Account Balance

Credits minus debits at the end of a reporting period.

Accounts Payable

Money owed to suppliers.

Accounts Receivable

Money owed to customers.

Adjustable Rate

Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limits the adjustment.


Adjusted Gross Income.

Alternative Investments

Usually refers to investments in hedge funds. Many hedge funds pursue strategies that are uncommon relative to mutual funds. Examples of alternative investment strategies are: long–short equity, event driven, statistical arbitrage, fixed income arbitrage, convertible arbitrage, short bias, global macro, and equity market neutral. May also refer to the high frequency style of commodity trading advisors who often employ technical and quantitative tools for intraday investments.

Alternative Minimum Tax

A federal tax aimed at ensuring that wealthy individuals, estates, trusts, and corporations pay a minimal level income tax. For individuals, the AMT is calculated by adding adjusted gross income to tax preference items.

American Depositary Receipt ADR

Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR’s are “sponsored,” the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR. “Unsponsored” ADRs do not receive such assistance. ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares, adjusted for the SDR/ordinary ratio essentially equal. American depository shares (ADS) are a similar form of certification.


The repayment of a loan by installments.

Annual Basis

The technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. The process is known as annualizing.

Annual Effective Yield

See: Annual percentage yield.

Annual Rate Of Return

There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY) includes the effect of compounding interest.

Annualized Gain

If savings X appreciates 1.5% in one month, the annualized gain for that saving over a twelve month period is (12 x 1.5%) = 18%. Compounded over the 12 month period, the gain is (1.015)^12 -1 = 19.6%.


An Annuity is a contract between an individual and an insurance company whereby the individual can, either, deposit a lump sum payment or a series of payments and in return will receive regular disbursements that begin at the individual’s behest. The purpose of an Annuity is to provide a continuous stream of income during periods of decreased revenue, for example retirement or unemployment. There are several different types of Annuities – comprising of fixed, variable and indexed – that each carry differing levels of risk and reward. Firstly; fixed annuities expend a guaranteed amount based upon the balance of a given account, which somewhat inhibits the individual’s annual return; but it is also carries the least risk as the annual return is guaranteed, irrespective of any shifts in the market. Secondly; variable annuities allow for greater opportunity, but also carries the greatest levels of risk, as the return of an annuities is based upon the performance of investments in one’s subaccount (that is a collection of mutual funds that an individual can choose). Thirdly; indexed annuities guarantee a minimum payout, however a percentage of the disbursement is tied to the performance of a market index.


Increase in the value of an asset.


See: Annual Percentage Rate


See: Annual Percentage Yield


The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but arbitrage opportunities are often precluded because of transactions costs.


See: Adjustable-rate mortgage


Any possession that has value in an exchange.


Automated Teller Machine

Automated Teller Machine

Computer-controlled terminal located on the premises of financial institutions or elsewhere, though which customers may make deposits, withdrawals or other transactions as they would through a bank teller.

Average Cost

In the context of investing, refers to the average cost of shares or stock bought at different prices over time.



Balance Sheet

Also called the statement of financial condition, it is a summary of a company’s assets, liabilities, and owners’ equity.

Balloon Payment

The final (large) payment that repays all the remaining principal and interest of a partially amortized or unamortized loan.


A financial institution that is licensed to deal with money and its substitutes by accepting time and demand deposits, making loans, and investing in securities. The bank generates profits from the difference in the interest rates charged and paid.


The price a potential buyer is willing to pay for a security. Sometimes also used in the context of takeovers where one corporation is bidding for (trying to buy) another corporation. In trading, we have the bid-ask spread which is the difference between what buyers are willing to pay and what sellers are asking for in terms of price.


A bond is a debt investment instrument in which an investor loans a specified amount of money to a given entity (for example: governments, municipalities or corporations); this is typically to enable the recipient of the loan to fund a project or activity and must be repaid after an agreed upon period of time at a variable or fixed interest rate. The interest rate that the bond guarantees to be repaid when the bond matures is known as the coupon, but before the bond matures the actual interest rate that is paid on it depends on market trading activity. The changing interest rate on a bond is a function of the nominal price of the bond (always 100) minus the traded price of the bond in the market; or to put it another way, if there is no speculative activity factored in then 100 minus the interest rate on the coupon of the bond equals the price.

Book Value

Book Value is the value of an asset according to its account balance as shown on the balance sheet, and the value is based on the original cost of the asset less any depreciation, amortization, or impairment costs made against the asset. Historically, the book value is a company’s total assets minus its intangible assets and liabilities. However, in practice, and depending on the type of business involved and the type of calculation being employed, book value varies substantially, according to values attributed to goodwill or intangible assets or any combination thereof (‘tangible book value’ excludes both of the previous two factors).




Compound Annual Growth Rate.

Capital Market

The market where medium and longer term equities and bonds are issued and traded.

Cash Flow

The difference of cash available at the beginning and end of a company’s or a person’s accounting year. Earnings statement prior to depreciation, amortization, and non-cash charges. Cash flow indicates a company’s financial situation, as it shows its ability to pay dividends.

Collateralized Debt Obligation (CDO)

Collateralized Debt Obligation is a general term used to describe is a general term used to describe a security that comprises a number of initially separate securities backed by tangible assets that are bundled together to achieve a higher credit rating and thus a higher price than the lower credit-rated parts could be sold for. Developed by U.S. investment firm Drexel Burnham Lambert (under the then investment guru, Michael Milken) for the corporate debt market, CDOs initially involved loans for lower rated corporate and for emerging market entities, which, Milken had established, were much likelier to repay their loans than their ‘junk’ credit rating status implied. Essentially, in the early 2000s, these provided investors with a stream of higher-interest payments at regular intervals than could be gained by investment in higher rated bonds. Later on, in the mid 2000s, the market grew exponentially and came to be dominated by mortgages and mortgage-backed securities markets, a large portion of which were based on mortgages to individuals who were not easily able to repay them. When the U.S. raised interest rates, many of these mortgages went unpaid, in turn causing banks to seize the underlying assets (property), in turn causing property prices to plummet, in turn causing the prices of CDOs to spiral downward. The sheer size of the CDO market, and the fact that they were held by so many banks around the world, meant that the capital base of the globe’s financial institutions became imperiled, causing a lack of confidence in the world interbank money markets, which ultimately led to the onset of the global financial crisis in 2007/08.


Cost Of Goods Sold (COGS) is the accumulated total of all costs used in the production of a given product or service, which has been sold. The Cost Of Goods Sold can be attributed to expenses that are associated directly with the production process; for example, cost of materials and direct labor costs. It excludes indirect expenses such as distribution costs and sales force costs, as this allows COGS to be used to calculate a company’s gross margin by deducting the COGS’ total from revenue.

Commercial Bank

Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and business. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.

Common Stock

A security that represents the primary unit of ownership in a corporation. A holder of a common stock has a right to participate and vote in corporate decision matters in shareholder meetings and receive dividends. However, dividends are first paid to preferred stock holders before they are paid to common stock holders. In the case of liquidation, common shareholders have a right to company’s assets but only after bondholders and preferred shareholders are paid.

Consumer Price Index (CPI)

A measure of the average change over time in the prices for a market basket of consumer goods and services, It is very often used as a measure of inflation according to which government formulates fiscal and monetary policies and adjusts consumers income payments.


A financial instrument that can be exchanged for another security or equity interest at a pre-agreed time and exchange ratio.


The specified amount an insured patient has to pay for a particular healthcare service.


Ability to obtain a loan, product, or service in the present with the promise to pay for it in the future. A person taking credit, either secured or in-secured, usually has to pay interest rate or service charge in addition to the principal payment.

Credit Card

Any card, plate or coupon book that may be used repeatedly to borrow money or buy goods and services on credit.

Credit History

A record of how a person has borrowed and repaid debt.

Credit Score

The Credit Score.


The condition in which the risk of default on a debt obligation by that entity is deemed low.


Any kind of money that is in public circulation and used as a medium of exchange to facilitate the transfer of goods and services. Currencies vary across countries and include the dollar, euro, pound, and yen.



Debit Card

A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occurring with the customer’s purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment.


Debt is the duty or obligation that one individual (the debtor) owes to another (the creditor), with its repayment terms usually stating the interest rate on the debt, expressed usually as money, delivery of goods, or fulfilling a service, and duration by which the debt must be repaid. In a company’s financial structure, the use of debt creates financial leverage that can multiply the creditor’s yield from their investment, if the returns generated by the loan exceed the cost of borrowing. This is typically the cheapest way of long-term financing because the interest paid on the debt can be written off as an expense.


An amount or period which must be deducted before an insurance payout or settlement is calculated.

Deed Of Trust

See: Indenture


A dividend is a payment made by a corporation to its shareholders, comprising a percentage of the corporation’s profit which is set by the board of directors. Dividends are usually issued as cash payments (normally deposited in a bank account) or as more shares in the company, which makes owning shares in prospering companies even more valuable than just the value of the actual security. In the run-up to the payment of a dividend it is usual for the price of the shares to rise, as investors seek to capitalize on the windfall gain. Once the payment has been made, though, the stock is termed ‘ex-dividend’, and the price tends to fall at least for a short time.

Dividend Income

Distribution of earnings to shareholders that may be in the form of cash, stock, or property. Mutual fund dividends are paid out of income, usually on a quarterly basis, from interest generated by a fund’s investments. Also known as a dividend distribution.

Dividend Rate

The fixed or floating rate paid on preferred stock based on par value.

Domestic Bonds

Bonds issued and traded within the internal market of a country and denominated in the currency of that country.

Dow Jones Industrial Average

The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest US companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies, and commodities.


See: Depository Trust and Clearing Corporation

Due Date

Date on which a debt must be paid.



Earn Out

Refers to an additional payment in a merger or acquisition that is not part of the original acquisition cost, which is based on the acquired company’s future earnings relative to a level determined by the merger agreement.


Net income for the company during a period.


See: Earnings Before Interest, Taxes, Depreciation, and Amortization.


Electronic Data Gathering, Analysis, and Retrieval.


A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank’s holding of a home mortgage encumbers property.


See: Earnings per share


Employee Stock Ownership Plan.

Estimated Tax

Tax to be paid quarterly on income that is not subject to withholding tax, including self-employed income, investment income, alimony, rent, and capital gains.


Currency of twelve European Union countries that are known as the Eurozone. It became the accounting currency in 1999 and entered the circulation in 2002. The European Central Bank and the European System of Central Banks are responsible for Euro currency administration. Although it is mandatory for all the European Union member countries to adopt the Euro currency, only the countries that meet certain monetary requirements are eligible for Euro adoption.

Exchange Rate

The price of one country’s currency expressed in another country’s currency.

Excise Tax

Federal or state tax placed on the sale or manufacture of a commodity, typically a luxury item e.g., alcohol.



Finance Charge

The total cost of credit a customer must pay on a consumer loan, including interest.

Floating Rate

Interest rate that is reset periodically, usually every couple of months or sometimes daily.


Process by which the holder of a mortgage seizes the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract.


See: Foreign exchange

FX Rate

See: Foreign exchange rate



Hedge Fund

A type of investment fund where the managers are allowed to use riskier trading techniques to try to gain a higher return on investment. For example, hedge funds are allowed to use short-selling, which other mutual funds are unable to do. Because of the higher risk involved in a hedge fund, only wealthy individuals and companies are generally allowed to invest and there is often a minimum investment.

Home Equity

The difference of present market value of a house and outstanding loan balance of a mortgagor.




The monetary return from an investment. It can be derived from interest, rent, dividend, or capital appreciation. For companies, income is the revenue after deducting production costs, operating expenses, and taxes. Company’s income or profit is stated at the bottom of the statement of income.

Income for a person is the money made from a job or investments.

Income Tax

A state or federal government’s levy on individuals as personal income tax and on the earnings of corporations as corporate income tax.


The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property.

Interest Rate

This is the percentage set by central banks for the loaning of money. When the money is paid back, the interest is paid on top of the initial sum. The rates calculated are usually based on inflation and the time period of the loan.



Junk Bond

A bond with a speculative credit rating of BB (S&P) or BA (Moody’s) or lower. Junk or high-yield bonds offer investors higher yields than bonds of financially sound companies. Two agencies, Standard & Poors and Moody’s Investor Services, provide the rating systems for companies’ credit.




London Interbank Offered Rate. This is the interest rate that London banks charge when lending to one another in order to manage their balance sheets. The LIBOR is the equivalent of the American Federal Funds Rate and is used as a benchmark for other short term interest rates.


Temporary borrowing of a sum of money. If you borrow $1 million you have taken out a loan for $1 million.



Sales Tax

A percentage tax on the selling price of goods and services.

Sallie Mae

See: Student Loan Marketing Association.

Savings Bank

An institution that primarily accepts consumer savings deposits and to make home mortgage loans.

Spot Market

Related: Cash markets

Spot Rate

The theoretical yield on a zero-coupon Treasury security.

Stock Certificate

A document representing the number of shares of a corporation owned by a shareholder.

Stock Exchange

Formal organizations, approved and regulated by the Securities and Exchange Commission (SEC), that are made up of members who use the facilities to exchange certain common stocks. The two major national stock exchanges are the New York Stock Exchange (NYSE) and the American Stock Exchange (ASE or AMEX). Five regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and Cincinnati. The Arizona Stock Exchange is an after-hours electronic marketplace where anonymous participants trade stocks via personal computers.




A charge imposed by a government on a service, product, or activity in order to raise revenue. Tax can be levied on business or personal income.


An oral (or electronic) transaction involving one party buying a security from another party. Once a trade is consummated, it is considered “done” or final. Settlement occurs 1-5 business days later.


One of several related securities offered at the same time. Tranches from the same offering usually have different risk, reward, and/or maturity characteristics.

Treasury Bill

Debt obligations of the US Treasury that have maturities of one year or less. Maturities for T-bills are usually 91 days, 182 days, or 52 weeks. Treasury bills are sold at a discount from face value and do not pay interest before maturity. The interest is the difference between the purchase price of the bill and the amount that is paid to you either at maturity (this amount is the face value) or when you sell the bill prior to maturity.




The percentage return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note.