Terms of Finance

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unlisted

A security which is not traded

on an exchange, usually due to

an inability to meet listing

requirements. For such

securities, broker/dealers

negotiate directly with one

another over computer

networks and by phone, and

their activities are monitored

by the NASD. OTC stocks are



usually very risky since they are

the stocks that are notconsidered large or stable

enough to trade on a major

exchange. They also tend totrade infrequently, making the

bid-ask spread larger. Also,

research about these stocks ismore difficult to obtain. also

called over-the-counter (OTC

back-end value



The price that is paid to

shareholders after the buyeralready has control over a

company in a two tier tender

offer. This is an offer to buy acompany in which the buyer

offers to purchase enough

shares in order to gain controlof the company at a certain

price, and then offers to

purchase the remaining sharesat a lower price. The amount



that is paid to the remaining

shareholders is the last stage of a two tier tender offer.

Keltner channel

An advanced technical analysis

method, which uses an upper

and lower band to indicate a10-day moving average around



the typical market price. A

close around the upper band itis said to signify a bull market,

and a close around the lower

band is said to signify a bearmarket. This analysis technique

is named for Chester Keltner,

although it is uncertain if hewas actually the originator of

the idea.

up-and-in barrieroption



A type of barrier option inwhich the spot price of the

underlying is set below the

barrier level, and the price of the underlying must close up in

order for the option to be

exercised. It is named "up-and-in" because the right to

exercise the option appears if

the price of the underlying isabove the barrier.



exchange offer

An offer made by a company to

give one security in return for

another security. Most

commonly, for various reasons

a company will offer to give

shares of a certain held

company if the shareholders

will return shares of another



held company. An exchange

offer can also be performed onother securities, such as bonds.

net unrealized

appreciation

NUA. The change (positive or

negative) in value that shares

held in a tax-deferred account

will experience once they are

sold. Net unrealized



appreciation does not undergo

income tax when it isdistributed, so this should be

carefully considered by

investors who are distributingstock from their retirement

plan to another account, which

might be subject to income tax

underwater



A call option whose strike price

is higher than the market priceof the underlying security, or a

put option whose strike price is

lower than the market price of the underlying security. Thus,

there is no incentive to exercise

the option today. However, theoption still has "time value",

value based on the fact that the

prices of the underlier canchange. This "time value"



diminishes as the option

approaches maturity.

amount at risk

The difference between thevalue of a permanent life

insurance policy and the

policy's cash value to date. Forexample, if a life insurance



policy is worth $250,000 at face

value, and the cash value is$50,000, the amount as risk is

$200,000. The $200,000

represents the amount that theinsurer would have to pay to

the policy holder if the insured

party diesinvestment club

A group of retail investors who

pool some of their money and



make joint investments.

Investment clubs attempt toenable individuals to become

individual investors by pooling

their funds in small groups andcollectively deciding how to

invest the money. Like-minded

investors come together tomake investments based upon

the input and research of the

entire group, often providing amore complete foundation for



subsequent decisions. Of

course, members of investmentclubs do not need to invest only

through the club, so the club

can make an excellent additionto a portfolio or it can serve as

an excellent introduction to

investing as an individual. Clubscan be a benefit to investors of

all skill and experience levels. It

can be difficult to gain a spot inan existing club without



connections or the opportunity

to replace a departing member.Fortunately, starting a new club

is as simple as finding a dozen

or so people in one geographicarea who want to participate.

Members should plan to, and

may be required to, contributeat least a certain amount to the

club's investment budget at

certain intervals. Some clubsallow members to exceed the



minimum and others do not. All

investments should beresearched as carefully as an

individual would research

them, but, because morepeople are involved, research

can be more thorough and

cover more investmentopportunities.

Average Directional Index



ADX. An indicator used in

technical analysis that showsstrength of a trend. It smoothes

the difference between the

negative directional indicator (-DI) and positive directional

indicator (+DI), and is on a scale

of 0 to 100. Index values above40 indicate that the particular

trend is strong, while values

less than 20 indicates that atrend is weak and that an



investor should not use a trend

following system. The indexonly shows the strength of the

trend, not whether or not it is

trending upwards ordownwards.

saturation

A stage in a product's life cycle

in which everyone who might

want the product already has it.



If a company is in this stage,

then it could inidcate that thecompany is not innovative, or

that competitors have been

able to provide superiorproduct offerings. Typically, the

company will cut down on sales

and advertising expenditure if itreaches this stage, and may

focus on the development of

new products.business owner policy (BOP)



An insurance package designedto cover both property and

liability insurance which is in

general more reasonably pricedthan other options. A BOP is

typically attractive for small

businesses that want to avoidthe higher costs of separate

insurance policies. Small and

medium-sized businesses areusually eligible for this type of



insurance package but large

corporations will not meet theeligibility requirements due to

the greater risk involved in

their business operations.fraption

Also known as an interest rate

guarantee, this type of option

allows an investor to set up a

forward rate agreement during

an agreed amount of time that



triggers in response to a pre-set

strike price. Fraptions are usedto protect investors from

dramatic declines in interest

rates

matched bargain

A system for trading stocks that

matches a buy offer directly

with a sell offer, rather than

using a market maker. In a

market maker system, buyers



and sellers deal with an

intermediary (the marketmaker). This arrangement

provides greater liquidity than

a matched bargain system

mini manipulation

Illegal practice that causes the

price of a security underlying

an option contract to be altered

to provide a deceptive

depiction of the true market



value of the option. The

individual creating the minimanipulation does so as a

method of increasing the value

of the options and thusincreasing the amount of

money that will be received for

the options.

dual-purpose fund

A closed-end fund which

distinguishes between common



shareholders and preferred

shareholders for distributionpurposes. Common

shareholders receive all

distributions from capital gains,while preferred shareholders

receive all distributions from

dividend and interest income.The class of shares sold to

common shareholders is called

capital shares, and this group of shareholders generally has a



less stable payment stream.

The class of shares sold topreferred shareholders is called

income shares, and their

income stream is relativelymore stable. When a dual-

purpose fund is set up, a

liquidation date is specified. Onthe liquidation date, preferred

shareholders have the first

right to payouts from the fund,but they can only be paid up to



the par value of their shares.

Common shareholders haverights to all the remaining

capital from the fund.

accrued market discount

An increase in the market price

of a discounted bond resulting

from an approaching maturity

date, rather than from

declining interest rates. The

increase occurs because the

bond holder will also receive



payout at par upon maturity, so

the price of the bond willincrease gradually as maturity

approaches.

counter currency

The second currency in a

currency pair. In a currency

exchange, the exchange rate is

quoted as the units of the

counter currency in terms of a

single unit of a base currency.



For example, in a currency

exchange of Japanese Yen forBritish pounds, the Yen is the

counter currency. also called

quote currency or termscurrency.

Ichimoku Kinko Hyo

A technical charting technique

which generates a series of

lines and levels that help an

investor determine the

movement of an asset. It



indicates support and

resistance levels, as well asentry and exit points. Although

relatively complicated to learn,

this technique is used by manyinvestors. This technique was

developed in Japan, and its

name literally translated means"one glance balanced chart."

free and clear

A title that is free of liens and

legal questions as to ownership



of the property. A requirement

for the sale of real estate. Ingeneral, a company that

specialize in checking title

claims for clients (a titlecompany) will be hired to

ensure that a title is clear when

a sale of real estate is takingplace. also called just title or

good title or perfect title or

clear title.



premium margin

The amount of money neededto close out an option position.

Premium margin is designed to

cover the credit risk associatedwith a position. If an investor is

shorting a stock, this premium

would be the amount of moneyneeded to close the position if

the investor were to go into

default. Premium margin andrisk margin are the two



components comprising the

margin requirement

super sinker bond

Bond with long-term coupons

but short maturity, usually a

home financing bond. Super

sinker bonds are sometimes

used when some of the

mortgages backing the bond

get prepaid, and so the bond is

likely to be paid off quite soon.



The bond holder is uncertain as

to when exactly the pay-off may occur, but the annual

return on these bonds works

out quite high over the short-to-medium-term holding

period.

currency pair

The two currencies used in a

foreign exchange transaction.

The currency pair consists of a

base currency and a counter



currency. The value of the

currency pair is determined bythe rate at which one unit of

the base currency is converted

into units of the countercurrency. For example, a

currency pair could be U.S.

dollars/Japanese Yen or SwissFrancs/British pounds

managing underwriter



The commercial or investment

bank which has primaryresponsibility for organizing a

given credit or bond issuance.

This bank will find other lendingorganizations or underwriters

to create the syndicate,

negotiate terms with the issuer,and assess market conditions.

also called syndicate manager,

lead manager or leadunderwriter.



fraption

Also known as an interest rate

guarantee, this type of option

allows an investor to set up a

forward rate agreement during

an agreed amount of time that

triggers in response to a pre-set

strike price. Fraptions are used

to protect investors from

dramatic declines in interest

rates.



Regulation FD

SEC regulation adopted in 2000

that eliminated the practice of

selective disclosure. The rule

requires that when a public

company chooses to release

any information, it must be

done in such a way that the

general public has access to it

at the same time as

institutional investors and



analysts. If information is

accidentally released to specificparties, the company must

disseminate that information

widely within 24 hours.bullet dodging

Waiting to grant an employee

stock option until after bad

news involving the company is

made public. Because the strike

price on an option is linked to

the date on which the option



was issued, waiting until after

bad news sends a stock pricelower and allows the employee

to obtain shares at a lower

strike price.

Federal Unemployment Tax Act

FUTA. A federal law that taxes

businesses in order to fund the

unemployment benefits set

forth by the Social Security Act

of 1935. In times of economic



growth, revenues from the tax

increase but are used lessfrequently because

unemployment levels are low,

creating a cushion of funds.During times of slowing growth

and rising unemployment, this

cushion can provide benefits tothe unemployed.

prepayment privilege



A clause in some loans allowing

the borrower to pay off thedebt prior to its due date

without incurring a penalty.

This is an advantage for aborrower when interest rates

are falling, since he/she can pay

off the existing loan and thenrefinance at a more favorable

rate. also called prior

redemption privilege



accounting information system

(AIS)A system, typically computer-

based, used for storing,

collecting, and analyzing acompany's financial and

accounting data. Accounting

information systems aregenerally used by executives to

make decisions, develop

company strategies, andgenerate reports for



shareholders, internal

personnel, and regulatoryagencies. Accounting

information systems also

streamline accounting cyclesand reduce the incidence of

accounting errors.

whitewash resolution

A term used in Europe to refer

to a specific portion of the

corporation act (called the

Companies Act in Europe). This



portion of the act indicates that

a specific resolution must bepassed before a company being

bought out can provide

financial assistance to thecompany which is buying it out.

This is to prevent companies

from taking advantage of thecompanies they are buying out.

split coupon bond



A bond which pays no coupons,

is sold at a deep discount to itsface value, and matures at its

face value. A zero-coupon bond

has the important advantage of being free of reinvestment risk,

though the downside is that

there is no opportunity to enjoythe effects of a rise in market

interest rates. Also, such bonds

tend to be very sensitive tochanges in interest rates, since



there are no coupon payments

to reduce the impact of interestrate changes. In addition,

markets for zero coupon bonds

are relatively illiquid. Theimputed interest on a split

coupon bond is taxable as it

accrues, even though there isno cash flow. also called accrual

bond or zero-coupon bond.

mean reversion



1. The theory that a given value

will continue to return to anaverage value over time,

despite fluctuations above and

below the average value. Thistheory can be applied to any

measurable value, including

interest rates and the return ona certain investment.

2. A purchasing strategy based

on the above theory, which



assumes that prices will return

to an average value. Thisstrategy encourages purchasing

underperforming securities,

under the premise that themarket will eventually rebound,

and the value of the security

will increase.

SIMPLE

Savings Incentive Match Plan

for Employees. A retirement



plan sponsored by companies

with fewer than 100 employeeswhich is attractive for

employers because it avoids

some of the administrative feesand paperwork of plans such as

a 401(k) plan. A SIMPLE plan

may be structured as either a401(k) or an IRA.

gamble



To engage in any activity in

which money is put at risk forthe purpose of making a profit,

and which is characterized by

some or most of the following(in approximately descending

order of importance): little or

no research has beenconducted; the odds are

unfavorable; the behavior is

risk-seeking; an unsystematicapproach is being taken;



emotions such as greed and

fear play a role; the activity is adiscrete event or series of

discrete events not done as

part of a long-term plan; theactivity is significantly

motivated by entertainment or

compulsion; ownership of something tangible is not

involved; no net economic

effect results.



forex hedge

Tactic used by a forex trader toprotect a current position from

undesirable changes in

exchange rates. For example, if a trader predicted that the

dollar may take a turn for the

worst, he/she may implement aforex hedge to protect the

investment

W formation



A technical analysis term used

to describe a chart on whichthe price of a security has made

two approximately equal

bottoms over a period of time.Technical analysts try to buy at

one of the bottoms in

anticipation of a rise (whichwould make the shape of a "W"

on the chart). also called

double bottom. opposite of double top.



consolidated tape

A ticker tape which includes

quotes for both NYSE and

AMEX stocks. The consolidated

tape is split into two different

reporting systems. One reports

the trading prices and volumes

on the New York Stock

Exchange, and also trading

prices and volume from other

exchanges of stocks that are



listed on the New York Stock

Exchange. The other reportsthe trading prices and volumes

on the American Stock

Exchange, and on the tradingvolume and prices of AMEX-

listed stock in other exchanges

and the over-the-countermarket.

standard accounting practice



A set of rules that a company

must follow when reportinginformation on its financial

statement. The standard

accounting practice guidelinesallow companies to be

compared to each other

because they have followed thesame rules. The standard

methods in the U.S. are

referred to as GenerallyAccepted Accounting Principles.



rate differential swap

A swap in which the two

payments are tied to two

currencies in two different

interest rate indexes, but in

which the payments are

exchanged in one base

currency. For example, a rate

differential swap might have

payments denominated in U.S.

dollars, but could have one set



tied to the Japanese LIBOR and

another to the U.S. LIBOR. TheJapanese LIBOR payments will

still be made in dollars. The

rate differential swap allowsinvestors to profit from

changes in the interest rates of

the two indexes. also calledcross-index basis swap, cross-

rate swap, differential swap,

interest rate index swap, LIBORdifferential swap.



covered warrant

A right (but not an obligation)

to buy or sell a set amount of

stock, bonds or other securities

from a financial institution at a

specific price and date. Unlike a

regular warrant, which is issued

by a company and allows a

holder to buy or sell that

company's securities, a covered

warrant is issued by a financial



institution and can apply to

outside securities. For example,a bank might issue a covered

warrant on shares of Microsoft.

The warrant is "covered"because the issuing

organization owns at least

some of the underlyingsecurities.

OPRA



Options Prices Reporting

Authority. A subscription service that disseminatesinside quotations and lastsale data for options.

Securities Investor Protection Corporation

SIPC. A non-profit

membership corporation established by Congress which insures securities andcash in customer accounts

up to $500,000 (up to$100,000 on cash) in the



event of brokerage

bankruptcy. The SIPC isfunded by all of its member securities broker/dealers.While it insures the account

in the event that a brokerageruns out of funds to cover itsclaims, it does not insureagainst investment losses.

seasonal credit rate Credit rate which applies toloans of short duration



provided to small lending

institutions by a Central Bank for the purpose of providingliquidity. Banks requestingthis type of credit experience

seasonal fluctuations in theamount of funds they need,and are often found intransitional communities

based on farming andtourism.

currency trading



The act of buying and selling

world currencies. Currency trading is most oftenengaged in by banks andother institutions, for the

purposes of internationaltrade. Individual investors may engage in currencytrading as well, attempting to

benefit from variations in theexchange rates of thecurrencies

average strike option



A type of stock option used

on Asian exchanges. Thestrike price in this type of option is based on theaverage asset price during a

certain period of time,defined by a range of dates called the "fixings." This typeof option is less volatile than

traditional options, whichhave a predetermined strike price.

commodity block currency



A currency of a country that

maintains an economy strongly related to the price fluctuations of a certaincommodity. An example of

this currency is the strong tie between Canada's economyand its tie to the price of oil which affects the price of the

Canadian dollar

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