Definition of Greeks

Greeks

Collectively, "greeks" refer to the financial measures delta, gamma,
lambda, rho, theta, and vega, which are sensitivity measures used in
evaluating derivatives.

Adjustable rate preferred stock (ARPS)

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

Auction rate preferred stock (ARPS)

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

Average (across-day) measures

An estimation of price that uses the average or representative price of a
large number of trades.

Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Convertible exchangeable preferred stock

Convertible preferred stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
stock.

Convertible preferred stock

Preferred stock that can be converted into common stock at the option of the holder.

Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.

Corporate financial planning

financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.

Country financial risk

The ability of the national economy to generate enough foreign exchange to meet
payments of interest and principal on its foreign debt.

Cumulative preferred stock

Preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred stock.

Delta

Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the
underlying stock.

Delta hedge

A dynamic hedging strategy using options with continuous adjustment of the number of options
used, as a function of the delta of the option.

Delta neutral

The value of the portfolio is not affected by changes in the value of the asset on which the
options are written.

Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.

Financial analysts

Also called securities analysts and investment analysts, professionals who analyze
financial statements, interview corporate executives, and attend trade shows, in order to write reports
recommending either purchasing, selling, or holding various stocks.

Financial assets

Claims on real assets.

Financial control

The management of a firm's costs and expenses in order to control them in relation to
budgeted amounts.

Financial distress

Events preceding and including bankruptcy, such as violation of loan contracts.

Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).

Financial engineering

Combining or dividing existing instruments to create new financial products.

Financial future

A contract entered into now that provides for the delivery of a specified asset in exchange
for the selling price at some specified future date.

Financial intermediaries

Institutions that provide the market function of matching borrowers and lenders or
traders.

Financial lease

Long-term, non-cancelable lease.

Financial leverage

Use of debt to increase the expected return on equity. financial leverage is measured by
the ratio of debt to debt plus equity.

Financial leverage clientele

A group of investors who have a preference for investing in firms that adhere to
a particular financial leverage policy.

Financial leverage ratios

Related: capitalization ratios.

Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.

Financial objectives

Objectives of a financial nature that the firm will strive to accomplish during the period
covered by its financial plan.

Financial plan

A financial blueprint for the financial future of a firm.

Financial planning

The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.

Financial press

That portion of the media devoted to reporting financial news.

Financial ratio

The result of dividing one financial statement item by another. Ratios help analysts interpret
financial statements by focussing on specific relationships.

Financial risk

The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
Also referred to as the additional risk that a firm's stockholder bears when the firm utilizes debt and equity.

Floating-rate preferred

Preferred stock paying dividends that vary with short-term interest rates.

Gamma

The ratio of a change in the option delta to a small change in the price of the asset on which the
option is written.

Hedge ratio (delta)

The ratio of volatility of the portfolio to be hedged and the return of the volatility of the
hedging instrument.

Involuntary liquidation preference

A premium that must be paid to preferred or preference stockholders if
the issuer of the stock is forced into involuntary liquidation.

Lambda

The ratio of a change in the option price to a small change in the option volatility. It is the partial
derivative of the option price with respect to the option volatility.

Liquidity preference hypothesis

The argument that greater liquidity is valuable, all else equal. Also, the
theory that the forward rate exceeds expected future interest rates.

London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

Long-term financial plan

financial plan covering two or more years of future operations.

London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

Market segmentation theory or preferred habitat theory

A biased expectations theory that asserts that the
shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

Monthly income preferred security (MIP)

Preferred stock issued by a subsidiary located in a tax haven.
The subsidiary relends the money to the parent.

Non-cumulative preferred stock

Preferred stock whose holders must forgo dividend payments when the
company misses a dividend payment.
Related: Cumulative preferred stock

Non-financial services

Include such things as freight, insurance, passenger services, and travel.

Notes to the financial statements

A detailed set of notes immediately following the financial statements in
an annual report that explain and expand on the information in the financial statements.

Perfectly competitive financial markets

Markets in which no trader has the power to change the price of
goods or services. Perfect capital markets are characterized by the following conditions: 1) trading is costless,
and access to the financial markets is free, 2) information about borrowing and lending opportunities is freely
available, 3) there are many traders, and no single trader can have a significant impact on market prices.

Preferred equity redemption stock (PERC)

Preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.

Preference stock

A security that ranks junior to preferred stock but senior to common stock in the right to
receive payments from the firm; essentially junior preferred stock.

Preferred habitat theory

A biased expectations theory that believes the term structure reflects the
expectation of the future path of interest rates as well as risk premium. However, the theory rejects the
assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for
and supply of funds does not match for a given maturity range, some participants will shift to maturities
showing the opposite imbalances. As long as such investors are compensated by an appropriate risk premium
whose magnitude will reflect the extent of aversion to either price or reinvestment risk.

Preferred shares

Preferred shares give investors a fixed dividend from the company's earnings. And more
importantly: preferred shareholders get paid before common shareholders. See: preferred stock.

Preferred stock

A security that shows ownership in a corporation and gives the holder a claim, prior to the
claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most
preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar
amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares
characteristics of both common stock and debt.

Preferred stock agreement

A contract for preferred stock.

Pro forma financial statements

financial statements as adjusted to reflect a projected or planned transaction.

Reference rate

A benchmark 'interest rate (such as LIBOR), used to specify conditions of an interest rate
swap or an interest rate agreement.

Sensitivity analysis

Analysis of the effect on a project's profitability due to changes in sales, cost, and so on.

Short-term financial plan

A financial plan that covers the coming fiscal year.

Society for Worldwide Interbank Financial Telecommunications (SWIFT)

A dedicated computer network to support funds transfer messages internationally between over 900 member banks worldwide.

Statement of Financial Accounting Standards No. 8

This is a currency translation standard previously in
use by U.S. accounting firms. See: Statement of Accounting Standards No. 52.

Statement of Financial Accounting Standards No. 52

This is the currency translation standard currently
used by U.S. firms. It mandates the use of the current rate method. See: Statement of financial Accounting
Standards No. 8.

Theta

Also called time decay, the ratio of the change in an option price to the decrease in time to expiration.

Financial accounting

The production of financial statements, primarily for those interested parties who are external to the business.

Financial reports or statements

The Profit and Loss account, Balance Sheet and Cash Flow statement of a business.

Financial year

The accounting period adopted by a business for the production of its financial statements.
Finished goods Inventory that is ready for sale, either having been purchased as such or the result of a conversion from raw materials through a manufacturing process.

Sensitivity analysis

An approach to understanding how changes in one variable of cost–volume–profit analysis are affected by changes in the other variables.

statement of financial condition

See balance sheet.

financial leverage

The equity (ownership) capital of a business can serve
as the basis for securing debt capital (borrowing money). In this way, a
business increases the total capital available to invest in its assets and
can make more sales and more profit. The strategy is to earn operating
profit, or earnings before interest and income tax (EBIT), on the capital
supplied from debt that is more than the interest paid on the debt capital.
A financial leverage gain equals the EBIT earned on debt capital
minus the interest on the debt. A financial leverage gain augments earnings
on equity capital. A business must earn a rate of return on its assets
(ROA) that is greater than the interest rate on its debt to make a financial
leverage gain. If the spread between its ROA and interest rate is unfavorable,
a business suffers a financial leverage loss.

financial reports and statements

financial means having to do with
money and economic wealth. Statement means a formal presentation.
financial reports are printed and a copy is sent to each owner and each
major lender of the business. Most public corporations make their financial
reports available on a web site, so all or part of the financial report
can be downloaded by anyone. Businesses prepare three primary financial
statements: the statement of financial condition, or balance sheet;
the statement of cash flows; and the income statement. These three key
financial statements constitute the core of the periodic financial reports
that are distributed outside a business to its shareowners and lenders.
financial reports also include footnotes to the financial statements and
much other information. financial statements are prepared according to
generally accepted accounting principles (GAAP), which are the authoritative
rules that govern the measurement of net income and the reporting
of profit-making activities, financial condition, and cash flows.
Internal financial statements, although based on the same profit
accounting methods, report more information to managers for decision
making and control. Sometimes, financial statements are called simply
financials.

Cost of Preferred Stock

The rate of return required by the investors in the preferred stock of
a company. A component of the cost of capital.

Preferred Stock

A type of equity security where holders have a claim on the assets
and earnings of a company after the debt providers but before the
holders of common stock. Preferred stock generally pays a fixed
or floating rate dividend each year.

financial accounting

a discipline in which historical, monetary
transactions are analyzed and recorded for use in the
preparation of the financial statements (balance sheet, income
statement, statement of owners’/stockholders’ equity,
and statement of cash flows); it focuses primarily on the
needs of external users (stockholders, creditors, and regulatory
agencies)

financial budget

a plan that aggregates monetary details
from the operating budgets; includes the cash and capital
budgets of a company as well as the pro forma financial
statements

financial incentive

a monetary reward provided for performance
above targeted objectives

preference decision

the second decision made in capital project evaluation in which projects are ranked according to their impact on the achievement of company objectives

sensitivity analysis

a process of determining the amount of change that must occur in a variable before a different decision would be made

Delta

The rate of change of the price of a derivative security relative to the
price of the underlying asset; i.e., the first derivative of the curve that relates
the price of the derivative to the price of the underlying security.

Elasticity - See Lambda

Gamma

The rate of change of delta for a derivative security relative to the
price of the underlying asset; i.e., the second derivative of the option price
relative to the security price.

Lambda

The percentage change in the price of an option relative to a 1%
change in the price of the underlying security. Also known as Elasticity.

Rho - The rate of change in a derivative’s price relative to the underlying

security’s risk-free interest rate.

Sensitivity

The "what if" relationship between variables; the degree to which
changes in one variable cause changes in another variable. A specific synonym
is volatility.

Theta

The rate of change in the price of a derivative security relative to time.
theta is usually very small or negative since the value of an option tends to
drop as it approaches maturity.

Vega

The rate of change in the price of a derivative security relative to the
volatility of the underlying security. When vega is large the security is
sensitive to small changes in volatility.

Preferred stock

A type of stock that usually pays a fixed dividend prior to any distributions
to the holders of common stock. In the event of liquidation, it must be paid
off before common stock. It can, but rarely does, have voting rights.

chief financial officer (CFO)

Officer who oversees the treasurer and controller and sets overall financial strategy.

costs of financial distress

Costs arising from bankruptcy or distorted business decisions before bankruptcy.

financial assets

Claims to the income generated by real assets. Also called securities.

financial intermediary

Firm that raises money from many small investors and provides financing to businesses or other
organizations by investing in their securities.

financial leverage

Debt financing amplifies the effects of changes in operating income on the returns to stockholders.

financial markets

Markets in which financial assets are traded.

financial risk

Risk to shareholders resulting from the use of debt.

financial slack

Ready access to cash or debt financing.

preferred stock

Stock that takes priority over common stock in regard to dividends.

sensitivity analysis

Analysis of the effects of changes in sales, costs, and so on, on project profitability.

Financial Intermediary

Any institution, such as a bank, that takes deposits from savers and loans them to borrowers.

Financial Intermediation

The process whereby financial intermediaries channel funds from lender/savers to borrower/spenders.

Cash Flow Provided or Used from Financing Activities

Cash receipts and payments involving
liability and stockholders' equity items, including obtaining cash from creditors and repaying
the amounts borrowed and obtaining capital from owners and providing them with a return on,
and a return of, their investments.

Cash Flow Provided or Used from Investing Activities

Cash receipts and payments involving
long-term assets, including making and collecting loans and acquiring and disposing of
investments and productive long-lived assets.

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