Definition of Eligible bankers' acceptances

Eligible bankers' acceptances

In the BA market, an acceptance may be referred to as eligible because it is
acceptable by the Fed as collateral at the discount window and/or because the accepting bank can sell it
without incurring a reserve requirement.

Bankers Acceptances

A bill of exchange, or draft, drawn by the borrower for payment on a specified date, and accepted by a chartered bank. Upon acceptance, the bill becomes, in effect, a postdated certified cheque.

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

DLOC (discount for lack of control)

an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control.

DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.

discount rate

the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.

fractional interest discount

the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.

QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate

Abandonment option

The option of terminating an investment earlier than originally planned.

Accretion (of a discount)

In portfolio accounting, a straight-line accumulation of capital gains on discount
bond in anticipation of receipt of par at maturity.

Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.

Agency bank

A form of organization commonly used by foreign BAnks to enter the U.S. market. An agency
BAnk cannot accept deposits or extend loans in its own name; it acts as agent for the parent BAnk.

Agency basis

A means of compensating the broker of a program trade solely on the BAsis of commission
established through bids submitted by various brokerage firms. agency incentive arrangement. A means of
compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.

American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.

Announcement date

date on which particular news concerning a given company is announced to the public.
Used in event studies, which researchers use to evaluate the economic impact of events of interest.

Antidilutive effect

Result of a transaction that increases earnings per common share (e.g. by decreasing the
number of shares outstanding).

Asset-backed security

A security that is collateralized by loans, leases, receivables, or installment contracts
on personal property, not real estate.

Asset-based financing

Methods of financing in which lenders and equity investors look principally to the
cash flow from a particular asset or set of assets for a return on, and the return of, their financing.

Assets requirements

A common element of a financial plan that describes projected capital spending and the
proposed uses of net working capital.

Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.

Auction rate preferred stock (ARPS)

Floating rate preferred stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.

Back fee

The fee paid on the extension date if the buyer wishes to continue the option.

Back office

Brokerage house clerical operations that support, but do not include, the trading of stocks and
other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory
compliance.
BAck-end loan fund
A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from
4% to 6%. Some BAck-end load funds impose a full commission if the shares are redeemed within a
designated time, such as one year. The commission decreases the longer the investor holds the shares. The
formal name for the BAck-end load is the contingent deferred sales charge, or CDSC.

Back-to-back financing

An intercompany loan channeled through a BAnk.

Back-to-back loan

A loan in which two companies in separate countries borrow each other's currency for a
specific time period and repay the other's currency at an agreed Upon maturity.

Back-up

1) When bond yields and prices fall, the market is said to BAck-up.
2) When an investor swaps out of one security into another of shorter current maturity he is said to BAck up.

Backwardation

A market condition in which futures prices are lower in the distant delivery months than in
the nearest delivery month. This situation may occur in when the costs of storing the product until eventual
delivery are effectively subtracted from the price today. The opposite of contango.

Baker Plan

A plan by U.S. Treasury Secretary James BAker under which 15 principal middle-income debtor
countries (the BAker 15) would undertake growth-oriented structural reforms, to be supported by increased
financing from the World BAnk and continued lending from commercial BAnks.

Balance of payments

A statistical compilation formulated by a sovereign nation of all economic transactions
between residents of that nation and residents of all other nations during a stipulated period of time, usually a
calendar year.

Balance of trade

Net flow of goods (exports minus imports) between countries.

Balance sheet

Also called the statement of financial condition, it is a summary of the assets, liabilities, and
owners' equity.

Balance sheet exposure

See:accounting exposure.

Balance sheet identity

Total Assets = Total Liabilities + Total Stockholders' Equity

Balanced fund

An investment company that invests in stocks and bonds. The same as a BAlanced mutual fund.

Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
BAlanced fund.

Balloon maturity

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

BAN (Bank anticipation notes)

Notes issued by states and municipalities to obtain interim financing for
projects that will eventually be funded long term through the sale of a bond issue.

Bane

In the words of Warren Buffet, bill BAne Sr., is, "a great American and one of the last real traders
around. I like to call him 'Salvo.'" His wife, Carol, is a huge NASCAR fan, and in her own words "delights in
pulling the legs off central BAnkers." Cooper BAne, son number two, is a thriving artiste who specializes in
making art that is much better than the stuff most folks are doing. Jackson, son number three, is a world
renowned master chef and plans on opening a restaurant. bill BAne Jr., son number one, plans on giving Mr.
Monroe Trout a run for his money. [bill BAne, Jr. helped Professor Harvey put the hypertextual glossary
together while an MBA student at Duke University.]

Bank collection float

The time that elapses between when a check is deposited into a BAnk account and when the funds are available to the depositor, during which period the BAnk is collecting payment from the payer's BAnk.

Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , BAsed on a 360-day year.

Bank draft

A draft addressed to a BAnk.

Bank line

Line of credit granted by a BAnk to a customer.

Bank wire

A computer message system linking major BAnks. It is used not for effecting payments, but as a
mechanism to advise the receiving BAnk of some action that has occurred, e.g. the payment by a customer of
funds into that BAnk's account.

Banker's acceptance

A short-term credit investment created by a non-financial firm and guaranteed by a
BAnk as to payment. acceptances are traded at discounts from face value in the secondary market. These
instruments have been a popular investment for money market funds. They are commonly used in
international transactions.

Bank for International Settlements (BIS)

An international BAnk headquartered in BAsel, Switzerland, which
serves as a forum for monetary cooperation among several European central BAnks, the BAnk of Japan, and the
U.S. Federal reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international BAnking activity and promulgates rules concerning
international BAnk regulation.

Bankruptcy

State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
the stockholders to the bondholders.

Bankruptcy cost view

The argument that expected indirect and direct BAnkruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.

Bankruptcy view

The argument that expected BAnkruptcy costs preclude firms from being financed entirely
with debt.

Bar

Slang for one million dollars.

Barbell strategy

A strategy in which the maturities of the securities included in the portfolio are concentrated
at two extremes.

Bargain-purchase-price option

Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.

BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.

Barrier options

Contracts with trigger points that, when crossed, automatically generate buying or selling of
other options. These are very exotic options.

Base interest rate

Related: Benchmark interest rate.

Base probability of loss

The proBAbility of not achieving a portfolio expected return.

Basic balance

In a BAlance of payments, the BAsic BAlance is the net BAlance of the combination of the current
account and the capital account.

Basic business strategies

Key strategies a firm intends to pursue in carrying out its business plan.

Basic IRR rule

Accept the project if IRR is greater than the discount rate; reject the project is lower than the
discount rate.

Basis

Regarding a futures contract, the difference between the cash price and the futures price observed in the
market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to
determine capital gains or losses for tax purposes when the stock is sold.

Basis point

In the bond market, the smallest measure used for quoting yields is a BAsis point. Each percentage
point of yield in bonds equals 100 BAsis points. BAsis points also are used for interest rates. An interest rate of
5% is 50 BAsis points greater than an interest rate of 4.5%.

Basis price

Price expressed in terms of yield to maturity or annual rate of return.

Basis risk

The uncertainty about the BAsis at the time a hedge may be lifted. Hedging substitutes BAsis risk for
price risk.

Basket options

Packages that involve the exchange of more than two currencies against a BAse currency at
expiration. The BAsket option buyer purchases the right, but not the obligation, to receive designated
currencies in exchange for a BAse currency, either at the prevailing spot market rate or at a prearranged rate of
exchange. A BAsket option is generally used by multinational corporations with multicurrency cash flows
since it is generally cheaper to buy an option on a BAsket of currencies than to buy individual options on each
of the currencies that make up the BAsket.

Basket trades

Related: Program trades.

Bear market

Any market in which prices are in a declining trend.

Big Bang

The term applied to the liberalization in 1986 of the London Stock exchange in which trading was
automated with the use of computers.

Bill of exchange

General term for a document demanding payment.

Bill of lading

A contract between the exporter and a transportation company in which the latter agrees to
transport the goods under specified conditions which limit its liability. It is the exporter's receipt for the goods
as well as proof that goods have been or will be received.

Black market

An illegal market.

Bond-equivalent basis

The method used for computing the bond-equivalent yield.

Borrower fallout

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

Break-even lease payment

The lease payment at which a party to a prospective lease is indifferent between
entering and not entering into the lease arrangement.

Break-even payment rate

The prepayment rate of a MBS coUpon that will produce the same CFY as that of
a predetermined benchmark MBS coUpon. Used to identify for coUpons higher than the benchmark coUpon
the prepayment rate that will produce the same CFY as that of the benchmark coUpon; and for coUpons lower
than the benchmark coUpon the lowest prepayment rate that will do so.

Brokered market

A market where an intermediary offers search services to buyers and sellers.

Bull market

Any market in which prices are in an upward trend.

Bulldog market

The foreign market in the United Kingdom.

Buy-back

Another term for a repo.

Calendar effect

The tendency of stocks to perform differently at different times, including such anomalies as
the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.

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.

Capital market

The market for trading long-term debt instruments (those that mature in more than one year).

Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, BAnkruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Cash management bill

Very short maturity bills that the Treasury occasionally sells because its cash
BAlances are down and it needs money for a few days.

Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.

Chicago Mercantile Exchange (CME)

A not-for-profit corporation owned by its members. Its primary
functions are to provide a location for trading futures and options, collect and disseminate market information,
maintain a clearing mechanism and enforce trading rules.

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member BAnks, nearly 450 participating BAnks, and is one of the
clearing companies within the structure of the Association for payment Clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major BAnks.

Clientele effect

The grouping of investors who have a preference that the firm follow a particular financing
policy, such as the amount of leverage it uses.

Coinsurance effect

Refers to the fact that the merger of two firms decreases the proBAbility of default on
either firm's debt.

Collateral

Assets than can be repossessed if a borrower defaults.

Collateral trust bonds

A bond in which the issuer (often a holding company) grants investors a lien on
stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.

Collateralized mortgage obligation (CMO)

A security BAcked by a pool of pass-throughs , structured so that
there are several classes of bondholders with varying maturities, called tranches. The principal payments from
the underlying pool of pass-through securities are used to retire the bonds on a priority BAsis as specified in
the prospectus.
Related: mortgage pass-through security

Commercial draft

Demand for payment.

Commodities Exchange Center (CEC)

The location of five New York futures exchanges: Commodity
exchange, Inc. (COMEX), the New York Mercantile exchange (NYMEX), the New York Cotton exchange,
the Coffee, Sugar and Cocoa exchange (CSC), and the New York futures exchange (NYFE). common size
statement A statement in which all items are expressed as a percentage of a BAse figure, useful for purposes of
analyzing trends and the changing relationship between financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales.

Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.

Common stock market

The market for trading equities, not including preferred stock.

Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
Common-size analysis The representing of BAlance sheet items as percentages of assets and of income
statement items as percentages of sales.

Compensating balance

An excess BAlance that is left in a BAnk to provide indirect compensation for loans
extended or services provided.

Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.

Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.