Definition of All-or-none underwriting

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.

All or none

Requirement that none of an order be executed unless all of it can be executed at the specified price.

All-in cost

Total costs, explicit and implicit.

Asset allocation decision

The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.

Balloon maturity

Any large principal payment due at maturity for a bond or loan with or without a a sinking
fund requirement.

Borrower fallout

In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
closed will elect to withdraw from the contract.

Call

An option that gives the right to buy the underlying futures contract.

Call an option

To exercise a call option.

Call date

A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
for a specified call price.

Call money rate

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

Call option

An option contract that gives its holder the right (but not the obligation) to purchase a specified
number of shares of the underlying stock at the given strike price, on or before the expiration date of the
contract.
Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to
holders to redeem the bond or share of preferred stock before its scheduled maturity date.

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.

Call price

The price for which a bond can be repaid before maturity under a call provision.

Call protection

A feature of some callable bonds that establishes an initial period when the bonds may not be
called.

Call provision

An embedded option granting a bond issuer the right to buy back all or part of the issue prior
to maturity.

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

Call swaption

A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
writer therefore becomes the fixed-rate receiver/floating rate payer.

Callable

A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
call the security.

Capital allocation

decision allocation of invested funds between risk-free assets versus the risky portfolio.

Chinese wall

Communication barrier between financiers (investment bankers) and traders. This barrier is
erected to prevent the sharing of inside information that bankers are likely to have.

Covered call

A short call option position in which the writer owns the number of shares of the underlying
stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the
stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered call writing strategy

A strategy that involves writing a call option on securities that the investor
owns in his or her portfolio. See covered or hedge option strategies.

Deferred call

A provision that prohibits the company from calling the bond before a certain date. During this
period the bond is said to be call protected.

Dynamic asset allocation

An asset allocation strategy in which the asset mix is mechanistically shifted in
response to -changing market conditions, as in a portfolio insurance strategy, for example.

Effective call price

The strike price in an optional redemption provision plus the accrued interest to the
redemption date.

Fallout risk

A type of mortgage pipeline risk that is generally created when the terms of the loan to be
originated are set at the same time as the sale terms are set. The risk is that either of the two parties, borrower
or investor, fails to close and the loan "falls out" of the pipeline.

Federally related institutions

Arms of the federal government that are exempt from SEC registration and
whose securities are backed by the full faith and credit of the U.S. government (with the exception of the
Tennessee Valley Authority).

Firm commitment underwriting

An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.

First-call

With CMOs, the start of the cash flow cycle for the cash flow window.

Generally Accepted Accounting Principals (GAAP)

A technical accounting term that encompasses the
conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

Glass-Steagall Act

A 1933 act in which Congress forbade commercial banks to own, underwrite, or deal in
corporate stock and corporate bonds.

Implied call

The right of the homeowner to prepay, or call, the mortgage at any time.

Installment sale

The sale of an asset in exchange for a specified series of payments (the installments).

Internally efficient market

Operationally efficient market.

Investor fallout

In the mortgage pipeline, risk that occurs when the originator commits loan terms to the
borrowers and gets commitments from investors at the time of application, or if both sets of terms are made at closing.

Irrational call option

The implied call imbedded in the MBS. Identified as irrational because the call is
sometimes not exercised when it is in the money (interest rates are below the threshold to refinance).
Sometimes exercised when not in the money (home sold without regard to the relative level of interest rates).

Margin call

A demand for additional funds because of adverse price movement. Maintenance margin
requirement, security deposit maintenance
Margin of safety With respect to working capital management, the difference between 1) the amount of longterm
financing, and 2) the sum of fixed assets and the permanent component of current assets.

Mutually exclusive investment decisions

Investment decisions in which the acceptance of a project
precludes the acceptance of one or more alternative projects.

Non-parallel shift in the yield curve

A shift in the yield curve in which yields do not change by the same
number of basis points for every maturity. Related: Parallel shift in the yield curve.

Operationally efficient market

Also called an internally efficient market, one in which investors can obtain
transactions services that reflect the true costs associated with furnishing those services.

Parallel loan

A process whereby two companies in different countries borrow each other's currency for a
specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing
foreign exchange risk. Also referred to as back-to-back loans.

Parallel shift in the yield curve

A shift in the yield curve in which the change in the yield on all maturities is
the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one
percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as
well.
Related: Non-parallel shift in the yield curve.

Policy asset allocation

A long-term asset allocation method, in which the investor seeks to assess an
appropriate long-term "normal" asset mix that represents an ideal blend of controlled risk and enhanced
return.

Provisional call feature

A feature in a convertible issue that allows the issuer to call the issue during the noncall
period if the price of the stock reaches a certain level.

Put-call parity relationship

The relationship between the price of a put and the price of a call on the same
underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock
and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the
exercise price. The call value equals C=S+P-PV(k).

Rally (recovery)

An upward movement of prices. Opposite of reaction.

Shortfall risk

The risk of falling short of any investment target.

Small-firm effect

The tendency of small firms (in terms of total market capitalization) to outperform the
stock market (consisting of both large and small firms).

Small issues exemption

Securities issues that involve less than $1.5 million are not required to file a
registration statement with the SEC. Instead, they are governed by Regulation A, for which only a brief
offering statement is needed.

Tactical Asset Allocation (TAA)

An asset allocation strategy that allows active departures from the normal
asset mix based upon rigorous objective measures of value. Often called active management. It involves
forecasting asset returns, volatilities and correlations. The forecasted variables may be functions of
fundamental variables, economic variables or even technical variables.

Uncovered call

A short call option position in which the writer does not own shares of underlying stock
represented by his option contracts. Also called a "naked" call, it is much riskier for the writer than a covered
call, where the writer owns the underlying stock. If the buyer of a call exercises the option to call, the writer
would be forced to buy the stock at market price.

Underwriting

Acting as the underwriter in a purchase and sale.

Underwriting fee

The portion of the gross underwriting spread that compensates the securities firms that
underwrite a public offering for their underwriting risk.

Underwriting income

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

Underwriting syndicate

A group of investment banks that work together to sell new security offerings to
investors. The underwriting syndicate is led by the lead underwriter. See also: lead underwriter.
Underwritten offering
A purchase and sale.

Wall Street

Generic term for firms that buy, sell, and underwrite securities.

Wall Street analyst

Related: Sell-side analyst.

Wallflower

Stock that has fallen out of favor with investors; tends to have a low P/E (price to earnings ratio).

Yield to call

The percentage rate of a bond or note, if you were to buy and hold the security until the call date.
This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several
years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate,
length of time to the call and the market price.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

Overhead allocation

The process of spreading production overhead equitably over the volume of production of goods or services.

Allowance for doubtful accounts

A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.

Allowance method

A method of adjusting accounts receivable to the amount that is expected to be collected based on company experience.

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

generally accepted accounting principles (GAAP)

This important term
refers to the body of authoritative rules for measuring profit and preparing
financial statements that are included in financial reports by a business
to its outside shareowners and lenders. The development of these
guidelines has been evolving for more than 70 years. Congress passed a
law in 1934 that bestowed primary jurisdiction over financial reporting
by publicly owned businesses to the Securities and Exchange Commission
(SEC). But the SEC has largely left the development of GAAP to the
private sector. Presently, the Financial Accounting Standards Board is
the primary (but not the only) authoritative body that makes pronouncements
on GAAP. One caution: GAAP are like a movable feast. New rules
are issued fairly frequently, old rules are amended from time to time,
and some rules established years ago are discarded on occasion. Professional
accountants have a heck of time keeping up with GAAP, that’s for
sure. Also, new GAAP rules sometimes have the effect of closing the barn
door after the horse has left. Accounting abuses occur, and only then,
after the damage has been done, are new rules issued to prevent such
abuses in the future.

net income (also called the bottom line, earnings, net earnings, and net

operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. Net income is clearly the single most important number in business
financial reports.

Call Option

A contract that gives the holder the right to buy an asset for a
specified price on or before a given expiration (maturity) date

allocate

assign based on the use of a cost driver, a cost predictor,
or an arbitrary method

allocation

the systematic assignment of an amount to a recipient
set of categories annuity a series of equal cash flows (either positive or negative) per period

approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs

cost allocation

the assignment, using some reasonable basis,
of any indirect cost to one or more cost objects

economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework

mutually exclusive projects

a set of proposed capital projects from which one is chosen, causing all the others to be rejected

mutually inclusive projects

a set of proposed capital projects that are all related and that must all be chosen if the primary project is chosen

net realizable value at split-off allocation

a method of allocating joint cost to joint products that uses, as the proration base, sales value at split-off minus all costs necessary
to prepare and dispose of the products; it requires
that all joint products be salable at the split-off point

physical measurement allocation

a method of allocating a joint cost to products that uses a common physical characteristic as the proration base

sales value at split-off allocation

a method of assigning joint cost to joint products that uses the relative sales values of the products at the split-off point as the proration basis; use of this method requires that all joint products
are salable at the split-off point

standard quantity allowed

the quantity of input (in hours or some other cost driver measurement) required at standard for the output actually achieved for the period

strategic alliance

an agreement between two or more firms
with complementary core competencies to jointly contribute
to the supply chain

Call

a. An option to buy a certain quantity of a stock or commodity for a
specified price within a specified time. See Put.
b. A demand to submit bonds to the issuer for redemption before the maturity date.
c. A demand for payment of a debt.
d. A demand for payment due on stock bought on margin.

Callable bond

A bond that allows the issuer to buy back the bond at a
predetermined price at specified future dates. The bond contains an embedded
call option; i.e., the holder has sold a call option to the issuer. See Puttable
bond.

Allocation

The process of storing costs in one account and shifting them to other
accounts, based on some relevant measure of activity.

Allowance for bad debts

An offset to the accounts receivable balance, against which
bad debts are charged. The presence of this allowance allows one to avoid severe
changes in the period-to-period bad debt expense by expensing a steady amount to
the allowance account in every period, rather than writing off large bad debts to
expense on an infrequent basis.

Generally accepted accounting principles

The rules that accountants follow when processing accounting transactions and creating financial reports. The rules are primarily
derived from regulations promulgated by the various branches of the AICPA Council.

Sales allowance

A reduction in a price that is allowed by the seller, due to a problem
with the sold product or service.

call option

Right to buy an asset at a specified exercise price on or before the exercise date.

callable bond

Bond that may be repurchased by the issuer before maturity at specified call price.

generally accepted accounting principles (GAAP)

Procedures for preparing financial statements.

internally generated funds

Cash reinvested in the firm; depreciation plus earnings not paid out as dividends.

mutually exclusive projects

Two or more projects that cannot be pursued simultaneously.

Capital Consumption Allowance

See depreciation.

Depreciation Allowances

Tax deductions that businesses can claim when they spend money on investment goods.

Fallacy of Composition

The incorrect conclusion that something that is true for an individual is necessarily true for the economy as a whole.

Institutionally Induced Unemployment

Unemployment due to institutional phenomena such as the degree of labor force unionization, the level of discrimination, and government policies such as unemployment insurance programs, minimum wages, or regulations on business.

Roth IRA. An IRA account whose earnings are not taxable at all under certain

circumstances.

Allowance for Doubtful Accounts

An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible
amount.

Generally Accepted Accounting Principles (GAAP)

A common set of standards and procedures
for the preparation of general-purpose financial statements that either have been established
by an authoritative accounting rule-making body, such as the Financial Accounting
Standards Board (FASB), or over time have become accepted practice because of their universal
application.

Valuation Allowance

A contra- or reduction account to deferred tax assets.
The valuation allowance represents that portion of total deferred tax assets that the firm judges is unlikely to be realized. The probability threshold applied in evaluating realization is 50%. That is, if it is more than 50% likely that some or all of a deferred tax asset will not be realized, then a valuation allowance must be set off against part or all of the deferred tax asset.

Pallet ticket

A document attached to a pallet, showing the description, part number,
and quantity of the item contained on the pallet.

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