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Glossary of Financial Terms — A 

Glossary A 





Absolute Returns

The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset—usually a stock or a mutual fund—achieves over a given period of time. Absolute return differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark.


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1. The entire group of underwriters in any one offering
2. Any retail or institutional customer


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The addition of principal to a fund or asset over a period of time as the result of a plan of accumulation. Similar to amortization, except that accretion results in an increase of accounting worth, while amortization results in a decrease. In portfolio accounting, discount bonds are accreted to par while premium bonds are amortized to par.


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Accrued Interest

The interest accumulated on a bond since issue date or the last coupon payment. The buyer of the bond pays the market price plus accrued interest through settlement date, which is payable to the seller.


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An investor whose goal is to acquire as much of a specific issue as possible in order to control the floating supply of the issue and affect its market value.


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1. Refers to a market, customer or security that trades frequently.
2. In reference to mutual funds and other commingled vehicles, those which are currently operating.


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Active Management

A portfolio strategy of managing assets by continually repositioning portfolios to take advantage of the most favorable opportunities.


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Adjustable Rate Mortgage

Mortgage agreement between a financial institution and a real estate buyer stipulating predetermined adjustments of the interest rate at specified intervals, usually one, three, or five years. Payments are tied to some index outside the control of the bank or savings and loan institution, such as the interest rates on U.S. Treasury bills or the average national mortgage rate. Borrowers get lower rates at the beginning of the ARM than they would if they took out a fixed rate mortgage covering the same term.


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After-Tax Yield

The net return a bond earns after income taxes are paid on interest income and capital gains taxes are assessed on changes in book value. It is common practice to disregard any long-term capital losses in calculating after-tax yield.


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The debt of an agency of the U.S. Government. Payment of principal and interest are sometimes guaranteed by the government itself.


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Agency Trade

A trade in which the executing dealer acts as an agent for the seller or buyer and is paid an agreed commission which is specifically identified on the customer’s confirmation.


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A person who acts on behalf of another (the principal) and is subject to his control and authority.


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Agreement Among Underwriters

The legal document that binds underwriters together into a syndicate and grants the managing underwriters the power to act on behalf of the group.


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All or None

A requirement that the total amount of a given order be executed at the specified price—no lesser amount will be acceptable. The trade will be cancelled if the order cannot be executed in total at a given price.


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A coefficient which measures risk-adjusted performance, factoring in the risk due to the specific security as well as the overall market. A high value for alpha implies that the stock or portfolio has performed better than would have been expected given its beta (volatility).


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Alt A Mortgages

A classification of mortgages in which the risk profile falls between prime and subprime (FICO scores higher than 660). Borrowers of Alt A mortgages typically have clean credit histories, but the specific mortgage loan has characteristics increase its risk profile. Some of these risks include a higher loan-to-value or debt-to-income ratio, or limited documentation of income.


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Alternative Mortgage Instrument

A non-traditional mortgage; a mortgage with terms varying from those of traditional mortgages in one or more ways. Among the AMIs in use today are:


Variable Rate Mortgage (VRM): characterized by interest rates that vary according to a formula tied to the lender’s cost of money or other index.


Graduated Payment Mortgage (GPM): characterized by a fixed interest rate and term to maturity, but payments that are at first relatively small and which rise by a fixed percentage per year for a fixed number of years.


Flexible Loan Insurance Program Mortgage (FLIP): a mortgage similar to a GPM from the borrower’s standpoint, but in which a portion of the down payment is used to create a pledged savings account which is used to subsidize the mortgage payment. The lender receives level payments comprised of loan payments plus savings accounts withdrawals.


Rollover Mortgage (ROM): a Series of short-term loans periodically renegotiated as to interest rate in order to provide long-term financing. The interest rate on each individual loan is fixed and principal is amortized over the entire term of all loans.


Shared Appreciation Mortgage (SAM): a mortgage in which the lender receives some percentage of any appreciation in the value of the property upon sale or maturity of the loan in return for offering the borrower a lower interest rate than prevailing traditional mortgage rates.


Reverse Annuity Mortgage (RAM): a means of receiving fixed annuity payments for some fixed period of time using the equity value of the property as collateral.


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American Depositary Receipts

ADRs are receipts issued by a U.S. depositary bank that represent shares of a foreign corporation held by the bank. Because ADRs are quoted in U.S. dollars and trade just like any other stock, they make it simple for investors to diversify their holdings internationally.


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A reduction of debt by means of periodic payments sufficient to meet current interest and liquidate the debt at maturity.


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Securities department staff member responsible for analyzing current market securities, as well as strategies for buying and selling them.


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Annual Expenses

Usually expressed as a percent of the amount invested in a mutual fund or other pooled investment vehicle. Covers operating expenses such as shareholder recordkeeping, printing and distributing prospectus and oversight board materials, custody bank fees, and investment manager compensation.


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Annual Return

The total return of a security over a specified period (income plus capital gains or losses), expressed as an annual rate of interest.


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A figure (as in a percentage) calculated by a formula to find the “average” performance per year for a period greater than one year.


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Applied Proceeds Swap

The sale of one block of securities, using the proceeds or monies of that sale to purchase as large a block of another security as possible.


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Technically, the purchase of a security in one market and the simultaneous sale of it or its equivalent in the same market or other markets for the differential or spread prevailing, at least temporarily, because of conditions peculiar to each market. Commonly refers to a swap done between two similar issues based upon an anticipated change in price spreads.


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Arithmetical Average Return

Average if the monthly performance…not compounded and a poor representation of past monthly performance but useful for future forecast.


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The price at which securities are offered to a potential buyer; the price sellers offer to take.


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Asset-Backed Security

A security that uses specific assets owned by the issuer as collateral (e.g. mortgage-backed bond).


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All stocks, bonds, cash, interest earned, etc., owned by a given account.


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Assets Under Management

The sum total of the market value of all assets for which an investment company acts as investment manager.


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In any market, refers to the takeover of a seller’s mortgage loan or other debt by the buyer of the home or debt. The buyer “assumes” responsibility for making the debt payments.


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At or Better

In connection with a buy order, it means to purchase at the price specified or under; in a sell order, to sell at the price specified or above.


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Automated Customer Account Transfer

A system that facilitates the transfer of securities from one trading account to another at a difference brokerage firm or bank. Stocks, bonds, cash, unit trusts, mutual funds, options, among other investment vehicles can be transferred via the A-CAT system.


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Average Life

The expected time that an amortizing asset such as a mortgage will remain outstanding.


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Refers to a trade, quote or market which does not originate with the dealer in question, i.e., “the market is 100 ¼–½ away (from me).”


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Short for “axe to grind.” Refers to a trading position or preference.


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Information contained herein is believed to be reliable, but the accuracy and completeness of this material cannot be guaranteed.


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