Glossary of Financial Terms — B 

Glossary B 

  

 

 


Terms


Baby Bond

A bond issued in a denomination of less than USD 1,000 issued as a means of reaching small investors and thus widening the possible market and permitting increased diversification for small investors.

 

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Back Months

Those futures contract months which are beyond 12 months of the current date.

 

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Balanced Account

An account which holds both fixed income or debt securities (bonds) as well as equities (stocks), or bonds and international bonds.

 

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Balloon

A principal amount retired at maturity on a sinking fund issue which is substantially larger than any sinking fund payment. For example, an issue might have 12 payments of 5 percent of the issue followed by a balloon of 40 percent at maturity.

 

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Bank of England

The Bank of England is the central bank of the United Kingdom, and as such it convenes the Monetary Policy Committee (MPC), which is responsible for the monetary policy of the country.

 

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Bank of Japan

The Bank of Japan is the central bank of Japan.

 

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Bankers’ Acceptance

A money market instrument representing time drafts drawn on and accepted by a banking institution, which in effect adds its credit to that of the importer or holder of merchandise.

 

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Bank Loan

Debt from companies with below-investment-grade credit ratings. Bank loans are typically secured with a lien on the company assets. They also rank senior to the company’s other debt and therefore generally offer higher credit ratings, or less risk and more collateral backing, than high yield bonds. 
 

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Barbell

Portfolio structuring technique using a mix of short and long-term securities to achieve a targeted average maturity or duration.

 

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Base Rate

The rate of interest, set by individual banks, which forms the basis for the charges for bank loans. It is dictated by the Bank of England’s monetary policy committee.

 

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Basis

1. Yield to maturity
2. Discount basis
3. The difference in price or yield between a futures position and the financial instrument being hedged: a difference that can change during the hedge period to produce a basis gain or a basis loss.

 

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Basis Points

One one-hundredth of one percent. One hundred basis points equal one percent.

 

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Basis Risk

1. The risk of a change in yield to maturity relative to a comparison asset such as a Treasury bond.
2. The risk of an unfavorable basis change resulting in a futures gain less than a cash market or a futures loss greater than a cash market gain.

 

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Bearer Bond

A bond presumed to be owned by its holder, who collects interest by presenting one of the detachable interest coupons to the issuer’s agent or bank.

 

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Bearish

Pessimistic about the market; anticipating a decline in prices.

 

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Bear Market

A market characterized by a trend of falling prices.

 

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Bear Spread

A simultaneous sale of a nearby delivery month and purchase at a deferred delivery month fixed income future in expectation of short-term interest rates rising, thereby increasing the relative attractiveness of the back month contract.

 

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Benchmark

A bond, frequently the most recent, sizable issue, whose terms set a standard for the market. The benchmark bond usually has the greatest liquidity, the highest turnover, and is the most frequently quoted. In certain markets (e.g., the Japanese), there is a seasoning period during which the bond is not the benchmark.

 

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Best Effort

An offering which is not underwritten and not purchased as a whole from the issuer, but is sold by securities dealers on a “sell what can be sold” basis.

 

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Beta

A measure of volatility relative to a market segment. If the broad stock market in the U.S. rises by 10 %, a stock portfolio rising over the same period by 15 % is said to have a ‘beta’ of approximately 1.5 times. Conversely, if the general market falls by 10 %, a stock portfolio with a beta of 1.5 would be expected to decrease by approximately 15 %.

The beta is a covariance of the stock in relation to the rest of the stock market. The Standard & Poor’s 500 Stock Index has a beta coefficient of 1. Any stock with a higher beta is more volatile than the market, and any with a lower beta can be expected to rise and fall more slowly than the market. A conservative investor whose main concern is preservation of capital should focus on stocks with low betas, whereas one willing to take high risks in an effort to earn high rewards should look for high-beta stocks.

 

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Bid

1. The price someone will pay for a given security.
2. To submit a price willing to be paid for a security.

 

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Bid and Asked/Bid and Offer

The price at which as owner offers to sell (asked of offer) and the price at which a prospective buyer offers to purchase (bid).

 

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Bid Wanted

Refers to a security being offered for sale and prospective buyers being requested to submit a bid for it. The inference is that the security will be sold to the highest bidder.

 

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Blind Broker System

Refers to a security being offered for sale and prospective buyers being requested to submit a bid for it. The inference is that the security will be sold to the highest bidder.

 

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Block

An amount of bonds, usually substantially larger that what would be considered a normal round lot of a given issue.

 

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Blow-Out

A new issue deal which sells out immediately.

 

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Blue List

Generally refers to a daily list of dealer offerings of municipal bonds. Also includes corporate bond offerings, job advertisements, etc.

 

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Blue Sky

Laws designed to protect the public from securities frauds. Each state has its own securities distribution restrictions and guidelines which must be met by each issue offered therein. Blue sky rules relate to state approval or disapproval of distribution within each state.

 

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Bogey

Performance indices by which an account performance is measured.

 

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Bond

An instrument of debt issued by a corporation or government to raise capital. Bonds are interest bearing and promise to pay the holder a specified sum of money at its maturity plus interest at given intervals.

 

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Bond Characteristics

Par value: Principal value at maturity. Not necessarily the current market price.

 

Coupon: Annual yield, generally paid semi-annually. Stated as % of par.

 

Maturity: Date principal is to be repaid.

 

Yield To Maturity: Implicit rate of return assuming no change in market interest rates.

 

Quality: Rating assigned to issue based upon issuer’s credit worthiness. Investment grade issues are BAA–AAA (Moody’s).

 

Call Provisions: Most corporate bonds can be called, or redeemed, prior to maturity. This shortens the maturity and affects pricing.

 

Prepayment Terms: Mortgages can generally be prepaid. Like call provisions, prepayments shorten maturity and affect pricing.

 

Collateral: Mortgages and other asset-backed securities have houses, cars, airplanes, receivables, or other assets collateralizing them.

 

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Bond House

A firm primarily engaged in underwriting, distributing and dealing in bonds.

 

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Bond Reinvestment Equivalent Yield

A method for analyzing the value of discounts or premiums and reinvestment potential in (current) yield to maturity terms. BRE yield allows the investor to compare relative values under uniform reinvestment assumptions.

 

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Bond Returns

Consist of two components, 1) current yield (see description below) and 2) price performance. Current Yield is the amount of coupon income received, expressed as a percentage of the current market value of the bond or portfolio. Price Performance of bonds is determined by changes in interest rates. If rates rise, bond prices fall. If rates fall, bond prices rise.

 

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Bond-Years

For a block of bonds, the sum of the products of the years to maturity times the number of bonds retired on each maturity.

 

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Book

A preliminary indication of interest in a new issue deal.

 

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Book Loss

The difference between the original cost or book value and the proceeds from the sale of a security if sold at a loss.

 

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Book Value

The amount at which an asset is carried on the books of the owner or manager.

 

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Book Yield

The yield (current to maturity) of a security calculated using book value as the price. Alternatively, the yield at which a security was acquired.

 

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Bracket

The groupings determined by underwriting amounts of various firms in a syndicate. Tombstone advertising is normally in bracket order, with each firm appearing alphabetically within a given bracket.

 

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Brady Bond

Securities created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady.

 

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Break

The term used to indicate that the price and trading restrictions of the Agreement Among Underwriters contract have been terminated and that security is trading or expected to trade at a discount from its initial offering price.

 

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Breakeven Analysis

A method of analyzing investments to determine under what circumstances the returns of different securities would be equal. Commonly used in reference to the calculation of how much yield change is needed to produce identical returns among securities.

 

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Breakeven Rate

The yield difference between conventional bonds and index-linked bonds of the same maturity.

 

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Broker

A middleman who brings buyers and sellers together and handles their orders, generally charging a commission for his services.

 

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Bucketing

Holding a firm customer order at market levels which can be executed immediately while attempting to get execution at a better price away, I.e., “holding the order in a bucket.”

 

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Builder Operative Loan

A loan that is given to a home builder and insured by FHA pursuant to section 203 of the Housing and Urban Development Act. Such loan may be assumed by the eventual home buyer. If not assumed, the loan is repaid by the builder with the proceeds of the sale of the home.

 

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Bullet

1. An issue of securities with no amortization or sinking fund features.
2. Portfolio structuring technique focusing on a particular maturity or duration.

 

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Bullet Maturity

A bond whose principal is paid only on the final maturity date.

 

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Bullish

Optimistic about the market; anticipating a rise in prices.

 

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Bull Market

A market characterized by a trend of rising prices.

 

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Bull Spread

A simultaneous purchase of a nearby delivery month and sale of a deferred delivery month fixed income future in expectation of short-term interest rates falling, thereby increasing the relative attractiveness of the front month contract.

 

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Busted Convertible

A convertible issue whose conversion privilege has no value because the underlying conversion price on the equity is significantly above the market level for the stock.

 

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Buy-In

A procedure, detailed in the Uniform Practice Code, for the closing of a contract by the buyer purchasing securities for the account and liability of the party in default if the seller does not complete the contract according to terms.

 

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Buying Ahead

Refers to the purchasing of bonds in the open market by a sinking fund, either in excess of current requirements or before the sinking fund due date. The purchasing of excess bonds because of an option to double is not considered buying ahead.

 

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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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