Definition of Opinion shopping

Opinion shopping

A practice prohibited by the SEC which involves attempts by a corporation to obtain
reporting objectives by following questionable accounting principles with the help of a pliable auditor willing
to go along with the desired treatment.

Clean opinion

An auditor's opinion reflecting an unqualified acceptance of a company's financial statements.

Disclaimer of opinion

An auditor's statement disclaiming any opinion regarding the company's financial
condition.

Except for opinion

An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas
of the company's operations because of restrictions imposed by management or other conditions beyond the
auditor's control.

Shopping

Seeking to obtain the best bid or offer available by calling a number of dealers and/or brokers.

Subject to opinion

An auditor's opinion reflecting acceptance of a company's financial statements subject to
pervasive uncertainty that cannot be adequately measured, such as information relating to the value of
inventories, reserves for losses, or other matters subject to judgment.

Clean price

Bond price excluding accrued interest.

Flat price (also clean price)

The quoted newspaper price of a bond that does not include accrued interest.
The price paid by purchaser is the full price.

Clean Float

A flexible exchange rate system in which the government does not intervene.

Gordon model

present value of a perpetuity with growth.
The end-ofyear gordon model formula is: 1/(r - g)
and the midyear formula is: SQRT(1 + r)/(r - g).

Accounting exposure

The change in the value of a firm's foreign currency denominated accounts due to a
change in exchange rates.

Accounting earnings

Earnings of a firm as reported on its income statement.

Accounting insolvency

Total liabilities exceed total assets. A firm with a negative net worth is insolvent on
the books.

Accounting liquidity

The ease and quickness with which assets can be converted to cash.

Articles of incorporation

Legal document establishing a corporation and its structure and purpose.

Asset-backed security

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

Auditor's report

A SECtion of an annual report containing the auditor's opinion about the veracity of the
financial statements.

Average accounting return

The average project earnings after taxes and depreciation divided by the average
book value of the investment during its life.

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.

Blue-chip company

Large and creditworthy company.

Book-entry securities

The Treasury and federal agencies are moving to a book-entry system in which SECurities are not represented by engraved pieces of paper but are maintained in computerized records at the
Fed in the names of member banks, which in turn keep records of the SECurities they own as well as those they
are holding for customers. In the case of other SECurities where a book-entry has developed, engraved
SECurities do exist somewhere in quite a few cases. These SECurities do not move from holder to holder but are
usually kept in a central clearinghouse or by another agent.

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.

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.

Company-specific risk

Related: Unsystematic risk

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Contango

A market condition in which futures prices are higher in the distant delivery months.

Controlled foreign corporation (CFC)

A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.

Convention statement

An annual statement filed by a life insurance company in each state where it does
business in compliance with that state's regulations. The statement and supporting documents show, among
other things, the assets, liabilities, and surplus of the reporting company.

Convertible security

A SECurity that can be converted into common stock at the option of the SECurity holder,
including convertible bonds and convertible preferred stock.

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.

Corporation

A legal "person" that is separate and distinct from its owners. A corporation is allowed to own
assets, incur liabilities, and sell SECurities, among other things.

Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.

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.

Cross-sectional approach

A statistical methodology applied to a set of firms at a particular point in time.

Debt securities

IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
other instruments.

Depository Trust Company (DTC)

DTC is a user-owned SECurities depository which accepts deposits of
eligible SECurities for custody, executes book-entry deliveries and records book-entry pledges of SECurities in
its custody, and provides for withdrawals of SECurities from its custody.

Derivative security

A financial SECurity, such as an option, or future, whose value is derived in part from the
value and characteristics of another SECurity, the underlying SECurity.

Discount securities

Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

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.

Edge corporations

Specialized banking institutions, authorized and chartered by the Federal Reserve Board
in the U.S., which are allowed to engage in transactions that have a foreign or international character. They
are not subject to any restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to
organize and own and Edge corporation.

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.

Except for opinion

An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas
of the company's operations because of restrictions imposed by management or other conditions beyond the
auditor's control.

Exchangeable Security

SECurity that grants the SECurity holder the right to exchange the SECurity for the
common stock of a firm other than the issuer of the SECurity.

Exempt securities

Instruments exempt from the registration requirements of the SECurities Act of 1933 or the
margin requirements of the SEC Act of 1934. Such SECurities include government bonds, agencies, munis,
commercial paper, and private placements.

Federal agency securities

SECurities issued by corporations and agencies created by the U.S. government,
such as the Federal Home Loan Bank Board and Ginnie Mae.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

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.

Fixed-dollar security

A nonnegotiable debt SECurity that can be redeemed at some fixed price or according to
some schedule of fixed values, e.g., bank deposits and government savings bonds.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the SECondary market from S&Ls, banks, and mortgage bankers and
SECuritizes these mortgages for sale into the capital markets.

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.

Go-around

When the Fed offers to buy SECurities, to sell SECurities, to do repo, or to do reverses, it solicits
competitive bids or offers from all primary dealers.

Going-private transactions

Publicly owned stock in a firm is replaced with complete equity ownership by a
private group. The shares are delisted from stock exchanges and can no longer be purchased in the open
markets.

Gold exchange standard

A system of fixing exchange rates adopted in the Bretton Woods agreement. It
involved the U.S. pegging the dollar to gold and other countries pegging their currencies to the dollar.

Gold standard

An international monetary system in which currencies are defined in terms of their gold
content and payment imbalances between countries are settled in gold. It was in effect from about 1870-1914.

Golden parachute

Compensation paid to top-level management by a target firm if a takeover occurs.

Good delivery

A delivery in which everything - endorsement, any necessary attached legal papers, etc. - is in
order.

Good delivery and settlement procedures

Refers to PSA Uniform practices such as cutoff times on delivery
of SECurities and notification, allocation, and proper endorsement.

Good 'til canceled

Sometimes simply called "GTC", it means an order to buy or sell stock that is good until
you cancel it. Brokerages usually set a limit of 30-60 days, at which the GTC expires if not restated.

Goodwill

Excess of the purchase price over the fair market value of the net assets acquired under purchase
accounting.

Government bond

See: government SECurities.

Government National Mortgage Association (Ginnie Mae)

A wholly owned U.S. government corporation
within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of
principal and interest on SECurities issued by approved servicers that are collateralized by FHA-issued, VAguaranteed,
or Farmers Home Administration (FmHA)-guaranteed mortgages.

Government sponsored enterprises

Privately owned, publicly chartered entities, such as the Student Loan
Marketing Association, created by Congress to reduce the cost of capital for certain borrowing SECtors of the
economy including farmers, homeowners, and students.

Government securities

Negotiable U.S. Treasury SECurities.

Holding company

A corporation that owns enough voting stock in another firm to control management and
operations by influencing or electing its board of directors.

Host security

The SECurity to which a warrant is attached.

Hybrid security

A convertible SECurity whose optioned common stock is trading in a middle range, causing
the convertible SECurity to trade with the characteristics of both a fixed-income SECurity and a common stock
instrument.

Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.

Intercompany loan

Loan made by one unit of a corporation to another unit of the same corporation.

Intercompany transaction

Transaction carried out between two units of the same corporation.

Intermarket sector

spread The spread between the interest rate offered in two SECtors of the bond market for
issues of the same maturity.

Intramarket sector spread

The spread between two issues of the same maturity within a market SECtor. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.

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.

Manufactured housing securities (MHSs)

Loans on manufactured homes - that is, factory-built or
prefabricated housing, including mobile homes.

Market sectors

The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.

Monetary gold

gold held by governmental authorities as a financial asset.

Monthly income preferred security (MIP)

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

Mortgage pass-through security

Also called a passthrough, a SECurity created when one or more mortgage
holders form a collection (pool) of mortgages sells shares or participation certificates in the pool. The cash
flow from the collateral pool is "passed through" to the SECurity holder as monthly payments of principal,
interest, and prepayments. This is the predominant type of MBS traded in the SECondary market.

Mortgage-Backed Securities Clearing Corporation

A wholly owned subsidiary of the Midwest Stock
Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed
MBSs transacted for forward delivery.

Mortgage-backed securities

SECurities backed by a pool of mortgage loans.

Multinational corporation

A firm that operates in more than one country.

Negotiated certificate of deposit

A large-denomination CD, generally $1MM or more, that can be sold but
cannot be cashed in before maturity.

Negotiated markets

Markets in which each transaction is separately negotiated between buyer and seller (i.e.
an investor and a dealer).

Negotiated offering

An offering of SECurities for which the terms, including underwriters' compensation,
have been negotiated between the issuer and the underwriters.

Negotiated sale

Situation in which the terms of an offering are determined by negotiation between the issuer
and the underwriter rather than through competitive bidding by underwriting groups.

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