an employee detailing the rights of
the firm when it purchases anNYSE membership for the employee. It is believed to be
known as an ABC agreement because the employee can: A) keep the seat if he/she leaves
but must buy another seat for an individual named by the firm; B) sell the seat
but return the proceeds to the firm; or C) transfer the seat to another employee of the firm.
-bear spread
An option strategy designed to profit from a drop in a security's price, by selling a near-
month futures contractand buying a deferred month futures contract.
-full ratchet
In venture capital, an investor protection provision which specifies
that options and convertible securities may be exercised relative to the lowest price at
which securities were issued since the issuance of the option orconvertible security.
The full ratchet guarantee prevents dilution, since the proportionate ownership would stay
the same as when the investment was initially made.
-futures commission merchant
An individual or organization accepting orders to buy or sell futures or futures options. A
person or organization in this role needs to be certified by the Commodities and
Futures Trading Commission. A futures commissionmerchant has a role in the
futures market similar to that of a broker in the securities market. In addition to accepting
buy or sell orders, the futures commission merchant can also hold
their client's money or securities inmargin accounts in accordance with the rules of
the exchange on which they are trading. The work of a futures commission merchant may
also occasionally be carried out by a full service broker.
-basis trading
An arbitrage strategy usually consisting of the purchase of a particular security and
the sale of a similar security(often the purchase of a security and the sale of a
corresponding futures contract). Basis trading is done when the investor feels that the
two securities are mispriced with respect to each other, and that the mispricing will correct
itself such that the gain on one side of the trade will more than cancel out the loss on the
other side of the trade. In the case of such a trade taking place on a security and
the futures contract, the trade will be profitable if the purchase price plus the cost of carry is
less than the futures price. also called cash and carry trade.
-basis trading
An arbitrage strategy usually consisting of the purchase of a particular security and
the sale of a similar security(often the purchase of a security and the sale of a

18. corresponding futures contract). Basis trading is done when the investor feels that the
two securities are mispriced with respect to each other, and that the mispricing will correct
itself such that the gain on one side of the trade will more than cancel out the loss on the
other side of the trade. In the case of such a trade taking place on a security and
the futures contract, the trade will be profitable if the purchase price plus the cost of carry is
less than the futures price. also called cash and carry trade.
-commodity
A physical substance, such as food, grains, and metals, which is interchangeable with
another product of the same type, and which investors buy or sell, usually through futures
contracts. The price of the commodity issubject to supply and demand. Risk is actually the
reason exchange trading of the basic agricultural productsbegan. For example, a
farmer risks the cost of producing a product ready for market at sometime in the future
because he doesn't know what the selling price will be.
More generally, a product which trades on a commodity exchange; this would also include
foreign currencies andfinancial instruments and indexes.
-short selling
Borrowing a security (or commodity futures contract) from a broker and selling it, with the
understanding that it must later be bought back (hopefully at a lower price) and returned to
the broker. Short selling (or "selling short") is a technique used by investors who try
to profit from the falling price of a stock. For example, consider aninvestor who wants to sell
short 100 shares of a company, believing it is overpriced and will fall. The investor'sbroker
will borrow the shares from someone who owns them with the promise that the investor
will return them later. The investor immediately sells the borrowed shares at the
current market price. If the price of the sharesdrops, he/she "covers the short position" by
buying back the shares, and his/her broker returns them to thelender. The profit is the
difference between the price at which the stock was sold and the cost to buy it back,
minus commissions and expenses for borrowing the stock. But if the price of the shares
increase, the potentiallosses are unlimited. The company's shares may go up and up, but at
some point the investor has to replace the 100 shares he/she sold. In that case, the losses
can mount without limit until the short position is covered. For this reason, short selling is a
very risky technique. For a while, SEC rules only allowed investors to sell short only on
an uptick or a zero-plus tick, to prevent "pool operators" from driving down a stock price
through heavy short-selling, then buying the shares for a large profit. This rule was
eliminated in July 2007.
-cash forward contract
A cash market transaction in which a seller agrees to deliver a specific cash commodity to a
buyer at some point in the future. Unlike futures contracts (which occur through a clearing
firm), cash forward contracts are privately negotiated and are not standardized. Further, the
two parties must bear each other's credit risk, which is not the case with a futures contract.
Also, since the contracts are not exchange traded, there is no marking
to marketrequirement, which allows a buyer to avoid almost all capital outflow initially

19. (though some counterparties might set collateral requirements). Given the lack of
standardization in these contracts, there is very little scope for asecondary
market in forwards. The price specified in a cash forward contract for a specific commodity.
Theforward price makes the forward contract have no value when the contract is written.
However, if the value of the underlying commodity changes, the value of the forward
contract becomes positive or negative, depending on theposition held. Forwards are priced
in a manner similar to futures. Like in the case of a futures contract, the first step in pricing a
forward is to add the spot price to the cost of carry (interest forgone, convenience
yield, storagecosts and interest/dividend received on the underlying). Unlike a futures
contract though, the price may also include a premium for counterparty credit risk, and the
fact that there is not daily marking to market process to minimize default risk. If there is
no allowance for these credit risks, then the forward price will equal the futures price. also
called forward contract.
-permanent life insurance
An umbrella term for a variety of plans that combine a death benefit similar to a term life
insurance plan with tax-sheltered savings arrangements. Permanent life policies, as their
name implies, are meant to be held and paidinto for the duration of the insured's life.
Because of this, there are significant fees associated with setting up thepolicy. Despite
these fees, the tax advantages can make permanent life a valuable investment over a
long periodof time. also called cash value insurance.
-dividend payout
The amount of cash that a company sends to its shareholders in the form of dividends. The
company can decide to send all profits back to its investors, or could keep a portion of it
as retained earnings.
-Series HH bond
Series HH bonds are sold in amounts from $500 to $10,000. They may be redeemed after
only six months, and their interest is exempt from state and local taxes. The interest rate at
the time of purchase is locked in for the first 10 years that the bond is held. After ten years,
HH bonds enter extended maturity and the new interest rate is determined by the rate
assigned to new bonds issued at that time.
-default rate
The rate at which debt holders default on the amount of money that they owe. It is often
used by credit cardcompanies when setting interest rates, but also refers to the rate at
which corporations default on their loans. Default rates tend to rise
during economic downturns, since investors and businesses see
a decline in incomeand sales while still required to pay off the same amount of debt.
-indirect investment

20. A way of investing in real estate without actually investing in the property.
Indirect investment can be done in many ways, including securities, funds, or private equity.
Most investors interested in indirect investment would do so through
a company or advisor who has experience in this type of investing.
-trading book
An accounting book that includes all securities that the institution regularly buys and sells on
the stock market. These securities are accounted for in a different way than those in
the banking book, which are meant to be heldby the institution until they mature and are not
usually affected by market activity.
subscription warrant
A certificate, usually issued along with a bond or preferred stock, entitling the holder to buy a
specific amount of securities at a specific price, usually above the current market price at the time
of issuance, for an extended period, anywhere from a few years to forever. In the case that the price of
the security rises to above that of the subscription warrant's exercise price, then theinvestor can buy the
security at the subscription warrant's exercise price and resell it for a profit. Otherwise, the
subscription warrant will simply expire or remain unused. Subscription warrants
are listed on options exchanges and trade independently of the security with which it was issued.also
called warrant.
ceiling
1. The maximum interest rate permitted by state law for a given loan. A ceiling is
a commonfeature of floating rate notes. 2. An upper limit on the exchange rate of a
country's currencyimposed by some regulatory authorities (the government or regulators will step in
and ensure that the exchange rate does not exceed the ceiling). 3. More generally, any limit or maximum
wedge
A technical analysis term used to describe a chart on which lines that connect tops and bottomsconverge
towards each other but are both moving in the same direction. Similar to a triangle,except that in a
triangle, the trends move in opposite directions, with the tops decreasing and the bottoms increasing. In a
wedge, both lines have the same trend (upward or downward) but have different slopes, leading to
the convergence. A falling wedge is generally thought to be a rest during a period of upward movements.
exchange rate
Rate at which one currency may be converted into another. The exchange rate is used when simply
converting one currency to another (such as for the purposes of travel to another country), or for
engaging in speculation or trading in the foreign exchange market. There are a wide variety
of factors which influence the exchange rate, such as interest rates, inflation, and the state of politics and

21. the economy in each country.also called rate of exchange or foreign exchange rateor currency
exchange rate
owner of record
The name of an individual or entity that an issuer carries in its records as the registered holder(not
necessarily the beneficial owner) of the issuer's securities. Dividends and other distributionsare paid only
to owners of record. also called stockholder of record or holder of record orshareholder of record.
education credit
A tax credit available for education expenses, such as a Hope Credit or a Lifetime Learning Credit.
Education credits can be applied to many situations including education expenses,deposits in Education
Savings Accounts, and withdrawals from IRAs in order to financeeducation and student interest loan
payments.
gold bar
A gold ingot fashioned in the shape of a bar that is 99.5%-99.9% pure in gold. In the US, theirvalue is
measured in troy ounces, whereas other nations may use grams. 1 troy ounce is equal to 31.1034768
grams. Ingots range in size from 1 troy ounce to 400 troy ounces. Gold bars can be used
for trading or investing purposes. However, because they are easier to fabricate, they have to be tested
for purity when sold, and thus are often held as long-term investments to hedgeagainst inflation. Central
banks often hold these items in large vaults or reserves. In the past, gold bars directly backed the
US currency. In more modern times however, they serve as a symbolic backing of the dollar.
conversion privilege
An insurance policy in which the insurer is required to renew the policy for a specified amount of time
regardless of changes to the health of the insured. The agreement requires that premiums are paid on
time and that the insurer makes no changes except if a premium change is made for an
entire class of policyholders. also called guaranteed renewable or convertible term
insuranceor guaranteed insurability.
convertible term insurance
An insurance policy in which the insurer is required to renew the policy for a specified amount of time
regardless of changes to the health of the insured. The agreement requires that premiums are paid on
time and that the insurer makes no changes except if a premium change is made for an
entire class of policyholders. also called guaranteed renewable or conversion privilege orguaranteed
insurability.
put-call parity
The relationship between the price of a call and the price of a put for an option with
the samecharacteristics (strike price, expiration date, underlying). It is used in arbitrage theory. If different

22. portfolios comprised of cals and puts have the same value at expiration, it is implied that they will have
the same value leading up to the expiration point. Thus, the values of the portfolios move in
lock step. Portfolio price equality is calculated as c + PV(x) = p + s, where c is the market valueof the call,
PV(x) is the present value of the strike price, p is the market value of the put, and s is the market value of
the underlying security. If the two sides of the equation are not equal, arbitrage profit could be gained
by investing in the less expensive portfolio. Analysis of the parityrelationship assumes that other factors,
such as a dividend, are not taken into account.
clawback
1. A financial or other benefit that is given, but is later taken back due to unique circumstances.
A common example of this is when particular investments are purchased, they provide taxablebenefits to
the purchaser, but if the investments are sold before they mature, these benefits arerequired to be
returned. 2. A decrease in the stock market that follows just after an increase in the stock market.
Roth 401(k)
A contribution-based retirement account, which combines features of the traditional Roth IRA and401(k)
plan accounts. The Roth 401(k) contains many benefits for employees, such as
beingable to contribute post-tax money, but many companies do not yet offer this as a retirement
planoption, due to the increased amount of work it takes to maintain this plan. Companies were given the
option to begin offering this plan in 2006.
caput
A type of exotic option that is composed of a call option placed on a put option. An investor whouses a
caput option is purchasing the option to buy a put option. The word is formed from thecombination of
"call" and "put". also called compound option.
domestic rate
The interest rate of a domestic currency expressed in real terms. The domestic rate is used inforeign
exchange markets in interest rate parity calculations, and is compared to the inflation-
adjusted interest rate of the foreign currency.
optional payment bond
A type of bond that allows principal or interest payments to be made in foreign currency. At theoption of
the bondholder, the payments can be made payable in one or more foreign currencies.
conglomerate merger
A merger of two companies which are involved in different types of business. There are many ways for
this to benefit the companies, such as sharing of assets and reducing business risk, but can also become
a risk to the company if the new company gets too large or if it isn't able to successfully blend the two
businesses.

23. continuous inventory
Keeping book inventory continuously in agreement with stock on hand within specified time periods. In
some cases, book inventory and stock on hand may be reconciled as often as after each transaction,
while in some systems these two numbers may be reconciled less often. Thisprocess is useful in
keeping track of actual availability of goods and determining what the correct time
to reorder from suppliers might be. Sometimes also called perpetual inventory.
double top
A technical analysis term for two successive rises to the same price level. On a chart, this looks
something like an M. The particular price level where the double top occurs is considered aresistance
level for the stock, because technical analysts believe that the stock is havingdifficulty rising above that
level. opposite of double bottom.
flipping
The practice of buying initial public offerings at the offering price and then reselling them oncetrading has
begun, usually for a substantial profit. This is more commonly done by institutional investors than retail
investors, because institutional investors get most of the IPO shares at theoffering price. Flipping is
most profitable in a hot IPO market, when the price of an IPO often risesdramatically above the offering
price on the first day. also called stagging.
family of funds
A mutual fund company offering many mutual funds, for various objectives.
Usually, investors canmove assets between different funds of a family of funds at little or no cost, and
can receive asingle statement describing their holdings in all the funds in the family of funds. also
calledmutual fund family or fund family.
crawling peg
An exchange rate adjustment technique in which the par value of a fixed exchange rate is allowed
to fluctuate within a certain range of values. The par value is adjusted for inflation and other market
factors. A crawling peg allows the exchange rate to adjust over time, hence "crawl," rather than be
adjusted by a sudden or dramatic currency devaluation, which would createinstability.
current capital
Current assets minus current liabilities. Current capital is the part of a company's capital that is used for
day-to-day operations, and so it is desirable that companies maintain substantially more
current assets than current liabilities. A company's level of current capital is also a measure of how well
the company is able to fulfill its short-term debtors and obligations. also called net current
assets or working capital.